Tax Preparers Rejoice! Here’s How To Prepare SECURE 2.0 Form 8881 Retirement Tax Credit If You Use Gusto & Guideline

As my readers and colleagues know, I’m a huge proponent of leveraging technology to remove the drudgery from our jobs and those of our small business clients. We all have enough on our plates already!

As a CPA whose company works with loads of small businesses that need to process payroll, I’ve used quite a few payroll systems through the years… and Gusto has become our favorite. It’s not without its quirks and issues, but overall it does a great job for a great price, and — key for the work we do — it syncs nicely with QuickBooks Online, as well as with Guideline Retirement, saving us oodles of time that we used to spend on benefit reconciliations. (In my recent MSN article about choosing the best state-mandated small business employee retirement plan solution, I cite this as one of the main reasons to go with Guideline.)

This week, I discovered a gift that Gusto created for tax preparers with clients that use the Gusto+Guideline combo — a reporting tool that will literally prepare the Form 8881 “Credit for Small Employer Pension Plan Startup Costs” for you. No joke. And it works!

I want to shout it from the rooftops, because it’s a massive timesaver. The previous SECURE Act credit was super-easy to claim, but this year, the Form 8881 was updated for SECURE 2.0 to include loads of information that most CPA firms are simply not going to have access to — not only current tax-year payroll information, but prior-year data on a per-employee basis; as well as information on how many employees qualified to participate (whether or not they actually participated), again both in 2022 and in 2023.

It was such a balm on my tired tax-preparing soul to know that they were looking out for us and trying to make our lives better through technology. The only thing I can’t figure out is why no one told me about it sooner. (Honestly, I randomly stumbled on it when I went into my own Gusto account to run weekly payroll.)

Not only did we end up using these reports for our own tax clients, but we also sent them over to our colleagues who prepare the tax returns for certain bookkeeping clients of ours, to help them out. And now we’re superstars to them. In fact, here’s a great idea for all the bookkeepers reading: run this report for all your clients, prepare a zip file for each of the tax preparation firms you work with, and send them this beautiful present all tied up with a pretty virtual bow. I’m always talking about collaboration and co-firming between bookkeepers and CPAs (come see me this June at Scaling New Heights for “The Tax-Ready Bookkeeper”) and this is a great example of it! Who do you think they’re going to recommend when a tax client needs accounting and bookkeeping assistance? You!

Keep in mind that these reports are only accurate if a) the client was on Gusto and Guideline, and b) were on them both for all of 2023.

These are the steps I walked through and the screens I clicked on to make this magic happen.

1. Sign into Gusto and go into a client that used Gusto+Guideline for all of 2023. (No other payroll, no other retirement company.)
2. On the left side bar, click on “Tax credits”.

3. Under “Available credits”, find the one that says “401(k) tax credit” and click the “Learn more” button.

4. Check out the overview and the FAQ, and then click the “Get started” button.

5. Fill out the short questionnaire. The information below was correct for my own company, but may not be the same answers for yours or for your clients, so make sure to answer accurately. Then click the “Continue” button.

6. At this point, Gusto will provide you with the amount of the credit, as well as all the information you need to prepare the Form 8881. Review it carefully. This is particularly important if you have employees who are not represented in Gusto because you are using another payroll provider simultaneously. And as I mentioned above, if the client switched retirement companies from another provider to Guideline part-way through the year, this information will not be accurate. Once you’ve reviewed the data, then click the “Generate credit form” button at the bottom of the page.

7. On the next screen, you will have two options:

If you click the “Download” button it gives you an incredible PDF with not only all the information you need to know to prepare the 8881, but a copy of the IRS form itself, filled-out exactly as it should be, according to their records + Guideline’s records.

If you click “Review Details” (to the right of the amount of your credit) you’ll get a screen pop-up from the right that you can scroll through to review the same information they noted above. From here, you can click “Reset credit form” if some of the information looks incorrect and you need to edit the questionnaire, or simply click “Close” if you’re done.

That’s it. It was simply that easy. The process of figuring out all this information prior to discovering Gusto’s beautiful gift took about two hours — which doesn’t count the digging through reports in Gusto and Guideline to figure out which ones told us what we needed to know, reaching out to Guideline support and asking for a custom report to be generated for each client that would show which employees qualified (turns out they are completely unaware that Gusto has this great resource, too — someone should definitely let them know)… and it definitely doesn’t count the ridiculous amount of time we spent figuring it out for our last remaining ADP client hold-outs — their reports can’t even be exported into Excel! PDF-only, you heard me. I’ve been warning those two clients for years that one day I’m going to issue an ultimatum. That day might be coming soon.

One small glitch: for some clients, it shows an extra month of Guideline service fee payments compared to what is in QuickBooks Online, which I think is simply a timing issue. It’s also a small-enough amount that if it gets claimed in 2023 instead of 2024, that’s not a huge deal. However, we manually edited ours accordingly, and hope that this gets cleaned up for next tax year.

And while we’re here — did you know that our Gusto referral link will get you a $100 prepaid Visa card when you sign up and run your first paid payroll? Or — $200 if you have over 10 employees! And for accountant partners, signing up through this link will earn you $500 once you’ve added and run payroll for three clients. Next year, you too can be reveling in the glory of pre-prepared small business retirement credits!

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