At the height of the pandemic, the government introduced different sources of support for businesses on the brink of shutdown. One of these is the Employee Retention Credit or ERC. But what is it, and how can owners benefit from it? Here to share wisdom is Mr. Sexy, Kevin Marshall. He is the President/CEO of Profitopia, and the author of Tax Credits Are Sexy: What Every Organization Needs to Know about the Employee Retention Credit. With insights from his book, Kevin breaks down how businesses can qualify and make the most of ERC. Listen in on his chat with host Michelle Seiler Tucker to learn more and get thousands of dollars back for your business!
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What Every Organization Needs to Know about the Employee Retention Credit With Kevin Marshall
I like to welcome our special guest and a good friend of mine, Kevin Marshall. He is a CPA. We’ve had CPAs on the show before, but he’s not just any CPA. We call Kevin Mr. Sexy CPA because Kevin is the author of Tax Credits Are Sexy. Anything related to taxes and sexy is shocking to me. Tax Credits Are Sexy is what every organization needs to know about employee retention, how to get savings out of their business, how to minimize taxes, and much more.
Kevin has been practicing as a CPA for many years. He serves clients across the country via his virtual CPA firm. He specializes in difficult specialty around businesses, especially in the financial situation. He does companies that are having horrible financial issues. How many of you readers are having trouble with your finances or having a lack of profit? Kevin’s your man. Mr. Sexy is your guy.
He’s got so many awards, too many to name. It includes Money Magazine, People To Watch, and Baltimore Business Journal’s 40 Under 40. Kevin, welcome to the program. I’m delighted to talk about what everybody wants to know, “How do I minimize taxes? How do I use tax credits?” Most business owners don’t know what tax credits are. Most CPAs have never heard of them. They’ve never utilized them, either. You’re going to be a great asset. Before we get started, tell us a little bit about what Kevin was like as a little boy. What got you involved? Why did you want to become a CPA in the first place? Why tax credits?
Thank you. It’s a long time coming to be on your show. It takes me back to years ago when I was a little boy. My dad was an accountant. He was a cost accountant, which is very nichey. It’s a small niche within the accounting world. My brother also has an Accounting degree. He does landscaping. We have all accountants in our family. My wife’s side of the family is all engineers. We have a rocket scientist in the family. My sister-in-law worked for NASA and wants to work for SpaceX. Our kids are cursed. We’ve got the accountants on my side and all of the engineers on my wife’s side.
I distinctly remember the day I decided to go into accounting. I asked the principal of my high school. I said, “I can’t decide whether I want to go into business, get a Business degree, or an Accounting degree. I’m not sure which way to go.” He gave me some great advice. He said, “If you get an Accounting degree and you go into accounting and find you don’t like accounting, you can always switch to business. If you get a business degree and go into business, you can’t go in the other direction.” That was the deciding factor for me to get into Accounting. It’s been great.
The businesses that you see that are for sale, I’m sure most business owners don’t know anything about accounting whatsoever. It shows when you take a look at their books or ask them questions. They go, “What was your revenue last year? What’s your break-even point?” “I don’t know.” It’s helpful to have that Accounting degree background. I don’t do accounting anymore. I’m the Founder and the CEO of my company. We have about 70 employees around the globe.
Are you still involved in accounting?
Yes, but I don’t do any accounting work.
You are on the business and not in it.
That’s the famous saying. I enjoyed it. I spent years in public accounting and worked as CFO for multiple companies. I’ve owned a few accounting businesses. We owned a bed and breakfast for several years in Connecticut. Don’t ever own a bed and breakfast. It’s not what it appears to be.
I sold a manufacturing company. I always say to business owners, “You must plan your beginning before you follow through on your exit because if you haven’t figured out what you’re doing next, you’ll never close on the sale of the business. You’ll find a way to sabotage yourself.” I had a couple that did that. I bought them four LOIs, and all met the price in terms, but they nitpicked. I found reasons why they didn’t like each one.
I finally said, “That’s it. I was taking the business off the market. You guys brainstorm with each other. Decide what you want me to do after the sale of your business.” I call it the beginning strategy. About three months later, they called and said, “We’ve always wanted to own a bed and breakfast.” We’re going to take it for sale. Are they going to start or buy one? Until this day, they own several beds and breakfasts. It wasn’t for you, but it was for them.
You can get economies of scale if you own several. Ours was small. It was only six guestrooms, but that was an experiment. You live and work in your house, and your clients live with you.
If you don’t like it, you are stuck. You can never get away from it. It’s a job. It’s nothing I would ever want to do.
We owned a coworking space as well. I’m pretty entrepreneurial. I love entrepreneurship and meeting entrepreneurs. How you and I met was through an entrepreneurial group. You meet the nicest people through these organizations by meeting like-minded people.
You have to be careful when you go to these organizations and speaking events. You always got to do your due diligence. Make sure that you’re doing your due diligence when you hire someone to partner with someone. You’re getting the right mentor and partner, etc., because sometimes I’ve seen firsthand that going to these events, I’ve hired the wrong people from these events. You’ve got to be careful. Networking is great. You made some great connections. What is the company you have with 70 employees? Is that an accounting firm?
It’s an accounting firm, Profitopia. We are virtual, but we have a physical office in Tucson, Arizona. That’s where I am. We have a physical office in Tampa, Florida. I go between the two offices. We have staff in three different spots, India, the Philippines, and Africa. We hired our first employee in Africa.
Let’s dive into it now and give our readers some profound takeaways and golden nuggets they can use in their business. Let’s get into the tax part.
Ninety-five percent of CPA firms don’t do anything with tax credits. We find that most companies, entrepreneurs, and business owners don’t know anything about tax credits either because they figure the CPA is not telling them about it. The company or the business owner doesn’t know about it either. This particular book I wrote is on one particular tax credit called the employee retention credit. There are other tax credits as well. There’s the solar tax credit. Most people have heard of that.
Let’s dive into solar tax credit. How does that work?
You put a solar addition on your house, and the percentages and amount allowed change each year. It’s a way for the Federal Government to incentivize solar installations on residences. It could be up to a 30% tax credit that you could get for installing solar on your roof. The best way to find out about those is to talk to a solar company. That’s a way for the salespeople to be able to sell their solar.
You can put a solar roof on your business. If you put it out in your home, how is that a tax credit?
It was a tax credit on your personal tax return.
If you want business tax credits, you’ve put one on your roof. There’s a cost associated with that. I don’t know there are a lot of tax credits. I’ve had tax credits companies come to me before and say, “If you give me clients, I’ll give you a percentage.” I know it’s out there, but I don’t know any of that.
The other one is the R&D Tax Credit or Research and Development Tax Credit. That’s been around since 1981. It’s been here a long time. It’s approximately 8% to 10%, around 10% of your spending. It’s for costs associated with research and development of products. It could be a manufacturer. Typically, it’s software or app developers who qualify. You get to think outside the box. Breweries qualify for the R&D tax credit because they’re creating new beers.
Anybody in the products business will qualify for that.
It’s 10%. If you spend $30,000 on something and only get a $2,500 tax credit, is it worthwhile? Maybe, but if you spend $1 million, you’re talking $80,000 to $100,000 tax credit. Fill in the blank, an $80,000 tax credit is?
It’s money in your pocket. It is always sexy. Even if you’re not in a product business, we’re looking at adding a SaaS component to our company. That would have a tax credit. Let’s say I’m spending $250,000 on that. It still gives you some money back. The same thing with our coaching company. Would it work for a coaching company?
Possibly. There are specific rules you have to look through and see if you qualify. There are certain tests that you have to meet. SaaS component, or you’re creating a new process. You have to weigh that cost-benefit analysis.
If you’re spending the cost and the credit is there, why not take advantage of that? What are some other ones?
The last one would be WOTC, Work Opportunity Tax Credit. Its credit ranges anywhere from $1,500 to $9,500 per employee. This is not an employee retention program. The way you get those credits are you need to hire employees in certain categories. Some categories are ex-felons, ex-veterans, and people coming off of welfare. You have to hire somebody, look, and do the analysis. They only have to work 100 hours. It’s a sizable credit. We have clients like a restaurant. They hire ex-felons or ex-cons because 1) It’s a way to give back to the community, 2) They get the tax credits. We have a restaurant client that specifically look for or hire ex-cons. We have another client. It’s a carwash, an auto detailing shop. That’s what he does. He hires all ex-cons because it’s hard for ex-felons to get jobs.
The other one is veterans. I love helping out veterans.
It’s a great way to help out the veteran community.
We’re partnering with a veteran company. It’s a franchise. All the franchisees are going to be veterans. There’s a tax credit there because our franchisees are not employees, but they can hire veterans.
Here’s a quick summary of some of the other tax credits out there that most business owners are unaware of or wouldn’t think of. If you owned a brewery or a distillery, in a million years, you wouldn’t think of utilizing the R&D tax credit, but it’s available.
Especially software companies.ERC = employee retention credit Click To Tweet
They don’t think about it either.
Readers, if you all think about your business, there are many other companies that do have software components or ANNIE software components for their business. What did you say about the third one if you hire ex-veterans or ex-cons?
Also, people coming off of welfare, the state assistance.
What about the mentally challenged, blind, or deaf?
No. It’s just those three categories, veterans, ex-felons, and people who are coming off state assistance. There’s a fourth. The summer interns too.
I have a lot of summer and fall interns. There’s a task on it for that?
It’s $1,500 for an intern.
I have a list of interns to intern at Seiler Tucker. We have seven. I did not know that. We’ve been doing it for many years. See all that money I left on the table? What else is sexy?
It’s the ERC, the Employee Retention Credit, which is what the book is about. It’s amazing to me that post-pandemic, we’re still finding businesses don’t know about this amazing tax credit that President Trump put into place on March 2020 when COVID hit, and the whole world came to a screeching halt. Think back with me back to March 2020. If you remember, PPP was all the rage. It was like, “This is great. The government created this stimulus program. Everybody’s eligible for every business in America, and there’s free money.” They poured out money like crazy. If you remember, they ran out of money. It was a big scramble. I didn’t make the first round for whatever reason, so I had to wait for the second round through March, April, and May 2020.
PPP 1 had a second funding round, but it was a great way to stimulate the economy and help businesses that were struggling. That was the big focus. It was on the news. It was everywhere. All the business owners were talking about it because it was all eligible. What people did not know was that there was another piece of this tax credit called the employee retention credit. That was also enacted in the CARES Act when President Trump signed it in March 2020. It was there. What was interesting at the time when the legislation came out, you had to pick one or the other. You could only do PPP or ERC, and 99% of businesses picked PPP.
It was this thing that was there in the legislation that people were ignoring, and nobody knew about, then all of a sudden, President Trump, whether you like him or not, on December 27th of 2020, that second CARES Act was enacted. That was a game-changer. That’s the part that is sexy and exciting that business owners don’t know about. That small change was that now you could do both. You could do PPP and ERC. It was a small piece of legislation.
That changed, and slowly over the next several months, people like my CPAs and other entrepreneurs started going, “What’s this ERC thing?” That’s been now two pieces of legislation. I don’t want to get too nerdy or technical, but it’s not an income tax credit. It’s a payroll tax credit. Everybody knows about PPP. What I like to do, and it’s in the book, is compare the SBA program for PPP to ERC because, in people’s minds, they can correlate the two. SBA was the source of funding for the PPP. IRS is the source of funding for the ERC or Employee Retention Credit. It incentivizes business owners to keep their employees and keep paying them.
If you remember, the PPP was a forgivable loan. It is a loan that is forgiven or could be. In ERC, there’s no forgiveness. It’s not a loan. It’s not forgiven. It’s a tax credit. If you remember, with the SBA, there was a certain pool of money. When PPP 2 came around May 31, 2021, they ran out of money. They only had a certain pool of money allocated for this program. Once they ran out of money, that was it. They turned off the program. For ERC, there is no pool of money. It’s unlimited.
How does it work specifically? Is it a tax for the employee? How much is it?
It’s for wages paid to employees for every quarter of 2020 and 2021. It’s eligible for eight quarters.
It’s just 2020 and 2021. It is not going forward in 2022. It’s retroactive. You can go back for how long? What’s the timeframe for going back?
It’s a five-year statute of limitations. The statute of limitations with the IRS is typically three years in this case, but the act extended it to five years. There’s a five-year window to be able to file and get this tax credit.
This is important for all readers that want to find some money. How does it work? How much is it?
PPP was a pretty straightforward calculation. You took your average monthly payroll times one and a half, and you came up with a number. ERC is not straightforward. It’s very complicated. There are three ways to qualify. The first and easiest way to qualify for ERC is if your business is subject to a full or partial government shutdown, you are instantly eligible.
It did happen in 2020 when the government said, “Go to work. All businesses are shut down.”
They did this as a way to incentivize employers to retain their employees, but nobody knew about it. It was this weird law.
Did the government come out and say, “You have to shut down your business?”
I come to the office every day with one person. Everybody else worked from home.
Remember the restaurants.
I know they’re closed-out restaurants, bars, and retail businesses. They did encourage everybody for everybody to work from home.
Dental offices, gyms, bars, and certain businesses, everything’s shut down. Also, summer camps.
M&A took a huge nose dive into 2020. Everything shut down. That’s number one, government.
I pretty much guarantee that every restaurant in America qualifies.
Every restaurant, pub, and bar. I don’t know about grocery stores. What about businesses like M&A?
You’re a service company. Your company was not subject to a full or partial government shutdown.
It qualifies public retail types of businesses.
You’re only eligible during the shutdown. It’s not so straightforward and simple, but that makes it easy. Most businesses are like, “Did I have a shutdown or not? Was my business subject to a shutdown?”
Restaurants don’t shut down. They are still open, like pharmacies.
They were partially shut down. They had to restrict. They either had to do delivery or take out only. You couldn’t sit down.
I’m talking to grocery stores, pharmacies, Walmart, and Target.ERC is not an income tax credit, but it's a payroll tax credit. Click To Tweet
They weren’t shut down. Also, churches. In Tucson, there were gatherings of over 50 people. You are not allowed to have gatherings of over 50 people. All the museums and live venues shut down. In Tucson, at least, the churches were exempted from that law. Any business that would have been affected by that shutdown would be eligible for this tax credit. That’s where it gets sexy. People go, “There’s free money out there from the Feds. I don’t even know about it. I’ve been suffering. I had to shut down my business. I had to restrict.”
Those businesses are the ones that need it. They could get both the PPP and the ERC. That’s one requirement, you had to be shut down. That tells me that a lot of businesses.
You can qualify for 1, 2, or all 3 of the methods. We’ve had one client qualify under all three. The first way is easy, shut down. Here’s the second way, and this is pretty straightforward too. Are you a new business? If you’re a new business and the IRS definition of a new business is you started your business on or after March 15, 2020, you are eligible for up to $100,000 tax credit.
Is it per person or total?
How much did you say the tax credit was if you were shut down by the government?
It’s unlimited. It’s a $2.8 million tax credit.
If a restaurant was shut down and they have 25 employees, how much tax credit do they get?
Here’s the running joke in the office. 1) I don’t know. 2) It depends. It depends on how long the shutdown was and how many employees or family members were because family members and owners are not eligible. Did you get PPP money or not? You could qualify for 1 quarter or all 8 quarters. It depends. This is why it gets complicated.
If we have restaurant owners and churches reading, and there are many, etc., what do they do? Do they call somebody like you and walk them through the minutia? You always say the devil’s in the details. They call somebody like you, who’s an expert. Number one, it’s the government shutdown. Number two?
It’s a new business. It gets crazy, too, because the way they wrote the law says, “You began operations.” What does that mean? We’ve had clients who incorporated and opened a bank account several months before then but didn’t open their restaurant or storefront until summer. Even under that scenario, that business would qualify for up to a $100,000 tax credit.
I was going back to the government shutdown. You are talking about doctor and dentist offices. It’s pretty much any company that services the public. Many companies were shut down. What’s the third way?
The third way is the most complicated way. The initial IRS regulations that came out on this were only 108 pages. There’s a lot of gray and ambiguity out there around this versus the regular IRS Tax Code, which are volumes of books on the IRS, the normal Tax Code. The third way to qualify is similar to the way businesses were able to qualify for PPP 2, the second round, where you had to demonstrate a decline in revenue. You have to look at every quarter of ’20, ‘19, and ‘21 compared to the quarter of ’19. If you had either a 50% or a 20% reduction, you qualify for that quarter and the subsequent quarter. How would a normal person be able to feed you? It’s almost impossible for the average person.
There’s all this money, but good luck with figuring it out. How much tax credit would I get if they were approved? Many businesses are able to prove that. How many tax credits where they get for that?
Our average refund for a client is $89,000.
That’s good money for a lot of business owners that are struggling.
I remember talking to one particular business owner. They were a restaurant in Southern Arizona, not even Tucson. It’s out in the middle of nowhere. We roughly figured out their tax credit was going to be $10,000. That’s a payroll or a couple of months of rent for them.
How much do you cost?
We charge a contingency or success fee of 25% to do the calculation. Besides that, there are no upfront fees. We do a revenue share with the employee or the business.
They’re not paying you anything upfront if you can’t get the tax credits, and they’re not out any money. If you do, then it gets 25%. That’s pretty good.
We’ll be able to look into it. It costs you nothing. It doesn’t hurt.
I’m sure you assess the business and do a little bit of due diligence to make sure before you’re spinning your wheels as well, to make sure that they will qualify. On average, how many people have you been able to help with this?
It gets you into the thousands. We got a window to do it. Now I know why you wrote the book. This is huge. There are struggling businesses out there. They can take advantage of this. However, Kevin is not going to charge you anything upfront. With hundreds of clients, how many have you been successful? What’s your success rate? Do you have a 100% success rate?
No. I couldn’t tell. I don’t know how many we’ve worked with that that didn’t qualify.
You help more people than you’re not able to.
Yes. We try to prescreen people. All the landscaper, builder, framer, and plumber businesses are booming. They’re not new. They were not subject to a shutdown. As their businesses’ revenue is going up, they are likely to qualify as slim to none.
Based on the criteria, there are a lot of companies that would benefit, especially doctor’s offices. How many doctor’s offices were shut down during that timeframe? Our medical clinics were all shut down. We got to where we could do telehealth, but it wasn’t the same. There are many businesses that start in 2020. I was shocked.
That’s your claim to fame.
Unfortunately, they don’t have much to sell because they never got their feet off the ground.
That’s where it gets sexy. You started a business during the pandemic. You hired employees. You can get up to $100,000 from the IRS, and people don’t know about it. This is all the employee retention credit, all three of those.
It’s shocking because nobody talks, hears, or believes about it. That’s amazing. What else can you tell our readers?
We like to talk to people upfront. Greater than 50% of owners’ wages don’t qualify for this. The business could qualify. The other employees could qualify and their family members. The definition that the IRS asks for family members is it’s like step-parents and brothers.
Do those family members have to be working in the business?
Family members don’t qualify for this tax credit.
What else?If you're a new business - and the IRS definition of a new business is you started your business on or after March 15th, 2020 - you are eligible for up to $100,000 tax credit with ERC. Click To Tweet
What needs to be done is a calculation of all the wages paid during these periods. You have to allocate all that salary or wages between PPP and ERC because the terminology is you cannot double dip. It’s like a nonprofit.
If you’ve got PPP, you’re probably not going to get ERC.
You can, but you can’t double dip. Think about it. For PPP, the owners’ wages and their family members’ wages, could they get PPP money for those wages? Yes. If you take all the owners’ wages and their family members and put them to PPP, what does that do? It frees up another pool of wages that you can get ERC money from.
I will qualify for the revenue because M&A took a nose dive in 2020.
We know somebody. Her business had 150 employees or so. Her business had an off quarter. They qualified for one quarter. They got a $492,000 tax credit.
If that’s not the reason to pick up the phone and call Mr. Sexy, I don’t know what it is. I got to read his book Tax Credits Are Sexy. You got to get in touch with Kevin. Any other success stories, hoops, or last-minute thoughts you want to leave with our readers?
I love what I do. It doesn’t have to be $492,000.
Is that the biggest success story?
There’s $2.8 million.
Did they cash in on all three?
In this case, it was shut down and decreased revenue. It was a school. Their enrolment declined. Nonprofits and tribal organizations qualify. Whether it’s a casino or anything that the Indian tribes are on, the only type of legal entity that does not qualify is a government entity. All nonprofits, churches, and tribal entities all qualify for this.
There’s so much money being left on the table that people don’t know about. They’re struggling to put food on the table for their families. I want to buy and make sure everybody knows about it because you’re probably one of the only CPAs doing this.
There are some, but 95% of CPAs don’t get into this or don’t do this.
The $2.8 million is your success story. That’s awesome.
I love the story of the struggling restaurant in Southern Arizona. We got them $10,000.
That $10,000 saved them from going out of business. It could be 3 months of rent or 2 months of employee wages. There are many struggling businesses. American business entrepreneurs are the backbone of our economy. There are 30.2 million businesses in the United States. Employees are half of the workforce. When small businesses close, what happens? We lose jobs. What happens when we lose jobs? We lose spending power, then more businesses close. It’s a trickle-down effect. This is huge. That’s why I’m glad I had you on the show. The message should get out there even more so we can help as many people as we can. Do you also pay referral fees? If somebody is reading and they say, “ I can’t do it. I don’t qualify, but I know ten businesses do.”
We work with a lot of referral partners in this business.
Any last-minute thoughts that you want to leave? Any words of wisdom on tax credits?
Not on tax credits, maybe on life. Life is short. If you don’t like what you do, try to do something that you like to do.
You have changed our entire lifestyle over the last few years.
I’ve gone through a divorce. I own an RV. I travel around in an RV with an office in it. I’m an author now. I do public speaking.
You’re the happiest you’ve ever been.
One of my all-time favorite stories is the book Titan, the biography of Rockefeller. He got an Associate’s degree as a bookkeeper. He was 21 or 22 years old. He went to get his first bookkeeping job. This would have been in the 1800s. Everybody turned him down. He spent a whole month pounding the pavement and trying to get a job. One month goes by. Not one job offer. He does it a second month, goes back, and applies for jobs again. He still doesn’t get a job. He goes back to the third month, and he gets his first job. Think about what that enabled him to do from the very beginning, the tenacity of that.
You hear the same thing with Dale Carnegie and Walt Disney. You hear these stories over and over again about perseverance. That’s what people need more of. There are so many people that quit. Greg Reid wrote a book with Sharon Lechter called Three Feet From Gold because many people quit too soon. You don’t fail unless you quit. That is temporary. Quitting is permanent. How can our readers get a hold of Tax Credits Are Sexy and get in touch with you to help them through and navigate this very complicated process, so they can get money to dig out of a hole they are in?
The book is for sale on Amazon. It’s in Kindle and print. We also have an app in the App Store. If you look for Profitopia, we’re the only app in the App Store for the ERC, the Employee Retention Credit. The book is available there in PDF and Audible. Our website is Profitopia.com. You can reach out to our salespeople there and the customer service team. That would probably be the best way.
Kevin, thank you so much for coming on. It has a lot of golden nuggets. I encourage all of our readers to share this episode with their friends, family, coworkers, and fellow entrepreneurs and get the message out that they, too, can take advantage. You’ve got four years to take advantage of cashing in these tax credits and helping retain your employees so they can keep food on the table for their families. It costs you nothing. You give a percentage. It’s like me. When you hired me to sell your business, it cost you nothing until I sell a business like Kevin. I encourage everyone to reach out to Kevin and get the book Tax Credits Are Sexy. I thank everyone for reading and sharing another episode. I’m looking forward to the next episode. We’ll have another special guest on. Thank you, Kevin.
Thank you, Michelle. It’s good to see you.
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