Employee Retention Credit (ERTC) - The Hidden Gem of Covid Relief | Main Street Business Podcast |

Foreign.

Welcome, everyone, to the Main Street Business Podcast with Mark Kohler and Matt Sorenson. Just delighted to be with you today. Hoping to shed some knowledge to you on the tax and legal world.

That was it. That. I don't know. Wow. With that intro, I'm ready to listen. Everybody is on pins and needles.

That was delighted. That was, that was delightful. I thought, you know, and I was waiting for you to come in there.

Yeah.

And I, I didn't, I didn't give you a really good.

You know, there has to be a crescendo.

I didn't give you a good send off.

Yeah, yeah, there's a crescendo involved. So this is why people stalled out.

I just kind of stalled out there.

It was like, yeah, we're delighted to be here today. So. No. Yeah. So this is why Matt Sorensen doesn't have a profession in radio announcing or. Yeah, I guess, you know, here I'm a little jaded because probably I was watching some pay per view cage fighting over the weekend. Whatever you call it.

Mma.

Mma.

That sounds like a Jean Claude Van Damme movie or something.

Hey, I'm. I'm an old guy. They're like, there's a cage, it's not a ring.

Hence, it's the octagon. God.

Yeah. From Four Christmases. Tag me. But. So anyway, I was watching some MMA and those announcers, they're even more intense than boxing. You know, they're like, today, you know, they're just. So, anyway, I was expecting more of a flamboyant intro, but for all of you here today, tell them how awesome our topic is.

Matt. This is really impactful because any of you small business owners, particularly those struggling through the pandemic, this is one of those of the many juicy nuggets out of the stimulus bills that we've had. The ERTC Employee Retention Tax Credit. Mark's got an awesome article on Entrepreneur right now on the topic and has turned into a expert, a. I don't know, what would you call yourself a.

Well, a person that knows a little bit about ertc. I'm one of the few people in the country that actually care about learning this stuff.

So one of the few nerds out there that's actually read the tax code. The bill. Gone to the IRS's website, read their. What did they just issue? They issued some guidance on it.

Yeah.

I mean, guys, this is stuff you do not want to read. This stuff is the worst stuff to read. Tax credits,

you're not. You're not making.

He took one for the team.

Yeah.

To do this for us today.

Yeah. He's not making me sound very cool that this is. I'm the one guy that does read it, even though many of you don't. But we're going to break it down today. So there's a lot of new laws out there. I'm going to say new rules because of the COVID relief law passed at the end of December. And it sometimes it takes the accounting and legal community two to three weeks, a month to really digest it, get through the forms. The IRS issues additional guidance. The SBA chimes in. I mean, so it's kind of a. I don't know what it is. It's kind of like the instant replay after the call. You know, they've got to go double check it, make sure it makes sense. And so.

Yeah. And I think that on ertc, the important thing to know too is this isn't your 2020 ERTC. All right. This got revamped at the end of the year in the, in the COVID relief bill and it opened up more avenues and made the credit larger.

Yeah.

For more people to get and has more quarters and instances where you can claim it. So if you looked at it and heard about it last year, maybe looked in it for you or your business and were like, eh, don't worry, it applies to more people now and we're seeing more and more clients being able to get this and eligible for it.

Yeah. And you can do both the PPP and ERTC now. So many of you didn't care about it. Guess what, we can go back in 2020 and get it now. So I'm going to show you how, tell you how. We'll break it down here in a moment. But Matt, I've got a little legal tip. Can I give a little legal tip and then maybe you've got a little tax tip on saving some money before April 15th deadline or something. A lot of deadlines coming up here on April 15th that Matt Sorenson knows a lot about. So maybe that new account special. This could be a part of your tip.

Yeah. Yeah, I like it.

Okay. Blindsighting Matt here. He's going to go. At least you gave me a few minutes to gather my thoughts. So. Okay, here's my legal tip. So I was meeting with a client yesterday who has several business locations and don't think you have to be a big fish to use this legal strategy. This is very important one, even if it's just one property. But what we've talked about over the years is that sometimes the first best rental you can buy is the building you rent from yourself. So you may have a retail store establishment, you may have just an Internet based business or a professional firm, whatever. But if you, a warehouse, a manufacturing facility, quit paying rent to someone else and buy your own building. Right. You know you're going to be paying the rent and you need it. And you can oftentimes get an SBA to type loan because you are going to be the owner occupier of the load the building. And you can get some sweet loan provisions too. So very common real estate strategy. But what everybody forgets to do on day two is to sign a lease with yourself. You just, clients move in and they say, well, I'm going to start paying rent to myself. And they just choose a number out of the air because it sounds good, it sounds sexy for tax planning. And I know some of you listening are like, I don't have a lease. Well, you need one. Let me give you two or three reasons why. Legally, if there's a lawsuit in your business or a patron or someone comes or an employee and slips and falls or trips on an edge of sidewalk or whatever the case could be. You want to have a separation between the operations and the building that's established by having an LLC for the building and your operations as a separate entity for tax purposes. You're doing that anyway. But you want a lease agreement that the operations is actually paying rent to the llc. You're actually transferring that money into the LLC bank account. You're treating it like it's a third party landlord and you've got a lease agreement. Yeah, it's not going to be insane, maybe three or four pages. It's not going to be one of these 20 page commercial lease agreements because you just, you, you're not going to sue yourself, but you need that for asset protection. So if there is a lawsuit, the insurance company is going to want to see a copy of it, the litigators are going to want a copy of it. And you don't want to be at home trying to recreate this in time because you can always slip up and screw it up. Number two, and I know Matt's got a comment on this too because he's dealt with this so often. But number two, from an IRS audit perspective, you need a lease that's reasonable. You got to have them out, go out and do kind of a fair market value lease evaluation of what you should be paying rent. And yeah, you can move it up a little bit, but you can't get outrageous because IRS will shoot it down and you don't want that. So get a good lease amount. That's fair. Have a lease agreement, sign it, put it in the drawer, and it'll protect you in a lawsuit and an audit. So get it done. Easy, schmeasy.

Yeah, I love it. And that's such a good strategy for business owners. Many business owners are terrible at saving for retirement. Their business is their retirement in their mind, and it becomes something that's hard to sell. But what's one thing that's going to be an expense you're going to have? If you have a physical location rent, you might as well be paying it to yourself. And that building is your asset at the end of the day, in addition to your business, if it's a business that could be sold. So I love it just as a wealth building tool. But you're going to build up equity in this thing. Let's just make sure that that separate ending, the asset protections there. Love the tip on the lease, of course. And Mark and I do this strategy, too, and we have leases between our own dang companies. You know, it's kind of weird. You're signing both sides of the lease and the landlord and tenant side.

Have we signed those?

Yes.

Okay. All right.

I did them, of course.

Thank you. Thank you, partner.

Yeah. Between the two of us, who. Guess who did those? I did. Well, here's the thing. The bank, when we got a loan to buy, wanted it.

Yeah.

They knew it was. This was a separate ending. It was just going to the real estate. They wanted a valid lease back to the tenant law firm in this instance, in one of them. So.

Yeah, good call.

Yeah, we got that. So, you know, we, we, we practice what we preach.

Yeah. Generally don't talk to our spouses, but. Yeah.

Okay. For legal purposes, that's

okay. Tax tip. You got something juicy? A golden nugget? Juicy nugget or golden nugget, I don't know which one's better, but just.

Yeah, I mean, the juicy golden nuggets, really?

That's the, that's the, that's the best.

That's number one. So, yeah, with April 15th coming up, one of the things I want to talk about. We're always talking about contributions to retirement accounts. Right. And your IRA deadline is April 15th. There is no extension. All right, we are, what are we, six weeks away? A little seven weeks maybe away from April 15th. It sounds crazy, but you can still make your 2020 contributions up until that deadline. If you extend your tax return, your traditional and Roth IRA contribution, those don't get extended, nor do your HSA. Now, a SEP IRA could if you were doing a SEP for 2020. So just keep that in mind. Contribution deadlines are coming up. Now, at Directed IRA, we do have our 3-1-50 discount. It's going to be rolling out here shortly in March. 150 bucks off. This is our largest account fee discount we do on any self directed accounts that are IRA based HSA. ESA directed IRA doesn't apply to our solo case, but all the IRA accounts, 150 off for the month of March, baby. And just right, March 150 on your account app. That's all you got to do.

And I think the website actually goes live in the next couple days. So by the time you're listening to this podcast, you can get over to directed ira.com and there should be a banner or a link right on the homepage to get that discount. Now, if I may, do you mind if I amend your tip a little?

Okay.

Okay. Yes, I would say, folks, remember, and this shocks so many people every time I say it. You can have a 401k at work, an IRA. You can have a 401k at work and a Roth IRA. You can have a Roth IRA and make a million dollars a year. Your income doesn't matter. And I know you're saying beholden. My accountant told me I can't, I make too much money. Your accountant is wrong. Literally wrong. It's called the backdoor Roth. You can have a Coverdell for your kids to invest. Do you know, Matt, I had a financial advisor call me this morning and he's like, yeah, yeah, my client met with you last week and they said they're going to start Roths for their kids. And I could tell he was already like, what the hell are you teaching?

You know?

And I go, yeah. And he goes, well, they need earned income. Yeah, they had it last year. Did you ask them how much? No, they have a small business. They paid their kids. Oh. So before you call me, you better talk to them. Oh. And he goes, and then you suggested a Coverdell instead of a 529. Why would you do that? Because the 529 sucks. Your rate of return is under 5% across the country. Unless you think a 529 does better than the average ETF. Silence on the phone. Well, no, you're right. The 529. And you could put a lot of money in a 529. I go, who cares if the rate of Return is terrible. I'd rather put two grand in a Coverdell and snowball that and get a 10% more rate of return. And then he says, and this was the clincher of our phone call before he hung up, exasperated, he goes. He goes, where are you getting 10%? We're self directing. I'm not just buying stocks in a Coverdell. I'm buying real estate or crypto or gold or silver or this. He's like, oh, okay. I could tell his mind was swimming. And I won't say what broker dealer he was from, but their dealer doesn't even allow for this, so of course he's not getting trained on this. And I was like, call the client if you need some more help. Buy my book. He's like, okay. And the poor guy. I didn't mean to be rude, but I'm just sick of Wall Street. And so anyway, people, Coverdales, it's an education. Ira, Roths, traditional, all of it needs to be funded for a 2020 contribution by April 15. Look into it.

Love it.

Boom.

Okay, cool.

Thank you, Hayden. I've got my double Dell here. My double Dell just arrived.

Oh, cool. And you got your. Your headphones on to fly the plane or the helicopter? I don't know.

Yeah, I'm ready to go, so I got my double Dell tacos. So stoked. All right. Okay. So, Matt, are we going to jump into our topic now?

Yeah. Let's talk about ertc. This is the employee retention tax credit. Oh, are those the crinkle fries? Yeah, working with there. What do you think about the waffle fries? Like, chick Fil?

A?

Do you like the waffle fry? I kind of dig the waffle fry.

I do, but I tip. I mix Polynesian sauce with the. With the ranch, and then I dip my crinkle fries in that.

I've never tried that one. I have an Chick Fil? A sauce. I like the Chick Fil? A sauce.

Yeah, it's pretty.

It's kind of got a smoky flavor to it.

I got to ask my producer. Can I chew fries right now or does it sound terrible on the mic? I would recommend not. Gosh darn it, I'm gonna eat cold fries.

Hey, you know, that's my.

Our producer is all about quality recording.

Well, this was my lunch, so just,

you know, that's why you look so good. Yeah. People that are listening on itunes, he held up his protein drink, so.

Yeah. Okay, well, let's dig into this. ERTC employee retention tax credit got updated at the end of last year with The COVID relief bill, kind of the new and improved, let's say ertc, which as Mark mentioned, you can go back and use in 2020. So who's this apply, Mark, who should be listening to some focus in on this.

All right, here's some questions, everybody. Okay? This is like are you compatible with your spouse quiz. Okay? If you answer yes, are you compatible with the ertc? All right, if you answer yes to any of these questions, then you need to listen to the rest of the show. Okay. Did you get a PPP loan in 2020? Did you get the ERTC in 2020? That's the employee retention tax credit we're talking about. I'm just going to call it ERC from now on. Employee retention credit. Okay. Did you get the credit in 2020? Yes or no, did you have payroll in 2020 or will have payroll in 2021? These first two quarters of 2021 for third party employees, meaning not you, your spouse or family members. Will you have payroll for third party non family people in 2020? Did you or will have in 2021? If you answered yes to any of those questions, you've got to listen because this is going to make you thousands of dollars. I literally met with a plastic surgeon friend of mine. I know he listens to the show. I'll just say that. I won't even say what state he's in. I was in the office. Ooh, that doesn't sound good. I went to my plastic surgeon. I'll just say I bumped into him at the mall. Oh, you're. You're

so what? He. Maybe he came to your office?

Yes, yes, that's what you should say

for some tax and legal advice.

That's right. You weren't.

You weren't in his office?

No, of course not. Yeah. Any of you watching on YouTube may God he's had some work done, but on itunes, you're like, I don't care as long as he doesn't, you know, drool on the mic. I'm not going to tell.

Yeah, or eat fries, either one.

Yeah. Okay, so this doctor, a plastic surgeon, qualified for the ertc. So that's crazy, right? Okay, so let me tell you. So if you answered yes to any of those questions, here's why you need to know. Okay, I'm just going to throw out a little bit, Matt, and then you ask me some questions to develop it. Okay, first of all, under the new law passed in December, if you got PPP in 2020, you were not allowed to get the ERTC back then now you can. So I can go back and amend a specific form to get a credit, this employee retention credit in 2020, even though 2020 is over, even though I got the PPP, I can go back and get it. And I'll tell you how we can talk about how you qualify if you're going to have employees in the next two months. It's a different test to see if you can get the credit in 2021, but you might be able to get both. And if you're getting the new ppp, if you're getting the new payroll protection program amount right now, the deadline's March 31st. If you've already applied for it for the new round, you can also do the ertc. That's pretty. That's pretty big news.

That's pretty big. Well, how much do I get in the credit? Like how much are we talking about here?

Okay, for 2020, you can get up to 50% of the qualifying wages, up to $10,000 of an employee, for example, for the whole year.

So let's say you're not per quarter.

Not per quarter for last year. It's for the whole year, 50%. So it's up to five grand per employee. So this doctor I was talking to, I said, how many employees did you have on the books last year? Now he's a plastic surgeon, solo office. He had four employees. I said, okay, did you get ppp? And he said, yes.

Okay.

So then I asked him a couple questions to see if he qualified for the ertc, which we'll come to, and he said, yep, I qualify. Okay, cool. So he, we couldn't. We had to look at his wages for those employees. Up to ten grand for the whole year. It's easy. He paid his employees more than ten grand a year. And the payroll that wasn't used for ppp, he couldn't add. He had to take that off. So let's say I had an employee, he paid $50,000 a year. Well, he covered their payroll for, let's say, 20 grand of payroll for two and a half months or whatever, which is probably even less than that. But let's say he covered 20 grand of their payroll with PPP. The other $30,000 would be eligible for ERTC, but you can only do $10,000. So he's got plenty of room to play with. So I said, your four employees are worth five grand each. File one form, you're done. 20 grand. Check in the mail, 20 grand.

Back to the business.

Back to the business. Boom. That easy. And it's one form and he qualified. So it's up to five grand per employee total for last year.

I think you're going to be eligible for some free procedures here.

Yeah, that's a nip and a tuck right there. Yeah, I need the nip and the tuck, not just the.

Yeah, yeah, yeah. Now you're gonna be looking good.

Now here's the other thing. In 2021 it's up to 7,000 per employee per quarter. So it's 70% of 10,000 in wages per quarter. So I. So that's 14 grand. So instead of five, it's now 14, almost three times. And if you're doing PPP, you've just got to spread out the money because you have 24 weeks to do PPP, but you've only got 12 weeks to do. Well, okay, you have 24 weeks from the time you get the money to do PPP money. But I can do the first two quarters ERTC and then use my PPP money for the end of quarter two and quarter three. And I can get a twofer so I can use all the PPP money properly, get that forgiven tax free and still get the RTC. So I can do both in 2021. But it's up to 14 grand. So to answer your question, 14 grand per employee max in 2021 and 5 grand per employee max in 2020.

And I mean your PPP money was only based on like eight weeks of payroll, right? So my loan amount, even though I can use it over 24, if I have a similar payroll that I'm running, I'm going to use it up pretty dang fast and I can then use of course, the rest of the payroll I'm paying. Could you count in this ertc? All right, now what about though? Do I have to have decline in revenue business shut down?

Okay, let's deal chronologically first. So let's just talk about 2020. Now. What's fun here everybody? A little side note. Next week we're gonna talk about the basics of crypto. Like what is cryptocurrency? How do I get it? How does it work? It seems very complicated. Right, well, the amazing Matt Sorensen is gonna break it down for us next week and I'm gonna be quizzing him. So if it seems a little one sided this week, it's okay. He's the nerd on crypto, I'm the nerd on ertc. I think he's got it better off with crypto. He's going to make more money with that but okay, so how do you qualify for 2020? You qualify in one of two ways. You don't have to do both, just one of two ways. Now the first one, that's really black and white and it's the same rule that applied last year. You have to show a 50% reduction in sales any quarter of 2020 compared to any quarter of 2019. So if I had 50,000 in sales in quarter two of 2020, but in 2019, in second quarter I had 100,000 in sales, so I had a 50% reduction in my sales, boom. I qualify, I'm done for the whole year. I'm done. I qualify for the whole year for ERTC because I had at least one crappy quarter in 2020.

Now that, that's tougher. That's, this is the more difficult one because a lot of businesses have been hurt, but they are down 10, 20, 30%. And frankly that's the profit margin. You know, I mean that's, that's what the business owner was maybe taking home. So now, I mean they can really be hurting, but only have be down 10 or 20% or maybe they're flat and I don't know. So, okay, and this is revenue.

Yes, revenue, gross sales. Now the people that will obviously qualify are like your restaurants, the event people, sports venues, things like that. And it can't be a rental property business, it has to be an operational business. So for all you landlords out there, that's another podcast. But so there's people that definitely had 50% hit, but not everybody. So they have a part two and if you qualify under part two, you're off to the races now up here on my laptop because this is technical, a couple points first, if you want to get to my article, literally, and I'm so excited about this, this is me being a geek. If you just type how to get ERTC on Google, my article is number one, is number one on almost every search engine for ertc. I'm really grateful for that. It took me three weeks of writing this article. Now in the article I go through these tests. I have four different tables, like how to maximize your PPP and ERTC in the same period in 2021, how you qualified, little look back diagrams. I really try to make it flow well. So just search on Google. Ertc, Kohler, Boom. It'll be right up front, if not just the simple words ertc. I also have up on and I have links to all the forms you're going to need in the article, but right here in front of Me, I have three different IRS websites open that help answer a lot of these more unique questions. Okay, so part two of the test says if you were fully or partially. I'm going to read it right from the thing. You are right. From the IRS website. If you are eligible for this, you are eligible for this credit. If a government order fully or partially suspended your operations during a calendar quarter due to COVID 19, that's it. If you were partially suspended. So this plastic surgeon in one of his quarters, when Covid first hit, remember how they told all the hospitals you can't do any elective surgery? Well, news alert. Plastic surgery is usually elective. That's what I've heard.

It could be reconstructive. But the rest.

Yeah, true. Yes. So it was. It's. It's so his. He had to shut down at the hospital for two weeks. Couldn't do any surgeries. And for a surgeon, that's. That's a big deal. So he was partially suspended. Now, any of you out there that you were closed for a day, even in our law firm and accounting firm, they were sending people home for that first week when all heck broke loose.

Right.

And then everybody was trying to figure out who's essential services, who's not. So if you were suspended at all, you qualify. That's it. You're in for the ERTC last year. Now it gets a little more hairy. You may say, well, what's partially suspended mean? Okay, so let's go to the IRS website. I'm just going to read a couple of. These are. Okay. Okay, I'm just going to do the first one. Are an employer's operations considered to be partially suspended for purposes of the ERC if the employer is required to reduce its operating hours by a government order? So let's say you just send everybody home early. Yes. An employer that reduces its operating hours due to government ordered is considered to have partially suspended its operations. Boom. I'm in. Okay, now there's a kicker here, but some of you are like, okay, now what if you're in multiple states? Question number 36 at the IRS is an employer that operates a trade or business in multiple locations and is subject to a government order requiring fully or partial suspension of one location, but not the others. Considered to have suspension of operations for its entire business? Yes.

That's a gift.

That's a big one.

I wasn't expecting that.

I know, because Matt and I have an office in Arizona, in Idaho. And I'll tell you right now, Arizona was like DEFCON 4 compared to Idaho, you know, so. Yeah, but because our office in California, too.

Yeah, that was DEFCON 5. Mm.

Okay. Okay. Now check this out. This is the kicker. That's not great, but it's okay. And I think all of you will still be okay. If an employer.

Can I make a little joke? Can I sincere a little joke here? I thought this was funny. I saw one of our clients actually posted a social media post. She's a real estate agent broker here in Arizona. And she posted this post that says, congratulations on winning Realtor of the Year. And it's a picture of Gavin Newsom, Arizona Realtor of the Year. In recognition of helping people move Arizona market, we are giving you this so hard.

Oh, my word. That's awesome. Well, it gave me a chance to eat another French fry. All right.

Yeah, you're welcome.

Now, here's the one.

I gotta contribute something to today's podcast.

Dude, you're the color. Normally, I'm the color commentary. So this is good. You bring up any more memes you want. They're not called memes. They're called memes.

Okay.

Yeah. Okay. If an employer is subject to a governmental order. If an employer is subject to a governmental order to fully or partially suspend. What if the order is subsequently lifted? Is the employer considered to have business operations that were suspended in 2020? Yes, but. Let's stick with this surgeon. His operations at the hospital were only suspended in one quarter. In third and fourth quarter, it was back to business as usual. The hospital figured out protocol. They were able to open their office, everybody had to wear masks. Everything's cool. So the rule is he still qualifies for a suspension, but only the payroll for one quarter is allowed to get the ERTC. Now, remember, you only need 10 grand of payroll and a quarter to get your whole five grand. So if you had some employee come in and working part time at the front desk and only worked $4,000 worth of wages in one quarter, we'd still get 50% of that. So a $2,000 credit for free. Okay, that's cool. But in our firm, we were only suspended for a little bit in second quarter. After that, we were able to have people work from home and all that. Which, Matt, brings me to one last one.

Okay.

If a governmental order requires an employer to close its workplace, but the employer is able to continue operations comparable to its operations prior to the closure through telework, working from home, is the employer considered to have a suspension of operations? No. Yeah. So if you were able to respond quickly enough to move all your People to home and there was no suspension of work hours, then you don't qualify for partially suspension. However, if the closure of the workplace causes the employer to suspend business operations for certain purposes but not others, it may be considered to have a partial suspension. So there's still a lot of wiggle room. Here's the moral of the story, people. If any of those definitions that Q and A, this is on the IRS website for ertc. If you met any of those, you're like, that's me. You got to just do one form to get a refund check period.

All right? Now would I just do that for that quarter? We're talking 20, 20 in particular here. I'll do it just for that quarter where I had the partial suspension or can I do it right? That's what I'm doing.

Yes. Because think of this. If you were a restaurant, Many of my restaurant clients, they're, they're, they were, their dining rooms were closed almost all year. So they're, they're done. They can get this credit all year long.

Some of them had drive throughs, you know, and I went to take out immediately, but they didn't have a partial shutdown that they, they went to take out or dine or drive through.

So with our law firm, if we said we were not welcoming clients in the office and we had to only meet with clients via teleconference, and that was a policy that we had to implement because the state required it, because we are not considered essential service, I'm not sure if we would meet that. But if we had that requirement in any one of our locations, for our firm as a whole, we still qualify each quarter. So you have to look out on a quarter by quarter basis. So you're right. So let's say second quarter I was partially suspended. Yeah. And I was cool to go back to business as usual third and fourth quarter. So you would do an amended 941X for second quarter 2020, you'd put in all the wages that are qualified for ERTC that weren't paid for by ppp. And if you. Now this is where you got to be tricky because if you elect to take the 24 week PPP, that's going to allow you to push your payroll into third and fourth quarter for ppp, then use that BRTC in the second quarter. See that? So some clients go, well, I already applied for forgiveness with the PPP.

And then I go, but did you specify the 24 week period and you had only eight weeks of PPP money? Yeah. So you've really got 16 other weeks of payroll that would be eligible.

Yeah, so. So there's some strategy here. So in summary, on that note, and this is why I told all of you that if you at least got ppp, there's a good chance you qualified for ERTC as well, at least in one quarter last year. But you're. Oh my gosh, there's so much to say. Matt, this. You ready to get this? Your mind blown?

Yeah.

Everybody, you're gonna hate this podcast, but you're gonna be ahead of the crowd. And I've got to be honest, this is. We got to get some color commentary here because you. We need a spoonful of sugar for this medicine. The federal law in December, Matt, said the PPP is not taxable. States are not saying that.

So now what?

Guess, guess which one of our favorite states.

California.

Yeah. Utah. Utah is not. Is not saying that PPP is tax free. So for state tax purposes, you don't get the write offs for the payroll that the PPP covered. So here's the other thing. Some states have not passed legislation either way. We don't know. So we're sending out emails to clients that got PPP money and said, you're extended. We don't know. We'll prepare your return and you'll want to send off a deposit. And worst case scenario, we're going to say the state is taxing you, so you may send off a bigger deposit to the state. And then Minnesota comes out later and says, nah, we're not taxing ppp. I don't know. See, because state budgets are down everywhere. And this is what was in the news yesterday on CNN, the big Covid relief. 2.9 trillion that they're talking about. Now, the bulk of it is going to states because the states are broke, they have no revenue. Sales tax is down, income tax is down, they're broke. And it's a lot of. It's the blue states. California is looking for money. So do you think they're going to give away PPP money?

Right. Dang. Huh. Why do you have your buzz kill?

I know. That was a buzzkill.

Why'd you bring that guy to this podcast? We buzz kill mark out of this.

Okay, so guess what?

Tax credit mark.

Yeah. The ERTC currently is going to be taxable for the feds. Now we're monitoring this daily. But if you get the tax credit, it will go in other income. Well, it's not going to be an other income. It'll be a negative expense, which is called a Contra expense for accountants out there. But you won't. The credit is taxable. So if let's say you get $100,000 ERTC and you're in a 30% bracket, you'll pay 30,000 in tax. But the 70 grand is free. So don't complain. Still go get it. It's just.

Yeah, that's common for certain tax credits too.

Yes.

Is that, you know that, that if you get a check back and a tax credit, it's taxable income that year. You get it. So whereas this PPP thing and you know that that's just kind of.

Yeah.

I think a lot of small businesses are going to organize in their states and push their state legislatures. We'll see if they keep, you know, you know. Anyways. Okay.

Okay. Now should we talk about 2021?

Oh God, that's right. We can't talk about 2021.

Sorry, new rule. This is why I have no life. That's like why are you up so late lately writing articles? I'm like freaking ERTC is kicking my can.

This article is a monster too by the way. It's really detailed, which is what you need if you're really going to pull this off, which is these are big numbers. When you talk about credits. If you got, you got a good little staff, you know, more than a few employees. This is a, this is a big deal, a really big deal.

Okay, so let me give. Oh yeah, so let's stick with 2020 for one more minute and 2021 when they passed the law and said you can go back to 2020 or go forward in 2021 and get the ERTC and the PPP which we ought to say a few words about because you can still apply for it. No big companies can get the ERTC and the line mat is 500 full time equivalent employees. So I have a client that has a fast food restaurant chain and about 10 locations. Let's say yes, he had 700 employees go through a system last year.

Fast.

I'm coming to it. But now listen. Okay, now this is cool. Can he get the ERC on all 700 employees? Yes, but the question is how many of those were FTEs to see if he can even get it. So when he took all of his part time employees and put them in the mix with his full time, his FTE the full time equivalent. So if two part time employees equals one full time employee, that's the math people. So if you did the math on all the part time people and times to buy two and his full time equivalence was 420.

Love it.

So he's in. Okay, so does that mean he only gets the ERTC on the 420 employees? No, he gets it on the whole 700. But he had to convert them to FTEs to see if he could even get in the front door.

Yeah.

Okay, so now you run five grand per employee on 450 employees.

Yeah.

We're talking seven digits.

Yeah.

Wow, this is a big deal. So some of you that have been suspended, partially suspended for last year, you've got a. It's only for people with 500 FTEs or less, which is 99% of our clients were a small business owning client.

Yeah.

So okay, now 2021, whole new test. Okay. Forget about partially suspended, forget about 50%. Forget about all that now to qualify moving forward. So we're now sitting in 2021. February. Can I get the ER to see for right now in first quarter 2021. I'm a small business owner. I have employees that are non family. Even one employee could be worth five grand. So why not get it? The test is a 20% test. So you go back to all your. This is really easy and I explained this in the article. Just pull out your gross sales by quarter for 2019. If you've got QuickBooks, you just go bing, bing, bing, bing. Where were my total gross revenue? Bing, bing bing. Not your profit, not your expenses, not how much you took home. Just do what's my gross sales by quarter for 2019? You got four numbers. Then you do the same thing for 2024 quarters. What's your gross sales? Then you write them out on a piece of paper. This is a little table in my article. And you just do a little rainbow. January 1st quarter 2020 to 1st quarter 2019, 2nd quarter 2020 to 2nd quarter 2019. And you just do it for each quarter and you compare were the sales down by 20% or more? Even 20.1% qualifies. In fact it's 20% or more. So 20% even on the dot, you would qualify. Okay, were my sales down any quarter in 2020 by 20% compared to the same quarter in 2019, you get 2021 ERC.

Now wait. Now you said 2019 to 2020. Yes, to get 2021 ERTC.

You got it because what do you compare it? Because see what they're trying to say is you were hurt in 2020 so we're going to help you give it

to you off of 20. But now you're still paying wages in 2021. We're going to give you the credit

in 2021 for your wages because you're staying open. See, the whole theory of this is we want to have, let's say California,

for example, they were really getting shut down in like, third quarter and fourth quarter of 2020. Right. You know, you know, they kind of got shut down temporarily, but then they really got shut down in third and fourth quarter of 2020, which was later than like the east coast and New York, obviously, and a lot of other states that were like, they got hit more in second or third more second, you know. So I would be comparing. Let's say I'm in California. I might be looking at fourth quarter when Newsom shut down the whole state compared to fourth quarter 2019. Right. I just want to look at that one quarter that could be my worst. But I'm getting the credit based on wages I pay in first quarter 2021. That right?

Mm, yes. Now I'm looking right now, some of you accountants out there and my partners are so good on this because I've had a shout out to Rick, Brian and Liddell. They're dealing with this on the phone with clients right now, trying to get their tax returns done. And they're saying, we can't file your return. We can prep it, but we got to wait to see what some of these legislatures do. And Biden and Congress is talking about another round. Why are we going to file tax returns for 2020 when we don't even know what this next round is going to include? So anyway, Matt, I don't know if you can compare 2021 first quarter sales to 2020 first quarter sales and qualify.

Well, let's say I do 2020 fourth quarter versus 2019, fourth quarter. That, like, if you're California, that's when it was really, like, shut down in particular.

Yeah.

And, but, but I'm. The wages I'm paying and on the employees I have is they're thinking about first quarter 2021. I'm going to.

It's, it's.

I qualify based on a quarter in 2020, but it's based on wages I'm actually paying in 2021.

That's right. And again, the purpose of all this, the kind of the, the mentality is we want to help business owners stay Open, recover from 2020 and keep people employed. So we're going to help you.

Okay.

Now, just as an aside, now, there

are no partial shutdown thing.

No, it's a 20% test.

Just 20%. They got rid of the 50. Really high. And they just say 20% revenue. Yes, that was.

They didn't want the subjective willy nilly partial suspended crap. Because that's where lawyers play with words.

Yeah.

Because they. If you could say I was personally.

Where people don't know if they qualify and they miss it. They don't because they. They just get confused. Yeah, I like the percent test. It's just straightforward.

Yep. 20% hard and fast. Right. Okay, now I know we got a hard stop here, so Matt, let me just throw out one other point. Okay. If you want to go back and get the credit for 2020, you find out if you partially suspended for a quarter or all year. La la la la la. Read through the article, it'll help. I've got links to the IRS website where needed. If you want to dive deep, you're going to file a 941x by quarter for last year to go get this. Our firm will be providing a service for our clients that want to have us just do it for you. Because we have to research it. We might do it on contingency for a small percent of whatever we can get for you. We don't know. So we'll figure that out. If you want it for 20, 21, have two ways to get it. You can actually file a Form 7200 and get an advanced credit. So you can say, I don't want to wait to file my 941 in April. I need the money right now. So you can file a form 7200, the links on my website, to go get the ERC in advance of first quarter and second quarter. You just have to estimate what your payroll is going to be. Now you want to do this and use that money right away because you're going to apply for ppp, probably. If you're applying for erc, there's a good chance you're applying for ppp. So you're going to get PPP second round. Yep. And I would tell clients this. Get your PPP money and put it in a separate bank account. Use 40% of it for rent and utilities, but you got to save 60% for payroll. But you got 24 weeks to use it.

Yeah, you're going to be fine.

Use your ERC money first, then go after your 60% left in the account. PPP. Now, if you want to wait to get the credit and see how the quarter plays out when you file your 941 for first quarter in April, in a month or so, there's a worksheet where you calculate the medical Leave credit. Whole of the topic we've covered on the show before and the ERC credit. And that's where you'll get it on that 941. Dude. Isn't this interesting?

Yeah, it's pretty freaking great, actually.

Some of you think Kohler's crazy, but you know what is funny, Matt? This is the topic that I found this guy in Harbor Freight, which I'm going to take you to when you come to Idaho. Coolest store ever. Harbor Freight. Okay.

All right.

I was in Harbor Freight. Or what is this?

This is home goods. Or what is it like.

No, tools. Tools, remember?

That's right. That's right. That's right.

Your toolkit of Matt Sorenson's toolkit is the pink hardware. You get about five items at the grocery store. So like Albertsons, where they have the little in the drawer tool kit for

your mom on Mother's Day. Maybe it's like a little at home tool kit with maybe a hammer, a pair of pliers, and a cute little tape measure that goes to like 7 inches.

Matt's lucky if he can hang a pitcher in his house. Work Kohler. I'm a weekend warrior. I'm like Tim. What's his name in home improvement?

Tim the Tool Man Taylor.

Him. The Tool Man.

Okay.

I ruined everything in the house. My wife has begged for years. Just hire someone. Nope. And do it myself. Okay. So anyway, I was in Harbor Freight and this. I bumped into an accountant and I accosted him for at least 15 minutes talking about this, and his wife literally pulled on his arm. Can we leave now and get. Get away from this nerd? You know, And I just. And this accountant was like, oh, my gosh. The ppp, ertc, that synergy between the two and how do you do that? It was awesome. This is my special moment.

Wow. You know, when those are the moments in life that you cherish, you know, you're. You love this stuff. You can't help it so. Well, I love all the strategies. I think this is one that's kind of flown under the radar. PPP seems to get the headlines, really. But this ERC or ertc, however, whatever you know, acronym you like, is big for those with employees. And it doesn't apply to you as business owner, spouse, kids, but all your other employees is a big credit. Try to find a way to get it. 2020 sounds like it might be more favorable if you have the partial shutdown. If your revenue's been affected in 2021, and if you're going second round, PPP if you're qualifying for second round PPP, you're qualifying for ERC. Because second round PPP requires a 25% production and revenue, you're automatically qualifying for ERC. So you will be doubling up on this. You're a fool for not taking this.

Yeah,

so. All right, well, any words people need to know, Mark?

Nope. I think this is excellent. Everybody, do your homework. This is a great topic. It is the hidden gem. So. Well, thank you for listening to our show, the ERC credit or ertc, the hidden gem of COVID Relief. So, hopefully this was helpful. The article will be down in the description below. And we'll see you next week for Mass Origins. Gonna break down cryptocurrency like never before. You're gonna understand what mining is. Shelving. Is it called shelving? No. What is it?

Staking.

Staking. I just think of Tom Cruise and Nicole Kidman and, you know, running across the field when the foot race when. What was that far and away? Staking. I'm gonna stake my ground.

This is my land. Like that Irish accent?

I love it.

Ah, we're gonna go get some land.

What are you crazy? What are you smoking? Okay, anyway. All right, well, we'll see you next week, everybody. Thanks for listening.