The Right Accounting Firm Is Essential During COVID-19
Running a business takes hard work and dedication. To ensure your business runs efficiently, you need access to the right resources. The COVID-19 pandemic has likely changed your business operations, goals, and priorities. Now more than ever, it’s vital for business owners to know when to delegate responsibility or outsource certain business functions to the experts. The right accounting firm can help your business leverage opportunities to thrive. Businesses can’t afford to squeak by this year by meeting the minimum compliance requirements. To help you explore recent legislative provisions that may yield significant savings, I’m posing three questions to ask yourself about your business.
Despite government-mandated closures and declines in gross receipts, have you been able to keep employees on the payroll?
If your business fits the eligibility criteria, you can apply for the Employee Retention Tax Credit (ERTC), a refundable tax credit for qualified employee wages and allocable qualified health plan expenses.
The ERTC was established by the CARES Act to help small businesses affected by COVID-19. The Consolidated Appropriations Act amended the ERTC for 2020, extended the credit through June 30, 2021, and expanded eligibility for ERTCs claimed against qualified wages in 2021. Understanding the changes made to qualified wages and eligibility can help you maximize the benefits you receive from the credit.
PPP borrowers are eligible to claim the ERTC retroactively for 2020 and are eligible to apply for the ERTC in 2021, providing wages are not claimed as a double benefit. New businesses are now eligible, even if they were not operating for all or part of 2019. Regardless of the year, qualified wages now include allocable qualified health plan expenses. Businesses may apply for the credit for healthcare costs paid for their furloughed employees.
Claiming the ERTC for Wages Paid in 2020 - Eligible small businesses may claim the credit for wages paid from March 12, 2020, through December 31, 2020. To be eligible, you must have employed an average of 100 or fewer full-time employees in 2019. The refundable credit rate per employee per year is 50% on up to $10,000 of qualified wages, so the maximum credit per employee, per year is $5,000. You may be eligible if your gross receipts in a calendar quarter declined by at least 50% compared to the same quarter in 2019. Once you experience a calendar quarter in which gross receipts exceed 80% compared to the same quarter in 2019, your eligibility ends.
Claiming the ERTC for Wages Paid in 2021 - Eligible small businesses may claim the credit for wages paid from January 1, 2021, through June 30, 2021. To be eligible, you must have employed an average of 500 or fewer full-time employees in 2019. The refundable credit rate per employee per quarter is 70% on up to $10,000 of qualified wages. You may be eligible if your gross receipts in a calendar quarter declined by at least 20% compared to the same quarter in 2019, or if they declined by at least 20% in the immediately preceding calendar quarter in comparison to the same quarter in 2019.
Did your business have net operating losses in 2018, 2019, or 2020?
The CARES Act temporarily modified TCJA legislation pertaining to net operating losses (NOLs) to provide taxpayers with opportunities to improve cash flow. The Act permits taxpayers to carry back NOLs incurred in 2018, 2019, or 2020 for five years and temporarily suspended the 80% taxable income limitation through 2020. Businesses may want to consider filing amended returns if they will generate a refund.
Did your business place qualified improvement property in service in 2018 or 2019?
Qualified Improvement Property may not have been eligible for accelerated depreciation when these returns were filed. While the TCJA made improvements to the way property is classified for depreciation purposes, it contained a small technical error with not-so-small consequences. The TCJA combined the three existing types of qualifying real property, which each had 15-year depreciable lives, into a single category, “qualified improvement property” (QIP), but the depreciable life changed to 39 years. In general, a property must have a depreciable life of 20 years or less to qualify for 100% bonus depreciation, so businesses had to capitalize and depreciate QIP over time.
The CARES Act fixed the error, so businesses can deduct 100% bonus depreciation for QIP to lower their current-year tax liability. If you need to claim an additional deduction for either 2018 or 2019, you can file an amended return. If you need to claim the additional deduction for both years, you will need to file an application for a change in accounting method.
Contact Livingston & Haynes
L&H is a leading provider of comprehensive, trusted accounting, tax, and bookkeeping services. My team can help businesses weather the pandemic by uncovering opportunities to maximize savings, mitigate risk, and minimize tax liability. If you’re looking for the right accounting firm to help your business run efficiently, contact me today.
by Steven Haynes, MBA
Steven J. Haynes, MBA, is an administrative partner at Livingston & Haynes and specializes in bookkeeping, payroll, and business advisory services for privately-held businesses. Steve founded Emerging Business Partners (EBPI) in September 1992, and his firm became an affiliate of L&H in 2007. Today, EBPI broadens the bookkeeping, payroll, and tax consulting services available to L&H clients.