Yeo & Yeo Announces New Board Members

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Annual gift tax exclusion in action

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

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

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

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

Lifetime gift tax exemption

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

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

Tax-exempt gifts

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

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

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

The right strategy for you

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

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

Predetermined outcomes

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

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

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

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

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

Inside jobs

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

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

Vendor audit

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

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

Rolling out the rules

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

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

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

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

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

Careful recordkeeping is essential

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

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

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

How these trusts work

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

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

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

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

CRTs and a high-interest-rate environment

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

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

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

Now may be the time for a CRT

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

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

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

Divergent financial needs

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

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

Trust alternatives

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

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

The answers are out there

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Summary

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

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

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

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

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

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

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

Buy assets

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

Bonus depreciation is also available for certain building improvements.

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

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

Purchase a heavy vehicle

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

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

Think through tax-saving strategies

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

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

Budgets vs. forecasts

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

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

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

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

How QuickBooks features work

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

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

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

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

Planning in uncertain times

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

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

New normal?

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

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

Discussion points

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

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

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

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

The path forward

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

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

What are your roles in the firm?

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

Describe your career path.

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

What do you enjoy most about your career?

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

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

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

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

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

What are your hobbies or interests outside of accounting?

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

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

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

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

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

With a will, there’s a way

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

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

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

Factors that can influence your choice

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

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

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

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

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

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

Coming to a final decision

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

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

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

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

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

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

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

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

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

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

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

4 types of internal controls

Internal controls generally fall under one of the following categories:

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

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

Dealing with the problem

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

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

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

Contingency and monitoring plans

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

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

Essential component

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

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

Rates and brackets

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

Here are the 2024 inflation adjusted bracket thresholds.

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

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

Section 1231 gains and qualified dividends

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

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

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

Self-employment tax

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

Section 179 deductions

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

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

Just the beginning

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

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

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

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

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

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

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

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

In speaking on her promotion, Danielle said, “As a manager, I look forward to gaining more industry-specific expertise to better serve my clients, becoming more active in the community, and helping my colleagues grow in their careers.”

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

What employees want

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

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

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

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

Content and strategy

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

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

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

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

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

Everyone can win

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

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

Right of setoff

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

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

Gross vs. net presentation

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

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

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

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

Disclosure requirements

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

Specifically, companies must disclose:

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

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

For more information

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