ABC Solutions

Does Your Business Qualify for the Employee Retention Credit?

The Employee Retention Credit is one of the many IRS tax breaks for businesses that was included in the 2020 CARES Act as well as the recent Consolidated Appropriations Act, 2021.  The goal of the credit is to provide financial relief to businesses that suffered from the effects of coronavirus but retained their employees.

The credit is available to eligible employers that paid qualified wages from March 13, 2020 through June 30, 2021. To be eligible, requirements include having the business shut down due to national, state, or local orders or having experienced a significant reduction in gross receipts – 50+ percent in 2020 and 20+ percent in 2021 – in a quarter.

Wages and health costs can be counted for the credit, and there is a cap of $10,000 per employee per year. For 2020, the credit is 50 percent of qualifying wages, and for 2021, the credit is 70 percent of qualifying wages. Any wages used in a Paycheck Protection Program loan forgiveness process are not eligible; in other words: no double-dipping.

This tax credit is a little different as it interplays with payroll taxes and not income or business taxes. The credit can be taken on the IRS Form 941. Some employers can request an advance by completing Form 7200, although the February 1, 2021 has passed for most businesses. Tax professionals are awaiting further guidance on details of the expanded program.

For qualifying employers, the amount of the credit can be substantial. Since this credit affects your payroll taxes, payroll tax forms, and payroll tax filings, you will want to make sure it doesn’t fall through the cracks, especially if your payroll function and your income tax preparation are handled by two different companies.

If you feel your business might be eligible, contact your tax professional to see how to get started.

New Tax Deadline Is Official — July 15, 2020

Both the IRS and Treasury have announced that the deadline to file AND pay your individual federal income tax for the tax year of 2019 has been extended to July 15, 2020.

While Florida residents are not subject to state income tax, others are. For information on your state income tax response, please see this link: https://www.taxadmin.org/state-tax-agencies.

If you cannot file your return by July 15, 2020, we can help you file an extension until October 15, 2020. The payment is still due by July 15, however.

If you are due a refund, we encourage you to file as soon as possible so you can get that cash influx as early as possible.

For a while last week, we relied on a tweet from Treasury to document this news. But news releases were posted over the weekend to both the IRS site: https://www.irs.gov/newsroom/tax-day-now-july-15-treasury-irs-extend-filing-deadline-and-federal-tax-payments-regardless-of-amount-owed and Treasury: https://home.treasury.gov/news/press-releases/sm953 documenting the changes in deadlines.

There’s a lot to worry about right now. If one of the things you’re worried about is your taxes, let us take that worry off your plate so you can focus on other things. We’re here for you when you’re ready.

MSPs: Stay Ahead of the Curve

As the global pandemic brings business and the economy to a grinding halt, you may wonder what steps you can take now to protect your business, your employees, and your customers. CISA.gov lists the Information Technology Sector as one of 16 critical infrastructure sectors needed to stay open and operable during a national crisis. Here are some steps you can take right now to alleviate stress on your business.

Payroll

The IRS outlined provisions for the Families First Coronavirus Response Act (FFCRA). The new law will take effect on April 2, 2020 and remain in effect until December 31, 2020. Here is a quick rundown of the provisions. Consider finding a way in your PSA or payroll system to track COVID-19 related leave separate from normal PTO.
– For COVID-19 reasons, employees receive up to a maximum of 80 hours paid leave
– Employers receive 100% reimbursement for the wages
– Employers face no payroll tax liability
– Self-Employed individuals receive an equivalent credit
– Employers with fewer than 50 employees are eligible for an exemption, but can voluntarily comply. Employers with 50 – 500 employees are mandated to comply within 30 days. Employers with over 500 employees do not qualify for the credit.

Complete details can be found in IR-2020-57 at: https://www.irs.gov/coronavirus. If your employees are forced out of work, please take advantage of this program to keep them paid.

Income Taxes

The IRS has announced the April 15 tax filing date has been moved to July 15, 2020. If your return has been filed and you wish to cancel your automated payment, you can call the IRS e-file Payment Services at 1-888-353-4537. This is an automated service available 24 hours a day, 7 days a week. This relief also includes estimated tax payments for 2020 that are due on April 15. Take advantage of this extra time to save for the tax balance due. Contribute to a SEP or IRA, since those deadlines are extended, too.
For information on your state income tax response, please see this link: https://www.taxadmin.org/state-tax-agencies.

Inventory Purchases

Dust off your crystal ball and peer into the future for this one. There are two possible outcomes that will invoke Economics 101 – Supply and Demand. Hardware and computer supplies may become limited and pricing could return to that of a 1991 personal computer. Therefore, it may be tempting to stock up on computers now when the price is low. However, if the economy continues to sink, you could be left holding those computers with no one to sell them to. It may be a waste of valuable company resources.

Reduce stock and inventory purchases to keep on hand. You may need that cash in the coming weeks. Consider keeping only one or two computers on hand for a quick turnaround. Otherwise, only order equipment that your customers have paid for.

If you are not already doing this, immediately implement a policy in your company to collect on all hardware invoices prior to ordering. Now is not the time to extend credit needlessly. You will only harm yourself by charging the purchase to a credit card and paying interest on those charges if your customer slow-pays the invoice. If they want to slow-pay the invoice, they can slow-wait for the hardware.

The End of AYCE Managed Services

For those working around the clock to get your customers’ employees set up to work remotely from home, this is for you. You may have an all-you-can-eat managed service agreement that covers everything, and you may struggle with whether you should charge your customers for this extra work that no one saw coming.

The answer is, “Yes! Absolutely charge them.” These are new installations, new connections, and far outside the normal course of your managed services agreement. To be expected to connect 100 remote workers in 48 hours for free is unreasonable.

Explain to your customers how securing remote connections and the home offices of their employees is time-consuming and you want to devote all the resources possible to getting it right. This cannot be done for free. Offer to spread the cost over future months if it will help the customers, but remind them that you are still required to pay your people overtime for working to keep them safe and operational.

We already knew that the all-you-can-eat concept is going out of style. This pandemic may pave the way for AYCE to go the way of the leisure suit.

Check Your Subscriptions

You should do this on a regular basis anyway. Review the subscriptions you purchase and make sure you have a customer being invoiced for it. Often, we switch subscriptions like AV or security and fail to cancel the old vendor when the new one is implemented. Check each vendor to ensure you have a legitimate reason for sending them money each month. Are the bills accurate? Do you have any services you can consolidate for a lower monthly cost?

Stay Connected with your Financials

With so many other things needing our attention, it is easy to let your accounting system go. Don’t do it. If there is a problem with profits, you want to know that now, not later. Stay on top of the accounting reports, financial metrics, and any slump in revenue. Any changes should be scrutinized and corrected as quickly as possible.

Accounting Tasks at Year-End

You might wonder why there are so many extra tasks at year-end. While the government requires much of the work, there is clean-up work and adjustments that need to be done to make the books accurate. It’s not always cost-effective to perform all of these updates monthly, so you’re actually saving money by doing some of them at year-end.

Here are just some of the items that are performed at year-end.

Tax-related:

  • If you have payroll, employees need to be sent their W-2s, and the federal and state government need a copy of the W-2s with a W-3 transmittal.
  • For employees, you must also have an up-to-date W-4 signed by them.
  • For employers, your federal unemployment 940 return is due.
  • If you have contractors, they need to be sent their 1099s, and the IRS needs the 1099s and the 1096 transmittal.
  • For contractors, you must also have an up-to-date W-9 form from them. You may also need to request an insurance certificate, or you may get a surprise at your workers compensation audit.
  • For vendors that claim exemption from sales tax, you’ll need to be sure you have an exemption certificate in your files from them.
  • If you pay sales tax annually, your return and payment are due.
  • Your personal federal, state, and local income tax and returns are due in the spring, and they can be extended until later in the year.
  • Depending on the type of entity your business is organized as, you may have franchise, federal and state tax returns to file. This deadline comes up sooner than the individual tax return due date.

Books-related:

  • Just about every asset on your balance sheet needs to be verified in some way or other:
    • Petty cash accounts need to be reconciled and reimbursed as of year-end
    • Bank accounts need to be reconciled with the bank statements. This includes PayPal.
    • Accounts receivable balances and all other receivables need to be tied to each customer and any amounts determined to be uncollectible need to be written off.
    • A physical inventory count needs to be taken and the inventory account should be adjusted accordingly.
    • Fixed assets need to be reconciled to their fixed assets ledger and depreciation should be properly recorded.
    • Goodwill accounts need to be checked and amortization adjusted.
    • Accruals, deposits, deferred accounts and all other asset accounts need to be adjusted if necessary.
  • Liabilities and equity need to be adjusted too:
    • Accounts payable balances and all other payables need to be tied to each vendor.
    • Liabilities that haven’t been recorded need to be added to the books.
    • Loans need to tie to lender statements, and interest paid on loans needs to be properly expensed.
    • The Equity accounts need to be checked and tied out to prior year balances.
  • Corrections and adjustments need to be made:
    • Any misclassifications and corrections need to be made on the books with adjusting journal entries or other classification tools.
    • If the client is a cash-basis taxpayer, a reversing journal entry needs to be made to get the correct tax numbers.
  • A clean set of reports can now be run and used.

Documents-related:

  • This is a good time to file and store your receipts in case you are ever asked for them. For long-term storage, thermal receipts should be copied or scanned in before the ink fades.

If you’re wondering why we’re so busy this time of year, it’s all of the extra work we have to do over and above the normal monthly load. If you have questions about any of this, just ask anytime!

Your Obligations Regarding 1099-MISC

So, you think you can dodge your income tax responsibility by failing to provide your Social Security Number to a company who used your services?

Let’s talk a little more about what happens when you fail to provide the required information to the Internal Revenue Service. There are two sides to this problem.

Problem 1 – The company doesn’t want to issue a 1099 because they want to pay the person “under the table.” Well, under the table means “off the books.” If you don’t report the amounts paid to that person, then you do not get to take a deduction for those amounts. That is how tax deductions work. In order for one company to claim a deduction, another person or company must claim the income. This process keeps tax from being paid on the same income twice, with obvious possible exceptions. Now, if you want the deduction, but do not issue the 1099-MISC, you not only stand to lose the deduction, but you will also face penalties for failing to file. The penalties start at $50 per form if they are under 30 days late and jump to $100 per form after the 30-day mark.

Problem 2 – an independent worker refuses to furnish his/her Social Security Number or Tax Identification Number. They think they’re pulling a fast one, right? Wrong. The IRS is already onto them and have been for years. The company that paid you is still required to file a 1099-MISC with or without that Social Security Number. They will simply file the form with no number in the box. However, your name and last known address will be on the form. The IRS already knows who you are.

In about 60 days, you will receive a letter at your new address, because the IRS gets notified of all changes in addresses. You are now subject to backup withholding. What’s that, you ask? Your bank accounts will withhold 24% of all interest and dividend payments to you. Your other vendors will be instructed to withhold 24% of all payments to you. Your merchant accounts, if you accept credit cards in your business – 24%. PayPal – 24%. Stock and broker transactions, rental income, and any other income you receive from other people, except those whom you convince to pay in cash. You will have this backup withholding monkey on your back until you supply the original company your Social Security Number so they can file a corrected 1099-MISC.

The IRS takes information reporting very seriously. It is their only method of keeping everyone honest. This stuff really isn’t hard. Don’t make life more difficult than it needs to be. File your forms on time and leave the games to the kiddies at home.

One final note. I spent some time last week chatting with Karl Palachuk about the new taxes. We started our conversation discussing Forms 1099 and vendor payments. Here is the link if you’d like to take a listen: SMB Community Podcast