Excise tax exemption

[Brad]

If I buy all my supplies through Stamina and companies like that & they state on their receipt that the excise tax was included in the purchase price of all the components, would I still have to charge the 10% tax on my finished lures? And, if so, what number would I take 10% of to figure out the tax? Thanks.

[Gr8flyz]

I was told by the IRS that since you're combining the components into a finished lure, and offering them for sale, that makes you a manufacturer, and subject to the excise tax. You will have to pay 10% of the sale price.

When you file your form 720, you can then deduct the dollar amount you paid as excise tax on what you purchased from Stamina or other sources, as long as you can provide proof to the IRS what that amount might be.

You only have to provide such proof if/or when they check you, but if you can't you'll have to pay the deducted amount & interest & possibly penalties. It's just like taking a deduction on your income tax, you need to have proof it's valid.

I do it like this, if I sell a 100 lures for $2.00 = $200 in total sales

the tax I have to pay is $20.00

If each lure costs me $1.00 in materials, and I paid the tax when I bought the materials, I take 90% as cost & 10% as tax paid, or 10 cents per lure as prepaid tax for this example. I don't include any shipping or sales tax I may have to pay as part of the cost.

I would then deduct $10.00 from the $20.00 on my form 720, and file it that way. I have not had any problem like this so far, and I keep track of what I buy on a spread sheet, so if I have to explain it to the IRS I can.

You have to break it down, and can only deduct for what is sold in each quarter that you file. If you buy 1000 parts, and only use 200 in a quarter, you can only deduct the dollar amount of tax for the 200.

Keep in mind also that not everything will have the excise tax applied to it.

Plastic beads for example should not be taxed, or feathers, or bucktails. Only those items that are specifically fishing related are taxable, so you have to be sure to separate what is & isn't taxable. If you're not sure ask your supplier, or the IRS Excise Tax Division.

I have found that as long as I try to be accurate & honest, I have not had any problems with the IRS, especially since the amount of tax I pay is not

that large.

[Brad]

Thank you for the info, that will help me a lot. I'm definitly not trying to screw the IRS but I don't want to pay more than I need too. Thanks again.