Client Story: S Corporation Qualifies for ERC Credit - Palma Financial

Here’s a client story that I believe you will find of interest.

Meet Alexander and Julia; they own an S corporation 50-50. The corporation has operated a successful $10 million-a-year restaurant for more than five years.

Alexander, Julia, and Robert formed a new S corporation that started a new restaurant in June 2021. Alexander’s ownership is 35%, 35% for Julia, and 30% for Robert.

During the four months of June through September of 2021, the new restaurant had a gross of $300,000. During the quarter ending December 31, 2021, the restaurant had a gross of $800,000. So for its seven months of operation, it has $1.1 million in gross receipts.

Question: Will the new S corporation’s restaurant qualify for the start-up employee retention credit (ERC) of up to $50,000 for the fourth quarter?

Answer: Yes. Here’s why.

The new restaurant is a new business that started after February 15, 2020, with a new set of owners and its own set of books. It qualifies as a new business—the first step to qualifying as a recovery start-up business.

The second step is for average annual gross receipts not to exceed $1 million—using the tax law’s calculation excludes the fourth quarter.

Based on the tax code calculation, the average annual gross receipts for 2021 precede the calendar quarter, for which the restaurant determines the credit is $900.000 and therefore is less than $1,000,000.

The calculation, employer test, and controlled group exclusion are more factors to consider.

If you would like to consider this or other tax-saving strategies, click here to schedule your “Free Tax Assessment.”