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Whether you consider them a necessary evil or the bain of your existence, business taxes are complex…and required. If you’re looking to gain a better understanding of business tax basics or you want to learn about the most recent business tax credits and deductions to discuss with your accountant when tax time rolls around you can use these resources as a jumping off point.

Employee Retention Tax Credit Kapitus Small Business Lending accounting

Are You Still Eligible for Employee Tax Credits?

September 8, 2022/in Manage Your Money, Taxes/by Vince Calio

Thousands of small businesses are checking to see if they are still eligible for the popular Employee Retention Tax Credit (ERTC). While the sun set for the ERTC in September 2021, there is still a chance to retroactively claim that tax credit in 2022, albeit through a somewhat lengthy tax filing process. If your small business didn’t take advantage of this tax credit at the height of the pandemic, you could still be eligible for free money.

Is Your Business Still Eligible?

According to the IRS, if you operated a small business in 2020 and 2021 you must demonstrate that your business suffered a significant loss of business or was forced to temporarily close due to COVID-19 and COVID-related government shutdowns, yet you still retained your employees (at least on a part-time basis), to still be eligible for the ERTC. 

You should have a conversation with your accountant to see if you still qualify for the ERTC, but generally, to satisfy IRS requirements:

  1. You need to still have your gross receipts from 2020 and 2021. Your receipts from 2020 and 2021 should show that your gross income was at least 50% below what it was in 2019, or
  2. Under the Consolidated Appropriations Act (CAA) of 2021, businesses (including nonprofits, hospitals, educational institutions and 501c organizations) that were affected by closures and government-mandated quarantines and experienced a 20% drop in gross receipts in 2020 and 2021 compared to 2019 are still eligible.
  3. Under the American Rescue Plan (ARP) of 2021, businesses can be eligible for the ERTC if their receipts reveal a 50% loss in gross income in 2020 in the quarter immediately following the quarter in 2019 – not just to the corresponding quarter in 2019.
  4. The CAA also extended the dates for eligibility for the ERTC. The legislation stated that small businesses can still use wages paid through Q3 and Q4 of 2021 to claim a refundable tax credit of up to 70% of the qualifying wages, with a maximum of $7,000 per employee per quarter. 
  5. The Coronavirus Aid, Relief and Economic Security (CARES) Act of 2020 originally did not allow for small businesses that received a Paycheck Protection Program loan to claim ERTCs, but the CAA changed that. Employees that received a PPP loan can still retroactively claim the ERTX for past quarters by filing Form 941-X from the IRS.

How do I go About Applying for the ERTC?

Eligible Small business owners should speak to their accountants first, and then can still claim the ERTC when filing quarterly taxes using Form 941 Employer’s Quarterly Tax Return for applicable periods. If an employer does not have sufficient funds to cover the credit (because Social Security and Medicare taxes must be paid in order to be eligible), they can receive an advance payment from the government by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19 to the IRS.

Don’t Throw Away Free Money!

Economic times continue to be uncertain for small businesses, even in the waning days of the COVID-19 crisis, so you can’t afford to give up chances for free money. Talk to your accountant to see if your business may still be eligible for the ERTC. You could get up to 7,000 well-deserved dollars per employee for doing your part to keep people employed during the height of the pandemic.

https://kapitus.com/wp-content/uploads/ERTC-Feature-Photo.jpg 858 2000 Vince Calio https://kapitus.com/wp-content/uploads/Kapitus_Logo_white-2-300x81-1-e1615929624763.png Vince Calio2022-09-08 06:00:092023-07-31 11:51:59Are You Still Eligible for Employee Tax Credits?
how to determine if you are going to get an irs audit

What Red Flags Will Trigger an IRS Audit, and How to Minimize Them

February 6, 2020/in Manage Your Money, Taxes/by Wil Rivera

Is there an IRS audit in your future? Don’t simply hope the answer is no. How you handle your small business’ finances – in the way you spend money and how you document those transactions – can increase or minimize whether you’ll face IRS scrutiny. Focusing on red flags that’ll trigger an audit will help protect you and your business more efficiently. What the IRS says about the “examination process” includes a hopeful prospect: “Some examinations result in a refund to the taxpayer or acceptance of the return without change.”

Don’t count on it. And, remember: An IRS audit can inflict pain even if you come out smelling like a rose. The process of pulling together every financial record you need could put a strain on you and your bookkeeping department.

IRS Audit Triggers

So, what triggers an audit? General factors, according to the IRS, include the following:

  • “Related examination.”

This means: If the IRS audits one of your customers or suppliers, and asks questions about your tax returns, you might be next in line for scrutiny.

  • Information matching.

If there’s a discrepancy between your bank reports for the IRS (and you) and the interest it paid you over the course of the tax year, and what you report in interest income, a bright red flag goes up. Keep in mind that credit card transaction processors are required to file a 1099-K form to the IRS summarizing total payments you received that way.

  • Local initiatives.

Sometimes, regional IRS offices decide to focus on particular business sectors because it has found a lot of abuse there. There’s not much you can do to reduce your changes of an audit in this scenario.

Also, all things being equal, the type of business that you are – whether you’re a C Corp, or a Sub S or sole proprietorship – can affect your odds of being audited. That’s because it’s easier to blur personal and business finances when your personal and business finances are combined in a single tax return.

Another factor is the size of your business. The larger the company, the more money there is to be reclaimed by the IRS in a typical audit scenario if there’s any abuse. So, you’re more likely to stay below the IRS’s radar if your revenue is $1 million than if your revenue is $10 million. Even so, that doesn’t mean that you shouldn’t grow your business merely to lower your chances of an IRS audit.

Automated Audit Trigger System

The heart of the IRS audit process is called the “discriminant function system,” or DIF. The IRS assigns varying DIF scores to taxpayers–individuals and businesses–based on numbers and ratios they report. Like Google, the IRS doesn’t reveal anything about the DIF. Still, there’s plenty of evidence of where it focuses.

A basic example is the ratio of your total claimed business expense deductions to your overall business income. Of course, you can operate at a loss from time to time. But if that happens often, the IRS will probably take a closer look. Still, you’ll be vindicated if all of your expenses are legitimate.

The DIF focuses on areas typically prone to abuse, such as business meal charges and travel. If you frequently expense for these reasons, keep detailed records and receipts. This goes for expenses of at least $75.

Since 2018, you’re required to separate your food and drink expenses from the entertainment portion. The cost of the entertainment portion (e.g. theater and sporting event tickets) isn’t deductible. As always, keep notes on the purpose of business meals, who attended, and your relationship to those individuals.

Here are some additional areas of IRS scrutiny for statistical anomalies when looking for audit candidates:

  • Independent contractor overload.

If you use a lot of support from freelancers to whom you issue a 1099 instead of a W-2, this might trigger the IRS. Be sure you classify freelancers appropriately.

  • Home office deductions.

Remember: You can’t deduct the cost of an entire room if you’re only using the corner. The time you spend working in that room compared to everything else you use it for, matters.

  • Business use of a personal automobile.

This is an abuse-prone area, too, like food, drink, and entertainment expenses.

  • Sloppy math.

You might think an error involving an inconsequential amount of money isn’t a big deal. To the IRS (and probably the DIF system), small errors can be an indication of larger errors also present and worthy of discovery.

  • Large cash transactions.

In the unlikely event you are paid $10,000 or more in cash in a single transaction–and fail to report it on IRS form 8300–you could be audited.

Does Form 8300 Trigger An Audit?

The Internal Revenue Service places significant importance on the documentation required for IRS Form 8300 as it pertains to substantial cash transactions of $10,000 or more, in order to combat money laundering. Consequently, even though it is not guaranteed, submitting IRS Form 8300 may result in an audit.

There’s no set way of escaping the possibility of an IRS audit. But, by paying attention to red flags and preparing to answer possible questions about your expenses, you’ll save yourself a lot of grief in the long run.

https://kapitus.com/wp-content/uploads/2020/02/iStock-1135581630.jpg 1414 2121 Wil Rivera https://kapitus.com/wp-content/uploads/Kapitus_Logo_white-2-300x81-1-e1615929624763.png Wil Rivera2020-02-06 11:50:352023-08-21 14:04:08What Red Flags Will Trigger an IRS Audit, and How to Minimize Them

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