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Accountalent 2021 Philanthropy Year-in-Review

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As 2021 draws to a close, the Accountalent team wants to take a chance to highlight a few of the organizations and charities that our company supports throughout the year.

While our team is 100% remote, we strive to donate to organizations in our local communities, whether in Boston, Chicago, Kansas City, or beyond. If a particular organization touches your heart, we encourage you to support them as well.

In the new year, we plan to launch the Accountalent Foundation, which will donate a portion of every invoice to causes like those featured below. We are lucky to have some of the best and brightest entrepreneurs as clients, and we look forward to including them in this process and heeding their suggestions on organizations to support.

Keep reading to learn more about just a few of these organizations, and Merry Christmas from the team at Accountalent!

House of the Good Shepherd

House of the Good Shepherd opened one of the first domestic violence shelter/programs in Chicago in 1980. Since then, House of the Good Shepherd has helped more than 6,000 vulnerable women and children release themselves from the bondage and humiliation of family violence.

Mission

House of the Good Shepherd serves with love and compassion women and children affected by domestic violence by offering a safe place with opportunities for emotional, educational and spiritual growth, giving hope and continued support for a better future.

How HGS Heals and Protects Families

  • Help families gain stability by avoiding further victimization
  • Assist families in accessing legal assistance, trauma-informed counseling, addiction services, education, child welfare, immigration, housing, employment, health and medical services.
  • Provide access to a private, fully licensed onsite early childhood day care and enrichment center.
  • Customize programs to meet families where they are and help them get to where they want to go.
  • Help survivors to confront and overcame their traumatic experiences.

75-80% of women who successfully complete the HGS program exit with secured employment, permanent housing, and $1,500-$3,000 in savings.

HGS Website

Brave Like Gabe


Gabriele Grunewald, a professional runner and rare cancer advocate, founded the Brave Like Gabe Foundation to inspire people to share stories of being brave through their own struggles while also helping to find better and more effective treatments for rare cancer. 

Mission

Support rare cancer research and empower all cancer survivors through physical activity.

How BLG Donations Make a Difference

Donations benefit rare cancer research centers including Memorial Sloan Kettering Cancer Center and Fred Hutchinson Cancer Research Center.

Saint Paul’s Choir School

Since 1963, Saint Paul’s Choir School has formed and educated boys in the rich music tradition of the Roman Catholic Church.  The Choir School seeks to embrace the great cathedral school tradition as it unites a rigorous musical and academic curriculum with our Catholic faith and moral tradition, preparing each student to grow and flourish in a dynamic and changing world. It is the only Catholic Choir School in the United States.

Mission

Saint Paul’s Choir School is a school for boys in grades 3 through 8 and is a vital part of Saint Paul’s Parish in Harvard Square. Guided by the teachings of the Catholic Church, we work in partnership with committed parents and inspirational teachers to form the faith, character, and intellectual and musical abilities of our young men. Our goals are to help students pursue their highest God-given potential, prepare them for the strongest secondary schools and beyond, and equip them to become virtuous leaders who serve God and the world.

How SPCS Prepares Young Boys to Master Vocals and Beyond

The Heights – The Boston College Newspaper

Established in 1919 as Boston College’s student newspaper, The Heights has been both editorially and financially independent from the University since 1970. The Heights serves the students, faculty, and staff of the Boston College community, as well as our neighbors in Chestnut Hill, Newton, and the Allston-Brighton area.

Mission

The Heights’ mission, “For a Greater Boston College,” has not changed since our first issue was published in 1919. We strive to report any and all news pertaining to the Boston College community as accurately as possible in order to keep the community informed and to document the events at BC.

How The Heights Impacts the Community

A student-run non-profit, The Heights serves the Boston College community thanks to donations that allow student journalists to pursue important stories.

Press Release: Accountalent and eTaxConnect Join Forces to Offer R&D Studies to Software Startups

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Accountalent is excited to announce its acquisition of eTaxConnect, an R&D study firm.  Leading up to the acquisition, Accountalent has been providing income tax compliance for thousands of startups. Accountalent is excited to be joining forces with eTaxConnect to offer income tax compliance and an R&D study, all under one roof.

“With the eTaxConnect acquisition, Accountalent is looking forward to offering our clients a startup-friendly, end-to-end combined product that includes our unBookkeeper service, tax returns, and an R&D study,” said Accountalent founder Joe Faris. “The eTaxConnect Study is far superior and more IRS-compliant than the studies offered by the ‘usual suspect’ R&D study firms. It is also the only study that is offered at startup-friendly prices. Accountalent’s clients received $20M in PATH Act refundable R&D Credits for tax year 2020.”

eTaxConnect specializes in R&D studies for software companies and is looking forward to bringing its expertise in the space under the Accountalent umbrella. With the addition of R&D studies, Accountalent is now offering a combined, flat-fee product that will include its core income tax, unBookkeeper, and an R&D study for just $4,950.

“For the past three years, eTaxConnect has been proud to pioneer audit-ready and startup-friendly R&D studies for software companies,” said Michael Melia of eTaxConnect. “We have been privileged to help hundreds of startup companies get access to millions of dollars of refundable R&D tax credits. We are excited to be joining forces with Accountalent to help a broader network of software startups. We share Accountalent’s mission to give startup companies access to best-practice tax compliance with upfront prices and a tax team that has our clients’ backs.”

In addition to the new, combined product, Accountalent will continue to offer its traditional tax compliance and accounting service for $1,950, and an R&D study for $3,450. Current and future clients who take advantage of the combined package will save $450.

Visit Accountalent.com to view our packages, learn more about the R&D Credit, and schedule your free consultation with our team of experienced CPAs.

About Accountalent Management Corp.: Accountalent is the ‘go-to’ tax and accounting solution for startups, providing best-practice, fixed-price services to startups. Accountalent has worked with 3,000+ startups across the U.S., including ClassPass, Casper, BollyX, and more.

About eTaxConnect: eTaxConnect pioneered affordable, quality R&D Studies for software startup companies, providing comprehensive and detailed studies for a flat fee.

How Peter Thiel saved millions in taxes and so can other startup founders

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Peter Thiel has been making headlines the past couple of weeks over leaked data obtained by ProPublica.

ProPublica’s report claims Thiel’s Roth IRA was worth less than $2,000 in 1999, which then increased to more than $5 billion at the end of 2019.

When Thiel turns 59 ½, he can withdraw all of the money tax-free.

Thiel used his Roth IRA to buy 1.7 million shares of PayPal in 1999 at $0.001 per share ($1,700 total) – a few years before the company went public in 2002.

Although it may seem unfair, there is nothing illegal about this strategy, and there is nothing to say other startup founders can’t do the same.

We previously detailed how founders can utilize a ROTH IRA last year with our blog: How one founder could pay no taxes on a $196M gain with a ROTH IRA.

In that blog, you’ll find more information on what a ROTH IRA is, potential pitfalls, other examples of success stories, and things to consider before investing.

Additionally, below you’ll find some more reading on the Thiel situation and what it means for your ROTH IRA:

Photo of Peter Thiel courtesy Inc.

Employee Retention Credit for Pre-Revenue Startups

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The Employee Retention Credit (ERC) is a refundable credit worth $7K per employee per quarter for each 2021 quarter.

(Note: “refundable” means you get a check for the credit amount from the IRS. Yes, cold, hard cash!)

To qualify, there needs to be a 20% reduction of “Gross Receipts” in a 2021 calendar quarter compared to the corresponding 2019 quarter. If you qualify for one quarter, though, you automatically qualify for the next quarter.

The knee-jerk reaction for many pre-revenue startups is they do not qualify because they do not have revenue, BUT “Gross Receipts” include a lot more than just revenue. Examples are interest income, rewards, pitch competition awards, grants, etc. Also, there is no minimum dollar amount of Gross Receipts required.

Here’s a real-life example:

  • A startup incorporated and funded in 2019
  • $100 of Interest Income in Q1 2019
  • $75 of Interest Income in Q1 2021
  • No other Gross Receipts or Revenue
  • 20 employees in Q1 2021
  • Refundable Credit is $140K for Q1 2021
  • Q2 2021 automatically qualifies because of Q1 2021 qualification
  • Retest each 2021 quarter to determine that and subsequent quarter’s eligibility
  • If this startup qualifies for each quarter, it will receive $560K for the year (assuming 20 employees per quarter).

We are finding tons of startups that qualify. There are no strings attached to the funds that you receive for this credit. 

Taking the credit is also amazingly easy! You just check a box in Gusto (or applicable payroll provider), and the IRS sends you a check. It is that simple!

Let us know if we can help – this is a free Accountalent service open to ALL the startup community!

Check out our other blog posts on the Employee Retention Credit:

Section 139 Plans: Startups BEWARE

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One of the Bay Area “usual suspects” is at it again – this time pushing “Section 139 Plans.”

IRS Section 139 states an employer can reimburse employees tax-free for “reasonable and necessary medical, temporary housing and transportation expense” they incur as a result of a disaster like COVID. The IRS specifically states Section 139 payments cannot be “related to services rendered.”

The Plan being pushed, though, is a salary reduction plan – reduce your taxable salary and your employer will pay you tax-free that same amount through Section 139. Remember, Section 139 ONLY covers increased expenses incurred, not ordinary living expenses that you were already paying before the disaster such as rent, internet, utilities, etc. and never wages.

THIS IS A MINE FIELD.

First, the obvious IRS issue: the IRS would most likely rule that these payments were taxable wages, and the startup will then owe payroll taxes and plenty of interest and penalty. Remember, there is personal liability for Officers for payroll taxes.

More importantly, though, when your startup gets acquired or enters that next round of funding, the tax and employment lawyer doing the due diligence will have a HUGE issue with this and it may cost you the deal.

Be careful. This is all about the “usual suspect” collecting a fee from you, and there is a lot of danger for you. Do not jeopardize all of your hard work. Messing with payroll is very serious.

Recovery Startup Business: RIP OFF ALERT – How to take advantage of this credit

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Are you a Recovery Startup Business? You might be and not even know it.

The Employee Retention Credit (ERC) continues to evolve, getting richer and crazier by the day. That means more money for your company IF you fall under the definition of a Recovery Startup Business and don’t get scammed along the way.

So how does the ERC for these newly-formed startups work?

You receive a check from the IRS – up to $50K per quarter – for Q3 2021 and Q4 2021. That’s it! $100K just for asking.

The formula is rather the same as the ERC: 70% of the first $10K in wages. So, if you have 7 employees getting paid a bit over minimum wage, you will get $100K from the government.

HOWEVER, STARTUPS BEWARE!

Gusto and Rippling recently announced that you will need to get an outside firm to amend your payroll tax returns in order to take this credit and receive your money as a Recovery Startup Business.

As a result, popular firms are taking advantage this and charging you 20% of your credit to amend your payroll tax returns to take advantage of this credit. Do NOT get ripped off!

“I am seeing posts from Bay Area firms – the usual suspects – advertising their services to help startups get the ERC and the new $50K ERC for Recovery Startup Business,” Accountalent founder Joe Faris said in a recent LinkedIn post.

“They will charge you 10-20% of this credit.” There is no reason to pay so much! The usual suspects will charge you up to $5,000 – $10,000 PER QUARTER to claim this credit. This is a ridiculous fee.

Accountalent can help you claim this credit for only $500 per quarter. Keep more money in your startup and extend your runway with Accountalent.

Even if you are not a current client of Accountalent, contact us and we will help you!

SIGN UP HERE

Startups Beware: The R&D Credit Study Deception

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We have prepared tax returns for over 3,000 early-stage startups and see many R&D Credit Studies done by newly-formed R&D Study firms – we will collectively call them the “usual suspects.”  You can look at an R&D Study as an insurance policy for your R&D Credit.  If your startup is ever audited and cannot produce the proper substantiation for your R&D Credit, in the form of an R&D Study, the IRS will disallow parts, or all, of the credit, and you will have to pay it back with penalty and interest.

The usual suspects are typically headquartered in the Bay Area, have great looking websites, use gadgets such as connecting to your Gusto, QuickBooks, etc., and may offer to fund a small piece of your credit upfront (but reduces that advance by 100% of their fee – not a good deal). They are great at selling and charge a fee of 20-25% of the R&D Credit (so you would pay them $25K for a Study that produced only a $100K R&D Credit).

However, all this really means nothing when you are facing an IRS audit.  The only thing that matters is the quality of your Study – will the IRS accept it? Or will it disallow a portion or all of your R&D Credit?

After reviewing a number of these Studies from the usual suspects, we highly doubt they would survive an audit.  Subsequently, the IRS would disallow the R&D Credit and demand their money back plus penalty and interest.  This frequently happens when there is a lack of substantiation/documentation. 

After taking a closer look at a sample of studies from the usual suspects, we found three key reasons why the IRS would disallow them:

  1. All the Studies that we reviewed were 99% boilerplate (copy + paste). The IRS has warned several times about this practice and will always throw out boilerplate Studies.
  2. There was no contemporaneous timekeeping info (the IRS gold standard for Studies). Looking at these boilerplate R&D studies, you would not know if the employee worked for a bakery or a software company – the job description and the R&D performed were 100% boilerplate.  The IRS would never allow.
  3. There were no adequate descriptions of the type of R&D conducted. One boilerplate R&D Study by a usual suspect comically used five (yes, 5!) words to describe the R&D. The IRS would never allow this and would disallow the credit.

Do NOT waste your money or time on these boilerplate Studies.

As previously mentioned, the only reason to pay for a Study is to have insurance if you are ever audited. We have been through a ton of IRS audits, and trust us, you have no chance with one of these boilerplate Studies. To add insult to injury, you are going to pay a HUGE fee for the Study.

For software startups needing an R&D Study, we exclusively refer eTaxConnect. They use the info already present in your version control system to generate a Study that is 100% IRS-compliant and audit ready.

Through contemporaneous timekeeping info, detailed R&D descriptions, no boilerplates, and only about 30 minutes of management time, eTaxConnect can produce a study that will stand up to any IRS audit.

If you have 10 developers and your R&D payroll is $1M, the eTaxConnect fee is about $3,500 vs. $25K for a useless boilerplate Study from one of the “usual suspects.” 

Do not get deceived and misled by their aggressive marketing and misleading claims.

What is the California Water’s Edge Election?

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What is the California Water’s Edge Election? And should your startup use it?

Many startups we work with operate in the state of California and also have foreign subsidiaries. This can lead to complex tax situations, including the issue of determining income for the unitary group of corporations (typically consisting of a U.S. parent corporation and one or more foreign subsidiary corporations). The U.S. parent corporation must decide whether to determine CA income on a worldwide basis or a water’s edge basis. 

California allows corporations to elect to compute income attributable to CA sources on a water’s edge combined report (Form 100W, instead of Form 100). This election results in the exclusion of affiliated foreign corps from the combined CA report, since they are usually not subject to CA tax. This means only the U.S. corp would be required to pay CA tax on its own CA sourced income. The election is made via Form 100-WE and must be attached to a timely filed original return Form 100W. The election lasts for 84 months (7 years). 

Given the length of the election, it is important to consider which method will be more beneficial in the long run.

  • If the foreign sub is in a loss and is expected to continue generating losses for years to come:
    • Including the loss on a worldwide filing could be beneficial by reducing total taxable income.
    • Important note: If the foreign sub is currently in a loss, but is expected to start generating income soon, you may want to opt for the water’s edge election for the reasons listed below.
  • If the foreign sub is generating income:
    • Including the income on a worldwide filing would not be beneficial. This could end up increasing taxable income apportioned to CA.
    • However, it’s important to note that the foreign sub’s sales could dilute the CA apportionment factor, which may offset some (or all) of the increase in income.

For example, let’s take a look at a California C corp with one foreign subsidiary corp (100% owned) located in the United Kingdom. The CA entity has $100,000 in net income and $500,000 in sales (all in CA). The foreign sub has $50,000 in net income and $150,000 in foreign sales. Let’s see the impact of the water’s edge election below.

Water’s Edge ElectionNo Election (Worldwide)
Form100W100
Income (Loss) from foreign subExcludedIncluded
Sales apportionment factorExcludedIncluded
CA apportionment %100%76.92%*
Net income on CA return$100,000$115,385**

*500,000 CA sales divided by 650,000 everywhere sales = 76.92%
**150,000 in net income multiplied by 76.92% apportionment = $115,385

Let’s look at the same example, but say the foreign sub has a $50,000 loss instead of profit.

Water’s Edge ElectionNo Election (Worldwide)
Form100W100
Income (Loss) from foreign subExcludedIncluded
Sales apportionment factorExcludedIncluded
CA apportionment %100%76.92%*
Net income on CA return$100,000$38,462**

*500,000 CA sales divided by 650,000 everywhere sales = 76.92%
**100,000 – 50,000 = 50,000 in net income multiplied by 76.92% apportionment = $38,462

When the foreign sub is generating a profit, taking the water’s edge election is more beneficial, as the foreign income is excluded from the CA return. However, when the foreign sub is in a loss, it is more beneficial to not take the election. There are a number of complexities and nuances to consider before making the California water’s edge election, many of which are outside the scope of this article. Please consult with a qualified tax professional before making any elections.

IRS Circular 230 Disclosure

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.

Stimulus Bill Quiz: PPP and ERC

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Over the past few weeks, Accountalent has been sharing the latest updates on the most recent stimulus bill, including:

If you’re still wondering if you qualify for PPP2, ERC 2020, or ERC 2021, continue reading to find a simple “Yes or No” quiz on whether you qualify for any of these. If you have any other questions on the stimulus bill, Accountalent is here to help.

Stimulus Bill Quiz: Do I qualify for a PPP2 loan?

Do I qualify for the 2020 Employee Retention Credit?

Do I qualify for the 2021 Employee Retention Credit?

Strategies to maximize PPP2 and Employee Retention Credit

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The new stimulus bill includes a fresh round of PPP, but the MOST important part of the bill is allowing businesses to take both the new PPP2 and Employee Retention Credit, so how do you maximize the benefit of the two?

Below, we’re breaking down some of the key parts of both benefits, including threshold/eligibility, amount of credit/loan, start and end dates, maximum benefit amount, and more.

ERC
(2020)		ERC
(2021)		PPP2
Threshold/Eligibility1. 50% Reduction in Quarterly Sales for any quarter in 2020 vs. 2019, or
2. Shut down by government order		1. 20% Reduction in Q1 2021 and/or Q2 2021 sales vs. same quarter in 2019, or
2. Option to use the quarter immediately preceding calendar quarter and comparing to corresponding 2019 quarter		Demonstrate at least a 25% reduction in gross receipts in any quarter of 2020 relative to the same quarter in 2019
Amount of Credit/Loan50% of Quarterly Wages up to $10k per year, so maxes out at $5K Refundable Credit per employee for 202070% of Quarterly Wages up to $10K for Q1 2021 and Q2 2021, so maxes out at $14K Refundable Credit per employee for 20212.5 times the monthly trailing 12 month payroll up to $2M. 3.5 times if in the hospitality industry.
What are “Wages”?Salary + Employer-paid Health InsuranceSalary + Employer paid Health InsuranceSalary + Group Health Insurance + Certain Payroll Taxes
What are the start and end dates?Wages from 1st Quarter of Threshold qualification to end of Quarter when 2020 Quarterly Sales are 80% of corresponding 2019 QuarterWages from 1st Quarter of Threshold qualification to end of Quarter when 2020 Quarterly Sales are 80% of corresponding 2019 QuarterUnknown
What happens if I incorporated in 2019 or 2020?Compare the 2019 quarter you incorporate in to the corresponding 2020 Quarter. Estimate full quarter 2019 sales if did not incorporate on first day of quarter.If incorporated in 2020, compare Q1 of 2021 to Q1 of 2020 and/or Q2 of 2021 to Q2 of 2020.Need additional guidance if not incorporated in 2019
Maximum Amount$5K per employee for 2020$14K per employee for 2021$2M
CommentsLanguage in new bill is conflicting on process of claiming retroactive credit and does computation include wages and health insurance or just health insurance costsCannot use wages for both ERC and R&D Credit.Forgiveness now can be payroll (not less than 60% of total forgiveness); SW for cloud computing, HR, accounting, etc.; essential suppliers; property damages.

The Treasury and SBA will be releasing additional guidance and application process information for both PPP2 and Employee Retention Credit this week. As always, we will keep you updated as this becomes available.

It’s important to note, when companies are able to apply for both, there will probably be a mad rush. PPP1 was $521B, and PPP2 is only $284B. Also, if you plan to apply for the new PPP and/or the Employee Retention Credit, you should be dusting off your 2019 and 2020 quarterly financial statements. They will be needed to determine if you are eligible.

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