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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, itâs 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, itâs 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, letâs consider a practical example:
Scenario: ABC Corp has 50 full-time employees. In Q2 2020, the companyâs 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 businessâs 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 businessâs 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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THE EMPLOYEE RETENTION CREDIT
The Employee Retention Credit or ERC, which is a generous stimulus program designed to bolster those businesses that were able to retain their employees during this challenging time. Due to the extremely complex tax code and qualifications, it is severely underutilized. ERC QUALIFICATIONS While the general qualifications for the ERC program seem simple, the interpretation of each qualificationâŚ
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THE EMPLOYEE RETENTION CREDIT
The Employee Retention Credit or ERC, which is a generous stimulus program designed to bolster those businesses that were able to retain their employees during this challenging time. Due to the extremely complex tax code and qualifications, it is severely underutilized. ERC QUALIFICATIONS While the general qualifications for the ERC program seem simple, the interpretation of each qualificationâŚ
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Employee Tax Retention Credit - Rosedale - Versa Business Systems
In the dynamic landscape of business operations, organizations are constantly seeking innovative ways to enhance employee satisfaction, retention, and overall productivity. One often overlooked avenue for achieving these objectives is through the strategic utilization of Employee Tax Retention Credit (ETRC). By understanding the intricate link between ETRC and employee benefits, businesses can unlock opportunities to not only maximize tax incentives but also cultivate a more engaged and loyal workforce.
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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 havenât taken advantage of the program. Itâs based on headcount. If you have a decent-sized headcount, this could be a massive shot in the arm for your business. â 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. Iâm talking about the Employee Retention Credit. I witnessed fellow restaurateurs receive six-digit checks by taking advantage of this extraordinary opportunity. As Iâm 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 bookkeeperâs your mom who knows first aid. A CPA is your general practitioner whoâs going to be able to give you antibiotics. Your mom will be there with band-aids and thatâs all youâll need, those little reports. When it comes to making bigger decisions or strategizing around whatâs 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]
Letâs 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? Thatâs 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 whatâs 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 doesnât 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 peopleâs lives and help them. I wanted to be helping people as my profession. As I went further into it, I realized that it wasnât 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 Iâm primarily a tax planner and a tax specialist.
People are so intimidated by taxes, and itâs so expensive and painful to be able to bridge that gap and help them understand how it works. To help them reduce how much theyâre 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 thereâs not a lot of thought leadership that comes from accountants. They tend to be very âin the boxâ 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 weâre not just filling out forms for people. That weâre 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, youâre talking about. Specifically, I believe thatâs the gap between bridging yesterdayâs numbers and how that influences decisions today and tomorrow, right?
5:53 [Catherine]
Absolutely. Thereâs 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 donât think about, is that everything is going to flow through the tax funnel, and youâre going to pay tax. So do things to optimize how your income flows through the tax funnel to ensure youâre not paying too much in tax. For my firm, weâve emphasized that third piece. Weâre a tax planning firm mostly, and thatâs 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 theyâre 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 weâre so easy to work with?
6:52 [Catherine]
The main thing weâre 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. Itâs because they fall in that weird zone, where their tax practitioner is probably really small and isnât able to handle a lot more than just filing their returns. Iâve 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 Iâve been seeing, itâs 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 Iâve accomplished something.
7:59 [Josh Kopel]
I want to talk about tax strategy at large because, in the abstract, I donât know how many of us know what that means. Typically tax planning starts on January 1st for payment in April, and weâre talking about last yearâs 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. Youâre 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 thereâs not much you can do to get it back. Thatâs why for many people, itâs in January or February that they figure out what their tax bill was from the previous year. And theyâre 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 youâre trying to achieve strategically with your business to ensure itâs going through the tax funnel as efficiently as possible. If somebody is going to grow to sell, thatâs a very different kind of strategy than if somebody is going to grow to hand it off to a kid. If they know, theyâre 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 whatâs 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 âcause itâs 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 youâre getting taxed at 40% effective, and we can bump that down to 25%- 30%. Thatâs 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 whatâs going on with your entities. For most people, if you structured your business more than five years ago or experienced some significant growth, thatâs something that you want to have an ongoing analysis done. Itâs not one of those things you wanna set it and forget because if all of your work is getting pushed through this inefficient tunnel, youâre losing percentage points. And if youâre working safely, itâs 15% more than youâre 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 theyâre already spending money on. Suppose youâre 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 whatâs 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 havenât had that one, you need to have an analysis done for regular tax planning issues. First oneâs entity structure, if youâre getting over 100K a year on your business and youâre not operating out of an entity thatâs when you want to start having that kind of conversation. Do I need to change my entity structure? Another common mistake is they donât 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 youâre 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 thereâs a massive opportunity for the Employee Retention Credit. Weâre gonna dig deep into it, but Iâm 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 itâs not like the PPP, where itâs a fund that gets exhausted if you donât take advantage of it. We have a three-year window for it, and if you didnât 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 youâve got these other programs, itâll reduce your Employee Retention Credit. The alphabet soup is a good way of putting it because theyâre coming from all sorts of agencies, state and local, and federal. It was just nuts.
14:53 [Josh Kopel]
Letâs get into the Employee Retention Credit specifically. For those that donât know, can you explain what it is?
15:01 [Catherine]
Itâs a payroll tax credit. Itâs 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 itâs 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 wasnât eligible for it just because of the factors of what happened during the pandemic. âCause almost everybody had some kind of operational impact through the government orders, and thatâs one of the qualifying factors. Itâs 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. Itâs a check that comes back in the mail, so itâs not credited towards future years. Itâs a reimbursement of the money you paid in 2020 and 2021, and itâs still available. It will start phasing out about a year from now, but itâs still available even though itâs 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 donât recommend it just because my experience with payroll providers is they have a hard enough time just doing regular payroll. Many of the cases Iâve 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 donât 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 itâs 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 weâve 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. Itâs one of those things where you just want to work with somebody thatâs a licensed CPA firm. They do a good amount of them because itâs big dollar figures. Iâve got several restaurants where theyâve got a quarter of $1,000,000 back, and when itâs that much money on the line.
Youâre paying for the placement. Youâre not just paying for the Botox, and thatâs the thing with the credit. When you work with somebody reputable, itâs an easy process for you because itâs just once we get the reports. Itâs 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 theyâre 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 theyâre working with people that arenât. I had a case come across my desk from somebody where the person doing the filing was a real estate attorney. They werenât professional attacks, so that becomes a big red flag. The other red flag is if theyâre charging contingent fees. As a CPA firm, weâre not allowed to charge a contingency fee, and if you encounter a person doing these credits and they say well, weâre gonna charge you 25% of the credit. Thatâs a red flag for the most part.
For the other partitioners in this space that I see, the range isnât contingent. Still, the fee tends to be between 10 to 15% of the credit, so if you see somebody thatâs kind of outside that range or theyâre just sales if you feel that sales thing going on. Itâs not a tax practitioner where theyâre asking you a lot of questions, too, because many things interact. Weâll get your credit if theyâre not asking you many questions. Just send us these two reports. Youâre going to be eligible for half of $1,000,000. Itâs fishy versus OK weâre gonna need some payroll reports. Weâre gonna need some financial reports asking you detailed questions about your company ownership. Youâll get that feeling. If youâre being sold versus OK, this is an actual tax professional that knows what theyâre 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 weâve filed so many claims. Still, it comes down to whoâs 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 whatâs the feel of this? And Iâd say, for the most part, if you already have a tax professional and they canât handle it. I loop them into the conversation. They know how taxes work. Theyâll know if something feels wrong because they can talk shop to the other company thatâs 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. Thatâs 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 weâre working with understands just the general program of how the credit works, and they donât 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 thatâs something we do on the front end of the engagement. Then once we know roughly what theyâre 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. Hereâs how the cash flow would work if it doesnât make sense for you. Thatâs how we approach it, and once weâve 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 thatâs our basic process. Usually, for people, it only takes these initial conversations, but then maybe itâs a couple of hours an hour or two getting those reports together that we need to get that precise calculation done, and thatâs it. It can be a couple of hours of work for 250K. Thatâs pretty good. Itâs a pretty good ROI for anybody. Thatâs what weâve 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, itâs 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 itâs such high potential, high dollar volumes on the table. That itâs just worth it to have yourself formally assessed on that so you can either have revenue declines, and thatâs one way you can be eligible, or if you had government orders that forced you to modify your operations. Thatâs the other piece of it, so for restaurants, very common to reduce capacity, and itâs usually state orders or local orders. Those orders make you have to change your operations. That way, if itâs more than a 10% effect on your business during the period for which that was going on, youâll be eligible. If youâre in a state that was restrictive during COVID, California, Massachusetts, or New York, where we werenât allowed to operate at full capacity for the whole year, then you would be eligible for the whole year because itâs a government order. Those are the two ways that companies can be eligible, and itâs an either-or test, and in some quarters, itâll 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 thatâs 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 Iâve 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 itâs just thatâs the level to which we keep our documentation, and thatâs the name of the game. Itâs when youâre vetting out practitioners itâs 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. Thatâs going to be the worst thing that happens, and thatâs why working with somebody whoâs really oriented around. OK, how are we going to get through compliance âcause thatâs really the problem, but itâs not getting the money back. Itâs making sure that the IRS isnât 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. Iâve never really been concerned about the restaurant owners having audit issues just because itâs so easy to document. Thereâs 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 thatâs just how the credit is written. Thereâs no risk for the restaurateurs as long as you have your documentation in order, which we work with a good practitioner going to have. Itâs 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]
Itâs 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 theyâre still messed up. Itâs 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. Itâs 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. Iâd say for most people. Itâs 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 donât know what you donât know. Talk to me about tax planning in general and why you believe itâs one of the highest return investment activities you can spend your time on as an entrepreneur.
28:10 [Catherine]
The biggest reason is itâs a high ROI activity and takes little time as long as youâre 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 havenât 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 weâre making planning conversations and youâre running forecasts for me. Thatâs the service you want to ask for . A lot of people donât realize that if youâve just asked them to do your taxes that is all theyâre going to do. And by asking for more, youâll get more. Iâd say if youâre not paying at least ten grand a year on tax planning work and that level of activity going on, youâre not getting it. Because itâs asking them to do a quadrupled if not more of the work that theyâre doing just to file returns to run projections, to run calculations, and to be the quarterback of making sure that youâre operating efficiently. If you donât plan, youâre paying 40% effectively between Social Security taxes and income taxes and state taxes, which could be well over 40% if youâre working half the year for the government. Itâs right now. Weâre recording this. Itâs the end of Ma and youâre listening to this. Youâve been working for the government for the last five months. Just take a couple of hours to engage with somebody and say, âHey, 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. Itâs just deciding youâre gonna do it and then getting the right people to quarterback it for you where youâre not quarterbacking it.
31:22 [Josh Kopel]
Itâs 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 donât see you as an expense. They see you as a way to make more money, not spend more money.
31:43 [Catherine]
Honestly, thatâs 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 Iâm not making them money, theyâre not the right client for me. After all, I cannot use my skills to improve their business by increasing their cash flow. Thatâs not a good use of my ability. Itâs your general practitioner putting on bandaids. Itâs not that I wanna be healing people, and for a lot of business owners, they get in that mindset of bookkeeping being expensive, so Iâm gonna do it myself and really, especially with the tax planning, itâs a return on investment. If you invest in it and you work with somebody who knows what theyâre doing, itâs going to be a profit center for your business without you actually having to do very much. Because itâs just a matter of finding the right person, having the conversations, and having the relationship. I always say if you havenât 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 havenât 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. Iâm a CPA firm who works for other CPA firms, so we work really nicely with other tax professionals, but Iâd say go back to your tax professional, see if they can handle it and see if theyâre competent. And if they canât, you want to reach out to a specialty firm to get it done âcause dollar for dollar thatâs 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.
#dominion enterprise services in usa#employee retention credit for business in usa#employee retention tax credit in usa#tax consulting services in usa#new employee retention credit rules in usa
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Understanding the Tax Relief for Workers and Families Act: What It Means for Us
Exciting updates in U.S. tax policy are unfolding! Stay tuned for insights on the Tax Relief for Workers and Families Act and its impact on businesses and families. #TaxPolicy2024 #BusinessInsights #FamilyFinance
January 24, 2024 Hey everyone, letâs talk about something thatâs been making waves in the world of taxes â the Tax Relief for Workers and Families Act. Recently pushed forward by the House Ways and Means Committee, this bill is shaking things up as we get ready for tax season. Itâs a big deal because itâs bringing back some much-missed tax breaks, like a beefed-up Child Tax Credit, newâŚ
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#Business tax implications#Child Tax Credit#Employee Retention Credit#Federal budget and deficit concerns#Individual taxpayer impact#IRS#Legislative developments#Low-Income Housing Tax Credit#Tax Cuts and Jobs Act#Tax extenders#Tax policy#Tax Relief for Workers and Families Act#Tax season 2024#U.S. tax system#Voluntary disclosure program
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Claiming the Employee Retention Tax Credit (ERTC) doesn't mean you can't claim R&D Credits too! đľ
While the same expenses can't be claimed for both ERTC and R&D credit, other aspects of your R&D work may still qualify.
Actually, our experts helped clients use R&D Credits to reduce tax liability that was created as a result of claiming ERTC credits. đ
Additionally, ERTC can only be claimed for certain quarters in 2020 and 2021, while R&D credits can be claimed annually (every year!) and have been in place since 1981.
Take our 3-minute R&D qualification quiz.
But hurry, amendment requirements for ERTC are approaching quickly, so get a free R&D analysis before you pay your new ERC tax bill! https://bit.ly/48q7l3j
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How to Apply for ERTC? | How to Apply for Employee Retention Tax Credit...
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#employees#employers#employee retention#employee retention credit#employee retention tax credit#ertc#erc#business owners#small business owners#business owner#business#business tax credit#small business tax crdit#small business tax credit
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ERC Specialists
Claim ERC Credit: Your trusted destination for choosing an ERC specialist. Our knowledgeable team of experts specializes in Employee Retention Credits, providing tailored solutions to maximize your benefits. Get personalized guidance and ensure a seamless process with Claim ERC Credit.
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Here are step-by-step instructions for business owners on applying for the Employee Retention Tax Credit (ERTC):
Understand Eligibility Criteria: Review the eligibility criteria for the ERTC. Generally, businesses that experienced a significant decline in gross receipts or were subject to full or partial suspension of operations due to government orders may qualify. Click the image above or link below to continue reading:Â https://techertcflorida.com/ertc-instructions/
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Help & Free Money From the US Government (For Business Owners)
Are you a business owner, and you need help and free money from the government for your business? Please read the following: The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed in 2020 in response to the economic disruption caused by the Covid-19 pandemic. As part of the CARES Act, two programs were created to help businesses stay afloat during the pandemic: The PaycheckâŚ
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#19#Act#business#Businesses#Cares#covid#Covid-19#Credit#Employee#ERTC#Owner#Payment#personal-finance#personal-finance-apps#personal-finance-news#PPP#Program#Protection#Retention#Small#Tax
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Help & Free Money From the US Government (For Business Owners)
Are you a business owner, and you need help and free money from the government for your business? Please read the following: The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed in 2020 in response to the economic disruption caused by the Covid-19 pandemic. As part of the CARES Act, two programs were created to help businesses stay afloat during the pandemic: The PaycheckâŚ
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#19#Act#business#Businesses#Cares#covid#Covid-19#Credit#Employee#ERTC#Owner#Payment#personal-finance#personal-finance-apps#personal-finance-news#PPP#Program#Protection#Retention#Small#Tax
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Employee Tax Retention Credit - Rosedale - Versa Business Systems
In the dynamic landscape of business operations, organizations are constantly seeking innovative ways to enhance employee satisfaction, retention, and overall productivity. One often overlooked avenue for achieving these objectives is through the strategic utilization of Employee Tax Retention Credit (ETRC). By understanding the intricate link between ETRC and employee benefits, businesses can unlock opportunities to not only maximize tax incentives but also cultivate a more engaged and loyal workforce.
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FAQs About The California Employee Retention Credit
California employers are encouraged to take advantage of the California Employee Retention Credit before it expires. But what is this tax credit? Who qualifies? Is ERC taxable in California? In this article, Dominion Enterprise Servicesâ CPA Skyler Kressin breaks down the ERC and how it can benefit your business.
 Like many business owners, California employers were subjected to extreme challenges during 2020 and 2021 and even extending into 2022. Business operations often were fully or partially suspended due to state or local health orders, revenue swings occurred unexpectedly, labor shortages abounded, and the unknowns related to global economic conditions created a difficult environment for businesses of all stripes due to COVID-19.
In the midst of these difficult times, various federal programs were created to mitigate these challenges, including the CARES Act and the American Rescue Plan Act. Each of these had provisions for relief, such as advance payment programs or forgivable business loans such as the Payment Protection Program (PPP loan).
While many businesses took advantage of these relief provisions, the sheer volume of legislation signed into law in the last several years has resulted in some of the key relief provisions for employers to be overlooked in the effort to keep the lights on and business flowing.
One such relief provision that consistently has been overlooked was created specifically for employers who continued to pay wages and federal employment taxes throughout the official âpandemic periodâ (March 12, 2020, through the third quarter of 2021) in the form of an employer tax credit, officially called the Employee Retention Credit (ERC).
The good news is, for California employers specifically, this federal tax credit may be much easier to obtain than for those who own and operate businesses in other states, due to how eligibility works.Â
High-level Features of the ERC for California Employers:
⢠The credit is up to $26,000 per employee for a fully eligible employer.Â
⢠The credit is a federal refundable tax credit, meaning you can claim a refund directly in the form of a check from the IRS, and the ERC is NOT a loan or grant through a bank like the PPP.
⢠That said, the other relief programs, (such as the PPP) do interact with the ERC but importantly, do NOT make you ineligible for the ERC as was previously widely believed â even those who received both rounds of PPP funding are still potentially eligible for the ERC.
⢠The claim is made through federal payroll tax filings and entails tax calculations customarily performed by tax professionals.
⢠The eligible filing period for the ERC begins to expire in April 2023 as the statute of limitations for refunds begins to sunset.Â
Who is Eligible for the ERC?Â
Eligibility for the ERC is determined on a calendar quarter basis (corresponding to each federal filing period) and can be achieved in one of two ways:
1. Gross Receipts Test
Employers must show a specified percentage decline in gross receipts, quarter-over-quarter when comparing a given quarter in 2019 to the same quarter in 2020 or 2021. For example, the quarter ending December 31, 2019, compared to the quarter ending December 31, 2020, must show a specific percentage decline. Specifically, 2020 needs to show a decline of 50% in at least one quarter, and 2021 needs to show a decline of 20% in at least one quarter â BOTH compared to the equivalent quarters in 2019.Â
2. Trade or Business Operations Disruption Test
This test is where there may be advantages for the California Employee Retention Credit as opposed to the relative eligibility in other states. Eligibility under this test all hinges on whether direct state or local government orders restricted business operations for employers during the pandemic period. California was one of the more restrictive jurisdictions as compared to other U.S. states and localities, so ERC eligibility is more likely to be achieved for California employers than in other jurisdictions.
As with all federal legislation and tax law, there are nuances and fine print to the above eligibility tests that go beyond the scope of this article and edge cases that require parsing through grey areas. This is where working with a qualified and licensed tax professional who specializes in tax credits comes into play. Many who are otherwise eligible for the ERC may be leaving money on the table, or otherwise working off an incomplete assessment of the full scope of their eligibility.Â
Is ERC Taxable in California?
Another benefit of the ERC is that, in general, it is not taxable on your California income tax return, as per FTB Publication 1001. That said, given it is a federal credit, it does directly impact your federal income tax filing and may result in the need to modify your federal income tax filing.
Dominion Can HelpÂ
Dominion Enterprise Services, PLLC is a full-service licensed CPA firm, with broad experience in helping California employers with various tax credits and consulting and has broad familiarity with the Employee Retention Credit specifically for the state and local legislative and regulatory environment in California during the pandemic period.Â
Our model is based on a transparent assessment of the facts and circumstances of each business we work with and working with existing tax preparers and payroll providers in ensuring the maximum claim for the ERC in California is pursued under the law.Â
Given the unique regulatory landscape of California, donât miss out on this opportunity to claim the California Employee Retention Tax Credit before the eligible filing period ends in April 2023. If you would like us to help with this process, please click on the button below and fill out our quick, one-minute questionnaire.
#dominion enterprise services in usa#employee retention credit for business in usa#employee retention tax credit in usa#tax consulting services in usa#new employee retention credit rules in usa
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