As business owners and leaders navigate a very different tax season this year, many may miss the Employee Retention Credit (ERC) and end up paying millions more in taxes. Laws have changed, and new programs have been put into play so quickly that business owners may not be aware of tax credits. Tax professionals like those at Iron Tax, Accounting and Financial Solutions who update themselves annually on the ever changing federal tax code can help them navigate this season and get the best financial solutions.
“The tax credit allows small businesses like medical and dental practices to claim $7,000 per employee per quarter in 2020, which adds up quickly,” said Roger McCloud, CEO of Iron Tax, Accounting and Financial Solutions. “For example, a company with 36 qualified employees would save more than $1 million. However, not all of them are aware of this situation and many likely will miss the opportunity.”
Businesses may miss out on the ERC for several reasons, but according to McCloud, the five most common are the following:
- COVID-19 Burnout: As COVID-19 restricted the consumers’ movements and activities, many businesses’ revenue streams were dramatically reduced in the last year. Small business owners have tried to cut costs by filing taxes themselves. But, if unaware of these tax law changes, they may not know exactly what to file for and how to declare everything they have earned and spent.
- Application for Paycheck Protection Program (PPP) Loan Forgiveness Rejected: PPP loans were a relief for many struggling small businesses; however, they may have been rejected when applying for forgiveness. McCloud explains that such businesses still may be eligible to claim the ERC, but likely don’t know it.
- Second Draw PPP Eligible: There is confusion when it comes to the second draw PPP. Many businesses believe their eligibility for this program disqualifies them from the ERC. On the contrary, McCloud makes it clear if their payroll is large enough, they will qualify for both programs.
- No Significant Decline in Gross Receipts: A large number of businesses have seen a decline in gross receipts, but not all. Nevertheless, if their business operations were fully or partially suspended, they still can qualify for ERC.
- Only Small Companies Qualify: There is a myth surrounding the ERC that only companies with less than 100 employees may qualify. But McCloud explains the number of employees a business has is not one of the requirements to qualify.
The ERC is a great advantage for many small businesses who saw themselves affected by the pandemic. By securing the advice and help of companies like Iron Tax, Accounting and Financial Solutions and experts like McCloud, companies can avoid paying millions in taxes and use the savings to prepare themselves to grow in the year ahead.