By Roger McCloud, CEO of Iron Tax Accounting, Finance Solution
It’s no secret that the COVID-19 pandemic has put a large financial strain on many from individuals to large corporations. Businesses have taken a hit, and many are scrambling to find relief. What many have not been focusing on is the strain healthcare practices are feeling during this time.
Thanks to provisions in last month’s Coronavirus stimulus package, and just in time for tax season, the Internal Revenue Service (IRS) has released information that could provide some relief for these practices. This new provision states businesses that did not receive forgiveness on Paycheck Protection Program (PPP) loans in 2020 can instead claim the Employee Retention Credit (ERC) for the final quarter of 2020 and first all quarters of 2021. The tax credit allows small businesses, like medical and dental practices, to claim $5,000 per quarter in 2020, which adds up quickly. For example, a company with 36 qualified employees would save more than $1 million, but many will likely miss the opportunity and could pay hundreds of millions in avoidable taxes.
Some of the most common reasons why many may miss out are:
COVID-19 Burnout: In response to the pandemic, small business revenues have been drastically reduced. This is causing small businesses to cut corners in order to save money and stay afloat. One of the most common shortcuts being taken is small businesses filing their own taxes. While this usually is not a problem, business owners are getting lost in changing laws from the multiple stimulus packages and federal relief bills put in place over the past year. It’s been hard to keep up with the changes, which is causing confusion and critical details to be overlooked.
Application for PPP Loan Forgiveness Rejected: While many small businesses received PPP loans, there are also many that have been rejected when applying for forgiveness. If business owners do not carefully study the changes need to be made, they may not be aware that they can still claim the ERC under the new provisions.
Second Draw PPP Eligible: Some small business owners may think that since their business is eligible for the second draw PPP, it disqualifies them from the ERC. This is not true. For many businesses, their payroll is large enough to allow an employer to qualify for both. It is critical that business owners double check these requirements and make sure they meet them.
No Significant Decline in Gross Receipts: Some Small business owners may assume that since they have not seen a significant decline in gross receipts, they don’t qualify for ERC. However, if the business had operations that were suspended, fully or partially, then they could still qualify.
Only Small Companies Qualify: A company with 500 or fewer employees is now eligible for the ERTC, regardless of whether employees are working or not, a stipulation of the prior version. Small companies can qualify for a $5,000 credit for 2020 and $7,000 per quarter in 2021.
Small business owners have a lot on their plate this tax season. Juggling the ever-changing requirements and laws has been a proven task that doesn’t have any sign of clarity in the future. As long as business owners stay on top of the changes and know their business needs, there shouldn’t be a problem. It remains critical for businesses to know what is available to them during this difficult time.
About the Author
Roger McCloud is the Founder and CEO of Iron Tax, Accounting & Financial Solutions. He is originally from Russellville, Arkansas. After High School Roger began his career in accounting at Jackson Hewitt. Following his time at Jackson Hewitt, Roger decided to further his education by attending Northwest Arkansas Community College, Indiana Bible College (IBC) and Mid-America Christian University (MACU) in Oklahoma City. Collectively Roger gained over 8 years’ experience in accounting and business management.
Known for his visionary style of leadership, Roger started the company with the intent of helping both individuals and businesses grow their wealth. For more information about Roger and his company — Iron Tax, Accounting & Financial Solutions.