Daniel HonanFounder, Profitable Painter CPA PLLC · I help painting contractors increase profits & cash flow while reducing taxes♦ Bookkeeping ♦ Tax

Painting Business Owners: Know the one of the pitfalls when qualifying for ERC?

Name: Painting Business Owners: Know the one of the pitfalls when qualifying for ERC?
Uploaded: 2023-12-21T14:15:03+00:00
Duration: 58 s
Channel: Daniel Honan
Description: In this short video, the speaker warns painting‑business owners that receiving the Employee Retention Credit (ERC) creates a tax compliance obligation…

21 Dec 2023 · 1 min

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In this short video, the speaker warns painting‑business owners that receiving the Employee Retention Credit (ERC) creates a tax compliance obligation. Although the ERC is paid in a later year (e.g., 2023), it is tied to wages paid in 2020‑2021. Because the credit replaces the wage deduction for those years, the business must file amended 2020 and 2021 tax returns to remove the deducted wages. The amendment raises the prior‑year taxable profit, which can increase taxes owed for those years. While the ERC itself is not taxable, the resulting higher profit may generate a modest tax bill. The speaker advises owners to amend the returns promptly and pay any additional tax to avoid an IRS examination, emphasizing that the net benefit of the credit still outweighs the extra tax.

Chapters

if you do apply for ERC and you get the credit, you have a responsibility then to amend your business tax returns for the year that you received ERC. This can get kind of confusing because it may be 2023 when you receive the checks, but those credits are actually tied to wages that were paid in 2020 or 2021. Because you received a credit for those wages, you can't also deduct those wages on your 2020 and 2021 returns. Now you have to go back and amend those returns removing the wage deduction that you received the credit for. When you do that, your profit goes up because your expenses have been reduced. Your profit goes up, your taxes go up. While the ERC itself is not taxable, the effect it has on previous years' tax returns will probably result in some tax being owed. It's going to be much less than the ERC itself. You'll come out ahead. You're going to want to make sure that you amend those returns, pay those taxes so that you can avoid an examination.