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Managing Cash Flow

Managing Cash Flow – The key to surviving in these crisis

Our Firm has had the unfortunate experience of seeing a very profitable business be liquidated because their cash flow was severely disrupted due to the outbreak of Covi-19 and they could not pay rent or wages after the expiration of PPP funds.

Cash is King in current turbulent times and for your business’s survival. Keeping the cash flowing is critical for any business to survive and many businesses were unprepared for the impact of COVID-19.

As the government starts to relax lockdown measures and starts to open businesses, many organizations should take this opportunity to review their future plans including their cash flow for the recovery phase. You could be working this week and then in lockdown next week because of a Government directive, or because you or a family member is a close contact or a casual contact of someone who has tested positive to COVID. If you have staff, the damage could be compounded.

1. Know your business numbers and your financial position

Small business owners may well be in the driver’s seat, but many of them are driving without a roadmap and, if they’re looking at their numbers, they’re looking at them through the rear vision mirror. But it doesn’t have to be that way. Many businesses have found themselves with no cash buffers in their business and personal accounts. They’d been driving blindfolded, not aware of their business profitability or the level of debts racking up.

COVID-19 has brought to light issues that previously had been glossed over. It is likely that your cash flow is already being squeezed by a reduction in income together with additional expenses such as increased health and safety costs. A fresh pair of expert eyes may be able to assist you in evaluating your options more strategically and by identifying potential changes you can make to ease the pressure. Often a brief conversation with someone who understands the challenges you are facing can give you a fresh perspective or some new ideas.

Being able to see the profitability, assets and liabilities of your business in real time means that you will hit those road humps a lot less frequently.

2. Pay yourself first and set yourself targets

Running a small business can be tough and there’s a tendency to take what it left at the end of the week.

Or maybe you take a standard amount of money haphazardly, irrespective of whether the business has made that much money. And that’s when the IRS and credit card debts start to blow out.

Whenever I suggest business owners pay themselves a regular amount from their business, it’s met with trepidation and questions like “but what if there isn’t enough money?”

The fact is, your personal bills don’t reduce if your business’s profit reduces.

Prepare your personal budget and determine an amount you need to generate from your business with a little buffer added.

So, guided by your numbers and your targets, if your profit is dipping and it’s likely that there won’t be enough money to make that weekly amount you need, you could put some of those contingency plans in place. Chase outstanding debtors. Finish off that job and invoice a few days ahead of schedule. Review your job costs and compare to your quote. Review your overheads. Revise your hourly rate.

You’re free to take more money out later on when cash builds up and you have your tax and employee obligations (if you have any) set aside. Again, your accountant can assist you

3. Protect your assets

For some business owners, their liabilities many be unlimited and both their business and personal assets may be on the line and they may be unaware of this.

Now may not be the optimal time to change business structures, as doing so may affect your eligibility to COVID-19 support, but it may be worth having a chat to your accountant to ensure your assets are adequately protected for now and whether it may be prudent to change your business structure in the future. Even if only one owner, incorporating your business as a limited liability company (LLC) will limit creditors of the business to seek recovery only from the business.

As the saying goes “don’t put all your eggs into one basket”. With increased possibility of being sued and scams, mitigate risks by diversifying your assets. You can give property to family members, such as a spouse or children. Property jointly owned with a spouse using “tenancy by the entirety” has strong asset protection. You can also use trusts to add a layer of asset protection.

As a minimum, be sure to carry sufficient liability coverage, which is typically part of your business owner’s policy (BOP). Professionals should carry malpractice coverage. Consider an umbrella policy to add protection on top of existing coverage at a modest cost.

4. Be proactive with spare dollars: Set aside and save

Many businesses have slow seasons due to the seasonal nature of their products or services, and this makes it easy for entrepreneurs to anticipate lower revenues, and plan accordingly. That was not the case with the COVID-19 pandemic. It struck without much warning and caught businesses off guard. As businesses temporarily close their doors, stay open in a limited capacity, or transition to remote work, they still have expenses. Their employees, suppliers, and vendors need to be paid. Of course, there are a number of other business expenses, such as office rent, utilities, insurance, phones, and postage.

Now is a good time to review your company’s expenses to identify those that you might be able to cut. Obviously, you cannot avoid paying office rent and business insurance, and you want to keep as many employees on your payroll as possible, but there are ways to trim your budget. For example, you can put the brakes on travel, trade shows, and company perks and freebies. Also, contact your accountant to ask if you can delay certain payroll tax deposits, or break them into multiple payments.

There is no telling how long the COVID-19 pandemic will affect the U.S. economy, so be proactive and start building up your cash reserve. You can start by totaling your company’s monthly expenses, and seeing how much cash you have remaining at the end of the month. Put as much money into your savings account that is feasibly possible.

If you cut any business expenses, you will have more cash on hand. Take a reasonable amount of what you would have spent on business expenses and stash it away for the future. Putting away even the smallest amounts of cash will add up faster than you might imagine.

5. Check out state, local, and private resources

When you backed yourself and started your business you took a considerable risk. And you deserve to be rewarded well for the risk you took.

Some believe that their retirement nest egg is in fact the business they are building. But we’ve seen during COVID-19, businesses that have been successfully operated for generations have been wiped out overnight and some have even been left with debts.

The Paycheck Protection Program is winding down, and even at its height, getting a forgivable loan under the program has been quite challenging. In the meantime, you can expect your cash flow to remain tight.

Many state and local governments and private corporations have already stepped up to offer special emergency loans, grants, and pools of funds to assist small businesses.  While the CARES Act has gotten all the buzz, there are other local programs that exist. In Maryland several jurisdictions have similar loan & grant programs to do the same or serve a similar purpose.

Here is a quick list of jurisdictions with programs (click the link for additional details)
Anne Arundel County, Baltimore City, Baltimore County, Carroll County, Cecil County, Frederick County, Montgomery County, Prince George’s County .

If you need new funding, explore the following options:

  • The SBA’s Economic Injury Disaster Loan Program, which offers financial aid of up to $150,000 and an emergency grant for small businesses of up to $10,000
  • The SBA’s 7(a) Program that offers loans of up to $5 million for working capital infusion, refinancing debts, and similar uses
  • The SBA’s 504 loan program, which also offers funding of up to $5 million for such purposes as buying real estate or equipment
  • The Federal Reserves’ Main Street Lending Program, which offers loans for small and medium businesses at a minimum amount of $250,000
  • While you may not be able to match the 1 percent rate of emergency federal stimulus, good credit and a good relationship with your local lender means that loans today generally remain affordable. Explore any existing lines of credit your business has or could establish, particularly if there’s land or equipment that could secure a loan.
  • revenue-based financing from your bank, which provides funding to produce a product or service in exchange for a percentage of your business’s revenues

Always keep in mind that each financing option carries certain risks and requirements, so it’s advisable to consult your accountant before signing on to any of these.

Sigma Accountants – Best Columbia Maryland Based CPA Firm

Sigma accountants are the best Tax Accountant in Maryland. We provide pocket-friendly accounting, bookkeeping, and consultancy services to dentists, dental practitioners, doctors, medical practitioners, and small businesses. We specialize in accounting for dental practices and help them increase their net worth.

Our accurate reporting and on-time accounting services make us the best CPA In Columbia MD. Get in touch for a free consultation today and experience the best tax preparation services in Columbia, MD.

You can contact us via the contact form or follow us on social media for timely updates. Facebook, Instagram, LinkedIn.

Sources:

PPP Loans Are Ending. Here’s Where Small Businesses Can Turn Now, CNBC.com
CPAs Tell How to Stay on Sound Financial Footing During Crisis, BusinessJournalDaily.com

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Business Tax Breaks Thanks to the Recently Enacted CAA

Business Tax Breaks Thanks to the Recently Enacted CAA

When you operate a business, you have a variety of tax breaks available.

The recently enacted Consolidated Appropriations Act extends and expands some of the breaks. We bring the following selection of them to your attention as a tax-strategy buffet.

  • You can deduct 100 percent of your dine-in and take-out business meals that are provided by restaurants in 2021 and 2022.
  • For hiring members of 10 targeted groups, you can obtain the work opportunity tax credit for first-year wages through 2025.
  • You can now qualify for the 39 percent new markets tax credit for investments through 2025.
  • The empowerment zone tax breaks that were scheduled to expire on December 31, 2020, are extended through 2025, but the new law terminates, for 2021 and later, both (a) the enhanced first-year depreciation rules and (b) the capital gains tax deferral break.
  • Employers may continue through 2025 making Section 127 education plan payments that cover student loan principal and interest up to the plan maximum of $5,250.
  • For residential rental property that you placed in service before 2018 and were depreciating over 40 years under the straight-line method, you can now use 30 years if you elect out of the Tax Cuts and Jobs Act business interest expense limitations.
  • Farmers may elect a two-year net operating loss carryback rather than the five-year carryback retroactively, as if this change were in the original CARES Act.
  • The $1.80 per-square-foot or $0.60 per-square-foot deductions for energy-efficient improvements to commercial buildings are now permanent.
  • Small Business Administration Economic Injury Disaster Loan advances and loan repayment assistance are not taxable, and you suffer no tax attribute reductions as a result of the tax-free monies.
  • Manufacturers of residential homes can claim a credit of $1,000 or $2,000 for homes that meet applicable energy-efficiency standards through 2021.
  • Your business can claim a business federal income tax credit for up to 30 percent of the cost of installing non-hydrogen alternative-fuel vehicle refueling equipment (say, for your employees’ electric vehicles) through 2021.
  • Your business can claim a federal income tax credit for buying vehicles propelled by chemically combining oxygen with hydrogen to create electricity, through 2021 (credits range from $4,000 to $40,000).
  • The new law extends the seven-year recovery period to cover motorsports entertainment complex property placed in service through 2025.
  • You can elect to claim the first-year write-off for the cost of qualified film, television, and theatrical productions commencing before 2025, subject to a $15 million per-production limit or a $20 million limit for productions in certain disadvantaged areas.
  • For racehorses that are no more than two years old that you place in service during 2021, you may use three-year depreciation.

You do have to admire the opportunities that the tax law contains to help businesses. If you would like my help with any of the above, please don’t hesitate to contact us.

Sigma Accountants – Best Columbia Maryland Based CPA Firm

Sigma accountants are the best Tax Accountant in Maryland. We provide pocket-friendly accounting, bookkeeping, and consultancy services to dentists, dental practitioners, doctors, medical practitioners, and small businesses. We specialize in accounting for dental practices and help them increase their net worth.

Our accurate reporting and on-time accounting services make us the best CPA In Columbia MD. Get in touch for a free consultation today and experience the best tax preparation services in Columbia, MD.

You can contact us via the contact form or follow us on social media for timely updates. Facebook, Instagram, LinkedIn.

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Business Tax Breaks Thanks to the Recently Enacted CAA

Business Tax Breaks Thanks to the Recently Enacted CAA

The Consolidated Appropriations Act (CAA) was signed into law on December 27, 2020.

The legislation adds a few new federal income tax breaks for businesses and extends a bevy of other business breaks that were set to expire at the end of 2020.

This article covers the most important things that small-business owners need to know. Note that you find the tax changes explained here in the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTRA) and the COVIDRelated Tax Relief Act of 2020 (COVIDTRA). The CAA included both acts inside its 5,593 pages.

100 Percent Deductions for Business Meals Provided by Restaurants

Under the new law, you may deduct 100 percent of the cost of business-related food and beverages provided by restaurants in 2021 and 2022.

The “provided by” language ensures that this break applies equally to take-out and sit-down meals. In the past, you could generally deduct only 50 percent of the cost of business meals. The temporary 100 percent deduction rule is intended to help restaurants survive COVID-19 economic fallout. Good idea!

Work Opportunity Credit Extended for Five Years

Your business can claim the work opportunity tax credit (WOTC) for hiring members of 10 targeted groups. Before the CAA, the WOTC applied to first-year wages paid to qualifying employees who were hired before 2021.

New law. The TCDTRA extends the WOTC to cover first-year wages you pay to qualifying employees hired through 2025.

New Markets Credit Extended for Five Years

The new markets federal income tax credit can be claimed by both individual and corporate taxpayers. The credit equals 39 percent of a taxpayer’s capital investment in a qualified entity that commits to the rules of the new markets tax credit program.

In turn, the recipient entity must loan or invest substantially all of the invested capital in qualified businesses that operate in low-income communities. Before the CAA, a $5 billion allocation was made to the new markets tax credit program for 2020.

New law. The TCDTRA extends $5 billion annual allocations to cover allocations made through 2025. The TCDTRA also extends the carryover period for taxpayers to utilize unclaimed new markets tax credits through 2030.

Some Empowerment Zone Breaks Extended for Five Years (Others Allowed to Expire)

You can claim special federal income tax incentives in census tracts designated as empowerment zones. In these zones, taxpayers are potentially eligible for 20 percent wage credits, enhanced first-year depreciation deductions, tax-exempt bond financing, and deferral of federal capital gains taxes when qualifying assets are sold and sales proceeds are reinvested in other qualifying assets.

Before the CAA, empowerment zone designations were scheduled to expire on December 31, 2020.

New law. The TCDTRA extends through 2025 the period for which empowerment zone designations can remain in effect. But the new law terminates the enhanced first-year depreciation rules for property placed in service in tax years beginning in 2021 and beyond. The new law also removes the capital gains tax deferral break for sales in tax years 2021 and beyond.

Tax-Free Treatment for Employer Section 127 Plan Payments Toward Employee Student Loans Extended

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allowed federal-income-tax-free treatment for payments made by employer-sponsored Section 127 educational assistance plans toward student loan debts of participating employees. Between March 28, 2020, and December 31, 2020, the employer could pay up to $5,250 per employee toward principal and interest with no federal income tax hit for the employee. Employers could deduct the payments.

New law. The TCDTRA extends this break to cover qualifying student loan debt payments made under Section 127 plans through 2025.

Liberalized Depreciation Rule for Residential Rental Property Owned by Electing Real Estate Businesses

For tax years beginning in 2018 and later, the Tax Cuts and Jobs Act (TCJA) imposed new limitations on deductions for business interest expense.

But real property businesses can elect out of the TCJA business interest expense limitations by choosing to depreciate non-residential real property, qualified improvement property, and residential rental property using the straight-line method over 30 years, under the so-called alternative depreciation system (ADS).

If you make this election, it applies to affected property placed in service in 2018 and later.

New law. For tax years beginning in 2018 and later, the TCDTRA assigns the 30-year depreciation period to residential rental property that was placed in service before 2018, if the property was already being depreciated under ADS and is held by a real property business that elects out of the TCJA business interest expense limitations.

Before this change, you had to depreciate such property over 40 years under the pre-TCJA ADS rules.6

More Flexible Rules for Farming Losses

Taxpayers with net operating losses (NOLs) from farming are allowed to choose to carry back those NOLs to the two preceding tax years. You can also choose to waive the carryback privilege and instead carry farming NOLs forward to future tax years.

The CARES Act allowed farming NOLs that arose in tax years beginning in 2018-2020 to be carried back for five years, as a tax relief measure.

New law. The COVIDTRA allows farmers that elected the two-year NOL carryback option before the CARES Act became law to elect to retain that two-year carryback rather than follow the five-year carryback rule set forth in the CARES Act.

The new law also allows farmers that previously waived the carryback privilege to revoke the waiver. These changes apply retroactively as if they were included in the CARES Act on Day One.7

Deduction for Energy-Efficient Commercial Buildings Made Permanent

Commercial building owners can claim deductions for energy-efficient improvements to lighting, heating, cooling, ventilation, and hot water systems and to building envelopes. The write-off equals $1.80 per square foot, or $0.60 per square foot if certain subsystems meet energy-efficiency standards but the entire building does not.

New law. The TCDTRA makes this deduction permanent and adds an inflation-adjustment feature for tax years beginning in 2021 and later.

Tax Impact of CARES Act Loan Forgiveness and Financial Assistance Favorably Clarified

The CARES Act expanded access to Economic Injury Disaster Loans (EIDLs) from the Small Business

Administration (SBA) and allowed EIDL applicants to request $10,000 advances.

The CARES Act also granted loan repayment assistance to eligible EIDL recipients.

The COVIDTRA clarifies that federal-income-tax-free treatment applies to forgiven EIDLs and certain loan repayment assistance. Another clarification stipulates that deductions and tax basis increases are allowed for expenditures paid with forgiven amounts, and that no tax attribute reductions are required as a result of the forgiven amounts.

Credit for Energy-Efficient Manufactured Homes Extended

Manufacturers of residential homes can claim a credit of $1,000 or $2,000 for homes that meet applicable energyefficiency standards.

New law. The TCDTRA extends the credit to cover new homes that are acquired from manufacturers in 2021 for use as residences.

Credit for Alternative-Fuel Vehicle Refueling Equipment Extended

Your business can claim a federal income tax credit for up to 30 percent of the cost of installing non-hydrogen alternative-fuel vehicle refueling equipment (say, for your business’s Tesla fleet—or more likely for use by your employees who own electric vehicles).

New law. The TCDTRA extends this break to cover qualifying 2021 expenditures.

Credit for Fuel Cell Vehicles Extended

Your business can claim a federal income tax credit for buying vehicles propelled by chemically combining oxygen with hydrogen to create electricity.·

The base credit is $4,000 for vehicles weighing 8,500 pounds or less.

Heavier vehicles can qualify for bigger credits of up to $40,000.

An additional $1,000 to $4,000 credit is available to cars and light trucks to the extent their fuel economy meets federal standards.

New law. The TCDTRA extends this break to cover qualifying 2021 purchases.

Takeaways

Here’s a bird’s-eye look at the changes in this article:

  • You can deduct 100 percent of your business meals that are provided by restaurants in 2021 and 2022
  • For hiring members of 10 targeted groups, you can obtain the work opportunity tax credit for first year wages through 2025.
  • You can now qualify for the new markets 39 percent tax credit for investments through 2025.
  • The empowerment zone tax breaks that were scheduled to expire on December 31, 2020, are extended through 2025, but the new law terminates, for 2021 and later, both (a) the enhanced first year depreciation rules and (b) the capital gains tax deferral break.
  • Employers may continue through 2025 making Section 127 education plan payments that cover student loan principal and interest up to the plan maximum of $5,250.
  • For residential rental property that you placed in service before 2018, which you were depreciating over 40 years under the straight-line method, you can now use 30 years if you elect out of the TCJA business interest expense limitations.
  • Farmers may elect a two-year NOL carryback rather than the five-year carryback, retroactively, as if this change were in the original CARES Act.
  • The $1.80 per-square-foot or $0.60 per-square-foot deductions for energy-efficient improvements to commercial buildings are now permanent.
  • SBA EIDL advances and SBA EIDL loan repayment assistance are not taxable, and you suffer no tax attribute reductions as a result of the tax-free monies.
  • Manufacturers of residential homes can claim a credit of $1,000 or $2,000 for homes that meet applicable energy-efficiency standards through 2021.
  • Your business can claim a business federal income tax credit for up to 30 percent of the cost of installing non-hydrogen alternative-fuel vehicle refueling equipment (say, for your employees’ electric vehicles) through 2021.·
  • Your business can claim a federal income tax credit for buying vehicles propelled by chemically combining oxygen with hydrogen to create electricity, through 2021 (credits range from $4,000 to $40,000).

Sigma Accountants – Best Columbia Maryland Based CPA Firm

Sigma accountants are the best Tax Accountant in Maryland. We provide pocket-friendly accounting, bookkeeping, and consultancy services to dentists, dental practitioners, doctors, medical practitioners, and small businesses. We specialize in accounting for dental practices and help them increase their net worth.

Our accurate reporting and on-time accounting services make us the best CPA In Columbia MD. Get in touch for a free consultation today and experience the best tax preparation services in Columbia, MD.

You can contact us via the contact form or follow us on social media for timely updates. Facebook, Instagram, LinkedIn.

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Lawmakers Extend the Tax Extenders with the COVID-19 Relief

Lawmakers Extend the Tax Extenders with the COVID-19 Relief

Law

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted on December 27, 2020, deals with the annual tax extenders. Congress made some of them permanent, while others got short- or long-term extensions.

These are the big five Form 1040 tax breaks that were scheduled to expire on December 31, 2020:

  1. Exclusion from income for cancellation of acquisition debt on your principal residence (up to $2 million)
  2. Deduction for mortgage insurance premiums as residence interest
  3. 7.5 percent floor to deduct medical expenses (instead of 10 percent)
  4. Above-the-line deduction for tuition and fees
  5. Non-business energy property tax credit for energy-efficient improvements to your principal residence

Here is what Congress did with each of these five provisions:

  1. Cancellation of debt. Extended through tax year 2025, but with a reduced maximum exclusion from $2 million to $750,000 for discharges of indebtedness after December 31, 2020.
  2. Mortgage insurance premiums. Extended through tax year 2021 only.
  3. 7.5 percent floor for itemized medical deductions. This provision is now permanent!
  4. Tuition and fees deduction. Eliminated, but the lifetime learning tax credit phase-out limit was increased to $80,000 (or $160,000 on a joint return) to increase access to this tax benefit.
  5. Principal home energy tax credit. Extended through tax year 2021 only.

Of course, Congress extended dozens and dozens of other extenders. If you would like to discuss the extenders, please don’t hesitate to contact Sigma Accountants – Best Columbia Maryland Based CPA Firm

Sigma accountants are the best Tax Accountant in Maryland. We provide pocket-friendly accounting, bookkeeping, and consultancy services to dentists, dental practitioners, doctors, medical practitioners, and small businesses. We specialize in accounting for dental practices and help them increase their net worth.

Our accurate reporting and on-time accounting services make us the best CPA In Columbia MD. Get in touch for a free consultation today and experience the best tax preparation services in Columbia, MD.

You can contact us via the contact form or follow us on social media for timely updates. Facebook, LinkedIn.

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Employee Retention Tax Credit

COVID-19 Relief Law Turbocharged Employee Retention Tax Credit

Before December 27, 2020’s enactment of the new COVID-19 relief law, you may have chosen the Paycheck Protection Program (PPP) loan and given no thought to the employee retention credit.

Remember, under the original law, you had to choose between the retention credit and the PPP loan. Millions chose the PPP loan route.

But now the game has changed. Did you know? You may, as a PPP recipient, qualify to take the employee retention credit retroactively for the tax year 2020 quarters and also going forward in the tax year 2021. Your Tax Accountant in Maryland can help you claim these. Don’t have a good Accounting Firm In Columbia, MD to help you? Worry not, Sigma is here to help.

Here are the fundamental changes you as a PPP player need to know:

  • PPP loan recipients can retroactively claim the 2020 employee retention credit for wages not paid with forgiven PPP loan proceeds. Looking for help with tax preparation in Maryland to claim these credits effectively? Contact Sigma today!
  • Wages paid from March 13, 2020, through December 31, 2020, qualify for the retroactive credit. A Columbia Maryland CPA can help you avail these credits.
  • Wages paid from January 1, 2021, through June 30, 2021, can qualify for the more significant 2021 credit. Ask your Accountants In Maryland to claim these for you. We can help you too.
  • For 2021 quarters only, you qualify for the credit if your gross receipts for a calendar quarter are less than 80 per cent of gross receipts from the same quarter in the tax year 2019. Alternatively, you can elect to qualify for a quarter by comparing the gross receipts of the immediately preceding quarter with the corresponding quarter in 2019. Don’t know which option would be suitable? Allow Sigma, Tax Accountant Columbia MD to help.
  • For 2021 quarters only, the relaxed requirements for qualifying wages apply to businesses with 500 or fewer full-time employees in 2019.

Employee Retention Credit 101

The CARES Act gives you, if you are eligible, a refundable tax credit against the employer portion of the Social Security tax equal to 50 per cent of wages paid to your employees on or after March 13, 2020, through December 31, 2020. Claim this credit with the help of a professional CPA Firm In Columbia, MD.

You are eligible for this credit if

  • A government order fully or partially suspended your operations during a calendar quarter due to COVID-19 (you have a high likelihood that you suffered this problem)
  • Your gross receipts for a calendar quarter are less than 50 per cent of gross receipts from the same quarter in the tax year 2019, in which case your credit ends in the quarter when gross receipts exceed 80 per cent of gross receipts from the same quarter in the prior year. Sounds confusing? Allow us at Sigma, Accountants In Maryland to simplify it.

Your qualifying wages for the credit depend on the size of your business:

  • If you had more than 100 full-time employees in 2019, then you can take credit for wages paid to your employees when they are not providing services due to either the suspension or decreased business.
  • If you had 100 or fewer full-time employees in 2019, then all your employee wages qualify for the credit during the period of the suspension order or if you are using the gross receipts test, for the entire quarter.

The maximum creditable wage amount is $10,000 per employee for all calendar quarters in the tax year 2020. The definition of wages includes the value of the health benefits you pay on your employee’s behalf.

Does tax preparation and accounting take up your valuable time? Allow a reliable Accounting Firm In Maryland like Sigma to help. Contact us today to avail our premier accounting and bookkeeping services.

Law Before the Holiday Gift

Businesses that selected the PPP option could not claim the employee retention credit. A responsible Columbia Maryland CPA would have helped you choose the best option for your business.

Holiday Gift—Retroactive Changes

In the new COVID-19 relief law enacted on December 27, 2020, lawmakers made two changes retroactive to March 13, 2020:

  1. PPP loan recipients can use the employee retention credit for wages not paid with forgiven PPP loan proceeds.
  2. Group health plan expenses are now considered qualified wages even if your business paid no other wages to the employee (this codified the IRS’s position all along).

Since the change is retroactive as if it were in the CARES Act, you may have unclaimed employee retention credit amounts all the way back to the first quarter of 2020. To claim those missed credits, you will need to amend your payroll tax returns using IRS Form 941-X. A good Accountant In Maryland like Sigma will help you amend your returns quickly and affordably.

IRS troubles? If you have unpaid payroll tax bills from prior quarters, your amended returns could reduce penalty and interest charges on those quarters, granting you even more cash. Don’t let this opportunity slip from your hand. Contact our Accounting Firm today.

The tax Year 2021 Changes

First, and most important, Congress extended the employee retention credit to wages paid through June 30, 2021.

For the two quarters in 2021, Congress increased the credit amount and made it easier for employers to claim the credit with the following changes:

  • The credit rate increases from 50 per cent to 70 per cent of qualified wages.
  • The maximum creditable wage amount increases to $10,000 per employee per quarter (versus per year).
  • You qualify for the credit if your gross receipts for a calendar quarter are less than 80 per cent of
  • gross receipts from the same quarter in the tax year 2019. Alternatively, you can elect to qualify for a quarter by comparing the gross receipts of the immediately preceding quarter to the corresponding quarter in 2019.
  • The relaxed requirements for qualifying wages apply to businesses with 500 or fewer full-time employees in 2019.

There is one new wrinkle: an employer cannot receive advance payments of the employee retention credit unless the employer has 500 or fewer employees. Need help optimizing your deductions for your medical or dental practice? Contact Sigma, the best CPA For Doctors in Maryland

Important note. The changes listed in this section apply to the 2021 quarters only.

Takeaways – Employee Retention Tax Credit Summary

Before the December 27, 2020 enactment of the new COVID-19 relief law, you may have chosen the PPP and given no thought to the employee retention credit.

Remember, under the original law, you had to choose between the retention credit and the PPP loan. Millions chose the PPP loan route.

But now the game has changed. You may, as a PPP recipient, qualify to take the employee retention credit retroactively for the tax year 2020 quarters and also going forward in the tax year 2021.

Here are the fundamental changes you as a PPP player need to know:

  • PPP loan recipients can retroactively claim the 2020 employee retention credit for wages not paid with forgiven PPP loan proceeds.
  • Wages paid from March 13, 2020, through December 31, 2020, qualify for the retroactive credit.
  • Wages paid from January 1, 2021, through June 30, 2021, qualify for the more significant 2021 credit.
  • For 2021 quarters only, you qualify for the credit if your gross receipts for a calendar quarter are less than 80 per cent of gross receipts from the same quarter in the tax year 2019. Alternatively, you can elect to qualify for a quarter by comparing the gross receipts of the immediately preceding quarter with the corresponding quarter in 2019.
  • For 2021 quarters only, the relaxed requirements for qualifying wages apply to businesses with 500 or fewer full-time employees in 2019.

If you would like my help with the retroactive monies from the employee retention credit, please contact us.

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