I recently did a piece on the Research and Development Credit that generated a lot of interest and questions, so I thought I’d explain a few more. If any of this is applicable to your individual circumstance, please contact our offices so that we can file the appropriate paperwork.
This is by no means a comprehensive list. There are more credits available in our system of taxation than anyone could possibly describe given the basic constraints of time and sanity.
Also, please don’t get too creative. I’m not going to claim any of these credits if they don’t specifically apply to your individual case. Without further adieu, here we go.
Investment Credit Form 3468 – This applies to investment in rehabilitation and energy projects. It’s used a lot in the solar and wind energy businesses.
Work Opportunity Credit Form 5884 – For qualified wages paid to first and second year employees hired from State Workforce Agencies or State Employment Security Agencies
Low Income Housing Credit Form 8586 – For owners of qualified residential rental buildings in low income housing projects
Disabled Access Credit Form 8826 – For small businesses that create access in their properties for persons with disabilities
Energy Efficient Home Credit Form 8908 – Contractors claim the credit for each energy efficient home sold
Credit For Employer-Provided Childcare Facilities and Services Form 8882 – Just like it sounds
Credit For Small Employer pension Plan Startup Costs Form 8881 – For costs associated with setting up a qualified retirement plan
Credit For Employer Social Security and Medicare Taxes paid on Certain Employee Tips Form 8846 – A credit that was instituted to try to encourage restaurant and bar owners to report taxable tips on their employees
There’s more; a lot more. If any of this applies to your business, please let us know.
Let me leave you with this.
I’m getting a lot of questions on whether the PPP Loan is better than the Employer Retention Credit. The answer is that it depends on how much you’re paying your employees. Let’s go through a couple of scenarios.
You have ten employees that are paid $3,333 each per month. On the PPP that’s $33,330 in monthly payroll times 2.5 or a total loan of $83,325.
Or you can do the retention credit for the first two quarters of 2021. It’s 70% of the first $10,000 per worker per quarter. That’s 70% of $100,000 or $70,000 per quarter totaling $140,000.
The second scenario would be ten employees that you pay $8,000 per month, just under the limit for the PPP. That’s $80,000 in payroll monthly times 2.5 or a total of $200,000 in PPP Loan.
Conversely the employer retention credit is the same as the prior example because it will max out at $10,000 in payroll each quarter. That’s $100,000 in payroll or a $70,000 credit per quarter totaling $140,000.
In the second scenario it would be better to do the PPP, or would it? Certainly $200,000 is more than $140,000, but the point is that you can do both. You just can’t do them at the same time.
Let’s go back to the second scenario and say that the business got the PPP Loan on Valentine’s Day. The employer cannot use the payroll to claim the credit that is also used for forgiveness on the PPP Loan.
What we would do in this instance is to claim the ERC on the payroll from January 1, 2021 through February 13, 2021. Then use the payroll beginning February 14, 2020 for forgiveness on the PPP.
Let’s say in this instance that this employer goes through $201,000 in payroll in three months. That would take us to May 14, 2021. At that point we would claim the credit on the payroll for May 15, 2021 through June 30, 2021.
In other words we would wrap the credit around the loan. Because this employer is paying their employees $8,000 per month or $12,000 every six weeks, they will qualify for the entire Employer Retention Credit totaling $140,000 in addition to the $200,000 PPP.
They just got $340,000 based on a $480,000 payroll.
Whether you are a current client or not, please let us know how we can help you. Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
www.AccountingSolutionsLtd.com
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