Sailing a Steady Ship in Today’s Interesting Economy

Business owners: If you’re having trouble reading the U.S. economy, you’re not alone. On the one hand, the January 2023 jobs report revealed that the unemployment rate had fallen to 3.4%, its lowest level in 54 years. And inflation, while still a concern, has moderated in most sectors — staving off fears of a recession in the immediate future.

And yet concern remains about whether the economy will grow or suddenly stall. And the Fed is expected to continue raising interest rates, meaning the battle against inflation is far from won. What can you do, strategically, to neither under- nor overreact to this “interesting” situation? Sail a steady ship.

Save a little, spend a little

In a faltering economy, business owners tend to want to curb spending. Conversely, during boom times, companies are more apt to spend money to seize opportunities. Right now, the best approach may be a little of both.

Enlist employees to help cut expenses that don’t foster your business’s long-term success. Communicate regularly with staff about the need to curb spending and celebrate those who come up with effective cost-control measures.

That said, now isn’t the time to stop investing in new assets, people or technologies if they’re essential to your operations or could sharpen your company’s competitive edge.

Prioritize expenditures

A good exercise to undertake at least annually, if not quarterly, is to make a list of all expenses over the course of a year and separate them into three categories: “must have,” “nice to have” and “don’t need.” Ask your leadership team for input on which expenses should fall under each category.

Another idea for small to midsize businesses: Have a “check-signing social” in which you gather department managers to discuss major cash outlays while you sign checks or otherwise remit payments. An event like this lets managers know that you’re aware of their spending while giving them a chance to explain their rationale for the spending.

Know your suppliers

In tough economic times, businesses must keep a close eye on the stability of suppliers. If a major vendor goes under, you could be left in the lurch.

You might not have to worry quite as much about insolvencies in today’s environment, but don’t let your guard down. Nurturing good relationships with suppliers is particularly vital with supply chain issues continuing to trouble many industries. Maintain strong communication. Every so often, you may want to conduct a supplier audit to collect key data points regarding each one’s performance.

Watch out for fraud

No matter what the state of the economy, dishonest employees and outside criminals may seize the opportunity to commit fraud. Cash and asset misappropriation, as well as outright theft, are among the most prevalent types of “traditional” fraud. Cybercrimes are also increasingly common today. Hackers can steal from you or shut down your operations from hundreds or thousands of miles away.

Reduce typical fraud risks by implementing a solid system of internal accounting controls, such as segregating duties and requiring a second signature on checks over a certain amount. Also, if you’re hiring, conduct thorough background checks within legal parameters. Finally, invest time and money in cybersecurity measures to protect your systems and data.

Good news, bad news

The good news is the U.S. economy has generally rebounded well from the many changes and challenges of the pandemic. The bad news is, no one is completely sure where we’re headed. Our firm can help you gather and analyze the right financial data to make strong strategic decisions.

Accounting is a critical element when launching a successful business venture. Unfortunately, it’s also an area where startups tend to make mistakes. Here are some common (and avoidable) errors that entrepreneurs should watch out for.

Failing to track expenses

Starting a new business is exciting — and it’s natural to focus on generating revenue and building business relationships. But it’s essential to keep detailed records of expenses, including receipts and invoices. This will help you properly allocate costs, price products and services, assess and improve financial performance, and claim tax deductions.

Forgetting to reconcile accounts

Reconciling accounts involves comparing your records to your bank and credit card statements to identify and correct any discrepancies. Account reconciliation ensures that your business pays close attention to its expenses and available cash. It can also help to prevent and detect fraud by third parties and employees.

Commingling personal and business expenses

When you own a business, you need to keep personal and business matters separate for financial reporting, tax and legal purposes. In addition to maintaining a distinct workspace for your business, you should have different bank and credit card accounts. This will avoid confusion and make it easier to track business expenses. It also will facilitate budgeting and forecasting.

Incorrectly classifying workers

How much control do you exercise over the people who work for your business? Are your workers an integral part of your operations? Misclassifying employees as independent contractors can have serious legal and financial consequences. Make sure you understand the differences between employees vs. contractors and categorize them appropriately. If you don’t follow the rules, the IRS, the U.S. Department of Labor and a state tax agency might challenge the status of your workers.

Not budgeting for taxes

Since many startups run at a loss, at least initially, some owners forget to set aside money for taxes. This can lead to cash shortages and other financial difficulties when tax time rolls around. Failure to make timely federal and state tax payments can result in penalty and interest charges. And don’t forget about payroll, sales and property tax obligations, too.

Failing to set up a formal accounting system

Entrepreneurs must select and consistently follow an accounting method based on their business needs. Many fledgling businesses start off using cash- or tax-basis accounting, then graduate to accrual-basis reporting as they mature. But lenders, franchisors and investors sometimes require accrual-basis financial reporting from the get-go.

It also pays to invest upfront in simple internal controls — such as locks on file cabinets, regular software updates, network backups and antivirus programs — to help prevent theft and fraud. Startups with valuable intellectual property, such as patents, secret recipes and proprietary software, should consider protecting these assets by requiring employees and contractors to sign noncompete agreements, implementing network security policies and filing appropriate legal protections. Additional internal control measures can be implemented as your business matures.

Need help?

Taking steps early on to ensure accurate financial records will save you time, money and stress over the long run. Contact us for help getting your accounting and finance department up and running. In addition to helping set up your systems and procedures, we can provide interim CFO and bookkeeping services while you find qualified candidates to fill these positions.

Employers are generally responsible — and liable — for applying employment taxes to wage payments. To fulfill this obligation, you must determine when and where Federal Insurance Contributions Act (FICA) taxes and federal income tax withholding (FITW) are applicable.

FICA and FITW are separate employment tax regimes. Thus, when analyzing how to treat a payment, you’re best off separately determining their respective applicability, even though the end result is often the same.

What to look for

Three essential elements must be present in wage payments for services to be subject to FICA taxation and/or FITW:

1. The payment must be remuneration for services and the payment must not be specifically excepted from the definition of “wages.”

2. The type of services performed by the worker must fit within the statutory definition of employment. This determination is more specific for FICA tax purposes, because “employment” is specifically defined by statute.

3. The relationship between the service recipient and the service provider must be one of employer and employee.

If one or more of these elements is missing, the payment isn’t subject to FICA taxation or FITW. However, the payment may still constitute income and, therefore, you’ll need to report it.

FICA, the funding mechanism

Both the FICA tax regime and the FITW regime require withholding of the employee’s taxes at the source, for which the employer remains secondarily liable. When analyzing whether either FICA taxation or FITW is applicable to a particular payment, you’ll need to confirm the appropriate treatment under each regime.

In many instances, the requirement to impose FICA taxes and the requirement to withhold income taxes on a payment will coincide, even though the statutory reasons for taxation under the two regimes may not be parallel. Because FICA (the law) is the funding mechanism for the two most important social welfare programs in the United States, the correct FICA tax treatment of a payment can often be more challenging than determining whether FITW applies.

With the undercurrent of protectionism that comes with its purpose, FICA (the law) is replete with definitions, statutory requirements, convoluted cross-references, exemptions and exceptions to exemptions. What’s more, Section 3121 of the Internal Revenue Code separately defines each of the three elements necessary for the imposition of FICA taxes. This is because of the need to carefully determine whether particular types of services, and payments for the same, are intended to be covered by the Social Security Act.

In contrast, the mission of FITW — to collect taxes on payments at the source — isn’t tied to a taxpayer’s future benefits. As a result, the statutory definition of wages under Sec. 3401(a) essentially consolidates the discussion of payments for services with the types of services that constitute employment for FITW purposes.

Not so simple

Long story short, payroll taxes aren’t as simple as they may first appear. It’s in an employer’s best interest to understand precisely when FICA and FITW apply and to double-check that this is being handled properly by your staff or a third-party provider. Our firm can answer any questions you might have about your payroll tax obligations.

Many business owners spend most of their time developing strategic plans, overseeing day-to-day operations and, of course, putting out fires. Yet an underlying source of both opportunity and trouble can be human resources (HR).

Think about it: The performance of your HR department determines who works for you, how well employees are supported, and to what extent the business complies with laws and regulations pertaining to employment and benefits.

One way to ensure that your strategic HR decisions are likely to yield positive, cost-effective results is to apply a strengths, weaknesses, opportunities and threats (SWOT) analysis.

Strengths and weaknesses

When used for general strategic planning, a SWOT analysis typically begins by identifying strengths — usually competitive advantages or core competencies that generate value, such as a strong sales force or exceptional quality of products or services.

Next, you pinpoint weaknesses. These are factors that limit business performance, which are often revealed in comparison with competitors. General examples include a negative brand image because of a recent controversy or an inferior reputation for customer service.

When applying a SWOT analysis to HR, think about that department’s core competencies. These include filling open positions, administering benefits, and supporting employees who need help or are in crisis. What are its strengths? What are its weaknesses?

You can use various HR metrics to put a finer point on these relatively broad questions. For example, calculate “time to hire” to determine how long it’s taking to fill open positions and “early turnover” to see how many new hires you’re losing in the first year of employment.

External conditions

The next step in a typical SWOT analysis is identifying opportunities and threats. Opportunities are favorable external conditions that could generate a worthwhile return if the business acts on them. Threats are external factors that could inhibit performance or undermine strategic objectives.

When differentiating strengths from opportunities, or weaknesses from threats, ask yourself whether an issue would exist if your company didn’t. If the answer is yes, the issue is external and, therefore, an opportunity or threat. Examples include changes in hiring demographics or government regulations regarding benefits.

How to apply it

Let’s say you determine, by benchmarking yourself against similar businesses, that “time to hire” is a strength. This means that your HR staff is skilled at placing targeted, effectively worded ads; working well with recruiters; and interacting in a timely, efficient and positive manner with applicants.

In today’s environment, a strong hiring mechanism is undoubtedly a competitive advantage. If hiring and retention are weaknesses, however, you could be headed toward a crisis if you lose too many employees — particularly in today’s tight job market.

Opportunities and threats are important as well. For example, if your company seeks to strengthen employee retention through expanded benefits, you’ll need to anticipate the opportunities and challenges for your HR staff. You may need to invest in training and upskilling to make sure that they can effectively communicate with employees about the broader package and administer the specific benefits therein.

And there are likely external threats to consider. For example, an aggressive competitor may begin poaching your employees. Evolving tax regulations and compliance requirements for health and retirement benefits could catch your HR staff off-guard if they’re unaware of the changes.

Advisable and feasible

Sometimes business owners assume that HR will run itself while they dedicate themselves to growing the company. But the truth is that HR departments need to set strategic goals, just like the business does. A SWOT analysis can help ensure that these goals are advisable and feasible.

It’s certainly not news to you: There is a severe labor shortage in the manufacturing sector. In fact, according to the National Association of Manufacturers, nearly 2.1 million manufacturing jobs could be open by 2030. One way to attract and retain top talent is to provide an impressive slate of employee benefits. One such benefit is child care. And manufacturers may be able to offset some of the costs with a valuable tax credit. Here’s how it works.

The basics

The Section 45F employer-provided child care credit is part of the general business credit, which is composed of more than 30 separate tax credits that are subject to combined limits based on your tax liability. To calculate and claim the credit, a business files Form 8882, Credit for Employer-Provided Child Care Facilities and Services.

The credit is equal to 25% of an employer’s qualified child care facility expenditures plus 10% of its qualified child care resource and referral expenditures paid or incurred during the tax year. It’s limited to a total of $150,000 per tax year.

Facility expenditures

Qualified child care facility expenditures are amounts paid:

To acquire, construct, rehabilitate or expand property that’s 1) to be used as part of a qualified child care facility of the taxpayer, 2) depreciable or amortizable, and 3) not part of the principal residence of the taxpayer or one of the taxpayer’s employees;
To operate a qualified child care facility of the taxpayer, including expenses for training, scholarship programs and increased compensation for employees with child care training; or
Under a contract with a qualified child care facility to provide child care services to the taxpayer’s employees.

To qualify, expenses must not exceed the fair market value of the child care provided. A qualified child care facility is one that meets all state and local regulatory requirements and:

Is used principally to provide child care (unless it’s also the personal residence of the person who operates it),
Is open to all of the taxpayer’s employees during the tax year, and
Doesn’t discriminate in favor of highly compensated employees.

In addition, if the facility is the taxpayer’s principal trade or business, at least 30% of enrollees must be dependents of the taxpayer’s employees.

Special rules and restrictions

Qualified expenditures are amounts paid under a contract to provide resource and referral services to help a taxpayer’s employees find child care. To avoid double benefits from the same expenditures, the taxpayer must reduce its basis in any qualified child care facility by the amount of the credit attributable to facility-related expenditures. The taxpayer must also reduce other deductions or credits that are based on the same expenses.

Taxpayers may have to recapture (pay back) some or all of the credit if a qualified child care facility ceases to operate as such, or undergoes a change in ownership, before the 10th tax year after the tax year in which it’s placed in service. The percentage of the credit that must be recaptured decreases gradually over the 10-year period.

Valuable recruiting tool

As employers compete for a shrinking labor pool, employer-provided child care can be an attractive perk for current and prospective employees. The Sec. 45F tax credit can help reduce the cost of this benefit. Contact us with any questions regarding this tax credit.

An array of tax-related limits that affect businesses are indexed annually, and due to high inflation, many have increased more than usual for 2023. Here are some that may be important to you and your business.

Social Security tax

The amount of employees’ earnings that are subject to Social Security tax is capped for 2023 at $160,200 (up from $147,000 for 2022).

Deductions

Section 179 expensing:
- Limit: $1.16 million (up from $1.08 million)
- Phaseout: $2.89 million (up from $2.7 million)
Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at:
- Married filing jointly: $364,200 (up from $340,100)
- Other filers: $182,100 (up from $170,050)

Retirement plans

Employee contributions to 401(k) plans: $22,500 (up from $20,500)
Catch-up contributions to 401(k) plans: $7,500 (up from $6,500)
Employee contributions to SIMPLEs: $15,500 (up from $14,000)
Catch-up contributions to SIMPLEs: $3,500 (up from $3,000)
Combined employer/employee contributions to defined contribution plans (not including catch-ups): $66,000 (up from $61,000)
Maximum compensation used to determine contributions: $330,000 (up from $305,000)
Annual benefit for defined benefit plans: $265,000 (up from $245,000)
Compensation defining a highly compensated employee: $150,000 (up from $135,000)
Compensation defining a “key” employee: $215,000 (up from $200,000)

Other employee benefits

Qualified transportation fringe-benefits employee income exclusion: $300 per month (up from $280)
Health Savings Account contributions:
- Individual coverage: $3,850 (up from $3,650)
- Family coverage: $7,750 (up from $7,300)
- Catch-up contribution: $1,000 (no change)
Flexible Spending Account contributions:
- Health care: $3,050 (up from $2,850)
- Dependent care: $5,000 (no change)

These are only some of the tax limits and deductions that may affect your business and additional rules may apply. Contact us if you have questions.

According to various sources, around 10% of all insurance claims involve fraud. Insurance companies generally pass along the cost of these fraud losses to policyholders in the form of higher premiums. Unfortunately, small businesses, which are generally less able to pay premium hikes, are particularly vulnerable to insurance fraud. To protect your company from losses and minimize the likelihood of increased premiums, learn how to identify insurance fraud.

Areas of concern

There are several forms of insurance fraud that could potentially affect your business:

Workers’ compensation. In these schemes, an employee exaggerates or fabricates an injury or illness to receive workers’ compensation benefits. For example, a worker could mischaracterize an injury from a minor accident as serious or claim that an existing, non-work-related condition was the result of an occupational injury.

Medical insurance. A perpetrator might add a fictitious employee to your company’s insurance plan or use a stolen or synthetic identity to enroll a nonexistent dependent.

Healthcare provider. Here, a healthcare provider submits claims for procedures or services that weren’t performed. A crooked provider might also bill for multiple procedures when only one was performed or bill for a more complex and expensive procedure when only a simple one was performed.

Premium diversion. This fraud occurs when an employer or insurance agent misuses premium payments intended to pay for employee policies. The perpetrator could use the funds for personal or business-related expenses.

Preventing workers’ comp scams

To help prevent false workers’ comp insurance claims, develop reporting processes that employees are required to follow. Staff members should provide detailed information about incidents and any medical treatment they received. Your insurance company can provide forms and suggest best practices to encourage employees to disclose relevant information related to their claims.

Also, regular audits of workers’ compensation claims may identify patterns of fraudulent activity and uncover long-running schemes. For example, if an employee often claims on-the-job injuries but is known to engage in physically demanding or dangerous activities outside the office, it may be appropriate to scrutinize those claims.

Other best practices

To reduce the risk of workers enrolling ineligible or fake participants in your medical insurance plan, put in place verification procedures. These might include background checks and required documentation such as Social Security and driver’s license numbers. Additionally, conduct regular audits of your employee benefits to reconcile those enrolled against your company’s payroll records and department headcount.

Pay close attention to the remittance of payments to your insurance providers. If there’s a problem regarding your employer-paid contributions, your insurance company will send a letter and call. To head off problems, proactively designate someone in your organization who isn’t involved in submitting or paying insurance premiums as the insurance company’s regular point of contact.

In addition, educate employees about how to spot suspicious billing practices and provide them with a confidential fraud hotline so they can report any irregular activities. And be sure to set an ethical tone. Make sure workers understand your expectations and policies related to the insurance coverage you provide — as well as the ramifications of committing fraud, such as termination and legal action.

Work with reputable carriers

As with all your company’s business relationships, only work with reputable insurance carriers. The cost of premiums alone shouldn’t be the sole criteria when choosing an insurer. Look for companies with robust fraud detection and prevention programs that can help you identify and address fraud, should it occur. Contact us if you have questions or suspect insurance fraud in your organization.

The U.S. Department of Labor (DOL) recently announced the 2023 annual adjustments to civil monetary penalties for a wide range of benefits-related violations. Legislation enacted in 2015 requires annual adjustments to certain penalty amounts by January 15 of each year.

The 2023 adjustments are effective for penalties assessed after January 15, 2023, with respect to violations occurring after November 2, 2015. Here are some highlights:

Form 5500. Employers must file this form annually for most ERISA plans to provide the IRS and DOL with information about the plan’s operation and compliance with government regulations. The maximum penalty for failing to file Form 5500 has increased from $2,400 per day to $2,586 per day that the filing is late.

Summary of Benefits and Coverage (SBC). The maximum penalty for failing to provide an SBC has increased from $1,264 to $1,362 per failure.

Other group health plan penalties. Violations of the Genetic Information Nondiscrimination Act may result in penalties of $137 per participant per day, which is up from $127. Examples of violations include establishing eligibility rules based on genetic information, requesting genetic information for underwriting purposes and failing to meet requirements related to disclosures regarding the availability of Medicaid or children’s health insurance program assistance.

401(k) plan disclosure, recordkeeping and reporting. For plans with automatic contribution arrangements, penalties for failing to provide the required ERISA preemption notice to participants have increased from $1,899 per day to $2,046 per day. Penalties for failing to provide blackout notices (required in advance of certain periods during which participants can’t change their investments or take loans or distributions) or notices of diversification rights have increased from $152 per day to $164 per day. And the maximum penalty for failure to comply with ERISA recordkeeping and reporting requirements has increased from $33 to $36 per employee.

Multiple Employer Welfare Arrangement (MEWA) filing. A MEWA is generally defined as a single plan that covers the employees of two or more unrelated employers. Penalties for failure to meet applicable filing requirements, which include annual Form M-1 filings and filings upon origination, have increased from $1,746 per day to $1,881 per day.

Adjustments have also been made to other benefit-related DOL penalties, such as for failure to provide certain information requested by the agency.

Although the affected penalties relate to a wide range of compliance issues, not all violations will trigger the highest permitted penalty. In some instances, the DOL has discretion to impose lower penalties, such as under programs designed to encourage Form 5500 filing. Contact us for further information.

Article Updated January 26, 2023

Today, the Michigan Court of Appeals overturned a July 2022 Court of Claims ruling finding that the Michigan Legislature lacked the constitutional authority to adopt and subsequently amend (“adopt-and-amend”) two 2018 ballot initiatives.

One of the ballot initiatives would have increased the minimum wage to $12 per hour in 2023 and increased tipped wages to the full minimum wage, and the other would have required employers of all sizes to provide up to 72 hours of paid sick leave to all employees annually.

The current $10.10 per hour minimum wage remains in effect, as does the current paid medical leave law.

Please read more in the Michigan Chamber of Commerce’s Special Update.

Article Updated August 2, 2022

The Michigan Court of Claims issued a ruling on July 19, 2022, immediately reinstituting 2018 ballot proposals that:

required employers of all sizes to provide up to 72 hours of paid sick leave to all employees annually; and
raised the minimum wage to $12 per hour.

The Court of Claims judge who ruled the “adopt and amend” strategy was unconstitutional agreed to stay that ruling until February 19, 2023. This means that, for now, the current $9.87 per hour minimum wage remains in effect, as well as the current paid medical leave law. However, the plaintiffs in the case are expected to appeal the ruling on the stay as early as this week in the Michigan Court of Appeals.

Please read more in the Michigan Chamber of Commerce’s recent article.

We will continue to alert you of significant developments.

Original Article Posted July 21, 2022

The Michigan Court of Claims ruled this week that the Michigan Legislature’s 2018 “adopt and amend” strategy employed to find a compromise to two ballot initiatives increasing the minimum wage and enacting a paid sick leave law was unconstitutional. The Legislature is expected to appeal the decision in the Michigan Court of Appeals and request a stay.

Unless a stay is granted and a higher court reverses the decision, the law would immediately revert to the 2018 ballot language. This means Michigan’s paid medical leave law will require virtually every size and type of business, and class of employee, to receive 72 hours per year of paid sick leave, and the state’s minimum wage will increase to $12 an hour (and a large increase for tipped employees).

Please read the Michigan Chamber’s article that compares the current provisions for paid sick leave and minimum wage with the 2018 ballot proposal language (what’s now pending).

Many questions remain

Undoubtedly, employers have questions about what the decision means. Right now, it’s unclear whether a stay will be issued, whether the decision will be appealed, and whether employers must comply with the original ballot initiative language. The Michigan Legislature may respond to the ruling with new legislation.

For the third consecutive year, Yeo & Yeo CPAs & Advisors has been named on Forbes’ list of America’s Best Tax and Accounting Firms. Yeo & Yeo was listed among nearly 250 firms nationwide, and is one of only seven firms in Michigan, recommended for both tax and accounting services.

Forbes partnered with market research company Statista to create a list of the most recommended firms for tax and accounting services in the United States. This list is based on surveys of tax and accounting professionals and their clients, of which approximately 4,400 recommendations were considered in the final analysis.

Among other significant recognition, Yeo & Yeo was also recognized in 2022 as a top 200 accounting firm by Inside Public Accounting and a Best and Brightest Company to Work For by both West Michigan and Metro Detroit’s Best and Brightest.

With the 2023 filing season deadline drawing near, be aware that the deadline for businesses to file information returns for hired workers is even closer. By January 31, 2023, employers must file these forms:

Form W-2, Wage and Tax Statement. W-2 forms show the wages paid and taxes withheld for the year for each employee. They must be provided to employees and filed with the Social Security Administration (SSA). The IRS notes that “because employees’ Social Security and Medicare benefits are computed based on information on Form W-2, it’s very important to prepare Form W-2 correctly and timely.”

Form W-3, Transmittal of Wage and Tax Statements. Anyone required to file Form W-2 must also file Form W-3 to transmit Copy A of Form W-2 to the SSA. The totals for amounts reported on related employment tax forms (Form 941, Form 943, Form 944 or Schedule H for the year) should agree with the amounts reported on Form W-3.

Failing to timely file or include the correct information on either the information return or statement may result in penalties.

Independent contractors

The January 31 deadline also applies to Form 1099-NEC, Nonemployee Compensation. These forms are provided to recipients and filed with the IRS to report non-employee compensation to independent contractors.

Payers must complete Form 1099-NEC to report any payment of $600 or more to a recipient.

If the following four conditions are met, you must generally report payments as nonemployee compensation:

You made a payment to someone who isn’t your employee,
You made a payment for services in the course of your trade or business,
You made a payment to an individual, partnership, estate, or, in some cases, a corporation, and
You made payments to a recipient of at least $600 during the year.

Your business may also have to file a Form 1099-MISC for each person to whom you made certain payments for rent, medical expenses, prizes and awards, attorney’s services and more.

We can help

If you have questions about filing Form W-2, Form 1099-NEC or any tax forms, contact us. We can assist you in staying in compliance with all rules.

Inflation. Labor shortages. Supply chain delays. Manufacturers have had a lot on their plates the past couple of years. Across the board, the result has been increasing prices. But raising prices without factoring in market-based considerations might not be enough.

What is production-based pricing?

Direct production costs are a logical starting point for pricing new and existing products. For example, suppose Manufacturer A spends $4 in raw materials and $6 in labor to manufacture a widget. The owner adds up these costs ($10) and applies a 10% markup to arrive at the selling price of $11 for each widget. The problem is that markups are often based on historic performance or gut instinct.

What happens when Manufacturer B sells its widgets for $10? This often happens to smaller manufacturers that compete with larger companies that can negotiate lower supply costs or companies located in areas with lower labor rates. Unless Manufacturer A can provide a compelling reason for customers to pay a premium, such as superior quality or more responsive customer service, its market share will likely diminish — and overhead costs will eventually consume profits.

Conversely, what if the $11 price point is significantly below competitors’ prices? Below-market pricing may cause demand to skyrocket — and the factory might not be able to produce enough widgets to keep up with demand. As a result, quality may suffer, or customers may become frustrated by production delays.

When demand outpaces production capacity, cash flow shortages also may occur because of lags in the cash conversion cycle. That is, Manufacturer A will need to front production costs (cash outflows), but it will take a while to bill and collect payments from its customers (cash inflows). A slight price increase can help reduce demand and the pressure it’s putting on plant workers.

Are you conducting market research?

To be a market leader, you’ll need to factor more than direct costs into your pricing strategies. This means conducting market research, which improves the accuracy of your sales forecasts. For example, salespeople can informally survey customers about which features they value most, how the company can improve the customer experience, and how much customers would be willing to pay for new products or improvements to existing products. To entice customers to participate in these surveys, consider offering free trials of new products or discounts on future orders.

It’s also important to research competitors. Pay attention to the products they offer, the prices they charge and how they position their products in the marketplace.

Any research aimed at competitors must be ethical and legal, however. For example, you shouldn’t hire a competitor’s R&D director and solicit proprietary information. But you can legitimately visit a competitor’s website and review copies of print marketing materials that are available to the general public.

Market research can help you position your company’s offerings relative to those of competitors — and determine whether future sales volume will be similar to past performance. Forecasts are often based on historical sales volume. But changes in market conditions, such as the introduction of a new competitor, changes in technology and evolving customer needs, may require adjustments to what worked in the past.

Have you allocated overhead costs?

You’ll need to forecast and allocate overhead costs to products to help make better informed pricing decisions. As with sales, future overhead costs may not mirror what you’ve paid in the past — especially in today’s inflationary, labor-constrained marketplace.

Materials and labor costs are just a few of the expenses manufacturers incur. Overhead items may be variable (such as sales commissions, packaging and shipping costs) or fixed (such as depreciation on equipment, managerial salaries and rent). As a company grows, it may need to obtain a larger factory or additional salespeople, leading to incremental fixed costs.

Looking forward

Today’s market demands product pricing based on more than just direct production costs, even if adjusted for spikes in the costs of raw materials or labor. Contact us to review and implement pricing models based on personalized market research and comprehensive costs.

If you’re seeking opportunities to improve your company’s cash flow, consider a fixed asset or cost segregation study. Manufacturing is a capital-intensive industry, so it’s critical to ensure that fixed assets are classified properly to recover their costs as quickly as possible.

Fixed asset study

A fixed asset study examines all depreciable assets — including real property, equipment, machinery, fixtures and furniture — to determine whether you’ve misclassified any assets. Properly classifying assets in a category with a shorter depreciable life will accelerate depreciation deductions, potentially lowering taxes and boosting cash flow.

These studies aren’t just for the most recent tax year. A fixed asset study may also create an opportunity to claim refunds for depreciation deductions missed in previous years.

Cost segregation study

A cost segregation study is a type of fixed asset study that focuses on the costs of buying, constructing or substantially improving a building or other real property. Generally, commercial real estate (other than land) is depreciable over 39 years. A cost segregation study identifies assets that might be treated as building components but are properly classified as personal property depreciable over five or seven years, or as land improvements depreciable over 15 years.

Examples of building components that may qualify for accelerated depreciation include:

Reinforced foundations,
Specialized electrical, plumbing, cooling or ventilation systems, and
Other structural components that are required by the manufacturing process rather than for the operation of the building.

By allocating a portion of the building costs to these shorter-lived assets, you can accelerate depreciation deductions and substantially reduce your tax bill.

Now’s the time

If you’ve recently reconfigured your plant or office space, or otherwise made improvements to your buildings, now may be an ideal time to conduct a fixed asset or cost segregation study. Doing so can help maximize the tax benefits associated with these investments.

Many small businesses start out as “lean enterprises,” with costs kept to a minimum to lower risks and maximize cash flow. But there comes a point in the evolution of many companies — particularly in a tight job market — when investing money in employee benefits becomes advisable, if not downright mandatory.

Is now the time for your small business to do so? More specifically, as you compete for top talent and look to retain valued employees, would launching a retirement plan help your case? Quite possibly, and the good news is the federal government is offering some intriguing incentives for eligible smaller companies ready to make the leap.

Late last year, the Consolidated Appropriations Act, 2023 was signed into law. Within this massive spending package lies the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0). Its provisions bring three key improvements to the small employer pension plan start-up cost tax credit, beginning this year:

1. Full coverage for the smallest of small businesses. SECURE 2.0 makes the credit equal to the full amount of creditable plan start-up costs for employers with 50 or fewer employees, up to an annual cap. Previously only 50% of costs were allowed — this limit still applies to employers with 51 to 100 employees.

2. Glitch fixed for multiemployer plans. SECURE 2.0 retroactively fixes a technical glitch that prevented employers who joined multiemployer plans in existence for more than three years from claiming the small employer pension plan start-up cost credit. If your business joined a pre-existing multiemployer plan before this period, contact us about filing amended returns to claim the credit.

3. Enhancement of employer contributions. Perhaps the biggest change wrought by SECURE 2.0 is that certain employer contributions for a plan’s first five years now may qualify for the credit. The credit is increased by a percentage of employer contributions, up to a per-employee cap of $1,000, as follows:

100% in the plan’s first and second tax years,
75% in the third year,
50% in the fourth year, and
25% in the fifth year.

For employers with between 51 and 100 employees, the contribution portion of the credit is reduced by 2% times the number of employees above 50.

In addition, no employer contribution credit is allowed for contributions for employees who make more than $100,000 (adjusted for inflation after 2023). The credit for employer contributions is also unavailable for elective deferrals or contributions to defined benefit pension plans.

To be clear, though the name of the tax break is the small employer pension plan start-up cost credit, it also applies to qualified plans such as 401(k)s and SIMPLE IRAs, as well as to Simplified Employee Pensions. Our firm can help you determine whether now is indeed the right time for your small business to launch a retirement plan and, if so, which one.

If your small business has a retirement plan, and even if it doesn’t, you may see changes and benefits from a new law. The Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0) was recently signed into law. Provisions in the law will kick in over several years.

SECURE 2.0 is meant to build on the original SECURE Act, which was signed into law in 2019. Here are some provisions that may affect your business.

Retirement plan automatic enrollment. Under the new law, 401(k) plans will be required to automatically enroll employees when they become eligible, beginning with plan years after December 31, 2024. Employees will be permitted to opt out. The initial automatic enrollment amount would be at least 3% but not more than 10%. Then, the amount would be increased by 1% each year thereafter until it reaches at least 10%, but not more than 15%. All current 401(k) plans are grandfathered. Certain small businesses would be exempt.

Part-time worker coverage. The first SECURE Act requires employers to allow long-term, part-time workers to participate in their 401(k) plans with a dual eligibility requirement (one year of service and at least 1,000 hours worked or three consecutive years of service with at least 500 hours worked). The new law will reduce the three-year rule to two years, beginning after December 31, 2024. This provision would also extend the long-term part-time coverage rules to 403(b) plans that are subject to ERISA.

Employees with student loan debt. The new law will allow an employer to make matching contributions to 401(k) and certain other retirement plans with respect to “qualified student loan payments.” This means that employees who can’t afford to save money for retirement because they’re repaying student loan debt can still receive matching contributions from their employers into retirement plans. This will take effect beginning after December 31, 2023.

“Starter” 401(k) plans. The new law will allow an employer that doesn’t sponsor a retirement plan to offer a starter 401(k) plan (or safe harbor 403(b) plan) that would require all employees to be default enrolled in the plan at a 3% to 15% of compensation deferral rate. The limit on annual deferrals would be the same as the IRA contribution limit with an additional $1,000 in catch-up contributions beginning at age 50. This provision takes effect beginning after December 31, 2023.

Tax credit for small employer pension plan start-up costs. The new law increases and makes several changes to the small employer pension plan start-up cost credit to incentivize businesses to establish retirement plans. This took effect for plan years after December 31, 2022.

Higher catch-up contributions for some participants. Currently, participants in certain retirement plans can make additional catch-up contributions if they’re age 50 or older. The catch-up contribution limit for 401(k) plans is $7,500 for 2023. SECURE 2.0 will increase the 401(k) catch-up contribution limit to the greater of $10,000 or 150% of the regular catch-up amount for individuals ages 60 through 63. The increased amounts will be indexed for inflation after December 31, 2025. This provision will take effect for taxable years beginning after December 31, 2024. (There will also be increased catch-up amounts for SIMPLE plans.)

Retirement savings for military spouses. SECURE 2.0 creates a new tax credit for eligible small employers for each military spouse that begins participating in their eligible defined contribution plan. This became effective in 2023.

These are only some of the provisions in SECURE 2.0. Contact us if you have any questions about your situation.

CPA firms do more than audits and tax returns. They can also help you with everyday accounting-related tasks, such as bookkeeping, budgeting, payroll and sales tax filings. Should your organization outsource its accounting needs? Here are five potential advantages to consider when evaluating this decision.

1. Professional advice. Outsourcing to an experienced CPA firm provides access to professional guidance related to tax, legal and financial matters. This makes it easier to remain compliant with rules and regulations and avoid costly mistakes due to a lack of knowledge or errors in interpreting complex regulations.

By engaging a third-party firm, there’s a second set of eyes on your company’s books. This can provide peace of mind that your books accurately reflect the performance of your business. Additionally, a CPA can help streamline your accounting processes and help record complex transactions correctly.

2. Scalability. As your financial situation evolves, you can dial up (or down) the services provided by your CPA. For example, a start-up that outsources its accounting needs wouldn’t need to worry about outgrowing its bookkeeper over time — or training that individual to take on more advanced accounting and tax needs. Likewise, if you embark on a major financial project — such as a launching a new product, building a new factory or merging with a strategic buyer — your CPA has the expertise on-hand to help you achieve the best possible outcome from a financial and tax perspective.

Outsourcing can also be a viable temporary solution if you unexpectedly lose your CFO. This can provide breathing room while you search for a qualified replacement in today’s tight labor market.

3. Cost savings. Outsourcing can save you money on payroll taxes and insurance costs associated with hiring an in-house accountant. Further, CPAs enjoy economies of scale regarding software usage and purchases, so they likely can provide accounting services cheaper than your firm can by working alone or relying on independent service providers for each task.

4. Efficiency. When you transfer accounting functions to your CPA, your management team has more time for core marketing, product development and other activities. It also frees up resources for higher-value tasks that can increase cash flow and optimize efficiency within the organization, such as negotiating with prospects or building deeper relationships with existing clients.

5. Enhanced confidence with stakeholders. A CPA firm’s involvement can instill confidence in lenders and investors if you intend to borrow money or solicit investment capital. It shows that your firm is committed to maintaining accurate business records and has access to the expertise needed to address complex issues.

Contact us if you’re considering outsourcing your daily accounting tasks, either permanently or temporarily. We can tailor a cost-effective service plan that works for your current and future business needs.

Late last year, the Consolidated Appropriations Act, 2023 (CAA 2023) was signed into law. Much of the discussion about this massive “omnibus” spending package has centered on the Setting Every Community Up for Retirement Enhancement 2.0 Act, a law within the package that addresses qualified retirement plans. However, the CAA 2023 also brings changes to group health plans. Here are some highlights of those provisions.

Telehealth and HDHPs

Tax-advantaged contributions generally cannot be made to a Health Savings Account (HSA) unless the account holder is covered by a high-deductible health plan (HDHP) and doesn’t have disqualifying non-HDHP coverage. Congress created exceptions to these rules to facilitate the use of telehealth during the onset of the pandemic, but the exceptions applied only to plan years beginning on or before December 31, 2021, and for the last nine months of 2022 without regard to plan year.

The CAA 2023 extends the exceptions by providing that telehealth and other remote care services will be considered “disregarded coverage” and, thus, won’t cause a loss of HSA eligibility during plan years beginning after December 31, 2022, and before January 1, 2025. In addition, HDHPs may provide coverage for telehealth and other remote care services during those plan years before the minimum deductible is satisfied without losing their HDHP status.

Apparently, non–calendar-year HDHPs will have a gap between the end of 2022 and the beginning of the 2023 plan year during which the relief doesn’t apply. However, individuals covered under these plans may be able to use the full contribution rule (sometimes referred to as the “last month” or “no proration” rule), which allows a full year’s worth of HSA contributions to be made by someone who’s HSA-eligible for only part of the year.

Mental health parity

The CAA 2023 provides funding to assist states in their enforcement of the CAA 2021 requirement that health plans and insurers prepare comparative analyses of any nonquantitative treatment limitations on mental health or substance use disorder coverage.

It also eliminates the right of self-insured non–federal-government health plans to opt out of compliance with the Mental Health Parity and Addiction Equity Act (MHPAEA). Effective immediately, no such new elections may be made, and elections expiring 180 days or more after December 29, 2022, may not be renewed. Provisions that would have imposed civil monetary penalties for violations of the MHPAEA didn’t make it into the final bill but may resurface in future legislation.

More developments ahead

Employers that sponsor group health plans should take note of these provisions and be on the lookout for further developments in 2023. Our firm can answer any questions you might have and provide further assistance managing the administrative burdens and costs of your health care benefits.

According to the Pew Research Center, nearly a quarter (23%) of U.S. children under the age of 18 live with one parent. This is more than three times the share (7%) of children from around the world who do so. If your household falls into this category, ensure your estate plan properly accounts for your children.

Choosing a guardian

In many respects, estate planning for single parents is similar to estate planning for families with two parents. Single parents want to provide for their children’s care and financial needs after they’re gone. But when only one parent is involved, certain aspects of an estate plan demand special attention.

One example is selecting an appropriate guardian. If the other parent is unavailable to take custody of your children if you become incapacitated or die suddenly, does your estate plan designate a suitable, willing guardian to care for them? Will the guardian need financial assistance to raise your kids and provide for their education? Depending on the situation, you might want to preserve your wealth in a trust until your children are grown.

Trust planning is one of the most effective ways to provide for your children. Trust assets are managed by one or more qualified, trusted individual or corporate trustees, and you specify when and under what circumstances the funds should be distributed to your kids. A trust is particularly important if you have minor children. Without one, your assets may come under the control of your former spouse or a court-appointed administrator.

Addressing incapacitation

As a single parent, it’s particularly important for your estate plan to include a living will, advance directive or health care power of attorney. These documents allow you to specify your health care preferences in the event you become incapacitated and to designate someone to make medical decisions on your behalf.

You should also have a revocable living trust or durable power of attorney that provides for the management of your finances in the event you’re unable to do so.

If you’ve recently become a single parent, contact us because it’s critical to review and, if necessary, revise your estate plan. We’d be pleased to help.

To help you make sure you don’t miss any important 2023 deadlines, we’ve provided this summary of when various tax-related forms, payments and other actions are due. Please review the calendar and let us know if you have any questions about the deadlines or would like assistance in meeting them.

Date	Deadline for
January 10	Individuals: Reporting December 2022 tip income of $20 or more to employers (Form 4070).
January 17	Individuals: Paying the fourth installment of 2022 estimated taxes, if not paying income tax through withholding (Form 1040-ES).
January 31	Individuals: Filing a 2022 income tax return (Form 1040 or Form 1040-SR) and paying tax due, to avoid penalties for underpaying the January 17 installment of estimated taxes. Businesses: Providing Form 1098, Form 1099-MISC (except for those that have a February 15 deadline), Form 1099-NEC and Form W-2G to recipients. Employers: Providing 2022 Form W-2 to employees. Reporting income tax withholding and FICA taxes for fourth quarter 2022 (Form 941). Filing an annual return of federal unemployment taxes (Form 940) and paying any tax due. Employers: Filing 2022 Form W-2 (Copy A) and transmittal Form W-3 with the Social Security Administration.
February 10	Individuals: Reporting January tip income of $20 or more to employers (Form 4070). Employers: Reporting income tax withholding and FICA taxes for fourth quarter 2022 (Form 941) and filing a 2022 return for federal unemployment taxes (Form 940), if you deposited on time and in full all of the associated taxes due.
February 15	Businesses: Providing Form 1099-B, 1099-S and certain Forms 1099-MISC (those in which payments in Box 8 or Box 10 are being reported) to recipients. Individuals: Filing a new Form W-4 to continue exemption for another year, if you claimed exemption from federal income tax withholding in 2022.
February 28	Businesses: Filing Form 1098, Form 1099 (other than those with a January 31 deadline) and Form W-2G and transmittal Form 1096 for interest, dividends and miscellaneous payments made during 2022. (Electronic filers can defer filing to March 31.)
March 10	Individuals: Reporting February tip income of $20 or more to employers (Form 4070).
March 15	Calendar-year S corporations: Filing a 2022 income tax return (Form 1120-S) or filing for an automatic six-month extension (Form 7004) and paying any tax due. Calendar-year partnerships: Filing a 2022 income tax return (Form 1065 or Form 1065-B) or requesting an automatic six-month extension (Form 7004).
March 31	Employers: Electronically filing 2022 Form 1097, Form 1098, Form 1099 (other than those with an earlier deadline) and Form W-2G.
April 10	Individuals: Reporting March tip income of $20 or more to employers (Form 4070).
April 18	Individuals: Filing a 2022 income tax return (Form 1040 or Form 1040-SR) or filing for an automatic six-month extension (Form 4868) and paying any tax due. (See June 15 for an exception for certain taxpayers.) Individuals: Paying the first installment of 2023 estimated taxes, if not paying income tax through withholding (Form 1040-ES). Individuals: Making 2022 contributions to a traditional IRA or Roth IRA (even if a 2022 income tax return extension is filed). Individuals: Making 2022 contributions to a SEP or certain other retirement plans (unless a 2022 income tax return extension is filed). Individuals: Filing a 2022 gift tax return (Form 709) or filing for an automatic six-month extension (Form 8892) and paying any gift tax due. Filing for an automatic six-month extension (Form 4868) to extend both Form 1040 and, if no gift tax is due, Form 709. Household employers: Filing Schedule H, if wages paid equal $2,400 or more in 2022 and Form 1040 isn’t required to be filed. For those filing Form 1040, Schedule H is to be submitted with the return and is thus extended to the due date of the return. Trusts and estates: Filing an income tax return for the 2022 calendar year (Form 1041) or filing for an automatic five-and-a-half-month extension to October 2 (Form 7004) and paying any income tax due. Calendar-year corporations: Filing a 2022 income tax return (Form 1120) or filing for an automatic six-month extension (Form 7004) and paying any tax due. Calendar-year corporations: Paying the first installment of 2023 estimated income taxes.
May 1	Employers: Reporting income tax withholding and FICA taxes for first quarter 2023 (Form 941) and paying any tax due.
May 10	Individuals: Reporting April tip income of $20 or more to employers (Form 4070). Employers: Reporting income tax withholding and FICA taxes for first quarter 2023 (Form 941), if you deposited on time and in full all of the associated taxes due.
May 15	Exempt organizations: Filing a 2022 calendar-year information return (Form 990, Form 990-EZ or Form 990-PF) or filing for an automatic six-month extension (Form 8868) and paying any tax due. Small exempt organizations (with gross receipts normally of $50,000 or less): Filing a 2022 e-Postcard (Form 990-N), if not filing Form 990 or Form 990-EZ.
June 12	Individuals: Reporting May tip income of $20 or more to employers (Form 4070).
June 15	Individuals: Filing a 2022 individual income tax return (Form 1040 or Form 1040-SR) or filing for a four-month extension (Form 4868), and paying any tax and interest due, if you live outside the United States or you serve in the military outside the United States and Puerto Rico. Individuals: Paying the second installment of 2023 estimated taxes, if not paying income tax through withholding (Form 1040-ES). Calendar-year corporations: Paying the second installment of 2023 estimated income taxes.
July 10	Individuals: Reporting June tip income of $20 or more to employers (Form 4070).
July 31	Employers: Reporting income tax withholding and FICA taxes for second quarter 2023 (Form 941) and paying any tax due. Employers: Filing a 2022 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or requesting an extension.
August 10	Individuals: Reporting July tip income of $20 or more to employers (Form 4070). Employers: Reporting income tax withholding and FICA taxes for second quarter 2023 (Form 941), if you deposited on time and in full all of the associated taxes due.
September 11	Individuals: Reporting August tip income of $20 or more to employers (Form 4070).
September 15	Individuals: Paying the third installment of 2023 estimated taxes, if not paying income tax through withholding (Form 1040-ES). Calendar-year corporations: Paying the third installment of 2023 estimated income taxes. Calendar-year S corporations: Filing a 2022 income tax return (Form 1120-S) and paying any tax, interest and penalties due, if an automatic six-month extension was filed. Calendar-year S corporations: Making contributions for 2022 to certain employer-sponsored retirement plans, if an automatic six-month extension was filed. Calendar-year partnerships: Filing a 2022 income tax return (Form 1065 or Form 1065-B), if an automatic six-month extension was filed.
October 2	Trusts and estates: Filing an income tax return for the 2022 calendar year (Form 1041) and paying any tax, interest and penalties due, if an automatic five-and-a-half-month extension was filed. Employers: Establishing a SIMPLE or a Safe-Harbor 401(k) plan for 2022, except in certain circumstances.
October 10	Individuals: Reporting September tip income of $20 or more to employers (Form 4070).
October 16	Individuals: Filing a 2022 income tax return (Form 1040 or Form 1040-SR) and paying any tax, interest and penalties due, if an automatic six-month extension was filed (or if an automatic four-month extension was filed by a taxpayer living outside the United States). Individuals: Making contributions for 2022 to certain existing retirement plans or establishing and contributing to a SEP for 2022, if an automatic six-month extension was filed. Individuals: Filing a 2022 gift tax return (Form 709) and paying any tax, interest and penalties due, if an automatic six-month extension was filed. Calendar-year C corporations: Filing a 2022 income tax return (Form 1120) and paying any tax, interest and penalties due, if an automatic six-month extension was filed. Calendar-year C corporations: Making contributions for 2022 to certain employer-sponsored retirement plans, if an automatic six-month extension was filed.
October 31	Employers: Reporting income tax withholding and FICA taxes for third quarter 2023 (Form 941) and paying any tax due.
November 13	Individuals: Reporting October tip income of $20 or more to employers (Form 4070). Employers: Reporting income tax withholding and FICA taxes for third quarter 2023 (Form 941), if you deposited on time and in full all of the associated taxes due.
November 15	Exempt organizations: Filing a 2022 calendar-year information return (Form 990, Form 990-EZ or Form 990-PF) and paying any tax, interest and penalties due, if a six-month extension was previously filed.
December 11	Individuals: Reporting November tip income of $20 or more to employers (Form 4070).
December 15	Calendar-year corporations: Paying the fourth installment of 2023 estimated income taxes.

The Employee Retention Credit (ERC) was a valuable tax credit that helped employers that kept workers on staff during the height of the COVID-19 pandemic. While the credit is no longer available, eligible employers that haven’t yet claimed it might still be able to do so by filing amended payroll returns for tax years 2020 and 2021.

However, the IRS is warning employers to beware of third parties that may be advising them to claim the ERC when they don’t qualify. Some third-party “ERC mills” are promising that they can get businesses a refund without knowing anything about the employers’ situations. They’re sending emails, letters and voice mails as well as advertising on television. When businesses respond, these ERC mills are claiming many improper write-offs related to taxpayer eligibility for — and computation of — the credit.

These third parties often charge large upfront fees or a fee that’s contingent on the amount of the refund. They may not inform taxpayers that wage deductions claimed on the companies’ federal income tax returns must be reduced by the amount of the credit.

According to the IRS, if a business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction. Your tax advisor can assist with this.

Businesses are encouraged to be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.

ERC Basics

The ERC is a refundable tax credit designed for businesses that:

Continued paying employees while they were shut down due to the COVID-19 pandemic, or
Had significant declines in gross receipts from March 13, 2020, to September 30, 2021 (or December 31, 2021 for certain startup businesses).

Eligible taxpayers could have claimed the ERC on an original employment tax return or they can claim it on an amended return.

To be eligible for the ERC, employers must have:

Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19 during 2020 or the first three quarters of 2021,
Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
Qualified as a recovery startup business for the third or fourth quarters of 2021.

As a reminder, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021. Additionally, for any quarter, eligible employers cannot claim the ERC on wages that were reported as payroll costs in obtaining Paycheck Protection Program (PPP) loan forgiveness or that were used to claim certain other tax credits.

How to Proceed

If you didn’t claim the ERC, and believe you’re eligible, contact us. We can advise you on how to proceed.