April 6, 2021

Employee Retention Tax Credit Offers Huge Relief Opportunities for the Construction Industry

The Employee Retention Tax Credit (ERTC) has been a valuable COVID-19 relief option for businesses who faced revenue losses due to ongoing impacts of the pandemic. While some industries were impacted more than others, certain sectors of the construction industry actually expanded in 2020, including homebuilders and industrial contractors. Even if your company performed well overall last year, there could still be an opportunity to claim the ERTC.

Who Qualifies for the ERTC?

Originally part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the ERTC allows businesses to take a credit against payroll taxes in order to help offset some of the business losses due to COVID-19. The original ERTC was only available for businesses who were forced to shut down or whose gross receipts in 2020 were 50% less than the same quarter in 2019. The ERTC has since been expanded, modifying the reduction in revenue by an additional 30%. For 2021, businesses are eligible if gross receipts are less than 80% of the gross receipts for same quarter in the prior year.

Businesses that averaged no more than 100 full-time employees in 2019 qualify for the ERTC in 2020 on wages paid to all employees. For the ERTC in 2021, this employee threshold increases to no more than 500 full-time 2019 employees. Full-time employees are those that work at least 30 hours per week. Union employees are included in the employee count for the credit, but those working part-time (less than 30 hours/week) are not.

How Much Can Businesses Qualify for?

For 2020, eligible employers can take a credit of 50% on qualified wages up to $10,000 paid to employees between March 12, 2020 and January 1, 2021. In 2021, the tax credit is increased to 70% of qualified wages, which are limited to $10,000 per employee per quarter. With the 70%, the maximum ERTC amount available is $7,000 per employee per quarter, for a potential total of $28,000 per employee in 2021. We have seen clients qualify for anywhere from $5,000 to $2.5 million through the ERTC.

How Could My Company Qualify for the ERTC After a Good Revenue Year?

Unlike other industries, construction revenue typically isn’t cyclical, and contractors can have revenue fluctuations that vary from month to month or quarter to quarter depending on projects. To qualify for the ERTC, the business only needs to have a quarter-by-quarter drop in revenue of 50% when comparing a 2020 quarter to 2019, and 20% when comparing a quarter in 2021 to 2019. You can also look back a quarter for the ERTC, so if your company was down 20% in Q4 of 2020 compared to 2019, you would qualify for Q1 of 2021.

ERTC Case Study

In one unique scenario, a taxpayer with a 40% increase in revenue in 2020 vs 2019 overall assumed they would not qualify for the ERTC. When taking a closer look, we discovered their revenue dropped 50% in Q4 of 2020 compared to 2019, making them eligible for the ERTC in Q4 of 2020 and Q1 of 2021. Projected total benefit for this taxpayer exceeds $200,000.

How Can I Take Advantage of the ERTC?

Initially, the CARES Act prohibited employers who had received a PPP loan from also utilizing the ERTC. New laws allow an employer to claim the credit for any wages paid beyond the proceeds of the PPP loan that have been forgiven. Taking advantage of both PPP loan funding and the ERTC is a great way to maximize COVID-19 relief opportunities.

If you discover you qualified for the ERTC in 2020, you can amend your quarterly payroll returns to claim the credit. If you identify that you qualify in advance, you can reduce payroll deposits for 2021 to take advantage of the credit.

Find out if your business is eligible for the Employee Retention Tax Credit in 2020 or 2021.

While the above highlights the opportunity for eligible businesses, please contact an Anders advisor below to discuss your situation and recovery options. Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed. Visit our COVID-19 Resource Center for more resources.

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April 2, 2021

Emily W. Hammond

March 19, 2021

How Employers Can Take Advantage of the Expanded Employee Retention Tax Credit

On March 11, President Biden signed into law the American Rescue Plan Act of 2021 (ARPA). This relief bill comes in response to the continued COVID-19 pandemic and makes some changes to the Employee Retention Tax Credit (ERTC) that was originally part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and later expanded and extended under the Consolidated Appropriations Act (CAA) of 2020. Below we dig into the changes and expansions that were part of the CAA and the recently enacted ARPA.

QUICK REFRESHER ON THE ORIGINAL ERTC

Let’s first revisit the provisions of the ERTC in the original CARES Act. Enacted in the spring of 2020, the Act allowed businesses to take a credit against payroll taxes in order to help offset some of the business losses due to COVID-19. The law allowed eligible employers to take a credit of 50% of qualified wages up to $10,000 paid to employees between March 12, 2020 and January 1, 2021. Consequently, the maximum credit for each employee was $5,000 ($10,000 in wages X the 50% tax credit rate).

However, not every business was eligible for this credit. Businesses must have been significantly impacted by COVID-19 either by a shutdown order or by experiencing a significant reduction in revenue. There were also restrictions on which wages were “qualified” if an employer had more than 100 full-time employees. Businesses were also not allowed to take the credit if they used Paycheck Protection Program (PPP) loans to cover employee payroll costs.

UPDATES AND EXPANSIONS TO THE ERTC

The passage of both the CAA and the newly signed ARPA relief bill is good news to many businesses who continue to feel the economic impacts of the pandemic as the laws enhance and expand many provisions of the original ERTC. Under the CAA of 2020, the ERTC was extended until June 30, 2021 and increased the tax credit to 70% of qualified wages for each of the first two quarters of 2021.

With the newly enacted ARPA legislation, the ERTC has been extended again – this time through December 31, 2021. This means an employer eligible for the ERTC in all four quarters of 2021 could receive up to $28,000 in credits per employee ($10,000 quarterly wage cap x 70% x 4 quarters).

ERTC Eligibility

More businesses will be eligible for the ERTC in 2021. The original ERTC was only available for businesses who were forced to shut down or whose gross receipts in 2020 were 50% less than the same quarter in 2019. The CAA modified this reduction in revenue by 30%. Under the CAA guidelines, the test was satisfied for either of the first two quarters of 2021 if gross receipts were less than 80% of the gross receipts for same quarter in 2019. The ARPA extends the 80% gross receipts test for the third and fourth quarters of 2021 as well. 

ERTC Wage Threshold

A change in the threshold for determining which wages “qualify” for the tax credit will also benefit employers in 2021. Under the original CARES act, for businesses with less than 100 full-time employees, all wages qualified for the tax credit, regardless if the employee’s role changed or not due to the pandemic. Whereas businesses with over 100 employees could not claim the credit for employees that were still performing services for the business.

The CAA, effective January 1, 2021, raised the threshold number to 500 employees.  In addition, the ARPA, effective July 1, 2021, also includes a new provision for “severely financially distressed employers.” These employers are defined as those whose gross receipts are less than 10% of the gross receipts for the same quarter in 2019. If an employer meets this definition, they may treat all wages paid to employees as qualified wages regardless of the number of full-time employees. 

Employers with PPP Loans

Initially, the CARES Act prohibited employers who had received a PPP loan from also utilizing the ERTC. The CAA allowed an employer to claim the credit for any wages paid beyond the proceeds of the PPP loan that have been forgiven. This change is retroactive to the effective date under the original law: March 12, 2020. A company that received a PPP loan in 2020 but paid qualified wages beyond the amount of the loan could benefit by filing an amended Form 941 and claiming the credit.

NEW ENHANCEMENTS TO THE ERTC

While many provisions of the CAA and the ARPA enhanced the CARES Act, they also include some brand-new provisions as well. Under the CAA, businesses can take an advanced payment on their credit even if those wages have not yet been paid. Additionally, some government entities not previously allowed to take the credit became eligible with the passage of the CAA, such as public universities, hospitals, federal credit unions, etc.

The ARPA also allows a startup business to take the ERTC even if the business does not meet the other ERTC eligibility tests. To qualify the business must have been established after February 15, 2020 and have annual gross receipts of no more than $1 million. The recovery startup credit is capped at $50,000 per quarter, per employer.

While the above highlights how changes in the recent COVID-19 relief bill have affected the ERTC, please contact an Anders advisor below to discuss your situation and recovery options. Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed. Visit our COVID-19 Resource Center for more resources.

Find out if your business is eligible for the Employee Retention Tax Credit in 2020 or 2021.

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March 18, 2021

IRS Extends Federal Individual Income Tax Filing Deadline to May 17

The IRS has officially extended the federal individual income tax filing and payment deadline from April 15 to May 17, 2021 as part of relief efforts around the COVID-19 pandemic. All taxpayers will have an additional month to file their federal income tax returns and pay any taxes due for the 2020 tax year. Taxpayers who are ready to file are encouraged to still file by April 15, especially those anticipating refunds.

This IRS guidance only applies to federal individual income tax filings, not state tax filings or payments. In addition, gift tax returns, 2021 first quarter estimated tax payments, trust returns and IRA contributions currently appear to continue to be due on April 15. State filing and payment deadlines vary by state and may change based on federal guidance. We expect additional guidance to follow that may address these items.

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed. Visit our COVID-19 Resource Center for more resources. To discuss your tax situation, please contact an Anders advisor below.

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March 16, 2021

Prevent Identity Theft at Tax Time with These 4 Tips

It’s crunch time for filing individual tax returns, which means tax-related identity theft is on the rise. Each year, more and more scammers plan to steal personal information of taxpayers to file a fraudulent return or claim a refund. Protecting yourself and your loved ones from tax-related identity theft is vital, and below are four tips and steps you can take.

1. Know How the IRS Will Contact You

Some scammers will impersonate the IRS via email, text or social media to get ahold of personal information. If you’re suspicious of correspondence you receive from someone acting as the IRS, know that the IRS will NEVER:

  • Initiate contact with taxpayers by email, text or social media to request personal or financial information
  • Call taxpayers with threats of lawsuits or arrests
  • Call, email or text to request taxpayers’ Identity Protection PINs

The IRS has an Identity Theft Central full of information, with videos and resources around
protecting your personal information and how the IRS combats identity theft.

2. Get an Identity Protection PIN Through the IRS

This year, the IRS is helping keep tax return information secure by establishing an Identity Protection PIN program. The Identity Protection PIN (IP PIN) is a six-digit number that prevents someone else from filing a tax return using your Social Security number. The IP PIN is known only to the taxpayer and the IRS and helps verify identity when filing electronically or via paper tax return. Starting in 2021, taxpayers may voluntarily opt into the IP PIN program as a proactive way to protect from tax-related identity theft. 

3. Keep an Eye on Your Social Media

Social media is a growing hot spot for identity theft. In an age where almost everyone is on some sort of social media platform, it’s important to remember online security best practices so scammers can’t take advantage of you. Be aware of the personal information you share on social media, even if you believe you’re sharing privately to friends. Make sure you’re using strong, complex passwords for all social media sites. Passwords should be unique and at least 12 characters long with capitalization, numbers and symbols.

4. Work with a Secure Firm

Working with a reputable CPA firm that focuses on data security can be a much safer option than filing yourself. Seek out a firm that has multiple layers of security to protect your data, including:

  • Multi-factor authentication on all devices so client information doesn’t end up in the wrong hands
  • Website begins with “HTTPS” showing that the site is encrypted for security purposes
  • Modern encryption technology to protect tax returns
  • Works with trusted vendors
  • Offers secure electronic filing on trusted software and trusted networks

Warning Signs of Tax-Related Identity Theft

You may not know you’re a victim of identity theft until you’re notified by the IRS of a possible issue with your return, but it’s important to be proactive. Here are some warning signs that someone is filing a fraudulent return on your behalf:

  • You get a letter from the IRS about a suspicious tax return that you did not file.
  • You can’t e-file your tax return because of a duplicate Social Security number.
  • You get a tax transcript in the mail that you did not request.
  • You get an IRS notice that an online account has been created in your name.
  • You get an IRS notice that your existing online account has been accessed or disabled when you took no action.
  • You get an IRS notice that you owe additional tax or refund offset, or that you have had collection actions taken against you for a year you did not file a tax return.
  • IRS records indicate you received wages or other income from an employer you didn’t work for.

The tips above can help protect against tax-related identity theft, but it’s important to keep data protection top-of-mind throughout the year. Anders stays at the forefront of cybersecurity and data protection best practices year-round, and the security of our client information is a main focus every day. Contact an Anders advisor below or learn more about Anders Tax Planning and Compliance services.

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March 9, 2021

Permanent 179D Tax Deduction Incentivizes Energy Efficient Building Improvements

The Consolidations Appropriations Act of 2021 signed into law on December 27, 2020 permanently extended the 179D tax deduction for energy efficient building improvements. This is great news for commercial building owners as they can now take advantage of the 179D tax deduction for energy efficient building upgrades without wondering if and when the deduction will expire. Below we dive into the details to know before taking advantage of the 179D deduction.

BACKGROUND ON 179D AND ELIGIBILITY

The 179D deduction helps incentivize energy efficient construction projects. This deduction was originally created as a temporary measure under the Energy Police Act of 2005 and was extended every year until it expired in 2017. A tax deduction of $1.80 per square foot that reduced the building’s total energy and power cost by 50% or more is available to owners of new or existing buildings who install the following:

  • Interior Lighting
  • Building Envelope
  • Heating/Cooling Ventilation
  • Hot Water Systems

Deductions of $0.60 per square foot are available for situations where expenditures partially qualify by meeting certain target levels or through an interim lighting rule issued by the IRS. For government-owned buildings, this deduction is transferable to the person or company responsible for the energy efficient design. Therefore, architecture and engineering firms that design government owned buildings may also claim this deduction when completing additional requirements.

Under the extender bill of 2019, the deduction is retroactively extended for tax years 2018, 2019 and available for 2020. Qualified buildings placed in service in 2018 and 2019 may be eligible to claim the 179D deduction.

CLAIMING 179D

Eligible building owners can claim the 179D deduction for up to $1.80 per square foot of the entire building for the installation of energy efficient systems into new or existing buildings.

The Anders Real Estate and Construction Group can help determine if your construction project would qualify for the 179D deduction as well as other tax credits and incentives. Contact an Anders advisor below to learn more.

Abigail A. Mabley is a contributor to this post.

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February 23, 2021

Working Remotely in Different States? Find out Where You Need to File Taxes

With many companies either extending their remote work timeline due to COVID-19 or permanently switching to a remote work structure, it’s important for employees to understand the various tax implications of working remotely. Some people are taking the opportunity to travel or move to other states while they can work from anywhere. But establishing presence in additional states could cause additional tax filing and withholding requirements employees should be aware of.

Understanding State Filing Requirements

Tax filing requirements vary from state to state. If you’re planning on working remotely from a different state for an extended period of time, it is best to investigate the state’s tax filing requirements. Generally, employees pay taxes based on where they work or earn income. Employees could be subject to additional non-resident income tax return filings depending on the state they’re in and whether they meet thresholds based on income generated or time spent there. So, while taxpayers may maintain their permanent home in one state and work remotely from a different state, depending on how long they work or how much income they earn in that different state will determine if they are required to file as a non-resident of said state.

California and New York State Tax Example

A California taxpayer decides to move from California back to New York to be near family while they are working remotely. The taxpayer signs a short-term lease and works remotely in New York for six months.

Assuming the taxpayer spent 184 days or more in New York, the taxpayer is now required to file a part-year resident return for both New York and California. New York requires taxpayers who spend 184 or more days in the state during the year to file in New York, whether or not the taxpayer maintained a permanent residence there.

Missouri and Illinois State Tax Example

An Illinois resident works remotely on a temporary basis from their home for a Missouri-based company. The employee does plan to go back into the Missouri office once COVID-19 is over.

Historically, the Illinois resident has worked and earned their wages in Missouri, so they were required to file a non-resident return in Missouri and pay the tax due there. Additionally, they would file an Illinois resident return as well, where they would have to calculate and pay tax due in Illinois. Please note, Illinois does allow for a credit for taxes paid to other states in their calculation of current year tax, so this helps avoid the double taxation between Missouri and Illinois.

Now in this example, the employee worked remotely from their home for a significant portion of the year. This means their work performed is in Illinois instead of Missouri which would lead us to believe that the income sourced to Illinois would not be subject to Missouri income tax. Unfortunately, Missouri currently has not provided clear guidance on this situation. It is believed that even though the Illinois resident performed services in Illinois, Missouri will still want that Illinois resident to file and pay tax as a Missouri non-resident since the change was on a temporary basis and due to the COVID-19 pandemic. Time will tell if this stance will hold true though.

Filing requirements vary by state, so it’s important to keep track of which states you have been working remotely in and for how long. Find out how working from home affects state taxes in Missouri and Illinois. If you have specific questions on a particular state filing requirements, contact an Anders advisor below.

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February 22, 2021

2021 Tax Pocket Guide

Access the 2021 Anders Tax Pocket Guide for this year’s corporate and individual tax rates, retirement plan contribution limits and more, including:

  • Estate tax and lifetime gift tax exemption increase to $11,700,000
  • AMT exemption increase
  • Standard deduction increase

View the 2021 Anders Tax Pocket Guide.

Contact an Anders advisor to learn how these rates affect you and your business.

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February 21, 2021

2021 Anders Tax Pocket Guide

February 9, 2021

Do I Qualify for the Home Office Deduction While Working from Home?

If you are like many Americans, the Coronavirus forced you to work from home for some or most of 2020. You may have had to purchase items to make your home more conducive to a work from home environment, including computers, printers, desks, basic office supplies, office chairs or even faster internet. With all of these additions to your home office, you may be wondering, “Can I deduct these expenses or take a home office credit on my 2020 tax return?”

The answer depends on if you are an employee or if you are self-employed.

Home Office Deduction for Employees

The 2017 Tax Cuts and Jobs Act suspended the business use of home deduction from 2018 through 2025 for employees. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home. Additionally, there is no deduction for unreimbursed work expenses.

This means you will not be able to deduct home office expenses or purchases that allow you to work from home, and you do not qualify for the home office deduction.

Home Office Deduction for Self-Employed Individuals

There are two parts of the equation for self-employed individuals: ordinary business expenses and a home office deduction. Ordinary business expenses can be taken on your return and are usually reported on a Schedule C. They include any ordinary and necessary expenses to conduct business.

The home office deduction is available to self-employed taxpayers, independent contractors and those involved with short-term contracts or freelance work.

How to Qualify for the Home Office Deduction

There are two basic requirements to qualify for the home office deduction:

  1. You must use a portion of the home exclusively for conducting business on a regular basis, and
  2. The home must be your principal place of business

“Exclusive use” means you must use a specific portion of the home only for business purposes, and for nothing else. A home office does not need to be a separate room or permanently partitioned portion of a room. Any “separately identifiable” area can serve as an office. For instance, a corner of a room with a desk and file cabinet could qualify as a home office.

According to the IRS, to claim the deduction, you must use part of your home for one of the following:

  • Exclusively and regularly as a principal place of business for a trade or business
  • Exclusively and regularly as a place where patients, clients or customers are met in the normal course of a trade or business
  • As a separate structure that is not attached to a home that is used exclusively and regularly in connection with a trade or business
  • On a regular basis for storage of inventory or product samples used in a trade or business of selling products at retail or wholesale
  • For rental use
  • As a daycare facility

The IRS, defines the term “home” as:

  • A house, apartment, condominium, mobile home, boat or similar property
  • A structure on the property, like an unattached garage, studio, barn or greenhouse
  • Not including any part of the taxpayer’s property used exclusively as a hotel, motel, inn or similar business

Qualified Expenses

Deductible expenses for business use of home normally include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs. In general, a taxpayer may not deduct expenses for the parts of their home not used for business; for example, expenses for lawn care or painting a room not used for business.

Claiming the Home Office Deduction

You can use either the regular or simplified method to calculate the home office deduction. The IRS describes the regular and simplified methods as:

  • Using the regular method, qualifying taxpayers compute the business use of home deduction by dividing expenses of operating the home between personal and business use. Self-employed taxpayers filing IRS Schedule C, Profit or Loss from Business (Sole Proprietorship) first figure this deduction on Form 8829, Expenses for Business Use of Your Home.
  • Using the Simplified Option, qualifying taxpayers use a prescribed rate of $5 per square foot of the portion of the home used for business (up to a maximum of 300 square feet) to figure the business use of home deduction. A taxpayer claims the deduction directly on IRS Schedule C.

Contact an Anders advisor below to discuss the specific nuances of the home office deduction and if you qualify.

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