0:00:00.0 Speaker 1: So you wanna know the ins and outs of managing your money? Well, lucky for you, you are just in time for another episode of Master Your Finances with certified financial planner professional Kurt Baker. Kurt and his panel of experts are here for you and will cover topics from a legal and personal standpoint. They’ll discuss tax efficiency, liability, owning, managing, and saving your money and more. Master Your Finances is underwritten in part by certified wealth management and investment and Rider university. Rider offers continuing studies programs for adults who need flexibility. Want to add new skills to your resume? Take a continuing studies course at Rider university. Now let’s learn how we can better change our habits with Kurt Baker.
0:00:45.6 Kurt Baker: Have you ever heard about large tax credits that large corporations often receive from the government and wondered how they did it? Did you know that these credits are available to all business owners and you may be eligible to receive them? Today California based, nationally recognized tax attorney, Michael Williams will walk you through the process of successfully identifying and obtaining federal, state and local tax credits you may be eligible for as well as the top three tax credits currently available. Two of which are hidden gems you likely didn’t realize you could apply for. Hey, Michael, I appreciate you coming on today, man. It’s awesome. We’re talking all the way from California. So this is a lot of fun. Okay? [laughter]
0:01:31.4 Michael Williams: Thanks for having me, I appreciate It.
0:01:33.9 Kurt Baker: Absolutely. Thanks for coming on. So give us a little background on this. I know you’re… A lot of great things happening. I heard you speak not too long ago and a lot of great information that a lot of businesses really should be aware of and hopefully you can help them out. And maybe they can get a little money in the mail here in a little while.
0:01:50.3 Michael Williams: Absolutely.
0:01:50.5 Kurt Baker: So give us an idea what’s going on and what this whole thing is about and why small companies don’t traditionally think about this stuff.
0:01:57.6 Michael Williams: Yeah, it’s a really good question. And to your point, tax credits generally are thought of as being something that large Fortune 500 companies are only eligible for. Now in my practice, which focuses on tax credits. I find that to be a different case for entrepreneurs, even if you have as few as 10, 20, 30 employees, it may be worthwhile for your organization to pursue some of these tax credits because they are quite generous. What I generally tell people is that the tax code itself is a set of incentives. The government at the federal, state and local levels have different end goals, run results that they want to achieve. And by incentivizing businesses through the tax code, they can achieve what they’re trying to achieve. And so there’s a number of tax credits that are available for businesses of any size. The ones that I’d like to focus on today would be the employee retention credit, the research and development credit, and then manufacturing credits that are available to companies.
0:03:11.3 Michael Williams: Again, these are generally available to companies in all 50 states. And so there’s… And each credit is different. Each one requires a different qualification process. Each one is going to have application to different industries. There are specific industries for which these credits are focused, but I think one of the large takeaways from the countless conversations I’ve had with clients is that just because a credit was designed for a certain industry, doesn’t mean that other businesses cannot take advantage of those credits. For example, manufacturing credits, you don’t have to be producing cars or any other kind of products, you can get a manufacturing credit for processing materials in a different way. You can get a research and development credit for coming up with a new process, improving the way that your organization completes a task.
0:04:13.8 Michael Williams: You can get an employee retention credit for continuing to retain employees during COVID. So again, I think it is, they’re an often misunderstood area of the tax code. And for the most part, it’s a niche specialty. So your CPA might be great at doing your tax returns and your financial statements and things on that case. But there are so many of these credits, there’s hundreds of these credits at the state level, there’s a number at the federal level and there’s an independent, there’s a number… There’s even more at the local level. So you can’t expect your CPA who’s more of a generalist to fully grasp or understand or maximize these credits. So it’s typically a space occupied by niche practitioners. But again, it’s something that can be driving a ton of cash flow to your organization.
0:05:06.3 Kurt Baker: No, no, that’s awesome. So it sounds like the task code, even though it might be labeled like manufacturing credit X, Y, Z, when they actually write the actual code itself, it doesn’t necessarily carve out and say, “You must be doing these specific tasks.” It just says more of a process or something like that is what it sounds like. So as long as you fit into those, the way it’s actually written, not necessarily the title of it. So you have to pay a lot more attention to the text of the actual tax credit, which is what you do as an expert. You come in and say, “Hey, this verbiage actually can apply to other industries in different ways,” which is really important. ‘Cause you read it and you’re like, “Oh, that’s not me.” But it might be. If you actually dig into it and understand it a little bit better. And that’s where you come in, I guess.
0:05:49.9 Michael Williams: Exactly. So just two quick examples for manufacturing credit. I was able to help a tree removal company, which it’s… Just think about it. Someone comes in, removes trees from your home or your business, or sometimes they work with utility companies. And this tree company was taking the trees. They were turning the trees into wood chips and they were using those wood chips for a variety of applications, either erosion control or mulch or even some biomass energy. And so, because those trees were processed in such a way that fit the description of the state specific tax code, we were able to obtain a high six figure tax credit for this tree services company. And obviously when you see a tree removal company, you don’t think manufacturer, but again, you have to understand how the language of the code is written and then make a determination of whether your business fits.
0:06:54.5 Michael Williams: Similarly I worked for a professional services company that was designing an internal software that was applicable to its sales function. Now, this is not a tech company, it’s a brick and mortar, they sell consulting services. But the technology that it designed internally was eligible for a research and development credit, again, mid six figures because the R&D tax credit state that if it’s designed for taxpayers who design, develop, or improve products, processes, techniques, formulas or software. I’m working on another R&D credit right now for a food seasoning company that is experimenting with a variety of hot sauce formulations. So they spend a lot of time… They actually have, it’s a fascinating company. They have scientists, there’s lab coats who are mixing certain chemical compounds together and we’re working on obtaining a research and development credit for that particular company. Again, not you think of research and development, you think of Silicon valley and companies like Google and Amazon and others like that. But the companies down the street from you can probably qualify for research and develop credit. And again, these are significant six, sometimes seven figure…
0:08:18.4 Kurt Baker: Wow.
0:08:18.9 Michael Williams: Credits and refunds your company.
0:08:22.0 Kurt Baker: Yeah. Now, if I go back to your tree company, let’s say I’m a tree company and I’m out there chopping down trees. And is there a way for me to know ahead of time that, hey, if we take these trees and we turn them into mulch and we use them for a certain purpose that, hey, maybe we can get a credit down the road, it might make sense for us to change our process a little bit to be able to qualify for some of these credits before we go out and start cutting the trees down. Is there a way to become a little more educated about like what you could set yourself up to qualify for later? ‘Cause most of them honestly, probably don’t think about it, because they’re just out doing their job for the most part.
0:08:56.1 Michael Williams: Yeah. Of course. And again, when these… You had to think about the incentives and so many manufacturing jobs have left the US in the last few decades that there is a focus from a lot of state legislatures on advertising that they are bringing manufacturing jobs to their state. Right now, again, this particular company to your point, they reformulate the way they cut down the trees. They implemented a more mechanized process. So they were using a lot more machinery rather than manpower to turn those trees into wood chips. But in theory, even if you had less mechanization and more manpower because you are again turning that tree into those wood chips, it’s a separate, a distinct product.
0:09:51.3 Michael Williams: You can fall under the manufacturing credits of various states. Now again, every state’s gonna be a little bit different, not all the codes are the same, but it’s generally you can find out a lot of information by doing a quick Google search and then contacting a tax credit expert who can guide you through the process and who can really dig into the language of each tax code for each state or if there’s a federal opportunity as well, to make a determination of whether or not you qualify. Now, again, I think you have to be able to make a great case to qualify, I’m not saying that every business is gonna be able to qualify these credits ’cause they’re not. However, if you take a look from a slightly different perspective at what your business actually does, there’s a lot of credit opportunities out there.
0:10:45.6 Kurt Baker: Wow. That’s just incredible. So [chuckle] so what are you seeing out there now? I mean, you got some examples of some things that we can touch on a little bit. We’re gonna take a break here in about a minute or so but just give us kind of a summary of the three items that, again, that we’re seeing out there right now that are in the forefront.
0:11:04.2 Michael Williams: Of course. So I think in the one that I’d like to spend some significant time on today is the employee retention credit. It is the widest reaching and one of the most generous tax credits that I’ve seen in my career. So I’d like to spend some time talking about that because I think it can touch so many companies. And then we can dig in a little bit further on the others that I talk about regarding the research and development credits and the manufacturing credits. Now, again, we’re not limited… And the universe of tax credits is not limited to those three items. Those are just three of the more popular ones. For example, again, talking about incentives, the state of Virginia has a tax credit for companies that sort of wine, like wine vineyards in their state. Because Virginia apparently wants to compete with my home state of California on the wine game, they probably have a long way to go to get there. But they’re implementing tax credits in order to incentivize companies to relocate there and develop certain vineyards in that area. So again, it’s all about incentives with the state or local or federal, basically what they’re trying to achieve.
0:12:17.6 Kurt Baker: Excellent. We’re gonna take a quick break. When we come back, we’ll dig into the employee retention credits that Michael will talk about. You’re listening to Master Your Finances. We’ll be right back.
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0:12:28.1 Speaker 1: This is Master Year Finances with Kurt Baker, certified financial planner professional. Learn about tax efficiency, liability, owning, managing, and saving your money and more from Kurt and his experienced panel of guests. Master Your Finances is underwritten in part by certified wealth management and investment and Rider University. Rider University offers flexible education for adult learners for more information it’s rider.edu/nextstep.
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0:13:00.0 Kurt Baker: Welcome back here. I’m here with Michael Williams. And we’re gonna talk about the employee retention credit. Michael, you wanna tell us a little bit about that?
0:13:06.9 Michael Williams: Absolutely. So again, as I mentioned before, the break, this is one of the more lucrative and generous credits that is as far ranging of a tax credits I’ve seen in my career. I’m gonna refer to it as the ERC, the Employee Retention Credit throughout. So this is what’s called a refundable tax credit created as part of the CARES act in 2020. And the incentive here was to encourage employers to keep their employees on payroll during COVID. So the ERC was originally slated to being in place from mid-March 2020 to the end of 2021. And again, the incentive here was that the federal government wanted employers to retain employees. The incentive is right in the name, it’s the employee retention credit. Now subsequent to the original release the fourth quarter of 2021 was eliminated from eligibility purposes, but this credit is still available for companies who employed employees from March 13th 2020 through the end of September 2021. Now this is a couple quick facts to know about this, because the rules have changed a number of times. There’s a lot of misunderstanding about the credit.
0:14:33.8 Michael Williams: Up until about a month ago, if you had done a Google search with the question, “Can I receive the ERC if I received a PPP loan,” the first answer that Google would provide straight from the IRS website was, “No, you could not.” And that’s wrong, because that changed in the third quarter of 2021. So that companies who obtained a PPP loan can also obtain the ERC. Even if you obtain two PPP loans, you can obtain the ERC. If you qualify for the ERC. Again, just a common misunderstanding that a lot of entrepreneurs are confused by. So how do I obtain the ERC if I’m a business owner? So you have to meet one of two tests to be eligible for the credit. You either have to have a significant decline in gross receipts and revenues during a specific calendar quarter for 2021 or 2020, or you have to have what’s called a fully or partially suspended operation due to federal, state or local government orders which limit your business operations. I think a classic example here is the restaurant industry. So I live in Los Angeles and indoor dining was significantly restricted from the beginning of March 2020, pretty much throughout that period of time to the end of June 2021.
0:16:10.4 Michael Williams: So a very very long period of time restaurants in Los Angeles and in other parts of California and a lot of other parts of the country could not serve patrons indoors, or they had to reduce the amount of customers they’ve served indoors. So if you think about it this way, what’s a partial shutdown to qualify me for this credit? It is, if I used to serve a hundred people indoors, I have some outdoor dining, I have delivery service, I do takeout… If during any period during, again, March 13th, 2020 through the end of September 2021, if I could only serve 80 people indoors instead of my normal hundred, the IRS can consider that a partial shutdown, which can qualify your business for this credit. Now again, not everyone who’s listening to this own a restaurant. And the IRS unfortunately has not provided guidance on every specific industry to which this could apply. However, as someone like myself would take this example that they have provided regarding restaurants, you kinda make an analogy to other industries. So you think about the ones most affected by COVID. You have bars, you have gyms, you have a lot of industries that have been affected by COVID in one or more ways. And again, that’s just leaving aside the revenue reduction part of that test, and you only had to hit one of those tests in order to qualify.
0:17:43.8 Kurt Baker: Now, what if you…
0:17:44.4 Michael Williams: The reason…
0:17:44.9 Kurt Baker: Yeah, go. I didn’t mean to interrupt you, but what about some of these… The extreme, I mean, I know a gym owner in New York ended up shutting down closing and coming to New Jersey to work for somebody. So he literally had to close his business after about six months. He couldn’t hold it anymore. Is he still eligible to go back in and see if maybe he can recoup some of those costs that… ‘Cause that was a significant loss for him obviously, he ended up going outta business.
0:18:08.0 Michael Williams: Even businesses that have closed during COVID can go back and obtain the credit. And what I haven’t said is how much the credit can be.
0:18:16.8 Kurt Baker: Okay.
0:18:17.1 Michael Williams: And this is the reason why I think it’s so important for every entrepreneur to take a look at this, is if you can qualify your business for this credit, you can obtain a refund check from the IRS, respectively, it’s a series of checks, but the maximum credit opportunity is $26,000 per employee.
0:18:39.0 Kurt Baker: Wow.
0:18:39.8 Michael Williams: So the math on this adds up very quickly. So for example, if you had 10 employees, your maximum opportunity is $260,000. If you have a hundred employees, your maximum credit opportunity is $2.6 million. And again, this is why this credit, it just adds up so very quickly, for even small or mid-size companies. And if you’re a big company, the credit adds up very quickly. So, I forgot. I think it’s…
0:19:09.6 Kurt Baker: Well, that’d be very… Yeah.
0:19:25.0 Michael Williams: Companies of any size, any geographic location, because this is a federally, it’s a credit that’s administered by the IRS. This is something that every entrepreneur needs to take a look at.
0:19:26.5 Kurt Baker: So it sounds like if they’ve gotten a PPP loan or two and they have at least a few employees it could be even small, right? I mean, if it’s $26,000 per employee, if you’re a small, I mean, we have a nonprofit, a nonprofit that has a couple of employees. I mean that could be 50 to a $100,000 easy. Right?
0:19:40.9 Michael Williams: Exactly. And a lot of times, what I see is that the credits for the smaller organizations are actually more meaningful to the… Than the large organizations, because they have less access to capital, they have less of an ability to get funding from various sources, they often operate on thinner margins. So a $100,000 credit for someone who has four employees might be more meaningful than a million dollar credit for someone who has 40 employees. So I think it’s, and again, this is… And you bring up a good point, the qualifications are pretty broad for both profit and nonprofit companies can qualify. So if you have a charity organization, if you have, a school, a private school or a charter school, those can potentially qualify for this credit. There are some additional rules around those organizations. But again, because again, these are somewhat complex rules that are often misunderstood, but I think the point that I’m trying to make is, it is this credit can be applied to an incredibly broad set of industries, and it can be obtained from people living in Florida, New York, California, Alaska, and Hawaii, like wherever you are in the US, even some of the territories, and even in Puerto Rico potentially qualify for the credit.
0:21:10.7 Kurt Baker: This sounds like almost every business should be looking at this. I’m curious about how this… If you had to restructure your business, I know a lot of people started working remotely and things like that. So how does that affect, if you can explain and it might be too complicated to explain generally, but does that affect it too? Like, let’s say my employees came in five days a week and now they’re literally working completely virtual or maybe they come in once a week, or once every… I mean, one company that the lady, she went in once a month to pick up the mail and everybody else was working remotely, and before that they all went into the office every day.
0:21:45.1 Michael Williams: It’s a really good question. So just take me for example, I’m a tax attorney, so I can do my job pretty much as well if I’m in an office or if I’m working remotely. So and there’s not really a significant impact to my firm by going remotely. However, even someone in my industry, in law if you’re a trial attorney, folks were shut down in various jurisdictions, you couldn’t get a trial, you couldn’t get a hearing date. A lot of attorneys who are in the courtroom every day could no longer go to the courtroom, cases that usually took a year to settle, they would take three… They’re now taking three years to settle, those are significant impacts. So even within certain industries, there are subsets of companies that may or may not qualify based on their unique facts and circumstances. Now, again, if you are…
0:22:38.0 Kurt Baker: Yeah, a builder just came to mind for me. What if I’m a builder and my supply chain issue. Like I can’t get a garage door for six months, but so I have to reduce or slow down my production, not necessarily stop, but I have to slow it right? Because I’m having trouble because of other ramifications.
0:22:53.8 Michael Williams: Exactly. And again, and living in Los Angeles I… If you look out your window, the port of Long Beach had at one point over a hundred container ships waiting to dock and unload their cargo. So we had massive supply chain issues specifically in 2021 during this period, so I have qualified certain construction companies who had significant supply chain issues. The other part about construction or other similarly situated companies is they’ve required the government to… Specific local municipalities to permit their work in most cases. So a lot of those municipal offices were closed, and they weren’t issuing permits, or they would go from taking seven days to seven months to process permits, which really slowed down the building process in various types of construction. So I think there’s… And this is why you have to do… You wanna do both of a quantitative and a qualitative analysis, what I mean by that is take a look at the business impact.
0:24:00.3 Michael Williams: If someone doubled their revenue and doubled their profits, they may not be a good candidate for this credit, but if they… If a the company was to experience these significant supply chain issues and they couldn’t get the government officials sign off on the work or things of this nature, that’s a qualitative analysis that you have to do as part of the eligibility criteria, in order to see if the company qualifies. So it’s something that… So just as an example, every client that I talk to, and I speak to them initially for 30 to 60 minutes, just to ask them about their business, what were the effects? What were the effects on revenue? What were the effects on the headcount? Were you limited in any way? What were the limitations? Because you really want to dig in to do some due diligence, to ensure that you are filing a claim that can be approved by the IRS, but also it’s oftentimes I start those calls thinking that this industry is probably not a good candidate. And by the end of the call, the entrepreneur that I’m talking to just has a 100 examples of how they were restricted. And I think that’s why it’s really important to hear the stories of the entrepreneurs, because they felt the brunt of the pain from these governmental shutdowns and restrictions.
0:25:25.0 Kurt Baker: Absolutely. Michael, and we’re gonna take another quick break and we’re getting some more examples of many of us that are out there that probably qualify for these credits, and we should learn a little bit more about it. You are listening to Master Your Finances. We’ll be right back.
0:25:36.0 Speaker 1: This is Master Your Finances with Kurt Baker, certified financial planner professional, learn about tax efficiency, liability, owning, managing, and saving your money and more from Kurt and his experienced panel of guests. Master Your Finances is underwritten and in part by certified wealth management and investment and Rider University. Rider university offers flexible education for adult learners. For more information it’s rider.edu/nextstep.
0:26:05.8 Kurt Baker: Hi, Michael. I Appreciate everything here. We’re gonna get, somebody had some great examples of the employee retention credit, what you call the ERC. You wanna give us some more examples of people that might qualify for it, and I know they might wanna get right on this. There are some reasons they might wanna get moving if they think they might qualify.
0:26:23.7 Michael Williams: Absolutely. So just to go over some industries that do qualify, we have talked about restaurants, we have talked about bars, we have talked about gyms, talked about construction companies, medical offices were another one that had significant effects, a lot of surgeons or also dentists could not do elective procedures for a significant period of time. So that’s one where… That’s one kind of an industry, either medicine or dentistry that had… They couldn’t… They had a restriction on the number of people that could sit in the waiting rooms, they had… They could not do elective procedures for a period of time. They had significant supply chain issues, even the imprints that dentists used to do mouldings for orthodontics or certain implementations for people’s dental work they couldn’t get some of those products, is the story that I hear pretty frequently. So again, those are kind of some of the restrictions that can qualify a business for the credit. Other ones, you know, again, we could go down a list, but I think…
0:27:32.6 Michael Williams: Sometimes property management companies can qualify actually it was a really good example, a real estate brokerage that I helped qualify at the end of 2021, the state of California and other states followed suit real estate, brokerage residential real estate, and the state of California city could not hold open houses during parts of the pandemic. And so that is a material restriction, they went all virtual. You know, you had asked a question a great question before, about what can you do if you’re going virtual now, anyone who’s listening, who’s bought a home previously, it’s real hard to get a great feel for the home, by looking at it virtually. You want to get in, you want to, you know, you want to touch things, you wanna walk it, you wanna hear how much noise is coming from the street. You can’t replicate those things virtually. And because the state of California restricted the ability to do open houses, that’s a governmental restriction that we were able to qualify this company for, and they got a high six figure credit. And again…
0:28:41.3 Kurt Baker: Wow.
0:28:41.3 Michael Williams: When I say credit, it’s called a credit, but it ends up being a cash payment to these entrepreneurs. There’s other ones, electrical contractors who couldn’t get supplies, who couldn’t get permits, food service companies, there are distributors for some of these restaurants, they couldn’t get certain types of liquors. They couldn’t get certain types of foods. You know, anyone that experienced a significant supply chain disruption could be a good candidate and I can go on down this industry list for a long time but I think the…
0:29:18.6 Kurt Baker: No, these are government programs, right? So government programs usually have a sunset or an end date of some kind, right? So how short, how much time do you have to think about all this stuff?
0:29:28.0 Michael Williams: It’s a great question. So there’s two answers here. The official answer is that you can obtain a refund… You can make a refund claim as long as this what’s called, the statute of limitations is open on filing an amended payroll tax return. Now the statute of limitations means you have a finite period of time to amend your return. In this case, it’s generally three years from the date you filed the return. So this program will officially start to phase out starting next year. That’s the official answer. The other thing we have to look at is what has happened to CARES act programs historically. The PPP shut down early without warning, the second largest program, which is the EIDL the economic industry disaster, injury disaster loan shut down early without warning. They’ve already cut down one quarter of eligibility for the ERC.
0:30:27.8 Michael Williams: So I have some contacts they’re pretty close to the legislative piece of the ERC. And most of those people believe that the opportunity to obtain this credit is likely to go away towards the end of this year. Now there’s nothing official that’s been said about that, but the people that I trust to be in the know about this sort of thing, said that there’s probably maybe six more months where entrepreneurs will have the opportunity to file these claims before the ERC essentially shuts down. So I think the point I’m making is that entrepreneurs should look at this credit. They should look at it now, and they should determine their eligibility now, and if they can qualify for one, two, three, four, five, six of the quarters that are eligible for the credit, they should try to get those claims in before the program shuts down.
0:31:25.5 Kurt Baker: Now, is this a situation where like, almost every entrepreneur would say, Hey, look, I need to contact the tax attorney. Is there something that maybe they could do as kind of a quick pre-qualifier to themselves and say, Hey, if I meet, you know, I don’t know, the quarter of a quarter. I mean, what are some like, ’cause I know everybody is busy out there as an entrepreneur. I’m just trying to give them a couple of quick bullet points. Like if you meet any these requirements, how do we make it easy on them to say, Hey, let’s turn it over. And maybe my account can send something to the tax attorney, or maybe somebody can compile this information so I can just get this cheque without having to spend the next week figuring it all out on my own. How do they get it? ‘Cause I know people are busy that are entrepreneurs and they’re like, look, this sounds great, but how am I gonna get all this done?
0:32:03.3 Michael Williams: Totally. I totally understand. I totally understand. It’s hard to get… Entrepreneurs have enough headaches trying to just run their business on a day to day basis. What I generally tell people is everyone should have 30 minutes to discuss a credit that could be worth a 100,000 500,000, a million dollars to them.
0:32:25.7 Kurt Baker: Okay.
0:32:28.2 Michael Williams: So while there are things that entrepreneurs can do to prepare themselves and research this, I think the talking with an expert for 30 minutes is really the advice I would wanna give because you know, you can research this thing all day long and you as an entrepreneur, if you’re not a tax attorney and specifically not a tax attorney who focuses on credits, your head is gonna be spinning with all the information that’s out there. So for me, there’s actually generally a four step process.
0:33:00.3 Kurt Baker: Okay.
0:33:00.4 Michael Williams: To how I would manage this. So I can walk through that here just real quickly. So, again, I like conducting an analysis on the phone with an entrepreneur first as a first step because I can sort out within 30 minutes or so whether or not there’s a good opportunity for that entrepreneur to qualify. After the call is over if we think it’s a good, there’s a good eligibility opportunity… And again, not everyone’s gonna qualify, but I think that it’s worth the 30 minutes to make their determination. I generally ask, I send a very brief document request by email. It’s just three reports that your bookkeeper or your CPA can provide. It should take them about 30 more minutes to obtain those things. I review the information and then I conduct a follow up call with the analysis with the entrepreneur. And we can kind of go over whether or not they can qualify and what the magnitude of that credit is. So the total time that it takes for the entrepreneur is somewhere between 60 and 90 minutes. So I try to make it as easy as possible given their often hectic schedules and again, the credits that I’m seeing are significant, I filled a couple of eight figure credits.
0:34:18.4 Kurt Baker: Wow.
0:34:19.7 Michael Williams: So over 10 million. A number of seven figure credits and even more six figure credits. So it’s again, the numbers are significant for those who can qualify. Not everyone will qualify. However, if you can, it’s a significant opportunity.
0:34:33.4 Kurt Baker: Okay. Well, that’s good to know. ’cause I know everybody go, they hear these things and they’re like, wow, but I don’t have the time to figure this all out. But if you’re just saying it’s 60 to 90 minutes, I’m pretty sure most people can carve that out and say, Hey, let me just figure it out. If it’s a no go, fine. At least I know. If it is a go and again, I mean, this is just one of those things. Rarely do I say this to people. This is something you need to really kind of get on because we don’t know. I mean, the government is always very unpredictable in what they’re doing. ‘Cause there’s a lot of political elements to this that none of us really controls. One day they’re gonna wake up and say, this is what we think is the best thing to do. And boom, it happens. And you’re like, oh, what happened? Wait a minute. So you kind of go strike while the iron is hot, so to speak in this case. Right.
0:35:11.8 Michael Williams: I think that’s right. Tax credits in general are one of the first things to be removed in any kind of tax legislation. So for example, the R&D credit gets renewed every so often, every few years the employee retention credit, which has already been reduced in terms of the time periods you can qualify for. My expectation is that this is the kind of the credit, especially given some of the broader economic concerns that the Federal government has regarding inflation and those kinds of things. My guess is that this program will end early. How early, I mean, I’m not, I don’t think it’s gonna end tomorrow but it’s possible. But I think it, I think that we have probably till the end of this year, but with that said, I would caution entrepreneurs from ignoring this for much longer because you want to be able to make sure that you can file a claim because the last thing you wanna happen is to just figure out the day after the program ends that you were eligible and that you could have received this kind of funding.
0:36:16.0 Kurt Baker: Right. ’cause if I theoretically let’s say I go through this process and I figure out whether or not I qualify, as long as I get my application submitted, I mean, if I submitted it in two weeks and then in three weeks they cancel the program out, they’re not gonna cancel my application traditionally. Right. Do they? I mean, they can do whatever they want, but traditionally have they done that where they’re saying, Hey, you know, retroactively, we’re gonna kill this program. Does that happen very often?
0:36:39.8 Michael Williams: Traditionally no. To your point neither you nor I have control over the federal government.
0:36:42.8 Kurt Baker: Of course not. Yeah.
0:36:42.9 Michael Williams: But the traditionally, as long as you have your application in before the program closes, they will honor that. So again, that’s why I encourage entrepreneurs to take a real good look at… And again, it’s just to figure out the eligibility piece, it’s probably worth a 30 minute phone call just to make that determination.
0:37:07.3 Kurt Baker: Right.
0:37:07.4 Michael Williams: And then if you, and if it that determination gets made, then it might be 60 more minutes. And then you can file a claim and it’s pretty straightforward. To be honest, it almost sounds too good to be true.
0:37:20.2 Kurt Baker: Right.
0:37:20.5 Michael Williams: Which is what a lot of entrepreneurs have told me. And especially when you’re talking with an attorney sometimes, and they tell you something that sounds too good to be true. You get skeptical. I totally understand that. But in this case I have seen a number of clients get some substantial refund cheques. So it’s just an amazing opportunity. And that’s why I would like to evangelize it to as many entrepreneurs as possible.
0:37:42.1 Kurt Baker: Oh, I agree. And you’re pointing out, we’re gonna take a quick break, but I mean, the key is really to go to somebody who has a good… That it’s reputable locally, whoever you know is great. If they’re an expert in this area, which is really the tax credits and they have a good reputation. Awesome. I mean, obviously you do. But that’s the key too, ’cause there’s a lot of scams out there. So I wanna make sure you don’t fall into one of these boats where somebody is soliciting you for something that’s actually not valid and you sit… And you do some funky things and you don’t wanna do that, but we’re gonna take another quick break. We’ll be right back, you’re listening to Master Your Finances.
0:38:10.0 Speaker 1: This is Master Your Finances with Kurt Baker, certified financial planner professional. Learn about tax efficiency, liability, owning, managing, and saving your money and more from Kurt and his experienced panel of guests. Master Your Finances is underwritten in part by certified wealth management and investment and Rider University. Rider University offers flexible education for adult learners. For more information it’s rider.edu/next step.
0:38:40.1 Kurt Baker: Welcome back. You’re listening to Michael Williams talk about tax credits. So Michael, I know this employee retention credit, ERC is probably one of the biggest programs you’ve seen, it sounds like, and it’s tied into the PPP and a lot of people don’t realize they qualify they got the PPP loans. I remember when we applied for it for our little non-profit that… We thought these other things… We just couldn’t do it. We really couldn’t do anything else if we got the PPP loans, but it sounds like that’s opened up and in a very big way with a very short potential timeline on it. And regardless if you wanna get to check if you’re eligible, right, so you might as well go out and get it. So you wanna tell us a little bit more about that, ’cause I know it’s a big deal and it’s important to talk to somebody who’s actually dealt in tax credits through their career that didn’t just pop up to do this because it sounds like something fun to do all of a sudden.
[laughter]
0:39:33.4 Michael Williams: Exactly. That’s the case with a lot of… When some lucrative tax credit comes up, you’ll often see some people trying to get educated on it and more often than not some of those people just… They don’t… They’re not serving their client’s best interest if they’re trying to learn on the fly, because tax credits are a specialty. And usually high… I used to work at Ernst and Young, it’s a big four accounting firm. You see a lot of tax credit professionals at firms that are that size, a global tax firm. Most of the regional and local CPA offices or law firms just don’t have that level of expertise. That’s okay but what I’m saying is that you really wanna work with someone who knows every aspect of these particular credits.
0:40:26.7 Michael Williams: One of the things that a lot of our entrepreneurs have when they start the… When they start the conversation, they’d say “I’m afraid my CPA is gonna get upset with me for having this conversation.” I said, “I would love to talk to your CPA,” because I try to create a collaborative environment with those CPAs rather than a competitive one, right?” I think that they… If they can get involved with this program, a lot of them aren’t going to want to… The really good ones that know what they’re good at and what they need to outsource are excellent to work with. And I think that collaborative effort can really lead to a positive result for a client because the CPA has all the history of the client and they wanna do what’s right for the client. So they wanna bring in an expert to help maximize the benefit. I have seen CPAs get a little territorial from time to time, and I’ve reviewed the work that they’ve done to try… When they’re trying to do these credits for the clients. They’re often missing it by 25 or 30%.
0:41:32.7 Kurt Baker: Wow.
0:41:34.4 Michael Williams: Which is a real disservice to the clients. And look, they’re not trying to do anything wrong. It’s just, they don’t fully understand the credit and they make mistakes and they’re not maximizing the credit, or they’re doing something that can potentially trigger an audit for the client. And no entrepreneur that I know wants an unnecessary visit from the IRS.
0:41:55.1 Kurt Baker: Definitely not.
0:41:56.9 Michael Williams: That is like one of the things that can go wrong. One is whenever you’re making a refund claim for any tax credit, it doesn’t matter if it’s manufacturing credit R&D, ERC, whatever you are if you’re trying to open up a vineyard in Virginia, like we’ve talked about before, whenever you’re doing these things, they’re always subject to audit. And if you don’t have an expert in your corner who has been a part of IRS audits previously, you have the high likelihood of getting steam-rolled by IRS. So I think that’s a situation that most entrepreneurs wanna avoid. So it’s, for example, it’s part of all of my engagements. I provide audit representation for a client in the event that they do get audited. So that’s a somewhat of a differentiator for me, as opposed to what I see in the market. But I wanna stand behind all of the credits claims that I file. I want the client to feel like they have someone in the corner that can advocate for them if the IRS comes calling. So I think that’s really important to have an experienced person who has dealt with many audits in the event that these clients get audited.
0:43:19.4 Kurt Baker: And I agree with… I’m gonna re-emphasize that because not all accountants are enrolled agents are able to represent in front of the IRS either. So even if your accountant is gonna take this on, that’s a higher level. And then they have not only have to be able to, they have to be doing it because it’s definitely a skill that I’ve learned through the years, by talking to different CPAs that do this. They tend to be a specialty even among the community itself. The ones that do represent in front of the IRS.
0:43:48.0 Michael Williams: That is true.
0:43:49.1 Kurt Baker: So having an attorney that does that as well… I just want to re-emphasize that, ’cause I’ve seen that through my career where people who are used to working with the IRS and explaining things to them correctly, because they talk their own language over there. They have their own way of looking at things and you have to really talk the way they do and explain things that… It’s really a specialty. It’s definitely a specialty.
0:44:10.5 Michael Williams: That’s right. And the worst thing for an entrepreneur is to get themselves into an audit. And again like the… I don’t expect an entrepreneur to have a full understanding of the tax tool, that’s why people like myself have gotten into this line of work, so we can help entrepreneurs navigate those complicated waters. But if you tap someone who is inexperienced with those matters, the entrepreneur gets dragged in, and it just, it becomes a real nightmare. And again, we’ve talked before about, does an entrepreneur have 30 minutes to have a phone call that could… The end result could be a million dollar cheque? At the flip side of that, does the entrepreneur have weeks or months or even longer to go through an audit that is unfavorable to that entrepreneur?
0:44:56.1 Kurt Baker: Right.
0:44:56.4 Michael Williams: Right. So I think that is where that ounce of prevention on the front end should resolve whatever pound of cure is necessary in the event of an audit. Because again, all of these claims and I feel every claim that I file, I want to stand by. And I do… And that’s why I provide that audit representation as part of my engagements. But I also want to take that kind of pressure off of the entrepreneur in those situations, because I want them to have the best possible advocate to defend those claims.
0:45:30.4 Kurt Baker: Yeah. That makes a lot of sense. I mean, you get the whole package so to speak.
0:45:34.4 Michael Williams: Yes.
0:45:34.4 Kurt Baker: That is fantastic. So if I go ahead and apply for one of these things, and let’s say, let’s assume we’re hopefully successful, what’s the timeline typically that this takes for this whole thing to get processed, and for me to see something, if we’re successful?
0:45:48.5 Michael Williams: It’s a really great question and this is something that every entrepreneur asks, what I’m seeing in the market is somewhere between four and six months.
0:45:58.0 Kurt Baker: Okay.
0:45:58.0 Michael Williams: Now I’m gonna caveat that because I’m just… That time period was based on claims. So I had two clients received checks last week for claims that we filed in the last week of January. However, as the IRS goes further and further into what we call extended tax season, so if companies or individuals extended their tax returns, they are now filing those tax returns that the IRS has to review. There’s a massive backlog of tax returns of all varieties that the IRS is working through right now. They spend a lot of time talking about an organization that has struggled to work remotely. The IRS in large… In a large part, worked remotely during portions of COVID. So that helped to create this massive backlog. So while right now I’m seeing four to six months in the market, I expect to see that time lag for processing increase…
0:47:01.4 Kurt Baker: Okay.
0:47:02.0 Michael Williams: As we move forward in time. Again, my recommendation is that entrepreneurs look at this credit opportunity now or in the very very near future, because the longer they wait, the more… There’s two things can happen, the more likely it is the program will shut down, and also the longer it’s gonna take for those claims to process. But again, I think it’s… Right now four to six months, but I expect that to increase as we move forward in time.
0:47:28.5 Kurt Baker: Yeah, we definitely hear that. So we got a couple minutes left. Do you want to kind of summarize… We went through a lot of different aspects of these tax credits. I know there’s… You’re talking about three primary ones, but there’s a lot of different ones out there that people may be qualifying for. So you wanna kind of put all that back together for us if you don’t mind? And I appreciate it very much.
0:47:48.9 Michael Williams: Yeah, no, of course. And again, just to reiterate a few things, number one, the tax code is just a set of incentives that tries to motivate entrepreneurs to behave in certain ways. There’s ones that we didn’t talk about. There’s certain tax credits for putting a business or locating a business in certain geographic areas. Oftentimes those are historically, socioeconomically depressed areas where city or state governments want to improve the livelihood of the neighborhood and the residents of that neighborhood. So they’ll encourage businesses to move in there and they will provide tax credits. Again, there are too many tax credits that even if we did this every day for the next month, have these conversations, we couldn’t go through all of them.
0:48:41.1 Michael Williams: So I think it’s… Thinking as… If I’m putting myself in a CEO seat, I’m thinking about where my company is located, what my company does and whether or not I’m providing a service or product that the government has or wants to incentivize. So that’s kind of a starting point. Then I would say, talk to your local CPA. If that CPA does not work in credits or they don’t have an experience with that, have them connect with someone who does. So again, I collaborate with a number of CPA firms, both at the local, regional and national level who don’t focus on some of these credits, but they want to be able to provide and drive value to their clients, and so they engage with someone like myself to… Who has an expertise in these credits to bring those to their clients and be able to explain those credits, which are often very complicated, in ways that they can understand, calculate the magnitude of the credit, ensure that it makes sense for the entrepreneur, and then you go from there.
0:49:46.4 Michael Williams: But again, I think that if I’m any kind of business owner, there’s likely some sort of credit out there that I can take advantage of, it’s just about how much it is, and whether or not I can identify it for myself and my business. But because a lot of the credits are so lucrative, it’s really worth the time to just take a step back and try to identify those opportunities as they arise. And the ones we talked about today, just real briefly, the R&D credits and manufacturing credits. And the one that, again, I wanna reiterate that every entrepreneur in every state across the country should be looking at is this employee retention credit, because it’s one that will… Is likely gonna go away faster than the others. And it’s a very, very generous and lucrative credit for entrepreneurs that can provide them with cash flow that they may need in the wake of this pandemic recovery.
0:50:41.7 Kurt Baker: Awesome Michael. We really appreciate you coming on. And once again, the big ones are… There are lots of tax credits out there as he mentioned. The three that he talked about today, the R&D credits and manufacturing credits, you don’t necessarily have to think of yourself as one of those firms. The Employee Retention Credit, which is the ERC is the big one. Everybody really should be at least taking a quick look at that. And obviously reach out to a local expert if you have one or somebody you already trust. If you need to talk to Michael, you can reach him by going to cfomw.com. He’d be happy to set up an appointment with you and go over it if you don’t have anybody locally to help you out. You’ve been listening to the Master Your Finances. Have a great day.
0:51:23.0 Speaker 1: That was this week’s episode of Master Your Finances with Kurt Baker, certified financial planner professional. Tune in every Sunday at 9:00 AM to expand your knowledge in building and managing your wealth. Missed an episode? No worries. You can subscribe to a free weekly episode of Master Your Finances to listen to on your favorite podcasting platform, Apple, Spotify, Google Podcasts, whatever. Master Your Finances is underwritten in part by Certified Wealth Management and Investment and Rider University. Rider offers continuing studies programs for adults who need flexibility. Want to add new skills to your resume? Take a continuing studies course at Rider University.
