Art Wiederman, CPA: And hello, everyone, and welcome to another edition of The Art of Dental Finance and Management with Art Wiederman, CPA. Thanks for listening to my podcast. My name is Art Wiederman. I've been a dental specific CPA for now I get to say almost 37 years. My goodness, it's a long time to be doing one thing. And I am a very proud dental division director. Or, you know, we talk about PPP.
So I guess I'm a dental division director at the CPA firm of Eide Bailly. We joined Eide Bailly almost. It's been almost a year now. My goodness. Time flies when you're having fun. And I will tell you folks, I am so proud to be a member of this firm. Everybody from top to bottom. And Eide Bailly has been so wonderful. And one of the friends I've made at Eide Bailly and I are going to be talking to you today about my favorite topic, the Employee Retention Tax Credit.
So what we're going to talk about today is we're going to kind of give you an update. We've been talking about this Employee Retention Tax Credit on all the podcasts. We've done a couple of special podcasts. We've done webinars, and we are now deep into the weeds and helping our clients not only get full forgiveness of their PPP one loan, that's paycheck protection program loan. But we are also getting them tens. I'm not kidding. Tens, if not hundreds of thousands of dollars of free government money from the Employee Retention Tax Credit. So my good friend Jim Donovan is the head honcho, chief cook and bottle washer of our firm's ERTC group.
When I first met Jim, his hair was dark. I'm seeing a little gray in the picture. No, I'm just kidding. He has been working with his whole team and I've been working and everybody's been working tirelessly to get all these projects done. And what we're going to do today, folks, is we're going to kind of tell you what lessons we've learned from the new rules and actually how this is working out. And it's really working out well. I mean, we are seeing some incredible success and ways to tweak this. So is it too late? No. So we're going to we're going to get to that in a minute.
So Jim and I are going to give you the updates as to what's going on, filing for forgiveness. If you haven't thought about that, that's something we need to kind of get you to be thinking about. And also, if you meet some of these rules, there's a lot of government money. And by the way, if you haven't come all the way back for 2021, if you think 2020 was good. Oh my goodness. 2021 is so much better. So I'll bring Jim on in a minute.
But I just want to share a couple of things with you. Make sure that you go on to the website of our partner, Decisions in Dentistry magazine. We've been partners with Decisions in Dentistry and Lorraine Kent's group for the better part of a over getting close to two years now, I think. And they are just wonderful. They have clinical content. It's a clinical magazine. They've partnered up with us on the business side because this is something that they've wanted to kind of bring to the table. And they've been a wonderful, wonderful marketing partner with us. So if you do not subscribe to their magazine, you should. If you haven't gone on their website, it's www.DecisionsinDentistry.com. And basically you can go on there. You can read all the content. They have over one hundred and forty continuing education courses that are just second to none for a very, very reasonable price so go on to their website.
And if you're looking for a complimentary consultation with either me because we're in Southern California or with any member of the Academy of CPAs, just go on there and mark the box and we'll get here and see what we can do to help you out, maybe get some free government money. Maybe you can show me how to get some free government money. I don't know. We'll figure it out.
And if you're not working with a dental specific CPA, Eide Bailly is one of the members of the Academy of Dental CPAs. We work with about eight hundred dentists, mostly in the western United States. I'm in Southern California. If you're anywhere in the United States, the ADCPA has got you covered. Go to www.ADCPA.org. If you're not working with a dental CPA and that is what I do and what our group does, you should be. There's lots of benefits to that that we've talked about all over the place. So anyway, so like I say today, one more thing.
Our dental series, we're doing a series every month on the Business of Dentistry for six local dental societies in Southern California and go to our website, which is www.EideBailly.com/dentalseries, or just email me if you want to be registered for our dental series, this podcast is going to come out, I believe, on June 9th. We're recording it on June 2nd. And that night we're doing a webinar with my good friend Mark Johnson out of St. Louis on student loans and how to navigate around student loan debt and how to get it paid off. He's a master at that.
In July, I've got my good friend Gary Takacs, who's going to talk about how his pet project, which is how to get dentists to reduce their dependency on insurance. And then we've got a lot of other great things coming up. So go to www.EideBailly.com/dentalseries and go to our YouTube channel. Eide Bailly has all the stuff. If you want to see my friend Jim and his buddy Joe in all their glory talking about ERTC and PPP and HBO and ESPN, they talk about all that. So on our YouTube channel, we've got all of my webinars. So we got all that stuff, lots of stuff to help the dentist.
So I met Jim Donovan about six months ago. Jim is a partner at Eide Bailly in our Minneapolis, Minnesota office. And Jim has been anointed by the firm as our head ERTC guy. So he is managing I'll let him tell you about twenty to twenty five people and lots of projects. And like I say, what we're going to do today is we're going to kind of tell you what we've learned since December 27th when the law changed and March 1st when they came out with notice 2021-20 which is kind of been our little, you know, script of how we do this. So Mr. Jim Donovan, my golfing buddy, welcome to the Art of Dental Finance and Management.
Jim Donovan, CPA: Well, thank you, Art. I really appreciate you having me today. And I tell you what, the first thing we learned post December twenty seven was a heck of a lot more people qualify for this credit. So it's been a fun ride.
Art Wiederman, CPA: It's amazing, Jim. I mean, we look I mean, obviously we're talking to dentists. You're working with dentists and other folks. But I mean, isn't it interesting how many people how many businesses in this country were so severely affected by the pandemic? Now, for the dentists, it was the second quarter. For other businesses, was it mostly the second quarter that they had the 50 percent reductions? Or was it was it other quarters too?
Jim Donovan, CPA: It's other quarters, too. It was interesting, just it really varied by industry because there was a lag on some that they would you know, they had contracts in place. Q2 was OK, but then they got hurt in Q3 or Q4 and you had a lot of things that didn't go back to normal. Schools didn't start on time. So it just impacted different businesses in different ways.
Art Wiederman, CPA: But you're seeing a lot of our clients are eligible for this. So that's we're going to talk about and again, we're going to talk about what have we learned, how does it work? And now that we're in the weeds on this and, you know, how can we do this? And there's a lot of you. And again, you know, we're going to get into this. Whether you filed forgiveness or not, I think we can get you a lot of money. So let's talk about how do it.
Jim, let's start off by talking about a little bit of this history. So the PPP and the, I don't want to spend a lot of time on this, but let's kind of give everybody who's been kind of sleeping for the last fifteen months. So the ERTC and the PPP were both created by the CARES Act back in March of last year. Right. So talk about a little bit of the history.
Jim Donovan, CPA: Yeah, absolutely Art. So you're correct. So the CARES Act came out and we had a lot of provisions in there, but two of the big ones were PPP. I mean, I look at all the headlines, right. And the ERTC flew a little bit under the radar and the provisions at the time were mutually exclusive. So if you are taking advantage of the PPP loan, you really couldn't take advantage of ERTC. And so it was out there. And certainly some companies did. Organizations did. But for the most part, PPP was really the sought after program.
And then, oh, sorry, you were going to interrupt me there. You know, then you get into December of last year and you have this giant law change where they retroactively change it and said, hey, if you took PPP now you can go back and take ERTC as well. So you had a lot of companies that, gosh, they just said, you know what, I'm not even going to look at ERTC, don't care if I qualify because I'm taking PPP.
Now we're going back and saying, gosh, you know what? There's a lot of money available via the ERTC credit, especially in Q2, for our dentists that, you know, there's a chance to really double up on this provision and put some cash in your pocket.
Art Wiederman, CPA: Oh, ton, ton. So let's quickly go through. There's really two ways, Jim, you and I. I'm going to go out on a limb and say you and I are in the advanced class on the ERTC. That's for sure. There's two ways guys that you qualify. The first one is a 50 percent reduction, so greater than 50 percent. So Jim talk about that for a second.
Jim Donovan, CPA: Absolutely. So this is a quarterly analysis. And again, for our dental clients, you're really looking at a greater than 50 percent decline in gross receipts in quarter two of 2020 versus quarter two of 2019. 2019 is always going to be that quote unquote base year because it's effectively the last normal year before the pandemic. So we're always comparing gross receipts back to 2019. And if you had that greater than. 20 percent decline in gross receipts, you can qualify for the entire quarter,
Art Wiederman, CPA: You meant 50 percent, right?
Jim Donovan, CPA: Oh yeah. Sorry.
Art Wiederman, CPA: Yeah, that's all right. Jim and I are just so, I mean, I think I don't even, I might have called my wife Lynn by a different name. I mean, this is just crazy. We're just, it's all ERTC all the time. So 20, 50, 80. I mean, you know, but.
Jim Donovan, CPA: I'm jumping ahead to the 2021 rule.
Art Wiederman, CPA: That's right. Yeah. Because those numbers are much bigger. But yeah. No. Yeah.
Jim Donovan, CPA: And so, the second way to qualify, so again, that's kind of the bright line rule is, hey, we met that greater than 50 percent decline in gross receipts. And the other way to qualify is due to a government order. So if you had a state that came out and said, you know what, we are going to shut down elective procedures, this applies to dental offices. And basically you had to shut down due to that government order. You couldn't perform certain operations or you had to reduce the number of hours you could be open.
If a government order was in place that suspended your operations. You can qualify for the ERTC for the period of time that the government order was in place. So it's not as lucrative in terms of qualifying for a larger period of time under the gross receipts test where you get an entire quarter. But the elective procedures or reduced hours under government orders in a lot of states, that may give you a, you know, a month and a half or two months, you could qualify for the credit.
Art Wiederman, CPA: That's right. And I just want to touch briefly, most of the folks, Jim, that listen to our podcast are solo owners. Maybe they own one practice, maybe they own two. We do have DSO folks listening, people that own multiple practices that we've got a podcast coming out in about a month with a CEO of a group that owns twenty seven practices. And we don't talk about that subject. But so if we have somebody who's listening, say, you know, I have, I have, I own ten practices, I own 15 practices, own five practices. Well, more 10 or 15 if they have more than one hundred employees in 2020. I know there's a special rule. Right?
Jim Donovan, CPA: So you're absolutely right Art. Basically if you have more than a hundred full time employees and it's a different calculation than under PPP, it's a full time equivalent couch. So the rules are a little bit different. But basically if you have one hundred or less full time employees, you can take the ERC on everyone. If you're over that one hundred threshold, you can only take the credit on those being paid, but not providing services. And where that comes into play is, gosh, if you furloughed individuals during the pandemic, you know, you're shut down the furloughed people, you're still paying their health care. We can qualify those costs for the ERTC. So there is still an opportunity there.
Art Wiederman, CPA: Yeah, and we'll talk about that in a little bit. So those are the two rules. Most of our folks are meeting the 50 percent reduction in the second quarter. And that it's got to be greater than 50 percent. We've had a couple of forty nine point nine two we had two of them. And I said, go back into your general ledger, talk to your bookkeeper, find out if you get a refund from Henry Schein or Patterson that's in there. Look at your patient refunds. And we actually had one doctor that was able to qualify and we went through it with a fine tooth comb.
So, you know, it's an either or, so we get that. So now let's talk about the timing of all this. So let's kind of lay out a time frame, Jim. So most of our dentists, most of America got their first PPP loans in sometime between, if I remember correctly, President Trump told, former President Trump told former Secretary of the Treasury Steve Mnuchin on I want to say it was April 3rd. You will roll this program out on April 5th. There was something like that was right around then. And I think from what I remember, there were two national banks that came out with it on April 5th. But the earliest I saw a PPP loan was about the 15th of April. That sound about right to you?
Jim Donovan, CPA: I would agree. I'd say mid April is generally when we're seeing a lot of them start.
Art Wiederman, CPA: So mid-April gets us to a point where your twenty four week period, runs into the end of September, beginning of October. And then so let's say you're twenty four week period ends on October 1st. So you take your date you got the money, you add twenty four weeks, then you're on October 1st, you then have 10 months to file for forgiveness. OK, you can file afterwards but then you got to start making payments and there's special rules on that. So we're trying to get everybody filed before the ten months. So most of the ten months will end for many of you anywhere between end of July and end of August. That's pretty much our goal at Eide Bailly is to try and get everybody done by the middle to end of July, I think is what the goal is, Jim. Pretty much.
Jim Donovan, CPA: Yeah, I think so.
Art Wiederman, CPA: Yeah. So that's our goal. So is it too late? No, it's not too late. And there's lots of money on the table, so, Jim, what have you seen for businesses that have maybe five to 15 employees, which is a lot of the folks listening here? What kind of ERTCs are you seeing? What kind of numbers are we talking about? Just average, what you're seeing?
Jim Donovan, CPA: You know, that's a great question, Art. And I'm seeing anything range from 10 grand up to really 40 or 50 K. It really does depend on the practice. But, gosh, the credits are pretty nice.
Art Wiederman, CPA: Well, and if you've got a big practice, I mean, we have a you know, we have a big practice and they listen to my podcast. So they may know that I'm talking about them. They have about I think it's about thirty two employees and we just finished their analysis and there we were able to get them full. We will be able to get them full PPP forgiveness on an almost four hundred thousand dollar loan. And I think we ended up around one hundred and fifty five thousand for an ERTC. It's just I mean it's free money in your pocket. So no, it's not too late to do this.
So when they came up with this rule, Jim, they came up with the you know, when they came up with the thing in December, you know, you and I talked and it's like, OK, well, that's great. You got this new rule. But you and I are looking at each other and saying, well, we don't really know how to do this. They haven't told us the rules. They haven't given us. As my dear friend, Dr. Phil Potter, who I've worked with for years in our practice transitions business, he usually uses a term called the Rules of the Knife Fight. We didn't know the rules of the knife fight, Jim. Well, on March one, we got the rules. So how do we slice and dice all these wages and do this?
Jim Donovan, CPA: Great question. You're right. On March one, we get Notice 21-20, which is ninety eight or one hundred and two pages of fun guidance to read, right. And a lot of it deals with PPP overlap because we can't take the same wages for both the PPP forgiveness and the Employee Retention Credit. But what the guidance allows is it allows for us to move money around to maximize PPP forgiveness as well as maximize the Employee Retention Tax Credit, basically anywhere within that covered period. As long as we've identified enough wages for PPP forgiveness, we can use that period. So if we can push PPP forgiveness out into Q three, for example, that frees up more money for the Employee Retention Credit in Q2.
Art Wiederman, CPA: So the employee retention credit folks, here's how this works. So, number one, you qualify either under the government order, not likely for dentists or more than likely you meet the 50 percent test. So once you meet the 50 percent test, Jim, as I understand it, if we meet it for Q2, we meet it for every quarter until we don't have a 20 percent reduction in gross receipts. So if we meet it for Q2, we automatically meet it through the end of Q3, right?
Jim Donovan, CPA: That's correct. So basically, it's a funky rule. You have to have a rebound quarter where gross receipts are basically up over 80 percent of the prior year, same quarter. But basically, once you qualify, you continue to qualify until you have that rebound quarter.
Art Wiederman, CPA: Now, one thing that I've learned and let's talk about this for a second, is when we do our analyses and we'll talk about how we do our analyses in a second. We look at the second, third and the fourth quarter. First quarter doesn't really matter. But for the third quarter, we are finding some dentists, not a lot, but some that are down by 20 percent. So if they're down by 20 percent in the third quarter and we can use the fourth quarter wages for ERC, isn't that huge?
Jim Donovan, CPA: It is. Basically for ERTC, you max out each employee at ten thousand dollars of wages, you can throw in some health plan expenses. So, you know, the key is to identifying 10K across that effectively what's nine months? Right. But if we can get there with just Q4 gosh, it makes it easy because we could just amend one payroll tax return. And again, you're maxing out your credit. You're completely outside your PPP window, just makes life a lot cleaner.
Art Wiederman, CPA: So let's take a simple example. I've got a dental practice that has 10 employees. Eight of those employees are full time employees. So they qualify for Q2 and Q3. I've got eight employees and each of them made ten thousand dollars. And remember, folks, when you took out your PPP loan, it was based on two and a half months of payroll, but you had five and a half months to spend it. Now, some of you didn't pay people for eight to 10 to 12 weeks. But still, we're finding, Jim, that a lot of the folks spent two hundred percent of their PPP loan on payroll. So we have lots of wages to slice and dice in this situation.
So I have, you know, 10 employees, eight of them made ten thousand dollars in combined Q1, Q2, which is, you know, what's ten thousand dollars divided by six months is about sixteen hundred a month, which is not a lot. And I don't care if you're in Beverly Hills or in, you know, wherever, wherever you are, you know, to pay a dental employee sixteen hundred a month is not unreasonable. So a lot of our guys are making ten thousand dollars. So I have eighty thousand dollars in allowable wages and my credit is 50 percent of that for 2020 right. And that's a forty thousand dollar tax free, right.
Jim Donovan, CPA: Well no, not exactly.
Art Wiederman, CPA: Well OK. We'll get into I mean the 40,000 tax free but then what do we have to do?
Jim Donovan, CPA: Great question. So it is treated as taxable income on your 2020 tax return. So there is a tax affected.
Art Wiederman, CPA: Yeah. So and the reason they do that, folks, is that 40,000 wages you're deducting on your S CORP or your partnership or your sole proprietorship and you can't double dip. So we're not going to let the government is not going to let you take a tax credit for forty thousand and a wage deduction. So, yeah. So most of you are going to be down because by the way, Jim, there was a pandemic in 2020.
Jim Donovan, CPA: Just a small one.
Art Wiederman, CPA: A small one. Right. So you're going to be down. Many of our dentists were down 10, 15, 20 percent for the year and then all drops to the bottom line. And when you have a dental practice that's got a profit margin of 30 to 40 percent, we're seeing our doctors way down. So you're in a lower bracket. You might be in a twenty two or twenty four percent bracket. So you might have to give up, you know, a quarter or a fifth of the of the credit. But still, if I get a forty thousand dollar credit and I get to give up, let's just say nine thousand dollars in taxes, that's still thirty one thousand dollars in my pocket. Right. I mean that's very, very cool.
Now, one of the things is let's talk about dentists file for forgiveness, because a lot of you listening say, well, I've already filed and I'm not eligible. Well, that's not true. Let's talk about that for a minute.
Jim Donovan, CPA: Great question. And so the reality is, again, kind of going back to the whole PPP covered period, the fact that we can move the money around inside means we can probably free up dollars for ERTC. The other thing that's in play here is let's say, you know, just for basic example, you had one hundred thousand dollar PPP one loan. Now, you could have put up to 40 percent of non payroll costs on there. So that again, frees up more money for ERTC.
Alternatively, you know, we've definitely heard where banks push back, right. And they said, hey, just give me payroll. It's just easier. Well, let's say you put one hundred and fifty thousand dollars on that payroll application because you want to make sure that PPP application, because you want to make sure you got full forgiveness. Right. Well, what the government's basically said is, hey, you know what? Even though you put one hundred and fifty thousand on there, you can go reach into that fifty thousand that's over that your loan amount and claw that back for ERTC. And there's really we have flexibility in what dollars we grab for ERTC.
Art Wiederman, CPA: And the great thing about this is so when we do this analysis, I want to get into kind of what get in the weeds on what you're seeing, what we're doing. So we do these analyses, we pull all the payroll and we have to put down every single payroll check into a spreadsheet. One of our team members, I'll do a shout out to two of our team members, Henry, in our Tustin office. And Vince, I think is in Salt Lake City. The two of them are just ridiculous, stupid computer math geniuses, you know, and they took kind of our ideas and they turned it into a spreadsheet that someone at Caltech and MIT would be very proud of. And it does all these calculations for you.
And we're seeing that if even if you file for forgiveness, Jim, in our spreadsheet, we do the calculation, we can go down. Remember, you only need to use 60 percent of your loan amount for payroll. So if we use 60 percent, that leaves another 40 percent for rent and utilities and all the other stuff you can use it for. But that leaves that 40 percent. So in your example, say it's one hundred thousand dollar loan. We only have to put down 60,000 for PPP and then we can use that other 40 thousand for ERTC. But even if you file for forgiveness and most of our doctors we've seen who have filed for forgiveness, Jim, have put down either all the payroll they paid, which might be two hundred thousand one hundred fifty in your case, or they just put down the amount of their PPP loan amount. We're only losing 40,000 and we're still aren't we still seeing, as you and I have done these analyses, that even with the forgiveness application being filed, we're still able to maximize a lot of these employees at ten thousand dollars to get the five thousand per employee credit, right.
Jim Donovan, CPA: Absolutely right. And really kind of in my numbers earlier, you know, that I think that's part of the factor, because we have had a lot of doctors file for forgiveness already. And so that's why the numbers are probably a little bit on the lower side. Want to say 10 but up to 40 or 50 K where we can actually get in and do the analysis before they file for forgiveness. Those numbers are higher, so.
Art Wiederman, CPA: Oh, no. And that's where. So let's talk about kind of how the process would work. And, you know, folks, you guys have listened to me for two and a half years. This is a great opportunity to really help your practice. I mean, you know, you can use this money to fund your kid's college education. You could use this money to fund your retirement plan. You know, the government has made these rules. We didn't we're not just like making up some secret rules that we're not telling anybody about. This is all well documented and well supported by, you know, Notice 2021-20. And all the stuff that we've been reading that Jim and I are about ready to throw up over.
But, you know, basically so what we've done for the dentist is we do a complimentary pre analysis. So we've created a little mini spreadsheet that we can use that's pretty darn close to the final answer. And we figure out, you know, we slice and dice your employees. And like Jim was saying, we're finding, you know, from my doctors that have, you know, maybe ten total employees, maybe eight of them are full time. We're seeing 30, 40, 50, 60,000 dollar credits. If you have a practice that's two, two and a half, three million dollars. And even if you file for the forgiveness, I mean, we're seeing six figure credits, Jim, aren't we?
Jim Donovan, CPA: We are. Yes. It doesn't take a whole lot to get there sometimes.
Art Wiederman, CPA: Yeah. So if you are a dentist and if you have not engaged your CPA to do this and unfortunately we're seeing that, I get a lot of emails from all over the country every week from people I asked my CPA, they don't even know. They don't know how this works. We can help you. And so send me an email at awiederman@EideBailly.com or call me at 657.279.3243. We will add you to the list. And don't wait till July twenty ninth, please. Please call us sooner. But we can help you. We can definitely help you with this.
So you were saying the dentist has filed for forgiveness, we can get this for them and we can get them a nice, a nice number and stuff. So we can also be creative because we're allowed to slice and dice this anyway. I'll give you an example, Jim. So we have a doctor who called me up and said Art I spent about two and a half million dollar practice. We've already filed for forgiveness. So that's why I said, no, no, no. I'll tell you what. Send me your stuff. Let me take a look at it.
What this doctor did, Jim, was he took his wages. He methodically plotted his wages from the date he got his loan, which was April 19th or something, until I think it was August 2nd when he hit the amount of his PPP loan in wages. So I said, you know, that means that since you qualify for the second and third quarter and you specifically notated that you used wages for PPP up to August 2nd, I can use all your wages for the month of. August and September for ERC, we got that doctor and eighty thousand dollar credit. Did I get that right, Jim?
Jim Donovan, CPA: Yep, absolutely.
Art Wiederman, CPA: So if you had some folks that when they've done their forgiveness, they've tracked some of the wages or what are most people putting down, they just putting down what the amount their loan is, what are they doing?
Jim Donovan, CPA: So what we're seeing is they we're really only requesting the forgiveness applications. A lot of our clients, yes, they've done very detailed analysis and spreadsheets that they've done in-house but haven't shared with the SBA, which is perfectly fine by us. The fact that they're just putting a single number on there for payroll costs gives us more flexibility in those cases where they have shared more information with the SBA. You know, we've worked around it for the most part. It hasn't been too much of an issue.
Art Wiederman, CPA: Yeah. So there's some great, great opportunity. So let's talk for a second about doctors that have more than one location, because we I do know we have a lot of those listening. So they have these rules. And as all you know, I don't do well with anything over three syllables. So I'm going to try. There are aggregation rules, those are four syllables. Right. OK, so aggregation rules. And so, Jim, if a doctor owns like three practices and two of them are over 50 percent reduction, but one isn't, can they do them all separately or how does that have to work?
Jim Donovan, CPA: Great question. So if they own all three practices and it depends on how much they own. Right. You know, we may have to aggregate them and treat them as a single taxpayer for purposes of determining the employee count. Remember, we talked about that over one hundred employees in 2020 as well as the gross receipts calculation. So just keep that in mind. If you do have multiple locations or practices, we do have to aggregate them depending on the level of ownership of each one.
Art Wiederman, CPA: Now, I've got some good news for those of you who have purchased practices in 2019 or 2020, I believe it's question, I've been reading this notice way too much. Twenty seven and twenty eight I think are the questions on there. So let's say Doctor, you bought a practice in 2020 and you're going to say, well wait a minute, I don't, I can't measure the 50 percent reduction between 2020 and 2019. Well you're not out of the game yet. And we've gotten credits for doctors that bought practices in 2019, 2020. Jim, as I understand it, what Treasury and SBA has allowed you to do is to step into the shoes of the prior owner. Talk about that for a second.
Jim Donovan, CPA: That's a great question. And so, yes, you can. And hopefully you did your due diligence, right, when you purchased the practice. Right. So you would have the information available and basically say, OK, well, this practice did this amount of gross receipts last year. And you can say, OK, well, how does that compare to 2020 and basically use those rules to qualify for the credit.
Art Wiederman, CPA: Yeah, and so what we what you do is you go back to the either the due diligence that you and your CPA did when you bought the practice or you go back to the prior owner and you say, hey, you know, doing this, can I just get your collections for this and this and this period? And they do allow you to estimate for some periods if you bought it in the middle of a period. So we've done that for some folks and that's a way.
So if you bought a practice in 2019 or in 2020, there's an opportunity. So let's talk about so, we figure this out, we go ahead. We have an intake form which again you can get from me and you can fill it in online and just email it back to me at awiederman@EideBailly.com. And that'll tell us really quickly where you're at. If you don't have a 50 percent reduction, we're going to send an email. We're going to call you and say, hey, you know, you don't have the 50 percent reduction. It really doesn't make sense to go any further. But if you do, we do the analysis, we do the spreadsheet, we figure it out, then we help you. If you need it, get on the phone and figure out the SBA forgiveness. We have a team in Tustin that's going to be doing that for our clients.
And then so, Jim, we have to add the, in my example, it's a forty thousand dollar credit. We're going to add it back to the income, but then we don't get a credit on our personal income tax return for this. How do we actually I mean, really the most important thing in this whole conversation is how do I get this money back?
Jim Donovan, CPA: That's really what everybody wants to know, right? Where does my cash come from? And so this is a payroll tax credit. So on a quarterly basis, you're filing your form 941 to pay basically the employee and the employer portion of payroll taxes. Well you're making bi monthly remittances, probably. But basically you're filing that tax return on a quarterly basis. You're actually going to amend your 941 with 941x. And for 2020 you would have to amend potentially multiple forms if you're claiming the credit in multiple quarters. But basically because we're going back and amending 2020 returns, you're going to be fully paid in.
So the credit is just going to be basically a check from the government in the amount of that credit. And it takes a little while. I'm not going to lie. It's not like they're turning this around in a couple of weeks. It's taken them a month or two or three in some cases to get these checks to you. But we have seen checks come back to our clients.
Art Wiederman, CPA: The reason it's taking so long, folks, is that the government does not you know, when you when you file your personal or your corporate return, whether it's with Eide Bailly or your CPA, well, if you do, I think it's if you do more than one, if you prepare more than one hundred tax returns in your CPA practice, you are required to e-file. I believe that's the rule. So there is no CPA that I'm aware of H&R Block. Whoever you do your taxes with that is not using electronic filing. You are not permitted to electronically file a 941x.
Now you might have seen on TV folks pictures of huge trucks during the heat of the pandemic in April, May, June of last year, and they would show pictures of trucks and the trucks would be open. And there's these piles of thousands of paper filed returns sitting in trucks because they couldn't even get them into the IRS building because the buildings were shut down. So my understanding, Jim, is there are three to five months behind. So I'm telling all my clients we're going to do this for you. Now, Jim. We got some time. The amended returns don't have to be filed that quickly. We've got time right?
Jim Donovan, CPA: So we have a three year window to amend the payroll tax returns. So from the date it's due or the filing date, you have a three year window to basically file an amended return to claim that credit.
Art Wiederman, CPA: Now, I do want to touch on one point that's really important that a lot of people are wondering about, that we're wondering about. So there's kind of controversy in the CPA world as to whether or not 50 percent or greater owner dentists, their spouses, their kids, their dogs, their goldfish, whoever's on payroll right qualify. Let's talk about that, because that issue has not really been resolved, at least in my mind.
Jim Donovan, CPA: No, you're absolutely right. So there's some there's some rules that are a little bit more clear than others. Right. Any time you pull a law together in any kind of legislation that gets rushed, not everything is thought through. And they try and connect to other law that's in place, but it's not always a perfect fit. In this case, I think it's pretty clear that, hey, if you have kids that work in the practice, they're not going to qualify for the ERTC or aunts and uncles or brothers or sisters.
But with respect to an owner, we do have a little bit of a gray area. So if you're a less than 50 percent owner, there's no gray area. We can take the ERTC on you. If you have a greater than 50 percent owner that's getting paid wages, there is a path to potentially take the ERTC. Now, again, it's not cut and dry. We're waiting for guidance on that. The conservative answer is to leave them out. But there may be a path that, again, to me, there should be guidance on this and hopefully we will get that soon. But right now, it's up in the air, I guess I'll say.
Art Wiederman, CPA: So Eide Bailly's position, which I 100 percent agree with, I should agree with it. Right. I work for Eide Bailly. If I don't, I end up in Eide Bailly prison. I don't know how that works. But anyway but you know, our position and we're a conservative firm, which is when you're a CPA and you're conservative, your shelf life is a lot longer than if you take risks in this world because the IRS is very high and mighty and powerful and you just don't want to mess with them. But our position, the way you've explained it to me, Jim, is this is we're telling our clients that we're not taking the credit for, now, this is greater than 50 percent.
So if I have a 50 50 partnership of two unrelated dentists, I get it right. Yep. Now, if it's a partnership, you're not going to get it because you're not going to be paying wages from a partnership. But if you are, say, 50 50 shareholders in a C or S corporation, it's not it has to be greater than. So if you're 50/50 shareholders, that's 10,000 dollars. That's a 5,000 credit for each of you. Now, as a tax practitioner, I never recommend that you have multiple owners in a C or an S Corp. There's a lot of bad things that can happen. We're not going to get into that today. But if you are, then you would definitely qualify.
So our position at the firm, Jim, as I understand it, is that and this is where a lot of CPAs are going to, is that we're telling our doctors that we're not including the owner or their spouse if they're greater than 50 percent. We're definitely not including son or daughter, cousin, grandma, aunt and uncle, because that's very specific in the six categories of people that are excluded.
But we're also, like you say, telling them if you want to be aggressive, what are you talking about here? You're talking about five or ten thousand dollars plus potential interest in penalties. So, Doctor, if you, you know, want to want to do that, we at Eide Bailly, right, Jim, we have a path that we can take you down and fight with the IRS. And you may win, you may lose.
You've heard me talk about Megan Mortimer folks on here. Megan is my dear, dear friend who's become my dear, dear friend. She is a congressional lobbyist for the American Dental Association. She and I text about this stuff, and I've been she's probably tired of hearing from me. So, Megan, you told me that Congress was coming out with, Treasury is coming out with guidance on this in two weeks, two weeks ago. She says, yeah, I know. But as soon as I know, you'll know. Treasury is supposedly working on this, Jim. So hopefully we'll get some guidance, which is why we and again, you know, we may hold off on some of these filing the amended returns.
The important thing, until we get the guidance, because, God, I'd hate to file your amended return and then Congress says Treasury says, yeah, we can do this. And then I missed five or ten thousand and I got to go back and file another amendment. And so, you know, that's kind of one of the things we're looking at.
But the important from a time frame standpoint is getting the forgiveness done. Now, there are rules that talk about I believe that even if you go past the date of the ten months and you make payments, you're still not dead in the water. We're not going to get into that. But we want to get this done before the 10 month period is over so that everybody doesn't lose any sleep and stuff like that. So that's the key. And if you've amended if you've extended your tax returns like we've told all of our clients to do, we've got to get that done by September 15. So there is a time frame on this. But again, Jim, it's really important to note whether a doctor has filed for forgiveness or not on their PPP loan, they are in the game. One hundred percent.
Jim Donovan, CPA: Absolutely. Just because you filed for forgiveness does not mean you're excluded from ERTC. We can still make it work.
Art Wiederman, CPA: And there's time again, you know, we're talking you know, if you listen to this in June, you get June, you get July. Many of you are going to have a good chunk of the month of August. It just depends on when the money was deposited into your account.
Last thing I want to touch on before we finish up today, Jim, is if 2020 was good, 2021 is better. So they originally, when they passed this in March of last year, it was only for 2020, right?
Jim Donovan, CPA: That's correct.
Art Wiederman, CPA: So what did they do with the different stimulus packages and what are we got going on for 2021.
Jim Donovan, CPA: Great question. So basically they found we're basically in December they extended or they extended it and expanded the ERTC. So we got the retroactive rules around taking PPP and ERTC. But they also extended it for another two months through Q1 and Q2 of 2021. Then, and I'll get into some of the finer details here in a second. But I will mention that the American Rescue Plan Act or the ARPA, which came out in March, went ahead and extended the ERTC for another two quarters. So now we have it in place for Q3 and Q4. So basically each quarter in 2021.
And where in 2020 you had basically a nine month window to claim up to ten thousand dollars in wages per employee for five, up to a five thousand dollar credit per employee, in 2021 each, the credits are really claimed on a quarterly basis and so you can qualify up to ten thousand dollars per employee in each quarter in 2021. And not only that, it changed from a 50 percent credit rate to a 70 percent credit rate. So now for every ten thousand dollars, you're getting seven thousand dollars in credit instead of five thousand.
Art Wiederman, CPA: So let's take my example from before. I got my dentist who has 10 employees, and that 10 employee, those 10 employees, eight of them have ten thousand dollars that they were paid in the first quarter, which, again, you know, folks, we're talking about forty thousand dollar annual wages. That's about 3300 hundred dollars a month. Now, if you're in the Midwest, in a rural part of the Midwest or a rural part of California or a rural part of anywhere where maybe wages are not as high as they are in Southern California or New York City, maybe you don't get the 40.
But forty thousand dollars for a dental employee, especially hygienist, a dental associate is not that big of a deal. So in my example before, for forty thousand dollars a credit, we get that 10 employees at eight thousand, eight employees at ten thousand wages, five thousand credit. Forty thousand more credit for the whole year of2020. For 2021 if you qualify for the first quarter of 2021, then we're talking same employees, eight employees times ten thousand is eighty thousand times 70 percent. Right Jim. Yep. So that's fifty six thousand for the quarter. First quarter. Now we qualify for the first quarter and one of two ways. Right.
Jim Donovan, CPA: You can. Well really. Yeah. Well let's, let's talk about the primary way you qualify is still gross receipts. And so in 2021 all you need to show is a greater than twenty percent decline in gross receipts. So you remember back in 2020 we're talking about greater than 50 percent, but now it's a lower hurdle. Right. And basically there's two ways to qualify for each quarter because they have this lookback provision.
So for quarter one of twenty one you can qualify by a greater than twenty percent drop of Q1 twenty one versus Q1 of twenty nineteen. Again, same base year. Or you can do a one quarter look back and say, OK, how did I do in Q4 2020 versus Q4 of 2019. If that was a greater than twenty percent decline you qualify for Q1. If you were to qualify with Q1 for example say hey man, Q1 was just rough. I was down more than twenty percent. Guess what, in Q2, you know, let's say Q2 is pretty good quarter but we still have that lookback period.
So we can look back to Q1 and say, gosh, you know what, we were down more than twenty percent. So now you're qualified for two quarters and, you know, fifty six thousand times to one hundred and twelve thousand. If I did my math without my 10 key.
Art Wiederman, CPA: No, you did it. You did it. Well, I think we're required to work here to be able to do math. Right. That's what I've heard. Yeah.
It's kind of like when I talk about tax returns, or ERTC, I always talk about my golf score. And you and I, Jim, are avid golfers and it's like, you know, like my golf score, all of the ERTCs are quoted approximate. No, if any of the IRS agents are listening, trust me, we have spreadsheets that are tied up better than Fort Knox. But yeah, I mean, you're right. So if we qualify for Q1. Now, if we qualify for Q1 because of Q4, we don't automatically qualify for Q2, right?
Jim Donovan, CPA: Correct.
Art Wiederman, CPA: OK, so if you and again, a lot of our doctors have come back, a lot of you guys have come back really, really strong. But I would say 10 to 20 percent of our doctors are down. I mean, I have a practice that's over three million. And they've already said to me said, oh, my God, is that the case? And we got them for 2019, 2020. I think it was a ninety five thousand dollar credit. We've estimated their credits for the first two quarters of 2021 are going to be close to in total three hundred thousand dollars. I mean the numbers are stupid and again, you know the, the calculations are all legal and not fattening and all this stuff.
So 2021 guys take a look at your fourth quarter 2020 compared to your fourth quarter of 2019. Take a look at your first quarter of 2020 2021 compared to the first quarter of 2019. Now let me throw in a little monkey wrench in all this and then we'll call it a day here, Jim, because I'm assuming that my head hurts already. I'm sure yours does and our listeners might, but I want to get them the free money here. If they got an HHS grant. When we talk about the gross receipts, a lot of our doctors got HHS grants in Q3, Q4, Q1 of 2021. We have to include those as part of gross receipts? Is there anything that's talked about that?
Jim Donovan, CPA: So we do and this is another area where we don't have a lot of guidance, but we are including them and we are following the revenue recognition that's generally done for book and tax purposes. And so what I've been hearing or working with people in the industry is they're not really recognized as revenue until they're spent. So that may be, you know, maybe you got the access to the cash in Q4, but maybe you don't spend it till Q2 of 2021. So we've been seeing some areas where people are like, hey, I have access to this money. I don't know how to spend it yet. So they've been pushing that off.
Art Wiederman, CPA: That's interesting. OK, well that that's another complication that we're not going to get into on this podcast, but that's something to look at. So the takeaway from all this is we put a bow on this, Jim, is basically there's still time. There's a lot of money out there to be had. The United States government is not in bankruptcy yet. Hopefully it won't be for many, many years. But and what I've heard from Megan at the ADA from her conversations, SBA and Treasury, they want business owners to do this. They want you to get this money. And folks, I've been talking from the beginning of this pandemic fifteen months ago, build a war chest.
We don't know where this is going. I mean, gosh I was watching the Today Show this morning. And, you know, New York is opening up. Philadelphia is opening up. California opens up June 15th. The country is really starting to open up and we're starting to see things happen. And, you know, people are starting to do things and they're starting to travel and, you know, look at airfares that'll tell you that people trying to travel. Right. And so we're looking good, but we never know. We never know what's going to happen. So build your war chest. This is just another opportunity to build a war chest.
And while you have to pay tax on the money by adding it back, when you actually get that check in, don't, when you enter it into your QuickBooks, just don't enter it in as just some random collection deposit because your accountant's not going to know. Mark it as an ERTC refund, because when you receive the actual check, that check is not taxable. OK, what's taxable is that you have to add back to wages in the year you do this.
So, Jim, any other lessons you've learned? You know, the fact that you haven't moved to the Maldives or Maldives because of all this? I mean, I equate this to someone coming into a dental office. The Board of Dental Examiners come into dental office and saying, hey, guys, you have a dental practice. We'd like you to open a cardiology business or we'd like you to open a radiology business, or we'd like you to open an auto shop in the middle of your dental office, yet need to use the same employees that you have. We're going to give you some rules, but that's about it. That's pretty much what SBA and Treasury has done to the CPA profession, right?
Jim Donovan, CPA: Pretty much, yeah, yeah, and definitely more the auto repair shop in the middle of the dental office.
Art Wiederman, CPA: I mean, and here's the worst part about this. So, folks, and I'm not crying, you know, Chicken Little or anything like that. But the fact of the matter is, is that they came out with these they passed a law on December twenty seventh. They passed they came out with the Notice 2021-20 on March one. For a CPA, March one is the end of tax season, even though they extended tax season to May 17. So we all had to go till May 17th. And some of you have called me, some of you listen to this podcast regularly. Well, why haven't you started my ERTC? Because the auto shop wasn't open until May 17th. And then everybody takes a breather for a week or so and we're now back and we're just getting back in.
So I will respectfully ask all of you and we have thousands of people that listen to this podcast when it comes out. I'm going to ask you to be kind to your CPA, be kind to us, be kind to ADCPA members, be kind, because it is just been brutal. And I've been doing this for forty four years. You know, I don't complain about what I do. I picked the profession folks, but it's tough. We are going to get all this done and we're going to get you all this free money and just be patient with us. So Jim, anything in closing that you want to say about any of this or your experiences or anything?
Jim Donovan, CPA: Yeah, just to, you know, to build on that a little bit, we do have specific guidance around things we need to document with respect to the ERTC. So it's you know, so we have a solid basis if you're ever audited for claiming it. Right. And so just know that is part of the process. Right. Is making sure we tick all those boxes and meet all the documentation requirements. So it does take a little bit of time to make sure we have all of our ducks in a row and claiming those credits.
Art Wiederman, CPA: Yeah, I mean, because we hold ourselves out as the experts and we need to be able to walk into the IRS and explain to them how did we get our numbers? And, you know, we follow the rules, folks. So my good friend Jim Donovan, I have quite since I've been part of Eide Bailly, I've only met you on a computer. I'm hoping that the first time I meet you, it's going to be a date with a little white ball with dimples on a golf course. I mean, Whistling Straits, you know, Kioa, you name it. I'll be there. My gosh.
But you have been just such and such a rock of our firm and helping to manage this monstrous project for hundreds and hundreds of businesses. I'm kind of managing the dental part of it. And we've got a you know, we are we're well over a million dollars. I think we're a million and a half dollars of credits that we're securing for our clients. We're going to get to several millions of dollars when everybody chimes in. So if you hang on, Jim. As I take us out of the podcast.
Folks, if you're interested in this, if you haven't looked at it, whether you have filed for forgiveness or not, my phone number is 657.279.3243. That comes to my computer. If I'm not there, I'll get back to you. If you just want to say, hey, Art, I'm interested in this, send me out the intake form, which is the first step. The analysis is complimentary and we'll let you know whether it makes sense for you to do it. That's awiederman@EideBailly.com. And so if you want us to help you with us, we're here to do that.
Shout out to my partners, Decisions in Dentistry magazine, www.DecisionsinDentistry.com. They've been a wonderful, wonderful partner of our podcast and also a shout out to my dear, dear friends at the Academy of Dental CPAs. This is my family. I helped form this group 20. This is our 20th anniversary. We are meeting in October in Miami. And my joke has been with our president, Alan Schiff out of Baltimore is that we're not going to have any content because we're just going to be hugging each other for two and a half days because we haven't seen each other in two years.
So if you're not working with a dental specific CPA, we at Eide Bailly, we have many of us who work only with dentists. And, you know, let me know if you're looking anywhere in the country. The Academy of Dental CPAs is www.ADCPA.org. You know, having a dental specific CPA has so many benefits, I can't begin to tell you.
Jim Donovan, try and get some rest here. I know that may not happen for a couple of months, but once you do try and get some rest, I guess I say go Hawkeyes right. Is that the deal?
Jim Donovan, CPA: That's correct.
Art Wiederman, CPA: Yeah. Jim, as a proud Iowa Hawkeye, I am a proud Long Beach State Forty Niner. Our football team has been undefeated since 1993, which is the date they shut down the football program. But what can I tell you, Jim, thanks for your great insight and everything, and thanks for coming on today.
Jim Donovan, CPA: Well, thank you for having me. I appreciate you sharing me with all your friends.
Art Wiederman, CPA: Oh, no, no, no, no. You're a smart guy and a really nice guy. Jim is one of the genuinely just like everybody at this firm. Jim is just one of the genuinely nicest guys that I've met here. And I love the opportunities I get to talk to him. We have to kind of stop talking golf because we have to talk business sometimes. But it's fun.
Folks. Again, we're at the tail end of this pandemic. I'm seeing lots of really good things going on in dental practices. Sales are picking up from people. They're thinking about retiring. The stock market's been kind to all of us. And hopefully that will continue. We'll see how that goes. But again, I will continue with my five you know, my five word phrase. Failure is not an option. I love every one of you. I love the fact that I've been chosen or chosen or I chose to work with dentists for my entire career. It's been an absolute blessing and a joy. And you folks are wonderful, wonderful people.
And I almost feel like this is my legacy to the dental profession, not only this podcast, folks, but also the fact that we have this this window of opportunity that if I can get you, you know, 30, 40, 50, 60,000 dollars and maybe that motivates you to start a retirement plan, maybe that motivates you to put some money away for your kids college. Maybe that motivates you to get yourself out of credit card debt. If you can do that. All these things that I'm passionate about, that's really, really important. That's my legacy. So I will continue to do this podcast until somebody says I can't or kicks me off. And that has not happened yet, fortunately.
So with that, I want to say thank you for the honor and privilege of your time. Please continue to listen. Please write a review about our podcast. Let us know what you think. Send me some emails. I know of a great guest. I'm always looking for great guests. We always have them. And with that I will say that this has been Art Wiederman still is Art Wiederman for the Art of Dental Finance and Management with Art Wiederman, CPA. We'll see you next time.