CHICAGO — No dry cleaner starts a business because they want to learn the fine art of tax preparation. Settling with the government, however, is part of doing business and, even if they hire someone to look after the bookkeeping involved with filing taxes, it’s still a good thing for the owner to understand what’s going on in this area.
In Part 1 of this series, we took a look at some of the government programs that were put into place to help dry cleaners and other small-business owners ride out the economic challenges of the pandemic. Today, we’ll examine some of the credits that cleaners might not be aware exist, and how these credits could potentially save them thousands of dollars on their taxes.
Boehmer believes that Work Opportunity Tax Credits (WOTC) is one of the most powerful government programs aiding employers.
The WOTC program is designed to encourage employers to hire people from targeted groups by giving the business tax credits for each employee that qualifies — up to $9,600 per employee. The targeted groups include veterans, ex-felons, summer youth employees, vocational rehabilitation referral employees and Supplemental Nutrition Assistance Program (SNAP) recipients.
“Let’s say I’m a veteran and you hire me,” says Jonathan Boehmer, vice president of client success at PuzzleHR, a human resources firm headquartered in Tampa, Florida. “You can get up to $9,600 of my first $9,600 in salary as a tax credit for your company.”
He points out that an employer can’t ask potential hires certain questions during the recruitment process, such as if they are on social programs, because of various labor laws. “But once you hire them, you can ask them all these questions to see if they fall into any of the demographic populations in order to claim your Work Opportunity Tax Credits.”
Because of the attrition seen in positions in a drycleaning plant, this program can gain an owner significant tax credits — if they know to look for them. The turnover for certain roles is so high that this credit could come into play several times during the year when different employees have filled the same position.
“Businesses should be aware of this, and they should have methodology and a process in place to legally apply for their Work Opportunity Tax Credits and go through the process,” Boehmer says.
A New Tax Landscape
Even for dry cleaners who have owned their business for many years, the past couple of years can present challenges — and opportunities — they might not be aware of come tax time. Staying on “autopilot” could cost them money.
“A lot of business owners forget that they need to consider anything that they can reasonably justify as a business expense,” says CPA Sean Manning. Manning is the CEO of Payroll Vault, a payroll and workforce management company headquartered in Littleton, Colorado. “Now might be a really good time to go through their financial statements and their expenses. Has any of that changed? A good example would be cleaners who are now doing more delivery. Did they have to buy a delivery vehicle? Do they have delivery expenses now that maybe they didn’t before? Did they modify their workspace or their building or their parking lot in order to accommodate drive-thru pickup?”
In this time when tax preparation can be more confusing than normal, filing an extension on your taxes to wait and see where things ultimately shake out might be a good strategy, he says.
“I tell clients that when there’s rapid change happening to consider the timing of when they file their taxes,” Manning says. “Because there’s been so much information recently, you may want to delay your filing with an extension. You still need to estimate your taxes and pay the taxes; an extension is not an extension to pay. But because there’s been so much information recently, if they are comfortable with the extension process, they might want to consider that in 2022 for their 2021 filing.”
Come back Thursday for the conclusion of this series, when we’ll look at the advantages of maintaining an ongoing relationship with your taxes, rather than cramming when they’re due. For Part 1 of this series, click HERE.
(Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an attorney or tax adviser for advice regarding your particular situation.)
Have a question or comment? E-mail our editor Dave Davis at [email protected].