Three Mutual Fund Tax Hazards to Watch Out For

Investing in mutual funds is an easy way to diversify a portfolio, which is one reason why they’re commonly found in retirement plans such as IRAs and 401(k)s. But if you hold such funds in taxable accounts, or are considering such investments, beware of these three tax hazards:

High turnover rates. Mutual funds with high turnover rates can create income that’s taxed at ordinary-income rates. Choosing funds that provide primarily long-term gains can save you more tax dollars because of the lower long-term rates.
Earnings reinvestments. Earnings on mutual funds are typically reinvested, and unless you keep track of these additions and increase your basis accordingly, you may report more gain than required when you sell the fund. (Since 2012, brokerage firms have been required to track — and report to the IRS — your cost basis in mutual funds acquired during the tax year.)
Capital gains distributions. Buying equity mutual fund shares late in the year can be costly tax-wise. Such funds often declare a large capital gains distribution at year end, which is a taxable event. If you own the shares on the distribution’s record date, you’ll be taxed on the full distribution amount even if it includes significant gains realized by the fund before you owned the shares. And you’ll pay tax on those gains in the current year — even if you reinvest the distribution.

If your mutual fund investments aren’t limited to your tax-advantaged retirement accounts, watch out for these hazards. And contact us — we can help you safely navigate them to keep your tax liability to a minimum.

Executives and other key employees are often compensated with more than just salary, fringe benefits and bonuses: They may also be awarded stock-based compensation, such as restricted stock or stock options. Another form that’s becoming more common is restricted stock units (RSUs). If RSUs are part of your compensation package, be sure you understand the tax consequences — and a valuable tax deferral opportunity.

RSUs vs. restricted stock

RSUs are contractual rights to receive stock (or its cash value) after the award has vested. Unlike restricted stock, RSUs aren’t eligible for the Section 83(b) election that can allow ordinary income to be converted into capital gains.

But RSUs do offer a limited ability to defer income taxes: Unlike restricted stock, which becomes taxable immediately upon vesting, RSUs aren’t taxable until the employee actually receives the stock.

Tax deferral

Rather than having the stock delivered immediately upon vesting, you may be able to arrange with your employer to delay delivery. This will defer income tax and may allow you to reduce or avoid exposure to the additional 0.9% Medicare tax (because the RSUs are treated as FICA income).

However, any income deferral must satisfy the strict requirements of Internal Revenue Code Section 409A.

Complex rules

If RSUs — or other types of stock-based awards — are part of your compensation package, please contact us. The rules are complex, and careful tax planning is critical.

When it comes to farmers and the Michigan Homestead Property Tax Credit, taxes paid on property other than your principle residence may also be eligible for the credit. Depending on your total gross receipts from farming activities and other sources of income you may have in a given year, all or a portion of the property taxes you pay on agricultural property may be claimed for the credit in addition to the taxes paid on your residence.

Unsure if you are eligible to claim the Michigan Homestead Property Tax Credit? You may claim the credit if all of the following apply:

Your homestead is located in Michigan
You were a Michigan resident for at least six months out of the most recent calendar year
You pay property taxes or rent on your homestead
You were contracted to pay rent or own the home on which property taxes were levied

When claiming the Michigan Homestead Property Tax Credit, be sure to include any amounts received in the prior year from the Farmland Preservation Tax Credit in your total household income. On the contrary, do not include any amounts received in the prior year from the Michigan Homestead Property Tax Credit.

To learn more about the Michigan Homestead Property Tax Credit and the types of property taxes that can be claimed for credit see, General Information – Homestead Property Tax Credit (MI-1040CR) provided by Michigan.gov.

Contact the professionals of Yeo & Yeo’s Agribusiness Services Group for more information about farm tax credits and tax strategies.

The income tax credit for certain energy-efficient home improvements and equipment purchases was extended through 2016 by the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). So, you still have time to save both energy and taxes by making these eco-friendly investments.

What qualifies

The credit is for expenses related to your principal residence. It equals 10% of certain qualified improvement expenses plus 100% of certain other qualified equipment expenses, subject to a maximum overall credit of $500, which is reduced by any credits claimed in earlier years. (Because of this reduction, many people who previously claimed the credit will be ineligible for any further credits in 2016.)

Examples of improvement investments potentially eligible for the 10% of expense credit include:

Insulation systems that reduce heat loss or gain,
Metal and asphalt roofs with heat-reduction components that meet Energy Star requirements, and
Exterior windows (including skylights) and doors that meet Energy Star requirements. These expenditures are subject to a separate $200 credit cap.

Examples of equipment investments potentially eligible for the 100% of expense credit include:

Qualified central air conditioners; electric heat pumps; electric heat pump water heaters; water heaters that run on natural gas, propane, or oil; and biomass fuel stoves used for heating or hot water, which are subject to a separate $300 credit cap.
Qualified furnaces and hot water boilers that run on natural gas, propane or oil, which are subject to a separate $150 credit cap.
Qualified main air circulating fans used in natural gas, propane and oil furnaces, which are subject to a separate $50 credit cap.

Manufacturer certifications required

When claiming the credit, you must keep with your tax records a certification from the manufacturer that the product qualifies. The certification may be found on the product packaging or the manufacturer’s website. Additional rules and limits apply. For more information about these and other green tax breaks for individuals, contact us.

Helping you plan for and protect your assets and your legacy is something we are very passionate about. We want to pass along some information about an area that you cannot afford to overlook in the estate planning process.

Estate planning 2.0 – protecting your digital footprint

The growing popularity of online commerce and social media websites and applications has created a new challenge for executors and family members when a loved one dies. As more people choose to eliminate paper statements and opt to access account information online, including online banking and credit card accounts, it can be difficult to determine the number of programs, accounts and personal sites your loved one may have established.

That is why it is critical for all of us to create a list of online accounts and passwords. This list should be updated as new accounts are created or passwords are changed. It should be kept in a secure location along with your will and other estate planning documents so it is available to your spouse, adult children, or executor who will be responsible for closing out your digital footprint. Your digital footprint may include:

Email account(s)
Social media sites (Facebook, Instagram, Pinterest, etc.)
Online banking, credit card, and investment accounts
Health savings accounts (HSA) or supplemental medical insurance plans
Utilities or other ongoing expenses set up for automatic payments
Mortgage loans (if paid via automatic draft)
Car loans (if paid via automatic draft)
Gym, country club, and professional association memberships
Airline, credit card, and retailer rewards programs
Retail memberships (Amazon, Costco, etc.)
Cell phone/mobile apps

Minimizing the potential for identity theft following a death

Unfortunately, it is not unusual for cyber criminals to target indexed vital records, which include death notices and other matters of public record, to aid in attempts at identity theft. Therefore, it is important to close or remove as many online accounts and registrations as possible following the death of a loved one to minimize their digital footprint and the potential for identity theft.

Most businesses, website hosts, and social media sites have policies in place to help you close accounts following the death of a site user or account owner. For example, Facebook allows its members to designate a “legacy contact” to manage their online profiles posthumously. Members can also choose to have their profiles deleted entirely upon notification of their death.

Typically, you will be asked to provide a certified copy of the death certificate and proof that you are the lawful representative of the deceased person or his or her estate to close an online account. In some states you may be required to provide Letters Testamentary or Letters of Administration from the Probate Court in the deceased’s jurisdiction.

Consider documenting your vital digital information now as a reference for your family during a stressful time.

Provided by Michael L. Espinoza, CRPC

Yeo & Yeo CPAs & Business Consultants was proud to join with the Young Professionals group of the Leading Edge Alliance (LEA YPs) for its sixth annual Global Volunteer Week. LEA member firms worldwide were encouraged to donate to or volunteer for a local charity.

Yeo & Yeo’s volunteer effort began in May, when the firm’s young professionals collected playground toys and equipment, and outdoor games for Boys & Girls Clubs located in the communities that Yeo & Yeo serves. Firm-wide, a total of 265 items were collected, which included bikes, balls, jump ropes and games, along with monetary donations. During June, groups of Yeo & Yeo’s young professionals delivered the playground items and also volunteered at six Boys & Girls Clubs across Michigan.

This effort was coupled with Yeo & Yeo’s firm-wide initiative to benefit the Red Nose Day Fund. Red Nose Day is a FUN-raising campaign benefitting nonprofit organizations that help lift children and young people out of poverty in the United States and in some of the poorest communities in the world. Red Nose Day encourages people to don red noses and have a laugh for a good cause. Boys & Girls Clubs of America is a 2016 Red Nose Day charity partner.

Yeo & Yeo raised nearly $700 for the Red Nose Fund through the purchase of 430 red noses, jeans day donations and silly selfies. Employees were encouraged to wear their red noses in the community to raise awareness for the campaign and to take silly selfies throughout the month. The firm contributed $1 to the Red Nose Fund for each of the photos submitted by its employees. All the money raised supports projects that ensure kids are safe, healthy and educated.

Bradley Booms, member of the LEA YP Special Interest Group Steering Committee and senior accountant at Yeo & Yeo said, “Each year we seek opportunities in our communities that will help those in need for LEA’s Global Volunteer Week. Directing efforts to our local Boys & Girls Clubs of America, charity partners of the Red Nose Fund, was a very rewarding experience. The children were so excited to have us there.”

This is the sixth consecutive year that Yeo & Yeo employees have participated in the annual LEA YP Global Volunteer Week. The firm is proud of its employees’ outreach and pleased to participate in these efforts to support communities both locally and globally.

To learn more about Boys & Girls Clubs of America and to locate a club in your community, visit www.bgca.org.

LEA Global (YP) Group: LEA started the Young Professionals Group in 2008 to provide a forum to address the needs of young professionals in today’s dynamic environment. The group has enhanced and acknowledged the role young professionals play in their firms. The group promotes accomplishments, assists in career development, and shares the ideas and successes of the young professionals in LEA firms across the nation.

It seems like a simple question: How many full-time workers does your business employ? But, when it comes to the Affordable Care Act (ACA), the answer can be complicated.

The number of workers you employ determines whether your organization is an applicable large employer (ALE). Just because your business isn’t an ALE one year doesn’t mean it won’t be the next year.

50 is the magic number

Your business is an ALE if you had an average of 50 or more full time employees — including full-time equivalent employees — during the prior calendar year. Therefore, you’ll count the number of full time employees you have during 2016 to determine if you’re an ALE for 2017.

Under the law, an ALE:

Is subject to the employer shared responsibility provisions with their potential penalties, and
Must comply with certain information reporting requirements.

Calculating full-timers

A full-timer is generally an employee who works on average at least 30 hours per week, or at least 130 hours in a calendar month.

A full-time equivalent involves more than one employee, each of whom individually isn’t a full-timer, but who, in combination, are equivalent to a full-time employee.

Seasonal workers

If you’re hiring employees for summer positions, you may wonder how to count them. There’s an exception for workers who perform labor or services on a seasonal basis. An employer isn’t considered an ALE if its workforce exceeds 50 or more full-time employees in a calendar year because it employed seasonal workers for 120 days or less.

However, while the IRS states that retail workers employed exclusively for the holiday season are considered seasonal workers, the situation isn’t so clear cut when it comes to summer help. It depends on a number of factors.

We can help

Contact us for help calculating your full-time employees, including how to handle summer hires. We can help ensure your business complies with the ACA.

With healthcare costs continuing to climb, tax-friendly ways to pay for these expenses are more attractive than ever. Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) all provide opportunities for tax-advantaged funding of healthcare expenses. But what’s the difference between these three accounts? Here’s an overview:

HSA. If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself — up to $3,350 for self-only coverage and $6,750 for family coverage for 2016. Plus, if you’re age 55 or older, you may contribute an additional $1,000.

You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

FSA. Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit — not to exceed $2,550 in 2016. The plan pays or reimburses you for qualified medical expenses.

What you don’t use by the plan year’s end, you generally lose — though your plan might allow you to roll over up to $500 to the next year. Or it might give you a 2 1/2-month grace period to incur expenses to use up the previous year’s contribution. If you have an HSA, your FSA is limited to funding certain “permitted” expenses.

HRA. An HRA is an employer-sponsored account that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year. And there’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.

Questions? We’d be happy to answer them — or discuss other ways to save taxes in relation to your healthcare expenses.

This year’s stock market volatility can be unnerving, but if you have a traditional IRA, this volatility may provide a valuable opportunity: It can allow you to convert your traditional IRA to a Roth IRA at a lower tax cost.

Traditional IRAs

Contributions to a traditional IRA may be deductible, depending on your modified adjusted gross income (MAGI) and whether you participate in a qualified retirement plan, such as a 401(k). Funds in the account can grow tax-deferred.

On the downside, you generally must pay income tax on withdrawals, and, with only a few exceptions, you’ll face a penalty if you withdraw funds before age 59½ — and an even larger penalty if you don’t take your required minimum distributions (RMDs) after age 70½.

Roth IRAs

Roth IRA contributions, on the other hand, are never deductible. But withdrawals — including earnings — are tax-free as long as you’re age 59½ or older and the account has been open at least five years. In addition, you’re allowed to withdraw contributions at any time tax- and penalty-free.

There are also estate planning advantages to a Roth IRA. No RMD rules apply, so you can leave funds growing tax-free for as long as you wish. Then distributions to whoever inherits your Roth IRA will be income-tax-free as well.

The ability to contribute to a Roth IRA, however, is subject to limits based on your MAGI. Fortunately, anyone is eligible to convert a traditional IRA to a Roth. The catch? You’ll have to pay income tax on the amount you convert.

Saving tax

This is where the “benefit” of stock market volatility comes in. If your traditional IRA has lost value, converting to a Roth now rather than later will minimize your tax hit. Plus, you’ll avoid tax on future appreciation when the market stabilizes.

Of course, there are more ins and outs of IRAs that need to be considered before executing a Roth IRA conversion. If your interest is piqued, discuss with us whether a conversion is right for you.

Many businesses host a picnic for employees in the summer. It’s a fun activity for your staff and you may be able to take a larger deduction for the cost than you would on other meal and entertainment expenses.

Deduction limits

Generally, businesses are limited to deducting 50% of allowable meal and entertainment expenses. But certain expenses are 100% deductible, including expenses:

For recreational or social activities for employees, such as summer picnics and holiday parties,
For food and beverages furnished at the workplace primarily for employees, and
That are excludable from employees’ income as de minimis fringe benefits.

There is one caveat for a 100% deduction: The entire staff must be invited. Otherwise, expenses are deductible under the regular business entertainment rules.

Recordkeeping requirements

Whether you deduct 50% or 100% of allowable expenses, there are a number of requirements, including certain records you must keep to prove your expenses.

If your company has substantial meal and entertainment expenses, you can reduce your tax bill by separately accounting for and documenting expenses that are 100% deductible. If doing so would create an administrative burden, you may be able to use statistical sampling methods to estimate the portion of meal and entertainment expenses that are fully deductible.

For more information about deducting business meals and entertainment, including how to take advantage of the 100% deduction, please contact us.

When a business is sold, it often sells for more (or less) than the appraised value. This may come as a surprise to laypeople, but valuators understand that there are many valid reasons that “price” and “value” may differ. Businesses that understand this subtlety are better positioned to make informed decisions.

Price vs. Value

Price is specific to an individual buyer and seller. It’s the amount of cash (or its equivalent) for which anything is bought, sold or offered for sale. It requires an offer to sell, an acceptance of that offer and an exchange of money (or other property). Some strategic or financial buyers may be willing to pay more than others because they can benefit from economies of scale or synergies that aren’t available to all potential buyers.

Conversely, the term “value” often refers to “fair market value” in a business valuation context. The International Glossary of Business Valuation Terms defines fair market value as:

The price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms-length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.

Fair market value is essentially a consensus of what the universe of potential buyers would agree to pay for a business, a business interest or an asset. In the real world, sales may occur for more (or less) than fair market value, because the individual parties have their own perceptions of the investment’s risk and return, are under duress to buy (or sell), or lack relevant knowledge about the transaction or the subject company.

Another reason that value and price frequently differ is timing. In many cases, a valuator’s work is done months or years before the company is sold. Differences in market conditions or the company’s financial performance between the two dates could cause the company’s selling price to vary from its appraised value.

Real World Example

To illustrate how price and value may differ, consider the sale of a medical practice. There are primarily three potential buying groups for medical practices:

Another physician,
A physician group, or
A hospital.

To determine fair market value, a valuator would consider potential transactions to purchase the practice by all three of these groups, under the cost, market and income approaches. But in the real world, only one specific buyer would make an offer. So, for example, the analyses involving a physician or physician group wouldn’t be relevant if a hospital is buying the practice.

Price and Value Are Not Synonymous

It’s critical for buyers and sellers to understand that the appraised value of a business interest may not reflect its future selling price. Value can vary substantially, depending on the effective date and the purpose(s) specified in the appraiser’s report.

When the purpose of a valuation is to establish an asking (or offer) price, valuators typically provide a range of values that considers various buyers and transaction scenarios. This range can help a buyer and seller arrive at a reasonable selling price that’s based on the individual parties’ expectations of risk and return. If you’re planning to buy or sell a business interest, contact a business valuation professional for guidance.

If disaster struck your company tomorrow, would you know how to quickly reach employees and their families? Would you be able to talk to them quickly and efficiently? If the answer to those questions is anything but a resounding “yes,” it’s time to create or review your crisis communication plan.

Basic Info

One of the most important ingredients for emergency preparedness is also the thing that many companies pay minimal attention to: employee contact information. Although organizations typically ask new hires for these details, they often forget to update the data. So make it a habit to ask employees to refresh their contact information at least once a year. To help you remember, tie it to a specific event such as your benefits enrollment period.

In addition to gathering employees’ mailing and alternate e-mail addresses, and home and cell phone numbers, get similar information for their emergency contacts. And ask each worker to designate a few emergency contacts, such as spouses, friends and neighbors. Doing so will help you to quickly reach someone when necessary. It’s critical that you safeguard this information and system access to it, and ensure employees understand the circumstances when the emergency information can be used and how to protect it.

Additional Measures

Most companies can quickly reach many, if not all, employees by simply sending an e-mail or posting an announcement to their intranets. But these methods aren’t effective if there’s a power outage or network interruption, or if employees are away from their computers. So be prepared to use other means, such as:

Phone trees. Establish the flow of call responsibility, have up-to-date personal phone numbers and distribute a hard copy version of the tree to those who need it — and, most important, keep it current. A good backup measure to phone calls is text message 100cs, assuming one of the numbers provided is a cell phone.

Voice mail. Change the outgoing message 100c of your company’s main line to address the situation. If severe weather closes your office, for example, your message 100c could direct employees to stay home. Instruct managers to also do this on their respective voice mail message 100cs.

Social media. Platforms such as Facebook and Twitter offer an easy way to push notifications to where they’re accessible. Just bear in mind that these are public forums, so you don’t want to divulge sensitive or errant information. On the other hand, communicating via social media allows you to demonstrate publicly how effectively your organization responds to a crisis.

Informed and Protected

Severe weather, accidents or other crises can occur at any time. By outlining communication methods in advance and keeping employee contact information up-to-date and in one location, you’ll be able to keep your staff informed and protected.

Yeo & Yeo CPAs & Business Consultants, a leading Michigan accounting firm, is pleased to announce that Payroll Specialist Megan Tuckey has earned the Fundamental Payroll Certification (FPC) designation from the American Payroll Association. The certification is exam-based and proves extensive knowledge of payroll and how it relates to tax laws and regulatory compliance.

Tuckey’s areas of specialization include calculation of payroll taxes, filing and submitting payments for payroll taxes, processing payroll, and time management. She is a member of the board of directors of the Great Lakes Bay Chapter of the American Payroll Association. She holds a bachelor’s degree from Northwood University, majoring in accounting. Tuckey joined Yeo & Yeo in 2014 and is based in the firm’s corporate headquarters in Saginaw.

The American Payroll Association (APA), the nation’s leader in payroll education, is committed to enhancing the quality of the payroll profession, raising public awareness of the payroll profession, and offering educational training in the payroll area.

Take a moment and think about all of the security features that are used to keep your organization’s network safe. Passwords and firewalls help keep the bad guys away from your vital information. But all of these security measures don’t mean a thing if someone clicks on a malware link inside an email.

As phishing attacks have grown, so too has the emphasis on Cybersecurity. In fact, the healthcare industry sees 340% more security incidents and attacks than the average industry, according to a recent report. A tool that many are using to help prevent cyberattacks within their organization is security awareness training as a way to educate employees. Having knowledge of malware and phishing is as important as having proper antivirus and firewall protection.

How does security awareness training work?

A security awareness training provider will begin the training process with an email exposure check that shows which email addresses within an organization’s domain are being exposed to spear-phishing attacks on the Internet. This service looks deep into websites, Word, Excel and PDF files that are on the Internet. By performing these tests, business owners and managers can see which employees are the most susceptible to phishing emails. Training modules soon follow to teach employees what to look for.

Statistics show that it works

Security awareness training helps turn your employees into your organization’s first firewall. Through training, employees become the best defense you can have. We aggregated the numbers and the overall Phish-prone percentage dropped from an average of 15.9 percent to an amazing 1.2 percent in just 12 months. The combination of web-based training and frequently simulated phishing attacks really works.

Healthcare is top target for cyberattacks

The Raytheon/Websense Security Labs’ 2015 Industry Drill-Down Report — Healthcare notes that medical information is 10 times more valuable than other types of information on the black market, which makes healthcare a major target for cybercriminals. Even some of the country’s best-run hospitals are vulnerable to attacks. One of the best examples comes from California’s Hollywood Presbyterian Medical Center. In February 2016, hackers were able to exploit the Los Angeles-based hospital for $17,000 with a ransomware attack. The hospital’s entire network was taken offline, forcing staff to use pen and paper. Symantec has reported that over 20 cyber-attacks have targeted hospitals over the past year, that they are aware of.

It’s important to remember that everyone is a target of phishing attacks. These attacks happen every day, but the good news is they can be prevented. Proper training is great a great way to prevent attacks, but equally important is having a proper backup and disaster recovery plan in place. Nothing is bullet-proof in IT, but being prepared for any circumstance can help save money and downtime in the event of a disaster.

For more information about security awareness training, contact your Yeo & Yeo advisor or Jeff McCulloch, President of Yeo & Yeo Technology, jefmcc@yeoandyeo.com or 800.607.1446.

Life insurance is designed to help protect a household from the financial hardships that may follow the untimely death of a primary wage earner. But how will a death affect a small business?

One way of safeguarding a business is to create a buy-sell agreement. A buy-sell agreement is a contract between different entities within a corporation to buy out the interests of a deceased or disabled member. A buy-sell agreement also can protect the business from loss of revenue and cover the expense of finding and training a replacement.

Types of Buy-Sell Agreements

Two main types of buy-sell agreements are commonly used by businesses:

Cross-Purchase Agreement. In a cross-purchase agreement, key employees have the opportunity to buy the ownership interest of a deceased or disabled key employee. Each key employee takes out a policy on each of the other key employees. Cross-purchase agreements tend to be used in smaller companies where there are not too many key employees to cover.
Stock-Redemption Agreement. Stock-redemption agreements are formal agreements between each of the key employees—and the business itself—under which the business agrees to purchase the stock of deceased key employees. Key employees agree to sell their shares to the company, often in exchange for a cash value.

These agreements establish a market value for a key employee’s share of the company.

Funding a Buy-Sell Agreement

Several options are available for funding a buy-sell agreement:

Set Aside Funds. Money for a buy-sell agreement can be set aside, as long as it is easily accessible. These funds must be kept up for the life of the company, and may present a temptation during fiscally tough times. The business owners must determine the appropriate amount needed to cover the cost of a buyout.
Borrow the Needed Amount. A company can borrow enough to buy out a withdrawing key employee at the time of his or her death. However, the loss of the employee can often affect a company’s ability to secure a loan, and the payments become an added stress on the business during an already difficult time.
Life Insurance. Purchasing a life or disability policy in order to fund a buy-sell agreement is an option when preparing for the future. Using life insurance enables a buy-sell agreement to be funded with premium payments and attempts to ensure that funds will be available when they are needed.

Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

A buy-sell agreement is imperative in the event of the death, disability or retirement of a business co-owner, or another situation that has an impact on business ownership. It addresses questions of ownership interest now so that there will be no surprises down the road.

Provided by Michael L. Espinoza, CRPC

We remind you that self-insured employers and applicable large employers who choose or are required to electronically file Affordable Care Act information returns, Forms 1094-B, 1095-B, 1094-C and/or 1095-C, must do so by Thursday, June 30, 2016.

Employers who file 250 or more Form 1095-Cs are required to submit the information returns electronically. Smaller employers filing fewer than 250 forms can choose to use electronic or non-electronic filing. Non-electronic, paper-submitted returns were due May 31, 2016.

Are you thinking about turning a business trip into a family vacation this summer? This can be a great way to fund a portion of your vacation costs. But if you’re not careful, you could lose the tax benefits of business travel.

Reasonable and necessary

Generally, if the primary purpose of your trip is business, expenses directly attributable to business will be deductible (or excludable from your taxable income if your employer is paying the expenses or reimbursing you through an accountable plan). Reasonable and necessary travel expenses generally include:

Air, taxi and rail fares,
Baggage handling,
Car use or rental,
Lodging,
Meals, and
Tips.

Expenses associated with taking extra days for sightseeing, relaxation or other personal activities generally aren’t deductible. Nor is the cost of your spouse or children traveling with you.

Business vs. pleasure

How do you determine if your trip is “primarily” for business? One factor is the number of days spent on business vs. pleasure. But some days that you might think are “pleasure” days might actually be “business” days for tax purposes. “Standby days,” for example, may be considered business days, even if you’re not engaged in business-related activities. You also may be able to deduct certain expenses on personal days if tacking the days onto your trip reduces the overall cost.

During your trip it’s critical to carefully document your business vs. personal expenses. Also keep in mind that special limitations apply to foreign travel, luxury water travel and certain convention expenses.

Maximize your tax savings

For more information on how to maximize your tax savings when combining business travel with a vacation, please contact us. In some cases you may be able to deduct expenses that you might not think would be deductible.

Donor contributions are often a primary source of unrestricted funds for many nonprofit organizations. Therefore, look to acknowledgment letters as an opportunity to strengthen donor relations – use them as a means to celebrate an organization’s successes and keep donors’ contributions rolling in.

The multi-purpose acknowledgment letter

Donor acknowledgment letters are a perfect vehicle to tout program successes, thank donors for contributions to a particular function or program and, in many cases, provide the donors with the documentation they need to claim a tax deduction. As a best practice, acknowledgment letters should be sent whenever an organization receives donations of cash, goods or services, regardless of the dollar amount, in order to convey the organization’s gratitude for a donor’s efforts and contributions.

Not all contributions can be deducted by a donor, but that should not preclude an organization from saying thank-you. In order for a donor to record a deduction for a contribution on their tax return, they must have written acknowledgment from the organization for all contributions over $250. Therefore, as a best practice, acknowledgment letters should be sent as soon as possible, but no later than January 31 succeeding the year of the contribution to ensure the donor will hold adequate documentation come tax time.

Letter format and components

Acknowledgment letters are not required to be in a particular format or follow a standard template. The letters may be sent via mail or e-mail; however, sending a letter via the mail adds a personal touch. Also, sending acknowledgment letters does not have to be a time-consuming, burdensome process. Many types of software are available to help organizations track contributions and generate letters. QuickBooks also has the ability to generate letters related to the contributions an organization receives. Talk to your Yeo & Yeo advisor if you are not familiar with the tools available to add efficiency to your acknowledgment letter process.

At a minimum, acknowledgment letters should include the following components:

The organization’s name and the donor’s name
A statement that the organization is a 501(c)(3) organization. Also, it is generally helpful to include the organization’s EIN.
Details of the contribution, including:
- The date received
- The amount of the contribution, when cash (which includes check, credit card and payroll deductions)
- If not cash, a description of the good or service received. The value of the non-cash gift should not be provided. It is up to the donor to substantiate the value for non-cash donations. Further donations of services or time generally cannot be deducted by the donor.
- Statements of good faith estimates of the value of goods or services provided in exchange for the contribution, or a statement that no goods or services were provided in exchange for the contribution, if that is the case.

Also, consider including statements as to how the contribution contributed to a particular service, or an estimate as to what it saved the organization, to add extra emphasis on how the contribution was appreciated by the organization.

Additional resources

For additional guidance regarding acknowledgment letters, refer to IRS Publication 1771 Charitable Contributions Substantiation and Disclosure Requirements.

Most people feel good about helping charitable causes. Put the organization’s acknowledgement letters to work by not only satisfying the legal requirements, but by conveying a heartfelt thank-you and creating further positive impressions, too.

Is your company or organization experiencing a key employee’s resignation, a sudden termination, medical leave, retirement, structural change, or simply a shortage of skills? Is the company contending with a merger or acquisition, or experiencing a peak period of business? In many situations like these it might make sense for a company to augment its current management staff.

In today’s ever-changing and highly regulated business environment, companies are doing more work with fewer resources. Overtime is becoming the norm, service levels and quality are deteriorating, projects are repeatedly deferred and managers regularly handle day-to-day tasks.

By bringing on experienced professionals with industry experience, you can help ease the burden. Whether working as an extension of your team, as individual contributors or as a team leader, staff augmentation can offer a seamless solution that affords you the opportunity to maintain productivity, while eliminating the costly overhead. Companies can easily ramp up or down to meet changing demands without the cost and liability of additional full-time employees.

Look outside

If your company or organization is likely to remain short-staffed for a while, consider staff augmentation. You may be surprised to learn that the kinds of workers available to fill project-based or short-term positions are not limited to administrative staff. Many professionals, including CEOs, CFOs, IT specialists, accountants and project managers can be found to assist on an interim basis, either as independent contractors or via employment agencies. Companies that provide interim management services often can fill the need with a qualified individual in a very short period of time, some in as little as 48 hours.

Interim leadership positions are typically a tough transition, as job vacancies may be sudden and finding a replacement can be a long and costly process. Here are some of the benefits of interim leadership and why it works.

Immediate Impact. Interim C-Suite executives typically have a wealth of knowledge with diverse experience, usually with a greater breadth and depth than the permanent recruit.

Cost Effective. The typical monthly cost of an interim executive can largely compare to the expenses incurred by a permanent executive, especially when looking at the cost of benefits, relocation and additional incentive compensation. An interim can also provide a powerful return on investment because he or she can begin focusing on critical initiatives immediately.

Unbiased Leadership. An interim executive can assess operational and cost-prohibitive drains on the organization and, with approval, can adjust or remove “revered” products and services. Others in the position prior are commonly protective and invested in the services they helped cultivate.

Vital Analysis. The interim executive can launch a critical examination of supply contracts, revenue cycle, manpower expenses and cash flow. He or she can then manage the plans to fix contrasting findings.

Different Perspective. Oftentimes boards will look to save money and promote from within to support their other C-Suite executives and fill the interim role. However, bringing in a fresh perspective to oversee the situation at hand will often provide a more productive outcome.

Removing Distractions. Most C-level executives are understandably overcome with their internal and external responsibilities. An interim executive has the ability to look past a large amount of those responsibilities due the temporary nature of his or her work. This allows the interim executive the rare opportunity to prioritize and focus on critical initiatives.

Provisional Employment. Consider that companies who provide staff augmentation almost always put provisions in their contracts for hiring the temporary labor. Before committing to a full-time offer, the employer can field-test whether a candidate is the right fit in terms of talent and personality. If the temporary employee is a good fit for your organization, you may want to consider paying the finder’s fee to the company and hiring that person fill-time.

Project Outsourcing. Another alternative to consider is project outsourcing, which allows a company to execute entire projects using the resources of another firm. The project outsourcing approach allows companies the benefits of external expertise, cost management and risk mitigation so they can concentrate existing resources on their core operations.

Staff augmentation may be an appropriate solution if you have work that must get done, but you cannot make a long-term financial commitment. You can gain a competitive advantage by turning over these tasks to an interim manager, enabling you to continue to concentrate on growing your business.

For more information about our staff augmentation and project outsourcing services, please contact Yeo & Yeo. With our expertise and the personalized solutions available from our partner, ProNexus, we can find a solution to best fit your needs and budget. Learn more.

Your employees may be cheating your company by turning in bogus expense reports. While each of these transactions may be small, they can add up to a bundle. Not only does expense account abuse erode profits, it creates an environment in which employees think they can get away with stealing — and perhaps move on to more lucrative fraudulent schemes.

In addition, poor expense account reporting can jeopardize your company’s tax deductions for employee reimbursements if you ever get audited by the IRS.

For all these reasons, your company should have strict expense account policies. Here are eight specific suggestions:

1. Create a written document that explains your company’s policy on how expense reports will be handled. Make sure to stick to the policy with all employees.

2. Require employees to read and sign the document. Then, keep a copy in each employee’s personnel file.

3. Insist on original copies of expense documentation such as hotel bills and credit card receipts. These days, some dishonest employees create bogus documents and then copy them to create a paper trail that appears to be legitimate. Plus, accepting photocopies can lead to multiple reimbursements. For example, an employee copies a hotel bill and submits it for payment this month. He then submits the photocopy on next month’s expense report.

4. Your expense report policy should include a deadline for turning in expenses — for example, no later than 30 days after the expenses are incurred. This prevents employees from turning in claims for old “forgotten or misplaced” expenses when they run into personal cash crunches.

5. For client meal and entertainment expenses, the expense report should always list the following:

The name and position of the person who was entertained or fed, along with the business relationship to your company.
The business reason for the expense.
The date, time, and place where the expense was incurred.
The amount of each specific expense item (with no aggregation).

These details are necessary to comply with IRS regulations, but requiring them makes employees think twice about fabricating facts. For example, taking a friend out to dinner and claiming it as a business expense.

Another tax requirement: The IRS also requires that receipts be collected for all entertainment expenses of $75 or more.

6. To ensure uniform adherence to your company’s expense report policy, designate one person (if possible) to review and approve all reports. Your company will benefit as this person gains expertise in administering the policy.

7. Make sure employees’ travel logs match items on their expense reports. Watch for trends, such as taxi receipts that seem out of line. Employees sometimes ask cab drivers for blank receipts that they fill in themselves with higher amounts than they actually paid. Or, two employees traveling together share a cab, but both submit receipts.

8. Have a high-level company executive sign off on all expense report claims before cutting the reimbursement checks. Make sure your employees know this is part of the process. They will be more reluctant to turn in bogus reports when they know someone in a power position sees all the paperwork.

These are just a few ideas on preventing employee expense report fraud. There is probably no way to completely eliminate expense account fraud. However, with effective company policies, you can minimize it.