Ep 176: How Restaurants Can Get the Employee Retention Credit (ERC)
Important Tax & Finance topic for restaurants in this episode as Jaime gets with Catherine Tindall of Dominion Enterprise Services to talk about the Employee Retention Credit (ERC.)
They cover what the ERC is and how is it calculated as well as who's eligible for it and how to file for the credit. They also hit on some key overall tax planning tips that restaurants should be aware of.
About: Catherine Tindall is a CPA specializing in advanced tax reduction who proactively works with clients to reduce what they pay in tax while supporting their greater wealth building and life goals. She is especially passionate about providing tools to support entrepreneurs and small business owners in navigating the changing tax landscape, as well as helping them reduce their overall tax burden through proactive strategies and advisory.
Reach out to Jaime by email if you'd like to be put in touch directly with Catherine.
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How Restaurants Can Get the Employee Retention Credit (ERC)
I got a chance to meet with Catherine Tindall of Dominion Enterprise Services to talk all about the Employee Retention Credit (ERC) and how it impacts restaurants. She shared a variety of impactful tips that can lead to big dollars for restaurants. Here's part of our conversation…
Jaime: Catherine, tell me about Dominion.
Catherine: We are a specialty CPA firm with a tax focus. We do a lot of work with tax credits, specifically with the employee retention credit right now. We're a really specialty-focused firm, so we do a lot of work for other CPA firms for tax credit work that they normally don't do.
Jaime: The big focus for today is going to be the ERC for restaurants. It's a big deal and restaurants should take full advantage of it. Can you start with who should file, who can claim, what are the timelines, etc.
Catherine: There's a lot of misinformation out there about this credit and how it works, but I think the main thing restaurant owners should know about is, for the most part, you're going to be eligible for the credit. The reason why is in most states, there were indoor dining restrictions. So if you have an indoor portion of what you're doing, or it's mostly indoor, you're going to qualify for this credit, just under that statute alone. The other way that you can qualify for the credit is revenue declines, quarter by quarter.
The second piece that I would say that a lot of people don't realize is they think that if they got the PPP funds they're not eligible for this credit. That's not true. Originally, when it was written, that was true, but Congress changed the rules after the fact because they were finding that so many people weren't taking advantage of the program who were eligible for it. Now, there is an interaction between the PPP funds and the employee retention credit, but for the most part, almost every client case that I work on has both, and it doesn't usually rise to the level making it not worth pursuing the ERC credit.
Jaime: What happens if I'm a restaurant and I have 15 staff members?
Catherine: The first piece is that you want to get an assessment done. So, you want to talk to somebody who's a tax professional, usually go to your CPA first and see if they do it. And if not, find another CPA or tax firm that does. There are a lot of marketing companies out there that are trying to do this credit. And I'm already starting to deal with IRS resolution work related to these. So it's really important to make sure the person that you're working with is credentialed in this kind of work because it's an extremely valuable credit. So for instance, if you're an employer with 15 employees you operate in California, you're gonna qualify for this credit through 2020 and part of 2021. In that kind of headcount, it's usually around at least a six-figure credit. So that's six figures coming back in the form of a check in the mail from the IRS because it's a refund of money you already paid.
Jaime: That's very significant. How does part-time vs full-time staff or employee turnover play into this credit?
Catherine: It's a per-head per-quarter calculation. So you get a percentage of the wages that you paid during quarters that you're eligible. Since it's a refund of money you already paid, you don't have to use that money to pay payroll or anything like that. It's really just a reimbursement for money that you've already paid, so you can do what you want with it.
It doesn't really change anything if people are part-time or full-time. It's just how much wages you were paying them. And then we also get to include things like tips and any health benefits you pay for. So those also count towards the credit, which is great.
Jaime: Is the PPP completely finished?
Catherine: Yes, that program is closed. For a lot of people, that's the confusion around this program versus PPP, because the PPP program was a lending program administered by the SBA. This program is a credit program, so it's baked into the tax code. That's why even though the largest impacts of the pandemic are over, you can still go back and get it. It's like if you didn't claim deductions on your tax return, you can still go back and amend your returns and get those deductions. You have a three-year window to do that. So that's why this credit is still open. It's not like PPP where the programs are completely closed now. This is great because it's a really level playing field. We still have about a year left for the full ERC credit and then it'll start to phase out.
Jaime: You mentioned being careful about who you work with for something like this. What should somebody look for in someone to work with for this credit?
Catherine: The biggest piece you want to look for is credentials and experience in the field. There are a lot of players out there, and even really big players, where I'm starting to deal with IRS resolutions because they're not licensed tax professionals. The tricky thing with this credit is that we don't have software from big providers to use to calculate these because it was rolled out so quickly by the IRS. So you're really relying on the strength of that person's tax credentials to make sure that they're doing everything correctly. The thing with tax credits is it's really about calculating the correct amount of what you're eligible for and also knowing enough to have the right substantiating documentation if you were to get audited by the IRS. This is going to be an extremely high audit area in the next three years because I'm seeing so much misstatement going on out there with people who don't understand the rules. So the main piece that I warn people about is you really want to look at if the employees and head people are licensed tax professionals. And if they are, look at their resume and check if they have a robust history of working in this kind of field. Because it's a complex credit.
There's a reason why a lot of people get really angry at their CPAs. I've had this happen where people get angry because they're like, "Oh, so you know, it's such a big credit. It's, you know, $250,000 or $150,000. Why didn't my CPA get this for me?” And it's because it's a one-time credit program and it's really complex. They just don't have the ability to take it on nor do they want the audit risk. So that's why my firm is starting to do a lot of work with other CPAs. It's kind of a perfect storm of something that's it's hard to do the credit correctly, but at the same time, it's so valuable for the people who could do it. And most people are not taking advantage of it.
Jaime: Before I go to a general tax planning question, do you have anything else about the ERC to share?
Catherine: The main one is to really pursue it because I've been seeing some really high returns for a lot of restaurant owners. And it's one of those things where if you work with a good provider, it takes maybe one or two hours for document collection. It can be anywhere from $50,000 to over $250,000, so it's really worth your time to pursue it. And like I said, the biggest thing to watch out for is who is the provider that's doing your work and what are their credentials. You know, is it a marketing company that you're working with or is it a licensed CPA firm?
Jaime: Do you have any quick tax planning tips or strategies that restaurants need to think about in general?
Catherine: On the taxes side of things, the biggest piece that I see people make mistakes around is not having a consistent relationship with their tax professionals. In my planning practice, we have quarterly meetings during the year, because for most planning techniques that you need to do, you need to know ahead of time what's going on and do them in real-time. So you can take advantage of them. A lot of people will wait until the end of the year to talk to their tax professional, and at that point, there's not a whole lot that we have available to us as tax professionals to do as a lot of things have to be done in real-time. So I'd say that's probably the first step for a lot of people. If you're working with a good tax professional, they're not going to be pushy to have more meetings and do that sort of thing. So it's something you have to ask for and ask if you can do planning meetings once a quarter or mid-year or something like that so that you, as the owner, have a sense of where your tax liability is and if there's anything else that you can be doing to reduce it. Very often, strategic planning around when you're going to do expansions, buy equipment, pay family members, or contribute to your own retirement accounts are planning opportunities. But if you don't catch them in real-time, you're just going to be kind of stuck with whatever bill you generate during the year.
Jaime: Any other quick thoughts as we finish up?
Catherine: The places where you save the most in taxes, for most business and restaurant owners, particularly, are credits. So, the ERC is really big for restaurant owners. Also, make sure you're getting the tips credit. I see quite a few restaurant owners that don't get the tips credit. The last one is the Worker Opportunity Tax Credit. A lot of business owners, especially restaurant owners, aren't aware of that one either. That's a tax credit where it's a per-head thing and it's a dollar-for-dollar back on those credit programs. So I'd say look into your credits, and see if there are credits that you're not taking advantage of because usually, those are very simple to start up.
The second piece that I always recommend for business owners and restaurant owners is to take a look at your entity structure because there could be changes there that can save you wide percentages. Very commonly, people talk about doing S corporations, C corporations, or a mix of both. Or a real estate holding company and then an operating company. That's outside the normal bounds of filing a tax return. So that's something you'd want to ask your tax professional every once in a while is, "Hey, I haven't looked at my entity structure in a few years. Could we be operating more efficiently if we change things around?" Those kinds of conversations can be really valuable because, with entities, you can shift the needle by percentage points. So you can shave off percentage points either way, depending on what your situation is. But that's something where you have to open that conversation.
Jaime: Where should folks go to learn more about how you help restaurants?
Catherine: We have a PDF that goes over the top five tips for restaurant owners for the employee retention credit. It goes a lot more into the weeds about the credit, particular things you should watch out for, questions you should ask your tax professional, questions you should ask providers, and what I've seen from experience of the most common mistakes people make about the credit. So that's kind of your inclusive place to find out more about how the credit works.
Reach out to Jaime by email if you'd like to be put in touch directly with Catherine.
Jaime Oikle is the Owner & Founder of RunningRestaurants.com, a comprehensive web site for restaurant owners & managers filled with marketing, operations, service, people & tech tips to help restaurants profit and succeed.