The Employee Retention Credit has helped thousands of small businesses navigate the economic uncertainties created by the pandemic. However, a concerning trend has emerged alongside this valuable tax incentive – unscrupulous providers. Such providers and an increase in improper claims have led to increased scrutiny from the IRS, which could potentially lead to audits. Business owners must understand the risks involved and implement proactive measures to reduce the likelihood of an ERC audit.
Understand the basic requirements of eligibility.
Businesses can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and December 31, 2021. Companies could be eligible if they experienced a full or partial suspension of operations due to a government-ordered shutdown during the applicable periods. A business can also qualify if it saw a decline in gross receipts. Also, and this one too many people are confused about, companies can still qualify for the ERC even if they received PPP loan forgiveness.
Consult a CPA before engaging with an ERC specialist.
The complexity of the requirements surrounding the credit can be bewildering, making it essential to seek guidance from tax professionals well-versed in ERC rules. That’s where many business owners get into trouble, falling prey to third-party specialists dishing out false hopes and information. By consulting a trusted and reputable financial expert before signing any agreements with third parties, businesses can gain valuable insights, navigate the intricacies of the ERC, and reduce the risk of improper claims or audit scrutiny.
Learn how to spot the red flags.
When choosing an ERC specialist, not all companies are created equal. So how can you tell if a company is legitimate or not? Look for red flags. Be cautious of providers who oversimplify the eligibility process. It should alarm you if a provider does not request documentation to verify your business’s eligibility. While companies are not required to provide such documentation to the IRS, they should ensure they can substantiate their claim and meet the eligibility requirements. It’s also important to be wary of companies that use pressure tactics to prompt quick action, firms that charge substantial upfront fees, or those that base their fees on refund amounts.
Are you eligible for a credit?
Once a business determines its eligibility, it must follow the proper procedures to claim the credit. This involves filing Form 941-X, an amended quarterly payroll tax return, for each quarter in which the credit is sought. For 2020, businesses have until April 15, 2024, to file; for 2021, they have until April 15, 2025.
Businesses can confidently navigate the ERC landscape and maximize their financial support by meticulously following these steps and aligning with tax professionals like Boris Benic and Associates. If you have any questions at all about how the ERC applies to your company, set up a consultation with us to review your situation.