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The Employee Retention Credit (ERC) has been a valuable relief measure for small businesses struggling to maintain their workforce during the COVID-19 pandemic. However, businesses must carefully adhere to the ERC guidelines and maintain proper documentation to avoid audits and potential penalties. This article will provide small business owners with best practices for preparing for an ERC audit and minimizing the risk of penalties and compliance issues.


1. Keep Detailed Records: Keeping detailed records is critical in claiming the ERC and preparing for an audit. Businesses must maintain accurate records of eligible wages and qualified health plan expenses, along with any documentation required by the IRS. Records should be kept for at least four years and be readily accessible for review.


2. Understand Eligibility Criteria: Small businesses must understand the ERC eligibility criteria to avoid compliance issues and potential penalties. Eligibility requirements include experiencing a significant decline in gross receipts or a full or partial suspension of operations due to government orders. It is essential to understand the ERC eligibility criteria and maintain proper documentation to support eligibility claims.


3. Review and Document Calculations: Small businesses must carefully review and document ERC calculations to avoid potential penalties or compliance issues. The ERC calculation can be complex, requiring businesses to carefully track eligible wages and qualified health plan expenses. It is critical to document calculations and review them for accuracy to avoid potential penalties or compliance issues.


4. Consider Professional Assistance: Small businesses may consider seeking professional assistance from a CPA firm to prepare for an ERC audit. A qualified CPA firm can help businesses navigate the complexities of the ERC and ensure compliance with tax regulations. Professional assistance can minimize the risk of penalties or compliance issues and optimize the available benefits of the ERC.


5. Keep Up to Date with IRS Guidance: Small businesses must stay up to date with the latest IRS guidance related to the ERC. The IRS may issue updates or revisions to ERC guidance, and it is essential to stay informed and make necessary adjustments to ensure compliance. Small businesses should regularly check the IRS website and consult with a qualified CPA firm to stay up to date with ERC guidance.


6. Prepare for an Audit in Advance: Small businesses must prepare for an ERC audit in advance to minimize the risk of penalties or compliance issues. This preparation may include reviewing records and documentation, evaluating calculations, and seeking professional assistance. By preparing for an audit in advance, small businesses can demonstrate compliance and minimize the risk of penalties or compliance issues.


The Employee Retention Credit has been a vital relief measure for small businesses during the COVID-19 pandemic, providing financial support for maintaining their workforce and promoting economic resilience. However, businesses must carefully adhere to ERC guidelines and maintain proper documentation to avoid audits and potential penalties. By keeping detailed records, understanding eligibility criteria, reviewing and documenting calculations, considering professional assistance, keeping up to date with IRS guidance, and preparing for an audit in advance, small businesses can optimize the available benefits of the ERC and minimize the risk of penalties or compliance issues.


If you are looking to maximize your tax benefits and potentially receive a significant cash influx, it's time to take action and explore the Employee Retention Credit (ERC). Talley’s team of experts can guide you through the eligibility requirements and application process. Don't miss out on this opportunity - contact us today to get started.


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