What Are the Roles and Responsibilities of a Trustee?

Have you ever been asked to serve as a trustee? If you have or may be asked in the future, you should be aware of the duties of a trustee. The Merriam-Webster Dictionary definition of a trustee is: a natural or legal person to whom property is legally committed to be administered for the benefit of a beneficiary, or one to whom something is entrusted.

Serving in a trustee role carries responsibilities to perform the provisions laid out in the trust documents. Often, when serving as a trustee, you are in this role to carry out the wishes and desires of the decedent who created the trust. They should have specified in the trust document how to carry out their wishes and when distributions to beneficiaries may or should be made. However, there may be more duties and responsibilities than just finalizing and disbursing all the funds. Some trusts are designed to go on for many years.

The duties of a trustee vary depending on the powers provided for in the trust agreement. The type of trust, its purpose, and particular nuances of the trust can also affect a trustee’s role in managing the trust assets and dealing with beneficiaries. Generally, it is the trustee’s duty to manage the trust property as a prudent person would manage someone else’s property, and to distribute the assets according to the terms of the trust. Trustees are held to a high standard of performance in administering the trust and a trustee must exercise reasonable care, skill, and caution in managing trust assets.

When serving as a trustee, the trustee should review the trust carefully to ensure a clear and complete understanding of the provisions within the document. A trustee will also have duties to give proper notice of the trust to its beneficiaries, co-trustees, successor trustees or other persons named within the trust. The trust should outline these duties to give notice and when proper notice needs to be provided.

A trustee must also keep beneficiaries informed of the various activities of the trust, including the trust’s current investments, investment performance, and other information regarding the administration of the assets. Most state laws require the trustee to provide a current accounting of the trust assets, liabilities, receipts, and disbursements to the trust beneficiaries at least annually.

A trustee may not act in any manner that puts their personal interests or that of a third party ahead of the trust beneficiaries. The trustee’s loyalty should be to all the beneficiaries and not to a particular individual or group (unless otherwise provided for in the trust).

An item of utmost importance is confidentiality. The trustee should keep trust matters confidential unless otherwise required by the trust or by law. The trustee should ensure that any information about the beneficiaries is kept confidential.

If you have been asked to serve as a trustee, I recommend you do not take this responsibility lightly and ask to read the trust document before accepting this position. You will need to make sure you will be able to carry out the terms of the trust when the time comes for you to step into the trustee role.

By regularly analyzing risk, business owners and executives can better understand and manage the likelihood and potential impact of fraud. In general, there are two types of business risk: inherent and residual. Inherent risk is what exists before management takes steps to mitigate the organization’s exposure. Residual risk is what remains after management has implemented internal controls to reduce and manage threats.

Because no program of internal controls can possibly eliminate all threats, residual risk is always a reality. But there are ways to mitigate it.

4 types of internal controls

Internal controls generally fall under one of the following categories:

Detective. This type is designed to detect fraud already occurring. For example, you might generate a report that lists checks issued twice for the same invoice.
Preventive. This control should deter unwanted activities. You might require your accounting department to reconcile purchase orders to invoices before issuing a payment.
Directive. This type specifies actions to be taken to reach a desired outcome. For instance, your policy might call for blocking payment to a vendor that isn’t in your vendor master file.
Corrective. This last form intends to correct risky activity uncovered by accident or by an existing control. So you might establish new policies and procedures to replace those that have been ineffective.

The bottom line: Internal controls exist to mitigate risk. Deploying them reduces inherent risk, but typically leaves an organization with some residual risk. You might say that residual risk equals inherent risk minus the impact of internal controls on inherent risk.

Dealing with the problem

A risk assessment can help your business evaluate residual risk. Professionals generally use a risk matrix, a visual tool to depict the likelihood and severity of risk, to identify threats requiring further examination.

Another option for dealing with residual risk is to transfer it to a third party, such as an insurer. As an example, your organization might buy an errors and omissions insurance policy to mitigate the risk of unintentional mistakes that could possibly have been prevented with more robust controls.

Sometimes, however, the cost to deploy additional controls or shift residual risk outweighs the benefit. Although it may be possible to reduce residual risk, installing additional controls may be too costly or add unnecessary administrative red tape that inconveniences employees and customers. In those cases, many businesses decide to allow residual risk to remain.

Contingency and monitoring plans

If you decide to leave residual risk, develop a contingency plan to help reduce potential damage. Suppose your business reconciles its bank accounts monthly, rather than daily or weekly. In this case, the residual risk is that you might not discover fraud until several weeks after it has occurred. A contingency plan could help by providing step-by-step policies (such as notify your bank immediately) to remediate any fraud.

It’s also smart to regularly review and monitor residual risk levels. To return to the previous example, if your organization performs reconciliations every month and then decides to increase the number of bank accounts it uses, residual risk may rise to unacceptable levels. At that point, you might want to start conducting reconciliations on a weekly or daily basis. Staying current with industry best practices and compliance standards can further help keep residual risk in check.

Essential component

Monitoring residual fraud risk is an essential component of any company’s risk management program. Contact us for more information or to schedule a fraud risk assessment.

The IRS recently announced various inflation-adjusted federal income tax amounts. Here’s a rundown of the amounts that are most likely to affect small businesses and their owners.

Rates and brackets

If you run your business as a sole proprietorship or pass-through business entity (LLC, partnership or S corporation), the business’s net ordinary income from operations is passed through to you and reported on your personal Form 1040. You then pay the individual federal income tax rates on that income.

Here are the 2024 inflation adjusted bracket thresholds.

10% tax bracket: $0 to $11,600 for singles, $0 to $23,200 for married joint filers, $0 to $16,550 for heads of household;
Beginning of 12% bracket: $11,601 for singles, $23,201 for married joint filers, $16,551 for heads of household;
Beginning of 22% bracket: $47,151 for singles, $94,301 for married joint filers, $63,101 for heads of household;
Beginning of 24% bracket: $100,526 for singles, $201,051 for married joint filers, $100,501 for heads of household;
Beginning of 32% bracket: $191,951 for singles, $383,901 for married joint filers, $191,951 for heads of household;
Beginning of 35% bracket: $243,726 for singles, $487,451 for married joint filers and $243,701 for heads of household; and
Beginning of 37% bracket: $609,351 for singles, $731,201 for married joint filers and $609,351 for heads of household.

Key Point: These thresholds are about 5.4% higher than for 2023. That means that, other things being equal, you can have about 5.4% more ordinary business income next year without owing more to Uncle Sam.

Section 1231 gains and qualified dividends

If you run your business as a sole proprietorship or a pass-through entity, and the business sells assets, you may have Section 1231 gains that passed through to you to be included on your personal Form 1040. Sec. 1231 gains are long-term gains from selling business assets that were held for more than one year, and they’re generally taxed at the same lower federal rates that apply to garden-variety long-term capital gains (LTCGs), such as stock sale gains. Here are the 2024 inflation-adjusted bracket thresholds that will generally apply to Sec. 1231 gains recognized by individual taxpayers.

0% tax bracket: $0 to $47,025 for singles, $0 to $94,050 for married joint filers and $0 to $63,000 for heads of household;
Beginning of 15% bracket: $47,026 for singles, $94,051 for joint filers, $63,001 for heads of household; and
Beginning of 20% bracket: $518,901 for singles, $583,751 for married joint filers and $551,351 for heads of household.

If you run your business as a C corporation, and the company pays you qualified dividends, they’re taxed at the lower LTCG rates. So, the 2024 rate brackets for qualified dividends paid to individual taxpayers will be the same as above.

Self-employment tax

If you operate your business as a sole proprietorship or as a pass-through entity, you probably have net self-employment (SE) income that must be reported on your personal Form 1040 to calculate your SE tax liability. For 2024, the maximum 15.3% SE tax rate will apply to the first $166,800 of net SE income (up from $160,200 for 2023).

Section 179 deductions

For tax years beginning in 2024, small businesses can potentially write off up to $1,220,000 of qualified asset additions in year one (up from $1,160,000 for 2023). However, the maximum deduction amount begins to be phased out once qualified asset additions exceed $3,050,000 (up from $2,890,000 for 2023). Various limitations apply to Sec. 179 deductions.

Side Note: Under the first-year bonus depreciation break, you can deduct up to 60% of the cost of qualified asset additions placed in service in calendar year 2024. For 2023, you could deduct up to 80%.

Just the beginning

These are only the 2024 inflation-adjusted amounts that are most likely to affect small businesses and their owners. There are others that may potentially apply, including: limits on qualified business income deductions and business loss deductions, income limits on various favorable exceptions such as the right to use cash-method accounting, limits on how much you can contribute to your self-employed or company-sponsored tax-favored retirement account, limits on tax-free transportation allowances for employees, and limits on tax-free adoption assistance for employees. Contact us with questions about your situation.

Yeo & Yeo is pleased to welcome Michelle Spunar, CPA, back to the Ann Arbor office as a senior manager.

“We are excited to welcome Michelle back to the firm,” says David Jewell, Principal and Tax Service Line Leader. “Her depth of knowledge and experience working with organizations in many different industries, particularly construction and healthcare, makes her a great resource for the team and clients.”

With more than 33 years of experience in both private and public accounting, Spunar possesses a wealth of knowledge. Drawing from hands-on involvement in private accounting, she understands the challenges business owners face. Spunar brings this insight to both clients and the firm. Her expertise lies in tax planning and preparation for individual and corporate income tax returns. Additionally, she has a background in business consulting and preparing and analyzing financial statements. She holds a Master of Taxation from Walsh College. In the community, she serves as board president of Holy Trinity Lutheran Church in Livonia.

“I am thrilled to be back in public accounting and to reunite with the Yeo & Yeo team. Being able to collaborate with a variety of clients, each bringing distinct challenges, is highly rewarding and allows me to leverage my expertise to help business owners achieve their goals,” Michelle said.

Yeo & Yeo is pleased to announce the promotion of Danielle Lutz, CPA, to consulting manager in the Saginaw office.

“Danielle has been a great resource to the team,” says Suzanne Lozano, Principal and Consulting Service Line Leader. “She excels in technical accounting research projects and has a profound passion for consistently expanding her knowledge to provide our clients and our team with valuable insight and new ideas. I look forward to supporting her ongoing development and success as a manager.”

Danielle Lutz has more than five years of public accounting experience. Her areas of specialization include business consulting and financial statement reporting with a focus on the manufacturing, construction, and agribusiness industries. She also assists businesses and individuals with tax planning and preparation. Lutz holds a Master of Science in Accounting from Michigan State University. She is a member of the Bay Area Energize – Young Professionals Network.

In speaking on her promotion, Danielle said, “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.”

Most employers today are expected to provide a retirement savings plan for their employees. For many years, this expectation involved little more than offering up the plan itself. However, today’s employees appear to want a little more — and there could be real advantages to employers that provide it.

What employees want

Some employees want, and more than likely need, education. They’re interested in knowing more about how their retirement plans work, what more they can do to save for retirement and how to better manage their finances overall.

Evidence of this can be found in the 2023 Retirement Trends Report published by cloud-based recordkeeping platform Vestwell. The report’s data is based on a survey of almost 1,300 individuals regarding their “saving behaviors, long-term goals, and the value of different saving-related benefits.”

For employers, the most eye-popping statistic generated by the report may be that almost nine in 10 employees want their employers involved in their retirement education. What’s more, the survey found that employers named “employee financial literacy” and “employee investment recommendations” as the top issues they wished their financial advisors would help them address.

So, on both sides of the coin, there seems to be a desire to build employees’ knowledge bases about retirement planning. And let’s face it, employers are in a unique position to do this as you presumably have the ear of your workforce and know how to communicate with them.

Content and strategy

So, what can you do to educate employees about retirement planning? A good place to start is to teach them about the general concepts of investing. Many employees are unfamiliar or at least not entirely comfortable with how investing works. You might teach them about things such as compounding growth, the tax implications of different types of savings plans, and how much they’ll likely need to save to reach a certain sum at retirement.

Naturally, you should also explain in plain language how your retirement plan functions. For instance, do participants need to enroll in the plan, or are they automatically enrolled? Once enrolled, how do they decide how much to contribute and how to allocate their money among different investments?

As you put together a retirement planning education strategy, be prepared to provide information in various formats. Email blasts or other online communication methods will resonate with some employees, while others will prefer printed material. By offering a mix of options, you’ll increase the odds of reaching different segments of your workforce.

Strongly consider in-person or virtual learning sessions, too. Even if your business offers printed and electronic materials, also offering seminars or “lunch and learns” can go a long way toward helping employees understand both your plan and the key concepts of saving for retirement. These sessions also provide an opportunity to reinforce the value of your retirement plan as part of each employee’s overall compensation package.

Last, be sure to offer educational opportunities regularly. Obviously, open enrollment is a major event, but be sure to touch base on retirement planning throughout the year. This is also a great way to remind employees of your plan’s value.

Everyone can win

Employees aren’t the only ones who stand to benefit from retirement savings education. Your organization may enjoy a boost in plan participation, which could in turn reduce fees. Plus, strong retirement savings may help with employee retention. Contact us for help assessing the costs of not only your retirement plan, but also of an initiative to educate your staff about saving for retirement.

As companies explore hedging strategies in today’s uncertain economy, management might need to become familiar with the accounting rules for offsetting. Here are the basics, including what needs to be disclosed in your footnotes about these contractual arrangements.

Right of setoff

In general, it’s not proper to offset assets and liabilities in the balance sheet — except when there’s a right of setoff. This exists when the following four criteria are satisfied:

The debt amounts are determinable.
The reporting entity has the “right” to setoff.
The right is enforceable by law.
The reporting entity has the “intention” to setoff.

Gross vs. net presentation

If these requirements are met, the company may offset the gross figure for the liability against the gross figure for the asset and, instead, report a single net amount for the asset and liability on the balance sheet. Under U.S. Generally Accepted Accounting Principles (GAAP), the offsetting rules apply to:

Derivatives accounted for under provisions of Accounting Standard Codification (ASC) Topic 815, Derivatives and Hedging,
Repurchase agreements and reverse repurchase agreements, and
Securities borrowing and lending transactions.

For example, a company might have a derivative asset with a fair value of $10 million and a derivative liability with a fair value of $7.5 million, both with the same party. If the four criteria are met, the company can offset the derivative liability against the derivative asset on the balance sheet, resulting in the presentation of only a net derivative asset of $2.5 million.

Offsetting is allowed for derivatives that are subject to legally enforceable netting arrangements with the same party, even if the right to offset is available only in the event of bankruptcy or default. However, offsetting doesn’t apply to unsettled regular-way trades (trades that are settled within the normal settlement cycle for that type of trade) or ordinary trade payables or receivables.

Disclosure requirements

Under GAAP, companies must disclose financial instruments and derivative instruments that are either offset on the balance sheet in accordance with ASC Section 210-20-45 or ASC Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. So-called “master netting arrangements” consolidate individual contracts into a single agreement between two counterparties. If one party defaults on a contract within the arrangement, the other can terminate the entire arrangement and demand the net settlement of all contracts.

Specifically, companies must disclose:

The gross amounts subject to offset rights,
Amounts that have been offset, and
The related net credit exposure.

Detailed disclosures are also required for the collateral pledged in netting arrangements and a description of the rights associated with covered assets and liabilities subject to netting arrangements. These disclosures — which are usually presented in a tabular format — help investors, lenders and other financial statement users to understand the potential effect of netting arrangements on the company’s performance.

For more information

The rules for offsetting differ under International Financial Reporting Standards (IFRS). So comparisons between entities that apply different standards may require adjustments based on the footnote disclosures. Contact us to determine whether your hedging arrangements fall under the scope of the offsetting rules. We can help you comply with the rules and benchmark your performance with global competitors.

As another year ends with interest rates and markets in flux, one thing remains certain: Reducing your company’s tax bill can improve your cash flow and your bottom line. Below are five strategies — including some tried-and-true and others particularly timely — that you can execute before the turn of the new year to minimize your company’s tax liability.

1. Take advantage of the pass-through entity (PTE) tax deduction, if available

The Tax Cuts and Jobs Act (TCJA) imposed a $10,000 limit on the federal income tax deduction for state and local taxes (SALT). In response, more than 30 states have enacted some type of “workaround” to provide relief to PTE owners who pay individual income tax on their share of their business’s income.

While PTE tax deductions vary by state, they generally allow partnerships, limited liability companies and S corporations to pay a mandatory or elective entity-level state tax on business income with an offsetting owner-level benefit. The benefit typically is a full or partial tax credit, deduction or exclusion that owners can apply to their individual state income tax. The business can claim an IRC Section 164 business expense deduction for the full amount of its payment of the tax, as the SALT limit doesn’t apply to businesses.

2. Establish a cash balance retirement plan

Cash balance retirement plans are regaining popularity for businesses with high earners who regularly max out their 401(k) plans. The plans combine the higher contribution limits of defined contribution plans with the higher maximum benefits and deduction limits of defined benefit plans. A business can claim much larger deductions for cash balance contributions than 401(k) contributions.

In 2023, for example, the maximum employer/employee 401(k) contribution for a 55-year-old is $73,500 (including a catch-up contribution of $7,500). Meanwhile, a business can contribute up to $265,000 to a cash balance plan (depending on the participant’s age), in addition to the 401(k) plan contribution. Contribution limits increase with age, creating a valuable opportunity for those nearing retirement to add to their retirement savings as well as a substantial deduction for the business.

Under the original SECURE Act, businesses have until their federal filing deadline (including extensions) to launch a cash balance plan. But it can take some time to prepare the necessary documents, calculate the contributions and handle other administrative tasks, so you’d be wise to get the ball rolling sooner rather than later.

3. Take action on asset purchases

Timing your asset purchases so you can place the items “in service” before year-end has long been a viable method of reducing your taxes. However, now there’s a ticking clock to consider. That’s because the TCJA reduces 100% first-year bonus depreciation by 20% each tax year, until it vanishes in 2027 (absent congressional action). The deduction has already dropped to 80% for 2023.

First-year bonus depreciation is available for computer systems, software, vehicles, machinery, equipment, office furniture and qualified improvement property (generally, certain improvements to nonresidential property, including roofs, HVAC, fire protection and alarm systems, and security systems).

Usually, though, it’s advisable to first apply the IRC Section 179 expensing election to asset purchases. Sec. 179 allows you to deduct 100% of the purchase price of new and used eligible assets. Eligible assets include machinery, office and computer equipment, software, certain business vehicles, and qualified improvement property.

The maximum Sec. 179 “deduction” for 2023 is $1.16 million. It begins phasing out on a dollar-for-dollar basis when a business’s qualifying property purchases exceed $2.89 million. The maximum deduction is limited to the amount of your income from business activity, but you can carry forward unused amounts indefinitely or claim the excess amounts as bonus depreciation, which is subject to no limits or phaseouts. (Note: If financing asset purchases, consider the impact of high interest rates in addition to the potential tax savings.)

4. Maximize the qualified business income (QBI) deduction

One caveat regarding depreciation deductions is that they can reduce the QBI deduction for PTE owners. (Note that the QBI deduction is scheduled to expire after 2025 absent congressional action.) If the QBI deduction is allowed to expire, PTE income could be subject to rates as high as 39.6% if current rates also expire.

For now, though, PTE owners can deduct up to 20% of their QBI, subject to certain limitations based on W-2 wages paid, the unadjusted basis of qualified property and taxable income. Accelerated depreciation reduces your QBI (in addition to certain other tax breaks that depend on taxable income) and thus your deduction.

On the other hand, you can increase the deduction by increasing W-2 wages or purchasing qualified property. In addition, you can bypass income limits on the QBI deduction by timing your income and deductions (see below).

5. Timing income and expenses

With the election looming next November, it’s unlikely that 2024 will see significant changes to the tax laws. As a result, the perennial tactic of timing income and expenses is worth pursuing if you use cash-basis accounting.

For example, if you don’t expect to land in a higher tax bracket next year, you can push income into 2024 and accelerate expenses into 2023. As discussed above, though, you could end up with a smaller QBI deduction.

A tangled web

Seemingly small tax decisions may have costly unintended consequences under different tax provisions. We can help your business make the right year-end tax planning moves.

As year-end closes in and you prepare for 2024, Yeo & Yeo’s Payroll Solutions Group would like to inform you of important payroll updates that will affect you and your employees next year.

Our 2024 Payroll Planning Brief includes several payroll changes that take effect on January 1, 2024, and items to consider before year-end.

Some of the changes to prepare for include:

Michigan minimum wage will increase to $10.33 per hour.
Beginning next year, W-2 forms must be submitted electronically if your company has more than 10 W-2s and 1099s combined.

Watch Yeo & Yeo’s website and future eAlerts for new developments.

Need guidance on closing 2023, preparing for 2024 payroll, or meeting payroll deadlines? Contact the payroll professionals at Yeo & Yeo.

Download 2024 Payroll Planning Brief

Does your company struggle to close its books at the end of each month? The month-end close requires accounting personnel to round up data from across the organization. This process can strain internal resources, potentially leading to delayed financial reporting, errors and even fraud. Here are some simple ways to streamline your company’s monthly closing process.

Develop a standardized process

Gathering accounting data involves many moving parts throughout the organization. To reduce the stress, aim for a consistent approach that applies standard operating procedures and robust checklists.

This minimizes the use of ad-hoc processes. It also helps ensure consistency when reporting financial data month after month.

Provide ample time for data analysis

Too often, the accounting department dedicates most of the time allocated to closing the books to the mechanics of the process. But spending some time analyzing the data for integrity and accuracy is critical. Examples of review procedures include:

Reconciling amounts in a ledger to source documents (such as invoices, contracts or bank records),
Testing a random sample of transactions for accuracy,
Benchmarking monthly results against historical performance or industry standards, and
Assigning multiple workers to perform the same tasks simultaneously.

Without adequate due diligence, the probability of errors (or fraud) in the financial statements increases. Failure to evaluate the data can result in more time being spent correcting errors that could have been caught with a simple review — before they were recorded in your financial records.

Encourage process improvements

Workers who are actively involved in closing out the books often may be best equipped to recognize trouble spots and bottlenecks. So, it’s important to adopt a continuous improvement mindset.

Consider brainstorming as a team. Then, assign responsibility for adopting changes to an employee with the follow-through capabilities and authority to drive change in your organization.

Be flexible with staffing

Often, accounting departments require certain specialized staff to be present during the month-end close. If an employee is unavailable, the department may be shorthanded and unable to complete critical tasks.

Implementing a cross-training program for key steps can help minimize frustration and delays. It may also help identify inefficiencies in the financial reporting process.

Consider automation

Your accounting department may rely on manual processes to extract, manipulate and report data. However, these processes create opportunities for human errors and fraud.

Fortunately, modern accounting software can automate certain routine, repeatable tasks, such as invoicing, accounts payable management and payroll administration. In some cases, you may need to upgrade your current accounting software to take full advantage of the power of automation.

Keep it simple

Closing the books doesn’t have to be a stressful, labor-intensive chore. We can help you simplify the process and give your accounting staff more time to focus on value-added tasks that take your company’s financial reporting to the next level.

The IRS recently issued its 2024 cost-of-living adjustments for more than 60 tax provisions. With inflation moderating slightly this year over last, many amounts will increase over 2023 amounts but not as much as in the previous year. As you implement 2023 year-end tax planning strategies, be sure to take these 2024 adjustments into account.

Also, keep in mind that under the Tax Cuts and Jobs Act (TCJA), annual inflation adjustments are calculated using the chained consumer price index (also known as C-CPI-U). This increases tax bracket thresholds, the standard deduction, certain exemptions and other figures at a slower rate than was the case with the consumer price index previously used, potentially pushing taxpayers into higher tax brackets and making various breaks worth less over time. The TCJA adopted the C-CPI-U on a permanent basis.

Individual income taxes

Tax-bracket thresholds increase for each filing status but, because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket will increase by $600–$1,200, depending on filing status, but the top of the 35% bracket will increase by $18,725–$37,450, again depending on filing status.

2024 ordinary-income tax brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
10%	$0 – $11,600	$0 – $16,550	$0 – $23,200	$0 – $11,600
12%	$11,601 – $47,150	$16,551 – $63,100	$23,201 – $94,300	$11,601 – $47,150
22%	$47,151 – $100,525	$63,101 – $100,500	$94,301 – $201,050	$47,151 – $100,525
24%	$100,526 – $191,950	$100,501 – $191,950	$201,051 – $383,900	$100,526 – $191,950
32%	$191,951 – $243,725	$191,951 – $243,700	$383,901 – $487,450	$191,951 – $243,725
35%	$243,726 – $609,350	$243,701 – $609,350	$487,451 – $731,200	$243,726 – $365,600
37%	Over $609,350	Over $609,350	Over $731,200	Over $365,600

The TCJA suspended personal exemptions through 2025. However, it nearly doubled the standard deduction, indexed annually for inflation, through 2025. In 2024, the standard deduction will be $29,200 (for married couples filing jointly), $21,900 (for heads of households), and $14,600 (for singles and married couples filing separately). After 2025, the standard deduction amounts are scheduled to drop back to the amounts under pre-TCJA law unless Congress extends the current rules or revises them.

Changes to the standard deduction could help some taxpayers make up for the loss of personal exemptions. But they might not help taxpayers who typically itemize deductions.

AMT

The alternative minimum tax (AMT) is a separate tax system that limits some deductions, doesn’t permit others and treats certain income items differently. If your AMT liability is greater than your regular tax liability, you must pay the AMT.

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. In 2024, the threshold for the 28% bracket will increase by $11,900 for all filing statuses except married filing separately, which will increase by half that amount.

2024 AMT brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
26%	$0 – $232,600	$0 – $232,600	$0 – $232,600	$0 – $116,300
28%	Over $232,600	Over $232,600	Over $232,600	Over $116,300

The AMT exemptions and exemption phaseouts are also indexed. The exemption amounts in 2024 will be $85,700 for singles and $133,300 for joint filers, increasing by $4,400 and $6,800, respectively, over 2023 amounts. The inflation-adjusted phaseout ranges in 2024 will be $609,350–$952,150 (for singles) and $1,218,700–$1,751,900 (for joint filers). Amounts for married couples filing separately are half of those for joint filers.

Education and child-related breaks

The maximum benefits of certain education and child-related breaks will generally remain the same in 2024. But most of these breaks are limited based on a taxpayer’s modified adjusted gross income (MAGI). Taxpayers whose MAGIs are within an applicable phaseout range are eligible for a partial break — and breaks are eliminated for those whose MAGIs exceed the top of the range.

The MAGI phaseout ranges will generally remain the same or increase modestly in 2024, depending on the break. For example:

The American Opportunity credit. For tax years beginning after December 31, 2020, the MAGI amount used by joint filers to determine the reduction in the American Opportunity credit isn’t adjusted for inflation. The credit is phased out for taxpayers with MAGI in excess of $80,000 ($160,000 for joint returns). The maximum credit per eligible student is $2,500.

The Lifetime Learning credit. For tax years beginning after December 31, 2020, the MAGI amount used by joint filers to determine the reduction in the Lifetime Learning credit isn’t adjusted for inflation. The credit is phased out for taxpayers with MAGI in excess of $80,000 ($160,000 for joint returns). The maximum credit is $2,000 per tax return.

The adoption credit. The phaseout range for eligible taxpayers adopting a child will increase in 2024 — by $12,920. It will be $252,150–$292,150 for joint, head-of-household and single filers. The maximum credit will increase by $860, to $16,810 in 2024.

(Note: Married couples filing separately generally aren’t eligible for these credits.)

These are only some of the education and child-related tax breaks that may benefit you. Keep in mind that, if your MAGI is too high for you to qualify for a break for your child’s education, your child might be eligible to claim one on his or her tax return.

Gift and estate taxes

The unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption are both adjusted annually for inflation. In 2024, the amount will be $13.61 million (up from $12.92 million for 2023).

The annual gift tax exclusion will increase by $1,000 to $18,000 in 2024.

Retirement plans

Nearly all retirement-plan-related limits will increase for 2024. Thus, depending on the type of plan you have, you may have limited opportunities to increase your retirement savings if you’ve already been contributing the maximum amount allowed:

Type of limitation	2023 limit	2024 limit
Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans	$22,500	$23,000
Annual benefit limit for defined benefit plans	$265,000	$275,000
Contributions to defined contribution plans	$66,000	$69,000
Contributions to SIMPLEs	$15,500	$16,000
Contributions to traditional and Roth IRAs	$6,500	$7,000
“Catch-up” contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans for those age 50 and older	$7,500	$7,500
Catch-up contributions to SIMPLEs	$3,500	$3,500
Catch-up contributions to IRAs	$1,000	$1,000
Compensation for benefit purposes for qualified plans and SEPs	$330,000	$345,000
Minimum compensation for SEP coverage	$750	$750
Highly compensated employee threshold	$150,000	$155,000

Your MAGI may reduce or even eliminate your ability to take advantage of IRAs. Fortunately, IRA-related MAGI phaseout range limits all will increase for 2024:

Traditional IRAs. MAGI phaseout ranges apply to the deductibility of contributions if a taxpayer (or his or her spouse) participates in an employer-sponsored retirement plan:

For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan:
- For a spouse who participates, the 2024 phaseout range limits will increase by $7,000, to $123,000–$143,000.
- For a spouse who doesn’t participate, the 2024 phaseout range limits will increase by $12,000, to $230,000–$240,000.
For single and head-of-household taxpayers participating in an employer-sponsored plan, the 2024 phaseout range limits will increase by $4,000, to $77,000–$87,000.

Taxpayers with MAGIs in the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range can’t deduct any IRA contribution.

But a taxpayer whose deduction is reduced or eliminated can make nondeductible traditional IRA contributions. The $7,000 contribution limit for 2024 (plus $1,000 catch-up, if applicable, and reduced by any Roth IRA contributions) still applies. Nondeductible traditional IRA contributions may also be beneficial if your MAGI is too high for you to contribute (or fully contribute) to a Roth IRA.

Roth IRAs. Whether you participate in an employer-sponsored plan doesn’t affect your ability to contribute to a Roth IRA, but MAGI limits may reduce or eliminate your ability to contribute:

For married taxpayers filing jointly, the 2024 phaseout range limits will increase by $12,000, to $230,000–$240,000.
For single and head-of-household taxpayers, the 2024 phaseout range limits will increase by $8,000, to $146,000–$161,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

(Note: Married taxpayers filing separately are subject to much lower phaseout ranges for both traditional and Roth IRAs.)

2024 cost-of-living adjustments and tax planning

With many of the 2024 cost-of-living adjustment amounts trending higher, you may have an opportunity to realize some tax relief next year. In addition, with certain retirement-plan-related limits also increasing, you may have the chance to boost your retirement savings. If you have questions on the best tax-saving strategies to implement based on the 2024 numbers, please give us a call. We’d be happy to help.

Is your business depreciating over 30 years the entire cost of constructing the building that houses your enterprise? If so, you should consider a cost segregation study. It may allow you to accelerate depreciation deductions on certain items, thereby reducing taxes and boosting cash flow.

Depreciation basics

Business buildings generally have a 39-year depreciation period (27.5 years for residential rental properties). In most cases, a business depreciates a building’s structural components, including walls, windows, HVAC systems, elevators, plumbing and wiring, along with the building. Personal property — including equipment, machinery, furniture and fixtures — is eligible for accelerated depreciation, usually over five or seven years. And land improvements, such as fences, outdoor lighting and parking lots, are depreciable over 15 years.

Frequently, businesses allocate all or most of their buildings’ acquisition or construction costs to real property, overlooking opportunities to allocate costs to shorter-lived personal property or land improvements. In some cases, the distinction between real and personal property is obvious. For example, computers and furniture are personal property. But the line between real and personal property is not always clear. Items that appear to be “part of a building” may in fact be personal property. Examples are removable wall and floor coverings, removable partitions, awnings and canopies, window treatments, decorative lighting and signs.

In addition, certain items that otherwise would be treated as real property may qualify as personal property if they serve more of a business function than a structural purpose. These include reinforced flooring that supports heavy manufacturing equipment, electrical or plumbing installations required to operate specialized equipment and dedicated cooling systems for data processing rooms.

Identifying and substantiating costs

A cost segregation study combines accounting and engineering techniques to identify building costs that are properly allocable to tangible personal property rather than real property. Although the relative costs and benefits of a cost segregation study depend on your particular facts and circumstances, it can be a valuable investment.

Speedier depreciation tax breaks

The Tax Cuts and Jobs Act (TCJA) enhanced certain depreciation-related tax breaks, which may also enhance the benefits of a cost segregation study. Among other changes, the law permanently increased limits on Section 179 expensing, which allows you to immediately deduct the entire cost of qualifying equipment or other fixed assets up to specified thresholds.

In addition, the TCJA expanded 15-year-property treatment to apply to qualified improvement property. Previously, this tax break was limited to qualified leasehold-improvement, retail-improvement and restaurant property. And the law temporarily increased first-year bonus depreciation from 50% to 100% in 2022, 80% in 2023 and 60% in 2024. After that, it will continue to decrease until it is 0% in 2027, unless Congress acts.

Making favorable depreciation changes

It isn’t too late to get the benefit of faster depreciation for items that were incorrectly assumed to be part of your building for depreciation purposes. You don’t have to amend your past returns (or meet a deadline for claiming tax refunds) to claim the depreciation that you could have already claimed. Instead, you can claim that depreciation by following procedures, in connection with the next tax return you file, that will result in automatic IRS consent to a change in your accounting for depreciation.

Cost segregation studies can yield substantial benefits, but they’re not the best move for every business. Contact us to determine whether this strategy would work for your business. We’ll judge whether a study will result in tax savings that are greater than the costs of the study itself.

As year end approaches, it’s time for some calendar-year businesses to perform physical inventory counts. This activity is more than a time-consuming chore; it’s an opportunity to improve your company’s operational efficiency. Here are some best practices as you prepare to count your inventory, as well as guidance on how to get more from these counts.

Getting an accurate count

Accurate inventory counts are important for many reasons. First, you want a reliable estimate of ending inventory so that the profits you record this year are accurate. For retailers, manufacturers and many other businesses, the cost of sales is a major expense on the income statement. At the most basic level, the cost of sales equals beginning inventory plus purchases during the year minus ending inventory. If the inventory balance is incorrect at the beginning or end of the year, management won’t know how profitable the company truly is.

In addition, inventory is a major line item on your company’s balance sheet. Lenders rely on inventory as a form of loan collateral. Stockholders look to inventory-based ratios (such as the current ratio or days-in-inventory ratio) to evaluate financial strength. And if disaster strikes, your insurance coverage (based on asset values on your balance sheet) should be adequate to cover any inventory losses.

Most companies track the value of inventory through a computerized perpetual inventory system. In it, the value increases when purchases are made (or as raw materials are processed into finished goods) and decreases when goods are sold. But a count taken from a perpetual inventory system may not always be accurate. That’s why periodic physical counts are part of a strong internal control system. Companies that conduct a year-end physical inventory count send a message to would-be fraudsters: We’re watching our assets and taking steps to catch fraud.

Estimating inventory values

Depending on the nature of a company’s operations, its balance sheet may include inventory consisting of raw materials, work-in-progress and/or finished goods. Inventory items are recorded at the lower of cost or market value under U.S. Generally Accepted Accounting Principles (GAAP).

Estimating the market value of inventory may involve subjective judgment calls, especially if your company converts raw materials into finished goods available for sale. The value of work-in-progress inventory can be especially hard to objectively assess. That’s because it includes overhead allocations and, in some cases, may require percentage of completion assessments.

Preparing for the big day

Before the counting starts, management generally should:

Order (or create) prenumbered inventory tags,
Preview inventory for potential roadblocks that can be fixed before counting begins,
Assign workers in two-person teams to specific count zones,
Write off any defective or obsolete inventory items, and
Pre-count and separate slow-moving items into sealed containers.

If your company issues audited financial statements, one or more members of your external audit team will be present during your physical inventory count. They won’t help count inventory. Instead, they’ll observe the procedures (including any statistical sampling methods), review written inventory processes, evaluate internal controls over inventory, and perform independent counts to compare to your inventory listing and counts made by your employees.

Ready, set, count

When it comes to physical inventory counts, we’ve seen the best (and worst) practices over the years. Contact us for guidance on how to perform a physical inventory count and manage your inventory more efficiently.

A number of factors are making 2023 a confounding tax planning year for many people. They include turbulent markets, stabilizing but still high interest rates and significant changes to the rules regarding retirement planning. While much uncertainty remains, the good news is that you still have time to implement year-end tax planning strategies that may reduce your income tax bill for the year. Here are some steps to consider as 2023 comes to a close.

Manage your itemized deductions

The standard deduction for 2023 is $13,850 for single filers, $27,700 for married couples filing jointly and $20,800 for heads of households. Those levels are higher than they were before the Tax Cuts and Jobs Act (TCJA), which has reduced the number of taxpayers who itemize their deductions. But “bunching” certain outlays may help you qualify for a higher amount of itemized deductions.

Bunching involves timing deductible expenditures so they accumulate in a specific tax year and total more than the standard deduction. Likely candidates include:

Medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI),
Mortgage interest,
Investment interest,
State and local taxes,
Casualty and theft losses from a federally declared disaster, and
Charitable contributions.

It’s worth noting that there’s been talk in Washington of capping the value of itemized deductions (for example, at 28%). This proposal could come up again if the expiration of several TCJA provisions at the end of 2025 prompts new tax legislation, making it wise to maximize the value of such deductions while you can.

Leverage your charitable giving options

Several strategies are available to increase the charitable contribution component of your itemized deductions. For example, you can donate appreciated assets that you’ve held for at least one year. In addition to avoiding capital gains tax — and, if applicable, the net investment income tax — on the appreciation, you can deduct the fair market value of donated investments and the cost basis for nonstock donations. (Remember that AGI-based limits apply to charitable contribution deductions.)

Although it won’t affect your charitable contribution deduction, you also might want to make a qualified charitable distribution (QCD) from a retirement account with required minimum distributions (RMDs). You can distribute up to $100,000 per year (indexed annually for inflation) directly to a qualified charity after age 70½. The distribution doesn’t count toward your charitable deduction, but it’s removed from your taxable income and is treated as an RMD.

Pay yourself, not the IRS

If possible, you generally should maximize the annual savings contributions that can reduce your taxable income, including those to 401(k) plans, traditional IRAs, Health Savings Accounts (HSAs) and 529 plans. The 2023 limits are:

401(k) plans: $22,500 ($30,000 if age 50 or older).
Traditional IRAs: $6,500 ($7,500 if age 50 or older).
HSAs: $3,850 for self-only coverage and $7,750 for family coverage (those 55 and older can contribute an additional $1,000).
529 plans: $17,000 per person (or $34,000 for a married couple) per recipient without implicating gift tax (individual states set contribution limits).

Contributing to 529 plans has become even more appealing now that, beginning in 2024, you can transfer unused amounts to the beneficiary’s Roth IRA (subject to certain limits and requirements).

Harvest your losses

The up-and-down financial markets this year may provide the opportunity to harvest your “loser” investments that are valued below their cost basis, and use the losses to offset your gains. If the losses exceed your capital gains for the year, you can use the excess to offset up to $3,000 of ordinary income and carry forward any remaining losses.

It’s vital, however, that you comply with the so-called wash-sale rule. The rule bans the deduction of a loss when you acquire “substantially identical” investments within 30 days before or after the sale date.

Execute a Roth conversion

Recent market declines also may make this a smart time to think about converting some or all of your traditional IRA to a Roth IRA — because you can convert more shares without increasing your income tax liability. Yes, you must pay income tax in 2023 on the amount converted, but you might be able to minimize the impact by, for example, converting only to the top of your current tax bracket.

Moreover, the long-term benefits can outweigh the immediate tax effect. After conversion, the funds will grow tax-free. You generally can withdraw “qualified distributions” tax-free as long as you have held the account for at least five years, and Roth IRAs don’t come with RMD obligations. Plus, you can withdraw from a Roth IRA tax- and penalty-free for a first-time home purchase (up to $10,000), qualified birth or adoption expenses (up to $5,000), and qualified higher education expenses (with no limit).

Bear in mind, though, that a Roth conversion may leave you with a higher AGI. That could limit how much you benefit from tax breaks that phase out based on AGI or modified adjusted gross income.

Review your estate plan

Your estate plan probably won’t affect your 2023 income taxes, but it makes sense to review it now in light of the expiration of certain TCJA provisions, including its generous gift and estate tax exemption, at the end of 2025. For example, the TCJA nearly doubled the exemption back in 2018, which is currently $12.92 million ($25.84 million for married couples). A return to a pre-TCJA level of $5 million (adjusted for inflation) could have dramatic implications to your estate plan.

In addition, the lingering high interest rate environment may make certain estate planning strategies more attractive. For example, the value of gifts to qualified personal residence trusts and charitable remainder trusts generally is lower when rates are high.

Cover your bases

And, of course, the tried-and-true methods for reducing your taxes — such as deferring income and accelerating expenses — are always worth considering. Of course, if you expect to be in a higher tax bracket in 2024, these methods aren’t helpful. We can help you plot the right course for your circumstances.

The Corporate Transparency Act (CTA) was signed into law to fight crimes commonly associated with illegal business activities such as terrorist financing and money laundering. If your business can be defined as a “reporting company” under the CTA, you may need to comply with new beneficial ownership information (BOI) reporting rules that take effect on January 1, 2024.

Who’s who?

A reporting company includes any corporation, limited liability company or other legal entity created through documents filed with the appropriate state authorities. A reporting company may also be any private entity formed in a foreign country that’s properly registered to do business in a U.S. state.

Reporting companies must provide information about their “beneficial owners” to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. A beneficial owner is someone who, directly or indirectly, exercises substantial control over a reporting company, or who owns or controls at least 25% of its interests. Indirect control is often exhibited by a senior officer or person with authority over senior officers.

The CTA does exempt a wide range of entities from the BOI reporting rules — including government units, nonprofit organizations and insurers. Notably, an exemption was created for “large operating companies” that:

Employ more than 20 employees on a full-time basis,
Have more than $5 million in gross receipts or sales (not including receipts and sales from foreign sources), and
Physically operate in the United States.

However, many of these businesses need to comply with other reporting requirements.

What info must be provided?

The BOI reporting requirements are extensive. Reporting companies must file a report with FinCEN that includes the entity’s legal name (or any trade or doing-business-as name), address, jurisdiction where the entity was formed and Taxpayer Identification Number.

Reporting companies must also submit the name, address, date of birth and “unique identifying number information” of each beneficial owner. A unique identifying number may be a U.S. passport or state driver’s license number. An image of the document containing the identifying number must be included in the filing.

In addition, the CTA requires reporting companies to provide identifying information about their “company applicants.” A company applicant is defined as someone who’s 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 U.S. state), or
Directing or controlling the filing of the relevant formation or registration document by another individual.

Note: This rule often encompasses legal representatives acting in a business capacity.

When to file?

Reporting companies have either 30 days or one year from the effective date of January 1, 2024, to comply with the CTA. Reporting companies created or registered before the effective date have one year to file their initial reports with FinCEN. Those created or registered on or after January 1, 2024, will have 30 days upon receipt of their creation or registration documents to file initial reports.

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

Who can help?

With the effective date closing in quickly, now’s the time to determine whether your business is a nonexempt reporting company that must comply with the BOI reporting rules. We can help you make this determination in consultation with your legal advisors.

When two or more separate entities operate collaboratively, there’s always a chance that they could be deemed a joint employer under the National Labor Relations Act. The legal consequences of this can be quite serious. For example, one entity may become bound by the other’s collective bargaining obligations, and both or all could be held jointly liable for any unfair labor practices that one entity commits.

Recently, the National Labor Relations Board (NLRB) issued a revised final rule regarding precisely how joint employers will now be defined. Suffice to say, it’s the latest chapter in a long-running saga.

Recent history

For many years, the NLRB took the position that one entity wouldn’t be considered a joint employer unless it exercised “direct and immediate” control over the essential terms and conditions of another entity’s employees. Essential terms and conditions include hiring, firing, wages, discipline, supervision and direction.

However, in a 2015 case — Browning-Ferris Industries — the NLRB expanded the joint employer rule to include entities that:

Exercise “indirect control,” a term not clearly defined, over another entity’s employees, or
Contractually reserve the right to control another entity’s employees, even if such control is never exercised.

In September 2018, under the Trump administration, the NLRB issued a proposed rule that would have essentially overruled Browning-Ferris. According to the proposal, to be treated as a joint employer, an entity would need to “possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment in a manner that is not limited and routine.”

In December 2018, a federal appellate court upheld the NLRB’s decision in Browning-Ferris. Nevertheless, in February 2020, the NLRB published a revised final rule that greatly limited the criteria for defining two or more entities as a joint employer. Under this version of the rule, an entity was considered a joint employer of a separate employer’s employees only if it possessed and exercised substantial direct and immediate control over the employees’ essential terms of employment.

Latest final rule

The newly issued final rule brings back the much broader criteria that were in effect during the Obama administration and articulated under Browning-Ferris. That means major contributing factors of whether a joint-employer relationship exists now include wages, benefits and other compensation; work hours and scheduling; assignment of duties; and performance and supervision of those duties.

Also affecting the designation of a joint employer are work rules and directions that control the manner, means and methods of performance. In addition, grounds for discipline and employment tenure, including hiring and discharge, will play into the decision. Working conditions related to employees’ safety and health are significant, too.

In the NLRB’s press release announcing issuance of the final rule, Chairman Lauren McFerran added, “While the final rule establishes a uniform joint-employer standard, the Board will still conduct a fact-specific analysis on a case-by-case basis to determine whether two or more employers meet the standard.”

Your organization’s status

Some industry groups, including the Retail Industry Leaders Association and Associated Builders and Contractors, have pushed back hard against the final rule. So, this may not be the end of the story. As being designated a joint employer can have a substantial financial impact on an entity, it’s a good idea to discuss your organization’s status with your legal advisors if you’re potentially subject to the final rule.

Effective negotiation skills are critical when hiring a CEO or salesperson who deals with major contracts on a regular basis. Yet these skills aren’t necessarily at the forefront when looking for a bookkeeper or controller to “count the beans” at your organization.

Mastery of the fundamentals of negotiating is essential for accountants, too — whether interacting with customers, working with vendors or managing employees. Here are three steps to help your accounting team develop more effective negotiation skills.

1. Build rapport

The first step in a negotiation is to establish rapport with the other party. While rapport is hard to measure, it’s a close and positive connection between individuals, underpinned by trust. Ways to establish and maintain rapport include:

Asking open-ended questions and avoiding interruptions,
Restating key points to demonstrate interest in what the other party said,
Paying close attention to your tone of voice and word usage, and
Maintaining eye contact, smiling and being mindful of nonverbal cues, such as crossed arms, that may send subtle yet noticeable signals of your level of engagement.

If you want someone to trust you, that person must feel like they’re being heard and not judged or looked down upon. While building rapport, it can also help to communicate your commitment to engaging in an ethical negotiation. This signals to the other party that you value integrity and sets the foundation for a transparent and respectful discussion.

For example, rapport building is critical when making collections calls. Your company’s employees should start with a calm, friendly email or phone call, reminding the customer of the invoice amount and due date. If that doesn’t work, consider scheduling a video conference call to reinforce positive nonverbal signs that you understand the reasons for the delay and are willing to work with the customer, possibly even waiving late fees. Speak calmly and keep the conversation polite. If the customer isn’t responsive and a major payment is delayed beyond 45 days, it may be time to consult with upper management about how to proceed.

2. Look for the “win-win”

When negotiating, it’s easy to view the exercise as a win-lose proposition, meaning only one person can win and the other must lose. While some negotiations can produce just one winner, in many cases, it’s possible to collaborate and reach a mutually beneficial outcome.

To make a “win-win” scenario a reality, both parties should share what’s important to them. This requires looking at a potential negotiation from multiple angles.

For example, when negotiating a long-term contract with a potential supplier, obvious focal points are duration, price and payment terms. However, your negotiation also should incorporate less-obvious elements, such as service, delivery and how they view collaboration. And don’t overlook the power of data. For example, sharing inventory data with your suppliers can help them anticipate upcoming orders and minimize delays. Companies that are willing to collaborate with key supply chain partners may be able to negotiate lower prices and receive better service, including access to more-experienced, responsible representatives.

3. Practice, practice, practice

From collections and billing disputes to budgets and loan refinancing, negotiating accounting matters can be challenging. However, with practice and a focus on transparency and honesty, your accounting team can build trust, communicate openly and arrive at mutually beneficial agreements with third parties and in-house stakeholders. Contact us for help mentoring your accounting team in the art of effective negotiation.

At the very least, your estate plan should include a legally valid will governing the disposition of assets upon your death. But comprehensive estate planning often goes much further. For instance, you may provide for transfers of assets to a living trust (also known as a revocable trust) to supplement your will. For many, the best part of using a living trust is that the trust assets don’t have to pass through probate.

You can take an additional step by creating a pour-over will. In a nutshell, a pour-over will specifies how assets you didn’t transfer to a living trust during your life will be transferred at death.

Complementary documents

As its name implies, any property that isn’t specifically mentioned in your will is “poured over” into your living trust after your death. The trustee then distributes the assets to the beneficiaries under the trust’s terms.

The main purpose of a pour-over will is to maximize the benefits of a living trust. But attorneys also tout the merits of using a single legal document — a living trust — as the sole guiding force for an estate plan.

To this end, a pour-over will serves as a conduit for any assets that aren’t already in the name of the trust or otherwise distributed. The assets will be distributed to the trust.

This setup offers the following benefits:

Convenience. It’s easier to have one document controlling the assets than it is to “mix and match.” With a pour-over will, it’s clear that everything goes to the trust, and then the trust document is used to determine who gets what.

Completeness. Generally, everyone maintains some assets outside of a living trust. A pour-over will addresses any items that have fallen through the cracks or that have been purposely omitted.

Privacy. In addition to the convenience of avoiding probate for the assets that are titled in the name of the trust, this type of setup helps to keep a measure of privacy that isn’t available when assets are passed directly through a regular will.

There is, however, one disadvantage to consider. As with any will, your executor must handle specific bequests included in the will, as well as the assets being transferred to the trust through the pour-over provision, before the trustee takes over. (Exceptions for pour-over wills may apply in certain states.) While this may take months to complete, property transferred directly to a living trust can be distributed within weeks of the testator’s death.

The role of trustee

After the executor transfers the assets to the trust, it’s up to the trustee to do the heavy lifting. The executor and trustee may be the same person and, in fact, they often are.

The responsibilities of a trustee are similar to those of an executor with one critical difference: they extend only to the trust assets. The trustee then adheres to the terms of the trust.

Account for all your assets

The benefits of using a living trust are many. Pairing it with a pour-over will may help wrangle any loose assets that you purposely (or inadvertently) didn’t transfer to the living trust. Your attorney can provide more information.

Given the pervasiveness of technology in the business world today, most companies are sitting on treasure troves of sensitive data that could be abducted, exploited, corrupted or destroyed. Of course, there’s the clear and present danger of external parties hacking into your network to do it harm. But there are also internal risks — namely, your “privileged users.”

Simply defined, privileged users are people with elevated cybersecurity access to your business’s enterprise systems and sensitive data. They typically include members of the IT department, who need to be able to reach every nook and cranny of your network to install upgrades and fix problems. However, privileged users also may include those in leadership positions, accounting and financial staff, and even independent contractors brought in to help you with technology-related issues.

What could go wrong?

Assuming your company follows a careful hiring process, most of your privileged users are likely hardworking employees who take their cybersecurity clearances seriously.
Unfortunately, sometimes disgruntled or unethical employees or contractors use their access to perpetrate fraud, intellectual property theft or sabotage. And they don’t always act alone. Third parties, such as competitors, could try to recruit privileged users to steal trade secrets. Or employees could collude with hackers to compromise a company’s network in a ransomware scheme.

How can you protect yourself?

To best protect your business, you may want to implement a formal privileged user policy. This is essentially a set of rules and procedures governing who gets to be a privileged user, precisely what kind of access each such user is allowed, and how your company tracks and revokes privileged-user status.

When developing and enforcing the policy, you’ll first need to identify who your privileged users are and what specific security clearances each one needs. A good way to start is to list the privileges required for every position and then compare that list to a separate record of privileges that each employee currently has. What makes sense? What doesn’t? When in doubt whether someone needs a certain type of access, it’s generally best to err on the side of caution.

Also, establish an “upgrading” process under the policy. Only trusted and qualified managers or supervisors should have the power to upgrade or reinstate an employee’s privileges, perhaps in consultation with the leadership team. Use technology to help standardize and track requests and approvals. For sensitive systems and applications, such as those that store customer and financial data, consider requiring two levels of approval to elevate a user’s privileges.

In addition, your privileged user policy should include stipulations to carefully monitor user activity. Observe and track how employees use their privileges. Let’s say a salesperson repeatedly accesses customer data for a region that the person isn’t responsible for. Have the sales manager inquire why. Subtly reminding employees that the company is aware of their tech-related activities is a good way to help deter fraud and unethical behavior.

Another important aspect of the policy is how you revoke privileges and remove dormant accounts. When employees leave the company, or independent contractors end their engagements, privileged access should be revoked immediately. Keep clear records of such actions. If a previously deactivated account somehow shows signs of activity, block access right away and investigate how and why it’s come back to life.

Do you know?

Every business should be able to definitively say who is a privileged user and who isn’t. If there’s any gray area or uncertainty regarding current or former employees or other workers, the security of your data could be severely compromised. And the ramifications, both financially and for your company’s reputation, are potentially very serious.
© 2023

If someone were to suggest that you should have your business appraised, you might wonder whether the person was subtly suggesting that you retire and sell the company.

Seriously though, a valuation can serve many purposes other than preparing your business for sale so you can head to the beach. Think of it as a checkup that can help you better plan for the future.

Strategic planning

Today’s economy presents both challenges and opportunities for companies across the country. Chief among the challenges is obtaining financing when necessary — interest rates have risen, inflation is still a concern and many commercial lenders are imposing tough standards on borrowers.

A business valuation conducted by an outside expert can help you present timely, in-depth financial data to lenders. The appraisal will not only help them better understand the current state of your business, but also demonstrate how you expect your company to grow. For example, the discounted cash flow section of a valuation report can show how expected future cash flows are projected to increase in value.

In addition, a valuator can examine and state an opinion on company-specific factors such as:

Your leadership team’s awareness of market conditions,
What specific risks you face, and
Your contingency planning efforts to mitigate these risks.

As you go through the valuation process, you may even recognize some of your business’s weaknesses and, in turn, be able to address those shortcomings in strategic planning.

Acquisitions, sales and gifts

There’s no getting around the fact that, in many cases, the primary reason for getting a valuation is to prepare for a transfer of business interests of some variety — be it an acquisition, sale or gift. Even if you’re not ready to make a move like this right now, an appraiser can help you get a better sense of when the optimal time might be.

If you’re able to buy out a competitor or a strategically favorable business, a valuation should play a critical role in your due diligence. When negotiating the final sale price, an appraiser can scrutinize the seller’s asking price, including the reasonableness of cash flow and risk assumptions.

If you’re thinking about selling, most appraisers subscribe to transaction databases that report the recent sale prices of similar private businesses. A valuator also can estimate how much you’d net from a deal after taxes, as well as brainstorm creative deal structures that minimize taxes, provide you with income to fund retirement and meet other objectives.

In the eyes of a potential buyer, a formal appraisal adds credibility to your asking price as well. And if you want to gift business interests to the next generation in your family, a written appraisal is a must-have to withstand IRS scrutiny.

Going the extra mile

You probably have plenty of other things on your plate as you work hard to keep your business competitive. But obtaining an appraisal is a savvy way to go the extra mile to get all the information you need to wisely plan for the future. We can support your company throughout the valuation process and help you make the most of the information you receive.