The pandemic had a devastating impact on many businesses, and they faced unforeseen challenges. Retaining employees and maintaining their salaries was a hurdle many sought relief from by requesting an SBA-backed loan through the Paycheck Protection Program or filing for an ERC. However, after the Consolidated Appropriations Act of 2021 passed, businesses could retroactively go back and file for the ERC even if they had qualified for a PPP loan. The refundable tax credit with ERC is 70 percent of qualified wages paid per employee, maxing out at $7,000 per employee per quarter for 2020 and up to $21,000 for the entire year of 2021. Having the ability to leverage both has the possibility of making or breaking a business.
Additionally, the government annually credits nearly $12B in R&D-related tax credits. Despite this, credits remain unclaimed. This federal credit matches businesses dollar for dollar for expenses related to research and development – crucial for any small company or startup in this space. With the impact of the pandemic, taking advantage of R&D credits, one of the most beneficial tax credits available to businesses, is important.
Good for Business, Good for Accountants
Accountants filing on behalf of a business, especially a small growing company or startup, understand the increasing importance of finances following the early stages of the pandemic. These specific companies went through extraordinary hardships and need to budget their funding in any way possible. The credits from ERC and R&D can be invested back into the business in any way they see fit. This is an essential leverage point to put increasingly necessary funding back into paying off debts, hiring additional employees, optimizing products and more. Capitalizing on this money offers a struggling business the opportunity to turn the corner.
Many of the credits go left unclaimed due to the general lack of awareness they exist or that organizations even qualify. The ability to dig deep and surface these credits is simultaneously great for business and the accountants themselves. For an accountant, finding any way to get money back is a monumental win, improving their relationship with their customer.
The IRS is More Stringent
As expected, with any tax advantages come more stringent oversight. The IRS is on high alert for any mismanaged funds coming out of the pandemic and will be quick to deny any potential credits deemed unnecessary or frivolous. No matter how talented an accountant is, working through the process on one’s own opens the door to risks that could lead to missing out on receiving funds, or worse, going through an audit. Turning to other resources may benefit the accountant in mitigating any possible errors or inaccuracies.
Leveraging Tax Tools
It is worthy of an accountant’s time to navigate the many tools available for the filing process. Leveraging tools and software to streamline the tax-filing process cuts down on what could take weeks and turns it into a painless, time-saving task. Finding ways to communicate directly with additional tax professionals during the process ensures no stone goes unturned and all possible accreditation points are examined. Using a tool that seamlessly works with other existing payroll, HR or project management applications reduces unnecessary time spent having to move from one process to another. Additionally, having a place where all forms and documents are stored safely makes the management process easier and lets experts double-check work before filing.
Since many businesses struggled throughout the pandemic, this is the time to find any means necessary to leverage capital to grow or stay afloat. Every accountant filing a return before the looming extension deadline should apply the tools available to help both their clients’ growth and their own. Not only does utilizing tools and software maximize the amount claimed, but it also helps to have specialists look at each business and analyze all of their qualifying activities. For companies that filed extensions into the fall, now is the time to take note of these tips to get the most out of all available credits.
