2024 Q1 Tax Calendar: Key Deadlines for Businesses and Other Employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2024. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. If you have questions about filing requirements, contact us. We can ensure you’re meeting all applicable deadlines.

January 16 (The usual deadline of January 15 is a federal holiday)

Pay the final installment of 2023 estimated tax.
Farmers and fishermen: Pay estimated tax for 2023. If you don’t pay your estimated tax by January 16, you must file your 2023 return and pay all tax due by March 1, 2024, to avoid an estimated tax penalty.

January 31

File 2023 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
Provide copies of 2023 Forms 1099-NEC, “Nonemployee Compensation,” to recipients of income from your business, where required, and file them with the IRS.
Provide copies of 2023 Forms 1099-MISC, “Miscellaneous Information,” reporting certain types of payments to recipients.
File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2023. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 12 to file the return.
File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2023. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 12 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”)
File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2023 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 12 to file the return.

February 15

Give annual information statements to recipients of certain payments you made during 2023. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient. This due date applies only to the following types of payments:
- All payments reported on Form 1099-B.
- All payments reported on Form 1099-S.
- Substitute payments reported in box 8 or gross proceeds paid to an attorney reported in box 10 of Form 1099-MISC.

February 28

File 2023 Forms 1099-MISC with the IRS if you’re filing paper copies. (Otherwise, the filing deadline is April 1.)

March 15

If a calendar-year partnership or S corporation, file or extend your 2023 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2023 contributions to pension and profit-sharing plans.

Fraud occurs in companies of every size. But small businesses, especially new ones, have special risks because they generally can’t invest in expensive fraud-prevention programs. Thankfully, there are simple yet effective strategies that can reduce the likelihood of fraud, however small or new your company is.

Understand the risk

Fraud schemes can involve employees (occupational fraud) or third parties (including vendors, customers and cybercriminals). And sometimes, workers and outsiders collude to commit fraud. Fraud perpetrated by third parties includes identity theft, credit card scams, bank fraud and cyber-related schemes, including ransomware attacks. Occupational fraud usually falls into one of three major categories: asset misappropriation, corruption (such as bribery) or financial statement fraud.

Although these potential fraud threats may feel overwhelming, know that they all have the same objective: to steal your company’s cash or assets. Once you understand and acknowledge this risk, you can focus on shoring up your defenses.

8 simple ideas

Internal controls provide the best defense. If you lack controls, allow owners and managers to override controls, or are generally lax about employee oversight, your business is at higher risk for fraud. The following tips are a good place to start if you’re new to business and to fighting fraud:

Separate business and personal accounts. Using personal accounts for business is common with sole proprietors and new business owners. But it’s important to open separate business bank and credit card accounts as soon as possible. This will make it easier to monitor and report your business’s financial performance and help you detect unusual transactions quickly.
Take advantage of anti-fraud tools. Most banks provide a suite of anti-fraud tools to their small business customers. Some are free and others cost a monthly fee. Ask your bank to explain the pros and cons of each solution.
Regularly reconcile financial accounts. Set aside time at least once a month to review every bank and credit card transaction. If a transaction is incorrect or unauthorized, notify your bank or card issuer immediately.
Verify calls, emails and texts. Phishing and similar scams are just as likely to target business owners and employees as individuals. Be on the alert for calls or messages purporting to be from your bank or credit card issuers, the IRS or other official-sounding parties. Never click on direct links or provide sensitive information until after you’ve independently verified the identity of a caller or sender.
Educate employees. If you have employees, make them the first line of defense against fraud. Train them on the types of fraud schemes they could encounter and how they should report suspicious activities.
Make your presence known. Employees who commit fraud typically do so because they don’t think they’ll be caught. Keep close tabs on any employees you have, particularly if they handle cash, process transactions or work in accounting. Don’t hesitate to ask questions and investigate suspicions.
Invest in internal controls. Make sure you have policies governing inventory, shipping and receiving, sales, payroll and other functions that are prone to abuse. It’s not enough just to have controls — you also must consistently enforce them.
Deploy a cyber defense program. Anti-virus and anti-malware software are critical for protecting your business’s data. Install the latest software on every device (and update it as soon as updates become available), including on mobile phones.

Effective program

A fraud prevention program doesn’t have to cost a lot or take excessive amounts of time to set up to be effective. We can help you identify your business’s greatest threats and recommend simple, economical controls to keep fraud at bay.

Data breaches can be costly. The average total cost of a data breach has risen to roughly $4.45 million, according to a 2023 survey of information technology (IT) security professionals by the Ponemon Institute (a research center dedicated to privacy, data protection and information security policy). That figure has grown 15% overall in the last three years. Notably, data breach costs have increased 53% in the health care sector since 2020.

Auditors consider all kinds of risks when they prepare financial statements. Here’s how they specifically tackle the issue of IT security in an audit.

Audit scope

When it comes to evaluating cybersecurity risks, auditing standards require auditors to:

Learn how businesses use IT and the impact of IT on the financial statements,
Understand the extent of the companies’ automated controls as they relate to financial reporting, and
Use their understanding of business IT systems and controls in assessing the risks of material misstatement of financial statements, including IT risks resulting from unauthorized access.

The auditor’s role is limited to the audit of the financial statements and, if applicable, the internal control over financial reporting (ICFR).

Primary focus

An auditor’s primary focus is on controls and systems that are in closest proximity to the application data of interest to the audit. This includes enterprise resource planning (ERP) systems, single purpose applications (such as fixed asset systems) and any connected systems that house data related to the financial statements.

Companies must continuously update their controls and systems to stay atop the latest hacking techniques. Increasingly, companies are using artificial intelligence (AI) and automation to detect and contain breaches. According to the 2023 Ponemon Institute report, organizations that fully deploy cybersecurity AI and automation on average saw 108-day shorter breach lifecycles than organizations without these technologies in place. In addition, organizations that extensively use cybersecurity AI and automation to identify breaches experienced $1.76 million lower average loss than those without these technologies. In fact, these technologies were the biggest cost-savers identified in the report.

An auditor’s responsibilities don’t encompass an evaluation of cybersecurity risks across a company’s entire IT platform. But, if auditors learn of material breaches while performing audit procedures, they consider the impact on financial reporting (including disclosures) and ICFR.

Fortifying your defenses

Data breaches have become increasingly common and costly. It’s critical for business owners and managers to understand the scope of the external auditor’s responsibilities in this area and develop a cybersecurity program that mitigates the risks.

All of us at Yeo & Yeo wish you a bright, joyous, and fun-filled holiday season!

The holiday season offers us an opportunity to reflect on the past year and express gratitude for the relationships we have built and the accomplishments we have achieved together. In this season of giving and gratitude, we extend our sincerest thanks for your partnership and trust in Yeo & Yeo.

Our 100th year has been nothing short of remarkable, and spending this milestone year with each of you has been truly special. We are proud to be a part of such a vibrant and supportive network. We invite you to watch our year-end highlight video that showcases the year’s pivotal moments, achievements, and shared memories.

We are privileged to serve you, and as we enter a new year filled with hope and promise, we look forward to continuing our journey together. Our professionals are committed to helping our clients, colleagues, and communities thrive in every way possible.

We extend warm holiday greetings to you and your loved ones. May this season bring you peace, happiness, and abundant cherished moments spent with those who matter most.

Yeo & Yeo proudly recognized 31 professionals across the firm’s companies for milestone anniversaries at the firm’s virtual Employee Recognition and Holiday Celebration.

“I am proud that so many of our team members have chosen Yeo & Yeo for the place to grow in their career,” said President & CEO Dave Youngstrom. “I am extremely grateful for the knowledge, commitment, and passion these employees have shared over the years. Their contributions have helped the company’s growth and laid the foundation for the future and our success.”

Honored for 35 years of service:

Peter Bender, Leader, Yeo & Yeo Wealth Management – Saginaw

Honored for 30 years of service:

Michael Oliphant, Principal, Yeo & Yeo CPAs – Kalamazoo

Honored for 25 years of service:

Danielle Cary, Principal, Yeo & Yeo CPAs – Ann Arbor
Brian Dixon, Managing Principal, Yeo & Yeo CPAs – Saginaw
Denise Garrett, Billing Manager, Yeo & Yeo Medical Billing & Consulting – Saginaw
Suzanne Lozano, Principal, Yeo & Yeo CPAs – Saginaw
Christine Porras, Payroll Supervisor, Yeo & Yeo CPAs – Saginaw

Honored for 20 years of service:

Kristi Krafft-Bellsky, Principal and Director of Quality Control, Firm Administration – Saginaw
Linda Bender, Operations and Administration Supervisor, Yeo & Yeo Technology – Saginaw
Kimberly Jako, Administrative Assistant, Yeo & Yeo CPAs – Kalamazoo

Honored for 15 years of service:

Marisa Ahrens, Principal, Yeo & Yeo CPAs – Saginaw
Jody Darby, Help Desk Coordinator, Yeo & Yeo Technology – Saginaw
Dave Jewell, Managing Principal, Yeo & Yeo CPAs – Kalamazoo
Jessica Rolfe, Principal, Yeo & Yeo CPAs – Saginaw

Honored for 10 years of service:

Zaher Basha, Senior Manager, Yeo & Yeo CPAs – Auburn Hills
Timothy Crosson, Jr., Principal, Yeo & Yeo CPAs – Ann Arbor
Mike Georges, Retiring Principal, Yeo & Yeo CPAs – Ann Arbor
Nan Kowalczyk, Accountant, Yeo & Yeo CPAs – Ann Arbor
Christina LaVielle, Assurance Supervisor, Yeo & Yeo CPAs – Auburn Hills
Chelsea Meyer, Manager, Yeo & Yeo CPAs – Kalamazoo
Chris Sheridan, Senior Manager, Yeo & Yeo CPAs – Saginaw
Steve Treece, Senior Manager, Yeo & Yeo CPAs – Flint
Alex Wilson, Senior Manager, Yeo & Yeo CPAs – Alma

Also recognized during the virtual program were eight professionals celebrating their fifth anniversary with Yeo & Yeo.

As year-end approaches, now is a good time to think about planning moves that may help lower your tax bill for this year and possibly next.

This year likely brought challenges and disruptions that impacted your personal and business financial situation. This year’s planning could be more challenging as you contend with the provisions of the Inflation Reduction Act, which continues to affect new corporate taxes, green energy tax credits and other provisions for 2023 and 2024 tax filings.

Yeo & Yeo’s 2023 Year-end Tax Planning Guide provides action items that may help you save tax dollars if you act before year-end. These are just some of the steps that can be taken to save taxes. Not all actions may apply in your particular situation, but you or a family member can likely benefit from many of them.

Next steps

After reviewing the Year-end Tax Guide, reach out to your Yeo & Yeo tax advisor, who can help narrow down the specific actions you can take and tailor a tax plan unique to your current personal and business situation.

Together we can:

Identify tax strategies and advise you on which tax-saving moves to make.
Evaluate tax planning scenarios.
Determine how we can help.

We will continue to monitor tax changes and share information as it becomes available. Visit our Tax Resource Center for the latest tax insights, useful links, and access to our Online Tax Guide.

An updated article on the new Business Owner Information (BOI) reporting rules can be found here.

Your business may soon have to meet new reporting requirements that take effect on January 1, 2024. Under the Corporate Transparency Act (CTA), enacted in 2021, certain companies will be required to provide information related to their “beneficial owners” — the individuals who ultimately own or control the company — to the Financial Crimes Enforcement Network (FinCEN). Failure to do so may result in civil or criminal penalties, or both.

On November 29, FinCEN announced it was amending the beneficial ownership information (BOI) reporting rules.

Understanding the CTA

The CTA is intended to reduce exposure to serious crimes, including terrorist financing, money laundering and other nefarious activities. But it could also open the door to the inspection of family offices, investment angels and other private individuals who’ve generally been shielded from scrutiny in the past. A business that’s characterized as a “reporting company” has either 30 days or one year to comply with the new rules.

The CTA’s rules generally apply to both domestic and foreign privately held reporting companies. For these purposes, a reporting company includes any corporation, limited liability company or other legal entity created through documents filed with the appropriate state authorities. A foreign entity includes any private entity formed in a foreign country that’s properly registered to do business in the United States.

The complete list of entities that are exempt from the reporting rules is too lengthy to include here — ranging from government units to not-for-profit organizations to insurance companies and more. Notably, an exemption was created for a “large operating company” that employs more than 20 employees on a full-time basis, has more than $5 million in gross receipts or sales (not including receipts and sales from foreign sources), and physically operates in the United States. However, many of these companies already must meet other reporting requirements providing comparable information.

If an entity initially qualifies for the large operating company exemption but subsequently falls short, it must then file a BOI report. On the other hand, an entity that might not currently qualify can update its status with FinCEN if it later does and obtain an exemption.

Determining who is and isn’t a beneficial owner

Under the CTA, a nonexempt entity must provide identifying information about its beneficial owners. A beneficial owner is defined as someone who, directly or indirectly, exercises substantial control over a reporting company, or owns or controls at least 25% of its ownership interests. An individual has substantial control of a reporting company if he or she:

Is a senior officer of the company,
Has authority over the senior officers or a majority of the company’s board,
Has substantial influence over the company’s important decisions, or
Has any other type of substantial control over the company.

This generally includes individuals who are directly related to ownership interests in the company, but indirect control may also result in classification as a beneficial owner.

Individuals who aren’t treated as beneficial owners of a reporting company under the CTA include:

Someone acting as a nominee, intermediary, custodian or agent on behalf of a beneficial owner,
An employee of the reporting company who has substantial control over the entity’s economic benefits because of his or her employment status (but only if the individual isn’t a senior officer of the entity),
An individual whose only interest in a reporting company is a future interest through a right of inheritance,
Any creditor of the reporting company (unless the creditor exercises substantial control or has a 25% ownership interest in the reporting company), or
A minor child.

However, for minor children, the reporting company must report information about each child’s parent or legal guardian.

Defining company applicants

The CTA also requires reporting companies to provide identifying information about their company applicants. A company applicant is someone who is:

Responsible for filing the documents that created the entity (for a foreign entity, this is the person who directly files the document that first registers the foreign reporting company to conduct business in a state), or
Primarily responsible for directing or controlling filing of the relevant formation or registration document by another individual.

This rule often encompasses legal personnel acting in a business capacity.

Addressing other CTA reporting requirements

The CTA’s reporting requirements are extensive. Specifically, the report to FinCEN must include the following information:

The legal name of the entity (or any trade or doing-business-as name),
The address of the entity,
The jurisdiction where the entity was formed,
The entity’s Taxpayer Identification Number, and
The name, address, date of birth, unique identifying number information of each beneficial owner (such as a U.S. passport or state driver’s license number), and an image of the document that contains the identifying number.

FinCEN announced on November 29 that it was amending the BOI reporting rules. Initially, reporting companies had either 30 days or one year from the effective date (January 1, 2024) to comply with the reporting requirements. Now, reporting companies will have 30 days, 90 days or one year from the January 1, 2024, effective date to comply with the reporting requirements.

The deadline to comply depends on the entity’s date of formation. Reporting companies created or registered prior to January 1, 2024, have one year to comply by filing initial reports. Those created or registered on or after January 1, 2024, but before January 1, 2025, will have 90 days upon receipt of their creation or registration documents to file their initial reports. Those created or registered on or after January 1, 2025, will have 30 days upon receipt of their creation or registration documents to file their initial reports. Beneficial ownership information won’t be accepted by FinCEN until the effective date.

After the initial filing, reporting companies have 30 days to file an updated report noting any change to information previously reported. In addition, reporting companies must correct inaccurate information in previously filed reports within 30 days after the date they become aware of the error.

Note that reports filed with FinCEN aren’t available to the general public. However, certain government agencies will have access to the information, including those involved in national security, intelligence and law enforcement, as well as the IRS and U.S. Treasury Department.

What are the penalties for failing to comply with the new reporting rules? An omission or fraudulent report could result in civil fines of $591 a day for as long as the report is missing or remains inaccurate. Failure to comply may also trigger a criminal penalty of a $10,000 fine or even a two-year jail term.

Taking the next steps

What should your company do now to ensure compliance? Evaluate your current situation. If you determine that your business must meet these obligations, collect the required information, update and refine internal policies for accurately reporting the data, and establish a system for monitoring the reporting processes.

Visit the FinCEN BOI Reporting Resource Center for additional guidance.

FinCEN BOI Reporting Resource Center

Yeo & Yeo, a leading Michigan CPA and advisory firm, announces the election of Tammy Moncrief, CPA, and the re-election of Jacob Sopczynski, CPA, to Yeo & Yeo’s board of directors effective January 1, 2024.

“It’s a privilege to have such talented and accomplished leaders who are committed to our firm’s people, clients, and communities,” says Dave Youngstrom, President & CEO. “I am confident that their unique skills and perspectives will help drive positive change and future success for our firm.”

Tammy Moncrief, CPA, is the managing principal of the Auburn Hills office. She joined Yeo & Yeo in 2012 and is a member of the Tax Services Group and the Estate & Trust Services Group. She is highly knowledgeable in tax planning and consulting, charitable gift planning, multi-state taxation, and succession and legacy planning. Moncrief serves as a special task force advisor on federal tax legislation for the Michigan Association of CPAs (MICPA) and is the past chair of the MICPA Federal Tax Task Force. In 2020, she received the MICPA’s Outstanding Task Force Award, recognizing those who go above and beyond to lend their time and knowledge to CPAs across the country. She previously served on Yeo & Yeo’s board of directors from 2017 to 2022.

Jacob Sopczynski, CPA, is a principal and leader of the firm’s Manufacturing Services Group. He serves many clients as a consultant and specialist in applying data extraction techniques, tax planning, and assurance services. He joined Yeo & Yeo in 2005 and has served on the board of directors since 2022. He is a member of the board of trustees for the International Academy of Flint and serves as treasurer of Pinconning Plays, Inc. He is a member of Gen Forward and the 100 Club of Genesee, Shiawassee and Lapeer Counties, and a graduate of Leadership Bay County and the 1,000 Leaders Initiative. He served as the chair of the MICPA Manufacturing Task Force from 2015 to 2017.

Serving the second year of their two-year terms on the board are David Jewell, CPA, managing principal in Yeo & Yeo’s Kalamazoo office and the firm’s Tax Service Line leader, and Jamie Rivette, CPA, CGFM, principal based in the Saginaw office and the firm’s Assurance service line leader. Working hand-in-hand with the firm leadership group, Yeo & Yeo’s board of directors fosters collaboration, innovation and a culture of excellence.

The firm thanks outgoing board member Michael Georges, CPA, for outstanding service and leadership. Georges is a retiring principal in Yeo & Yeo’s Ann Arbor office and served six years on the firm’s board.

The IRS recently released Revenue Procedure 2023-24 to announce the 2024 cost-of-living adjustments (COLAs) for various tax-related limits applicable to many popular employer-provided fringe benefits. Here are some highlights:

Health Flexible Spending Accounts (FSAs). For 2024, the dollar limit on employee salary reduction contributions to health FSAs will be $3,200 (up from $3,050 in 2023). In cases where a cafeteria plan allows carryovers of health FSA balances, the maximum amount from 2024 that can be carried over to the 2025 plan year will be $640 (up from $610 in 2023).

Qualified transportation fringe benefits. The monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will be $315 (up from $300 in 2023). The combined monthly limit for transit passes and vanpooling expenses will also be $315.

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). The maximum payments and reimbursements under a QSEHRA will be $6,150 for self-only coverage and $12,450 for family coverage (up from $5,850 and $11,800, respectively, in 2023).

Adoption assistance exclusion and adoption credit. The maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program for the adoption of a child will be $16,810 (up from $15,950 in 2023). In addition, the maximum adoption credit allowed to an individual for the adoption of a child will also be $16,810.

Both the exclusion and credit will begin to be phased out for individuals with modified adjusted gross incomes greater than $252,150 (up from $239,230 in 2023) and will be entirely phased out for individuals with modified adjusted gross incomes of $292,150 or more (up from $279,230 in 2023).

Benefits under a dependent care assistance program (DCAP). The DCAP limit isn’t indexed for inflation so, for 2024, it will remain at $5,000 for single taxpayers and married couples filing jointly, or $2,500 for married people filing separately. These dollar amounts will apply in future years, too, unless extended or otherwise changed by Congress.

That said, some adjustments to certain general tax limits are relevant to the federal income tax savings under a DCAP. These include the 2024 tax rate tables, earned income credit amounts and the standard deduction.

Archer Medical Savings Accounts (MSAs). For participants who have self-only coverage in an MSA, the plan must have an annual deductible that’s not less than $2,800 in 2024 (up from $2,650 in 2023), but not more than $4,150 (up from $3,950 in 2023). For self-only coverage, the maximum out-of-pocket expense amount will be $5,550 (up from $5,300 in 2023). For tax year 2024, the annual deductible for family coverage cannot be less than $5,550 (up from $5,300 in 2023). However, the deductible cannot be more than $8,350 (up from $7,900 in 2023). For family coverage, the out-of-pocket expense limit will be $10,200 (up from $9,650 in 2023).

The end of the year is almost here. That means employers should act now, if they haven’t already, to determine whether their benefit plans or programs will automatically apply the latest limits or need to be amended, if so desired, to recognize changes.

If your organization does indeed make revisions, clearly communicate the changes to your staff. Contact us for further information about next year’s COLAs, as well as for help assessing the costs of offering tax-friendly fringe benefits.

With the holidays approaching, you might be considering making gifts of stock or cash to family members and other loved ones. By using the annual gift tax exclusion, those gifts — within generous limits — can reduce your taxable estate. Indeed, in 2023, the annual gift exclusion amount is $17,000 per recipient. (In 2024, the amount will increase to $18,000 per recipient.)

Annual gift tax exclusion in action

Despite a common misconception, federal gift tax applies to the giver of a gift, not to the recipient. The good news is that you can structure your gifts so that they’re — at least to a limited degree — sheltered from gift tax. You can do that by taking advantage of the annual gift tax exclusion and, if necessary, the unified gift and estate tax exemption for gifts valued above the exclusion amount.

Making annual exclusion gifts is an easy way to reduce your estate tax liability. For example, let’s say that you have four adult children and eight grandchildren. In this instance, you may give each family member up to $17,000 by year end, for a total of $204,000 ($17,000 x 12).

Furthermore, the annual gift tax exclusion is available to each taxpayer. So if you’re married and your spouse consents to a joint gift, also called a “split gift,” the exclusion amount is effectively doubled to $34,000 per recipient in 2023 ($36,000 in 2024).

Bear in mind that split gifts and large gifts trigger IRS reporting responsibilities. A gift tax return is required if you exceed the annual exclusion amount, or you give joint gifts with your spouse. Unfortunately, you can’t file a “joint” gift tax return. In other words, you and your spouse must file an individual gift tax return for the year in which you both make gifts.

Lifetime gift tax exemption

The lifetime gift tax exemption is part and parcel of the unified gift and estate tax exemption. It can shelter from tax gifts above the annual gift tax exclusion amount.

Under current law, the exemption effectively shelters $10 million from tax, indexed for inflation. In 2023, the inflation-adjusted amount is $12.92 million. In 2024, the amount will increase to $13.61 million. However, if you tap your lifetime gift tax exemption, it erodes the exemption amount available for your estate.

Tax-exempt gifts

Be aware that certain gifts are exempt from gift tax. These include gifts:

From one spouse to the other,
To a qualified charitable organization,
Made directly to a healthcare provider for medical expenses, and
Made directly to an educational institution for a student’s tuition.

For example, you might pay the tuition of a grandchild’s upcoming school year directly to the college. That gift won’t count against the annual gift tax exclusion.

The right strategy for you

The annual gift tax exclusion remains a powerful tool in your estate planning toolbox. Contact us for help developing a gifting strategy that works best for your specific situation.

Every year, U.S. companies lose millions of dollars to vendor fraud. These schemes can be complex and usually involve collusion of multiple suppliers or suppliers and employees of the defrauded business. Small businesses that don’t use sophisticated vendor software or don’t have other antifraud resources are particularly vulnerable. But knowledge is power. Learn what vendor fraud is and the simple steps you can take to prevent it.

Predetermined outcomes

Vendor fraud can take one of several forms. Price fixing, for example, is a common scheme in which competitors agree to set the same price for goods or services or jointly establish a price range or minimum price.

Bid rigging is similar. It involves two or more suppliers agreeing to steer a company’s purchase of goods or services. Potential schemes include bid rotation, where vendors take turns acting as the low bidder, and bid suppression, where two or more vendors illegally agree that at least one of them will withdraw a previously submitted bid — or not bid at all. Complementary bidding is another possible bid rigging scheme. Here, some participants submit token bids with a high price or special terms they know the customer will reject.

Price fixing and bid rigging agreements violate the Sherman Antitrust Act, regardless of whether the prices or bids are “reasonable.” You can help prevent such fraud by performing due diligence on potential suppliers. For example:

Verify the vendor’s tax ID number,
Contact the vendor’s existing and previous customers, and
Perform background checks on the vendor’s owners.

To minimize the risk of bid rigging, widely publicize the offer to attract as many eligible bidders as possible. Once bidding is underway, look for suspicious activity, such as unusually low bids that aren’t countered by other bidders.

Inside jobs

The previous described schemes generally don’t (or don’t necessarily) involve company insiders. In kickback schemes, however, crooked employees work with suppliers bent on fraud. Vendors bribe workers to submit or authorize payment of inflated or fictitious invoices. They typically incorporate the amount of the kickback payments in the invoice — compounding the amount that victimized companies are overbilled.

To uncover an existing kickback scheme, you might routinely compare invoices with original purchase orders and investigate amounts that seem unreasonably high. You can help prevent kickbacks by requiring that at least two people sign off on invoices for payment. Also mandate that employees take vacation time (so fraud schemes might be detected while they’re gone) and scrutinize employees who seem to have close relationships with vendors.

Vendor audit

Unfortunately, there are many other vendor fraud scams, including those that use shell companies and, increasingly, cyber schemes. One way to stay on top of this threat is to hire a forensic accountant to perform a vendor audit. Contact us for more information.

One of the most appreciated fringe benefits for owners and employees of small businesses is the use of a company car. This perk results in tax deductions for the employer as well as tax breaks for the owners and employees driving the cars. (And of course, they enjoy the nontax benefit of using a company car.) Even better, current federal tax rules make the benefit more valuable than it was in the past.

Rolling out the rules

Let’s take a look at how the rules work in a typical situation. For example, a corporation decides to supply the owner-employee with a company car. The owner-employee needs the car to visit customers and satellite offices, check on suppliers and meet with vendors. He or she expects to drive the car 8,500 miles a year for business and also anticipates using the car for about 7,000 miles of personal driving. This includes commuting, running errands and taking weekend trips. Therefore, the usage of the vehicle will be approximately 55% for business and 45% for personal purposes. Naturally, the owner-employee wants an attractive car that reflects positively on the business, so the corporation buys a new $57,000 luxury sedan.

The cost for personal use of the vehicle is equal to the tax the owner-employee pays on the fringe benefit value of the 45% personal mileage. In contrast, if the owner-employee bought the car to drive the personal miles, he or she would pay out-of-pocket for the entire purchase cost of the car.

Personal use is treated as fringe benefit income. For tax purposes, the corporation treats the car much the same way it would any other business asset, subject to depreciation deduction restrictions if the auto is purchased. Out-of-pocket expenses related to the car (including insurance, gas, oil and maintenance) are deductible, including the portion that relates to personal use. If the corporation finances the car, the interest it pays on the loan is deductible as a business expense (unless the business is subject to the business interest expense deduction limitation under the tax code).

On the other hand, if the owner-employee buys the auto, he or she isn’t entitled to any deductions. Outlays for the business-related portion of driving are unreimbursed employee business expenses, which are nondeductible from 2018 to 2025 due to the suspension of miscellaneous itemized deductions under the Tax Cuts and Jobs Act. And if the owner-employee finances the car personally, the interest payments are nondeductible.

One other implication: The purchase of the car by the corporation has no effect on the owner-employee’s credit rating.

Careful recordkeeping is essential

Supplying a vehicle for an owner’s or key employee’s business and personal use comes with complications and paperwork. Personal use needs to be tracked and valued under the fringe benefit tax rules and treated as income. This article only explains the basics.

Despite the necessary valuation and paperwork, a company-provided car is still a valuable fringe benefit for business owners and key employees. It can provide them with the use of a vehicle at a low tax cost while generating tax deductions for their businesses. (You may even be able to transfer the vehicle to the employee when you’re ready to dispose of it, but that involves other tax implications.) We can help you stay in compliance with the rules and explain more about this fringe benefit.

If you wish to leave a charitable legacy while generating income during your lifetime, a charitable remainder trust (CRT) may be a viable solution. In addition to an income stream, CRTs offer an up-front charitable income tax deduction, as well as a vehicle for disposing of appreciated assets without immediate taxation on the gain. Plus, unlike certain other strategies, CRTs become more attractive if interest rates are high. Thus, in the current environment, that makes them particularly effective.

How these trusts work

A CRT is an irrevocable trust to which you contribute stock or other assets. The trust pays you (or your spouse or other beneficiaries) income for life or for a term of up to 20 years, then distributes the remaining assets to one or more charities. When you fund the trust, you’re entitled to a charitable income tax deduction (subject to applicable limits) equal to the present value of the charitable beneficiaries’ remainder interest.

There are two types of CRTs, each with its own pros and cons:

A charitable remainder annuity trust (CRAT) pays out a fixed percentage (ranging from 5% to 50%) of the trust’s initial value and doesn’t allow additional contributions once it’s funded.
A charitable remainder unitrust (CRUT) pays out a fixed percentage (ranging from 5% to 50%) of the trust’s value, recalculated annually, and allows additional contributions.

CRATs offer the advantage of uniform payouts, regardless of fluctuations in the trust’s value. CRUTs, on the other hand, allow payouts to keep pace with inflation because they increase as the trust’s value increases. And, as noted, CRUTs allow you to make additional contributions. One potential disadvantage of a CRUT is that payouts shrink if the trust’s value declines.

CRTs and a high-interest-rate environment

To ensure that a CRT is a legitimate charitable giving vehicle, IRS guidelines require that the present value of the charitable beneficiaries’ remainder interest be at least 10% of the trust assets’ value when contributed. Calculating the remainder interest’s present value is complicated, but it generally involves estimating the present value of annual payouts from the trust and subtracting that amount from the value of the contributed assets.

The computation is affected by several factors, including the length of the trust term (or the beneficiaries’ ages if payouts are made for life), the size of annual payouts and an IRS-prescribed Section 7520 rate. If you need to increase the value of the remainder interest to meet the 10% threshold, you may be able to do so by shortening the trust term or reducing the payout percentage.

In addition, the higher the Sec. 7520 rate is at the time of the contribution, the lower the present value of the payouts and, therefore, the larger the remainder interest. In recent years, however, rock-bottom interest rates made it difficult, if not impossible, for many CRTs to qualify. As interest rates have risen, it has become easier to meet the 10% threshold and increase annual payouts or the trust term without disqualifying the trust.

Now may be the time for a CRT

If you’ve been exploring options for satisfying your charitable goals while generating an income stream for yourself and your family, now may be an ideal time for a CRT. Contact us if you have questions.

Every established company will encounter challenges when confronting the thorny issue of succession planning. Family-owned businesses, however, often face particularly complex issues. After all, their owners may have to consider both family members who work for the company and those who do not.

If yours is a family business, you may run into some confounding riddles as you develop your succession plan. As difficult as it may seem, always bear in mind that there are solutions to be found.

Divergent financial needs

One tough quandary for many family businesses is that the financial needs of older and younger generations conflict. For instance, the business owner is counting on the sale of the company to serve as a de facto retirement fund while the owner’s family wants to take over the business without a significant investment.

Fortunately, several strategies are available to generate cash flow for the owner while minimizing the burden on the next generation. For example, an installment sale of the business to children or other family members can provide liquidity for owners while easing the burden on children and grandchildren. An installment sale may also increase the chance that cash flows from the business can fund the purchase. Plus, so long as the price and terms are comparable to arm’s-length transactions between unrelated parties, the sale shouldn’t trigger gift or estate taxes.

Trust alternatives

Alternatively, owners may transfer business interests to a grantor retained annuity trust (GRAT) to obtain a variety of gift and estate tax benefits, provided they survive the trust term. They’ll also enjoy a fixed income stream for a period of years. At the end of the term, the business is transferred to the owner’s beneficiaries. GRATs are typically designed to be gift-tax-free.

Similarly, a properly structured installment sale to an intentionally defective grantor trust (IDGT) allows an owner to sell the business on a tax-advantaged basis while enjoying an income stream and retaining control during the trust term. Once installment payments are complete, the business passes to the owner’s beneficiaries free of gift taxes.

The answers are out there

There’s no doubt that every family business is a little bit different. Nevertheless, there are probably answers out there to your distinctive questions. We can help you put together a succession plan that’s right for you and your family.

Because increasingly more people are turning to the online platform economy for work, the IRS updated the rules for Form 1099-K, Payment Card and Third Party Network Transactions, to ensure that more taxpayers are reporting all of their taxable income.

Form 1099-K is an IRS information return that third-party payment networks such as credit card companies, payment apps such as Venmo or PayPal, and online marketplaces use to report certain payment transactions for goods and services from online platforms. They must also send a copy of the form to taxpayers by January 31.

Earlier this year, the IRS announced plans to sharply decrease the reporting threshold for the 2023 tax year to anyone making more than $600, regardless of the number of transactions. Yet, that requirement has now been delayed.

Recently, the IRS announced that the 2023 tax year will be instead regarded as a transition period, with no change to the reporting threshold. Taxpayers will continue to receive 1099-Ks only if their payments from third-party payment platforms or electronic transactions total more than $20,000 and more than 200 transactions for goods or services.
As of now, the IRS plans to begin implementing the lower reporting thresholds by decreasing the threshold to $5,000 beginning with the 2024 calendar year.

The delay in implementing the decreased reporting threshold gives the IRS additional time to implement the new reporting requirements and make updates to Form 1040 and related schedules for 2024, making the reporting process easier for taxpayers.

Following are some frequently asked questions about Form 1099-K.

What’s the difference between a Form 1099-K, Form 1099-NEC and Form 1099-MISC?

Form 1099-NEC reports compensation payments of $600 or more for services provided to someone who isn’t an employee.
Form 1099-MISC reports other types of income, such as rents, royalties, prizes or awards paid to third parties.
Form 1099-K reports payment card and third-party network transactions. This form will come from the payment settlement entity rather than the business or person paying for the goods/services.

Businesses and individuals must keep careful records to determine how the payments should be reported and ensure that transactions are not duplicated. Also, businesses should carefully consider the classification of someone as a non-employee versus an employee.

What happens if I receive a Form 1099-K in error (such as for a personal reimbursement for an expense)?

Contact the issuer of the Form 1099-K to determine if they will issue a corrected form. If they are unable to issue a corrected form, the IRS recommends reporting the information as follows:

Part I – Line 8z – Other Income: Form 1099-K Received in Error
Part II – Line 24z – Other Adjustments: Form 1099-K Received in Error

The net effect of these two adjustments on adjusted gross income would be zero.

What should I do if I receive a Form 1099-K in my name and it should have been reported to my business?

Contact the Payment Settlement Entity listed on the Form 1099-K to request a corrected form showing the business’s TIN. For tax return purposes, report the income from the Form 1099-K on the appropriate business return. Maintain documentation of the correspondence for your files.

How do I prevent personal transactions from being reported to me on Form 1099-K?

PayPal and Venmo offer the option to tag their transactions as either personal/friends and family or goods and services by choosing the appropriate category for each transaction. Note that if you are selling a personal item, such as concert tickets, this should be considered a goods/services transaction.

A best practice would be to create a separate personal and business profile/account within the third-party platform to keep business transactions separate from nontaxable personal transactions.

I sold personal items (such as household goods) during the year and received payment using a third-party settlement organization. How should this be reported on my tax return?

You should first determine whether the items were sold for a gain or a loss (generally, sales price less acquisition cost). You cannot offset the gain on the sale of personal assets with losses from the sale of personal assets. See Publication 525, Taxable and Nontaxable Income, for further guidance.

If you sell an item you owned for personal use at a gain, the gain is taxable as a capital gain (regardless of whether it was reported on a 1099-K).

If you sell a personal item at a loss and you receive a 1099-K, report this transaction as follows:

Part I – Line 8z – Other Income – Form 1099-K Personal Item Sold at a Loss
Part Il – Line 24z – Other Adjustments – Form 1099-K Personal Item Sold at a Loss

The net effect of these two adjustments on adjusted gross income would be zero.

I have a crafting hobby and sell my products on Etsy. I received a Form 1099-K. How should this be reported?

There can be complicated rules around whether an activity is a hobby or a business for tax purposes. If the activity is considered a hobby, the income should be reported (regardless of whether it is reported on a Form 1099-K or another form), and the expenses are not allowed.

Summary

For the 2023 tax year, the threshold remains unchanged. Taxpayers will receive 1099-Ks only if their payments from third-party payment platforms or electronic transactions total more than $20,000 and more than 200 transactions for goods or services.

As of now, the reporting threshold for the 2024 calendar year will decrease to $5,000 as part of a phase-in implementation.

The tax law has not changed regarding the reporting of income. The changes to Form 1099-K and information reporting are meant to increase voluntary tax compliance. Find further guidance on the IRS web pages, 2023 Form 1099-K Reporting Threshold Delay and Understanding Your Form 1099-K.

We are here to help. Please contact us if you have questions.

If your business operates on a cash basis, you can significantly affect your amount of taxable income by accelerating your deductions into 2023 and deferring income into 2024 (assuming you expect to be taxed at the same or a lower rate next year).

For example, you could put recurring expenses normally paid early in the year on your credit card before January 1 — that way, you can claim the deduction for 2023 even though you don’t pay the credit card bill until 2024. In certain circumstances, you also can prepay some expenses, such as rent or insurance and claim them in 2023.

As for deferring income, wait until close to year-end to send out invoices to customers with reliable payment histories. Accrual-basis businesses can take a similar approach, holding off on the delivery of goods and services until next year.

Buy assets

If you’re thinking about purchasing new or used equipment, machinery or office equipment in the new year, it might be time to act now. Buy the assets and place them in service by December 31, and you can deduct 80% of the cost as bonus depreciation in 2023. This is down from 100% for 2022 and it will drop to 60% for assets placed in service in 2024. Contact us for details on the 80% bonus depreciation break and exactly what types of assets qualify.

Bonus depreciation is also available for certain building improvements.

Fortunately, the first-year Section 179 depreciation deduction will allow many small and medium-sized businesses to write off the entire cost of some or all of their 2023 asset additions on this year’s federal income tax return. There may also be state tax benefits.

However, keep in mind there are limitations on the deduction. For tax years beginning in 2023, the maximum Sec. 179 deduction is $1.16 million and a phaseout rule kicks in if you put more than $2.89 million of qualifying assets into service in the year.

Purchase a heavy vehicle

The 80% bonus depreciation deduction may have a major tax-saving impact on first-year depreciation deductions for new or used heavy vehicles used over 50% for business. That’s because heavy SUVs, pickups and vans are treated for federal income tax purposes as transportation equipment. In turn, that means they qualify for 100% bonus depreciation.

Specifically, 100% bonus depreciation is available when the SUV, pickup or van has a manufacturer’s gross vehicle weight rating above 6,000 pounds. You can verify a vehicle’s weight by looking at the manufacturer’s label, which is usually found on the inside edge of the driver’s side door. If you’re considering buying an eligible vehicle, placing one in service before year end could deliver a significant write-off on this year’s return.

Think through tax-saving strategies

Keep in mind that some of these tactics could adversely impact other aspects of your tax liability, such as the qualified business income deduction. Contact us to make the most of your tax planning opportunities.

As year end nears, many businesses and nonprofits are planning for 2024. QuickBooks® provides budget and forecast features to help management make financial predictions, as well as assess “what if” scenarios to help make more-informed business decisions. Here’s how you can use these tools for your year-end financial planning.

Budgets vs. forecasts

The budget function in QuickBooks is typically used to manage expenditures during the year to ensure that departments and locations spend according to authorized levels. QuickBooks allows you to create a new budget from scratch. However, budgeted amounts often are based on the prior year with adjustments for new projects and expected growth.

For example, your marketing department’s salaries might be based on the prior year with adjustments for raises (if any). Suppose the department hired a new team member in October 2023. When preparing the department’s 2024 budget, you’d make an adjustment for that individual’s full-year salary based on the prorated amount from the prior year.

The forecast function is used to make projections and perform “what if” analysis. To illustrate, you might run worst, most-likely and best-case scenarios for revenue and expenses for the coming year.

For example, suppose your company plans to build a new facility in the third quarter of 2024, and you plan to finance a significant portion of the cost. Because it’s unclear whether the Federal Reserve Bank will raise or lower interest rates in the coming months, you might run multiple financing scenarios with varying interest rates. You also might vary other inputs, such as expected construction costs and revenue and expenses related to opening the new facility, when you perform your scenario analysis.

How QuickBooks features work

To access these tools in QuickBooks, select “planning & budgeting” from the company menu. A budget or forecast can be created for both the profit and loss statement (also known as the income statement) and the balance sheet. You can increase the detail of a budget or forecast by adding figures at the customer/job or class level (or both).

Each budget and forecast created is saved in a unique file and managed separately. If your organization has multiple departments or locations, you can budget and forecast using QuickBooks classes. If you track job costs, you can even prepare forecasts and budgets for individual jobs.

QuickBooks also allows you to view different sets of reports for budgets and forecasts. You can use these reports to review your entries. In addition, you can view comparisons of how the company’s budget or forecast compares to actual results for income and expenses, classes, jobs or balance sheet account balances.

There are two advanced options to consider when using QuickBooks. One is the cash flow projector; this tool also allows you to determine sources and uses of cash to plan ways to avert projected shortfalls in cash. The second is the business plan tool, which allows you to develop a complete master plan for your business.

Planning in uncertain times

Many businesses are currently facing rising costs, uncertain demand and labor shortages. In today’s volatile marketplace, preparing reports that plan for the financial future is critical to survival. It’s also important to monitor progress throughout the year — not just at year end. The hard part is creating the underlying assumptions that will drive your budget or forecast. The easy part is entering the information into QuickBooks. Contact us to help you plan for 2024 and beyond.

Inflation may be a little less of a hot topic these days, but it’s still on the minds of many employers. One specific task that you and your team will need to look at is how to handle adjustments to your employees’ compensation based on inflation and other factors. A couple recent surveys provide what could be considered a baseline for the conversation.

New normal?

Global consultancy Mercer released the results of its Compensation Planning Survey in September. Responding employers reported plans to provide employees with merit increases of 3.5% (down from 3.8% in 2023). They also disclosed projected total salary increases, which include raises attributable to promotions and cost-of-living adjustments, of 3.9% (down from 4.1% in 2023).

Another report, the Annual National Salary Budget Survey, published by compensation data and tech solutions provider Salary.com, delivered a similar data point. It found that, for the third consecutive year, responding employers are planning a median raise of 4% across all employee categories, from hourly wage earners to salaried executives. That news gave rise to speculation that 4% raises are the “new normal” for employers.

Discussion points

Of course, the percentage increase that your organization decides to provide is entirely up to you. But it’s generally advisable to address and announce pay adjustments within the context of a carefully considered and well-communicated compensation philosophy. After all, employees tend to not respond well to the appearance that these things are happening haphazardly. Some key questions a compensation philosophy should address include:

Are we using the right benchmarks? Although salary surveys can tell you the average pay levels for jobs in your labor market, they may not tell the whole story. For instance, an employee who makes an average salary in your industry and location might be worth much more to you based on factors distinctive to your organization — such as experience, position-specific skills or relationships with key customers. And an employee who understands this value, particularly when it’s high, probably won’t be content with pay that simply matches a market average.

What employee behaviors are we really rewarding? It’s important to establish a clear link between the activities you’re rewarding and your strategic goals. For example, if your goal is to raise employees’ skill levels so they can assume greater responsibilities, does their compensation reflect the “upskilling” that occurs? Or are they still being paid based on the previous version of their positions?

Is our incentive system too complicated? Many employers today devise complex bonus systems that touch on multiple performance metrics. But employees aren’t finely tuned machines that can calibrate their efforts precisely in response to a multitude of incentives. If they feel as though they’re being pulled in too many directions, or don’t really understand the algorithms involved, the bonus program could disappoint employees or even lower their morale and productivity.

The path forward

As you put together your organization’s annual budget for next year, compensation adjustments will no doubt play a major role. Work closely with your leadership team to address the matter with both employee retention and financial stability in mind. We can help you assess the pertinent data points involved.

Join us in celebrating Danielle Lutz, CPA, on her recent promotion to consulting manager. Let’s learn about Danielle and her perspective on her career, pursuing her passions, and what it takes to be successful.

What are your roles in the firm?

As a member of the Consulting Service Line, I work mainly on financial statement reporting and compilations and reviews for the manufacturing, construction, and agribusiness industries. I also help businesses and individuals with tax planning and preparation. I enjoy completing technical accounting research projects, as well.

Describe your career path.

I joined Yeo & Yeo in October 2022 after moving back to Michigan. Previously, I worked for PwC and WeWork, gaining experience in many aspects of the accounting and financial statement process. Now, I work with many different organizations across a wide range of industries. I’ve learned a lot at Yeo & Yeo in the past year, and I continue to learn every day. As a manager, I look forward to gaining more industry-specific expertise to better serve my clients, becoming more active in the community, and helping my colleagues grow in their careers.

What do you enjoy most about your career?

My time at Yeo & Yeo has allowed me more freedom to explore different industries, topics, and service lines. It’s helped me see the bigger picture of how businesses operate, how to improve, and how to add value. I enjoy advising and helping companies or individuals with problem-solving, process improvement, cost-saving, and more. I take great pride in seeing the value we bring to our clients.

How do you balance your career, personal life, and passions?

I believe that taking care of yourself both mentally and physically correlates to productivity, which is why I prioritize being healthy and happy. In the accounting profession, it can be easy to work long hours and fall into a pattern of ignoring your personal needs. I try to take personal time, even if it is just a few minutes, to pause and do things that I enjoy, including daily exercise. Knowing that all my hard work will pay off keeps me motivated in all aspects of my career and personal life, too.

What’s the biggest factor that has helped you be successful?

Being successful involves having a good work ethic and a willingness to learn. In the accounting profession, having emotional intelligence is also very important. When you can read social cues, understand underlying emotions, and connect with others, it makes a big difference. Whether communicating with clients, coworkers, or people you have never met before, emotional intelligence is a great skill to understand their point of view, empathize, and react accordingly.

What are your hobbies or interests outside of accounting?

I have a passion for an active lifestyle, which includes running, Pilates, spinning, tennis, and golf! Growing up by Lake Huron has instilled a lifelong love for boating, and I find I am happiest and at peace by the water. I like to travel, especially to reconnect with my friends who live in other states and to experience other cultures. As an avid enthusiast of live music and concerts, I make a point to attend at least one music festival annually. My creativity shines in my interest in fashion. And above all, my heart belongs to all dogs, with a special place for my cherished 13-year-old golden retriever.

What are some of the ways you like to continually learn and grow?

Observing & listening. You can learn a lot from others’ successes and mistakes that you can apply to your own career.
Asking educated questions. You’ll never learn if you don’t ask questions. When I have a question, I look for an answer on my own first, which helps me learn along the way. Then, I go to others to get their perspectives and input.

Everyone has a unique background and perspective, so by listening, observing, and asking questions, I broaden my perspective and knowledge.

If you’re the parent of young children, you’ve probably put a lot of thought into raising your kids, ranging from their schools to their activities to their religious upbringing. But have you considered what would happen to them if you — and your spouse if you’re married — should suddenly die? Will the children be forced to live with relatives they don’t know or become entangled in a custody battle? Fortunately, you can avoid a worst-case scenario with some advance estate planning.

With a will, there’s a way

The biggest step you can take to ensure your intentions are met is to specifically name a guardian in your will. If you have a will in place but haven’t provided for a guardian for your minor children, have your lawyer amend it as soon as possible. This can be done easily enough by adding a clause or, if warranted, through drafting a new will.

Be sure to list all the names and birthdates of your children. In addition, you might include a provision for any future children in the event you pass away before your will is amended again. Your attorney will draft the required language.

What happens if you don’t name a guardian for minor children in your will? The choice will be left to the courts to decide based on the facts. In some cases, the court could choose a family member over a friend you would have chosen. This could lead to subsequent legal disputes with the kids caught in limbo.

Factors that can influence your choice

There’s no definitive “right” or “wrong” choice for a guardian. Every situation is different. But there are several factors that may sway your decision:

Location. It’s often preferable to name a guardian who lives close to your current location as opposed to someone residing thousands of miles away. The transition will be easier for the kids if they aren’t uprooted.

Age. A guardian’s age is often overlooked but can be a crucial factor. Your parents may have provided you with a great upbringing, but they may now be too old to raise young children. Plus, your parents may experience health issues that could adversely affect the family dynamic.

Environment. Do the guardian’s views on child raising align with your own? If not, your intentions may be defeated. Consider such aspects as education, religion, politics and other lifestyle choices.

Living circumstances. No one can fully project into the future, but at least you can take current circumstances into account. For instance, if you’re inclined to select a sibling as guardian, does he or she already have kids? Is he or she single, married or in a relationship? You don’t want your child to be thrust into chaos when a safer choice may be available.

Choose the best person for the job after discussing it with the individual and designate an alternate if that person can’t fulfill the duties. Frequently, parents will name a married couple who are relatives or close friends. If you take this approach, ensure that both spouses have legal authority to act on the child’s behalf.

Coming to a final decision

Be sure to take time to review your choice of guardian in coordination with other aspects of your estate plan. This decision shouldn’t be made in a vacuum.