Yeo & Yeo Named an INSIDE Public Accounting Top 200 Accounting Firm for 2023

Yeo & Yeo, a leading Michigan-based accounting and advisory firm, has been recognized by INSIDE Public Accounting (IPA) as a Top 200 Firm in the U.S. for the fifteenth consecutive year. In the 2023 IPA ranking of more than 600 participating firms, Yeo & Yeo ranked 120.

Every year, IPA, one of the most trusted sources of news, data, and analysis in the public accounting industry, identifies and ranks the top 500 U.S. public accounting firms. Firms are ranked according to U.S. net revenues and are further analyzed according to responses received for IPA’s Survey and Analysis of Firms. With consistent year-over-year growth, Yeo & Yeo achieved an organic growth rate surpassing 15% firm-wide in the prior year.

“Being positioned among numerous top-performing accounting firms across the country is an honor and reflects our commitment to quality and client service, and our ability to adapt and thrive in an ever-evolving industry,” said President & CEO, Dave Youngstrom. “This accomplishment is a testament to the collaborative spirit of our team and the trust our clients place in us.”

Several factors contribute to Yeo & Yeo’s success. The firm focuses on building strong relationships, understanding unique needs, and providing tailored solutions to its clients. Acknowledging that a company’s strength is inherently linked to its people, Yeo & Yeo also places a strong emphasis on nurturing talent. The firm invests in its employees’ professional growth and development, fostering a culture of continuous learning and improvement. Yeo & Yeo is also dedicated to giving back to the community through the Yeo & Yeo Foundation, an employee-sponsored organization that is a channel for giving time, talent, and financial support to charitable causes throughout Michigan.

With over 45,000 public accounting firms in the U.S., Yeo & Yeo proudly takes its place on the IPA Top 200 list, and extends gratitude to its clients, team members, and communities.

“Our journey is fueled by the relationships we’ve built, the innovation we’ve embraced, and the impact we’ve made,” added Youngstrom. “As we look ahead, we’re excited to continue exceeding expectations, delivering meaningful client experiences, and supporting the communities in which we live and work.”

IPA Top 200

About INSIDE Public Accounting

INSIDE Public Accounting (IPA) is a leader in practice management resources for the public accounting profession. IPA offers a monthly practice management publication and four national practice management benchmarking reports every year. IPA has helped firms across North America grow and thrive since 1987.

View the list of top-ranked IPA firms.

Let’s say you decide to, or are asked to, guarantee a loan to your corporation. Before agreeing to act as a guarantor, endorser or indemnitor of a debt obligation of your closely held corporation, be aware of the possible tax implications. If your corporation defaults on the loan and you’re required to pay principal or interest under the guarantee agreement, you don’t want to be caught unaware.

A business bad debt

If you’re compelled to make good on the obligation, the payment of principal or interest in discharge of the obligation generally results in a bad debt deduction. This may be either a business or a nonbusiness bad debt deduction. If it’s a business bad debt, it’s deductible against ordinary income. A business bad debt can be either totally or partly worthless. If it’s a nonbusiness bad debt, it’s deductible as a short-term capital loss, which is subject to certain limitations on deductions of capital losses. A nonbusiness bad debt is deductible only if it’s totally worthless.

In order to be treated as a business bad debt, the guarantee must be closely related to your trade or business. If the reason for guaranteeing the corporation loan is to protect your job, the guarantee is considered closely related to your trade or business as an employee. But employment must be the dominant motive. If your annual salary exceeds your investment in the corporation, this generally shows that the dominant motive for the guarantee was to protect your job. On the other hand, if your investment in the corporation substantially exceeds your annual salary, that’s evidence that the guarantee was primarily to protect your investment rather than your job.

Except in the case of job guarantees, it may be difficult to show the guarantee was closely related to your trade or business. You’d have to show that the guarantee was related to your business as a promoter, or that the guarantee was related to some other trade or business separately carried on by you.

If the reason for guaranteeing your corporation’s loan isn’t closely related to your trade or business and you’re required to pay off the loan, you can take a nonbusiness bad debt deduction if you show that your reason for the guarantee was to protect your investment, or you entered the guarantee transaction with a profit motive.

More rules

In addition to satisfying the above requirements, a business or nonbusiness bad debt is deductible only if you meet these three requirements:

You have a legal duty to make the guaranty payment (although there’s no requirement that a legal action be brought against you).
The guaranty agreement was entered into before the debt became worthless.
You received reasonable consideration (not necessarily cash or property) for entering into the guaranty agreement.

Any payment you make on a loan you guaranteed is deductible as a bad debt in the year you make it, unless the agreement (or local law) provides for a right of subrogation against the corporation. If you have this right, or some other right to demand payment from the corporation, you can’t take a bad debt deduction until the rights become partly or totally worthless.

These are only some of the possible tax consequences of guaranteeing a loan to your closely held corporation. To learn all the implications in your situation, consult with us.

Health Reimbursement Arrangements (HRAs) are a tax-advantaged way for employers to reimburse employees for out-of-pocket medical expenses. These plans have become quite popular, partly because they come in a variety of forms that can best suit the needs of the sponsoring organization.

However, employees often need to be “sold” on the pros of an HRA. One way you may be able to boost interest and participation in one of these plans is to offer it as not only a health care benefit, but also an investment vehicle.

Interest-earning accounts

HRAs are employer-owned plans. Therefore, you can decide whether to allow participants to roll over unused reimbursement allowances from year to year. If you do, participants can amass sizable balances over time — and there’s a way for them to earn interest on those balances.

When an HRA is “unfunded,” reimbursements are paid out of the employer’s general assets. From an accounting perspective, HRA credits represent bookkeeping entries rather than actual, separate assets.

Because no separate assets are involved, HRA balances under an unfunded plan won’t earn interest in the way that, for example, savings accounts do. If an employer wishes, however, it can periodically credit additional amounts to participants’ respective bookkeeping accounts in an amount equivalent to the interest that they would have earned if their HRA balances had been held in a typical interest-bearing investment. This is called “interest crediting.”

Like other amounts offered under an HRA, these “notional” credits are nontaxable and can be used only to reimburse qualifying medical expenses. In addition, they’re subject to the Internal Revenue Code’s rules prohibiting discrimination in favor of highly compensated employees.

The trust option

As mentioned, long-term participants may accumulate substantial HRA balances if annual carryovers are allowed. This situation has led some employers to fund their HRAs through a trust — for example, by using a Voluntary Employees’ Beneficiary Association plan. Such funding might be particularly attractive if HRA carryovers represent a substantial liability on the employer’s balance sheet.

When an HRA is funded this way, the employer deposits funds equal to the HRA credits into the trust to be held in an interest-bearing account, with interest allocated to participants’ HRA accounts based on their respective balances.

Be aware, however, that funded HRAs are subject to additional requirements. Trust assets must be invested prudently under ERISA’s fiduciary standards. Also, earnings that aren’t credited to participants’ accounts can be used only to defray plan administration expenses or to provide benefits to participants. In addition, forfeitures attributed to terminated employees have to remain in the trust. (Additional rules and reporting requirements may apply.)

If you decide to fund your HRA with a trust, you’ll need to carefully consider how to communicate this benefit to participants — including the ability to amend or discontinue interest crediting in the future.

Rewards, rules and risks

With the rise of online investment opportunities and cryptocurrency, the popularity of investing has exploded. Adding an interest-crediting feature to your HRA may capture the attention of employees and increase participation in — and appreciation of — this benefit. However, the rules are complex, and there are significant risks to consider. Contact us for further information.

From utilities and interest expense to executive salaries and insurance, many overhead costs have skyrocketed over the last few years. Some companies have responded by passing along the increases to customers through higher prices of goods and services. Is this strategy right for your business? Before implementing price increases, it’s important to understand how to allocate indirect costs to your products. Proper cost allocation is essential to evaluating product and service line profitability and, in turn, making informed pricing decisions.

Defining overhead

Overhead costs are a part of every business. These accounts frequently serve as catch-alls for any expense that can’t be directly allocated to production, including:

Equipment maintenance and depreciation,
Rent and building maintenance,
Administrative and executive salaries,
Interest expense,
Taxes,
Insurance, and
Utilities.

Generally, indirect costs of production are fixed over the short run, meaning they won’t change appreciably whether production increases or diminishes.

Calculating overhead rates

The challenge comes in deciding how to allocate these costs to products using an overhead rate. The rate is typically determined by dividing estimated overhead expenses by estimated totals in the allocation base (for example, direct labor hours) for a future time period. Then, you multiply the rate by the actual number of direct labor hours for each product (or batch of products) to establish the amount of overhead that should be applied.

In some companies, the rate is applied companywide, across all products. This might be appropriate for organizations that make single, standard products over long periods of time. But, if your product mix is more complex and customized, you may use multiple overhead rates to allocate costs more accurately. If one department is machine-intensive and another is labor-intensive, for example, multiple rates may be appropriate.

Handling variances

There’s one problem with accounting for overhead costs: Variances from actual costs are almost certain. There are likely to be more variances if you use a simple companywide overhead rate, but even the most carefully thought-out multiple rates won’t always be 100% accurate.

The result is large accounts that many managers don’t understand and that require constant adjustment. This situation creates opportunities for errors — and for dishonest people to commit fraud. Fortunately, you can reduce the chance of overhead anomalies with strong internal control procedures, such as:

Conducting independent reviews of all adjustments to overhead and inventory accounts,
Studying significant overhead adjustments over different periods of time to spot anomalies,
Discussing complaints about high product costs with nonaccounting managers, and
Evaluating your existing overhead allocation and making adjustments as necessary.

Allocating costs more accurately won’t guarantee that you make a profit. To do that, you have to make prudent pricing decisions — based on the production costs and market conditions — and then sell what you produce.

For more information

Cost accounting can be complex, and indirect overhead costs can be difficult to trace. Our accounting pros can help you apply a systematic approach to estimating meaningful overhead rates and adjusting them when necessary. We can also evaluate pricing decisions and suggest cost cutting measures to combat rising costs.

As the Fed continues to do battle with inflation, and with fears of a recession not quite going away, companies have been keeping a close eye on the costs of their health insurance and pharmacy coverage.

If you’re facing higher costs for healthcare benefits this year, it probably doesn’t come as a big surprise. According to the National Survey of Employer-Sponsored Health Plans, issued by HR consultant Mercer in 2022, U.S. employers anticipated a 5.6% rise in medical plan costs in 2023. The actual percentage may turn out to be even higher, which is why cost containment should be one of the primary objectives of your benefits strategy.

Really get to know your workforce

To succeed at cost containment, you’ve got to establish and maintain a deep familiarity with two things: 1) your workforce, and 2) the healthcare benefits marketplace.

Starting with the first point, the optimal plan design depends on the size, demographics and needs of your workforce. Rather than relying on vendor-provided materials, actively manage communications with employees regarding their healthcare benefits. Determine which offerings are truly valued and which ones aren’t.

If you haven’t already, explore the feasibility of a wellness program to promote healthier diet and lifestyle choices. Invest in employee education so your plan participants can make more cost-effective healthcare decisions. Many companies in recent years have turned to high-deductible health plans coupled with Health Savings Accounts to shift some of the cost burden to employees.

As you study your plan design, keep in mind that good data matters. Business owners can apply analytics to just about everything these days — including healthcare coverage. Measure the financial impacts of gaps between benefits offered and those employees actually use. Then adjust your plan design appropriately to close these costly gaps.

Consider professional assistance

Now let’s turn to the second critical thing that business owners and their leadership teams need to know about: the healthcare benefits marketplace. As you’re no doubt aware, it’s hardly a one-stop convenience store. Many companies engage a consultant to provide an independent return-on-investment analysis of an existing benefits package and suggest some cost-effective adjustments. Doing so will entail some expense, but an external expert’s perspective could help you save money in the long run.

Another service a consultant may be able to provide is an audit of medical claims payments and pharmacy benefits management services. Mistakes happen — and fraud is always a possibility. By re-evaluating claims and pharmacy services, you can identify whether you’re losing money to inaccuracies or even wrongdoing.

Regarding pharmacy benefits, as the old saying goes, “Everything is negotiable.” The next time your pharmacy coverage contract comes up for renewal, explore whether your existing vendor can give you a better deal and, if not, whether one of its competitors is a better fit.

It’s doable … really

Cost containment for healthcare benefits may seem like a Sisyphean task — that is, one both laborious and futile. But it’s not: Many businesses find ways to lower costs by streamlining benefits to eliminate wasteful spending and better fit employees’ needs. We can help you identify and analyze each and every cost associated with your benefits package.

Michigan Department of Education’s (MDE) Michigan School Accounting Manual Committee (1022 Committee) updated guidance on GASB 96, Subscription-Based Information Technology Arrangements.

The additional guidance is related to Subscription-Based Information Technology Arrangement (SBITA) purchases with grant funds, including an update to U.S. Department of Education guidance that allows SBITAs to be charged to a grant in full if certain criteria are met. The guidance also includes frequently asked questions related to SBITAs. The updated guidance is included in Accounting Manual, Section II – Requirements, E.20 GASB #96 Supplemental Guidance.

Read the Updated Guidance

If you have questions about SBITAs, please contact your Yeo & Yeo auditor.

For additional guidance in navigating GASB Statement No. 96, Subscription-based Information Technology Arrangements (SBITA), read our whitepaper: What School Districts Need to Know About GASB 96 Implementation.

Yeo & Yeo CPAs & Advisors is proud to announce that Meg Warner, CPA, has received the Women to Watch – Emerging Leader award from the Michigan Association of Certified Public Accountants (MICPA). The MICPA award honors an accounting professional who is an up-and-coming star in their organization. Warner was nominated by Jamie Rivette, CPA, CGFM, Principal, Assurance Service Line leader, and a member of Yeo & Yeo’s board of directors.

“Meg’s leadership in mentoring and inspiring the next generation of CPAs and her dedication to pursuing specialized niche expertise have and will continue to impact our firm,” Rivette said. “Her contributions are a testament to her passion and unwavering commitment to furthering the accounting field and inspiring the next generation of accounting professionals.”

“I have been consistently impressed by Meg’s outstanding achievements,” added Ali Barnes, CPA, CGFM, Managing Principal of Yeo & Yeo’s Alma office. “She demonstrates exceptional leadership, innovative ideas and unwavering dedication to community service, and is a positive mentor to Yeo & Yeo’s young professionals.”

Warner is a senior accountant based in Yeo & Yeo’s Alma office audit department. She is a member of the firm’s Government Services Group. She holds many leadership roles in the firm, including serving a term as the Yeo Young Professionals (YPN) president. As leader of the YPN, she organized a firm-wide young professionals networking event, which brought together over 30 attendees from offices across Michigan. Warner also served on Yeo & Yeo’s Summer Leadership Program committee from 2021 to 2023, helping college students learn more about the accounting profession.

In the community, Warner serves on the grant committee for the Gratiot County Community Foundation and is a volunteer leader for Central Michigan Youth for Christ (CMYFC), an organization she has participated in for more than seven years. In 2023, she earned the “Whatever It Takes” Award from CMYFC, which recognizes volunteers who go above and beyond in their service. Warner also serves on the Yeo & Yeo Foundation board as the Young Professionals service chair. In this role, she actively planned and organized a firm-wide service project supporting the Michigan Special Olympics, raising more than $12,000 to support the cause.

Speaking on Warner’s commitment to community service, Keeley Brown, Campus Life High School Director of CMYFC, said, “Meg has always been a leader and servant to the community, her family and friends, as well as to us at Youth for Christ. She is a great example of strength, leadership, and care for all those who surround her.”

Warner said she was truly honored to receive the Emerging Leader Award, acknowledging the pivotal role of female colleagues in her career.

“This award not only signifies individual achievement but the collective efforts of my coworkers, mentors, and support system, many of whom are females who have played an important part in my career so far and driven me to advocate for empowering women in the workplace. I am grateful that I have been able to contribute to Yeo & Yeo’s continued investments in giving back to the community, equipping young professionals, and impacting the future of the accounting profession.”

Honorees were awarded at the MICPA Women to Watch – Moving Women Forward event on August 10 in Birmingham, Michigan.

The need for a will as a key component of your estate plan may seem obvious, but you’d be surprised by the number of people — even affluent individuals — who don’t have one. In the case of the legendary “Queen of Soul” Aretha Franklin, she had more than one, which after her death led to confusion, pain and, ultimately, a court trial among her surviving family members.

Indeed, a Michigan court recently ruled that a separate, handwritten will dated 2014, found in between couch cushions superseded a different document, dated 2010, that was found around the same time.

In any case, when it comes to your last will and testament, you should only have an original, signed document. This should be the case even if a revocable trust — sometimes called a “living trust” — is part of your estate plan.

Living trust vs. a will

True, revocable trusts are designed to avoid probate and distribute your wealth quickly and efficiently according to your wishes. But even if you have a well-crafted revocable trust, a will serves several important purposes, including:

Appointing an executor or personal representative you trust to oversee your estate, rather than leaving the decision to a court,
Naming a guardian of your choosing, rather than a court-appointed guardian, for your minor children, and
Ensuring that assets not held in the trust are distributed among your heirs according to your wishes rather than a formula prescribed by state law.

The last point is important, because for a revocable trust to be effective, assets must be titled in the name of the trust. It’s not unusual for people to acquire new assets and put off transferring them to their trusts or they simply forget to do so. To ensure that these assets are distributed according to your wishes rather than a formula mandated by state law, consider having a “pour-over” will. It can facilitate the transfer of assets titled in your name to your revocable trust.

Although assets that pass through a pour-over will must go through probate, that result is preferable to not having a will. Without a will, the assets would be distributed according to your state’s intestate succession laws rather than the provisions of your estate plan.

Reason for an original will

Many people mistakenly believe that a photocopy of a signed will is sufficient. In fact, most states require that a deceased’s original will be filed with the county clerk and, if probate is necessary, presented to the probate court. If your family or executor can’t find your original will, there’s a presumption in most states that you destroyed it with the intent to revoke it. That means the court will generally administer your estate as if you died without a will.

It’s possible to overcome this presumption — for example, if all interested parties agree that a signed copy reflects your wishes, they may be able to convince a court to admit it. But to avoid costly, time-consuming legal headaches, it’s best to ensure that your family members can locate your original will when they need it.

Please don’t hesitate to contact us if you have questions about your will or overall estate plan.

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Yeo & Yeo CPAs & Advisors is pleased to announce that Tyler Altman has earned the Enrolled Agent (EA) designation from the Internal Revenue Service (IRS).

The Enrolled Agent authorization is the highest credential the IRS awards to tax professionals. To attain this designation, candidates must demonstrate a deep understanding of tax laws, complete a comprehensive examination, and fulfill strict ethical standards. With this achievement, Altman has distinguished himself as a trusted tax advisor with the necessary knowledge and skills to represent taxpayers before the IRS.

David Jewell, CPA, principal and leader of the firm’s tax service line, said, “Tyler’s achievement in earning the Enrolled Agent designation is a testament to his dedication and expertise in taxation. His commitment to delivering exceptional tax services and staying at the forefront of ever-changing regulations has greatly benefited our clients, and he will continue to be an asset this coming tax season and beyond.”

In speaking about earning the EA designation, Altman said he is excited to bring his tax preparation skills to the next level for clients. “Earning my EA certification gave me a great sense of accomplishment. It’s not just a professional achievement; it represents my passion for helping individuals and businesses navigate the complexities of taxation successfully.”

Altman is a staff accountant based in Yeo & Yeo’s Saginaw office. His areas of expertise include federal and state tax preparation, compliance, negotiations, tax audits, and other federal and state tax needs. He holds a Bachelor of Business Administration in Accounting from Northwood University. He is involved in the Saginaw Chamber of Commerce’s Young Professionals Network and has volunteered for the Rescue Ministries of Mid-Michigan.

Succession planning is a critical process for any organization, including nonprofits. It involves identifying and developing individuals who can take on leadership roles in the organization when the current leaders retire or leave for other reasons. This is a crucial process that should be undertaken sooner rather than later. It is always good practice to be proactive in preparing for the future of the organization. nonprofits are often led by individuals who wear many hats and work tirelessly to ensure that their organization is successful. However, these individuals may not always be around to lead the organization, which is why succession planning is so important. In this article, we will discuss the importance of succession planning for nonprofits and outline some steps that organizations can take to ensure that they have a successful succession plan in place.

Succession planning is crucial for nonprofits for several reasons. First and foremost, it ensures that the organization can continue to function and achieve its goals even after the current leaders have left. This is especially important for nonprofits that have a significant impact on the community they serve. Without a proper succession plan, the organization could suffer, and all of the hard work and resources that have been put into the organization could be lost.

Additionally, succession planning can also help with organizational continuity. By identifying potential successors early on, the organization can ensure that there is a smooth transition of leadership when the time comes. This can help minimize disruptions and ensure that the organization can continue to operate effectively.

Steps for Succession Planning

The following are some steps that nonprofits can take to develop a successful succession plan.

Step 1: Identify Key Positions

The first step in developing a succession plan is to identify the key positions within the organization. These are the roles that are critical to the organization’s success and that would be most difficult to replace if the current holder were to leave. This could include positions such as the executive director, finance director, or program directors.

Step 2: Identify Potential Successors

Once you have identified the key positions, the next step is to identify potential successors. This could include current employees who have demonstrated leadership potential or individuals outside the organization. It’s important to take a long-term view when identifying potential successors and look for individuals inside or outside the organization who have the potential to grow and develop over time.

Step 3: Develop a Succession Plan

With key positions and potential successors identified, the next step is to develop a succession plan. This should include a timeline for when the current leaders are expected to leave the organization and a plan for how the transition will be handled. The plan should also outline the specific steps that will be taken to ensure that the successor is ready to take on the role, including training and development opportunities. Consider cross-training individuals in key positions so they can temporarily fill other roles in case of emergency.

Step 4: Communicate and Support the Plan

Once the succession plan has been developed, it’s important to communicate it to all stakeholders within the organization and make sure that the plan is supported. This includes employees, board members, donors, and volunteers. Everyone needs to be on the same page and deliver the same message. By communicating the plan, you can help build support for the transition and achieve alignment among all parties.

Step 5: Evaluate and Adjust the Plan

Finally, it’s important to regularly evaluate and adjust the succession plan as needed. This includes revisiting the key positions and potential successors, as well as the timeline for the transition. As the organization evolves, the succession plan may need to be adjusted to ensure that it remains effective.

Succession planning is a critical process for any organization, including nonprofits. By identifying potential successors and developing a plan for their transition into key positions, nonprofits can ensure that they have the leadership necessary to continue achieving their mission even after their current leaders have moved on. It’s important for nonprofits to prioritize succession planning and follow the steps outlined above to ensure that they have a successful plan in place. By doing so, they can ensure that their organization remains strong and continues to make a positive impact on their community.

Whether it is reporting a phishing email or something that might be illegal that a coworker is doing, your employees should be a strong line of defense for security and compliance.

According to Gartner, almost 60 percent of all misconduct that is observed in the workplace never gets reported. For decades both compliance officers and security leaders have known that the earlier employees report incidents, the lower the risk. Yet low reporting rates continue to be a problem.

One of the top cybersecurity incidents is phishing, so most organizations are using simulated phishing attacks to test not only who will click on these attacks but also who will report this as an incident using the reporting procedures. From results published in early 2022, F-Secure did a test with four multinational organizations to send a simulated phishing attack to more than 82,000 workers. Two of the companies that did not have an easy way to report suspected phishing attacks had an average reporting rate of less than 15%, while a third company that did have a phishing alert button had a 45% reporting rate.

See Something, Say Something

Incident reporting for compliance and security is related to the culture within an organization. If you feel as though you are going to be listened to, you will report it. Reporting also should be easy with reminders of how to report.

According to Perry Carpenter in his book “Transformational Security Awareness,” three fundamental questions are the framework for incident reporting.

“Why”is the messaging on the importance of incident reporting
“How” is making the incident reporting process as simple as possible
“What” is your “See something, say something” communication and education campaign that combines the first two

Incident Reporting Is Everyone’s Responsibility

It’s critical that you remind everyone at least monthly about the reporting process. For phishing, this would be a simulated phishing campaign monthly for most organizations. Think of it like a fire drill and practice for reporting. Also, don’t just look at click percentage but celebrate those that do report.

For compliance training programs, don’t be afraid to be redundant. Remember to think like a marketer – they constantly remind us of their products, so we need to be persistent in our reminders when it comes to security and compliance training programs.

Incident Reporting and Security Culture

If you are just checking the compliance and security boxes with your program, employees will likely only do the minimum, too. Some of the most successful organizations are teaming up security and compliance into a collaborative workstream to reinforce the message that it’s not just the compliance officer or the security team that wants you to come forward – the entire organization does. This approach, with monthly training, can have a serious impact on reporting across the board with a subsequent reduction in risk.

Information used in this article was provided by our partners at KnowBe4.

Does your business receive large amounts of cash or cash equivalents? If so, you’re generally required to report these transactions to the IRS — and not just on your tax return.

The requirements

Each person who, in the course of operating a trade or business, receives more than $10,000 in cash in one transaction (or two or more related transactions), must file Form 8300. Who is a “person”? It can be an individual, company, corporation, partnership, association, trust or estate. What are considered “related transactions”? Any transactions conducted in a 24-hour period. Transactions can also be considered related even if they occur over a period of more than 24 hours if the recipient knows, or has reason to know, that each transaction is one of a series of connected transactions.

In order to complete a Form 8300, you’ll need personal information about the person making the cash payment, including a Social Security or taxpayer identification number.

The definition of “cash” and “cash equivalents”

For Form 8300 reporting purposes, cash includes U.S. currency and coins, as well as foreign money. It also includes cash equivalents such as cashier’s checks (sometimes called bank checks), bank drafts, traveler’s checks and money orders.

Money orders and cashier’s checks under $10,000, when used in combination with other forms of cash for a single transaction that exceeds $10,000, are defined as cash for Form 8300 reporting purposes.

Note: Under a separate reporting requirement, banks and other financial institutions report cash purchases of cashier’s checks, treasurer’s checks and/or bank checks, bank drafts, traveler’s checks and money orders with a face value of more than $10,000 by filing currency transaction reports.

The reasons for reporting

Although many cash transactions are legitimate, the IRS explains that the information reported on Form 8300 “can help stop those who evade taxes, profit from the drug trade, engage in terrorist financing and conduct other criminal activities. The government can often trace money from these illegal activities through the payments reported on Form 8300 and other cash reporting forms.”

Failing to comply with the law can result in fines and even jail time. In one case, a Niagara Falls, NY, business owner was convicted of willful failure to file Form 8300 after receiving cash transactions of more than $10,000. In a U.S. District Court, he pled guilty and was recently sentenced to five months home detention, fined $10,000 and he agreed to pay restitution to the IRS. He had received cash rent payments in connection with a building in which he had an ownership interest.

Forms can be sent electronically

Businesses required to file reports of large cash transactions on Forms 8300 should know that in addition to filing on paper, e-filing is an option. The form is due 15 days after a transaction and there’s no charge for the e-file option. Businesses that file electronically get an automatic confirmation of receipt when they file.

Effective January 1, 2024, you may have to e-file Forms 8300 if you’re required to e-file other information returns, such as 1099 and W-2 forms. You must e-file if you’re required to file at least 10 information returns other than Form 8300 during a calendar year.

The IRS also reminds businesses that they can “batch file” their reports, which is especially helpful to those required to file many forms.

Record retention

You should keep a copy of each Form 8300 for five years from the date you file it, according to the IRS. “Confirmation receipts don’t meet the recordkeeping requirement,” the tax agency added.

It can be difficult for business owners to navigate the tax code and monitor tax law developments. One area of special concern is financial reporting for uncertain tax positions (UTPs). Here’s some insight to help clarify matters.

Recognition standard

Companies that follow U.S. Generally Accepted Accounting Principles (GAAP) must identify, measure and disclose UTPs using a “more-likely-than-not” threshold. In short, tax accruals are booked only for uncertain positions that meet this standard.

This means that a tax benefit is allowed only if there’s a more than 50% likelihood that the position would be sustained if challenged and considered by the highest court in the relevant jurisdiction. Unrecognizable benefits with less than a 50% cumulative chance of sustaining an IRS challenge should be reported on the balance sheet as a separate UTP liability.

Foreign UTPs are accounted for in the same manner as U.S. positions. However, foreign positions can create additional complications.

Audit presumption

When reporting UTPs, companies should presume that returns will be audited and tax authorities will have access to all information. Then, management must identify all material tax positions, including those that:

Exclude specific income streams from taxable income,
Assert an equity restructuring is tax-free,
Refrain from filing a tax return in a particular jurisdiction, or
Accelerate expense or delay income recognition, such as depreciation or amortization expenses.

When reporting UTPs, management should create detailed tabular disclosures and factor into its estimates such costs as accrued interest and penalties. Moreover, unresolved UTPs must be reassessed as of each balance sheet date. Recent developments — such as emerging case law, tax law changes or interactions with taxing authorities — could affect tax benefits formerly recognized.

We can help

Estimating probabilities and future settlement amounts is subjective and requires the expertise of an experienced CPA. Among the factors an expert will consider are the company’s expected settlement strategy, the nature of the tax liability and applicable tax law precedents. Contact us for more information on how to measure and disclose UTPs in today’s uncertain business environment.

There have been plenty of headlines this summer about the extreme heat. Elevated temperatures not only tax the electrical grid, but also lead to more tornados and severe thunderstorms that can result in significant damage to personal residences.

One consequence of this for employers is that you could find yourself fielding more requests for hardship distributions from your 401(k) participants. With this in mind, it’s important to ensure that your HR staff and employees are well-prepared for the approval process.

The tax deduction connection

Under the casualty loss safe harbor, a 401(k) plan may make a hardship distribution to pay for repairs to a participant’s principal residence that would qualify for a casualty loss deduction for federal income tax purposes.

The casualty loss deduction is generally available for eligible “losses of property not connected with a trade or business, or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty.” The deduction cannot be claimed unless the losses:

Are at least $100,
Exceed 10% of the individual’s adjusted gross income (AGI), and
Are attributable to a federally declared disaster for taxable years beginning before 2026.

However, neither the 10% AGI threshold nor the federally declared disaster requirement applies when determining whether losses qualify for the casualty loss safe harbor of a 401(k) plan.

Self-certification now allowed

Under previous rules, to determine whether the participant qualified for a hardship distribution under the casualty loss safe harbor, plan sponsors had to verify that 1) the damage was to the participant’s principal residence, not a second home or other personal property, and 2) the cost to repair the damage was $100 or more. To do so, plans sponsors needed to obtain documentation as well as a written statement from the participant requesting the hardship distribution.

However, at the very end of 2022, the SECURE 2.0 Act was passed into law. It markedly simplified the approval process for hardship distributions — including those requested to cover casualty losses. Now participants can “self-certify” that they meet the applicable conditions.

Doing so essentially amounts to providing the plan administrator with a written statement, which can be electronic if it meets regulatory requirements, that the individual in question “has insufficient cash or other liquid assets reasonably available to satisfy the need,” according to the IRS. As the plan sponsor/administrator, you may accept self-certification so long as you don’t have actual knowledge that the participant’s statement is “contrary to the representation” (that is, false).

Participants must also first obtain other available distributions from your 401(k) plan and certain other employer-provided plans.

A good time for a reminder

Whether or not you’ve already dealt with an uptick in hardship distribution requests, now may be a good time to remind your 401(k) participants of the rules involved so they have a realistic understanding of the process should disaster strike. We can help you articulate those rules as well as assess the tax and financial impact of any other employee benefits your organization currently offers.

If you operate your small business as a sole proprietorship, you may have thought about forming a limited liability company (LLC) to protect your assets. Or maybe you’re launching a new business and want to know your options for setting it up. Here are the basics of operating as an LLC and why it might be a good choice for your business.

An LLC is a bit of a hybrid entity because it can be structured to resemble a corporation for owner liability purposes and a partnership for federal tax purposes. This duality may provide the owners with the best of both worlds.

Protecting your personal assets

Like the shareholders of a corporation, the owners of an LLC (called “members” rather than shareholders or partners) generally aren’t liable for the debts of the business except to the extent of their investment. Thus, the owners can operate the business with the security of knowing that their personal assets are protected from the entity’s creditors. This protection is much greater than that afforded by partnerships. In a partnership, the general partners are personally liable for the debts of the business. Even limited partners, if they actively participate in managing the business, can have personal liability.

Tax issues

The owners of an LLC can elect under the “check-the-box” rules to have the entity treated as a partnership for federal tax purposes. This can provide a number of benefits to the owners. For example, partnership earnings aren’t subject to an entity-level tax. Instead, they “flow through” to the owners, in proportion to the owners’ respective interests in profits, and are reported on the owners’ individual returns and taxed only once.

To the extent the income passed through to you is qualified business income, you’ll be eligible to take the Section 199A pass-through deduction, subject to various limitations. (However, keep in mind that the pass-through deduction is temporary. It’s available through 2025, unless Congress acts to extend it.)

In addition, since you’re actively managing the business, you can deduct on your individual tax return your ratable shares of any losses the business generates. This, in effect, allows you to shelter other income that you (and your spouse, if you’re married) may have.

An LLC that’s taxable as a partnership can provide special allocations of tax benefits to specific partners. This can be a notable reason for using an LLC over an S corporation (a form of business that provides tax treatment that’s similar to a partnership). Another reason for using an LLC over an S corp is that LLCs aren’t subject to the restrictions the federal tax code imposes on S corps regarding the number of owners and the types of ownership interests that may be issued.

Consider all angles

In conclusion, an LLC can give you corporate-like protection from creditors while providing the benefits of taxation as a partnership. For these reasons, you may want to consider operating your business as an LLC. Contact us to discuss in more detail how an LLC might be an appropriate choice for you and the other owners.

The IRS has issued new guidance providing transitional relief related to recent legislative changes to the age at which taxpayers must begin taking required minimum distributions (RMDs) from retirement accounts. The guidance in IRS Notice 2023-54 also extends relief already granted to taxpayers covered by the so-called “10-year rule” for inherited IRAs and other defined contribution plans.

The need for RMD relief

In late 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act brought numerous changes to the retirement and estate planning landscape. Among other things, it generally raised the age at which retirement account holders must begin to take their RMDs. The required beginning date (RBD) for traditional IRAs and other qualified plans was raised from age 70½ to 72.

Three years later, in December 2022, the SECURE 2.0 Act increased the RBD age for RMDs further. This year the age increased to 73, and it’s scheduled to climb to 75 in 2033.

The RBD is defined as April 1 of the calendar year following the year in which an individual reaches the applicable age. Therefore, an IRA owner who was born in 1951 will have an RBD of April 1, 2025, rather than April 1, 2024. The first distribution made to the IRA owner that will be treated as a taxable RMD will be a distribution made for 2024.

While the delayed onset of RMDs is largely welcome news from an income tax perspective, it has caused some confusion among retirees and necessitated updates to plan administrators’ automatic payment systems. For example, retirees who were born in 1951 and turn 72 this year may have initiated distributions this year because they were under the impression that they needed to start taking RMDs by April 1, 2024.

Administrators and other payors also voiced concerns that the updates could take some time to implement. As a result, they said, plan participants and IRA owners who would’ve been required to start receiving RMDs for calendar year 2023 before SECURE 2.0 (that is, those who reach age 72 in 2023) and who receive distributions in 2023 might have had those distributions mischaracterized as RMDs. This is significant because RMDs aren’t eligible for a tax-free rollover to an eligible retirement plan, so the distributions would be includible in gross income for tax purposes.

The IRS response

To address these concerns, the IRS is extending the 60-day deadline for rollovers of distributions that were mischaracterized as RMDs due to the change in the RBD from age 72 to age 73. The deadline for rolling over such distributions made between January 1, 2023, and July 31, 2023, is now September 30, 2023.

For example, if a plan participant born in 1951 received a single-sum distribution in January 2023, and part of it was treated as ineligible for a rollover because it was mischaracterized as an RMD, the plan participant will have until the end of September to roll over that portion of the distribution. If the deadline passes without the distribution being rolled over, the distribution will then be considered taxable income.

The rollover also applies to mischaracterized IRA distributions made to an IRA owner (or surviving spouse). It applies even if the owner or surviving spouse rolled over a distribution within the previous 12 months, although the subsequent rollover will preclude the owner or spouse from doing another rollover in the next 12 months. (The individual could still make a direct trustee-to-trustee transfer.)

Plan administrators and payors receive some relief, too. They won’t be penalized for failing to treat any distribution made between January 1, 2023, and July 31, 2023, to a participant born in 1951 (or that participant’s surviving spouse) as an eligible rollover distribution if the distribution would’ve been an RMD before SECURE 2.0’s change to the RBD.

The 10-year rule conundrum

Prior to the enactment of the original SECURE Act, beneficiaries of inherited IRAs could “stretch” the RMDs on the accounts over their entire life expectancies. The stretch period could run for decades for younger heirs, allowing them to take smaller distributions and defer taxes while the accounts grew. These heirs then had the option to pass their IRAs to later generations, potentially deferring tax payments even longer.

To accelerate tax collection, the SECURE Act eliminated the rules permitting stretch RMDs for many heirs (referred to as designated beneficiaries, as opposed to eligible designated beneficiaries, or EDBs). For IRA owners or defined contribution plan participants who died in 2020 or later, the law generally requires that the entire balance of the account be distributed within 10 years of death. The rule applies regardless of whether the deceased dies before, on or after the RBD for RMDs from the plan. (EDBs may continue to stretch payments over their life expectancies or, if the deceased died before the RBD, may elect the 10-year rule treatment.)

According to proposed IRS regulations released in February 2022, designated beneficiaries who inherit an IRA or defined contribution plan before the deceased’s RBD can satisfy the 10-year rule by taking the entire sum before the end of the calendar year that includes the 10-year anniversary of the death. Notably, though, if the deceased dies on or after the RBD, designated beneficiaries would be required to take taxable annual RMDs (based on their life expectancies) in years one through nine, receiving the remaining balance in year 10. They can’t wait until the end of 10 years and take the entire account as a lump-sum distribution. The annual RMD rule would provide designated beneficiaries less tax-planning flexibility and could push them into higher tax brackets during those years, especially if they’re working.

The 10-year rule and the proposed regs left many designated beneficiaries who recently inherited IRAs or defined contribution plans bewildered as to when they needed to begin taking RMDs. For example, the IRS heard from heirs of deceased family members who died in 2020. These heirs hadn’t taken RMDs in 2021 and were unsure whether they were required to take them in 2022.

In recognition of the lingering questions, the IRS previously waived enforcement against taxpayers subject to the 10-year rule who missed 2021 and 2022 RMDs if the plan participant died in 2020 on or after the RBD. It also excused missed 2022 RMDs if the participant died in 2021 on or after the RBD. The latest guidance extends that relief by excusing 2023 missed RMDs if the participant died in 2020, 2021 or 2022 on or after the RBD.

The relief means covered individuals needn’t worry about being hit with excise tax equal to 25% of the amounts that should’ve been distributed but weren’t (or 10% if the failure to take the RMD is corrected in a timely manner). And plans won’t be penalized for failing to make an RMD in 2023 that would be required under the proposed regs.

Final regs are pending

The IRS also announced in the guidance that final regs related to RMDs will apply for calendar years no sooner than 2024. Previously, the agency had said final regs would apply no earlier than 2023. We’ll let you know when the IRS publishes the final regs and how they may affect you. Contact us with any questions.

When a loved one passes away, you might think that the options for his or her estate plan have also been laid to rest. But that isn’t necessarily the case. Indeed, there may be postmortem tactics the deceased’s executor (or personal representative), spouse or beneficiaries can employ to help keep his or her estate plan on track.

Make a QTIP trust election

A qualified terminable interest property (QTIP) trust can be a great way to use the marital deduction to minimize estate tax at the first spouse’s death and limit the surviving spouse’s access to the trust principal. For the transfer of property to the trust to qualify for the deduction, a QTIP trust election must be made on an estate tax return.

QTIP trust assets ultimately are subject to tax as part of the surviving spouse’s estate. In some cases, including more assets in the estate of the first spouse to die can minimize the overall estate tax. In such a situation, the deceased spouse’s executor may decide not to make the QTIP trust election or to make a partial QTIP trust election.

Use a qualified disclaimer

A qualified disclaimer is an irrevocable refusal to accept an interest in property from a will or living trust. Under the right circumstances, a qualified disclaimer can be used to redirect property to other beneficiaries in a tax-efficient manner.

To qualify, a disclaimer must be in writing and delivered to the appropriate representative. The disclaimant has no power to determine who’ll receive the property. Rather, it must pass to the transferor’s spouse or to someone other than the disclaimant, according to the terms of the underlying document making the transfer — such as a will, a living or testamentary trust or a beneficiary form.

Take advantage of exemption portability

Portability helps minimize federal gift and estate taxes by allowing a surviving spouse to use a deceased spouse’s unused gift and estate tax exemption amount. For 2023, the exemption is $12.92 million.

Bear in mind that portability isn’t automatically available. It requires the deceased spouse’s executor to make a portability election on a timely filed estate tax return. Unfortunately, many estates fail to make the election because they’re not liable for estate tax and, therefore, aren’t required to file a return. These estates should consider filing an estate tax return for the sole purpose of electing portability. The benefits can be significant.

Keep on track

Following the death of a loved one, there may be steps that can be taken to keep his or her estate plan on the right track toward accomplishing his or her goals. To help ensure your loved one’s plan isn’t derailed, discuss your options with us.

Let’s say you own highly appreciated land that’s now ripe for development. If you subdivide it, develop the resulting parcels and sell them off for a hefty profit, it could trigger a large tax bill.

In this scenario, the tax rules generally treat you as a real estate dealer. That means your entire profit — including the portion from pre-development appreciation in the value of the land — will be treated as high-taxed ordinary income subject to a federal rate of up to 37%. You may also owe the 3.8% net investment income tax (NIIT) for a combined federal rate of up to 40.8%. And you may owe state income tax too.

It would be better if you could arrange to pay lower long-term capital gain (LTCG) tax rates on at least part of the profit. The current maximum federal income tax rate on LTCGs is 20% or 23.8% if you owe the NIIT.

Potential tax-saving solution

Thankfully, there’s a strategy that allows favorable LTCG tax treatment for all pre-development appreciation in the land value. You must have held the land for more than one year for investment (as opposed to holding it as a real estate dealer).

The portion of your profit attributable to subsequent subdividing, development and marketing activities will still be considered high-taxed ordinary income, because you’ll be considered a real estate dealer for that part of the process.

But if you can manage to pay a 20% or 23.8% federal income tax rate on a big chunk of your profit (the pre-development appreciation part), that’s something to celebrate.

Three-step strategy

Here’s the three-step strategy that could result in paying a smaller tax bill on your real estate development profits.

1. Establish an S corporation

If you individually own the appreciated land, you can establish an S corporation owned solely by you to function as the developer. If you own the land via a partnership, or via an LLC treated as a partnership for federal tax purposes, you and the other partners (LLC members) can form the S corp and receive corporate stock in proportion to your percentage partnership (LLC) interests.

2. Sell the land to the S corp

Sell the appreciated land to the S corp for a price equal to the land’s pre-development fair market value. If necessary, you can arrange a sale that involves only a little cash and a big installment note the S corp owes you. The business will pay off the note with cash generated by selling off parcels after development. The sale to the S corp will trigger a LTCG eligible for the 20% or 23.8% rate as long as you held the land for investment and owned it for over one year.

3. Develop the property and sell it off

The S corp will subdivide and develop the property, market it and sell it off. The profit from these activities will be higher-taxed ordinary income passed through to you as an S corp shareholder. If the profit is big, you’ll probably pay the maximum 37% federal rate (or 40.8% percent with the NIIT. However, the average tax rate on your total profit will be much lower, because a big part will be lower-taxed LTCG from pre-development appreciation.

Favorable treatment

Thanks to the tax treatment created by this S corp developer strategy, you can lock in favorable treatment for the land’s pre-development appreciation. That’s a huge tax-saving advantage if the land has gone up in value. Consult with us if you have questions or want more information.