Phil Twede

Free Money: Why You Are Losing Out on Money and Don’t Even Know It

Founder, Coral Accountants And Advisors

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Phil Twede:

Well, let me share my screen here. Do you see my screen?

Chris Linford:

We can see it.

Phil Twede:

Awesome. So yeah. So the title of my presentation is Free Money. Well, I mean, it’s kind of a misnomer, nothing’s really free. And in this case, what I’m presenting about today, typically you have to qualify for it.

But as Chris said, my name is Phil Twede. I am with Coral Firm. And we specialize in R and D tax credits and employee retention tax credits. I’m going to talk about employee retention tax credits today, just because of the value that’s available to you and your business.

Legal Disclosure

Just to get this ugly stuff out of the way, this is just a quick legal disclosure. This information really is for your information only. Every circumstance and every situation is different. So, you have to apply the specific facts and circumstances to every situation. So consults your advisors or legal counsel before acting on any matters covered.

But now that’s out of the way, it is kind of funny because I typically present to more CPA type people. So I thought I’d bring some of the more famous CPA people with me. The ones from Hollywood. That way I could feel a little bit more at home.

Typically, in the beauty space I can’t even draw a straight line. I can’t cut a straight line and I always laugh and say, I’m very grateful for the people in your industry because then I get at least a decent looking haircut. Even though I am losing a little bit here and don’t have as much as Chris and some of the Oozle guys have.

Accounting concepts are typically very, very complicated. Even basic accounting concepts, they do typically just fly over when CPAs and accountants are talking about them. My goal here, I actually read a stat and the least rated presentations are typically CPAs and attorneys. So, my goal here today is to kind of flip that around and give you a lot of value add, but also keep you interested during this presentation.

So don’t touch that dial. This presentation really is for everyone. If you have never heard of the employee retention credit, if you have already filed for your employee retention credit, or if you maybe you just know a little bit about it, I have something for you today.

Audience Question 1: Has Your Business Already Filed for ERC?

Our audience question number one, and if you could answer in the chat box, has your business already filed for the employee retention credit?

All right, I’m not seeing the results, but there must be results somewhere. It must be based on how my screen’s presented. My concern is that there’s a mix of people that have already filed. And there are some that haven’t necessarily heard of it yet. I’ll probably lean more in terms of people that have already filed.

Chris Linford:

They’re coming in on the chat, Phil. So we got a lot of nos, a lot of yeses, and we have CPAs calculating now.

What is the ERC?

Phil Twede:

Awesome. All right. So let me just jump right into it. What is the ERC, employer retention credit? I’ll refer to it as the ERC going forward, just because it’s kind of a mouthful. Now, it’s a fully refundable tax credit, which means you file for it on 941s. It’s not on your income tax return. It’s your payroll tax, your federal quarterly payroll tax return.

You basically figure out if you qualify, you calculate what your credit is, you send it to the IRS and right now it’s about four to eight months until they’ll send you a check, but you get a check in the mail for the credit amount. It’s not related to your income taxes like you would think it would be.

The other thing that is critical is that even if you’ve received other COVID relief grants, payment protection program loans, any of it, you can still qualify for the ERC. And there’s actually ways that you can maximize the credits. A lot of companies can maximize and get forgiveness for PPP, other grants, and the ERC. So it’s a huge benefit.

One major thing obviously is you must be a qualified employer that pays qualified wages, so you have to qualify for it. And it’s also applicable to 2020 and 2021. Since the pandemic started, there’s been a lot of programs and this is another one. Honestly, it fits right in there with the payment protection program in terms of the benefit. It’s massive.

One side note, if you’re a recovery startup business. If you started a business during the pandemic, you actually qualify for Q4 2021 as well.

One Year is Not Like the Other

One year is not like the other, the credits are different. 2020 credits, they’re a lot more restrictive. They’re not as valuable. One of the major ways that you can qualify is what they call a significant decline in gross receipts. For 2020 you had to have a 50% decline. So, when you’re looking at a quarter in 2020, let’s say Q2, you’d compare it to Q2 2019 and if you had a 50% decline, you would qualify based on your gross receipts decline.

For 2021, they really changed that. Even if you maybe talked with an accountant or a CPA or somebody else about the ERC, there’s been a lot of changes and a lot of amendments. For 2021 the significant decline in gross receipts drops to only 20%. So, a lot more people qualify for 2021.

Again, the credit percentage. What is this worth? For each employee that you have for 2020, you can take $10,000 for the year from the period of March 13th, 2020 to 12/21. You can take the first $10,000 of their wages and get a 50% credit.

Basically, the maximum credit per employee is $5,000 for 2020. For 2021, they really ramped it up. It’s actually in an assessment on a quarterly basis. It’s the first $10,000 of each of your employees, the first $10,000 of wages and actually health insurance as well that you’re paying for them. You get 70% of that. So, you get up to $7,000 per quarter, per employee. If you got it for Q1 through Q3, that would be worth $21,000 per employee to your company, so a ton of huge value. I mean, this is a massive program and it is huge.

Two Ways to Qualify

Okay. So, you might ask, “Well, what are the other ways to qualify?” We already talked about the significant declining gross receipts. And I apologize in advance, I am a CPA, so my slides do have a lot more words than the other creative presenters today.

Significant decline in gross receipts is an easy way to qualify. Basically, you look at your P and L, do the comparison and go, “Okay, we qualify.” Document it, make sure everything looks good and move forward. The other way is the government orders test. What that [means] is that if you had a full or partial suspension of operations due to an order from an appropriate government authority, that limited commerce travel or group meetings due to COVID-19 then you could qualify. There’s a lot of ways that this could impact you.

Orders from an Appropriate Government Authority

Let’s get into government orders a little bit because that’s where this really gets interesting. It’s also where you really, really, really need to understand what you’re doing and your advisor needs to understand so that you are documenting and providing the information that you need in case you get audited by the IRS.

Orders from an appropriate government authority are orders, proclamation or decreased from the federal government or any state or local government, as long as they limit commerce travel or group meetings due to COVID-19. Statements from a government official don’t count. So, recommendations from the CDC don’t count. They have to be firm government ordered. What I do for my clients is I go back to the government orders and I find the periods that they were in place, and we document this is the government order, this is how it impacted the business and make sure that they’re covered, because it’s critical. It is very vital to understand and document the relevant government orders. It’s massive. I can’t overstate it, I guess is what I’m trying to say.

Beauty School Considerations

So, what are some beauty school considerations? Because that’s the industry that you are in. Any government orders that close beauty schools. Any government orders, the period in which you were shut down, you would qualify automatically because you couldn’t do business. If you have limited enrollment capacity, maybe you have social distancing requirements. So you have a reduction in headcount in your school because you can’t bring as many people in.

Now, the one thing you have to consider there is a reduction in demand from customers. If you just had fewer applicants and therefore fewer people in school, then really the IRS is… you have to rely on the substantial reduction in gross receipts. You can’t necessarily rely on a government order there.

One thing that I have seen is proof of reduced capacity via having to reject applications for enrollment due to the space constraints. So if you have stuff like that, and you’ll want to keep and maintain those records that you can show an IRS auditor if they come and ask.

Another thing is canceled or limited career fairs and festivals. The major thing here is it must have been more than a nominal portion of your operations during 2019. You can’t just have a small insignificant portion of your operations that you couldn’t do and then you qualify. You have to go back and look at 2019 and go, “oOkay, it was significant and we couldn’t do it because of the government orders. So now we can qualify it.”

Again, cancellations and limitations have to be due to governmental orders, and it can’t be voluntary. If there’s no government orders in place, but the career fair promoters or the festival promoters were just saying, “Eh, we’re just not going to do it because of COVID. There are no restrictions, but we’re just not going to do it.” Then again, you wouldn’t qualify there.

The other thing that you should consider is the Higher Education Emergency Relief Fund Grant. So, HEERF. If you received HEERF, it’s the same thing as with PPP or the payment protection program. You have to take that into consideration when calculating how much you can get for the ERC, because you can’t double dip. You can’t use the same wages that you use for forgiveness on your PPP for employee retention. That’s what they call double dipping. And you can’t do that.

All right. That’s a lot of information. And really that’s just scratching the surface. This is a very nuanced, very, very, very tricky thing to get through. It is very, very critical that you work with somebody that really knows what they’re doing here.

But I feel like you’re probably like Bill here, like, can we stop talking about accounting and maybe actually do some accounting. Right? That’d be great.

Audience Question 2: Do You Believe Your Business Qualifies for the ERC?

All right. Audience question number two. Do you believe your business qualifies for the ERC? I’ll give you a few minutes to enter your responses. And again, I can’t see them. I don’t know why, but that’s all right.

Chris Linford:

Phil, hey, click on the chat bubble at the bottom and or don’t be in full screen. You’ll be able to see the chat.

Somebody said in there. “Hm. We got the PPP. So we may not qualify.” You want to answer that real quick?

Phil Twede:

Yes. Even if you got the PPP you can still qualify. You just can’t use the same wages that you used for the PPP to get the ERC. But my experience is shown that a lot of times you can still maximize both. So there’s a lot of considerations to look into. And Chris, I think the reason why I’m in a presentation mode on my screen, and I don’t want to mess that up. So it’s not showing the chat box.

The Ten Frequent Mistakes

But all right, let’s move forward here. Okay. One thing that I really wanted to address, because this is very, very important. I actually have a direct line into the IRS, and I’ve been talking to the people that write the standards on this. They’re writing the interpretations from the IRS. And what they’re seeing is some bad things going on.

One:
So, I’ll talk a little bit about that. If you’ve already received an ERC, you may want to go back to your provider and get some documentation. But to start, one of the biggest mistakes is assuming you do not qualify. To say, “Well, we probably don’t qualify because we got PPP or we had a banner year. And so we probably don’t qualify.” Don’t make that mistake. Have it checked out, see if you really do qualify, because there’s a good chance you do. And the value here is enormous. So, if you do qualify, it’s usually a few thousand dollars, it gets huge. I mean I’ve seen millions of dollars in claims go through companies. It gets big especially if you have a lot of employees. That’s number one.

Two:
Number two, hiring the wrong partner. That’s what I was alluding to upfront. There’s a lot of bad things going on with some providers that especially online, just pop up employee retention credit firms. They’re not CPA Firms. Most of them actually have a disclaimer on their website that says, “We can’t give you any advice. Go talk to your CPA or your attorney.” Their engagement letter will say the same thing, what they’re doing.

I’m actually working with a gentleman right now. He’s an essential business that didn’t have any government orders that impacted him. His revenues increased. We looked at everything. We turned over every stone. And I said, “I just don’t think you qualify.” And he’s like, “Well, this company already went through the process of filing for me.” So, he now is extremely upset and frustrated and is wondering, well, is the IRS just going to come after me now? What’s the deal?

You got to hire somebody that knows what they’re doing, but that also has a background. I recommend CPA firms. I’ve got a slide on that as well, but just be very, very careful who you hire.

Three:
Incorrect eligibility determination. That kind of goes along with that. These partners that are just out there to make a quick buck. They’re basically automatically qualifying everyone because they’re taking a percentage of the credits. They don’t really care about your business, or the IRS audits you because you’re going to be left holding the back there. All they care about is getting their percentage.

Four:
Double dipping. That’s what we talked about before with HEERF and the payment protection program. You got to make sure that you have somebody that knows how to handle that so they can plug it into a model and get you the best results.

Five:
Not considering aggregation rules. If you own multiple businesses for the ERC, you most likely have to consider all of those businesses as one. When you’re looking at the red revenue test, the decline in gross receipts, you have to combine businesses. I mean that in and of itself, that portion of the tax code is super complicated. So again, you have to have somebody with a background and knows what they’re doing.

Six:
No consideration of 50% plus owners and relatives. If you’re an owner, 50% or more, your kids don’t qualify, your parents don’t qualify, siblings, brothers, sisters. You got to take that into consideration.

Seven:
Left out wages or benefits. Again, it’s not just your wages that count. It’s also an allocation of your healthcare expenses. So if you pay for that for your employees, you can put that in there.

Eight:
Failure to optimize with PPP forgiveness. Now this, it can go both ways. I come across this all the time where certain people have just gone to maybe their accountant that does their tax return. They don’t really have a background in the ERC and they go through the process, they calculate everything and they come back with a number. Then they come to me for a second opinion and I put it into my models and I’ve had people get 50% credit more because their accountants are just saying, “Oh, well they had PPP during this quarter. So they don’t qualify.” Or there are other reasons that can cause it. But there’s a lot of moving parts here. It’s incredibly complicated. So it’s important that you go through everything and turn over every stone.

Nine:
Little to no documentation for audit purposes. Again, huge, massive. You have to have documentation. If you have received a credit and you do not have documentation, go back to your provider and say, “I need my qualification documentation. I need the calculations. I need the memo.” If there’s government orders, you need to get it from them so that you have that on file.

Ten:
Last but not least, failure to consider income tax implications. When you get an ERC, you actually can’t take the amount. For instance, your payroll and wages. You can’t take that as a deduction on your income tax return.

There’s a lot of different things. These are the kind of the top 10 that I see popping up.

So this is Milton here. My attempt at humor, once again. I was told there would be documentation. This is what the clients look like when I ask them if they have documentation and they don’t. Then they go back to their provider and their provider tells them, they don’t as well.

Audience Question 3: If You Already Received the ERC, Are You Concerned that Any of These Mistakes Were Made?

All right, audience question number three. If you’ve already received the ERC, are you concerned that any of these mistakes were made?

Chris Linford:

That’s a great question, Phil. Phil, we also have a question in there. Is there a deadline to file for the ERC?

Phil Twede:

The deadline is three years from when your original 941 was filed. Actually, for Q3 and Q4 of 2021. If you get Q4, they actually extended the statute of limitations to five years. S,o it’s either three or five years, depending on the quarter that you’re looking at. But there’s plenty of time to file.

Chris Linford:

Yeah. If you don’t know if you’ve made those mistakes, if you feel like maybe you did, or you just like to double check, we have in the chat a way to contact Phil. We’ve got his phone number. We have his email address, Phil@coralfirm.com.

Phil, are you willing to talk to people and ask them a few questions and help them determine if any of these mistakes were made or even if they qualify?

Phil Twede:

100%. I have conversations almost daily with people. This is something that I’m extremely passionate about. As Chris said, I have dug extremely deep on this. I have resources at the IRS that are writing this stuff. They’re writing the interpretations. It’s something that, like I said, I’m passionate about. I like to have the conversation and dig on it and see if you qualify. And if you didn’t we can talk about that and see what you can do there as well.

All right. Just quickly. I know I’ve already got a little bit over here, Chris. But just quickly. Why hire a CPA firm that knows ERC? And specifically [one] that knows ERC because not all CPAs do. CPA firms are actually helped to a higher standard by the AICPA and state boards of accountancy. They’re governed. They have people looking over them.

The pop up shops that are coming up, they are a business [and] they’re just in it for a quick cash grab. They don’t have a reputation to maintain. Online shops and other non-CPA firms may not be around when audits start happening. And audits will come. They are already gearing up for them. As I mentioned, I’ve been talking to the IRS, they have a task force. This is something that they know has a lot of potential for audit associated with it. They’re going to be hitting it really hard.

Non-CPA firms skimp on the required documentation. As I’ve said before, they’re performing incorrect qualifications and calculations. They’re rushing the process with no attention to the finer details, just a quick cash grab. And they’re also charging exorbitant fees. I’ve heard of people paying 30% of their credit amount to a pop-up shop that calculates their credit in 15 minutes and filed their 941s for them.

So it’s very, very important that you get this right. And like Chris said, I am open to have the conversation with anyone. If you’re interested, just give me a call, shoot me an email. I’ll put my information back up here and I’ll also put it in the chat here.

Thanks Chris for allowing another CPA to come in here and present. I appreciate it. And I appreciate everyone for hanging in there with me as well.