4 Ways to Make an Incentive Trust More Effective

Estate planning isn’t just about sharing wealth with the younger generation. For many people, it’s equally important to share one’s values and to encourage their children or other heirs to lead responsible, productive and fulfilling lives. One tool for achieving this goal is an incentive trust, which conditions distributions on certain behaviors or achievements that you wish to inspire.

Incentive trusts can be effective, but they should be planned and drafted carefully to avoid unintended consequences. Let’s examine four tips for designing a more effective incentive trust.

1. Focus on the positives

Avoid negative reinforcement, such as conditioning distributions on the avoidance of undesirable or self-destructive behavior. This sort of “ruling from the grave” is likely to be counterproductive. Not only can it lead to resentment on the part of your heirs, but it may backfire by encouraging them to conceal their conduct and avoid seeking help. Trusts that emphasize positive behaviors, such as going to college or securing gainful employment, can be more effective.

2. Be flexible

Leading a worthy life means different things to different people. Rather than dictating specific behaviors, it’s better to establish the trust with enough flexibility to allow your loved ones to shape their own lives.

For example, some people attempt to encourage gainful employment by tying trust distributions to an heir’s earnings. But this can punish equally responsible heirs who wish to be stay-at-home parents or whose chosen careers may require them to start with low-paying, entry-level jobs or unpaid internships. A well-designed incentive trust should accommodate nonfinancial measures of success.

3. Consider a principle trust

Drafting an incentive trust can be a challenge. Rewarding positive behavior requires a complex set of rules that condition trust distributions on certain achievements or milestones, such as gainful employment, earning a college degree or reaching a certain level of earnings. But it’s nearly impossible to anticipate every contingency.

One way to avoid unintended consequences is to establish a principle trust. Rather than imposing a complex, rigid set of rules for distributing trust funds, a principle trust guides the trustee’s decisions by setting forth the principles and values you hope to encourage and providing the trustee with discretion to evaluate each heir on a case-by-case basis. Bear in mind that for this strategy to work, the trustee must be someone you trust to carry out your wishes.

4. Provide a safety net

An incentive trust need not be an all-or-nothing proposition. If your trust beneficiaries are unable to satisfy the requirements you set forth in your incentive trust, consider offering sufficient funds to provide for their basic needs and base additional distributions on the behaviors you wish to encourage.

According to Warren Buffett, the ideal inheritance is “enough money so that they feel they could do anything, but not so much that they could do nothing.” A carefully designed incentive trust can help you achieve this goal. If you have questions regarding the use of an incentive trust, please contact us.

The Michigan Department of Treasury announced a return to the 4.25% income tax rate for individuals and fiduciaries for the 2024 tax year.

A law passed in 2015 by the Michigan legislature requires a decrease in the state’s individual income tax rate when general fund revenue grows by a higher percentage than the inflation rate for the same period. That led to the income tax rate falling from 4.25% to 4.05% in 2023. Michiganders will see the 2023 rate adjustment in the form of less total tax when they file their 2023 state income taxes.

State officials have determined that the conditions requiring a formulary reduction to the rate for 2024 have not been met; therefore, the state income tax rate for individuals and trusts will return to 4.25%.

Read the notice published by the Michigan Department of Treasury here.

The credit for increasing research activities, often referred to as the research and development (R&D) credit, is a valuable tax break available to certain eligible small businesses. Claiming the credit involves complex calculations, which we’ll take care of for you.

But in addition to the credit itself, be aware that there are two additional features that are especially favorable to small businesses:

Eligible small businesses ($50 million or less in gross receipts for the three prior tax years) may claim the credit against alternative minimum tax (AMT) liability.
The credit can be used by certain smaller startup businesses against their Social Security payroll and Medicare tax liability.

Let’s take a look at the second feature. The Inflation Reduction Act (IRA) has doubled the amount of the payroll tax credit election for qualified businesses and made a change to the eligible types of payroll taxes it can be applied to, making it better than it was before the law changes kicked in.

Election basics

Subject to limits, your business can elect to apply all or some of any research tax credit that you earn against your payroll taxes instead of your income tax. This payroll tax election may influence you to undertake or increase your research activities. On the other hand, if you’re engaged in — or are planning to undertake — research activities without regard to tax consequences, you could receive some tax relief.

Many new businesses, even if they have some cash flow, or even net positive cash flow and/or a book profit, pay no income taxes and won’t for some time. Thus, there’s no amount against which business credits, including the research credit, can be applied. On the other hand, any wage-paying business, even a new one, has payroll tax liabilities. Therefore, the payroll tax election is an opportunity to get immediate use out of the research credits that you earn. Because every dollar of credit-eligible expenditure can result in as much as a 10-cent tax credit, that’s a big help in the start-up phase of a business — the time when help is most needed.

Eligible businesses

To qualify for the election a taxpayer must:

Have gross receipts for the election year of less than $5 million, and
Be no more than five years past the period for which it had no receipts (the start-up period).

In making these determinations, the only gross receipts that an individual taxpayer considers are from the individual’s businesses. An individual’s salary, investment income or other income aren’t taken into account. Also, note that an entity or individual can’t make the election for more than six years in a row.

Limits on the election

The research credit for which the taxpayer makes the payroll tax election can be applied against the employer portion of Social Security and Medicare. It can’t be used to lower the FICA taxes that an employer withholds and remits to the government on behalf of employees. Before a provision in the IRA became effective for 2023 and later years, taxpayers were only allowed to use the payroll tax offset against Social Security, not Medicare.

The amount of research credit for which the election can be made can’t annually exceed $500,000. Prior to the IRA, the maximum credit amount allowed to offset payroll tax before 2023 was only $250,000. Note, too, that an individual or C corporation can make the election only for those research credits which, in the absence of an election, would have to be carried forward. In other words, a C corporation can’t make the election for the research credit to reduce current or past income tax liabilities.

These are just the basics of the payroll tax election. Keep in mind that identifying and substantiating expenses eligible for the research credit itself is a complex task. Contact us about whether you can benefit from the payroll tax election and the research tax credit.

Employers have long been told that, to create and maintain an engaged workforce, they’ve got to do more than pay competitively. At least one recent survey supports the notion, if only by a percentage point.

In November 2023, online job-postings provider Monster conducted a poll exploring the workplace trend of why employees decide to give their two weeks’ notice and quit. The number one reason was feeling underappreciated, cited by 50% of respondents. But as alluded to above, compensation came in a close second — 49% of respondents said their salaries were too low.

What can your organization do to keep employees engaged — or boost engagement if it’s lagging? There are plenty of ways to do so. The tough part is figuring out which engagement measures will bring about the best results for you.

Money still matters

Although engagement isn’t solely determined by compensation, it’s the easiest place to start. After all, you’re dealing with numerical amounts quite amenable to analysis. By conducting a benchmarking study, for example, you can figure out exactly what salary ranges or wage amounts are typical for your industry and area — and how your organization compares to the norm.

From there, you may be able to make adjustments to ensure your employees, or key employees, are compensated more competitively. Doing so is easier said than done, however, if your organization is operating under financial constraints. In such a case, you might need to consider looking for outside investors or perhaps even reducing your workforce to raise compensation levels.

Also bear in mind that compensation goes beyond base pay. To further help employees feel like they’re truly well paid, choose carefully from the wide array of fringe benefits available. Ideally, you want to curate a package that suits the demographics and values of your workforce.

Top-down approach

Now let’s discuss the more challenging aspect of engagement. As indicated by the Monster survey, employees largely want to feel appreciated for their work. And this is where employers can struggle to find a balance between going so far overboard with praise and recognition that it loses meaning and doing so little that employees feel taken for granted.

Solving the riddle starts at the top. Ownership and management should mindfully and regularly acknowledge in communications that employees are the organization’s most valuable resource. But don’t just talk the talk. Show employees that they’re appreciated by providing:

Ongoing education, training and upskilling,
Proper equipment and up-to-date technology,
Flexible scheduling to allow for a healthy work-life balance, and
A clear path forward with the organization.

Supervisors also play a critical role. In one way or another, it’s been said that “people leave bosses, not employers.” Be sure to continuously train and manage the performance of those in charge of your teams so they know how to communicate with and support workers.

Some supervisors may turn to micromanaging to show employees that they’re paying attention. But workers tend to feel more appreciated when they’re given the autonomy to make decisions and perform in a productive manner of their own choosing. They want to be appreciated for their work, not told precisely how to do it.

Address the issue

Naturally, there are obvious ways to appreciate employees — solicit their feedback on strategic decisions, offer financial incentives, throw parties, give awards — but it’s important to choose the approaches that suit your budget and culture. The most important thing to do is view engagement as something that needs to be continuously nurtured. Contact us for help identifying cost-effective ways of addressing the issue.

Owners of closely held businesses typically have a significant portion of their wealth tied up in their enterprises. If you own a closely held business with your relatives involved, and don’t take the proper estate planning steps to ensure that it lives on after you’re gone, you may be placing your family at financial risk.

Differences between ownership and management succession

One challenge of transferring a family-owned business is distinguishing between ownership and management succession. When a business is sold to a third party, ownership and management succession typically happen simultaneously. But in a family-owned business, there may be reasons to separate the two.

From an estate planning perspective, transferring assets to the younger generation as early as possible allows you to remove future appreciation from your estate, minimizing any estate tax liability. However, you may not be ready to hand over the reins of your business or you may feel that your children aren’t yet ready to take over.

There are several strategies owners can use to transfer ownership without immediately giving up control, including:

Placing business interests in a trust, family limited partnership (FLP) or other vehicle that allows the owner to transfer substantial ownership interests to the younger generation while retaining management control,
Transferring ownership to the next generation in the form of nonvoting stock, or
Establishing an employee stock ownership plan.

Another reason to separate ownership and management succession is to deal with family members who aren’t involved in the business. Providing heirs outside the business with nonvoting stock or other equity interests that don’t confer control can be an effective way to share the wealth while allowing those who work in the business to take over management.

Conflicts may arise

Another unique challenge presented by family businesses is that the older and younger generations may have conflicting financial needs. Fortunately, several strategies are available to generate cash flow for the owner while minimizing the burden on the next generation. They include:

An installment sale of the business to children or other family members. This provides liquidity for the owners while easing the burden on the younger generation and improving the chances that the purchase can be funded by cash flows from the business. Plus, as 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.

A grantor retained annuity trust (GRAT). By transferring business interests to a GRAT, owners obtain a variety of gift and estate tax benefits (provided they survive the trust term) while enjoying a fixed income stream for a period of years. At the end of the term, the business is transferred to the owners’ children or other beneficiaries. GRATs are typically designed to be gift-tax-free.

Because each family business is different, it’s important to work with your estate planning advisor to identify appropriate strategies in line with your objectives and resources.

Plan sooner rather than later

Regardless of your strategy, the earlier you start planning the better. Transitioning the business gradually over several years or even a decade or more gives you time to educate family members about your succession planning philosophy. It also allows you to relinquish control over time and implement tax-efficient business transfer strategies.

Michigan’s Flow-Through Entity (FTE) tax became available for tax years beginning January 1, 2021, as a workaround to the $10,000 state and local tax limitation imposed by the 2017 Tax Cuts and Jobs Act. Flow-through entities (partnerships and S-corporations) that elect into the tax receive the benefit of deducting Michigan income tax at the entity level for its shareholders or members, thus saving federal income tax. Members or shareholders can then receive a credit on their personal income tax returns to offset the Michigan tax liability created by the flow-through entity income reported on their K-1s.

The Michigan FTE tax is unique compared to many other states’ FTE taxes. The election must be made in advance, by March 15 of the year the election is for. The election is irrevocable and effective for three years, beginning with the year of election plus the two subsequent years. Therefore, if an entity first elected into Michigan’s FTE tax for the 2021 tax year, its election expired with the 2023 tax year. If you made a Michigan FTE election for the 2021 tax year, you must renew it by March 15, 2024, if you want to continue the election.

If a company wishes to retain the federal tax benefit for the 2024 tax year or make a first-time election, an election must be made by March 15, 2024. To make an election, a payment must be made through Michigan Treasury Online (MTO) in the amount of $1 or more, applied towards the 2024 tax year. There is no option for late elections. Since MTO does not post same-day payments, taxpayers should initiate their payment no later than March 14 on MTO to have a timely election.

Key dates for Michigan FTE during the first few months of 2024:

March 15 – new or renewal elections due (requires payment on MTO)
March 31 – annual 2023 filing due on MTO
April 15 – first quarter 2024 estimate due

With limited time to renew your election or make a first-time FTE election, contact your Yeo & Yeo advisor with questions.

Financial statements are critical to monitoring your business’s financial health. In addition to helping management make informed business decisions, year-end and interim financial statements may be required by lenders, investors and franchisors. Here’s an overview of two common accounting methods, along with the pros and cons of each method.

1. Cash basis

Under the cash-basis method of accounting, transactions are recorded when cash changes hands. That means revenue is recognized when payment is received, and business expenses are recorded when they’re paid. This method is used mainly by small businesses and sole proprietors because it’s easy to understand. It also may provide tax-planning opportunities for certain entities.

The IRS allows certain small businesses to use cash accounting. Eligible businesses must have average annual gross receipts for the three prior tax years equal to or less than an inflation-adjusted threshold of $25 million. The inflation-adjusted threshold is $30 million for the 2024 tax year (up from $29 million for 2023). Businesses that use this method have some flexibility to control the timing of income and deductions for income tax purposes. However, this method can’t be used by larger, more complex businesses for federal income tax purposes.

Beware: There are some disadvantages to cash-basis accounting. First, it doesn’t necessarily match revenue earned with the expenses incurred in the accounting period. So cash-basis businesses may have a hard time evaluating how they’ve performed over time or against competitors. Management also may not know how much money the company needs to collect from customers (accounts receivable) or pay to suppliers and vendors (accounts payable and accrued expenses).

2. Accrual basis

The accrual-basis method of accounting is required by U.S. Generally Accepted Accounting Principles (GAAP). So most mid-sized and large businesses in the United States use accrual accounting. Under this method, businesses record revenue when it’s earned and expenses when they’re incurred, regardless of when cash changes hands. It’s based on the matching principle, where revenue and the related business expenses are recorded in the same accounting period. This principle may help reduce significant fluctuations in profitability over time.

Revenue that’s earned but not yet received appears on the balance sheet, usually as accounts receivable. And expenses incurred but not yet paid are reported on the balance sheet, typically as accounts payable or accrued liabilities. Accrual accounting also may require some companies to report complex-sounding line items, such as prepaid assets, work-in-progress inventory and contingent liabilities.

Although this method is more complicated than cash accounting, accrual accounting provides a more accurate, real-time view of a company’s financial results. So it’s generally preferred by stakeholders who review your business’s financial statements. Accrual accounting also facilitates strategic decision making and benchmarking results from period to period — or against competitors that use the accrual method.

Additionally, businesses that use accrual accounting may enjoy a few tax benefits. For example, they can defer income on certain advance payments and deduct year-end bonuses that are paid within the first 2½ months of the following tax year. However, there’s also a tax-related downside: Accrual-basis businesses may report taxable income before they receive cash payments from customers, which can create hardships for businesses without enough cash reserves to pay their tax obligations.

Choosing the right method

To recap, not every business is able to use cash-basis accounting — and it has some significant downsides. But if your business has the flexibility to use it, you might want to discuss the pros and cons. Contact us for more information.

Although employers have long helped employees save for retirement and have insurance in place for health care, another urgent need has persisted over the years: funds for financial emergencies.

To address this problem, SECURE 2.0, a law enacted in 2022, contains a provision allowing employer-sponsors of certain retirement plans to offer “pension-linked” emergency savings accounts (PLESAs) starting this year. So far, two federal agencies have issued guidance on the applicable rules.

Essential details

To offer PLESAs, an employer must sponsor a qualified defined contribution plan such as a 401(k), 403(b) or 457(b). Notably, only employees who aren’t “highly compensated” under the IRS definition may open an account. (We can help you determine whether any of your employees meet the definition.)

Employees can be either offered enrollment in a PLESA or auto-enrolled. Employers that choose the latter option must notify employees in writing of auto-enrollment and allow them to opt-out and withdraw any contributed funds at no cost.

The portion of a PLESA balance attributable to participant contributions can’t exceed an inflation-indexed $2,500 a year or a lower amount determined by the plan sponsor. Also, contributions count toward the Internal Revenue Code’s total limit on elective deferrals, which is an inflation-indexed $23,000 in 2024.

Contributions may be held as cash, in an interest-bearing deposit account or in an investment product. PLESA contributions are “Roth” in nature; in other words, they’re included in taxable income, but withdrawals are tax-free.

Account holders may withdraw funds at least once per calendar month. The first four withdrawals in a plan year can’t be subject to any fees or charges. From there, withdrawals may be subject to reasonable fees or charges.

IRS guidance: Anti-abuse rules

The first guidance on PLESAs to come out this year was IRS Notice 2024-22, issued on January 12. It discusses anti-abuse procedures intended to prevent participants from manipulating rules to cause excessive matching contributions.

According to the IRS, a reasonable policy balances PLESA participants’ ability to use the accounts for their intended purpose with plan sponsors’ obligation to prevent manipulation of matching contribution rules. The guidance states that it’s generally unreasonable to:

Forfeit contributions already made,
Suspend a participant’s PLESA use because of a withdrawal, or
Suspend matching contributions to an associated retirement savings account.

However, plan sponsors may adopt anti-abuse procedures in addition to those already established under the Internal Revenue Code, so long as those supplementary procedures are reasonable.

DOL guidance: ERISA compliance

On January 24, the U.S. Department of Labor (DOL) issued its own guidance as a list of frequently asked questions (FAQs) on the agency’s website. The DOL’s FAQs focus largely on compliance with the Employee Retirement Income Security Act (ERISA).

For instance, ERISA prohibits minimum contribution requirements as well as minimum account balances. So, one DOL FAQ explains that plan sponsors offering PLESAs can’t:

Force participants to close their accounts and take a distribution of the balance because of a minimum balance requirement,
Impose penalties such as fees or right-of-withdrawal suspensions for failing to meet balance requirements, or
Require a minimum contribution amount per pay period.

Another FAQ clarifies that plan sponsors may combine required PLESA notices with other ERISA-required notices, so long as they’re timely provided. The DOL intends to issue an updated 2024 version of Form 5500, “Annual Return/Report of Employee Benefit Plan,” to include reporting requirements for PLESAs.

A way to be helpful

PLESAs are a way for employers to help employees care for themselves through proper financial planning. However, as you can see, there are many rules involved. Contact us for help deciding whether your organization should add a PLESA feature to its qualified plan.

Few and far between are businesses that can either launch or grow without an infusion of outside capital. In some cases, that capital comes in the form of a commercial loan from a bank or some other type of lender.

If you and your company’s leadership team believe a loan will soon be necessary, it’s important to approach the endeavor with confidence. That starts with having valid, well-considered strategic reasons for borrowing. From there, you need to engage your bank or a prospective lender with a strong air of professionalism and certainty.

Essential questions

First, familiarize yourself with how the process works. It’s essentially built on four basic questions:

How much money do you want?
How do you plan to use the loan proceeds?
When do you need the funds?
How soon can you repay the loan?

Your loan officer will also likely ask about your business’s previous sources of financing. So, be ready to explain how you’ve financed your company to date. Methods may include personal cash infusions, forgone salaries and sweat equity, as well as any equity contributions from friends, family members and outside investors.

Loan products

As you’re probably aware, banks and lenders offer a variety of commercial loan products. Another way of expressing confidence is to know what you want. Common options include:

Lines of credit. One of these gives you access to an agreed-upon amount of funds that you can draw on as needed. As is the case with a credit card, you pay interest only on the outstanding balance.

Traditional term loans. These are what most people likely envision when they see the term “commercial loan.” You receive a lump sum with repayment terms, which include a payment schedule and interest rate.

Asset-based loans. True to the name, asset-based loans typically fund equipment purchases or plant expansions. The length of the loan is usually tied to the life of the asset being financed, and that asset is usually pledged as collateral.

Supporting documents

No matter the product, banks and lenders want to work with serious borrowers who are deeply knowledgeable about the financial condition and projected performance of their businesses. To this end, don’t go into the initial meeting empty-handed. Prepare a comprehensive loan application package that includes:

A “statement of purpose” explaining your strategic plans for the funds,
Your business plan,
Three years of financial statements, if available,
Three years of business tax returns, if available,
Personal financial statements and tax returns for all owners,
Appraisals of any assets pledged as collateral, and
Carefully prepared, reasonable financial projections.

Remember that most loan officers have been around the block. They know how to critically evaluate financial documents and prospective borrowers’ underlying assumptions. As much as possible, support your case with market research and data. Be confident — but realistic — about your strengths and market opportunities, as well as forthcoming about the challenges you’ll likely face in accomplishing your strategic objectives.

If your bank or lender finds your business a viable borrower, your application will be given to an underwriting committee or department. Underwriters will have greater confidence in your financial statements if they’re prepared by a CPA and conform to U.S. Generally Accepted Accounting Principles. Professionally prepared financial projections are also recommended.

Shop around

Underwriters don’t approve every loan application, so don’t give up if a bank or lender turns you down. In fact, it’s a good idea to shop around. For help preparing to apply for a commercial loan and managing the approval process, contact us.

Have you completed your company’s year-end financial statements yet? Most calendar-year entities issue their year-end financials by March of the following year. Lenders and investors may think the worst if a company’s financial reports aren’t submitted in a timely manner. Here are three assumptions your stakeholders could make when your financial statements are late.

1. Negative financial results

No one wants to be the bearer of bad news. Deferred financial reporting can lead investors and lenders to presume that the company’s performance has fallen below historical levels or what was forecast at the beginning of the year. Some companies also may procrastinate issuing financial statements if they’re at risk for violating their lending covenants.

2. Weak management

Alternatively, stakeholders may assume that management is incompetent or disorganized and can’t pull together the requisite data to finish the financials. For example, late financials may be common when a controller is inexperienced, the accounting department is understaffed or a major accounting rule change has gone into effect. Delays also may happen when external auditors and managers are at odds over adjusting journal entries — or when auditors are unwilling to issue an unqualified (clean) opinion or have going concern issues.

Delayed statements may also signal that management doesn’t consider financial reporting a priority. This lackadaisical mindset implies that no one is monitoring financial performance throughout the year.

3. Occupational fraud risks

If financial statements aren’t timely or prioritized by the company’s owners, unscrupulous employees may see it as a golden opportunity to steal from the company. Fraud is more difficult to hide if you insist on timely financial statements and take the time to review them.

Don’t procrastinate

Late financial statements cost more than time; they can impair relations with lenders and investors. Timely financial statements foster goodwill with outside stakeholders. We can help you stay focused, work through complex reporting issues and communicate weaker-than-expected financial results in a positive, professional manner.

The U.S. Department of Labor’s (DOL’s) test for determining whether a worker should be classified as an independent contractor or an employee for purposes of the federal Fair Labor Standards Act (FLSA) has been revised several times over the past decade. Now, the DOL is implementing a new final rule rescinding the employer-friendly test that was developed under the Trump administration. The new, more employee-friendly rule takes effect March 11, 2024.

Role of the new final rule

Even though the DOL’s final rule isn’t necessarily controlling for courts weighing employment status issues, it’s likely to be considered persuasive authority. Moreover, it will guide DOL misclassification audits and enforcement actions.

If you are found to have misclassified employees as independent contractors, you may owe back pay if employees weren’t paid minimum wage or overtime pay, as well as penalties. You also could end up liable for withheld employee benefits and find yourself subject to various federal and state employment laws that apply based on the number of affected employees.

The rescinded test

The Trump administration’s test (known as the 2021 Independent Contractor Rule) focuses primarily on whether, as an “economic reality,” workers are dependent on employers for work or are in business for themselves. It examines five factors. And while no single factor is controlling, the 2021 rule identifies two so-called “core factors” that are deemed most relevant:

The nature and degree of the employer’s control over the work, and
The worker’s opportunity for profit and loss.

If both factors suggest the same classification, it’s substantially likely that classification is proper.

The new test

The final new rule closely shadows the proposed rule published in October 2022. According to the DOL, it continues the notion that a worker isn’t an independent contractor if, as a matter of economic reality, the individual is economically dependent on the employer for work. The DOL says the rule aligns with both judicial precedent and its own interpretive guidance prior to 2021.

Specifically, the final rule enumerates six factors that will guide DOL analysis of whether a worker is an employee under the FLSA:

The worker’s opportunity for profit or loss depending on managerial skill (the lack of such opportunity suggests employee status),
Investments by the worker and the potential employer (if the worker makes similar types of investments as the employer, even on a smaller scale, it suggests independent contractor status),
Degree of permanence of the work relationship (an indefinite, continuous or exclusive relationship suggests employee status),
The employer’s nature and degree of control, whether exercised or just reserved (control over the performance of the work and the relationship’s economic aspects suggests employee status),
Extent to which the work performed is an integral part of the employer’s business (if the work is critical, necessary or central to the principal business, the worker is likely an employee), and
The worker’s skill and initiative (if the worker brings specialized skills and uses them in connection with business-like initiative, the worker is likely an independent contractor).

In contrast to the 2021 rule, all factors will be weighed — no single factor or set of factors will automatically determine a worker’s status.

The final new rule does make some modifications and clarifications to the proposed rule. For example, it explains that actions that an employer takes solely to comply with specific and applicable federal, state, tribal or local laws or regulations don’t indicate “control” suggestive of employee status. But those that go beyond compliance and instead serve the employer’s own compliance methods, safety, quality control, or contractual or customer service standards may do so.

The final rule also recognizes that a lack of permanence in a work relationship can sometimes be due to operational characteristics unique or intrinsic to particular businesses or industries and the workers they employ. The relevant question is whether the lack of permanence is due to workers exercising their own independent business initiative, which indicates independent contractor status. On the other hand, the seasonal or temporary nature of work alone doesn’t necessarily indicate independent contractor classification.

The return, and clarification, of the factor related to whether the work is integral to the business also is notable. The 2021 rule includes a noncore factor that asks only whether the work was part of an integrated unit of production. The final new rule focuses on whether the business function the worker performs is an integral part of the business.

For tax purposes

In a series of Q&As, the DOL addressed the question: “Can an individual be an employee for FLSA purposes even if he or she is an independent contractor for tax purposes?” The answer is yes.

The DOL explained that the IRS applies its version of the common law control test to analyze if a worker is an employee or independent contractor for tax purposes. While the DOL considers many of the same factors as the IRS, it added that “The economic reality test for FLSA purposes is based on a specific definition of ‘employ’ in the FLSA, which provides that employers ‘employ’ workers if they ‘suffer or permit’ them to work.”

In court cases, this language has been interpreted to be broader than the common law control test. Therefore, some workers who may be classified as contractors for tax purposes may be employees for FLSA purposes because, as a matter of economic reality, they’re economically dependent on the employers for work.

Next steps

Not surprisingly, the DOL’s final new rule is already facing court challenges. Nonetheless, you should review your work relationships if you use freelancers and other independent contractors and make any appropriate changes. Remember, too, that states can have different tests, some of which are more stringent than the DOL’s final rule. Contact your employment attorney if you have questions about the DOL’s new rule.

If you operate your business in multiple locations (as with retail or restaurant chains), you face some extraordinary fraud-prevention challenges. After all, you can’t be everywhere at once. And the more locations you operate, the harder they are to monitor. Without the appropriate checks and balances in place, fraud losses in one store could threaten the health of your entire company. If you don’t already have one, consider implementing a robust antifraud program.

A comprehensive strategy

Whether you operate multiple locations as an independent owner or franchisee, fraud is an ever present risk. Depending on the products and services your business offers, employee, credit, returns and gift card fraud are all schemes your business potentially faces. Mitigating these risks requires a comprehensive strategy that doesn’t rely exclusively on individuals to do the right thing when faced with temptation.

For example, to combat employee fraud, require all serious job candidates to undergo background checks to help uncover any previous misconduct. Background checks also deter potential fraudsters by signaling that your business is committed to ethical operations.

Then, mandate that new employees receive fraud prevention training. Your program should include an overview of the controls you have in place — for example, procedures for handling cash and protecting customers’ credit card information — and the critical role employees play in preventing financial losses. Also provide regular antifraud refreshers to existing workers. This is particularly important because criminal schemes evolve quickly, as does the technology your employees may use to fight fraud.

Segregation of duties

One of the most important antifraud principles for any company is segregation (or separation) of duties — preventing employees from controlling more than one step of a business or accounting process. Here’s why: Employees who have access to your company’s books, incoming mail and bank account may be able to commit all kinds of fraud schemes and prevent their discovery. So you might, for instance, want to outsource payables and receivables to a third-party accounting service, receive mail for all locations at your office, and require individual store managers to deposit daily takings according to strict procedures.

Periodic job rotation, mandatory vacation policies and surprise audits also make it harder for crooked employees to steal and avoid detection. Fraud professionals have consistently found that making an anonymous fraud tipline available to workers, vendors and customers alike slashes fraud risk. So be sure to offer a hotline and visibly post the number at all of your stores.

What’s more, depending on the size of your business and number of locations, you may want to engage a CPA or fraud examiner to conduct a fraud risk assessment. Such assessments generally document existing internal and external fraud threats, their probability of occurring given current controls, and the controls likely required to mitigate risks. It’s possible that some of your locations are better protected than others, which would allow you to focus on the stores harboring more serious fraud threats.

Leveraging technology

New technologies can also help you mitigate fraud risk in multiple locations by monitoring point-of-sale transactions and conducting store surveillance remotely. Artificial intelligence (AI) is now being used to identify employees who process excessive returns or refunds and flag excessive inventory turnover or higher-than-expected costs relative to sales. Such red flags don’t prove fraud, but they provide a starting point for investigation.

To learn more about how new (and old) technologies can help multiple-location business owners prevent and detect fraud, contact us. We have strategies for powerful — and scalable — internal controls.

If you want to withdraw cash from your closely held corporation at a low tax cost, the easiest way is to distribute cash as a dividend. However, a dividend distribution isn’t tax efficient since it’s taxable to you to the extent of your corporation’s “earnings and profits,” but it’s not deductible by the corporation.

5 different approaches

Thankfully, there are some alternative methods that may allow you to withdraw cash from a corporation while avoiding dividend treatment. Here are five possible options:

1. Salary. Reasonable compensation that you, or family members, receive for services rendered to the corporation is deductible by the business. However, it’s also taxable to the recipient(s). The same rule applies to any compensation (in the form of rent) that you receive from the corporation for the use of property. In either case, the amount of compensation must be reasonable in relation to the services rendered or the value of the property provided. If it’s excessive, the excess will be nondeductible and treated as a corporate distribution.

2. Fringe benefits. Consider obtaining the equivalent of a cash withdrawal in fringe benefits that are deductible by the corporation and not taxable to you. Examples are life insurance, certain medical benefits, disability insurance and dependent care. Most of these benefits are tax-free only if provided on a nondiscriminatory basis to other employees of the corporation. You can also establish a salary reduction plan that allows you (and other employees) to take a portion of your compensation as nontaxable benefits, rather than as taxable compensation.

3. Capital repayments. To the extent that you’ve capitalized the corporation with debt, including amounts that you’ve advanced to the business, the corporation can repay the debt without the repayment being treated as a dividend. Additionally, interest paid on the debt can be deducted by the corporation. This assumes that the debt has been properly documented with terms that characterize debt and that the corporation doesn’t have an excessively high debt-to-equity ratio. If not, the “debt” repayment may be taxed as a dividend. If you make cash contributions to the corporation in the future, consider structuring them as debt to facilitate later withdrawals on a tax-advantaged basis.

4. Loans. You may withdraw cash from the corporation tax-free by borrowing money from it. However, to avoid having the loan characterized as a corporate distribution, it should be properly documented in a loan agreement or a note and be made on terms that are comparable to those on which an unrelated third party would lend money to you. This should include a provision for interest and principal. All interest and principal payments should be made when required under the loan terms. Also, consider the effect of the corporation’s receipt of interest income.

5. Property sales. You can withdraw cash from the corporation by selling property to it. However, certain sales should be avoided. For example, you shouldn’t sell property to a more than 50% owned corporation at a loss, since the loss will be disallowed. And you shouldn’t sell depreciable property to a more than 50% owned corporation at a gain, since the gain will be treated as ordinary income, rather than capital gain. A sale should be on terms that are comparable to those on which an unrelated third party would purchase the property. You may need to obtain an independent appraisal to establish the property’s value.

Minimize taxes

If you’re interested in discussing any of these ideas, contact us. We can help you get the maximum out of your corporation at the minimum tax cost.

Many small business owners run their companies as leanly as possible. This often means not offering what are considered standard fringe benefits for midsize or larger companies, such as a retirement plan.

If this is the case for your small business, don’t give up on the idea of helping your employees save for retirement in a tax-advantaged manner. When you’re ready, there are a couple account-based options that are relatively simple and inexpensive to launch and administrate.

SEP IRAs

Simplified Employee Pension IRAs (SEP IRAs) are individual accounts that small businesses establish on behalf of each participant. (Self-employed individuals can also establish SEP IRAs.) Participants own their accounts, so they’re immediately 100% vested. If a participant decides to leave your company, the account balance goes with them — most people roll it over into a new employer’s qualified plan or traditional IRA.

What are the advantages for you? SEP IRAs don’t require annual employer contributions. That means you can choose to contribute only when cash flow allows.

In addition, there are typically no setup fees for SEP IRAs, though participants generally must pay trading commissions and fund expense ratios (a fee typically set as a percentage of the fund’s average net assets). In 2024, the contribution limit is $69,000 (up from $66,000 in 2023) or up to 25% of a participant’s compensation. That amount is much higher than the 2024 limit for 401(k)s, which is $23,000 (up from $22,500 in 2023).

What’s more, employer contributions are tax-deductible. Meanwhile, participants won’t pay taxes on their SEP IRA funds until they’re withdrawn.

There are some disadvantages to consider. Although participants own their accounts, only employers can make SEP IRA contributions. And if you contribute sparsely or sporadically, participants may see little value in the accounts. Also, unlike many other qualified plans, SEP IRAs don’t permit participants age 50 or over to make additional “catch-up” contributions.

SIMPLE IRAs

Another strategy is to offer employees SIMPLE IRAs. (“SIMPLE” stands for “Savings Incentive Match Plan for Employees.”) As is the case with SEP IRAs, your business creates a SIMPLE IRA for each participant, who’s immediately 100% vested in the account. Unlike SEP IRAs, SIMPLE IRAs allow participants to contribute to their accounts if they so choose.

SIMPLE IRAs are indeed relatively simple to set up and administer. They don’t require the sponsoring business to file IRS Form 5500, “Annual Return/Report of Employee Benefit Plan.” Nor must you submit the plan to nondiscrimination testing, which is generally required for 401(k)s.

Meanwhile, participants face no setup fees and enjoy tax-deferred growth on their account funds. Best of all, they can contribute more to a SIMPLE IRA than they can to a self-owned traditional or Roth IRA. The 2024 contribution limit for SIMPLE IRAs is $16,000 (up from $15,500 in 2023), and participants age 50 or over can make catch-up contributions to the tune of $3,500 this year (unchanged from last year).

On the downside, that contribution limit is lower than the limit for 401(k)s. Also, because contributions are made pretax, participants can’t deduct them, nor can they take out plan loans. Then again, making pretax contributions does lower their taxable income.

Perhaps most important is that employer contributions to SIMPLE IRAs are mandatory — you can’t skip them if cash flow gets tight. However, generally, you may deduct contributions as a business expense.

Is now the time?

Overall, the job market remains somewhat tight and, in some industries, the competition for skilled labor is fierce. Offering one of these IRA types may enable you to attract and retain quality employees more readily. Some small businesses may even qualify for a tax credit if they start a SEP IRA, SIMPLE IRA or other eligible plan. We can help you decide whether now is the right time to do so.

Effective January 1, 2024, U.S. and foreign entities doing business in the U.S. may be required to disclose information regarding their beneficial owners to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This requirement is being implemented under the beneficial ownership information (BOI) reporting provisions of the Corporate Transparency Act (CTA) passed by Congress in 2021.

Who is impacted?

Companies are required to report BOI information only when they meet the definition of a “reporting company” and do not qualify for an exemption. A domestic reporting company would generally include a corporation, limited liability company (LLC), and companies created by filing documents with a secretary of state, such as a limited liability partnership, business trust, and other limited partnerships. The term “foreign reporting company” generally includes entities formed under the law of a foreign country that are registered to do business in any U.S. state.

Reporting companies created or registered to do business in the U.S. after January 1, 2024, must file an initial report disclosing the identities and information regarding their beneficial owners within 30 days of creation or registration (FinCEN has recently proposed extending this deadline to 90 days). A beneficial owner is broadly defined as any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company. Reporting companies are required to file a BOI report electronically through a secure filing system, FinCEN’s BOI E-Filing System, which began accepting reports on January 1, 2024.

Reporting companies created or registered to do business in the U.S. prior to January 1, 2024, are required to file an initial report by January 1, 2025. Once the initial report is filed, an updated BOI report must be filed within 30 days of a change. The failure to make required BOI filings may result in both civil (monetary) and criminal penalties.

Who is exempt?

Twenty-three specific types of entities are exempt from the new BOI reporting requirement. Most exemptions apply to entities that are already subject to substantial federal reporting requirements, such as some public companies, banks, securities brokers and dealers, insurance companies, registered investment companies and advisors, and pooled investment companies.

An exemption is also available for a “large operating company,” generally defined as a company with more than 20 full-time employees, a physical office within the U.S., and more than $5 million in gross receipts or sales from U.S. sources (as shown on a filed federal income tax or information return).

Practical challenges

Every company doing business in the U.S. will need to determine whether it is subject to BOI reporting or whether an exemption applies. Because many of the exemptions depend on an entity’s legal status under various statutes (e.g., the Securities Exchange Act, the Investment Company Act), coordination and confirmation with counsel may be necessary. Further, companies that are eligible for exemption will need to implement processes to continuously assess eligibility for the exemption.

Companies that are subject to BOI reporting will need to implement processes to identify its beneficial owners and gather the information necessary to file the required BOI report. For some entities, operating agreements, subscription agreements, and similar documents may need to be reviewed to take into account the new BOI disclosure obligations. Further, because the definition of beneficial owners includes not only shareholders but senior officers and important decision-makers within the reporting company, processes to identify changes in leadership or key management will need to be considered to comply with BOI reporting obligations going forward.

Next steps

The new BOI reporting requirements are mandated under Title 31 of the U.S. Code. The new rules include the legal requirements of who must file, exemptions from filing, and the information to be reported. The CTA is not part of the tax code and as such the assessment of the requirements and determination of beneficial ownership interests may necessitate legal advice.

Companies should begin working with their legal counsel to proactively assess their filing obligations under the new BOI reporting rules. Penalties for willfully violating the CTA reporting requirements include 1) civil penalties of up to $591 per day, 2) a criminal fine of up to $10,000 and/or 3) imprisonment of up to two years.

Yeo & Yeo will not provide assistance with filing or determination of filing obligations under the CTA.

Where can you learn more?

For additional information, revisit the December 2023 BOI reporting blog article. Visit www.fincen.gov/boi and sign up for FinCEN updates to receive immediate email updates on beneficial ownership.

FinCEN BOI Reporting Resource Center

The top line of an income statement for a for-profit business is revenue (or sales). Reporting this line item correctly is critical to producing accurate financial statements. Under U.S. Generally Accepted Accounting Principles (GAAP), revenue is recognized when it’s earned. With accrual-basis accounting, that typically happens when goods or services are delivered to the customer, not necessarily when cash is collected from the customer.

If revenue is incorrectly stated, it can affect how stakeholders, including investors and lenders, view your company. Inaccurate revenue reporting also may call into question the accuracy and integrity of every other line item on your income statement, as well as amounts reported for accounts receivable and inventory. So, auditing revenue is an essential component of a financial statement audit.

Audit standards

Under GAAP, you typically must follow Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. This standard went into effect in 2018 for calendar-year public companies and 2020 for calendar-year private entities. It requires more detailed, comprehensive disclosures than previous standards.

Under ASC 606, there are five steps to determine the amount and timing of revenue recognition:

Identify the contract with a customer.
Identify the performance obligations in the contract.
Determine the transaction price.
Allocate the transaction price to the performance obligations.
Recognize revenue when the entity satisfies the performance obligation.

When auditing revenue, auditors will analyze your company’s processes, including the underlying technology and internal controls, to ensure compliance with the rules. The goals are to ensure that your process properly records every customer obligation accurately and that revenue is reported in the correct accounting period.

Audit procedures

During fieldwork, auditors will scrutinize internal controls related to every phase of a customer contract, the appropriate segregation of duties and the accounting processes governing the booking of revenue in the appropriate periods. They’ll also select a sample of individual customer transactions for in-depth testing. This may include reviewing contracts and change orders, inventory records, labor reports, and invoices to ensure they support the revenue amounts recorded in the general ledger. In addition to helping validate your revenue recognition process, testing individual transactions can uncover errors, omissions and fraud.

Auditors will also analyze financial metrics to root out possible anomalies that require additional inquiry and testing. For example, they might compute gross margin (gross profit divided by revenue) and accounts receivable turnover (revenue divided by accounts receivable) over time to evaluate whether those ratios have remained stable. They might compare your company’s ratios to industry benchmarks, too, especially if demand or costs have changed from prior periods.

Eyes on the top line

Stakeholders — including investors, lenders, suppliers, customers, employees and regulatory agencies — use the information included in financial statements for many purposes. If your revenue recognition process is flawed, it tends to trickle down to other financial statement line items, compromising the integrity of your financial statements. So, it’s important to get it right. Contact us to discuss audit procedures for revenue and ways to improve your revenue recognition process.

Most employees today recognize the need to save for retirement and expect to be offered a 401(k) or other qualified plan when hired. But there’s another aspect to everyone’s golden years that’s much less discussed, possibly because it’s unpleasant to think about. That’s the possibility of being stricken by a debilitating medical condition.

Long-term care (LTC) insurance can help mitigate the financial impact of such a crisis. However, many people find the premiums prohibitively expensive, assuming they can qualify for a suitable policy in the first place.

Employers may be able to fill a critical role in this regard. By offering group LTC insurance as a fringe benefit, you can create a relatively simple avenue for employees to acquire coverage. Of course, that doesn’t mean it’s a “no-brainer” for your organization.

Standalone vs. hybrid

Group LTC insurance tends to take one of two forms. The first is a traditional standalone policy. The second is a hybrid policy that combines a long-term care benefit with group term life insurance and a death benefit. Although there are some differences in the details, both types provide benefits when a policyholder:

Requires assistance with at least two of six activities of daily living (bathing, dressing, eating, transferring, toileting and continence), or
Has a cognitive impairment that requires supervision.

With either type of policy, care may be provided in the policyholder’s home, in an assisted living or nursing facility, or in a comparable setting. Generally, benefits received for qualified LTC expenses are tax-free to policyholders while employers can deduct premium payments as a business expense.

But there’s a key difference between the two plans. The value of a standalone policy vanishes upon the policyholder’s death. On the other hand, hybrid policies with a life insurance component build cash value and may provide early access to the death benefit. If long-term care is never needed, the death benefit is paid out to the policy’s designated beneficiaries. These policies may offer other options as well, including riders and flexible payment plans.

Employee appeal

LTC insurance as a fringe benefit can appeal to employees for several reasons, including:

Competitive premiums. As mentioned, people who shop for LTC coverage on their own often find the premiums cost-prohibitive. But group plans — which spread and, therefore, reduce insurance risk — typically offer discounted premiums. Some employees may consider them more affordable.

Favorable underwriting. Insurers typically streamline underwriting for group plans. Individuals who try to obtain an LTC policy must undergo a health evaluation, and many are deemed uninsurable as a result. Group plan requirements are generally less stringent, and insurers may offer open enrollment to all members of the employee group.

Convenience. Simply put, it’s easier to buy LTC insurance through an employer’s plan than it is to engage with an insurer individually. As the employer, you do the “legwork” of vetting providers and negotiating premiums and policy terms. And because those premiums are deducted from employees’ paychecks, participants don’t need to worry about making (or missing) payments.

Research necessary

The primary reason to consider LTC insurance as a fringe benefit is to attract quality job candidates and retain employees who will value the coverage. Regarding the latter point in particular, organizations with a stable workforce of relatively older workers are more likely to find success with this benefit.

To get a better idea of whether it’s right for you, analyze your workforce demographics, conduct an employee benefits survey, and discuss the concept with your leadership team and advisors. For help estimating the costs, projecting the financial impact and understanding the tax implications of LTC insurance as a fringe benefit, contact us.

When creating or revising your estate plan, it’s important to take into account all of your loved ones. Because each family has its own unique set of circumstances, there are a variety of trusts and other vehicles available to specifically address most families’ estate planning objectives.

Special needs trusts (SNTs), also called “supplemental needs trusts,” benefit children or other family members with disabilities that require extended-term care or that prevent them from being able to support themselves. This trust type can provide peace of mind that your loved one’s quality of life will be enhanced without disqualifying him or her for Medicaid or Supplemental Security Income (SSI) benefits.

Preserve government benefits

An SNT may preserve your loved one’s access to government benefits that cover health care and other basic needs. Medicaid and SSI pay for basic medical care, food, clothing and shelter. However, to qualify for these benefits, a person’s resources must be limited to no more than $2,000 in “countable assets.” Important note: If your family member with special needs owns more than $2,000 in countable assets, thus making him or her ineligible for government assistance, an SNT is useless.

Generally, every asset is countable with a few exceptions. The exceptions include a principal residence, regardless of value (but if the recipient is in a nursing home or similar facility, he or she must intend and be expected to return to the home); a car; a small amount of life insurance; burial plots or prepaid burial contracts; and furniture, clothing, jewelry and certain other personal belongings.

An SNT is an irrevocable trust designed to supplement, rather than replace, government assistance. To preserve eligibility for government benefits, the beneficiary can’t have access to the funds, and the trust must be prohibited from providing for the beneficiary’s “support.” That means it can’t be used to pay for medical care, food, clothing, shelter or anything else covered by Medicaid or SSI.

Pay for supplemental expenses

With those limitations in mind, an SNT can be used to pay for virtually anything government benefits don’t cover, such as unreimbursed medical expenses, education and training, transportation (including wheelchair-accessible vehicles), insurance, computers, and modifications to the beneficiary’s home. It can also pay for “quality-of-life” needs, such as travel, entertainment, recreation and hobbies.

Keep in mind that the trust must not pay any money directly to the beneficiary. Rather, the funds should be distributed directly — on behalf of the beneficiary — to the third parties that provide goods and services to him or her.

Consider the trust’s language

To ensure that an SNT doesn’t disqualify the beneficiary from government benefits, it should prohibit distributions directly to the beneficiary and prohibit the trustee from paying for any support items covered by Medicaid or SSI. Some SNTs specify the types of supplemental expenses the trust should pay; others give the trustee sole discretion over nonsupport items.

Alert family and friends

After creating or revising your estate plan, discuss your intentions with your family. This is especially important if your plan includes an SNT. To ensure an SNT’s terms aren’t broken, family members and friends who want to make gifts or donations must do so directly to the trust and not to the loved one with special needs. Contact us with any questions regarding an SNT.

Information in this article was updated on May 17, 2024.

Intuit has sent notices to users of QuickBooks Desktop 2021 and older stating that the software will be unsupported as of May 31, 2024. Users can still upgrade to a newer supported version of QuickBooks but must do so before July 31, 2024. Intuit recently announced a stop sell of some Desktop products to new customers as of this date. Therefore, those currently using QuickBooks Desktop Pro or Premier 2021 and older should start planning now for the upcoming changes.

What you need to know

Users will need to upgrade to a supported ‘Plus’ version before July 31, 2024. The ‘Plus’ version is subscription based and charges an annual subscription. The subscription price includes an upgrade to the newest version of QuickBooks Pro or Premier Plus on an annual basis.

- Active desktop subscriptions support the three most recent years of QuickBooks Desktop software.
- Those already using QuickBooks Desktop Pro or Premier 2022 and newer are already paying this annual fee. When the 2025 version becomes available, users of QuickBooks Desktop Pro/Premier 2022 will need to upgrade to 2023, 2024, or 2025. This upgrade is included in the annual fee they are already paying.

After July 31, 2024, unsupported users will be unable to upgrade their current QuickBooks product.
If users do not upgrade their product before July 31, 2024, only QuickBooks Desktop Enterprise or QuickBooks Online will be available for purchase.

After July 31, 2024, customers without an active QuickBooks subscription will no longer be able to purchase QuickBooks Desktop Pro or Premier, QuickBooks Desktop Mac, and QuickBooks Desktop Enhanced Payroll.

This change will not impact the following QuickBooks subscribers:

Existing QuickBooks Desktop Plus and Desktop Payroll subscribers can continue to renew their subscriptions after July 31, 2024.
QuickBooks Desktop Enterprise products are also not impacted by this change, and customers can continue to purchase Enterprise subscriptions after July 31, 2024.
QuickBooks Desktop Pro Plus, Premier Plus, Mac Plus, and Desktop Enhanced Payroll will not be discontinued. This is a stop sell only for new purchases, not a discontinuation (sunset) of this product line. Existing subscribers of these products can continue to renew their subscriptions after July 31, 2024.

Intuit encourages those that are new to QuickBooks to consider QuickBooks Online. QuickBooks Online provides many great benefits over Desktop, such as remote access, enhanced flexibility, and real-time collaboration. Migration from QuickBooks Desktop to QuickBooks Online is easier than ever.

Beware of QuickBooks deals

If you see a deal for QuickBooks on eBay or elsewhere for a “three-year license,” be aware that all QuickBooks Desktop software is now subscription-based, and these marketing tactics are misleading. Some QuickBooks resellers offer very good pricing due to the volume discounts they receive, but there are also many scams online. Please proceed cautiously and only purchase QuickBooks from Intuit directly, Yeo & Yeo, or a trusted QuickBooks reseller.

Next steps

It’s vital to remain on a supported version of QuickBooks Desktop to maintain access to live technical support and to access any of the other Intuit add-on services that can be integrated with QuickBooks Desktop. This includes QuickBooks Desktop Payroll, QuickBooks Desktop Payments, and online bank feeds. Unsupported versions also won’t receive the latest critical security patches and updates.

For more information, refer to Intuit’s Frequently Asked Questions about the stop sell.

For assistance with evaluating the options or to upgrade your version of QuickBooks Desktop or move to QuickBooks Online, contact your Yeo & Yeo professional.

The State of Michigan has updated the filing requirement for those who qualify for the Eligible Manufacturing Personal Property Tax Exemption (Form 5278). Eligible Manufacturing Personal Property (EMPP) is defined as all personal property located on occupied real property if that personal property is predominately used in industrial processing or direct integrated support.

Beginning in 2024, parcels that received the EMPP exemption in the immediately preceding year carry forward the exemption in each subsequent year until the property becomes ineligible for the exemption. If the EMPP was exempt in the previous assessment year, a Combined Document (Form 5278) no longer needs to be filed for the EMPP to be exempt for the current assessment year. To reiterate, any parcel that received the EMPP exemption in 2023 is exempt in 2024. No Combined Document (Form 5278) should be filed in 2024 for a parcel that received the exemption in 2023.

A Combined Document (Form 5278) should not be filed to report additions or disposals on an EMPP parcel. Taxpayers will report the addition or removal of property from each of their EMPP parcels on their Essential Service Assessment (ESA) Statement filed electronically with the Department of Treasury through the Michigan Treasury Online (MTO) system.

Manufacturers must still file their ESA statement on MTO by August 15, 2024. There is a 3% late penalty for every month ESA is not paid.

Taxpayers are required to report any parcel that no longer qualifies for the EMPP exemption. A parcel may cease to qualify because the property no longer meets the definition of “eligible manufacturing personal property” or because the parcel has no value (e.g., all equipment has been removed, the parcel is subject to an expired IFT certificate, etc.). To report this change, Form 5277 must be filed by February 20, 2024.

For more information, refer to additional guidance related to the 2024 filing requirements from the Michigan Department of Treasury.

If you believe you are eligible for this exemption or have additional questions, please reach out to your tax advisor.