Did Your Business Buy the Wrong Software?

No one likes to make a mistake. This is especially true in business, where a wrong decision can cost money, time and resources. According to the results of a recent survey, one of the primary ways that many companies are committing costly foibles is buying the wrong software.

The report in question is the 2024 Tech Trends Survey. It was conducted and published by Capterra, a company that helps businesses choose software by compiling reviews and offering guidance. The study focuses on the responses of 700 U.S.-based companies. Of those, about two-thirds regretted at least one of their software purchases made in the previous 12 to 18 months. And more than half of those suffering regret described the financial fallout of the bad decision as “significant” or “monumental.”

Yikes! Clearly, it’s in every business’s best interest — both financially and operationally — to go slow when it comes to buying software.

Inquiring minds

The next time you think your company might need new software, begin the decision-making process with a series of inquiries. That is, sit down with your leadership team and ask questions such as:

What functionalities do we need?
Are we talking about an entirely new platform or an upgrade within an existing platform?
Who will use the software?
Are these users motivated to use a new type of software?

Compatibility is an issue, too. If you’re using an older operating system, new software could be buggy or flat-out incompatible. In either case, you could incur substantial additional costs to update or replace your operating system, which might involve new hardware and impact other software.

When deciding whether and what to buy, get input from appropriate staff members. For example, your accounting personnel should be able to tell you what types of reports they need from upgraded financial management software. From there, you can differentiate “must haves” from “nice to haves” from “needless bells and whistles.”

If you’re considering changes to “front-facing” software, you might want to first survey customers to determine whether the upgrade would really improve their experience.

Prequalified vendors

When buying software, businesses often focus more on price and less on from whom they’re buying the product. Think of a vendor as a business partner — that is, an entity who won’t only sell you the product, but also help you implement and maintain it.

Look for providers that have been operational for at least five to 10 years, have a track record of successful implementations and can provide references from satisfied customers. This doesn’t mean you shouldn’t buy from a newer vendor, but you’ll need to look much more closely at its background and history.

For each provider, find out what kind of technical support is included with your purchase. Buying top-of-the-line software only to find out that the vendor provides poor customer service is usually a quick path to regret. Also, is training part of the package? If not, you’ll likely need to send one or more IT staffers out for training or engage a third-party trainer, either of which will cost you additional dollars.

Your goal is to create a list of prequalified software vendors. With it in hand, you can focus on comparing their products and prices. And you can use the list in the future as your software needs evolve.

No remorse

“Regrets, I’ve had a few,” goes the famous Sinatra song. Buying the wrong software doesn’t have to be one of them for your business. We can help you identify all the costs involved with a software purchase and assist you in ensuring a positive return on investment.

The IRS issued guidance on new regulations regarding the treatment of long-term, part-time employees under the SECURE Act. The regulations state that 401(k) plans cannot bar employees with at least 500 service hours over three consecutive 12-month periods, and this eligibility requirement will be lowered to two consecutive 12-month periods starting in 2025.

The notice also addresses section 113, which allows small financial incentives for eligible employees who are not yet participating in a plan. The notice defines a de minimis financial incentive as $250. This means any amount above the $250 threshold will not be permitted.

Some other provisions that the notice addresses include:

Expanding automatic enrollment in retirement plans (section 101)
Modification of credit for small employer pension plan startup costs (section 102)
Military spouse retirement plan eligibility credit for small employers (section 112)
Contribution limit for SIMPLE plans (section 117)
Exception to the additional tax on early distributions from qualified plans for individuals with a terminal illness (section 326)
Employers allowed to replace SIMPLE retirement accounts with safe harbor 401(k) plans during a year (section 332)
Cash balance (section 348)
Safe harbor for correction of employee elective deferral failures (section 350)
Provisions relating to plan amendments (section 501)
SIMPLE and SEP Roth IRAs (section 601)
Optional treatment of employer contributions or nonelective contributions as Roth contributions (section 604)

Plan sponsors that have questions about this or other SECURE 2.0 provisions should contact their financial advisor. The complete IRS notice is available here.

Companies that work on customer-specific or long-term projects — such as homebuilders, contractors, custom manufacturers and professional practices — generally track job costs to gauge the profitability of each project. In turn, this helps them bid future projects.

Unfortunately, the job-costing process tends to be cumbersome, causing some expenses to inadvertently fall through the cracks instead of being allocated properly. Here are six tips to track costs more easily and accurately:

1. Make job costing a priority. Accurate cost tracking requires the involvement of every level of your organization. If management puts an emphasis on the proper allocation of every possible cost (be it supplies, equipment usage or labor hours), most employees will gladly help code direct costs within their control to the appropriate project.

2. Set up a user-friendly coding system. Tracking costs begins where employees work. That may be in your office or a remote office, at a job site, or in a factory. Often, that’s where materials are delivered and consumed — and where purchase decisions are made.

Frontline workers know which costs go with which projects. The trick is making it easy for them to flag the job name or number. That helps the person who’s entering transactions into the computerized accounting system identify the proper cost code. Accounting personnel may be tempted to guess when the job name or number isn’t available — or assign it to a miscellaneous cost code, promising to correct it later. To counteract this tendency, your accounting team should be trained to ask questions when job names or numbers are missing. Incomplete transactions shouldn’t be entered in the system until accurate cost codes can be identified.

3. Require purchase orders (POs). POs help make job costing for purchases of supplies and materials more effective. Each purchase should be assigned a unique PO number, and all materials and supplies should be tagged with PO numbers. This helps workers provide the proper coding information when these items are used on specific projects. An effective system helps ensure that no invoice will come to your office without a job name or number on it.

4. Be cautious when handing out company cards. With credit and debit cards, there’s usually no way to include a job name or number on the receipt. When submitting receipts to the office or completing expense reports, workers should be required to identify the project to which costs belong. It’s important to provide cards only to responsible workers who understand the importance of accurate job-costing information.

5. Clearly separate costs. If your company’s chart of accounts and job-cost ledger are set up professionally, cost allocations will become easier and more accurate. Job costs differ from office and overhead costs, so job costs should be assigned a job number that’s distinct from the general ledger account number.

For example, general ledger expense codes typically start with the 5,000 series of account numbers. Job costing becomes easier for everyone if general ledger costs are coded with 5,000 series numbers, while allocated job costs are coded with 6,000 series numbers and office and overhead costs get 7,000 series account numbers.

6. Follow best practices. The job numbers you assign to projects should be carefully chosen following best practices. For example, a good job number isn’t just the next number in a haphazard sequence that starts with an arbitrary number and has three or four digits. Job numbers should convey such information as the year the project started, the activity involved, and whether the expenditure is for materials, equipment rental, labor or subcontractors.

We can help you set up a simple, but effective, job-costing system that conforms to industry best practices. This will make it easier for your staff to enter transactions into your accounting system. It’ll also help your management team identify which projects and customers are the most (and least) profitable — and take corrective actions to improve profitability down the road.

Numbered Letter 2023-1 (2023-1) was recently issued by the Michigan Department of Treasury (Treasury), Local Audit and Finance Division of the Bureau of Local Government and School Services. The Numbered Letter provides guidance on Sinking Fund and Bond Fund audits and went into effect on November 2, 2023, and is applicable starting with fiscal years ending June 30, 2024. The new Numbered Letter replaces Bulletin 7 and Numbered Letter 2004-4. Overall, 2023-1 includes statutory changes made to Sinking Funds resulting from Public Act 26 of 2023, additional changes related to submitting Bonded Construction Fund Audits, and creates a single source of information.

Bonded Construction Fund Audits (Bond Audit) – Major Changes

Deadline: The first change comes in the filing and completion dates for the Bond Audit. The completion date for audit is now the later of June 30 immediately following the date of the Certificate of Substantial Completion, or June 30 immediately following the date when 95% or more of the bond proceeds have been expended. Also, school districts no longer need to formally request an audit extension from Treasury as they are to follow the above deadlines.

Options for filing: There are still two options for filing the Bond Audits. They can be completed on either an annual basis or a cumulative basis after the completion date. A separate audit opinion for the Bond Audit is not expected, as all school districts in Michigan must be audited following Government Auditing Standards; therefore, the report letters issued by the auditor with the financial statements meet the reporting requirement for the Bond Audit.

Submission: A certification letter will be submitted to Treasury no later than November 1. If the bond is audited on an annual basis, the certification letter should be submitted annually. If the bond is audited cumulatively (at the end of bond spending), the certification letter will be submitted only in the final year. Specific filing requirements and step-by-step instructions are included in 2023-1.

The Bond Audit will now be submitted as part of the school district’s annual audited financial statements to Michigan Department of Education. This will satisfy the requirement to file the Bond Audit with Treasury. This change is included in 2023-1; Treasury will no longer accept Bond Audits, and they may only be submitted as noted above.

Other Auditors: If the audit firm that does the compliance testing differs from the firm auditing the annual financial statements, the bond auditors will provide a compliance testing letter to be included in the submission. Details to be included in this letter are included in 2023-1.

Bond Series: 2023-1 states that Bond Audits may combine more than one series of bonds if the series being audited were for the same project. Specifically, the “same project” would include everything approved at a single election. In recent years, it has become more common to see several series approved at one time (single election). This is a significant change from prior Treasury guidelines. Now, school districts no longer need to formally request approval from Treasury to combine more than one series into a Bond Audit.

Audit of Sinking Funds – Major Changes

Allowable Costs: Public Act 26 of 2023 related to Sinking Funds was effective May 8, 2023. This most recent change affected allowable costs for Sinking Funds by adding vehicles including trucks, vans, and buses to the allowable costs group. There was a change in 2017 to include security improvements and technology costs as allowable, both of which are still allowable under the new guidance.

Reporting: Sinking Funds have different allowable uses depending on the date they were authorized: 1) before March 29, 2017; 2) between March 29, 2017, and May 7, 2023; and 3) after May 7, 2023. If your school district has multiple sinking funds, they should not be commingled. Each fund must be accounted for separately in the audited financial statements.

Bond & Sinking Fund Audits

Both funds require specific disclosures, which are included in 2023-1.

Please refer to Numbered Letter 2023-1 and contact Yeo & Yeo’s Education Services Group if you have questions.

Most employers are familiar with the U.S. Occupational Safety and Health Administration (OSHA). The government agency’s stated mission is “to ensure the safe and healthful working conditions for workers by setting and enforcing standards and by providing training, outreach, education and assistance.”

One important new development involving OSHA is its final rule on electronic recordkeeping that expands current occupational injury and illness reporting requirements for employers that operate in designated “high-hazard” industries. The rule took effect as of January 1, 2024, so now’s the time to determine whether your organization is subject to it and, if so, precisely what you should do.

Who must submit information

The final rule mandates that employers with 100 or more employees in those designated industries must annually and electronically submit information from Form 300, “Log of Work-Related Injuries and Illnesses,” and Form 301, “Injury and Illness Incident Report.”

The rule doesn’t change existing requirements for employers with 20 to 249 employees in designated industries to annually and electronically submit information from Form 300A, “Summary of Work-Related Injuries and Illnesses.” Organizations with 250 or more employees that are required to keep records under OSHA’s injury and illness regulation must also continue annual electronic submissions of Form 300A.

When it published the new rule in July 2023, OSHA revealed that it will publish some of the related data collected on its website. The agency is doing so “to allow employers, employees, potential employees, employee representatives, current and potential customers, researchers and the general public to use the information … to make informed decisions” that will “reduce occupational injuries and illnesses.”

How to get ready

The final rule mandates that employers make electronic data submissions to OSHA on March 2 of the year after the calendar year covered by each form. On its webpage of frequently asked questions, OSHA states, “The due date to complete this submission is March 2, 2024.”

If your organization is subject to the rule, there are several preparatory steps you should take. First, determine which forms you’ll need to submit based on the criteria. Also, review your current recordkeeping procedures and, if necessary, revise them to ensure best practices are being followed. For example, evaluate each injury or illness against OSHA guidance to determine whether it’s work-related and must be recorded.

In addition, check applicable state law requirements — some state agencies that enforce OSHA mandates may have different recordkeeping rules. And last but not least, train employees in relevant roles on the new rule and reporting requirements.

Be prepared

“Fill out more forms” is probably not on anyone’s list of New Year’s resolutions. Nonetheless, OSHA’s new final rule on electronic recordkeeping is an important development and employers should be prepared to comply with it going forward. Your professional advisors can help you determine whether your organization is subject to the rule and, if so, how to meet the requirements.

Do your assets include unregistered securities, such as restricted stocks or interests in hedge funds or private equity funds? If so, it’s important to consider the securities laws that may be involved in various estate planning strategies.

Potential estate planning issues

Transfers of unregistered securities, either as outright gifts or to trusts or other estate planning vehicles, can raise securities law issues. For example, if you give restricted securities to a child or other family member, the recipient may not be able to sell the shares freely. A resale would have to qualify for a registration exemption and may be subject to limits on the amount that can be sold.

If you plan to hold unregistered securities in an entity — such as a trust or family limited partnership (FLP) — be sure that the entity is permitted to hold these investments. The rules are complex, but in many cases, if you transfer assets to an entity, the entity itself must qualify as an “accredited investor” under the Securities Act or a “qualified purchaser” under the Investment Company Act. And, of course, if you plan to have the entity invest directly in such assets, it’ll need to be an accredited investor or qualified purchaser.

Accredited investors include certain banks and other institutions, as well as individuals with either 1) a net worth of at least $1 million (excluding their primary residence), or 2) income of at least $200,000 ($300,000 for married couples) in each of the preceding two years.

A trust is an accredited investor if:

It’s revocable, the grantor is an accredited investor and certain other requirements are met,
The trustee is a bank or other qualified financial institution, or
It has at least $5 million in assets, it wasn’t formed for the specific purpose of acquiring the securities in question and its investments are directed by a “sophisticated” person.

FLPs and similar family investment vehicles are accredited if 1) they have at least $5 million in assets and weren’t formed for the specific purpose of acquiring the securities in question, or 2) all its equity owners are accredited.

Qualified purchasers include individuals with at least $5 million in investments; family-owned trusts or entities with at least $5 million in investments; and trusts, not formed for the specific purpose of acquiring the securities in question, if each settlor and any trustee controlling investment decisions is a qualified purchaser.

Complex rules

Federal securities laws and regulations are complex. Indeed, a full discussion of them is beyond the scope of this article. If your assets include unregistered securities, consult with your advisors to be sure your estate planning strategies comply with applicable securities requirements.

In the wide, wide world of mergers and acquisitions (M&A), most business buyers conduct thorough due diligence before closing their deals. This usually involves carefully investigating the target company’s financial, legal and operational positions.

But why let them have all the fun? As a business owner, you can perform these same types of reviews of your own company to glean critical insights.

Now you can take a deep dive into your financial or legal standing — and certainly should if you think something is amiss. But assuming all’s well, the start of a new year is a good time to perform an operational review.

Why to do it

An operational review is essentially a reality check into whether, from the standpoint of day-to-day operations, your company is running smoothly and fully capable of accomplishing its strategic objectives.

For example, let’s say a business relies on superior transportation logistics as a competitive advantage. Such a company would need to continuously ensure that it has the right people, vehicles and technology in place to remain a major player. The point is, you don’t want to fall behind the times, which can happen all too easily in today’s environment of disruptors and rapid technological change.

Before getting into specifics, gather your leadership team and ask yourselves some big-picture questions such as:

Are our IT systems up to date and secure, or will they soon need substantial upgrades to keep our data safe and our business competitive?
Are our production facilities capable of handling the output we intend to work toward in the coming year?
Are staffing levels across our various departments appropriate, or will we likely need to expand, contract or reallocate our workforce this year?

By listening to members of your leadership team, and perhaps even some key employees on the front line, you can gain a sense of your staff’s operational confidence. If they have concerns, better to address them sooner rather than later.

What to look at

Getting back to M&A, when business buyers perform operational due diligence, they tend to evaluate at least three primary areas of a target company. As mentioned, you can do the same. The areas are:

Production/operations. Buyers scrutinize mission-critical functions such as technological obsolescence, supply chain operations, procurement processes, customer response times, and product or service distribution speed. They may even visit production facilities and interview certain employees. Their goal, and yours, is to spot performance gaps, identify cost-cutting opportunities and determine ways to improve productivity.
Selling, general & administrative (SG&A). This is a financial term that summarizes a company’s sales-related expenses (including sales staff compensation and advertising costs) along with its administrative costs (such as executive compensation and certain other general expenses). A SG&A analysis is a way for business buyers — or you, the business owner — to assess whether the company’s operational expenses are too high or too low.
Human resources (HR). Buyers typically review a target business’s organizational charts, staffing levels, compensation and benefits, and employee bonus or incentive plans. They also look at the tone, quality and substance of communications between HR and staff. Their goal — and yours too — is to determine the reasonability and sustainability of each of these things.

A funny question

Would you buy your company if you didn’t already own it? It may seem like a funny question, but an operational review can tell you, objectively, just how efficiently and impressively your business is running. We’d be happy to help you gather and analyze the pertinent information involved.

Sometimes divorcing spouses or sparring former business partners illegally hide assets to prevent their fair division. And fraud perpetrators almost always try to hide their ill-gotten gains. In such cases, sociological information — gathered as part of a lifestyle analysis — can be almost as revealing as financial data. Here’s what forensic accountants examine when they’re on the hunt for hidden assets.

Starting with numbers

Forensic accountants usually start with numbers. For example, an expert typically reconstructs the subject’s income by analyzing bank deposits, canceled checks and currency transactions, as well as accounts for cash payments from undeposited receipts and non-income cash sources, such as gifts and insurance proceeds.

A forensic expert also usually analyzes the subject’s personal income sources and uses of cash during a given time period. If the person is spending more than he or she is taking in, the excess likely is unreported income.

In general, investigators assume that unsubstantiated increases in a subject’s net worth reflect unreported income. To estimate net worth, an expert reviews bank and brokerage statements, real estate records, and loan and credit card applications.

Scrutinizing assets and tax records

Proving that a person has unreported income is one thing. Tracing that income to assets or accounts that can be used to support a legal claim or enforce a judgment can be a more challenging matter. Forensic accountants may scrutinize assets, as well as insurance policies, court filings, employment applications, credit reports and tax returns.

Tax returns can be particularly useful because people generally have strong incentives (including tax evasion charges) to prepare accurate returns. In fact, tax return entries often reveal clues about assets or income that someone otherwise attempts to conceal. Another potentially fruitful strategy is to interview professionals with knowledge about the subject’s financial resources and spending, such as accountants, real estate agents and business associates.

Getting the goods

Investigators often need a court’s authorization to request their subject’s bank and tax records and other personal information. This may not be a problem in divorce or business partnership litigation.

But when investigating occupational fraud, professionals may only have salary information provided by the employer and publicly available information such as real estate sale and purchase records and court filings. Professionals can also interview coworkers about a subject’s lifestyle, including whether the suspected fraudster suddenly bought a new luxury car or showed other signs of receiving a windfall. Increasingly, social media provides valuable information about subjects’ lifestyles, assets and purchases.

If you suspect someone of hiding assets in a divorce or business relationship, contact us. We have methods of finding what fraud perpetrators have secreted away and can provide you with evidence you need in court.

If you’re interested in selling commercial or investment real estate that has appreciated significantly, one way to defer a tax bill on the gain is with a Section 1031 “like-kind” exchange. With this transaction, you exchange the property rather than sell it. Although the real estate market has been tough recently in some locations, there are still profitable opportunities (with high resulting tax bills) when the like-kind exchange strategy may be attractive.

A like-kind exchange is any exchange of real property held for investment or for productive use in your trade or business (relinquished property) for like-kind investment, trade or business real property (replacement property).

For these purposes, like-kind is broadly defined, and most real property is considered to be like-kind with other real property. However, neither the relinquished property nor the replacement property can be real property held primarily for sale.

Asset-for-asset or boot

Under the Tax Cuts and Jobs Act, tax-deferred Section 1031 treatment is no longer allowed for exchanges of personal property — such as equipment and certain personal property building components — that are completed after December 31, 2017.

If you’re unsure if the property involved in your exchange is eligible for like-kind treatment, please contact us to discuss the matter.

Assuming the exchange qualifies, here’s how the tax rules work. If it’s a straight asset-for-asset exchange, you won’t have to recognize any gain from the exchange. You’ll take the same “basis” (your cost for tax purposes) in the replacement property that you had in the relinquished property. Even if you don’t have to recognize any gain on the exchange, you still must report it on Form 8824, “Like-Kind Exchanges.”

However, in many cases, the properties aren’t equal in value, so some cash or other property is added to the deal. This cash or other property is known as “boot.” If boot is involved, you’ll have to recognize your gain, but only up to the amount of boot you receive in the exchange. In these situations, the basis you get in the like-kind replacement property you receive is equal to the basis you had in the relinquished property reduced by the amount of boot you received but increased by the amount of any gain recognized.

How it works

For example, let’s say you exchange business property with a basis of $100,000 for a building valued at $120,000, plus $15,000 in cash. Your realized gain on the exchange is $35,000: You received $135,000 in value for an asset with a basis of $100,000. However, since it’s a like-kind exchange, you only have to recognize $15,000 of your gain. That’s the amount of cash (boot) you received. Your basis in the new building (the replacement property) will be $100,000: your original basis in the relinquished property ($100,000) plus the $15,000 gain recognized, minus the $15,000 boot received.

Note that no matter how much boot is received, you’ll never recognize more than your actual (“realized”) gain on the exchange.

If the property you’re exchanging is subject to debt from which you’re being relieved, the amount of the debt is treated as boot. The reason is that if someone takes over your debt, it’s equivalent to the person giving you cash. Of course, if the replacement property is also subject to debt, then you’re only treated as receiving boot to the extent of your “net debt relief” (the amount by which the debt you become free of exceeds the debt you pick up).

Unload one property and replace it with another

Like-kind exchanges can be a great tax-deferred way to dispose of investment, trade or business real property. But you have to make sure to meet all the requirements. Contact us if you have questions or would like to discuss the strategy further.

Scammers and hackers are relentless in exploiting every avenue of communication. From emails to texts, calls to QR codes, malicious actors are finding new ways to compromise privacy and security.

One such emerging threat is the rise of QR code phishing attacks, a blend of QR codes and phishing designed to trick individuals into revealing sensitive information.

How QR Code Hacks Work

QR codes, those familiar black-and-white grids, act as digital hieroglyphs that, when scanned, reveal a variety of information, such as website URLs, plain text messages, app listings, and map addresses. However, the danger lies in their ambiguity—QR codes can lead to fraudulent websites as easily as genuine ones.

Creating a malicious QR code requires no specialized skills; the tools are readily available, making it as simple as scanning one. Once created, the malicious QR code can be disseminated through various means, ready to trick unsuspecting users.

The ultimate goal of these scams remains unchanged: to compromise the security of your accounts or devices. Whether through enticing downloads or phishing for login credentials, the intent is to exploit unsuspecting victims through a seemingly innocuous QR code.

Guarding Against QR Code Exploits

This year, a major U.S. energy company fell victim to a QR code scam, underscoring a rising trend in such attacks.

The good news is that the security practices you should already have can protect you from falling prey to QR code hacking. Just as you exercise caution with emails and instant messages, approach QR codes with skepticism, especially if they come from unverified sources.

Always be wary of QR codes in suspicious emails or on dubious websites. Be cautious of messages that create a sense of urgency, urging you to scan a QR code to verify your identity or prevent account deletion.

Keeping your software up to date is a simple yet effective defense. Modern mobile web browsers come equipped with built-in technology to identify fraudulent links. While not foolproof, staying current with browser and mobile operating system updates improves your chances of receiving warnings about potentially unsafe web locations.

In the face of the evolving threat landscape, staying informed and maintaining vigilance are your best defenses against the rise of QR code phishing attacks. New-school security awareness training can ensure users know what to do when they see a suspicious QR code in their inbox.

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

Asset protection is a vital part of estate planning. Indeed, you want to pass on as much of your wealth to family and friends as possible. This can be achieved only if you shield your assets from frivolous creditors’ claims and lawsuits.

One option available is to establish a domestic asset protection trust (DAPT) in the many states that currently offer them. (You don’t necessarily have to live in one of those states.) While DAPTs can offer creditor protection even if you’re a trust beneficiary, there are risks involved: DAPTs are relatively untested, so there’s some uncertainty over their ability to repel creditors’ claims.

A “hybrid DAPT” offers the best of both worlds. Initially, you’re not named as a beneficiary of the trust, which virtually eliminates the risk described above. But if you need access to the funds down the road, the trustee or trust protector can add you as a beneficiary, converting the trust into a DAPT.

A hybrid DAPT in action

A hybrid DAPT is initially set up as a third-party trust — that is, it benefits your spouse and children or other family members, but not you. Because you’re not named as a beneficiary, the trust isn’t considered a self-settled trust, so it avoids the uncertainty associated with regular DAPTs.

There’s little doubt that a properly structured third-party trust avoids creditors’ claims. If, however, you need access to the trust assets in the future, the trustee or trust protector has the authority to add additional beneficiaries, including you. If that happens, the hybrid account is converted into a regular DAPT subject to the previously discussed risks.

An alternative to a hybrid DAPT

Before considering a hybrid DAPT, determine whether you need such a trust at all. The most effective asset protection strategy is to place assets beyond the grasp of creditors by transferring them to your spouse, children or other family members, either outright or in trust, without retaining any control.

If the transfer isn’t designed to defraud known creditors, your creditors won’t be able to reach the assets. And even though you’ve given up control, you’ll have indirect access to the assets through your spouse or children (provided your relationship with them remains strong).

A flexible tool

The hybrid DAPT can add flexibility while offering significant asset protection. It also minimizes the risks associated with DAPTs, while retaining the ability to convert to one should the need arise. We can help you assess whether a hybrid DAPT is right for you.

The optional standard mileage rate used to calculate the deductible cost of operating an automobile for business will be going up by 1.5 cents per mile in 2024. The IRS recently announced that the cents-per-mile rate for the business use of a car, van, pickup or panel truck will be 67 cents (up from 65.5 cents for 2023).

The increased tax deduction partly reflects the price of gasoline, which is about the same as it was a year ago. On December 21, 2023, the national average price of a gallon of regular gas was $3.12, compared with $3.10 a year earlier, according to AAA Gas Prices.

Standard rate vs. tracking expenses

Businesses can generally deduct the actual expenses attributable to business use of vehicles. These include gas, tires, oil, repairs, insurance, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases, certain limits apply to depreciation write-offs on vehicles that don’t apply to other types of business assets.

The cents-per-mile rate is helpful if you don’t want to keep track of actual vehicle-related expenses. However, you still must record certain information, such as the mileage for each business trip, the date and the destination.

The standard rate is also used by businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles for business purposes. Why? Under current law, employees can’t deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.

If you use the cents-per-mile rate, keep in mind that you must comply with various rules. If you don’t comply, reimbursements to employees could be considered taxable wages to them.

Rate calculation

The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, such as gas, maintenance, repairs and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the rate midyear.

Not always allowed

There are cases when you can’t use the cents-per-mile rate. In some situations, it depends on how you’ve claimed deductions for the same vehicle in the past. In other situations, it hinges on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.

As you can see, there are many factors to consider in deciding whether to use the standard mileage rate to deduct business vehicle expenses. We can help if you have questions about tracking and claiming such expenses in 2024 — or claiming 2023 expenses on your 2023 tax return.

Employee fraud is among the costliest threats faced by employers. While estimates regarding losses vary widely, fraudulent activities can go undetected for an average of 12 months and generate a median loss of $117,000, according to the most recent report of the Association of Certified Fraud Examiners (ACFE).

To fight fraud, your organization will need the ability to spot potential schemes and the knowledge to implement practical steps that will make it harder to commit. Here’s some guidance to help you evaluate the threats and take steps to mitigate the risks.

Evaluating the threat

The ACFE defines employee fraud as “using one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.”

According to established criminal theory, employee fraud happens when a staff member has an undisclosed financial need (such as a gambling addiction), perceived opportunity to commit fraud (such as knowledge of weak internal controls in the workplace) and the ability to rationalize their actions (for example, “it’s a victimless crime”).

Three of the most pervasive types of employee fraud are:

Corruption. Here, a dishonest employee misuses influence over a business transaction to gain a direct or indirect personal benefit. Typical transgressions include bribery, illegal gratuities and economic extortion.
Asset misappropriation. In these cases, an employee abuses an employer’s trust to steal assets. Common schemes include cash skimming, check tampering, false voids, refunds and inventory theft.
Financial statement fraud. This involves an employee deliberately misrepresenting an employer’s financial condition by intentionally misstating or omitting amounts or disclosures to deceive users of financial statements or other financial reports.

Mitigating the risk

Each form of fraud can exact substantial losses and take years for an employer to recover from. In extreme cases, fraudulent schemes can shut down operations completely. The good news is it’s entirely possible to set up safeguards that help deter fraud as well as mechanisms that will raise red flags if schemes do occur. These include:

Conducting a risk assessment. Employees who commit fraud exploit vulnerabilities. A risk assessment evaluates your organization from top to bottom to identify the specific types of threats you face and the effectiveness of your current defenses.

Increasing the “perception of detection.” If dishonest employees believe that fraudulent activities will be uncovered quickly, they’ll be less likely to even try. Communicating the existence and effectiveness of internal controls, conducting frequent spot checks and audits, and having multiple “eyes on the problem” can increase the perception of detection.

Opening a fraud hotline. Most fraud schemes start small and grow over time. Establishing an anonymous reporting method for employees, vendors, customers and even the public at large will increase the chances that you’ll catch fraud before it inflicts substantial losses. This can involve an online portal or phone hotline.

Remaining vigilant

Most employees will never engage in fraudulent activity. Unfortunately, there are some who might want to give it a try. Remaining vigilant and investing in a robust fraud prevention program can help ensure they fail. Contact us for help evaluating your internal controls and devising actionable strategies to reduce risks.

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

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

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

January 31

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

February 15

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

February 28

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

March 15

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

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

Understand the risk

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

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

8 simple ideas

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

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

Effective program

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

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

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

Audit scope

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

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

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

Primary focus

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

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

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

Fortifying your defenses

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

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

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

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

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

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

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

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

Honored for 35 years of service:

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

Honored for 30 years of service:

Michael Oliphant, Principal, Yeo & Yeo CPAs – Kalamazoo

Honored for 25 years of service:

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

Honored for 20 years of service:

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

Honored for 15 years of service:

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

Honored for 10 years of service:

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

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

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

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

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

Next steps

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

Together we can:

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

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

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

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

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

Understanding the CTA

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

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

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

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

Determining who is and isn’t a beneficial owner

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

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

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

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

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

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

Defining company applicants

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

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

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

Addressing other CTA reporting requirements

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

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

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

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

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

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

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

Taking the next steps

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

Visit the FinCEN BOI Reporting Resource Center for additional guidance.

FinCEN BOI Reporting Resource Center