Employee Retention Credit (“ERC”) Buyer Beware!

By: Chad Zagar, VP & Managing Director of Tax & Accounting

Some of you are probably sick and tired of this topic, but it has continued to stay in the news. Claims of every employer being eligible for $26,000 per employee are all over the place – I am seeing it on Facebook, hearing it on sports podcasts, seeing it advertised on TV. Many of you are receiving promotional materials in the mail with your potential credit included based on publicly available PPP information. This can be extremely exciting for many of you. But remember the old saying – is it too good to be true? Remember these points we’ve shared previously:

1) Work with reputable providers when claiming the ERC.

2) Know that you are actually eligible for receiving the ERC based upon either shutdown or gross receipts reduction criteria.

3) Keep excellent records on how you determined your eligibility –you may be audited.

4) Ultimately you are responsible for ensuring your eligibility. In the fall of 2022, the IRS put some teeth related to ERC in a warning and reminded individuals and businesses that false claims would generate compliance risks for those that claim the credit improperly – including potentially significant interest and penalties.

All this being said, this is an excellent credit to look into and determine if you are eligible. We have helped many customers that were eligible in applying for the credit and most are receiving the funds in approximately 12 weeks via paper checks after mailing in amended payroll form documents.

There is still time to investigate this - the deadline to file amended payroll tax returns is January 31, 2024 for the 2020 tax year, and January 31, 2025 for 2021. If you file 941 quarterly payroll forms, the expiration for 2020 starts earlier during 2023. There is still time to consult with a trusted advisor prior to filing for and claiming the credit. GreenStone is ready to help if you need us.

Record Retention – Best Practices

How long should I keep information? We are asked that all the time by customers. The safe bet is to keep your information forever, but sometimes that is not feasible. Here are some best practice recommendations for record retention for your farming operation for different types of business documents. If you feel any recommendations conflict or overlap with each other, chose to keep the information at the longer recommended time period!

It’s best to keep business formation records, deeds, patents and registrations, property appraisals, bill of sale documents and other ownership records indefinitely.

According to the IRS, tax returns should be kept for three to seven years, depending on the situation. But, if you don’t file a return, the IRS recommends keeping “records indefinitely.” Keep federal tax returns, including payroll tax records, for seven years to stay on the safe side.

Refer to the federal record retention guidelines for a precise breakdown of requirements. For instance, documents relating to exposure from harmful agents must be kept for 30 years after employment ends. In contrast, you need to keep OSHA accident forms for five years after the incident.

Payroll information

4+ Years Keep your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.

Retain all small business accounting records applicable to your taxes, including depreciation schedules and year-end financial statements, for at least seven years. Your CPA or Tax Accountant may recommend keeping accounting records indefinitely!

Keep all permits, licenses and insurance policy documents until you receive replacements for expired ones. Bank

7 Years All business banking, credit card, and investment statements, as well as canceled checks, should be kept for seven years, possibly longer, depending on your business or tax circumstances.

Have a Great Income Tax Filing Experience!

Wouldn’t we all love to receive our income tax returns and feel great about the experience? An experience without any surprises in the amount we owe or refunds we are receiving – that is definitely the goal when we are working with our customers. But it does not happen in all instances. Why is that? While tax accountants are knowledgeable and generally well versed in tax laws, they are not magicians, nor can they read minds. Therefore, it is critical you stay engaged in the tax planning and preparation process and provide the necessary information up front in order to receive efficient and effective guidance.

A few tax planning tips:

• Have your records in order. Having an accurate set of financial records is critical for a tax preparer to work with – preferably, not a shoebox of receipts. A computer program or a worksheet that reconciles back to your bank and debt statements is best. This is generally the first step in good financial planning and a piece that should not be ignored. If this is not something you want to do, it may be best to hire a bookkeeper or accountant to assist you.

• Don’t procrastinate. Waiting until December to start your bookkeeping leaves you scrambling to complete activities to help your tax situation.

• Get off autopilot. It is not uncommon to see businesses make financial decisions that they shouldn’t have made because books are not up-to-date. Examples include buying the same amount of prepaids as last year or making a capital expenditure because you had to last year, only to find out that neither were necessary because you were in a different position than a year ago.

• Nothing is irrelevant. Make sure you tell your tax preparer about all equipment purchases. For instance, if equipment is dealer- or manufacturer-financed, it may not show up in your bank accounts if no payment was made in the tax year. That can be a sizeable capital expenditure your tax accountant would not know about unless you tell them.

• Meet with your tax accountant early. Meet before the end of the year to discuss your current financial situation and what tax bracket you will likely be in. Allow enough time to bring in additional income if facing a net operating loss, or to make additional purchases if your income is too high.

• Read your tax organizer. Read the tax organizer that your accountant most likely provides to you – it is a great summary of almost all relevant items to your tax filing requirements. If you complete that, it helps you feel confident that no stones were unturned to minimizing your taxes and also to completing a bullet proof accurate return.

• Understand tax impacts when projections change. Tax planning is typically completed using actual numbers through a certain point of the year with the rest of the year covered by customer projections. Make sure you understand those numbers well. When projected revenues are significantly higher or deductions are significantly lower than planned, know how that will impact your tax liability. If necessary, get with your tax accountant to update tax projections. It may cost you a little additional in professional fees for the tax accountant services, but it will likely be worth it in income taxes saved.

Reach out to your local GreenStone tax and accounting professional if you need assistance with any financial related services. Our team of experts is ready to help! ■

Tax Calendar...

April

Individuals file a 2022 income tax return (Form 1040) and pay any tax due. If not able to file, file form 4868 to request an automatic 6-month extension. If tax is due it must be paid with the Form 4868.

1st quarter estimate is due for 2023 for individuals that pay estimated taxes.

Corporations file a 2022 calendar year tax return (Form 1120) and pay any tax due. If not able to file, file Form 7004 to request an automatic 6-month extension.

Corporations deposit the 1st installment of estimated income tax for 2023.

Non-farm employers file Form 941 for the 1st quarter to report Social Security, Medicare, and withholding.

2nd quarter estimate is due for 2023 for individuals that pay estimated taxes.

Corporations deposit the 2nd installment of estimated income tax for 2023.

Non-farm employers file Form 941 for the 2nd quarter to report Social Security, Medicare, and withholding. Form 5500 is due for all employers that maintain an employee benefit plan such as a pension plan.

If not able to file, file form 5588 to request an automatic 2.5 month extension.