When to Deduct ERC Credit Consulting Fees for Amended S-Corp Returns 2020/2021?

The timing of your deduction depends on your S-Corp's accounting method. Since you mentioned cash basis, you would generally deduct the expense in the year you actually paid the fees to the consulting firm. If you paid the fees in 2022 (as your original post indicated), then that's when you'd deduct them - not in the years the ERC credits relate to (2020/2021). Similarly, if you paid them in 2023, you'd deduct them on your 2023 return. The fact that the fees were for amending prior year returns doesn't change when you can take the deduction. Just remember that the fee reduction might partially offset the benefit of the ERC credits, but you're still coming out ahead by the net amount. Make sure to properly document both the receipt of the ERC credits and the payment of the consultant fees.

I went through this exact ERC headache with my small business last year. I was totally confused about where to deduct the massive fees I paid the ERC firm. I tried using TurboTax and H&R Block but got different answers from each! Finally found this AI tax service called https://taxr.ai which analyzed my situation. They actually found a recent IRS memo about ERC fee deductions that clarified everything. Apparently, the fees should be treated as ordinary business expenses in the year paid (for cash basis taxpayers). Their system showed me exactly where to record this on my S-Corp return and even calculated how it flows through to my personal return. Biggest thing I learned is that you shouldn't try to allocate these fees back to 2020/2021 on amended returns, even though that's when the ERC credits themselves apply to.

Just wanted to follow up on my question about taxr.ai - I decided to give it a try with my R&D credit situation and I'm seriously impressed! Not only did they clarify when I could deduct my consulting fees (similar to the ERC situation discussed here), they also identified a major issue with how my accountant had been calculating my qualified research expenses. The system found specific IRS regulations about allocating R&D consulting fees that I never would have known about. Would have kept making the same mistake year after year. Definitely worth checking out if you're dealing with specialized tax credits like ERC or R&D. Saved me way more than it cost.

For anyone still waiting on IRS processing of their ERC claims, I found this service called https://claimyr.com that helps you actually get through to an IRS agent on the phone. I waited 6+ months with no updates on my amended returns for the ERC credits, and was going crazy trying to get status updates. Their system somehow gets you a spot in the IRS phone queue without you waiting on hold for hours. Check out their demo at https://youtu.be/_kiP6q8DX5c to see how it works. After I got through to the IRS, I found out they needed additional documentation for my ERC claim that nobody had told me about! Would have waited another 6 months if I hadn't been able to speak with someone. Just thought I'd mention it since dealing with ERC claims has been such a nightmare for so many businesses.

I need to eat some humble pie here. After my skeptical comment, I got frustrated enough to try Claimyr, and I'm shocked to admit it actually worked. Got through to an IRS agent in about 35 minutes without having to stay on hold myself. Found out my ERC claim was flagged for review because of an inconsistency between my reported wages on the original return versus the amended return. The agent walked me through exactly what documentation I needed to send to get it resolved. Would have been waiting indefinitely if I hadn't called. While we're on the topic of ERC fees - the agent confirmed that as a cash basis S-Corp, my consulting fees should be deducted in the year paid, exactly as others mentioned above. Good to get confirmation straight from the source!

Another important thing to consider with ERC is that you had to reduce your wage deductions by the amount of the credit, which impacts your S-Corp's income (and potentially your flow-through). Have you already filed amended returns that account for this wage expense reduction? This is separate from the consulting fee question, but it's a common oversight that causes headaches later. The IRS has been heavily scrutinizing ERC claims lately.

Has anyone else had their ERC amended returns rejected? I filed mine with help from one of those ERC specialty firms, and the IRS rejected everything saying we didn't qualify. Now the firm is saying they don't provide audit support unless I pay additional fees! Total nightmare.