Conservation Easements are Under IRS Scrutiny

For many years, conservation easements have been a powerful estate planning tool that enable taxpayers to receive income and estate tax benefits while continuing to own and enjoy the properties. So it’s no surprise that the IRS has been scrutinizing easements to ensure they meet tax code requirements. The tax agency has even issued a warning that some of the transactions are “bogus tax avoidance strategies.”

Curbing abusive arrangements

A conservation easement is a restriction on the use of real property. It involves an arrangement to permanently restrict some or all of the development rights associated with a property. The easement is granted to a conservation organization — usually a government agency or qualified charity — by executing a deed and recording it in the appropriate public records office. The organization is responsible for monitoring the property’s use and enforcing the easement.

In a legitimate transaction, a taxpayer can claim a charitable contribution deduction for the fair market value of a conservation easement transferred to a charity if the transfer meets tax code requirements. The IRS explains that “in abusive arrangements, promoters are syndicating conservation easement transactions that purport to give an investor the opportunity to claim charitable contribution deductions and corresponding tax savings that significantly exceed the amount the investor invested.” The tax agency added “these abusive arrangements, which generate high fees for promoters, attempt to game the tax system with grossly inflated tax deductions.”

As part of recent legislation, an easement-related provision changed the tax code to curb certain abusive conservation easement transactions. The IRS announced it “is committed to ensuring compliance with the conservation easement deduction law as amended and will continue to keep an eye on transactions that are ‘too good to be true.’”

A guide for auditors

To assist auditors examining tax returns, the IRS has a Conservation Easement Audit Technique Guide (ATG). The fact that the ATG is more than 100 pages demonstrates how complex the transactions are and how serious the IRS is about uncovering abusive arrangements.

The ATG explains that to qualify for tax benefits, an easement must be granted exclusively for one of the following purposes:

To preserve land for public recreation or education,
To protect a relatively natural habitat of fish, wildlife or plants,
To preserve open spaces, either for the public’s “scenic enjoyment” or according to a governmental conservation policy that yields a “significant public benefit,” or
To preserve a historically important land area or a certified historic structure.

It’s critical for an easement to be carefully drafted so there’s no confusion about which land uses are given up and which are retained.

Tax benefits

For estate tax purposes, a percentage of the land’s value (up to certain limits) can be excluded from a gross estate (in addition to any reduction in value resulting from the easement). Certain other limitations apply.

For income tax purposes, a qualified transaction entitles a taxpayer to deduct the easement’s value (defined as the difference between the property’s fair market value before and after the easement is granted) as a charitable gift. The deduction is subject to the same limitations that apply to other charitable donations. Conservation easements valued over $5,000 must be supported by a qualified appraisal.

Common errors

The ATG identifies common mistakes when making donations. They include:

Use of improper appraisal methodologies and overvalued easements,
Failure to comply with substantiation requirements, and
Failure to restrict development of the land in perpetuity, allowing the easement to be abandoned or terminated.

If you’re contemplating a conservation easement, know that the IRS is scrutinizing them. Work with tax, legal and valuation professionals to stay out of IRS trouble and avoid losing valuable tax benefits.

No matter how carefully and congenially you run your business, customer disputes will likely happen from time to time.

Some of the complaints may be people looking to negotiate a discount, “game the system” or even outright defraud you. But others could be legitimate complaints arising from mistakes on your company’s part, technological glitches or, perhaps worst of all, fraudulent actions by a third party.

Whatever the case may be, you can protect your business’s reputation and even strengthen its brand by creating and maintaining an effective customer dispute resolution process that includes eight key features:

1. Easily accessible channels of communication. Post easy-to-find and clearly written directions on your website, social media accounts and other channels detailing how customers can report problems, suspected errors and fraud on their accounts. The directions should include up-to-date contact info for your company and identify any forms or documentation required. Also provide a succinct description of your dispute resolution process, so customers know what to expect.

2. An efficient timeline. Naturally, it’s imperative to respond as quickly as possible to customer concerns or complaints. Today’s technology allows businesses to immediately send automated replies confirming receipt of the customer’s message and assuring the sender that you’re investigating. If the matter appears legitimate, you can follow up with a resolution timeline stating the next steps in the process.

3. Empathy and understanding. Train employees to listen patiently and acknowledge to customers the inconvenience of potential errors or fraud on their accounts. Remind customer-facing staff to keep open minds and not automatically assume any customer is making a false report.

4. Rigorous investigatory techniques. Thoroughly investigate disputes to ascertain root causes. Precisely how you should do so will depend on the nature of your industry and operations, as well as the specifics of the complaint.

To ensure consistency and build a robust document trail, however, require employees performing investigations to first gather all available account information and transaction records. Investigators should also carefully preserve emails and other electronic messages, as well as record or transcribe phone conversations with complaining customers and, if applicable, other involved parties.

5. Strong data protection. Your business should already have up-to-date cybersecurity safeguards in place to prevent data breaches and identity theft. But your customer dispute resolution process should include additional layers of protection. For example, apply “the principle of least privilege,” which means, in this case, only authorized employees directly involved in investigations have access to pertinent data.

6. Transparency and proactive follow-ups. Keep customers informed throughout the entire process. Don’t “leave them hanging” and wait for them to follow up with you. Provide them with regular updates on investigations and inform them of outcomes as soon as they’re available.

7. Timely resolution. If a dispute is found to be in the customer’s favor, quickly make the necessary corrections — such as refunds or account adjustments. Also consider providing a temporary discount, free replacement items or complementary services. Many companies also issue an apology, though you may want to consult your attorney on the language.

If you deny a claim, provide a detailed explanation of the evidence and your reasoning. Consider allowing some customers to appeal decisions not in their favor by submitting supplemental information.

8. Documentation and analysis with an eye on continuous improvement. Last, be sure to continually learn from incidents. Retain records of all customer disputes and fraud claims to identify patterns and trends. Use this data to improve your internal controls and investigatory processes, make decisions on technology upgrades, and train customer-facing teams. By doing so, you may be able to prevent disputes in the future or at least lessen their frequency.

As an employer sponsoring a retirement plan, it’s essential to maintain accurate records to comply with legal requirements and ensure smooth plan administration. Let’s dive into the key aspects of maintaining and retaining retirement plan records.

Why Maintain Retirement Plan Records?

Maintaining accurate and up-to-date retirement plan records is essential for several reasons:

Compliance with Legal Requirements: The Internal Revenue Service (IRS) and Department of Labor (DOL) have specific requirements for record retention related to retirement plans. Failure to comply can result in penalties and fines.
Financial Planning: These records provide a clear picture of your retirement savings progress, helping you make informed decisions about your financial future.
Dispute Resolution: In case of any discrepancies or disputes with the plan provider, detailed records can provide necessary evidence.
Audit Ready: This is the main reason for retaining plan documents. Audits require a ton of documentation to prove the plan has been responsibly managed and kept in compliance. Most of the documents you are required to retain are those you’ll need to supply for an audit.

ERISA Guidelines and Requirements

The Employee Retirement Income Security Act (ERISA) sets minimum standards for retirement plans in private industry. Here are some key ERISA guidelines for record maintenance:

Plan Documents: ERISA requires plan administrators to maintain and provide participants with Summary Plan Descriptions (SPDs) and plan documents upon request.
Fiduciary Responsibilities: Plan fiduciaries must act prudently and solely in the interest of the plan’s participants and beneficiaries. All decisions and actions taken by fiduciaries should be documented and retained.
Reporting and Disclosure: ERISA requires the filing of annual reports (Form 5500) with the federal government. It provides transparency about the plan’s financial conditions and operations to the government and plan participants.
Record Retention: Section 107 of ERISA states that plan administrators must keep plan records for at least six years after filing ERISA returns or reports. However, some records should be kept indefinitely.
Accessibility: Whether in paper or electronic format, records must be readily retrievable. If using electronic media, the recordkeeping system must meet certain standards:

Ensure the integrity, accuracy, authenticity, and reliability of electronic records.
Maintain records in reasonable order and in a safe, accessible place.
Must be able to convert electronic records into legible paper copies when needed for reporting and disclosure requirements.

What Records Should You Keep and for How Long?

ERISA Section 107 requires that for fiduciary plan documents, contracts and agreements, participant notices, and compliance documents, you are required to keep records for “at least six years from the date the report was filed.”

Participant-level benefit determinations are slightly different. These should be kept “until the plan has paid all benefits and enough time has passed that the plan won’t be audited.”

Here are some of the key documents to retain:

Plan Documents: No legal documents related to the plan should ever be destroyed. This includes the original signed and dated plan adoption agreement, annuity contracts, plan amendments, and restatements. For example, if you have a 401(k) plan, keep the original signed and dated 401(k) adoption agreement.
Plan Benefit Records: ERISA requires every employer to maintain records necessary to determine benefits due or that may become due to each employee for as long as the possibility exists that they might be relevant to determining the benefit entitlements of a participant or beneficiary. These records include eligibility records, time cards and any records related to distributions and should be retained indefinitely.
Financial Statements: Keep all annual financial statements and auditor’s reports if the plan is subject to an audit.
Participant Records: Preservation of plan records is important not only from the standpoint of complying with ERISA record retention rules, but also because the IRS has been known to request records from employers that go back 10 years or more in the case of a plan termination. Deferral election forms, investment forms, beneficiary forms, and any Qualified Domestic Relations Orders (QDROs) should be kept indefinitely in the participant’s personnel files as well as records of each participant’s account balance and their vesting status. It is also recommended that a file be kept that contains copies of any notices that were given to employees.
Fiduciary Records: Plan fiduciary records should be retained indefinitely. Retain all records of decisions made by plan fiduciaries, including investment decisions, selection of service providers, and plan committee meeting notes. For instance, if you change the plan’s investment options, you should document the decision-making process and retain those records.
Form 5500 and Supporting Information: Form 5500 and records that verify or explain information on the Form 5500 should be kept for at least six years after the filing date of the Form. These include worksheets, receipts, checks, invoices, bank statements, ledgers, contracts, and evidence of the plan’s fidelity bond.

Best Practices for Record Maintenance

Organize Your Records: Keep the records in a systematic manner, making it easier to locate specific documents when needed.
Secure Storage: Protect the records from physical damage and unauthorized access. Consider using secure digital storage solutions.
Regular Updates: Update the records regularly to reflect any changes in the retirement plan or personal circumstances.
Professional Guidance: Consider seeking help from financial advisors or retirement plan consultants to ensure you are meeting all legal requirements.

Maintaining and retaining retirement plan records might seem like a daunting task, but it’s a vital part of ensuring smooth plan administration and complying with requirements.

Yeo & Yeo CPAs & Advisors, a leading Michigan-based accounting and advisory firm, has been named one of West Michigan’s Best and Brightest Companies to Work For for the twentieth consecutive year.

West Michigan Best and Brightest The Best and Brightest program identifies and honors organizations that excel in their human resource practices and employee enrichment. An independent research firm assesses organizations in categories such as communication, work-life balance, employee education, recognition, retention and more.

Yeo & Yeo takes pride in creating an environment that challenges, supports and rewards its people. The firm’s culture is one of learning, growth and purpose. The firm offers an award-winning CPA certification bonus program, an award-winning wellness program, gold-standard benefits, and hybrid and remote work capabilities.

“With today’s intense competition for top talent, fostering a thriving work environment is more important than ever. Job seekers and existing employees are no longer solely motivated by salary and benefits; they’re looking for a workplace that offers purpose, growth opportunities, and a sense of belonging and camaraderie,” said David Jewell, managing principal of Yeo & Yeo’s Kalamazoo office. “Receiving this award for 20 consecutive years is remarkable and confirms that Yeo & Yeo offers an outstanding work culture and environment that attracts and retains superior employees.”

The select companies were honored on May 9, 2024, at The Pinnacle Center in Hudsonville, Mich., and the winning companies will also compete for 14 elite awards.

We are delighted to spotlight Christina LaVielle, one of the recipients of the Tomorrow’s 20 award from the Auburn Hills Chamber of Commerce. This prestigious accolade recognizes Chrissy’s outstanding community service, leadership, and innovation within the CPA industry.

Chrissy, congratulations on winning the Tomorrow’s 20 award! Can you share with us what winning this award means to you?

Thank you! Winning the Tomorrow’s 20 award is truly an honor and a humbling experience. Being recognized for my professional and community contributions means a lot to me. It validates the hard work and dedication I’ve put into my career and my passion for making a positive impact. It has given me a renewed sense of purpose and motivation to continue making meaningful contributions to my career and community involvement. I also see it as an opportunity to inspire others, especially young professionals, to strive for excellence and pursue their passions relentlessly.

You’ve had an impressive journey at Yeo & Yeo, spanning over a decade. Could you tell us about some of the highlights of your career thus far?

Absolutely. One of the highlights of my career has been managing governmental audits for some of our largest clients. It’s been gratifying to lead these projects and contribute to the success of our clients while upholding the highest standards of quality and integrity. Additionally, helping implement new audit software and providing internal training sessions for Yeo & Yeo has been gratifying, allowing me to foster innovation and growth within our organization.

Beyond your professional commitments, you are actively engaged in community service and professional associations. How do you balance your career with your involvement in these initiatives?

Balancing my career with community service and professional associations is definitely a juggling act, but it’s one that I’m passionate about. I firmly believe in giving back to the community that has supported me throughout my career. Whether participating in initiatives like the Yeo Young Professionals’ service projects or volunteering with the Auburn Hills Chamber of Commerce Golf Committee, I find fulfillment in contributing to causes that make a positive difference. It’s all about prioritization and time management.

Christina LaVielle’s journey is a testament to dedication, innovation, and a heart for service. Her career achievements, active involvement in the community, and commitment to excellence make her deserving of the Tomorrow’s 20 award. We congratulate Chrissy on this well-deserved honor and eagerly anticipate her future accomplishments and contributions.

The U.S. Department of Labor (DOL) has issued a new final rule regarding the salary threshold for determining whether employees are exempt from federal overtime pay requirements. The threshold is slated to jump 65% from its current level by 2025 and is expected to make four million additional workers eligible for overtime pay.

On the same day the overtime rule was announced, the Federal Trade Commission (FTC) approved a final rule prohibiting most noncompete agreements with employees, with similarly far-reaching implications for many employers. Both regulations could be changed by court challenges, but here’s what you need to know for now.

The overtime rule

Under the Fair Labor Standards Act (FLSA), so-called nonexempt workers are entitled to overtime pay at a rate of 1.5 times their regular pay rate for hours worked per week that exceed 40. Employees are exempt from the overtime requirements if they satisfy three tests:

Salary basis test. The employee is paid a predetermined and fixed salary that isn’t subject to reduction due to variations in the quality or quantity of his or her work.
Salary level test. The salary isn’t less than a specific amount, or threshold (currently, $684 per week or $35,568 per year).
Duties test. The employee primarily performs executive, administrative or professional duties.

The new rule focuses on the salary level test and will increase the threshold in two steps. Starting on July 1, 2024, most salaried workers who earn less than $844 per week will be eligible for overtime. On January 1, 2025, the threshold will climb further, to $1,128 per week.

The rule also will increase the total compensation requirement for highly compensated employees (HCEs). HCEs are subject to a more relaxed duties test than employees earning less. They need only “customarily and regularly” perform at least one of the duties of an exempt executive, administrative or professional employee, as opposed to primarily performing such duties.

This looser test currently applies to HCEs who perform office or nonmanual work and earn total compensation (including bonuses, commissions and certain benefits) of at least $107,432 per year. The compensation threshold will move up to $132,964 per year on July 1, and to $151,164 on January 1, 2025.

The final rule also includes a mechanism to update the salary thresholds every three years. Updates will reflect current earnings data from the most recent available four quarters from the U.S. Bureau of Labor Statistics. The rule also permits the DOL to temporarily delay a scheduled update when warranted by unforeseen economic or other conditions. Updated thresholds will be published at least 150 days before they take effect.

Plan your approach

With the first effective date right around the corner, employers should review their employees’ salaries to identify those affected — that is, those whose salaries meet or exceed the current level but fall below the new thresholds. For employees who are on the bubble under the new thresholds, employers might want to increase their salaries to retain their exempt status. Alternatively, employers may want to reduce or eliminate overtime hours or simply pay the proper amount of overtime to these employees. Or they can reduce an employee’s salary to offset new overtime pay.

Remember, too, that exempt employees also must satisfy the applicable duties test (which varies depending on whether the exemption is for an executive, professional or administrative role). An employee whose salary exceeds the threshold but doesn’t primarily engage in the applicable duties isn’t exempt.

Obviously, depending on the selected approach, budgets may require adjustments. If some employees will be reclassified as nonexempt, employers may need to provide training to employees and supervisors on new timekeeping requirements and place restrictions on off-the-clock work.

Be aware that business groups have promised to file lawsuits to block the new rule, as they succeeded in doing with a similar rule promulgated in 2016. Also, the U.S. Supreme Court has taken a skeptical eye to administrative rulemaking in recent years. So it makes sense to proceed with caution. Bear in mind, too, that some employers also are subject to state and local wage and hour laws with more stringent standards for exempt status.

The noncompete ban

The new rule from the FTC bans most noncompete agreements nationwide (which will conflict with some state laws). In addition, existing noncompetes for most workers will no longer be enforceable after the rule becomes effective, 120 days after it’s published in the Federal Register. The rule is projected to affect 30 million workers. However, it doesn’t apply to certain noncompete agreements and those entered into as part of the sale of a business.

The rule includes an exception for existing noncompetes with “senior executives,” defined as workers earning more than $151,164 annually who are in policy-making positions. Policy-making positions include:

A business’s president,
A chief executive officer or equivalent,
Any other officer who has policy making authority, and
Any other natural person who has policy making authority similar to an officer with such authority.

Note that employers can’t enter new noncompetes with senior executives.

Unlike the proposed rule issued for public comment in January 2023, the final rule doesn’t require employers to legally modify existing noncompetes by formally rescinding them. Instead, they must only provide notice to workers bound by existing agreements — other than senior executives — that they won’t enforce such agreements against the workers. The rule includes model language that employers can use to provide notice.

A lawsuit was filed in a Texas federal court shortly after the FTC voted on the final rule, arguing the FTC doesn’t have the statutory authority to issue the rule. The U.S. Chamber of Commerce also subsequently filed a court challenge to block the noncompete ban.

More to come

Whether either of these rules will eventually become effective as written remains to be seen. Judicial intervention or a potential swing in federal political power could mean they land in the dustbin of history before taking effect — or shortly thereafter. We’ll keep you up to date on the latest news regarding these two rules.

There are several financial and legal implications when adding a new partner to a partnership. Here’s an example to illustrate: You and your partners are planning to admit a new partner. The new partner will acquire a one-third interest in the partnership by making a cash contribution to the business. Assume that your basis in your partnership interests is sufficient so that the decrease in your portions of the partnership’s liabilities because of the new partner’s entry won’t reduce your basis to zero.

More complex than it seems

Although adding a new partner may appear to be simple, it’s important to plan the new person’s entry properly to avoid various tax problems. Here are two issues to consider:

If there’s a change in the partners’ interests in unrealized receivables and substantially appreciated inventory items, the change will be treated as a sale of those items, with the result that the current partners will recognize gain. For this purpose, unrealized receivables include not only accounts receivable, but also depreciation recapture and certain other ordinary income items. To avoid gain recognition on those items, it’s necessary that they be allocated to the current partners even after the entry of the new partner.
The tax code requires that the “built-in gain or loss” on assets that were held by the partnership before the new partner was admitted be allocated to the current partners and not to the entering partner. In general, “built-in gain or loss” is the difference between the fair market value and basis of the partnership property at the time the new partner is admitted.

The upshot of these rules is that the new partner must be allocated a portion of the depreciation equal to his or her share of the depreciable property, based on current fair market value. This will reduce the amount of depreciation that can be taken by the current partners. The other outcome is that the built-in gain or loss on the partnership assets must be allocated to the current partners when the partnership assets are sold. The rules that apply in this area are complex, and the partnership may have to adopt special accounting procedures to cope with the relevant requirements.

Follow your basis

When adding a partner or making other changes, a partner’s basis in his or her interest can undergo frequent adjustment. It’s important to keep proper track of your basis because it can have an impact on these areas:

Gain or loss on the sale of your interest,
How partnership distributions to you are taxed, and
The maximum amount of partnership loss you can deduct.

We can help

Contact us if you’d like assistance in dealing with these issues or any other issues that may arise in connection with your partnership.

Financial institutions, investment service companies, insurers and creditors generally are required to implement and follow know-your-customer (KYC) policies as part of a larger anti-money laundering (AML) effort. Although most other nonregulated businesses don’t have a KYC mandate, such procedures can help prevent fraud and significant financial losses from criminal activity, among other benefits. In addition, following KYC principles sends a message to customers, vendors and other stakeholders that you take trust and security seriously.

Due diligence requirements

As part of their KYC processes, regulated businesses have three duties to perform: customer due diligence, enhanced due diligence and continuous monitoring. In practice, this means they verify customers’ names, addresses and dates of birth and check them against lists of known criminals. In addition, they monitor transaction trends and high-risk accounts to determine their threat level and whether they merit filing suspicious activity reports with the government.

Enhanced due diligence techniques dig deeper. For example, a bank might look closely at high-transaction-value accounts or accounts that deal with risky activities or countries.

Export companies subject to the regulations must be careful not to sell to customers on certain lists maintained by the federal government, including customers that have been denied export privileges. Exporters are also expected to review all information they receive about customers to ensure that they’re alerted of the possibility that a violation could occur.

Antifraud and marketing benefits

Even if you’re not in the financial industry and don’t sell products overseas, it can pay to understand who your customers are. Routinely performing credit checks on major customers, for example, can help prevent your business from falling victim to “phoenix” schemes where companies attempt to profit from bankruptcy.

What’s more, creating a comprehensive history of each customer’s credit limits and transactions enables you to identify your top customers. This may not expose fraud or money laundering, but it can help your business assess how vulnerable it would be if it lost one or a few of its biggest customers.

Analyzing customers’ purchasing behavior also allows you to identify cross-selling and upselling opportunities — along with any irregularities that could indicate nefarious activity. If a customer with a long record of annual purchases suddenly begins placing monthly orders, for example, you may want to delve deeper. The change may signal nothing more than your customer expanding its business, but it also could be a sign of fraud.

Crypto risks remain

The emergence of cryptocurrencies has increased customer-related risk for some businesses. Although crypto companies now must adhere to AML regulations and follow KYC procedures, some money launderers have found workarounds. So exercise greater caution when conducting transactions involving crypto. Contact us for more information.

Yeo & Yeo is proud to be the recipient of the 2023 Outstanding Business Award from the Scott L. Carmona College of Business at Saginaw Valley State University. The firm was honored at the university’s 10th Annual Academia Awards – Best in Business on May 3, 2024.

Last year marked a thrilling milestone for Yeo & Yeo – it is rare when a company is able to celebrate 100 years in business! Now, the firm is moving forward from that achievement, still upholding the foundational core values that have supported its success for a century.

Yeo & Yeo Receives SVSU Outstanding Business Award Yeo & Yeo was founded as an accounting partnership by two generations of the Yeo family. Then, the third generation of that family, Lloyd Yeo, provided the blueprint for a company that has become a top 200 accounting and advisory firm, with more than 225 employees in nine offices throughout Michigan. Lloyd Yeo also made a direct, lasting impact on Saginaw Valley State University.

Yeo & Yeo is a business success partner that helps organizations and individuals thrive on their unique journeys. The firm serves clients across many industries, including agribusiness, construction, education, government, healthcare, manufacturing and nonprofit. Its comprehensive services are delivered through four distinct and connected companies: Yeo & Yeo CPAs & Advisors, Yeo & Yeo Technology, Yeo & Yeo Medical Billing & Consulting, and Yeo & Yeo Wealth Management.

At the heart of Yeo & Yeo’s culture are its people: welcoming and driven advisors. From tax, audit and consulting, to technology solutions and beyond, they act as a powerful extension of the businesses they serve, driving and supporting their success.

Yeo & Yeo’s commitment to relationships goes even further. Community support has been one of the firm’s core values since day one, and the firm’s professionals volunteer their time and expertise for hundreds of community organizations. In addition, since its inception in 2020, the Yeo & Yeo Foundation has donated over $485,000 to more than 200 organizations across Michigan. The firm has an unwavering commitment to our state and our communities, giving back in meaningful and impactful ways.

Yeo & Yeo is committed to Saginaw Valley State University as well. The firm is a proud founding member of the Stevens Center for Family Business. The firm continues to nurture future professionals by providing valuable internship opportunities for SVSU students, helping them ignite their career passions.

Looking ahead, Yeo & Yeo is well positioned to continue its legacy of business success partnerships for the next 100 years, providing their clients with the resources they need to succeed, walking alongside them every step of the way.

One of the most effective ways to provide for your children in your estate plan is to set up trusts for them. Trusts offer many benefits, including the flexibility of when and how to make distributions, protection of assets from beneficiaries’ creditors and protection of assets from being divided as part of a beneficiary’s divorce. They may also help protect the funds from depletion by a beneficiary with a substance abuse problem, a gambling addiction or bad spending habits.

Many parents’ estate plans call for their assets to be split into equal shares and used to fund a separate trust for each child. But, depending on your circumstances, it may be preferable to pool your assets into a single “pot” trust.

Fair isn’t necessarily equal

Parents generally want to avoid “playing favorites,” so separate trusts appeal to their sense of fairness. But “fair” and “equal” aren’t necessarily the same thing. Think about how you use your funds now. If one of your children has a specific need — whether it’s college tuition, medical care or something else — it’s likely that you’ll pay for it without feeling any pressure to spend the same amount on your other children.

View your estate plan in the same light: Fairness means providing for your children’s needs, regardless of whether you distribute your assets equally.

For example, suppose you have two children, Stella and Lucy, ages 23 and 18, respectively. Stella recently graduated from college and Lucy is about to start. You’ve already spent more than $200,000 on Stella’s tuition and other college expenses. If you were to die tomorrow, and your estate plan divides your wealth equally between Stella and Lucy, Stella will come out ahead. That’s because she already received the benefit of $200,000 in college expenses. Lucy, on the other hand, will need to tap her trust fund to pay for college.

Consider a pot trust

A pot trust can be a great way to continue meeting your children’s individual needs and avoid giving one child a windfall, like Stella received in the example above. As the name suggests, you pool assets into a single trust and give the trustee full discretionary authority to distribute the funds among your children according to their needs.

Essentially, a pot trust allows the trustee to spend your money the way you would if you were alive. If one of your children has substantial education expenses or medical bills, the trustee has the authority to cover them, even at the expense of your other children’s inheritances.

For many families, a pot trust makes sense when children are relatively young and are likely to have differing needs that can change dramatically over time. If appropriate, your plan can call for the pot trust to be divided into separate trusts for each child at some point in the future — for example, when the youngest child reaches age 21, 25 or some other milestone.

Choose your trustee carefully

For a pot trust to be effective, it’s critical to choose your trustee — as well as a backup trustee — carefully. As with any type of trust, your trustee should be trustworthy and impartial and have the skills necessary to manage the trust assets. But for a pot trust, it’s particularly important for the trustee to have the ability to communicate effectively with the beneficiaries.

Because distributions depend on each beneficiary’s unique needs, the trustee must understand those needs, as well as your objectives for the trust, and be able to explain the reasoning behind his or her decisions to all the beneficiaries. Contact us with questions regarding a pot trust.

On April 30, 2024, the Drug Enforcement Administration (DEA) announced a groundbreaking decision to reschedule marijuana from Schedule I to Schedule III under the Controlled Substances Act. This move follows a recommendation from the U.S. Department of Health and Human Services. The proposal is not yet finalized, and it must first clear the White House Office of Management and undergo a public comment period.

Implications for Cannabis Businesses

If rescheduled, it would carry significant implications for state-legal cannabis businesses:

Tax and financial implications

Cannabis would no longer be subject to Section 280E of the Internal Revenue Code, which currently limits the tax deductions available to cannabis businesses.
Rescheduling could make it easier for cannabis businesses to access banking services, investment, and other financial resources that are currently limited due to the Schedule I classification.

Regulatory changes

Rescheduling could lead to changes in federal regulations surrounding the production, distribution, and sale of marijuana products.
The change in classification could facilitate more medical research into the potential therapeutic benefits of cannabis and its compounds.

What to Do Now

At this time, there is nothing for clients to do, as the rescheduling process is ongoing and no immediate changes have taken effect. However, it is crucial to stay informed and be prepared for potential future developments.

Staying Informed and Prepared

We are closely monitoring this development and its implications for our clients. We will keep you informed of any updates or changes that may impact your business operations and compliance requirements.

If you have questions or concerns about how the DEA’s rescheduling decision may affect your company, please contact your Yeo & Yeo advisor. Our team is here to provide guidance and support during this evolving regulatory landscape.

For more information, see the MICIA’s article: DEA Agrees To Reschedule Marijuana Under Federal Law In Historic Move Following Biden-Directed Health Agency’s Recommendation

If your company operates in the business-to-business (B2B) marketplace, you’ve probably experienced some collections challenges.

Every company, whether buyer or seller, is trying to manage cash flow. That means customers will often push off payments as long as possible to retain those dollars. Meanwhile, your business, as the seller, needs the money to meet its revenue and cash flow goals.

There’s no easy solution, of course. But you can “grease the wheels,” so to speak, by strategically devising and continuously improving a methodical collections process.

Payment terms

Getting paid promptly depends, at least in part, on the terms you set forth and customers agree to. Be sure payment terms for your company’s products or services are written in unambiguous language that includes specific due dates, payment methods and late-payment penalties. To the extent feasible, use contracts or signed payment agreements to ensure both parties understand their obligations.

If your business operates on a project basis, try to negotiate installment payments for completion of specific stages of the work. This approach may not be necessary for shorter jobs but, for longer ones, it helps assure you’ll at least receive some revenue if the customer runs into financial trouble or a dispute arises before completion.

Effective invoicing

Invoice promptly and accurately. This may seem obvious, but invoicing procedures can break down gradually over time, or even suddenly, when a company gets very busy or goes through staffing changes. Monitor relevant metrics such as days sales outstanding, revenue leakage and average days delinquent. Act immediately when collections fall below acceptable levels.

Also, don’t let the essential details of invoicing fall by the wayside. Ensure that you’re sending invoices to the right people at the right addresses. If a customer requires a purchase order number to issue payment, be sure that this requirement is built into your invoicing process.

In today’s world of high-tech money transfers, offering multiple payment options on invoices is critical as well. Customers may pay more quickly when they can use their optimal method.

Reminders and follow-ups

Once you’ve sent an invoice, your company should have a step-by-step process for reminders and follow-ups. A simple “Thank you for your business!” email sent before payment is due can reiterate the due date with customers. From there, automated reminders sent via accounts receivable (AR) or customer relationship management (CRM) software can be helpful.

If you notice that a payment is late, contact the customer right away. Again, you can now automate this to begin with texts or emails or even prerecorded phone calls. Should the problem persist, the next logical step would be a call from someone on your staff. If that person is unable to get a satisfactory response, elevate the matter to a manager.

These steps should all occur according to an established timeline. What’s more, each step should be documented in your AR or CRM software so you can measure and improve your company’s late-payment collections efforts.

Typically, the absolute last step is to send an outstanding invoice to a collection agency or a law firm that handles debt collection. However, doing so will usually lower the amount you’re able to collect and typically ends the business relationship. So, it’s best viewed as a last resort.

What works for you

If your B2B company has been operational for a while, you no doubt know that collections aren’t always as simple as “send invoice, receive payment.” It often involves interpersonal relationships with customers and being able to exercise flexibility at times and assertiveness at others. For help analyzing your collections process, identifying key metrics and measuring all the costs involved, contact us.

In observance of Financial Literacy Month, we’ve provided helpful articles throughout the month to guide individuals along their wealth-building journey. It’s also a great month for business owners and entrepreneurs to check in on the financial best practices for the business. Whether you’re a seasoned professional or just starting to understand the importance of financial literacy to your business, here are some valuable tips to help ensure a thriving business.

1. Establish a Strong Financial Foundation

Creating a robust financial base is crucial for business success. Here are some steps to get started:

Keep Detailed Records: Implement a reliable accounting system and meticulously record all financial transactions, including inventory, payroll, accounts payable, and receivables. Accurate records simplify tax filing and provide a realistic view of your financial health.
Prepare Timely Financial Statements: Regularly generate income statements, balance sheets, and cash flow statements. These also provide insights into your business’s financial health.
Determine Cash Flow Needs: Understand your cash flow requirements to maintain day-to-day operations and plan for growth.
Develop a Realistic Budget: Set achievable budgeting goals to avoid overspending and ensure financial stability.

2. Track Income and Expenses

Keep a close eye on your business’s financial inflows and outflows. Regularly review your income sources and monitor expenses. This practice helps identify areas where you can cut costs or allocate resources more efficiently.

3. Pay Bills on Time

Late payments can harm your credit score and strain relationships with suppliers. Prioritize paying bills promptly to maintain a positive financial reputation.

4. Plan for the Unexpected

Businesses inevitably face unforeseen challenges. Having an emergency fund or contingency plan ensures you can weather unexpected financial storms without jeopardizing your operations.

5. Reinvest in Your Business

Allocate a portion of your profits back into the business. Whether it’s upgrading technologies or equipment, enhancing employee morale, investing in research & development, or expanding marketing efforts, strategic investments can allow for growth, innovation, and long-term sustainability.

6. In-house vs. Outsourcing

Consider the roles in your company that are best kept in-house versus those that may be more advantageous and cost-effective to outsource. Some of the roles to carefully evaluate include accounting, payroll, HR, technology management, marketing, and facilities maintenance.

7. Separate Business and Personal Finances

Avoid mixing personal and business funds. Even if your business is self-funded, resist the temptation to use business money for personal expenses. Clear separation ensures better financial management, avoids complications, and prevents potential pitfalls.

8. Pay Yourself

As a business owner, don’t neglect your own compensation. Pay yourself appropriately, balancing the needs of the business with your personal financial well-being. Remember, you’re an integral part of the company.

9. Seek Professional Guidance

Establish your professional network. Consult with your financial advisors, accountants, legal professionals, insurance agents, and mentors. Their expertise can provide valuable insights and help you make informed decisions.

10. Stay Informed

Stay updated on industry trends, tax regulations, and financial best practices. Again, seek professional help to ensure compliance, optimize tax strategies, and make sound business decisions.

Remember, sound financial practices contribute to the longevity and success of your business. By mastering these principles, you’ll be better equipped to navigate the financial landscape and achieve your entrepreneurial goals.

In many workplaces, the human resources (HR) department is the de facto face of the employer. HR departments are, after all, generally responsible for communicating new employment policies and enforcing existing ones. Even if leadership is making the rules, HR is the one primarily interacting with job candidates when hiring, new hires when onboarding and established employees thereafter.

For employers, the end result is that it’s imperative to have an HR department that your workforce trusts to address their needs efficiently, competently and pleasantly. But this can be a challenge. A recent study by Secure Data Recovery found that more than a third of the 1,005 U.S. workers surveyed said they don’t trust their employers’ HR departments. (Note: All survey respondents worked for companies with less than 50 employees.)

Exercise transparency and clarity

It may not take much to compromise the trust of your employees in your HR department if you aren’t proactively building and maintaining that trust. A pattern of miscommunications or even one big negative incident could cause a breakdown that leads to costly drops in morale, productivity and employee retention.

The roots of mistrust often lie in confusion. If employees aren’t provided with clear information about policies, procedures and rules, they may misinterpret those in place or make up their own. In either case, discord and distrust are likely to develop when supervisors start calling them out on infractions and HR must move in as enforcement.

Be sure your organization is spelling everything out clearly. A good place to begin is with a comprehensive, well-written, legally compliant and regularly updated employee manual. When new hires are onboarded, ask them to read it and sign an acknowledgment. But don’t stop there. Have someone — whether a supervisor, mentor or HR staffer — review the manual with them and be available to answer questions.

In addition, when new policies, procedures or rules are rolled out, communicate them strategically. That is, leadership and HR should collaborate to identify the optimal way to explain both the change itself and the rationale for it. Focus on clarity and choosing the best medium (or media) for communicating.

Establish and maintain visibility

HR departments that largely hide in the shadows, emerging only during open enrollment for benefits, risk being cast by default in a negative light. This often occurs when employees don’t hear from or interact with HR unless something bad has happened — say, a disciplinary action, termination, conflict between two staff members, or when someone levels a harassment or discrimination charge.

HR staff tend to be viewed from a much more trustworthy perspective when employees know them — literally. Make sure that new hires are formally introduced to HR staff members. Employees should be able to attach faces to names and know who their respective HR contacts are without having to ask their supervisors, or leaf or scroll through the employee manual.

From there, HR should continue to communicate regularly with employees as individuals and the organization as a whole. There are many ways to go about maintaining visibility and strengthening HR engagement. Conduct annual surveys to get a sense of how employees are feeling about the department. Offer “lunch and learn” seminars either hosted or led by HR to educate employees about topics such as benefits and wellness. Send out an e-newsletter with the latest HR-related news, profiles of HR staffers and other fun content.

Promote the brand

What will work best for your organization depends on its size, mission and culture. Just make sure that you’re not taking your HR department’s reputation among employees for granted. Promote its brand just as you do your own.

On April 23, 2024, the U.S. Department of Labor announced a final rule for defining the exemptions from minimum wage and overtime pay requirements for Executive, Administrative, and Professional (EAP) employees, which will take effect on July 1, 2024.

Final rule

The final rule takes effect July 1, 2024, and increases the standard salary level for the EAP exemption and adjusts the highly compensated employee total annual compensation threshold. The Department of Labor estimates that during the first year, four million workers will become newly entitled to overtime under the final rule.

Standard salary level for EAP exemption

Under the final rule, the standard salary level for the EAP exemption increases from $684 per week to:

$844 per week, effective July 1, 2024, and
$1,128 per week, effective January 1, 2025

For more information, refer to the U.S. Department of Labor’s website page, Final Rule: Restoring and Extending Overtime Protections.

Webinar planned

Yeo & Yeo’s HR Advisory Solutions Group is committed to providing our clients with guidance in implementing the final rule. Stay tuned for information about a webinar that will discuss restoring and extending overtime protections (the new salary amounts) and review the Fair Labor Standards Act executive, administrative and professional exemptions. Contact your Yeo & Yeo advisor for assistance.

Building wealth is often associated with having substantial financial resources or a privileged background. According to recent surveys, most Americans have less than $1,000 in savings and another third have less than $500 in savings. So, how do you build wealth when you don’t have it to begin with? It’s essential to recognize that anyone, regardless of their financial situation, can create wealth. In this article, we’ll explore five practical ways to build wealth when you don’t have much to start with or come from money.

1. Shift Your Mindset

Wealth-building begins with your mindset. Let go of limiting beliefs that may hold you back. Understand that wealth is not reserved for a select few; it’s attainable for anyone willing to put in the effort. Cultivate a positive attitude toward money and abundance.

Action Steps:

Practice daily positive affirmations related to wealth and abundance. Start by telling yourself that you are in control of your financial wellness.
Read books and listen to podcasts that inspire a growth mindset.

2. Educate Yourself

Financial literacy is crucial for wealth-building. Take the time to learn about personal finance, investing, and money management. Understand concepts like compound interest, budgeting, and asset allocation.

Action Steps:

Attend financial literacy workshops or webinars.
Read books on personal finance. Here are a few top-rated books to start with:
- “Rich Dad Poor Dad” by Robert Kiyosaki
- “Total Money Makeover” and “Baby Step Millionaires” by Dave Ramsey
- “The Motley Fool. You Have More Than You Think” by David Gardner and Tom Gardner

3. Live Below Your Means

Living frugally doesn’t mean sacrificing your quality of life. It means being intentional about your spending. Avoid unnecessary expenses and focus on saving and investing. Allocate a portion of your income to savings and investments before covering other expenses.

Action Steps:

Create a budget and track your spending.
Prioritize saving over non-essential purchases.

4. Invest Wisely

Investing is a powerful tool for wealth creation. Start early, even if it’s with small amounts. Diversify your investments to manage risk effectively.

Action Steps:

Learn about different investment vehicles and their pros and cons.
Open a brokerage account and start investing.

5. Leverage Your Skills and Network

Your skills and connections can be valuable assets. Leverage them to create opportunities for income growth. Educate yourself, network with like-minded individuals, attend industry events, set career goals, and explore side hustles or freelance work.

Action Steps:

Identify your unique skills and find ways to monetize them.
Attend networking events or join professional associations.

Building wealth is a journey that requires discipline, education, and persistence. Regardless of your background, these five strategies can set you on the path toward financial independence. Remember that wealth-building is about making consistent progress over time, no matter where you start. With patience and dedication, you can achieve financial freedom and peace of mind, and truly enjoy life.

Ready to get started? Read our article, 10 Ways to Build Wealth, offering practical and actionable steps toward securing your financial future.

For the third consecutive year, the IRS has published guidance that offers some relief to taxpayers covered by the “10-year rule” for required minimum distributions (RMDs) from inherited IRAs or other defined contribution plans. But the IRS also indicated in Notice 2024-35 that forthcoming final regulations for the rule will apply for the purposes of determining RMDs from such accounts in 2025.

Beneficiaries face RMD rule changes

The need for the latest guidance traces back to the 2019 enactment of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Among other changes, the law eliminated so-called “stretch IRAs.”

Pre-SECURE Act, all beneficiaries of inherited IRAs were allowed to stretch the RMDs on the accounts over their entire life expectancies. For younger heirs, this meant they could take smaller distributions for decades, deferring taxes while the accounts grew. They also had the option to pass on the IRAs to later generations, which deferred the taxes for even longer.

To avoid this extended tax deferral, the SECURE Act imposed limitations on which heirs can stretch IRAs. Specifically, for IRA owners or defined contribution plan participants who died in 2020 or later, only “eligible designated beneficiaries” (EDB) may stretch payments over their life expectancies. The following heirs are EDBs:

Surviving spouses,
Children younger than the “age of majority,”
Individuals with disabilities,
Chronically ill individuals, and
Individuals who are no more than 10 years younger than the account owner.

All other heirs (“designated beneficiaries”) must take the entire balance of the account within 10 years of the death, regardless of whether the deceased died before, on or after the required beginning date (RBD) for RMDs. (In 2023, the age at which account owners must start taking RMDs rose from age 72 to age 73, pushing the RBD date to April 1 of the year after account owners turn 73.)

In February 2022, the IRS issued proposed regs that came with an unwelcome surprise for many affected heirs. They provide that, if the deceased dies on or after the RBD, designated beneficiaries must take their taxable RMDs in years one through nine after death (based on their life expectancies), receiving the balance in the tenth year. In other words, they aren’t permitted to wait until the end of 10 years to take a lump-sum distribution. This annual RMD requirement gives beneficiaries much less tax planning flexibility and could push them into higher tax brackets during those years.

Confusion reigns

It didn’t take long for the IRS to receive feedback from confused taxpayers who had recently inherited IRAs or defined contribution plans and were unclear about when they were required to start taking RMDs on the accounts. The uncertainty put both beneficiaries and defined contribution plans at risk. How? Beneficiaries could have been dinged with excise tax equal to 25% of the amounts that should have been distributed but weren’t (reduced to 10% if the RMD failure is corrected in a timely manner). The plans could have been disqualified for failure to make RMDs.

In response to the concerns, only six months after the proposed regs were published, the IRS waived enforcement against taxpayers subject to the 10-year rule who missed 2021 and 2022 RMDs if the plan participant died in 2020 on or after the RBD. It also excused missed 2022 RMDs if the participant died in 2021 on or after the RBD.

The waiver guidance indicated that the IRS would issue final regs that would apply no earlier than 2023. But then 2023 rolled around — and the IRS extended the waiver relief to excuse 2023 missed RMDs if the participant died in 2020, 2021 or 2022 on or after the RBD.

Now the IRS has again extended the relief, this time for RMDs in 2024 from an IRA or defined contribution plan when the deceased passed away during the years 2020 through 2023 on or after the RBD. If certain requirements are met, beneficiaries won’t be assessed a penalty on missed RMDs, and plans won’t be disqualified based solely on such missed RMDs.

Delayed distributions aren’t always best

In a nutshell, the succession of IRS waivers means that designated beneficiaries who inherited IRAs or defined contributions plans after 2019 aren’t required to take annual RMDs until at least 2025. But some individuals may be better off beginning to take withdrawals now, rather than deferring them. The reason? Tax rates could be higher beginning in 2026 and beyond. Indeed, many provisions of the Tax Cuts and Jobs Act, including reduced individual income tax rates, are scheduled to sunset after 2025. The highest rate will increase from 37% to 39.6%, absent congressional action.

What if the IRS reverses course on the 10-year rule, allowing a lump sum distribution in the tenth year rather than requiring annual RMDs? Even then, it could prove worthwhile to take distributions throughout the 10-year period to avoid a hefty one-time tax bill at the end.

On the other hand, beneficiaries nearing retirement likely will benefit by delaying distributions. If they wait until they’re no longer working, they may be in a lower tax bracket.

Stay tuned

The IRS stated in its recent guidance that final regs “are anticipated” to apply for determining RMDs for 2025. However, based on the tax agency’s actions in the past few years, skepticism about that is understandable. We’ll continue to monitor future IRS guidance and keep you informed of any new developments.

As we celebrate Financial Literacy Month, let’s explore practical strategies to build wealth. Whether you’re just starting your financial journey or looking to enhance your existing wealth-building techniques, these ten tips will empower you to create a solid foundation for your financial well-being.

1. Start by Making a Plan

Building wealth begins with a vision and a plan. Take the time to identify your financial goals and map out how to achieve them. Consider hiring a certified financial planner to help you along your journey.

2. Make a Budget and Stick to It

Budgeting is essential, but don’t be overwhelmed by complexity. Begin with the fundamentals—create a budget, track expenses, and understand your debts. Create a budget that aligns with your goals and helps you know where your money goes each month. Sticking to your budget and regularly reviewing your budget increases your chances of achieving your financial objectives.

3. Build Your Emergency Fund

An emergency fund acts as a safety net. Set aside funds to cover unexpected expenses like car repairs or medical bills. Aim for at least three to six months’ worth of living expenses. Having an emergency fund prevents reliance on credit cards and provides peace of mind.

4. Manage Your Debt

Prioritize paying off your debts. Financial expert Dave Ramsey recommends the fastest way to pay off debt is the Snowball Method, which is where you pay off debt in order of smallest balance to largest, regardless of interest rate. The Avalanche Method prioritizes paying off higher-interest debt first. Regardless of the method you choose, reduce your debt to free up more resources for saving and investing.

5. Automate Your Financial Life

Automating your savings, investments, bills, and debt payments helps you go from manually managing your money to having your finances manage themselves. Consistent contributions to retirement accounts and other investments ensure steady progress toward your wealth-building goals. When things change, such as an increase in income, review your automation and make changes as needed. This could afford you the opportunity to invest more toward your financial goals.

6. Max Out Your Retirement Savings

Start early and contribute the maximum allowed to retirement accounts like 401(k)s or IRAs. Take advantage of employer matches—it’s essentially free money for your future.

7. Stay Diversified

Diversification reduces risk. Spread your investments across different asset classes—stocks, bonds, real estate. Regularly review and adjust your portfolio.

8. Up Your Earnings

Invest in yourself. Enhance your skills, pursue education, and set career growth goals. Higher earnings provide more resources for wealth-building.

9. Think Long-Term

Wealth-building is a marathon, not a sprint. Avoid market timing and focus on long-term growth. Consistency and patience pay off over time.

10. Stay Curious

Financial literacy is an ongoing journey. Read, attend seminars, and seek professional advice.

Remember, financial literacy isn’t just about knowing these tips—it’s about applying them consistently. Use this month as a catalyst to take actionable steps toward securing your financial future.

Businesses usually want to delay recognition of taxable income into future years and accelerate deductions into the current year. But when is it wise to do the opposite? And why would you want to?

One reason might be tax law changes that raise tax rates. The Biden administration has proposed raising the corporate federal income tax rate from its current flat 21% to 28%. Another reason may be because you expect your noncorporate pass-through entity business to pay taxes at higher rates in the future and the pass-through income will be taxed on your personal return. There have also been discussions in Washington about raising individual federal income tax rates.

If you believe your business income could be subject to tax rate increases, you might want to accelerate income recognition into the current tax year to benefit from the current lower tax rates. At the same time, you may want to postpone deductions into a later tax year, when rates are higher and the deductions will be more beneficial.

To fast-track income

Consider these options if you want to accelerate revenue recognition into the current tax year:

Sell appreciated assets that have capital gains in the current year, rather than waiting until a later year.
Review the company’s list of depreciable assets to determine if any fully depreciated assets are in need of replacement. If fully depreciated assets are sold, taxable gains will be triggered in the year of sale.
For installment sales of appreciated assets, elect out of installment sale treatment to recognize gain in the year of sale.
Instead of using a tax-deferred like-kind Section 1031 exchange, sell real property in a taxable transaction.
Consider converting your S corporation into a partnership or LLC treated as a partnership for tax purposes. That will trigger gains from the company’s appreciated assets because the conversion is treated as a taxable liquidation of the S corp. The partnership will have an increased tax basis in the assets.
For construction companies with long-term construction contracts previously exempt from the percentage-of-completion method of accounting for long-term contracts: Consider using the percentage-of-completion method to recognize income sooner as compared to the completed contract method, which defers recognition of income until the long-term construction is completed.

To postpone deductions

Consider the following actions to postpone deductions into a higher-rate tax year, which will maximize their value:

Delay purchasing capital equipment and fixed assets, which would give rise to depreciation deductions.
Forego claiming big first-year Section 179 deductions or bonus depreciation deductions on new depreciable assets and instead depreciate the assets over a number of years.
Determine whether professional fees and employee salaries associated with a long-term project could be capitalized, which would spread out the costs over time.
Buy bonds at a discount this year to increase interest income in future years.
If allowed, put off inventory shrinkage or other write-downs until a year with a higher tax rate.
Delay charitable contributions into a year with a higher tax rate.
If allowed, delay accounts receivable charge-offs to a year with a higher tax rate.
Delay payment of liabilities where the related deduction is based on when the amount is paid.

When employees commit fraud, they generally try to keep the schemes going as long as possible by concealing their activities from others. How successful thieves are at concealment depends largely on their identities, their roles within their organizations and the type of fraud they commit. To uncover potential fraud in your organization and prevent financial losses, it helps to familiarize yourself with common perpetrator characteristics and the methods occupational thieves use to conceal their crimes.

Identity and fraud

Every two years, the Association of Certified Fraud Examiners (ACFE) releases a comprehensive study on occupational fraud based on real-life incidents. The most recent report, Occupational Fraud 2024: A Report to the Nations finds that while most fraud is committed by employees and managers, schemes involving company leaders are the most costly. Employees are responsible for median losses of $60,000, managers for median losses of $184,000, and owners and executives for $500,000 in median losses. Gender, tenure, education level and age also matter. Men, long-tenured employees, workers with a college degree or higher, and individuals over age 50 are all associated with more costly fraud schemes.

It’s important to stress that employees who match characteristics of the typical or most costly fraud perpetrators aren’t necessarily going to commit and conceal fraud. However, keeping fraud statistics in mind can help your organization implement safeguards and monitor workers for illicit activities.

Physical documents

The ACFE report found that 89% of fraud incidents involve some form of concealment. In 41% of cases, fraudsters create or change physical documents. Since many internal controls require paperwork, it’s easy to see why perpetrators would need to alter or create physical documents to cover their tracks. Some employees, such as executives, are in a better position to alter documents and then prevent rank-and-file employees from asking questions.

But if employees encounter unusual or suspicious documents, they can’t simply dismiss them. Typos, font differences and calculation errors are all red flags that merit a closer look. Be sure workers know they can come to you. Or offer them a tipline or web portal to anonymously report fraud suspicions.

Occupational fraudsters also destroy or withhold physical documents (23% of cases) to conceal theft. To help combat such concealment, establish checklists that stipulate documents that must be present to support or approve every financial transaction. Missing documents should be flagged and transactions should be denied until they materialize. Be sure to track every incidence of missing documents to spot patterns and help uncover potential fraud.

Electronic files

Thieves often create or alter electronic documents (31% and 28% of cases, respectively), too. Employees tasked with reviewing transactions and supporting digital documents should receive training on how to examine an electronic document’s properties for nonauthorized use. Depending on the software package, such investigations can help reveal a document’s author, creation date and number of revisions.

Obviously, if you find an accounting document authored or updated by a nonaccounting employee or member of management, you should ask questions. However, don’t try to recover any deleted files. If you suspect fraud, contact a forensic accountant to perform computer forensic tasks.

Arrange for an investigation

Understanding possible fraud concealment methods can help you interrupt schemes before your business suffers debilitating losses from them. If you suspect an employee of hiding something that looks like fraud, contact us to investigate.