Senior Manager Spotlight: Get to Know Carrie Lapka

Join us in welcoming Carrie Lapka, CPA, CPPM, back to the firm as a senior manager. Let’s learn about Carrie and her perspective on her career, the best advice she’s ever received, and giving back.

What are your roles in the firm?

As a member of the Tax & Consulting Service Line, I specialize in consulting and practice management for healthcare organizations. I am a Certified Physician Practice Manager, and I have experience in revenue cycle management, human resources, healthcare billing and compliance, and general business processes. I also have a background in business consulting, preparation and analysis of financial statements, and tax planning and preparation.

Tell us about your career path.

I began my career at Yeo & Yeo in 2004 and built a lot of great relationships along the way. In my last few years at the firm, I closely managed a client’s medical practice and obtained the Certified Physician Practice Manager credential. Shortly after that, I went to work directly for that client as the Practice Manager while remaining a client of Yeo & Yeo over the years. I am returning to the firm with more than ten years of experience managing a medical practice and much more healthcare industry knowledge. I am now a senior manager in the Tax & Consulting Service Line, based in the Saginaw office. I look forward to serving as a valuable resource to our team.

What causes or organizations are you passionate about?

I serve as treasurer and board member of my local school district, Caseville Public Schools. I also chair our Finance and Sports Committees and was instrumental in passing a recent school bond proposal to fund some major security updates and improvements to our school’s campus.

What was the best advice you ever received?

“Surround yourself with a trusted circle of advisors.” As a business manager, you should always have a good relationship and close contact with your insurance agent, attorney, CPA, banker, and mentor. I’ve relied on each of these over the years, and routinely pass that advice on to anyone currently in business or thinking about going into business.

What do you enjoy doing outside of the office?

Playing volleyball is a passion of mine. I always enjoyed playing throughout my grade school years and was reintroduced to it a couple of years ago when my daughter showed interest in it. We have a co-ed group that I play with each week. I am also a volleyball coach at Caseville Elementary.

Share a story about a time when you positively impacted someone’s life, personally or professionally.

I restarted the volleyball program for our elementary girls last year, which rekindled my love for the sport. The league had been dormant for a few years following COVID, and the girls really wanted to play. We now offer the program to our third-, fourth-, and fifth-grade girls. It’s definitely a time investment, but I’m always reminded of why I do it when I watch their excitement build as they hit the ball over the net for the first time. I know they’re starting a love for a sport they’ll most likely continue to enjoy throughout their lives.

An Irrevocable Life Insurance Trust (ILIT) is a tool that can be utilized to transfer wealth and avoid including life insurance assets in your taxable estate upon death. By setting up an ILIT, you can also protect assets in the irrevocable trust from creditors for you and your beneficiaries. The primary limitation of an ILIT is that once the trust is established, it is irrevocable and cannot be changed. In this article, we explore the advantages and considerations associated with ILITs, emphasizing their role in minimizing estate taxes, sidestepping gift taxes, and securing assets for the benefit of future generations.

Benefits of an ILIT

Establishing an ILIT presents many advantages, making it an attractive option for individuals seeking to transfer wealth seamlessly to the next generation. Key benefits include:

Estate tax minimization: ILITs serve as a strategic tool to minimize potential estate taxes, ensuring a more efficient wealth transfer process.
Gift tax exclusion: Through ILITs, one can navigate gift tax implications by utilizing the annual gift tax exclusion, provided beneficiaries are duly notified of their withdrawal rights.
Creditor protection: Assets held within an ILIT are shielded from creditors, offering a robust layer of protection for both the grantor and beneficiaries.
Strategic asset management: ILITs allow for meticulous management of distributions, empowering trustees to control how assets are distributed among beneficiaries based on the trust document.
Legacy planning: With the irrevocable nature of ILITs, they become a reliable tool for legacy planning, ensuring a structured and controlled distribution of assets over time.

Considerations for ILIT setup

While ILITs offer substantial benefits, it’s crucial to note that once established, these trusts become irrevocable and cannot be altered, underscoring the importance of careful planning and consideration.

Gifts to ILIT and the Crummey letter: The process involves the insured making annual gifts to the ILIT for premium payments on the life insurance. To qualify for the annual gift tax exclusion, beneficiaries must be notified of their withdrawal rights through a Crummey letter. A Crummey letter is a written document explaining the withdrawal right of the gift to the beneficiary. The letter, which must be sent to each beneficiary, must indicate the amount of the gift and the length of time they have to exercise their withdrawal right. It must also let the beneficiaries know that if they do not exercise their withdrawal right, the assets will remain in the trust. If the beneficiary does not exercise their withdrawal right, the gift made to the ILIT will be available for the life insurance premiums to be paid on the life of the insured. The trustee is responsible for drafting and distributing the Crummey letters to the beneficiaries. Without this acknowledgement of the gift, the gift is not determined to be “completed” and would not be eligible for the annual gift exclusion amount.
Gift tax considerations: Grantors must be mindful of total gifts to beneficiaries throughout the year. If other gifts are being given to the beneficiaries, the giver must consider the total gifts given when considering if there is a taxable gift situation. If more than the annual exclusion is gifted to any one beneficiary, it will trigger a gift tax filing for that tax year.
Strategic non-exercise of withdrawal right: Beneficiaries may find it beneficial not to exercise their withdrawal right, allowing assets to remain in the ILIT for life insurance premium payments. This strategic move ensures a consistent funding source for the policy.
Controlled distributions and legacy planning: Upon the insured’s death, ILITs provide flexibility in distributing life insurance proceeds. Trustees can manage distributions based on the trust document, preventing young beneficiaries from receiving a lump sum and instead allowing for structured payments over time.

In conclusion, using an ILIT is just one way to exclude the proceeds upon death from a taxable estate. ILITs are a strategic and effective tool for wealth transfer, providing benefits such as estate tax minimization, gift tax exclusion, asset protection, and controlled legacy planning. Careful consideration, proper documentation, and strategic planning are essential elements in harnessing the full potential of ILITs for long-term financial success.

Understanding and adhering to Human Resources (HR) compliance is paramount for employers. Beyond the complexities of daily operations, employers must be well-versed in the intricacies of employment laws, regulations, and ethical standards. In this article, we will explore 10 key aspects that employers should know about HR compliance to foster a healthy, legally sound, and thriving work environment.

Legal Foundation: Employers must establish a robust legal foundation by familiarizing themselves with local, state, and federal employment laws. From wage and hour regulations to workplace safety standards, a comprehensive understanding of the legal framework is essential for avoiding legal pitfalls.
Documented Policies and Procedures: Clear and comprehensive documentation of company policies and procedures is a cornerstone of HR compliance. Employers should ensure that their organizations have well-documented guidelines covering areas such as anti-discrimination policies, code of conduct, and employee benefits. This documentation not only serves as a reference for employees but also protects the organization in legal matters.
Employee Classification: Properly classifying employees as exempt or non-exempt is critical for compliance with wage and hour laws. Employers should understand the criteria that determine employee classifications, including factors such as job duties, salary, and overtime eligibility.
Workplace Diversity and Inclusion: In the era of inclusivity, employers should be cognizant of the importance of workplace diversity and inclusion. Compliance extends to fostering an environment free from discrimination and harassment. Employers should have policies in place to promote diversity and inclusion and address any issues promptly.
Health and Safety Compliance: Providing a safe and healthy work environment is not only an ethical responsibility but also a legal requirement. Employers must adhere to Occupational Safety and Health Administration (OSHA) standards, conduct regular safety training, and implement protocols to minimize workplace hazards.
Employee Rights: Employers should be well-versed in employee rights, including but not limited to the right to privacy, accommodation for disabilities, and protection against retaliation. Knowledge of these rights is essential for preventing legal disputes and maintaining a positive workplace culture.
Data Privacy and Security: With the increasing reliance on technology, employers should prioritize data privacy and security. Compliance with data protection laws, such as the General Data Protection Regulation (GDPR) and the Health Insurance Portability and Accountability Act (HIPAA), is crucial for safeguarding employee information.
Training and Development: Providing ongoing training for employees and managers is essential for staying compliant. This includes regular updates on changes in policies, laws, and industry standards. Training ensures that employees are aware of their rights and responsibilities, reducing the risk of inadvertent non-compliance.
Recordkeeping: Maintaining accurate and up-to-date records is not only good business practice but also a legal requirement. Employers should keep records related to employee hours, payroll, tax filings, and other relevant documentation to demonstrate compliance in the event of an audit.
Seeking Professional Guidance: When in doubt, employers should not hesitate to seek professional guidance. Consulting with HR professionals, legal professionals, or engaging with an HR service provider can provide valuable insights and ensure that the organization remains on solid legal ground.

To help you stay on top of compliance requirements and meet regulatory deadlines, view our 2024 HR Compliance Calendar. Download a copy to save for your ongoing reference in 2024.

View Our 2024 HR Compliance Calendar

Does your business file 10 or more information returns with the IRS? If so, you must now file them electronically. This is a significant rule change that went into effect on January 1, 2024, for 2023 tax year information returns.

The threshold for electronically filing most information returns has dropped from 250 to 10. Before the new rule, only businesses filing 250 or more information returns were required to do so electronically. Notably, the 250-return threshold was applied separately to each type of information return. Now, businesses must e-file returns if the combined total of all the information return types filed is 10 or more.

Final regulations on the new rule were issued February 21, 2023, by the U.S. Department of the Treasury and the IRS.

Affected information returns

The IRS reports that it receives nearly 4 billion information returns each year. And by 2028, the agency predicts it will receive over 5 billion information returns per year.

The final regs state that the new e-filing requirements will be imposed on those taxpayers “required to file certain returns, including partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns, certain information returns, registration statements, disclosure statements, notifications, actuarial reports, and certain excise tax returns.”

Here are just some of the forms involved:

Forms 1099 issued to report independent contractor income, interest and dividend income, retirement plan distributions, prizes and other payments,
Form W-2 issued to report employee wages,
Form 1098 issued to report mortgage interest paid for the year, and
Form 8300 issued to report cash payments over $10,000 received in a trade or business.

Note: January 31 is the deadline for submitting to the government W-2 wage statements, 1099-NEC forms for independent contractors and other forms. You can find an IRS guide to information returns and when they’re due here.

Penalties and exceptions

The IRS may impose penalties on companies that are required to e-file information returns but instead file them on paper. Filers who would suffer an undue hardship if they had to file electronically can request a waiver from the e-filing requirement by filing Form 8508 with the IRS. Contact us for more guidance on your information return filing obligations.

Operating your small business as a Qualified Small Business Corporation (QSBC) could be a tax-wise idea.

Tax-free treatment for eligible stock gains

QSBCs are the same as garden-variety C corporations for tax and legal purposes — except QSBC shareholders are potentially eligible to exclude from federal income tax 100% of their stock sale gains. That translates into a 0% federal income tax rate on QSBC stock sale profits! However, you must meet several requirements set forth in Section 1202 of the Internal Revenue Code, and not all shares meet the tax-law description of QSBC stock. Finally, there are limitations on the amount of QSBC stock sale gain that you can exclude in any one tax year (but they’re unlikely to apply).

Stock acquisition date is key

The 100% federal income tax gain exclusion is only available for sales of QSBC shares that were acquired on or after September 28, 2010.

If you currently operate as a sole proprietorship, single-member LLC treated as a sole proprietorship, partnership or multi-member LLC treated as a partnership, you’ll have to incorporate the business and issue yourself shares to attain QSBC status.

Important: The act of incorporating a business shouldn’t be taken lightly. We can help you evaluate the pros and cons of taking this step.

Here are some more rules and requirements:

Eligibility. The gain exclusion break isn’t available for QSBC shares owned by another C corporation. However, QSBC shares held by individuals, LLCs, partnerships, and S corporations are potentially eligible.
Holding period. To be eligible for the 100% stock sale gain exclusion deal, you must hold your QSBC shares for over five years. For shares that haven’t yet been issued, the 100% gain exclusion break will only be available for sales that occur sometime in 2029 or beyond.
Acquisition of shares. You must acquire the shares after August 10, 1993, and they generally must be acquired upon original issuance by the corporation or by gift or inheritance.
Businesses that aren’t eligible. The corporation must actively conduct a qualified business. Qualified businesses don’t include those rendering services in the fields of health; law; engineering; architecture; accounting; actuarial science; performing arts; consulting; athletics; financial services; brokerage services; businesses where the principal asset is the reputation or skill of employees; banking; insurance; leasing; financing; investing; farming; production or extraction of oil, natural gas, or other minerals for which percentage depletion deductions are allowed; or the operation of a hotel, motel, restaurant, or similar business.
Asset limits. The corporation’s gross assets can’t exceed $50 million immediately after your shares are issued. If after the stock is issued, the corporation grows and exceeds the $50 million threshold, it won’t lose its QSBC status for that reason.

2017 law sweetened the deal

The Tax Cuts and Jobs Act made a flat 21% corporate federal income tax rate permanent, assuming no backtracking by Congress. So, if you own shares in a profitable QSBC and you eventually sell them when you’re eligible for the 100% gain exclusion break, the 21% corporate rate could be all the income tax that’s ever owed to Uncle Sam.

Tax incentives drive the decision

Before concluding that you can operate your business as a QSBC, consult with us. We’ve summarized the most important eligibility rules here, but there are more. The 100% federal income tax stock sale gain exclusion break and the flat 21% corporate federal income tax rate are two strong incentives for eligible small businesses to operate as QSBCs.

The evolution of business management solutions for manufacturing companies has spawned many product offerings in the market. As solutions become more technologically advanced and robust, it can be challenging to sift through features required to support growth and those that are cosmetic.

To get the most out of any solution, it’s important to understand the types of systems that are available and how they differ.

What is an MRP system?

Manufacturing resource planning (MRP) systems are often standalone applications that operate in a modular organizational structure. Each module keeps track of and regulates specific characteristics and functions for the company, like product design, quality control, shop floor control, and general accounting. MRP II introduced the closed-loop model, which uses a centrally held data file to record, monitor, and report on various company activities.

What is an ERP system?

Enterprise resource planning (ERP) solutions combine the modules monitored in an MRP system and integrate them to support all business functions, not just those relative to manufacturing.

Manufacturing businesses look at ERP systems to support quality product delivery at a low cost. For example, it should support internal collaboration, so product requirements are clearly defined and communicated, with production coordinated with the delivery and product teams.

Benefits of ERP over an MRP system (or older)

According to Sage, ERP adopters are 44% more likely to have visibility into the status of all processes and 75% more likely to have automated notifications for business events. With enhanced visibility, agility, and efficiency, manufacturers implementing an ERP system can see increases in productivity, profitability and on-time delivery.

A good foundation is the best preparation

The state of manufacturing is increasingly moving towards business models that leverage new processes to increase visibility, agility, collaboration, and efficiency.

By working closely with an ERP vendor, manufacturers can identify key opportunities for their enterprise and adopt a solution that can be easily scaled as needed.

Are you interested in ERP? Contact Yeo & Yeo Technology to learn more about our ERP solutions.

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

As audit season begins for calendar-year entities, it’s important to review issues that may arise during fieldwork. One common issue is materiality. This concept is used to determine what’s important enough to be included in — and what can be omitted from — a financial statement. Here’s how materiality is determined and used during an external financial statement audit.

What is materiality?

Under U.S. auditing standards and Generally Accepted Accounting Principles (GAAP), “The omission or misstatement of an item in a financial report is material if, in light of surrounding circumstances, the magnitude of the item is such that it is probable [emphasis added] that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.”

This aligns with the definition of materiality used by the U.S. judicial system. However, it differs somewhat from the definition set by the International Accounting Standards Board. Under International Financial Reporting Standards (IFRS), misstatements and omissions are considered material if they, individually or in the aggregate, could “reasonably be expected to influence the economic decisions of users made on the basis of the financial statements.”

How do auditors determine the materiality threshold?

Auditors rely on their professional judgment to determine what’s material for each company, based on such factors as:

Size,
Industry,
Internal controls, and
Financial performance.

During fieldwork, auditors may ask about line items on the financial statements that have changed materially from the prior year. A materiality rule of thumb for small businesses might be to inquire about items that change by more than, say, 10% or $10,000. For example, if shipping or direct labor costs increased by 30% in 2023, it may raise a red flag, especially if it didn’t correlate with an increase in revenue. Businesses should be ready to explain why costs went up and provide supporting documents (such as invoices or payroll records) for auditors to review.

Establishing what’s material is less clear when CPAs attest to subject matters that can’t be measured — such as sustainability programs, employee education initiatives or fair labor practices. As nonfinancial matters are taking on increasing importance, it’s critical to understand what information will most significantly impact stakeholders’ decision-making process. In this context, the term “stakeholders” could refer to more than just investors. It also could refer to customers, employees and suppliers.

For more information

Materiality is one of the gray areas in financial reporting. Contact us to discuss the appropriate materiality threshold for your upcoming audit.

Among the biggest mistakes employers can make is assuming their leaders are finished products. Whether a supervisor, middle manager or executive, leaders need continuous development to keep up with the ever-evolving norms, challenges and opportunities to fulfill their roles.

The good news is leadership development pays off, at least according to one recent survey. Last year, management consultants BetterManager surveyed 752 leadership professionals in the United States, Canada and the United Kingdom whose job duties include developing internal leadership. Among the most notable statistics in the resulting report, The ROI of Leadership Development, is that responding organizations saw a $7 average return on investment for every $1 spent on efforts to develop their leaders.

Of course, there’s no guarantee you’ll get that positive of a return on investment. It all depends on what your leadership development program looks like. Generally, you have two broad paths to choose from.

Develop internally

Some organizations have the wherewithal and resources to put together their own leadership development programs. These tend to be larger employers that can dedicate the staff to developing the program’s content, perhaps with the help of a consultant, and maintaining it thereafter.

There are two primary advantages to doing it yourself. First, you may be able to control all or most of the costs of designing and running the program rather than paying a hefty fee to an external provider. Second, you can design and maintain the program’s content using all the detailed knowledge of your organization that only you possess — including details of upcoming strategic plans that may drive the need to upgrade certain leadership skills.

On the downside, it can be an incredible draw on internal resources to lay out a blueprint for a leadership development program, implement that plan and then run the program. And make no mistake — leadership development programs demand a long-term commitment to see a return on investment.

Work with an external provider

The alternative is to engage an outside consulting firm to develop and even run a leadership development program for you. Doing so may especially suit smaller organizations, or perhaps those just getting started with the concept. This has the advantage of being a one-time or occasional cost, rather than an ongoing draw on your staff’s time and energy. You should also get the intensive expertise of a specialist in this area.

And the disadvantages? For starters, you’ll need to search for, vet and hammer out a deal with the consultant. That alone will take some time. In addition, the cost can be a substantial hit to your cash flow, and you’ll still need to dedicate time and energy to working with the provider to develop the program and monitor the results.

Your leaders may not feel as engaged either, having to deal with external people and materials. And therein lies another key to successful leadership development programs: You’ve got to get buy-in from the executive level on down.

Be mindful and proactive

As the complexity of being an employer in today’s world continues to grow, strong leadership throughout your organization is imperative. There can be real value in mindfully and proactively creating a leadership development program. Contact us for help identifying and evaluating all the costs of whatever approach you’re considering.

Yeo & Yeo is pleased to welcome back Carrie Lapka, CPA, CPPM, as a senior manager.

“We are excited to welcome Carrie back to the firm,” says David Jewell, Principal and Tax & Consulting Service Line Leader. “Carrie’s diverse background in accounting and physician practice management makes her a great resource for our Healthcare Services Group and our healthcare clients across all Yeo & Yeo companies.”

Lapka brings more than 20 years of experience in accounting and physician practice management. She started her career with Yeo & Yeo in 2004. After nearly ten years in public accounting with a specialization in the healthcare industry, Lapka went on to work in private practice as a Practice Manager for ten years. She is a Certified Physician Practice Manager, possessing extensive knowledge in revenue cycle management, human resources, healthcare billing and compliance, and general business processes. The firm’s healthcare clients will greatly benefit from her expertise in supporting their business needs, including operational efficiencies, staff training, and technology. Beyond her experience in practice management, Lapka has an extensive background in business consulting, preparation and analysis of financial statements, and tax planning and preparation. She holds a Bachelor of Professional Accountancy from Saginaw Valley State University.

In the community, she is deeply involved with Caseville Public Schools, serving as a board member and treasurer, and as chair of both the Finance and Sports Committees. She is also an elementary volleyball coach. Lapka is based in Yeo & Yeo’s Saginaw office.

“In my nearly ten years with Yeo & Yeo and then continuing as a client of the firm, I have built many great relationships. I am excited to be back and bring my specialized knowledge in the healthcare industry to the team and clients,” Lapka said.

In late December, the IRS issued new guidance under Announcement 2024-3 for employers that claimed and received the Employee Retention Credit (ERC) but were ineligible and applied in error, likely prompted by a third-party promoter. The program is called the Voluntary Disclosure Program and allows employers to pay back only 80% of the total ERC, interest free (if paid by the agreement date).

Additional details are as follows:

The deadline for applying through this program is March 22, 2024.
Participants are eligible if they have already received the ERC refund and are not under criminal investigation or employment tax examination, not considered to be noncompliant, and have not previously received notice that they must repay the ERC.
As mentioned above, only 80% of the credit received must be repaid and no interest payment is required. Additionally, participants are not required to reduce wage expense on tax returns. If they have previously amended returns to reduce wage expense, they can again amend returns to revert the changes and not reduce wage expense by any amount of the ERC.
Employers unable to pay the full 80% can request an installment agreement plan by including Form 433-B in the application package. The IRS will review and approve or deny. Interest may apply in this case.
To apply for the Voluntary Disclosure Program, the procedures below must be followed:
- File Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program via the Document Upload Tool at irs.gov/DUT.
- Include the taxpayer name, taxpayer identification number, current address, and daytime telephone number.
- Identify the tax period(s) for which the ERC was claimed, the form number on which it was claimed (941 or 7200), the full amount of the ERC claimed, and the amounts that were refundable and non-refundable.
- Include a signed Form SS-10, Consent to Extend the Time to Assess Employment Taxes if any periods end in 2020.
- Include the name, address, phone number, and services provided of any return preparer or advisors that assisted with the initial ERC claim.
- Use EFTPS to pay the amounts calculated from Form 15434. Payments should be separated by each tax period. “Advanced Payment” should be selected as the payment category.
After the above information is submitted, the IRS will prepare and mail a closing agreement. The payment of 80% of the ERC should be made by the date of this agreement. The closing agreement must be signed and returned to the IRS within 10 days of the date of mailing by the IRS.
If a participant uses a third-party organization to process their payroll and apply for the ERC, such as a professional employer organization (PEO), the third-party/PEO is required to file the Form 15434 and include a copy of the Schedule R of the 941 on which the ERC was claimed for the participant.

Participants in the Voluntary Disclosure Program will be required to sign a closing agreement drafted by the IRS. Payment of 80% of the claimed ERC must be remitted by the date of execution of the agreement. There could be opportunities for installment payments under certain circumstances.

Announcement 2024-3 highlights two additional items that participants need to be aware of.

If the application for participation in the program is denied, there is no right to administrative appeal or judicial review, and;
By entering into the closing agreement, the IRS will not assert civil penalties related to the underpayment of employment tax if full payment of 80% of the claimed ERC is made prior to the execution of the agreement. However, the agreement does not preclude the IRS from pursuing associated criminal conduct or recommending prosecution for violation of any criminal statute. The agreement does not provide any immunity from prosecution.

Because of the limitations associated with entering into the agreement, it is recommended that taxpayers contact legal counsel before entering into a closing agreement under the Voluntary Disclosure Program.

As a reminder, there is also a separate withdrawal process for employers who have erroneously claimed the ERC but have not yet received the funds. As of early December, businesses have withdrawn more than $100 million in pending claims from the IRS.

Helpful links:

Please contact your Yeo & Yeo advisor if you have questions or need assistance.

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.