Subscribe to our newsletters & stay updated
When I speak at the AIM/R conference in San Diego (www.aimr.net/page/AnnualConference2021), I'm going to cover a lot of issues impacting your business. What's going on in Washington. Legislation you should watch. The latest technologies. How employers are finding new workers and keeping their existing ones happy. I'll also be sharing some tax advice.
Yes, tax advice. It's boring. It's math. It's not exactly inspiring. But then again, it's also likely your largest expenditure — by far. And if I’ve learned anything from smart business leaders over the past two decades, sometimes the most boring and unsexy issues are the ones that can be the most significant to your bottom line.
And this year, there are some huge tax benefits you should be discussing with your financial advisor right now. Because taking advantage of them could not only save you a lot of money but actually return a bunch of cash.
What kinds of benefits?
Employee Retention Tax Credit
The Employee Retention Tax Credit (ERTC) was created by last year's CARES Act and was then expanded in subsequent stimulus bills. It expires at the end of this year, but you can apply for it through April 2025, assuming you're eligible.
And you may very well be eligible if your business was fully or partially shut down in any of the last three quarters of 2020 or any quarter in 2021. Or if your business suffered a 50 percent decline in revenue in any quarter of 2020 or a 20 percent decline in revenue in any 2021 quarter compared to the same (pre-COVID) quarter of 2019.
How big is this credit?
It's big. It's worth up to $5,000 annually per employee for 2020 or up to $28,000 per employee for 2021. And the big deal is that it's refundable. What that means is the credit gets applied against the payroll taxes you owe and if the credit is bigger — you get the cash back!
If you didn't take the credit in a previous quarter, that's OK, too. You can still go back and amend your prior quarterly tax returns and get the money. So, get the money.
You can find out more about the ERTC at https://bit.ly/3hNsvik.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) is not a payroll tax credit. It's an income tax credit. And it can be an enormous help for hiring workers this year through 2025. Why?
Because the WOTC is awarded to employers who hire people fitting certain criterion, such as those who are out of prison, off of welfare or have been unemployed for more than six months. Sound familiar?
Depending on the calculation (which you need to do in advance), you can get up to a $9,600 credit per hire. That money could be turned into a hiring bonus for a prospective employee, which is a bonus that may be the difference between hiring the worker or losing that talent to a competitor.
You can find out more about the WOTC at https://bit.ly/2VbJq6v.
Benefits for Helping Pay Student Loans
Thanks to recent COVID-19-related stimulus legislation, you've also got the ability to help your workers with their student loans through 2025. How?
By reimbursing employees for their student loans, you can deduct up to $5,250 each year and your employees won't be taxed for the benefit. So, it's a win-win on both sides.
Student debt is burying younger workers and many employers are stepping up to provide assistance. Even if it's just a couple of grand a year, every bit helps. You can start doing it anytime you want, such as after an employee has been working for you for six months or a year.
This is the kind of benefit that will help you not only recruit new employees but retain existing ones who are struggling with their student debt. And Uncle Sam is helping you do it.
I wrote about this deduction in more detail at https://bit.ly/3jVFPno.
An Oldie but a Goodie: Capital Expenditures
I'm not sure if you have much capital equipment in your business, but I do know your customers are buying this stuff from you. So even if you can't take advantage of this benefit, it might be a great selling tool to help you close deals.
What's the benefit? It’s been around for a while but expanded in the 2017 tax reform legislation. It’s called accelerated depreciation or Section 179 and what it means is that in 2021, companies can immediately deduct up to $1.05 million of capital expenditures made instead of capitalizing and depreciating.
That's a big deal. But what's an even bigger deal is companies don't have to pay for the equipment to get this benefit. Yet.
As long as the equipment — which can be new or used — is purchased and put into service by year-end, then the full deduction is allowed. So, if you or one of your customers finances capital equipment and gets it up and running, then everyone benefits.
Interest rates are low and capital is accessible, so it's a good strategy to consider, particularly in this post-recession economy where many struggling companies are looking to sell assets to raise cash.
You can find out more about the Section 179 deduction at https://bit.ly/3yx8SBK.
Not so bored anymore, are you? I thought so.
When you look at all the taxes your business pays, I bet it adds up to a significant percentage of your income. Maybe as much as 25 percent. This is not fun; smart managers aren't laughing when you bring this up. It is why it's important to meet frequently with your financial advisor and use strategies like the ones I mentioned to minimize this seriously high expense.
You still have time. Get to work!
Gene Marks is a former columnist for The New York Times and The Washington Post. He now writes weekly on the economy, business and technology for The Guardian, The Hill, The Washington Times, The Philadelphia Inquirer, Forbes and Entrepreneur.com. Marks, a certified public accountant, is the author of five books on business management and provides commentary regularly on several television and radio broadcasts. He is also the host of two popular business podcasts for The Hartford and Paychex. To learn more, visit www.genemarks.com.