What you'll learn:
- Increase your tax advisory services by identifying various tax credits and incentives
- Explore cash flow strategies that may be available for your clients through incentives found in the Inflation Reduction Act
- Learn how to navigate through misinformation on various tax incentives
Randy Crabtree (00:11):
It is go time. I don't know if anybody else is going to come in, but I'm ready to go. So we are. Thank you for being here, everybody. I think this is pretty much everybody in the entire conferences here right now, so that's nice to see. Oh wait, maybe this is just a breakout session. We're going to talk about tax advisory services, why they're important. We're going to see ways you can get into tax advisory and increased tax advisory services through different things like looking at tax credits and incentives. That's what the title says. I have this tendency to go on tangents, so we'll see where the actual presentation goes, but we are somewhat an intimate crowd here, so we can go anywhere. I mean, if you want to ask questions as we go, if you want to direct me to go a different direction, as long as we have consensus, we can do that and we'll see where it goes today.
(01:08)
But I'm really excited to be here. Been a big fan of accounting today and Dan Hood for a long time, and so when I had the opportunity to come, it was a no brainer to be here. Who am I? There's me. I guess bottom line is I'm a partner at termer Specialty Tax Professionals. We deal with tax credits and incentives. I for years was a generalist. I'm probably will go on a tangent about the difference between a generalist and an advisor. A specialist, a niche practice. I'm huge fan of niche. I will walk a lot when I'm talking today, so hopefully that doesn't make anybody dizzy, but that's just the way I do this. I host a podcast, which you nix page. Jody, you were on there, right? All right, so at least one person on the room has been a guest on the podcast. Dan Hoods, Rory. Rory, you were on it. Rory was on the podcast as well, so it it's fun. I get to meet so many interesting people just like the two of these that are out here right now. Get to write articles, get to do other things. The one thing I do really want to point out, this has a laser, right? I don't want to hit the wrong button. Airplane. Oh, nope. That's not what I wanted to do.
(02:29)
How do I go back? There we go. The one thing I want to point out, I just want to let everybody know this. Conferences are awesome. I assume you all know that that's why you're here. There's some people that can't get to conferences, they don't have the financial means or the firms they work out work for just won't give 'em an opportunity to go to conferences. I have learned so much at conferences. I am so much better at what I do. I would not be up here even talking to you today without going to my first conference. And because of that, just this year we started an organization, a nonprofit called the Accounting Cornerstone Foundation. Accounting cornerstone.org is the website. What this is is a nonprofit that gives people an opportunity to go to their first conference. They don't have the means, whatever it is.
(03:15)
The first three people we are sending to a conference is scaling new heights in June. We already have people putting applications in for that. I think the time to apply, if you know anybody that wants to go to a conference has closed or it's really close to closing, but there'll be other conferences this year, QuickBooks Connect. I don't think we're doing zero because it's in Australia this year and that's a little bit out of our budget, but take a look at the website, just see what's out there. If you have an opportunity to give, great. If you know anybody that wants to go to a conference, even better, we want to give people this opportunity. That's the one thing I wanted to say. So just to give you a little background on me and Trier and why I am supposedly qualified to talk, hopefully you'll be the judge of that to determine if I'm qualified to talk here today, but trier, especially tax firm, what we do is we support tax preparers and their clients with different tax saving opportunities, usually through credits and incentives.
(04:18)
And when we're talking advisory, it's not always tax savings, it's tax compliance, but from a standpoint that hey, we're going to make sure you save penalties, we're going to make sure you, oh, it may get into this today a little bit. We're going to make sure you don't file an income tax return with an ERC on it that your client didn't deserve but they thought they deserved. So they went out and they captured this ERC and they claimed it, and now you as the tax prepare, the tax advisor, the tax planner have to decide, can I file this income tax return? I think we'll talk about that today. Even though you're sick and tired of hearing about ERC, I think this is extremely important information that we need to talk about. So this is what we do, okay? Those are the services that we offer in addition to what you see up there, and we're going to talk about most of those today.
(05:08)
Well, that depends on how many tangents I go on, so we'll see how many we get to, but in addition, there's some really interesting tax credits, tax incentives that came out of the Inflation reduction Act, which came out this past August that we have put service offerings around. We're still dialing it in. I think we're one of the few companies that have built these services out, so take a look for that because there's some big, big opportunities that we don't, that most people don't even know about in the Inflation Reduction Act. So we've done a couple webinars on that. We will continue to do that. Enough of this. So why lead with advisory? Were all you and Amy's presentation. Morning. Oh, pointer. Perfect. Thank you. Okay, no hands went up. Nobody was in Amy's presentation this morning. All right, good. I would've been very sad if nobody was in Amy's presentation this morning.
(06:09)
Amy is awesome. Amy does a great job. A lot of what Amy says, I say as well, Jody is going to present after me. He may say the same. We have different bents on it. I come from a tax side. He's from a outsource CFO side, but the theme message is so important. So why we with advisory? There's many reasons for this one and probably as important as anything is your clients want it. Your clients, 79% of taxpayers, and this is statistics I got from Intuit actually, I think they're the ones that put these statistics out there. 79% of taxpayers will pay more for advisory pay more than, and there's nothing wrong with compliance there. Compliance is extremely important. We have to file a tax return, we have to submit financial statements to the bank or whoever. We need these other for our investors.
(07:13)
That is extremely important, but your clients want more than that. They want you to affect the bottom line of that tax return rather than just recording what happened and recording is extremely important. Reporting what happens is extremely important, but 79% of your clients are willing to pay this. 35% of tax preparers are offering this planning. I mean a lot of people will call planning, which can tie into this or advisory services. So one big disconnect, two big opportunity, and what's that opportunity then? Well, they're going to pay more for advisory. You are going to have so many positives inflowing into your practice by getting deeper into advisory. A simple one is you could work with less clients. You're getting a higher fee for the advisory. You can show the value or am I probably already going off on tangents? Is this even on my slides?
(08:13)
I have no idea. You can even go, you can find out. You can bill more for these services because you're going to show the value. Simple thing, simple, and we all do this. We give away our knowledge. We give away what our services way too often, and here's just a sim simple example, and this is all why lead with advisory. Simple example. We're doing the 10, 40, we got W two with $200,000 on it, and we see they put 5,000 into their 401 k. You as the preparer have now turned into advisor and you didn't know it said, Hey, you could have put they're over 50. You could have put, and this is 2022, you could have put another $22,000 into your 401 k. I'm advising you in 2023 and you're the experts, but I think it's 30,000 this year. You're going to advise them to put an extra $25,000 into their 401 K and they're in a 200,000, what are they, 25?
(09:14)
I don't even know the brackets. Let's just say 30% bracket between federal and state. So you just save them $7,500 on taxes in that two minute conversation because they're going to take your advice and they're going to do it. There's a value to that. You can show them. You can say, Hey, look, we just saved you $7,500 in tax and for the most part, and I'm not calling you out, but I am, but you, not you or you, you for the most part, we give this away. So now is just we think this is what I do. I have the answers. My clients are here for the answer. They're sitting up going to give this advice and we're going to do it. Did that mic cut out for a second or was that just me? All right, I'll try not to get distracted. That's another thing.
(10:01)
It's easy for us as professionals to get extra distracted because we want to help everybody. We get it email in and we want to respond to them right away. We get a phone call, we want to respond to them, and it puts us so far behind because it takes us forever to recover. So I just lost time in that distraction as well. So get paid a premium. Don't undervalue your services. Get paid where you're worth. I've been in business. I'm old, so I've been in this business a long time. It is, and this is my third career as public accounting, but I've been in public accounting for 35 years now and I've never, I don't think seeing a tax preparer, a accountant, a bookkeeper that hasn't at some level undervalued their services under charged with their worth, give away opportunities to charge more. That happens all the time.
(10:59)
We're just, we are guilty of it. This is a tangent alert. This is not on the slides. This is just where I'm going. But the other thing about advisory, I got to get to the side of the room too. The other thing about advisory is we can spread out the seasonality of our business with advisory. We can work with less clients, we can meet with them on a quarterly basis. We can do tax planning rather than December, which now we've just expanded tax season into December and November and now we're five and a half months. We can meet with these people all year long. They want it. Remember they want this. We can meet with them all year long. Now we can be billing them quarterly. We, that's another thing you should do the automatic bills, you get paid the first of the month.
(11:50)
Many of you might do this no matter what, set a fixed fee stop. That's another thing I'm passionate about. Stop selling hours. It's just what does it do when you sell hours? It gives you the mindset I need to work more so I can make more. If I want to make more, I got to spend more time. I got to be at my office longer. I got to work weekends. I got to come in at 5:00 AM and leave at 7:00 PM This is not the profession that we signed up for and it's not the profession. We need to do so many ways that we can spread that out. So from an advisory standpoint, we expand our services longer than just two, three and a half months each year. Now we're doing this all year long. We're getting paid rather than two and a half, three months a year, and we can work with less clients now.
(12:33)
We're doing higher value, we're saving them money. We can show them that opportunity and what does that do better work life balance, which we all want. I'll admit, I hated tax season. My family was affected by tax season. I thought, well, I just need to get through April 15th and everything's good. Well, when I was in my tax seasons, I sold my generalist accounting practice. I merged in 2006, started Trimer in 2007 when I was going through my tax seasons. It was awful, but it was my fault. Partly, I just was stupid. I'm not as stupid anymore. May people might say I'm stupid, but I'm not as stupid as I was then. But I was working 80 plus hours a week. I was working seven days a week. My kids were affected. My wife would tell me, the kids act different during tax season and I don't want anybody to go through that anymore.
(13:25)
And that's one reason that I didn't get out. I merged that firm. We started Trimer, which is a niche. Niche is huge. Specialty practice. So we may go on a tangent with that a little bit today, but work-life balance hard to do. When you truncate everything in two and a half months, I reduce my client base. I spread out the seasonality of my business. I have a better work life balance tax season. It's not just a, Hey, April 15th and I'm back to normal and everything's good. You with uncontrolled stress, which is what we have during taxi. This is not the presentation I wasn't going to give right now, but it's important. I told this is my marketing team, half of the marketing team over here, I told them, I'll go on a tangent today, just be aware of it. And they knew that was the case.
(14:13)
This uncontrolled stress, which leads to burnout, we have this perception and in reality it's reality of burnout and our perception, and I don't know if anybody came out of big four, I blame them. Hopefully if anybody's in big four, are you in big four now? Okay, so anybody is, I apologize for this, but in my mind they cause this issue. They churn and burn. They have access to every single student coming out of college because they're the ones that are giving money to the universities and they get first access, whatever. So they bring these people in churn and burn through them. If you survive, well then you make money in 30 years and when you get out and great and you make good money once you become partner and all that, but they keep that a secret too. What the money is you are going to make for some reason top secret by going through this, I'm almost done with this tangent by going through this tax season burnout, uncontrolled stress. It is not end April 15th physically, it doesn't end. The season ends. Your brain is actually, and you can look this up, physically altered by uncontrolled stress. So this is not something I'm better after April 15th, you've actually caused damage to your brain because of these controlled stress you go through. And that's why I think stretching out the se, wrapping this part up, that's why I think stretching out the seasonality of our business is so important and that's why I think advisory can do that.
(15:40)
Need a breath after that one. Was that, okay, all right. I didn't go, Jody. I didn't go to, alright, he's my advisor. I have to listen to him. Jody and I are on two panels later today. You might want to watch those because it'd be pretty entertaining. We have a pretty good back if I do say so myself, we have a pretty good back and forth, alright, examples of advisory, I'm not going to read through this list. There's plenty of things that you can do that you are doing that are advisory and you don't even know it. And again, probably undervaluing the service that you're providing. The last one is where we're going to concentrate on things today, credits and incentives. Is anybody consider themselves a niche practice here? All right. And okay, I think that's important, but you don't, as a niche practice, you still do not need to know everything from that industry.
(16:37)
It's or are you sorry if you're a niche practice, are you a niche industry that you service a niche service, a niche service, you're a niche service, right? Is that what you call it? Niche industry, but you don't have to know everything. What you need to know is there's somebody else that can help me with whatever it is and I'm hopefully you do that and I'm guessing you do the one thing that we do and this isn't a sale. Well, our business development team should will tell you I should do a sales pitch. So I'm going to tell you everything we talk about today, we do. We support the tax preparers as I said before, and there is opportunity for money for you too. We do fee sharing on most things that everything that we do. All right, so let's talk about different, different areas where you can help your clients through advisory, whether it's internally, and most of these, most companies are not going to do internal unless you're maybe top.
(17:33)
Well, if you're top four firm, you're going to do these internal. If you're top 20, you might do these in fraternal. If you're top a hundred, there's no way you're doing all of these firms. And if you're below the top 100 and you're probably not doing any or many of these at all, first one's r and d tax credits. Has anybody helped their clients with r d tax credits before? Okay, so a couple people have, let's talk about this briefly and what I want to do is we talk about these different services. I want to, oh, I just got a text from my family, everybody hockey fans in here, okay, Blackhawks number one pick overall in the lottery last night. Unbelievable. I was crying on the plane watching ESPN when they flipped that card and said Chicago Blackhawks number one, I'm getting goosebumps right now.
(18:24)
That's what my family was just texting about. I told you there's tangents in here. This is what happens with me. I might have a d d, I don't know. I should get tested at some point. All right, so r and d tax credits. What are these? When I talk about these, we're going to talk about who you should think about. I'm not going to educate you to the point where you're going to be an expert in R and D because I've been doing this for 16 years and I'm still not an expert. I'm probably in the top 1% of people that do R and D, let's say, but I'm not an expert. That's the other thing. We undervalue our knowledge too, and I just did it right there. Although top one percent's pretty good, but we think that we don't know anything and that's one reason we don't jump into advisory.
(19:09)
It's like, well, this is too big a concept for me. I can't jump into advisory. Let's jump into it small. Let's jump into one thing. Let's jump into outsourcing. Let's just do little things at a time and then you can expand your advisory services. So the first thing is, who should you be thinking about if we're talking r and d tax credits in general, the clients that you're going to want to think about are manufacturers and software developers. That's a majority of the r and d tax credits out there. In addition though, architects, engineering firms can potentially take it. Construction companies can. I'll just tell you, IRS hates architects, engineers and construction companies, and I don't disagree with them. For the r d tax credit, you will find opportunities there, but man, IRS really, really, really a couple more. Really too does not like that industry and I can understand there's, there's plenty of companies that take advantage of the credit that probably shouldn't.
(20:11)
Let's see if this thing works. It does. Okay. I don't know. Two fisted controllers. This is tough, but it doesn't have to be that industry. Anybody that meets a four part test can qualify and we're going to go through this pretty quick. My stop time 20 after I think, so you start at 1130, right? So I'm 20 after. Alright, so anybody that meets a four part test can potentially qualify and I'll explain the four part test and let's do it right now. To qualify your clients, you look at what they're doing, you look at a project that they're on, you're going to see if that project meets this four parts. And the first is do they meet the permitted purpose, which means i r s code section 41, and I know you all reads code sections backwards and forwards and front and back and up and down.
(21:03)
IRS code section 41 says, to meet the permitted purpose, you have to have a new or improved product process, technique, formula, invention or software. Two key things or three key things to think about there, product or process and encompasses many of the things we'll talk about and software huge to think about because you have a lot of clients that are dealing with software that are not software developers. To give you an example, besides doing this fun thing, I also want a craft beer bar in Chicago, or I'm a partner in a craft beer bar in Chicago, very well respected craft beer bar because of my partner and the people that work there, but we've always had an online store. We can ship beer around the country. During the pandemic, we made that a lot more robust. We were shipping beers everywhere. We were shipping locally, we're shipping around the country.
(21:59)
People could get online. The store just became and needed to be more robust. So we created more software. We created software. We didn't create the POS system, we didn't create the inventory system. We didn't create QuickBooks online. We didn't create the shipping software, but we created the software that allowed all of those to talk to each other. So we as a bar, we're actually a liquor store and as of last week, we got approval for a kitchen. So now we're a restaurant too, so a bar liquor store kit, a restaurant took an r and d tax credit, probably not a business you ever thought would have qualified for R and D, but software in general, many of your clients are dealing with software. Technology's everywhere, AI's everywhere. This is going to be integrated into everything and so the opportunity for R and D tax credits is going to expand.
(22:56)
I'm not going to go into, well, we got a little time to qualify. We just look at four expenses and I want to expand on this because I'm going to talk about something else in a second. There's four expenses that go into the calculation of the credit. Most of the time it's salaries and wages. Who in the company's doing testing, designing, evaluating alternatives? Are we outsourcing any of that prototyping type work? We could take that into the calculation of the credit. Are we renting computer time? This code was written in 1981. There was some rental computer time back then. There actually is today now with cloud computing services. So we're seeing some opportunity for rental of computer time come into the calculation of the credit as well. Am I messing you up? Moving at the camera guy here, right? Sorry, I skipped the middle one because supply cost.
(23:48)
There's a couple things we want to talk about here, but supply cost in general went through some changes in the last eight years or so. Traditionally, the definition of a supply cost for the r and d tax credits is materials consumed in the development process. I build a prototype, I don't sell it, I'm not using it. It's just for test purposes. Those materials go into the calculation of the credit. That rule changed recently. Some new code section 174. Does that ring a bell to anybody? Anybody know the new 174 rules? Yeah, this is a pain. We're going to talk about that a little bit today, but code section 174 R changed eight years ago and it's called the prototype rules. And the prototype rules say if I have uncertainty, the entire process of developing a prototype, all the costs that went into that prototype, our r and d expenses, 174 defines R and D expenses.
(24:45)
Before this change, you had to wait till the outcome of this prototype. Was this successful? Did I sell it? It was a cost of good sold. Was this successful and I used it internally, let's say a piece of machinery. I capitalized it, I'd depreciated it no longer the rule. Now everything that went into that prototype is a 174 expense, which until the beginning of 2022 was great because I could expense it immediately. Didn't matter what it was, I could expense it. That's the expenses that go into this. The value of the credit's, about 10% of the total expenses that go into the credit, six to 10%, but let's go with 10 because the math's easier. Unless I pick a million dollars of expenses, I could do that math better, but six to 10%, the value could be great. A $10 million manufacturer probably has a million dollars of r d expenses, so they have a 60 to a hundred thousand dollars credit when you bring a credit to them, that's like giving them cash as long as they're a tax paying entity as long as they have taxable income.
(25:51)
So when you bring them a hundred thousand dollars in cash to pay their tax bill, they're pretty happy. That's a value. That's value. You can show them, you can just show them you just put a hundred thousand dollars into their bank, you can charge for that value. You can quantify it For me, sometimes the accounting end, and I'm no accounting expert, it's, it's harder to quantify the value. I'm sure Jody will tell me different when he gets up here later or I'm putting pressure on you now, so all right. Just a couple things to note. The credit is basically an offset of income tax. If you're less than a $50 million business average gross receipt for the last year, three years, I can ignore EMT, so I can use the credit big deal. If you're a startup business, and that's probably the next slide. If you're a startup business, you can use the credit to offset payroll taxes. Yes.
Audience Member 1 (26:44):
Say you're SQL, your traditional tax income (Inaudible)
Randy Crabtree (26:47):
Yeah.
Audience Member 1 (26:48):
Tell me how you found?
Randy Crabtree (26:49):
That. Well, so right, so what you're doing is you're taking and you're, let's say you're grossing up the owner's payroll or something to bring more out or whatever. Let's assume that's it because it's easier for me to explain. In this case, I just put out a hundred thousand dollars of more taxable income on their tax return. They're going to pay $30,000 in tax on that. Rather than do that, let's leave that a hundred thousand dollars of income in the business. I've got a $30,000 tax credit, let's offset there. Just income didn't change, but now individually, I'm not paying for the tax. I am at the business level, but I'm paying with a credit.
Randy Crabtree (27:30):
Exactly. All right, and thank you. I love questions during the presentation. Usually I can answer them, which is nice too. So usually, so payroll taxes, you can, if you're less than 5 million in gross receipts today and you're have no gross receipts further back than the last five years, you can use the credit to offset payroll taxes up to 250,000 before this year. Starting this year, you can actually offset $500,000. That's a big credit for a small business, but tech startups could very well have credits that big so well funded and they can use that against payroll taxes where they're not going to be profitable, they're not going to use it against income taxes. And just as a side note, what you're kind of piggyback on your question, you don't lose these credits if you don't use them. They carry forward 20 years at least they're, they're general business credits form 3,800. They follow those rules.
(28:25)
All right. I'm going to skip a few things. I want to touch on this and I'm already way behind, which is normal for me. I just want to get the points out. You had mentioned 174 rules. You had heard about 174. It defines R and D expenses 174 went through a change recently in the tax cut and jobs act. Again, you're thinking of the same clients we said for the last slide for the r d tax credit right now, if you have any clients that have 174 R and D expenses, you can no longer rate those expenses off. You have to capitalize them and rate 'em off over 60 months. The problem is you don't know what the 174 expense is. Most of you, I don't know what the 174 expense is. Most of them, because IRS hasn't given us guidance. We've never had to deal with this for the last 70 plus years.
(29:16)
We simply wrote off R and D expenses as incurred. It was automatic. It was an automatic election because we wrote them off the first year we had them. This changed in the tax cut and jobs act. They delayed it to the beginning of 22. We all knew this was never going to kick in. Everybody in the world knew this was never going to get kicked in. It kicked in. And so we've been under these rules for almost a year and a half now, and it's a problem. We actually told all of our clients to extend this year if they had any hint and we don't do tax returns. We tell, we work with the tax preparer and we say, we advise you to advise your clients to extend their return because IRS is promising us more guidance on how to identify 174 expenses and Congress, every single member of Congress does not want this rule to exist, but they cannot come up with a way to vote for it and get rid of it.
(30:11)
So we've been a year and a half of watching them drag their feet and argue and want to attach this to their favorite bill and then this person doesn't like this bill, so it never gets voted on. We're hoping this will go away. The problem is the newest deadline we're hearing is they may address this September 30th. It doesn't do us a lot of good, does it? It's going to cause us to have to amend the return again, if that happens. So I'm not going to go further on this. I just wanted you to be aware of it. I think you have access to all these slides eventually. Does anybody know that? Okay, good. So you can look at this and if you have any questions, you can reach out. We have a flow chart on what we are currently suggesting people do to determine the 174 expense, but that'll change as we get more guidance. I'm not going to answer your question.
Audience Member 2 (31:04):
So if you have the 174 expense, whether or not take a credit?
Randy Crabtree (31:08):
Product, they're mutually exclusive. A174 exists. Whether you take a credit or not, you can't ignore and just say, well, I'm not going to take the credit and then I won't show that F 174 i r s. They're actually pretty smart. If you're a manufacturer in a, that's a no brainer. You're a manufacturer and I have no capitalized cost on my tax return whether I've ever taken the credit before or not as the IRS, I'm auditing that immediately because that is a no-brainer audit. Geez, 18 minutes. We're going to go overtime. So I'm going to go tell somebody. We're going to go overtime. All right? We won't go overtime. These are pretty cool. I'm going to go through these fast, but 179 D, 179 D is not 179, it's 179 with a D on the end, a capital D, but it is considered a depreciation.
(32:01)
What it is is accelerated depreciation for one group that qualifies and it's a free deduction for another group that qualifies. So when you're thinking, do I have any clients that qualify for 1 79 D? If you have any commercial building owners, you want to look at them. If you have any architects or engineers or general contractors or mechanical contractors, anybody that works on a government building from a design standpoint or a nonprofit owned building, that's another candidate. So the designers of government or nonprofit buildings, the owners of commercial, and so what is it, I'm going to go through this fast. Bottom line is we have to do something to the building. This isn't like the cost segment. I can just purchase the building for 1 79 D. I have to own that building and do something. Ground up, construction, remodel, enhancement, enlargement, any of those things could potentially qualify.
(32:59)
And what it is is different rules 22 and backwards, this changed in the inflation reduction act 22 and backwards. If I qualify and qualify, I'm not going to get into other, just realize it's computer modeling the building. I'm going to computer them out of this building. If I qualify 22 and backwards, I can get a dollar 80, a square foot deduction for building owner, commercial building. I can look at anything they did all the way back to 2006 because I can take it on today's tax return by filling out a 31, 15 change of accounting method. Look, you've got the depreciation schedules. You can look at that. Oh wow, the big addition here back in 2009, we should look and see if this potentially qualifies. If it does, we get to take it on today's tax return accelerated dollar 80 a square foot. We get that deduction.
(33:57)
If I am the commercial building, if I'm designing the government building or the tax exempt, that can only be taken on a tax return that's open the last three years in the current year tax return, that is a free deduction for that designer. That's not accelerated depreciation, that's a Schedule M adjustment deduction on tax return, not on the books. That's just free money that you just put back in that client. Again, I can value that. I can show architect, you just worked on this a hundred thousand square foot high school building, it qualifies. I'm going to get in 22 a dollar 80 a square foot deduction for that. And so boom, you just put a huge deduction on that tax return and when you tell the client, just make sure you have a flack jacket on because they're going to come and give you a big bear hug because you just put a bunch of money back into their business.
(34:48)
That was 22 and backwards 23 and forward. The value of this deduction can go as high as $5 a foot. So that probably a stronger bear hug. But the value of that a hundred thousand square foot deduction, that $5, $500,000 deduction for an architect firm that designed this high school building, 30% tax bracket, you just put $150,000 back into their business. It's a nice way to add advisory to what you do and be able to value these services that you just brought to them. Going to that is the gist of it. We want to go through these fairly fast now. 45 l, another real estate incentive, another energy incentive instead of commercial buildings or government buildings or nonprofits. Now this is for residential property and this is a credit, not a deduction. So who do you want to think about with this as your, put your advisor hat on now I'm going to look at my client base and I'm going to see if I have any developers of residential property that's who's going to use this?
(35:54)
Are they doing condos? Are they doing houses? Are they doing row homes? Are they doing townhouses? Are they doing some kind of residential property manufactured homes as well? Are they doing this? If so, that's a client. I want to think about this also changed in 2023, 22 and backwards. It's a $2,000 per unit. Credit has to be taken on the year the property was placed in service. So we have open tax years. We can amend if we want to claim this or the current year, can't carry it forward to the current year has to be on that year of the placed in service 22 and backwards. The value of this, again, computer model, we don't need to go into the calculation computer model, the building. Do we have a value that we can use to offset taxes 23 and forward? The value of this went up to as high as $5,000 per unit. You know, have somebody developing an apartment building with a hundred units and every unit qualifies. That's a $500,000 potential credit. Well, if they all qualify, that is a $500,000 credit there again, nice saving opportunities. Yes.
Audience Member 2 (37:01):
Who qualifies like apartment building?
Randy Crabtree (37:04):
The developer, whoever owns the property while it's being constructed, which is usually the developer. Now technically I could be a homeowner and I contract someone to build my home and the home qualifies as a homeowner it you are not going to get a value out of this because the cost is going to be way too much. You want to have 50 plus units at a time or so to look at for this, but it's the developer.
Audience Member 2 (37:28):
How about qualify?
Randy Crabtree (37:30):
It has to be pre, like let's say I have some old warehouse building that I'm gutting to the studs and I'm going to build this back up and turn it into condos. The potential is there, but this is tough to qualify for tougher than the 179 D. So it's normally ground up construction, but it is definitely worth a look. And just to tell you, we look at all of these for no charge. So if you want to evaluate a client, we can do that.
(38:02)
All right. That's the gist of that one. Seg. Has anybody done cost EG for clients? I assume some people have. We're going to do a quick definition of cost, e.g. I got 10 minutes, so we're going to be able to rant on ERC here for a minute too. Cost segregation. A couple things to point out here. Cost segregation is basically looking at depreciable properties. Again, look at anybody that owns residential rental properties or anybody that owns a commercial property. They have their warehouse, their manufacturing plant, and look at these and then what want to do is look at that building and see if there's components within that building that I can depreciate at faster than 27 and a half years or faster than 39 years. In this, this, and I'm not the expert. We have experts that do all this. I just talk about it.
(38:49)
I don't really work, I just get up here and talk. But this right here, that movable wall that is not a 39 year property. I can depreciate that faster. The lights in here, we got redundant lights, we got cam lights, we've got the wall lights, we've got the ceiling something, there's redundant. I don't need all of them. I can depreciate that at a faster rate. So they go in, our engineers go in, they look at and they see what assets I can pull out and depreciate quicker. And obviously if I accelerate deductions, I mean a deduction today is worth a lot more than a deduction in 39 years. The cool thing right now, well it was cooler last year, is there's qualified improvement properties. You probably all heard the tax cut and jobs act. Big mistake where they defined the lifespan, a qualified improvement property wrong.
(39:37)
So we didn't get bonus depreciation on these commercial build outs that got fixed in 2020. And so now if we're doing the build out of the interior of a commercial building, we could potentially write off, well a hundred percent of it last year this year, bonus depreciation's. Now 80%. That's something I know they discussed changing too, but we'll see what congress does. Who knows if that becomes a hundred again this year. But because of that, we did a medical office after they made this change, about two and a half million dollars of build out, about 90% of that ended up qualifying as qualified improvement property to qualify it has to be billed out after the building was placed in service. So I could technically buy it today, placed in service and do remodel tomorrow. The code doesn't, doesn't disallow that. I'd be a little careful placing on the surface that quick, but technically it says that's allowable. But I do the improvement after the billing was placed in service. It's eligible for bonus depreciation. Boom, nice. Write off instead of what? 63,000 a year for 39 years. We got $2.2 million right off in one year for this. I thought you were going to ask a question. Don't, don't scratch your chin. All right. All right. Everybody's eyes just went like rolled When I put the ERC up here. Lemme tell you something.
(41:02)
All your clients, and you know this and you are being promised, you qualify for ERC. Everybody in the world's being promised they qualify for ERC. There's plenty of businesses out there that haven't claimed it yet that can. There's more companies out there that are claiming ERC that shouldn't and there's scumbags out there promising your cl, sorry, this is scumbags allowable. There are scumbags out there that are promising your clients, they qualify for E or C and the problem with that is you are on the hook for this as the tax preparer because IRS, AICPA, your professional liability insurance, everybody is telling you if you have a client that claimed ERC and you don't think it's an acceptable claim, you cannot file that income tax return. They're going to hold you responsible.
(41:49)
If you do, and that's why this is a huge deal for you, and I got addicted to ERC when the consolidated appropriation ca act came out. I probably is am the king of webinars on ERC. I probably educate more people on ERC than anybody else out there. And today what I do is I educate people on the crap that's going on in ERC because it is crap people. I was talking with somebody this morning, I think Jody was standing with me, it was Amy. We were talking about like, hey, there is no get rich, get rich quick schemes or ways to legitimately, people are trying to do this with ERC and they're getting away with it and eventually we're going to have people going to jail for it. It's going to happen. The problem is you're the one holding the bag now because you have to tell your clients they don't qualify.
(42:37)
You have to tell them they have to. A lot of them do. I'm seeing the ones don't qualify and really qualification is not as complex as you are being told by all these outside providers. There's two ways to qualify. 20% drop in revenue in any quarter in 2020 compared to the same quarter in 19. 50% drop in any quarter in 2020 compared to the same quarter in 19. No brainer, no questions asked. Safe harbor, you qualify. That's what most of our clients are qualifying on. The other way to qualify is I have to show that a portion of my business is affected by a government mandate and these mandates are not. We had to wear masks, we had to work from home, we had to put up plexiglass, we had to supply chain issues. I'll guarantee you, if you've heard your clients are qualified under supply chain issues, I would be extremely surprised if any of 'em really qualified because done a half a billion dollars in refunds, zero qualified under supply chain issues and they are using that as a way to get people sucked in because everybody's going to say, yeah, oh, I'm getting passionate here.
(43:45)
Now everybody's going to say, yeah, I had supply chain issues and that's all they want. They want you that client to hear, yes, I qualify, I had supply chain issues. Don't, it's almost impossible. What time is it? Oh, I got six minutes. We're good. So this is a dilemma because you have clients. Oh, thank you. Siri 11:14 AM we still probably are signing up 10 to 15 clients a week. So there's plenty of clients that still qualify. Probably when they started we were signing up a hundred week or something like that. I mean we're still at 15% of what we were then back then, so it is still significant. But that's really, lemme give you an example of a government mandate that's going to qualify you. Restaurants are a no brainer. Restaurants almost across the country we're we're mandated to shut down for a time or restriction on capacity. That's a mandate that qualifies them.
(44:47)
I used certainly have a bar and I have a liquor store. One building liquor store was essential business, which is obvious. Liquor store is essential business. The bar was closed due to a mandate, same building, same location because the bar was more than 10% of my overall revenue in 2019. This is the way you qualify under a partial suspension bar, more than 2000, more than 10% of my 2019 revenue. And it was shut down by a mandate or it was on restrictions. So we were on restrictions in Chicago from March 13th or March 17th, 2020 till June 11th of 21. My bar slash liquor store qualified for the employee retention credit that entire time, even though liquor store revenue went through the roof because again, essential business, it was very important to all of us during that time and we pivoted and we did other things. Pivoting is okay, do other things, okay, government mandate affected you and so I just wanted to educate you on that. This is important. This you can get in trouble just by filing a tax return that you had nothing to do with the r c other than reducing the expenses on the tax return because that's what you're required to do. If there's an ERC claimed, you have to reduce the expenses by the amount of the ERC. Any question Yeah.
Audience Member 4 (46:10):
So if it goes back to the previous tax?
Randy Crabtree (46:15):
That's the other pain in the behind is you have to amend the tax return the year the wages were used for the credit.
Audience Member 4 (46:23):
So when you say we can't sign the return.
Randy Crabtree (46:27):
Nope.
Audience Member 4 (46:28):
For like 1120 or that you saying not return.
Randy Crabtree (46:31):
They amended return because.
Audience Member 4 (46:32):
Know that they filed on phone.
Randy Crabtree (46:34):
If you have a strong, I don't know the rules I r s says, and all this, if you have the reasonable doubt or whatever it is, yes, they're saying you can't saying you cannot file that tax return. Well, if that client isn't going to take your advice anyways, it's time to dump that client. So that's my opinion. Advisory in general is just a way to dump bad clients too, because if they're not going to take your advice, get rid of them. Sorry. Yes, real quick.
Audience Member 5 (46:59):
Dental (Inaudible)
Randy Crabtree (46:59):
Office, dental offices, that's surprisingly a good opportunity because dental offices had mandates where they could do, usually around the country, they could do emergency work, root canal, they couldn't do checkups. That's a mandate. As long as it wasn't them making that decision, that was enough for them to qualify. So we've done a lot of medical offices in general because that was a rule, and I know we're all from everywhere, but around the country, most places had some kind of rule in place. Yes.
Audience Member 6 (47:29):
So like fast food restaurants, a lot of them, the sales went through the roof.
Randy Crabtree (47:32):
Yep. Because drive through. Yep, yep. Now as long as I could show the pre-pandemic, more than 10% of their revenue was dine in, then I'm good. More questions? More questions on ZRC than anything else. Huh? It's a, yeah,
Audience Member 7 (47:53):
Other restaurant. There's like a limitation.
Randy Crabtree (48:00):
Yeah, you just can't use the same exact dollar wage for both. You can originally the rules were when it originally was defined in the Caress Act, if you took PPP, you couldn't do ERC. There's still a misnomer out there about that. The rules changed and now you can have the PPP and the ERC. I just can't use the exact same dollar for forgiveness that I use for ERC. Most cases it doesn't make an effect. And if it does, it's a small effect. But if you have a client that did an eight week PPP forgiveness, it's harder to not have an effect if you went to the 24 weeks. Is that what it expanded to? Then? We have a lot more flexibility of segregating out those wages between both incentives. Yes.
Audience Member 8 (48:42):
Going back to 179B (Inaudible)
Randy Crabtree (48:45):
What? Where you see, no, I'm kidding. I'm kidding. Sorry.
Audience Member 7 (48:48):
How Does the non-for-profit.
Randy Crabtree (48:51):
No, I'm sorry. So I didn't explain that. Well boy, I didn't explain that well at all. The nonprofit doesn't get it. The nonprofit allocates it to the designer of the building and so the architect takes it the So great question. I'm glad you asked that. The architect takes it, the general contractor tickets, whoever does the design work. So it's their benefit. And the reason they did that is because exactly what you said, the nonprofit cannot use it. So perfect. Great, great question. That's a bummer for, well, so nonprofits and we didn't have time to talk about this and I've got like 30 seconds I think. Are you here to kick me out?
Randy Crabtree (49:31):
Okay. Thank you. Just real quick. Work opportunity tax credits. Nonprofits can take advantage of that. It's a hiring credit. If you hire people in certain categories, demographic or geographic locations, you can take advantage of a credit and offset income taxes. Nonprofits, if they hire individuals within the military background category, can use that work opportunity tax credit to offset payroll taxes. Normally it's an income tax right off work out opportunity tax credit, nonprofits offset payroll taxes. My time is up. I don't want to hold people up because you've got more things to do. You'll have these slides. At the end of these slides is our company contacted? I'm being played off the stage, so I feel like I'm at the Academy Awards. Randy, your time is up. Get out of here. So thanks everybody. Appreciate your time.