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wiliamjohn2 · 6 months ago

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How to calculate the Employee Retention Credit accurately?

In the evolving landscape of business and finance, understanding tax credits and incentives is crucial for organizations to optimize their fiscal responsibilities and ensure compliance. One such critical incentive is the Employee Retention Credit (ERC). This blog post will delve into the intricacies of calculating the Employee Retention Credit accurately, providing you with a comprehensive guide. Ignite HCM is dedicated to helping businesses navigate this complex terrain with ease and precision.

Understanding the Employee Retention Credit

The Employee Retention Credit is a refundable tax credit aimed at encouraging businesses to keep employees on their payroll during periods of economic distress. Initially introduced as part of the CARES Act in response to the COVID-19 pandemic, the ERC has undergone several modifications, making it essential for businesses to stay updated on the latest criteria and calculation methods.

Eligibility Criteria

Before diving into the calculation process, it’s essential to understand the eligibility criteria for claiming the Employee Retention Credit:

Business Operations:

The business must have been fully or partially suspended due to governmental orders related to COVID-19 during the applicable calendar quarter.

Gross Receipts Decline:

Alternatively, businesses can qualify if they experience a significant decline in gross receipts. For 2020, this means a 50% decline compared to the same quarter in 2019. For 2021, the threshold was reduced to a 20% decline compared to the same quarter in 2019.

Qualified Wages:

The definition of qualified wages depends on the size of the employer. For employers with more than 100 full-time employees, qualified wages are those paid to employees not providing services due to suspension or decline in business. For smaller employers, all employee wages qualify, whether the employee is providing services or not.

Calculation of the Employee Retention Credit

The ERC is calculated as a percentage of qualified wages paid to employees during eligible periods. The specific percentages and wage caps vary depending on the year:

For 2020:

The credit is 50% of qualified wages paid between March 13, 2020, and December 31, 2020.

The maximum amount of qualified wages for each employee is $10,000, making the maximum credit per employee $5,000 for the year.

For 2021:

The credit is 70% of qualified wages paid between January 1, 2021, and September 30, 2021.

The maximum amount of qualified wages per employee per quarter is $10,000, making the maximum credit per employee $7,000 per quarter.

For businesses that started operations after February 15, 2020, and have annual gross receipts of less than $1 million, the credit can be claimed for wages paid through December 31, 2021, under the "Recovery Startup Business" provision.

Detailed Steps to Calculate the Employee Retention Credit

Determine Eligibility:

Assess if your business qualifies based on the criteria outlined above. This involves reviewing government orders, gross receipts, and employee status during the relevant periods.

Identify Qualified Wages:

Once eligibility is established, identify the wages that qualify for the credit. This includes health plan expenses that are properly allocable to the qualified wages.

Calculate the Credit:

For 2020: Multiply the qualified wages by 50%. Ensure that the total qualified wages do not exceed $10,000 per employee for the entire year.

For 2021: Multiply the qualified wages by 70%. Ensure that the total qualified wages do not exceed $10,000 per employee per quarter.

Claim the Credit:

To claim the Employee Retention Credit, businesses must report the total qualified wages and the related health insurance costs on their quarterly employment tax returns (Form 941 for most employers). If the credit exceeds the amount of payroll taxes owed, the excess can be refunded by filing Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund.

Common Mistakes to Avoid

To ensure accuracy in calculating the Employee Retention Credit, it’s vital to avoid common pitfalls:

Incorrect Eligibility Assessment:

Misinterpreting the eligibility criteria can lead to incorrect claims. Ensure you understand the specific requirements for suspension of operations and gross receipts decline.

Misclassification of Qualified Wages:

Distinguish between qualified and non-qualified wages accurately. Include only those wages paid during eligible periods and for eligible employees.

Failing to Consider Health Plan Expenses:

Health plan expenses allocable to qualified wages are part of the credit calculation. Overlooking these can result in a lower credit amount.

Improper Filing:

Ensure that the credit is claimed on the correct forms and within the stipulated time frames. Late or incorrect filings can delay refunds or lead to penalties.

Ignite HCM: Your Partner in Navigating ERC

Calculating the Employee Retention Credit accurately requires a deep understanding of the applicable laws and diligent record-keeping. Ignite HCM specializes in helping businesses optimize their HR and payroll processes, including the accurate calculation and claiming of tax credits like the ERC.

Expert Guidance:

Our team of experts stays abreast of the latest regulatory updates, ensuring that your business remains compliant and maximizes its credit potential.

Comprehensive Solutions:

Ignite HCM offers comprehensive payroll and HR solutions that streamline the process of identifying eligible wages and calculating the ERC. Our integrated systems ensure that all relevant data is accurately captured and reported.

Customized Support:

We understand that every business is unique. Our tailored support services ensure that your specific circumstances are considered in the calculation and claiming of the Employee Retention Credit.

Practical Example

To illustrate the calculation process, let’s consider a practical example:

Scenario: ABC Corp has 50 full-time employees. In Q2 2020, the company’s operations were partially suspended due to a state mandate. The gross receipts for Q2 2020 declined by 60% compared to Q2 2019. ABC Corp continued to pay wages to all employees during the suspension.

Step-by-Step Calculation:

Eligibility:

ABC Corp qualifies based on both suspension of operations and a significant decline in gross receipts.

Qualified Wages:

Since ABC Corp has less than 100 employees, all wages paid during the suspension period are qualified wages. Assume the total qualified wages paid in Q2 2020 is $400,000.

Calculate the Credit:

For Q2 2020, the credit is 50% of $400,000, which equals $200,000.

Claim the Credit:

ABC Corp reports the qualified wages and claims the $200,000 credit on its Q2 2020 Form 941.

For 2021, assume ABC Corp experienced a 25% decline in gross receipts in Q1 and Q2. The total qualified wages in each quarter were $500,000.

Step-by-Step Calculation:

Eligibility:

ABC Corp qualifies based on the gross receipts decline.

Qualified Wages:

Assume the total qualified wages in Q1 and Q2 2021 is $500,000 each quarter.

Calculate the Credit:

For Q1 2021, the credit is 70% of $500,000, which equals $350,000. The same calculation applies for Q2 2021.

Claim the Credit:

ABC Corp reports the qualified wages and claims $350,000 each for Q1 and Q2 2021 on its respective Form 941 filings.

Conclusion

Accurate calculation of the Employee Retention Credit can significantly impact your business’s financial health, providing much-needed relief during challenging times. Ignite HCM is here to support you through every step of the process, ensuring that you maximize your credit potential while maintaining compliance with all regulatory requirements.

For more information on how Ignite HCM can assist you in calculating and claiming the Employee Retention Credit, visit our website or contact our expert team today. Together, we can navigate the complexities of tax credits and optimize your business’s financial strategy.

Website : https://www.ignitehcm.com/solutions/employee-retention-credit

Phone : +1 301-674-8033

#Employee Retention Credit #Business Tax Credit #Tax Credit #Business Incentives #Payroll Tax Credit #Employee Retention #Tax Relief #BusinessTax Savings

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dominionenterpriseservices · 9 months ago

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Free Money Exists: Catherine Tindall of Dominion Enterprise Services

As a restaurant owner, if you have not pursued the Employee Retention Credit, you need to lock out two hours to get the analysis done for your company. Dollar for dollar is the most significant ROI activity any restaurant owner can do now if you haven’t taken advantage of the program. It’s based on headcount. If you have a decent-sized headcount, this could be a massive shot in the arm for your business. – Catherine Tindall, CPA CTC

1:05 [Josh Kopel]

Welcome to Full Comp! A show offers insight into the hospitality industry. We are featuring restaurateurs, thought leaders, and innovators. We served up on the house.

1:22 [Josh Kopel]

You could be sitting on a winning lottery ticket and not even know it. I’m talking about the Employee Retention Credit. I witnessed fellow restaurateurs receive six-digit checks by taking advantage of this extraordinary opportunity. As I’m sure you can imagine, I lack the expertise to discuss the ins and outs of the program, but I know someone who can. Her name is Catherine Tindall, and her company Dominion Enterprise Services specializes in helping restaurants get the most money from the credit with the least effort. I hope you came hungry because our old Uncle Sam is baking some bread today.

2:05 [Catherine]

I always use analogies. A bookkeeper’s your mom who knows first aid. A CPA is your general practitioner who’s going to be able to give you antibiotics. Your mom will be there with band-aids and that’s all you’ll need, those little reports. When it comes to making bigger decisions or strategizing around what’s going on in your business, a CPA can be much more helpful because they have much more professional experience and training than a bookkeeper.

2:51 [Josh Kopel]

Let’s talk about that. A CPA can do everything a bookkeeper can do, but a bookkeeper cannot do everything that a CPA can do.

3:00 [Catherine]

The other distinction is that a CPA can do things that a bookkeeper can do but do you want to pay your doctor to put on band-aids? That’s the analogy. Many people try to get their CPAs to do things that are a little too menial rather than just having a bookkeeper or having other people in place to handle certain parts of what’s going on financially. Accounting is a very broad field, and there are many pieces to it. To have me, a tax specialist, do things that a bookkeeper can do doesn’t make sense.

3:45 [Josh Kopel]

What was your path to entrepreneurship? What problem did you feel you were solving when you created Dominion?

3:52 [Catherine]

When I was in school, I originally started in medicine. I wanted what I was doing to change people’s lives and help them. I wanted to be helping people as my profession. As I went further into it, I realized that it wasn’t going to be a good fit for a number of reasons. My parents were both CPAs and had a tax practice. They told me to take an accounting course, and you can see where that ended. I enjoyed it, and I found this special thing with accounting. I enjoyed the numbers. I enjoyed the logic of it, and I really enjoy the fact that people are so intimidated by it and feel so out of control with it. And I can bridge that gap for them and use the knowledge I have to make it intelligible, especially with the tax side of things, because I’m primarily a tax planner and a tax specialist.

People are so intimidated by taxes, and it’s so expensive and painful to be able to bridge that gap and help them understand how it works. To help them reduce how much they’re paying in a way that really moves the needle for their business. I find it extremely satisfying. What pushed me to start my firm is my experiences where there’s not a lot of thought leadership that comes from accountants. They tend to be very “in the box” thinkers, very backward-looking, historically oriented, and just trying to be compliance oriented. So I found that what I wanted to do was help business owners, and I needed to start my own firm to structure the relationships in a way that we’re not just filling out forms for people. That we’re doing things that advance their business and advance their personal life forward by being able to save them cash with tax reduction strategies, that was the path there.

5:41 [Josh Kopel]

In the gap, you’re talking about. Specifically, I believe that’s the gap between bridging yesterday’s numbers and how that influences decisions today and tomorrow, right?

5:53 [Catherine]

Absolutely. There’s kind of three pieces that go into what people do in their business. You try to increase your top line through doing marketing and advertising, and things that you try to decrease your bottom line by reducing expenses. Then the third piece, which many people don’t think about, is that everything is going to flow through the tax funnel, and you’re going to pay tax. So do things to optimize how your income flows through the tax funnel to ensure you’re not paying too much in tax. For my firm, we’ve emphasized that third piece. We’re a tax planning firm mostly, and that’s the piece that many people never get around to doing because they wait until the end of the year to talk to their accountant. Or their accountant is just concerned with ensuring they’re compliant with the IRS rather than finding efficiencies and how they operate to lower how much they pay.

6:43 [Josh Kopel]

You were interested in connecting with independent restaurant owners and operators when you reached out. Why choose that niche because we’re so easy to work with?

6:52 [Catherine]

The main thing we’re up to right now is to become a specialty practice for doing the Employee Retention Credit. I do these for all sorts of industries. Still, in particular, I saw that the restaurant, especially independent operators, is just largely missing out on this credit. It’s because they fall in that weird zone, where their tax practitioner is probably really small and isn’t able to handle a lot more than just filing their returns. I’ve been coming across many of these clients whose accountants just dropped the ball and going after this credit for them, especially for restaurant owners who were so impacted by the pandemic. They have this opportunity. For many of the clients I’ve been seeing, it’s a six-figure tax credit, a six-figure check that comes back in the mail. I thought we would be a good connection because if I could just get one person to reach out to their accountant or be able to take advantage of this credit, I feel I’ve accomplished something.

7:59 [Josh Kopel]

I want to talk about tax strategy at large because, in the abstract, I don’t know how many of us know what that means. Typically tax planning starts on January 1st for payment in April, and we’re talking about last year’s taxes. What tax planning strategies do you guys use to help mitigate attack implications for independent restaurant owners and operators?

8:32 [Catherine]

The first strategy is to be proactive and consider how taxes work. You’re incurring a tax bill as you earn money because its profits will flow through that tax funnel. If you just wait until the end of the year to do anything, that money is already flowing through that funnel, and there’s not much you can do to get it back. That’s why for many people, it’s in January or February that they figure out what their tax bill was from the previous year. And they’re always in this game of catch up and what we do in the firm for our tax planning clients is we start with an onboarding. We need to look forward to where your business is going. We need to understand what you’re trying to achieve strategically with your business to ensure it’s going through the tax funnel as efficiently as possible. If somebody is going to grow to sell, that’s a very different kind of strategy than if somebody is going to grow to hand it off to a kid. If they know, they’re just going to be operating the business for 20 years, starting spidering out and getting a bunch of different businesses, or pivoting into franchising or licensing. Those are very different end games from an operation and tax planning standpoint. Overlaying a deep understanding of what’s happening in the business to how the tax code works and how we make this the most efficient path through the tax funnel. The first thing we always go after is tax credits ’cause it’s a dollar-for-dollar thing. Usually, once you start those programs, they go year after year, so there are different payroll tax credits.

There are other incentives out there that are just easy wins for the client and usually some instant cash injection. The next piece is entity structure: percentage points say you’re getting taxed at 40% effective, and we can bump that down to 25%- 30%. That’s a huge swing for a matter of just shifting or forming some entities, closing some entities, doing some elections, and filing some paperwork. You can get that stuff wrapped up in a month, and I can move your whole percentage points. We analyze what’s going on with your entities. For most people, if you structured your business more than five years ago or experienced some significant growth, that’s something that you want to have an ongoing analysis done. It’s not one of those things you wanna set it and forget because if all of your work is getting pushed through this inefficient tunnel, you’re losing percentage points. And if you’re working safely, it’s 15% more than you’re paying. How many months out of the year working for the government could have gone to you just to fill some forms? Then it just goes into maximizing deductions and ensuring that people can be as efficient as possible with things that they’re already spending money on. Suppose you’re paying family members, paying for health benefits during retirement. All those kinds of things, but those are kind of after the fact, and it all has to be in the frame of what’s the strategy? What are you trying to do as a business? And how do we get you there the most efficiently?

11:58 [Josh Kopel]

For the folks listening that is going, is this me? Am I one of these people with an issue? What are some of the red flags? What are some common mistakes you see people making when they come to you?

12:08 [Catherine]

At least the most common mistake I see on the credit side is people not taking advantage of the Employee Retention Credit. If you haven’t had that one, you need to have an analysis done for regular tax planning issues. First one’s entity structure, if you’re getting over 100K a year on your business and you’re not operating out of an entity that’s when you want to start having that kind of conversation. Do I need to change my entity structure? Another common mistake is they don’t get their legal structures set up right on the front end for liability purposes, so people will just operate under their name instead of being in something like an LLC where you’re going to have some legal separation liability. And just other things like not buttoning up their compliance work on the front end and paying people under the table. Those are the most common mistakes I see people make on the front end of the restaurant industry.

13:18 [Josh Kopel]

The federal government did this alphabet soup task when the pandemic hit, and it was just rolling out program after program. I know that there’s a massive opportunity for the Employee Retention Credit. We’re gonna dig deep into it, but I’m wondering what other opportunities did the pandemic present?

13:39 [Catherine]

Most of them now are wrapped up. People got to take advantage of things like the payroll protection program, multiple rounds of that. A lot of restaurant grants, also state and local aid that came out, and it was just tough for everybody because you had all these programs coming out. There was no guidance for tax practitioners to know how things would work, and it just turned into a crazy money grab. The one nice thing is the Employee Retention Credit is baked into the code, so it’s not like the PPP, where it’s a fund that gets exhausted if you don’t take advantage of it. We have a three-year window for it, and if you didn’t get to take advantage of a lot of those other programs, it helps increase that credit. Because one of the things that happens is if you got PPP or if you’ve got these other programs, it’ll reduce your Employee Retention Credit. The alphabet soup is a good way of putting it because they’re coming from all sorts of agencies, state and local, and federal. It was just nuts.

14:53 [Josh Kopel]

Let’s get into the Employee Retention Credit specifically. For those that don’t know, can you explain what it is?

15:01 [Catherine]

It’s a payroll tax credit. It’s a reimbursement to employers who experienced hardship during the pandemic. If your company, especially restaurant owners, had operations limited by government orders or you had revenue discrepancies. So it’s not just year-over-year revenue declines but just uneven revenues you could be eligible for the credit. I have not had a restaurant come to me that wasn’t eligible for it just because of the factors of what happened during the pandemic. ‘Cause almost everybody had some kind of operational impact through the government orders, and that’s one of the qualifying factors. It’s up to $26,000 per employee. You can imagine if you have a good headcount in your operation, above ten people, it can be a substantial credit. It depends on your headcount, but people with 15 employees get a quarter of $1,000,000 back, even on a smaller scale. It’s a check that comes back in the mail, so it’s not credited towards future years. It’s a reimbursement of the money you paid in 2020 and 2021, and it’s still available. It will start phasing out about a year from now, but it’s still available even though it’s related to tax years 2020 and 2021.

16:13 [Josh Kopel]

I want some of that. How difficult is it to get?

16:16 [Catherine]

You just have to work with a practitioner for it. One of the decision points is knowing the right person to work with. A lot of people have tried to work with their payroll providers. I don’t recommend it just because my experience with payroll providers is they have a hard enough time just doing regular payroll. Many of the cases I’ve seen with payroll providers have been under-claiming. Then on the opposite side of things, I see people trying to work with their regular CPA. Many regular CPAs don’t handle a high volume because they are complex. They interact with your payroll protection program loans and other grants and aid. They all interact with each other. I recommend people work with specialty providers. My firm is a specialty provider; we do them for other CPA firms because it’s become our specialty. Still, those are, in general, the people that you can work with for it. Also, I should warn you that there are a lot of bad actors in the space right now because we’ve got an information gap between people filing these claims and then the IRS. The IRS is still so behind from what happened during the pandemic. A couple of days ago, I was reading an article that one of the bigger players in this space for doing these credits got raided by the IRS. It’s one of those things where you just want to work with somebody that’s a licensed CPA firm. They do a good amount of them because it’s big dollar figures. I’ve got several restaurants where they’ve got a quarter of $1,000,000 back, and when it’s that much money on the line.

You’re paying for the placement. You’re not just paying for the Botox, and that’s the thing with the credit. When you work with somebody reputable, it’s an easy process for you because it’s just once we get the reports. It’s just a matter of us doing the calculations and having everything buttoned up for what the IRS wants to see.

19:20 [Josh Kopel]

How do you suss out between someone suspect and someone working in the space with integrity?

19:27 [Catherine]

For the most part, the biggest red flag is if they’re CPA firms or not. There are a lot of people out there that are just marketers for this, and then they pass the work off to two small CPAs, or they’re working with people that aren’t. I had a case come across my desk from somebody where the person doing the filing was a real estate attorney. They weren’t professional attacks, so that becomes a big red flag. The other red flag is if they’re charging contingent fees. As a CPA firm, we’re not allowed to charge a contingency fee, and if you encounter a person doing these credits and they say well, we’re gonna charge you 25% of the credit. That’s a red flag for the most part.

For the other partitioners in this space that I see, the range isn’t contingent. Still, the fee tends to be between 10 to 15% of the credit, so if you see somebody that’s kind of outside that range or they’re just sales if you feel that sales thing going on. It’s not a tax practitioner where they’re asking you a lot of questions, too, because many things interact. We’ll get your credit if they’re not asking you many questions. Just send us these two reports. You’re going to be eligible for half of $1,000,000. It’s fishy versus OK we’re gonna need some payroll reports. We’re gonna need some financial reports asking you detailed questions about your company ownership. You’ll get that feeling. If you’re being sold versus OK, this is an actual tax professional that knows what they’re doing. The other thing I see people doing wrong is anybody can have a website, a convincing marketing copy and flashy stuff, and testimonials saying we’ve filed so many claims. Still, it comes down to who’s doing the work. Who owns the company? How long have these guys been around? Are they going to be gone when the IRS comes back, or what’s the feel of this? And I’d say, for the most part, if you already have a tax professional and they can’t handle it. I loop them into the conversation. They know how taxes work. They’ll know if something feels wrong because they can talk shop to the other company that’s doing it and lean on your tax pro to say hey can you be in this conversation with me and these people for this credit because that tax Pro is going to have a good Spidey sense of no this feels off. This is very salty versus no. This is another CPA firm, and when we get into the weeds and talk shop, they pass the mustard. That’s the advice that I would give people in general.

22:01 [Josh Kopel]

For context, what does your specific process look like? When somebody reaches out and wants help. How do you help?

22:10 [Catherine]

We start with just a conversation. I do make sure that the person that we’re working with understands just the general program of how the credit works, and they don’t have any confusion about what they could be pursuing because there are some interactions that happen with things like your income taxes, so we go through all of that and then, in general, we collect the reports we do an assessment to see OK do you meet the eligibility requirements with flying colors and then if you do then how much roughly are you eligible for? And that’s something we do on the front end of the engagement. Then once we know roughly what they’re eligible for, we say, OK, this would be our fee if you want us to do the work, file the claim, and track it with the IRS. Here’s how the cash flow would work if it doesn’t make sense for you. That’s how we approach it, and once we’ve got all the reports and the client wants to engage with us, we then finish calculations, file a claim with the IRS, and then track it with the IRS, and that’s our basic process. Usually, for people, it only takes these initial conversations, but then maybe it’s a couple of hours an hour or two getting those reports together that we need to get that precise calculation done, and that’s it. It can be a couple of hours of work for 250K. That’s pretty good. It’s a pretty good ROI for anybody. That’s what we’ve seen for the restaurant owners; they tend to get really high credit amounts for this.

23:27 [Josh Kopel]

What are the eligibility requirements?

23:32 [Catherine]

There are two ways a company can be eligible. The first way is that if you have certain revenue declines, it’s different rules for the different years, so I just tell people the rule of thumb is if you have more than five employees and you experience discrepancies, so your quarters are uneven, get yourself analyzed because it’s such high potential, high dollar volumes on the table. That it’s just worth it to have yourself formally assessed on that so you can either have revenue declines, and that’s one way you can be eligible, or if you had government orders that forced you to modify your operations. That’s the other piece of it, so for restaurants, very common to reduce capacity, and it’s usually state orders or local orders. Those orders make you have to change your operations. That way, if it’s more than a 10% effect on your business during the period for which that was going on, you’ll be eligible. If you’re in a state that was restrictive during COVID, California, Massachusetts, or New York, where we weren’t allowed to operate at full capacity for the whole year, then you would be eligible for the whole year because it’s a government order. Those are the two ways that companies can be eligible, and it’s an either-or test, and in some quarters, it’ll be government orders. In other quarters then you have the revenue issues. You can be eligible through the whole duration of the pandemic for a mix of those, and that’s part of the analysis we do on the front end.

25:02 [Josh Kopel]

One of the things that hold independent restaurateurs back from participating in things is the fear of an audit.

25:11 [Catherine]

True, I should mention that part of what we do as our process is included in our engagement is that we will support the client through the audit at no additional expense just because I’ve been through them. I know how they go, the auditor comes in, they see the kind of paperwork we have, the credentials, we have a conversation with them, and they open and close the case. Because it’s just that’s the level to which we keep our documentation, and that’s the name of the game. It’s when you’re vetting out practitioners it’s for that purpose. I want the worst-case scenario to be the auditor. We get a notice from the IRS, and they must write a letter. That’s going to be the worst thing that happens, and that’s why working with somebody who’s really oriented around. OK, how are we going to get through compliance ’cause that’s really the problem, but it’s not getting the money back. It’s making sure that the IRS isn’t gonna come back later. Most restaurants passed with flying colors because the government orders were so restrictive and just the way the credits are written. I’ve never really been concerned about the restaurant owners having audit issues just because it’s so easy to document. There’s a government order from my governor that we were at 45% capacity or 75% capacity, and here it is. This is what it was, and that’s just how the credit is written. There’s no risk for the restaurateurs as long as you have your documentation in order, which we work with a good practitioner going to have. It’s good to be concerned about it, but it will not be a problem if you work with somebody reputable.

26:41 [Josh Kopel]

The years that are covered are 2020-2021.

26:47 [Catherine]

It’s still gonna be open for another year, so if you missed out on it for 2020 and 2021, we can still file those returns and go back and get it, which is great.

27:00 [Josh Kopel]

How quickly from the first phone call is it typically to get the check in the mail?

27:06 [Catherine]

The problem with the IRS is that they’re still messed up. It’s a very manual process on their end. When filing the actual returns, we must mail them to the IRS. Once we get all the documentation in place, we get claims turned around in under two weeks, but then it goes to the IRS and sits with them. Previously they were projecting that it was 9 to 12 months. The last time I talked to somebody, they reallocated personnel to that department. It’s looking more than five months, but it just depends on the size of the credit because those of a certain size have to have a second set of eyes on them from the IRS standpoint. I’d say for most people. It’s about a five-month wait.

27:49 [Josh Kopel]

I wanna talk at a high level about tax planning because this tax credit represents a massive missed opportunity, and you don’t know what you don’t know. Talk to me about tax planning in general and why you believe it’s one of the highest return investment activities you can spend your time on as an entrepreneur.

28:10 [Catherine]

The biggest reason is it’s a high ROI activity and takes little time as long as you’re intentional about doing it. You may do it a couple of hours out of the year. Still, I said earlier that by having things in an efficient entity structure, you move the needle percentage points and when you think about it, spending a couple of hours each quarter with your CPA going through, distributions, retirement contributions? breaking off separate businesses with different entities. Those kinds of questions and checking in and asking for that level of analysis to be done. It can move the needle, and getting into that practice will be helpful, especially if you haven’t done any planning. Really how you want to approach that professional is to say you need tax planning and taxes done. I will need a minimum of four meetings during the year where we’re making planning conversations and you’re running forecasts for me. That’s the service you want to ask for . A lot of people don’t realize that if you’ve just asked them to do your taxes that is all they’re going to do. And by asking for more, you’ll get more. I’d say if you’re not paying at least ten grand a year on tax planning work and that level of activity going on, you’re not getting it. Because it’s asking them to do a quadrupled if not more of the work that they’re doing just to file returns to run projections, to run calculations, and to be the quarterback of making sure that you’re operating efficiently. If you don’t plan, you’re paying 40% effectively between Social Security taxes and income taxes and state taxes, which could be well over 40% if you’re working half the year for the government. It’s right now. We’re recording this. It’s the end of Ma and you’re listening to this. You’ve been working for the government for the last five months. Just take a couple of hours to engage with somebody and say, “Hey, should I be an S corp or should my catering business be a C Corp? How should we have this setup? Should I buy my building? Those kinds of things, maybe you could have only been working for the government for the first three months out of the year instead of the first 5-6. It’s just deciding you’re gonna do it and then getting the right people to quarterback it for you where you’re not quarterbacking it.

31:22 [Josh Kopel]

It’s worth bringing up mindset because I can easily look at what you do for a living and see it as an expense. Still, at the end of the day, I would assume that your clients don’t see you as an expense. They see you as a way to make more money, not spend more money.

31:43 [Catherine]

Honestly, that’s what accounting should be as a function in your business, and that was one of the founding principles I had for my firm. I want every client I work with to be a profit center because if I’m not making them money, they’re not the right client for me. After all, I cannot use my skills to improve their business by increasing their cash flow. That’s not a good use of my ability. It’s your general practitioner putting on bandaids. It’s not that I wanna be healing people, and for a lot of business owners, they get in that mindset of bookkeeping being expensive, so I’m gonna do it myself and really, especially with the tax planning, it’s a return on investment. If you invest in it and you work with somebody who knows what they’re doing, it’s going to be a profit center for your business without you actually having to do very much. Because it’s just a matter of finding the right person, having the conversations, and having the relationship. I always say if you haven’t found that person yet, find them because it will make a really big difference.

32:45 [Josh Kopel]

At the end of every episode, I give the guests an opportunity to speak directly to the audience. You worked with so many restaurant owners and operators out there for those that haven’t had an opportunity to work with you. What advice or words of encouragement do you have for them?

33:01 [Catherine]

My biggest piece of advice for them is if you have not pursued the Employee Retention Credit. You need to really block out two hours to get that done and get the analysis done for your company. I’m a CPA firm who works for other CPA firms, so we work really nicely with other tax professionals, but I’d say go back to your tax professional, see if they can handle it and see if they’re competent. And if they can’t, you want to reach out to a specialty firm to get it done ’cause dollar for dollar that’s the biggest ROI activity that any restaurant owner can do right now. If you have a decent-sized headcount, it could be a really big shot in the arm for your business.

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