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Tag: tax liability

How Business Owners Can Access Their COVID-Related Tax Credit Refund  

A little-known government program is offering financial relief for business owners impacted by the COVID-19 pandemic. The Employee Retention Credit (ERC) is a tax credit from the Federal government and part of the Infrastructure Investment and Jobs Act. The ERC is open to businesses of all sizes that retained employees during the pandemic-related shutdowns and slowdowns in 2020 and 2021. Although the program was officially sunsetted in 2021, the credit is available retroactively, with businesses having up to three years from the end of the program to review wages paid after March 12, 2020 and file a claim. The ERC could give businesses up to $26,000 per full-time employee if eligible, and benefits can be larger than the amounts a company received in PPP funding.   

According to the IRS, the ERC is “a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. Also, if the employer’s employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS. 

“For each employee, wages (including certain health plan costs) up to $10,000 can be counted to determine the amount of the 50% credit. Because this credit can apply to wages already paid after March 12, 2020, many struggling employers can get access to this credit by reducing upcoming deposits or requesting an advance credit on Form 7200, Advance of Employer Credits Due To COVID-19.” 

Below we break down the ERC tax credit process, including eligibility requirements, necessary documentation and steps to apply. 

Who is eligible? 

The ERC is available to all types of small businesses—LLCs, LLPs, C-Corps, S-Corps, B-Corps, sole proprietors and non-profits with W2 employees. Three criteria govern who can receive the credit, with businesses having to meet only one to qualify. While eligibility details should always be reviewed with the IRS or a tax professional, generally, below are the ERC eligibility requirements: 

  1. Reduced year-over-year revenue in 2020 or 2021 
  2. Reduced revenue in those years due to government mandates, such as forced business shutdowns; or if the business was started after February 15, 2020 
  3. Less than $1 million in gross annual receipts 

What you’ll need  

After reviewing the eligibility requirements, business owners can begin the application process by preparing the following paperwork: 

  • Employer’s Quarterly Federal Tax Return, Form 941 
  • Advance Payment of Employer Credits Due to Covid-19, Form 7200 
  • Reporting Agent Authorization, Form 8655 
  • PPP Application and Forgiveness, when applicable 

Additional forms and supporting materials may be required, depending on your unique circumstances, which can include 2019, 2020 and part of 2021 financials, along with any official government-ordered shutdown or suspend operations notices.  

How to apply  

Business owners can apply online at https://www.irs.gov/forms-instructions after gathering the necessary forms. For third-party assistance with the application process, business owners can visit https://www.LendioDenver.com. If you go the “do-it-yourself” route, be prepared for a potentially long process if you select to complete the application on your own. While business owners can file for the credit themselves, the process for getting a full tax credit can be challenging with the application running to over 170 pages of IRS-required documentation with ongoing amendments to the program since inception. It is recommended that business owners seek the expertise of an experienced professional or third party to maximize the odds of a successful application.   

Per the IRS, “eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns, which will be Form 941 for most employers, beginning with the second quarter.” The IRS website indicates a six-week to six-month timeline to receive credits, yet we are seeing the process take six to eight months, with some applications taking more than 12 months to receive a credit. 

If using a third party, such as Lendio, business owners may be asked to complete a pre-qualification application to begin the ERC process. In this instance, the local Lendio team performs internal prechecks after the pre-qual application is complete and works with the business owner to identify the documents needed to submit their application. 

While the ERC program remains overlooked by many small businesses, it is a tremendous opportunity for businesses that have been negatively affected by the COVID-19 pandemic.  If your business experienced a substantial decline in gross receipts but has since recovered and you didn’t claim the tax credit, it is possible to apply for the credit for retaining employees and persevering through the economic challenges resulting from the COVID-19 pandemic.  

Bill Airy 2Bill and Leanne Airy are president and owner of Lendio Denver.  Lendio Denver and its partners have secured over $5.7 million in tax credits for Denver-area small business owners. Bill is a Colorado native and experienced entrepreneur who founded his first small business in 2007 and sold several businesses before founding Lendio Denver. Contact him at 303-747-3538 or [email protected]. 

How to Conduct a Mid-Year Tax Strategy Audit

Don’t wait until the end of the year to think about your tax planning and strategies.

If you’re already seeing major changes in your business and/or personal taxes, you must prepare to assess and shift your tax strategies now. That way, you can protect yourself and your business from unnecessary tax liability.

Business owners that fail to assess and adjust their tax strategies often end up paying more taxes than they should. While it’s hard to determine exactly how many businesses are losing out on tax savings they’re legally entitled to, most strategy audits present new opportunities to reduce tax liability.

It’s safe to say that a mid-year tax strategy audit can present tremendous benefits for a business. 

What Is a Tax-Strategy Audit?

A tax strategy audit is a close examination of a business’s tax processes and internal controls to help the business proactively deal with changes and ensure that the right decisions are being made now — before taxes come due.

Businesses can help reduce tax liability by having the right strategies in place. An audit makes sure those strategies are working for the business, helping it take advantage of all of the deductions available, as well as minimizing the bottom-line total used to calculate the business’s tax bill. 

Getting Started 

A tax strategy audit starts with a close examination of a business’s financial records and tax documents.

The business leader will want to come prepared with key information, including knowledge of recent business changes — new employees who have started, employees who have left, changes to leases or property that was bought or sold, new equipment that was adopted, and anything else notable that may be relevant.

Any of these changes may present a new opportunity for increased deductions or incentives that may be available. 

You miss 100% of the deductions you don’t track.

Examine Available Deductions, and Ensure Expenses are Being Properly Tracked

According to the IRS, business management can deduct “ordinary and necessary” expenses from the business’s taxable income to help reduce the taxes the business owes. However, business leaders are often surprised to discover just how much they can deduct. For example, marketing expenses and office supplies may be considered ordinary expenses.

An ordinary expense is common and accepted in the industry, and a necessary expense is helpful and appropriate. According to the IRS, an expense doesn’t have to be absolutely indispensable to the business to be “necessary.” The definition is fairly broad.

Even though an expense may be ordinary and necessary, a business may not be allowed to deduct the expense in the year that it was paid. Business leaders must consult financial and legal experts who can tell them which deductions are available.

During a mid-year tax strategy audit, it’s also important to ensure that the right expenses are being tracked. Even if they can’t be deducted in this calendar year, tracking expenses properly helps ensure they can be deducted in the future. In other words, you miss 100% of the deductions you don’t track. 

Review Tax Incentives

Business owners can review new tax incentives that may be available and see if any are a good fit for the business. For example, many tax incentives became available to small businesses during the pandemic as part of the CARES Act and the American Rescue Plan Act. With the landscape for tax incentives shifting fairly often, a mid-year review of available options can help business leaders take advantage of emerging incentives.

Even if a business is not immediately eligible for a new incentive, a general awareness of available incentives can be an asset. As the business shifts and grows, other opportunities may open up. The mid-year tax strategy audit can help a business prepare to realize them.

 

For more information on tax planning for small businesses in Colorado, contact Hackstaff Snow Atkinson & Griess, LLC, at 303-534-4317 or visit our website. Our Denver law firm offers tax planning recommendations for a full range of taxation issues, including corporate, partnership, nonprofit and individual taxation.

Doug Griess and John Snow of Hackstaff Snow Atkinson & Griess, LLC , are top Denver business attorneys with expertise spanning various industries. Specializing in business law, litigation, intellectual property, tax law, and dispute resolution, John Snow and Doug Griess offer an in-depth understanding and knowledge of general corporate rules and regulations and are a trusted resource for business owners throughout Colorado.