Balancing Legacy and Independence: The Role of an Inheritor’s Trust

An inheritor’s trust is a specialized estate planning tool designed to protect and manage assets you pass to a beneficiary. One of its primary advantages is asset protection. It allows your beneficiary to receive his or her inheritance in trust rather than as an outright gift or bequest. Thus, the assets are kept out of his or her own taxable estate.

Creditor protection

Having assets pass directly to a trust not only protects the assets from being included the beneficiary’s taxable estate but also shields them from other creditor claims, such as those arising from a lawsuit or a divorce. The inheritance is protected because the trust, rather than your beneficiary, legally owns the inheritance, and because the beneficiary doesn’t fund the trust.

To ensure complete asset protection, the beneficiary must establish an inheritor’s trust before receiving the inheritance. The trust is drafted so that your beneficiary is the investment trustee, giving him or her power over the trust’s investments.

Your beneficiary then selects an unrelated person — someone he or she knows well and trusts — as the distribution trustee. The distribution trustee will have complete discretion over the distribution of principal and income, which ensures that the trust provides creditor protection.

The trust should be designed with the flexibility to remove and change the distribution trustee at any time and make other modifications when necessary, such as when tax laws change. Bear in mind that the unfettered power to remove and replace trustees may jeopardize the creditor protection aspect of the trust. That could result in the inclusion of the trust property in the beneficiary’s taxable estate.

Because it’s your beneficiary, and not you, who sets up the trust, he or she will incur the bulk of the fees, which will vary depending on the trust. In addition, he or she may have to pay annual trustee fees. Your cost, however, should be minimal — only the legal fees to amend your will or living trust to redirect your bequest to the inheritor’s trust.

Wealth preservation

Another benefit of an inheritor’s trust is that it can help ensure that inherited assets remain within the family lineage. By keeping assets in the trust rather than transferring them outright to beneficiaries, the trust can prevent the depletion of wealth due to mismanagement, overspending or other poor financial decisions.

The trust’s grantor can include specific provisions or restrictions. These may include setting limits on distributions or requiring certain milestones (like completing education) before beneficiaries can access funds.

Follow the law

Your beneficiary should consult an attorney to draft the trust in accordance with federal and state law. This will help avoid potential IRS audits or court challenges — and maximize the asset protection benefits of the trust. Contact us for more information regarding an inheritor’s trust.

Yeo & Yeo is pleased to announce the promotion of Daniel Beard, CPA, to Senior Manager. Beard is a member of the firm’s Assurance Service Line and specializes in audits of government entities, nonprofit organizations, and for-profit companies.

In speaking of his promotion, Beard said, “I am excited to take this next step in my career and embrace more leadership opportunities. I enjoy working with our clients and building collaborative relationships where I can understand their needs and create tailored solutions.”

Beard holds a Master of Science in Accounting and has been with Yeo & Yeo since 2014. As part of the Government Services Group, he helps state and local government entities navigate challenges and become more agile and efficient. He is an active member of the Michigan Government Finance Officers Association, the American Institute of Certified Public Accountants, and the Michigan Association of Certified Public Accountants. Beyond his professional commitments, Beard is a graduate of Leadership A2Y and proudly serves as a Certified Tourism Ambassador in Washtenaw County. He is based in the firm’s Ann Arbor office, where he continues to make a positive impact on both clients and the community.

“Daniel has consistently demonstrated exceptional skill and dedication,” said Jamie Rivette, Principal and Assurance Service Line Leader. “He consistently goes above and beyond for clients, helping them through every stage of the audit process and beyond. I look forward to seeing how he will continue to support our team, drive positive change, and build meaningful relationships with our clients.”

Deepfakes — digital forgeries produced by artificial intelligence (AI) — have blurred the line between reality and illusion. On the upside, AI-generated deepfakes have revolutionized special effects in motion pictures and made certain education and health care industry processes more effective. Yet there are also plenty of risks associated with deepfakes.

Current threats

Deepfakes purporting to represent public officials can disseminate disinformation and generate fake news stories. And if fraud perpetrators use deepfake images of a company’s owner or senior executives, they can more easily perpetrate phishing schemes and steal sensitive data.

The threat extends beyond visible manipulation to audio. Deepfakes can mimic a specific individual’s voice to commit theft. For example, a so-called “business partner” might leave a voicemail instructing someone in your accounting department to wire funds to an overseas account.

Detection challenges

AI-based detection technology solutions can help reveal deepfakes by identifying unusual facial movements, unnatural body postures and lighting inconsistencies. Yet this technology is still in its infancy and far from perfect.

Alternative solutions, such as watermarking, show promise. However, watermarking technology is relatively easy to bypass and has yet to gain widespread acceptance. A small but growing body of law regulates the use of deepfakes. But the laws do little to prevent their creation. They generally punish creators when (and if) they’re caught using deepfakes to commit illegal acts.

Key warning signs

Recognizing the red flags of deepfake content is vital. You and your employees should be wary of video or audio exhibiting:

Unnatural eye movements. Deepfake creators find it particularly challenging to replicate natural blinking patterns, eye movements and eye gazes. Inconsistencies in eye-related movements could be suspicious.

Unrealistic faces. Mismatched skin tones, questionable lighting and blurred edges are potential signs of a deepfake. So, too, are stiff or exaggerated facial expressions.

Lip-sync and audio issues. Lip movement lagging its soundtrack is a common problem that’s difficult for deepfake creators to overcome. A deepfake may not be able to capture an individual’s tone or emotion and its soundtrack may contain abrupt or unnatural pauses.

Corrupted backgrounds. Warped objects near the edges of a person’s face or inconsistent backgrounds that bleed into the foreground are possible signs of a deepfake.

Unbelievable content. Deepfake videos can be entertaining, but they’re also frequently sensational and out of character for the individuals supposedly being depicted.

Questionable sourcing. Many deepfakes are from non-credible sources and circulated via untrustworthy platforms. Any content that goes viral, meaning people share it with their social networks, should be treated with caution.

Corroborate files first

Until technology makes it easier to uncover deepfakes, exercising a healthy skepticism is the best way to avoid being conned. Before you treat a video or audio file as legitimate, corroborate it with multiple sources. And if employees receive an unusual request via voicemail or video from a supposed manager, they should verify it by phone or by talking to the individual in person.

With the 2025 tax filing season underway, be aware that the deadline is coming up fast for businesses to submit certain information returns to the federal government and furnish them to workers. By January 31, 2025, employers must file these forms and furnish them to recipients:

Form W-2, Wage and Tax Statement. Form W-2 shows the wages paid and taxes withheld for the year for each employee. It must be furnished to employees and filed with the Social Security Administration (SSA). The IRS notes that “because employees’ Social Security and Medicare benefits are computed based on information on Form W-2, it’s very important to prepare Form W-2 correctly and timely.”

Form W-3, Transmittal of Wage and Tax Statements. Anyone required to file Form W-2 must also file Form W-3 to transmit Copy A of Form W-2 to the SSA. The totals for amounts reported on related employment tax forms (Form 941, Form 943, Form 944 or Schedule H for the year) should agree with the amounts reported on Form W-3.

Failing to timely file or include the correct information on either the information return or statement may result in penalties.

Freelancers and independent contractors

The January 31 deadline also applies to Form 1099-NEC, Nonemployee Compensation. This form is furnished to recipients and filed with the IRS to report nonemployee compensation to independent contractors.

If the following four conditions are met, payers must generally complete Form 1099-NEC to report payments as nonemployee compensation:

You made a payment to someone who isn’t your employee,
You made a payment for services in the course of your trade or business,
You made a payment to an individual, partnership, estate, or, in some cases, a corporation, and
You made a payment of at least $600 to a recipient during the year.

Note: When the IRS requires you to “furnish” a statement to a recipient, it can be done in person, electronically or by first-class mail to the recipient’s last known address. If forms are mailed, they must be postmarked by January 31.

Your business may also have to furnish a Form 1099-MISC to each person to whom you made certain payments for rent, medical expenses, prizes and awards, attorney’s services, and more. The deadline for furnishing Forms 1099-MISC to recipients is January 31 but the deadline for submitting them to the IRS depends on the method of filing. If they’re being filed on paper, the deadline is February 28. If filing them electronically, the deadline is March 31.

Act fast

If you have questions about filing Form W-2, Form 1099-NEC or any tax forms, contact us. We can assist you in complying with all the rules.

Running a small business often requires periodic cash infusions, and knowing how to secure the right funding can determine whether your business succeeds or struggles. Let’s explore the three primary types of funding available to small businesses: debt, equity and hybrid financing.

Debt: Borrowing to grow

Debt financing involves borrowing money and repaying it with interest over time. This category includes traditional bank loans, such as term loans, lines of credit and Small Business Administration loans.

One key advantage of debt financing is that you maintain ownership of your business. However, loan payments can strain cash flow, and lenders often require collateral. If you fail to make payments, creditors can claim ownership of the collateral and, in some cases, sue your business or the owner(s) personally for repayment.

Debt financing works best for businesses with steady revenue streams to ensure timely payments. By retaining ownership, you preserve control over decision-making, but it’s critical to evaluate whether your cash flow can sustain regular loan payments.

Equity: Trading ownership for capital

Equity financing involves selling part of your business to investors in exchange for funding. Common sources include:

Angel investors,
Venture capital firms, and
Crowdfunding platforms.

Unlike debt, equity financing doesn’t require repayment. But you relinquish some ownership and possibly a portion of future profits.

This approach may benefit start-ups or high-growth companies that can’t qualify for traditional loans due to a lack of profitability or solid credit history. While equity investors can provide valuable expertise and connections, you’ll need to weigh the trade-off of shared decision-making and reduced control over your business.

Hybrid financing: Combining debt and equity

Hybrid financing blends elements of debt and equity. Examples include convertible notes (debt that can convert into equity under specific conditions) and revenue-based financing (where repayment is tied to a percentage of your future revenue). These options are often more flexible, aligning payment terms with business performance.

Hybrid financing is ideal for business owners seeking customized funding solutions. It allows you to leverage the benefits of debt and equity. However, the terms can be complex and require careful negotiation.

Financial statements matter

Accurate financial statements are essential to securing funding. Lenders and investors will require a detailed financial package that includes the following three reports:

Income statements to highlight revenue, costs and profits,
Balance sheets to summarize assets and liabilities, and
Statements of cash flows to show how money moves through your business.

In addition, lenders or investors may ask for supporting reports, such as accounts receivable aging, breakdowns of major expense categories, and information about owners and key employees. These documents provide insight into your business’s financial health and operations, helping potential funders assess the risks and potential rewards of their investment.

Most lenders and investors require at least two to three years of historical financial data and projections for the next two to three years. These reports should tell a clear, compelling story about your business’s financial stability and growth potential.

What’s right for your business?

Selecting the right financing option depends on your business model, growth stage, long-term goals and risk tolerance. As your business’s needs evolve, it may use a combination of debt, equity and hybrid financing. We can help you maintain accurate financial records and understand the pros and cons of each option. Contact us to help you make informed decisions to fund your business’s growth.

Qualified employer-sponsored retirement plans have become a fundamental fringe benefit for many employers today. However, if your organization sponsors one, you know how complex administration and compliance can be. It’s not uncommon for plan sponsors (such as employers) or administrators to make mistakes.

In 2002, the U.S. Department of Labor (DOL) introduced the Voluntary Fiduciary Correction Program (VFCP). It allows plan sponsors and administrators to voluntarily correct violations of the Employee Retirement Income Security Act (ERISA) and Internal Revenue Code committed under qualified plans, including 401(k)s and pensions. On January 14, the DOL’s Employee Benefits Security Administration (EBSA), which runs the VFCP, announced an important update.

Program mechanics

Historically, the VFCP has enabled plan sponsors and administrators to correct eligible transactions within 19 categories. Examples include:

Participant loans that fail to comply with plan provisions for amount, duration or level amortization,
Purchase or sale of assets from or to parties in interest,
Sale and leaseback of property to sponsoring employers,
Purchase or sale of assets from or to nonparties in interest at more or less than fair market value,
Payment of duplicate, excessive or unnecessary compensation, and
Improper payment of expenses by the plan.

To correct these violations, the program requires applicants to follow a series of steps. First, plan sponsors or administrators must identify ERISA violations and determine whether they fall within VFCP-covered transactions. Second, sponsors or administrators need to obtain a qualified valuation of plan assets.

Third, applicants must calculate and restore any losses or profits with interest, if applicable, and distribute any supplemental benefits to participants. They also need to pay all expenses incurred for correcting erroneous transactions, such as appraisal costs and fees for recalculating participants’ balances.

Finally, plan sponsors or administrators must file an application with the appropriate EBSA regional office that includes documentation showing evidence of the corrective action taken. If plan corrections satisfy the VFCP’s terms, the EBSA will issue a “no action” letter. This essentially means that the agency accepts the correction and won’t impose any further sanctions.

Self-correct tool

This year’s update to the VFCP introduces what the EBSA calls the “Self-Correction Component” (SCC). It’s essentially a tool that allows plan sponsors or administrators to fix certain transactions without going through the traditional VFCP application process. Instead, self-correctors can submit an SCC Notice through the EBSA’s web tool and provide the required information.

Only two types of transactions are currently eligible for the SCC. They are:

Delinquent participant contributions and loan repayments to pension plans, and
Qualifying inadvertent participant loan failures.

An EBSA fact sheet provides further details about each type of transaction. On the fact sheet, the agency also notes that it has made several other improvements to the VFCP. For example, additional correction options will soon be available for prohibited loan transactions and prohibited purchase and sale transactions involving plans. As of this writing, the effective date for all the EBSA’s 2025 VFCP revisions — including the SCC — is March 17, 2025.

Complexity and challenges

The forthcoming addition of the SCC represents an important, if incremental, improvement to the VFCP. It also highlights the complexity of offering a qualified retirement plan and the challenges of complying with ERISA and the Internal Revenue Code. Contact us for help identifying and assessing the costs, risks and potential upsides of any fringe benefits you’re administering or considering.

From the moment they launch their companies, business owners are urged to use key performance indicators (KPIs) to monitor performance. And for good reason: When you drive a car, you’ve got to keep an eye on the gauges to keep from going too fast and know when it’s time to service the vehicle. The same logic applies to running a business.

As you may have noticed, however, there are many KPIs to choose from. Perhaps you’ve tried tracking some for a while and others after that, only to become overwhelmed by too much information. Sometimes it helps to back up and review the general concept of KPIs so you can revisit which ones are likely best for your business.

Financial metrics

One way to make choosing KPIs easier is to separate them into two broad categories: financial and nonfinancial. Starting with the former, you can subdivide financial metrics into smaller buckets based on strategic objectives. Examples include:

Growth. Like most business owners, you’re probably looking to grow your company over time. However, if not carefully planned for and tightly controlled, growth can land a company in hot water or even put it out of business. So, to manage growth, you may want to monitor basic KPIs such as:

Debt to equity: total debt / shareholders’ equity, and
Debt to tangible net worth: total debt / net worth – intangible assets.

Cash flow management. Maintaining or, better yet, strengthening cash flow is certainly a good aspiration for any company. Poor cash flow — not slow sales or lagging profits — often leads businesses into crises. To help keep the dollars moving, you may want to keep a close eye on:

Current ratio: current assets / current liabilities, and
Days sales outstanding: accounts receivable / credit sales × number of days.

Inventory optimization. If your company maintains inventory, you’ll no doubt want to set annual, semiannual or quarterly objectives for how to best move items on and off your shelves. Many businesses waste money by allowing slow-moving inventory to sit idle for too long. To optimize inventory management, consider KPIs such as:

Inventory turnover: cost of goods sold / average inventory, and
Average days to sell inventory: average inventory / cost of goods sold × number of days in period.

Nonfinancial metrics

Not every KPI you track needs to relate to dollars and cents. Companies often use nonfinancial KPIs to set goals, track progress and determine incentives in areas such as customer service, sales, marketing and production. Here are two examples:

Let’s say you decide to set a goal to resolve customer complaints faster. To determine where you stand, you could calculate average resolution time. This KPI is usually expressed as total time to resolve all complaints divided by number of complaints resolved. In many industries, a common benchmark is 24 to 48 hours.
Perhaps you want to increase the number of sales leads you close. In this case, the KPI could be sales close rate, which is typically calculated by dividing number of closed deals by number of sales leads. Benchmarks for this metric vary by industry, but somewhere around 20% is generally considered good.

Nonfinancial KPIs enable you to do more than just say, “Let’s provide better customer service!” or “Let’s close more sales!” They allow you to assign specific data points to business activities, so you can objectively determine whether you’re getting better at them.

Scalable measurements

The sheer number of KPIs — both financial and nonfinancial — will probably only grow. The good news is, you’ve got time. Choose a handful that make the most sense for your company and track them over a substantial period. Then, make adjustments based on the level of insight they provide.

You can also scale up how many metrics you track as your business grows or scale them down if you’re pumping the brakes. Our firm can help you identify the optimal KPIs for your company right now and integrate new ones in the months or years ahead.

The nationwide price of gas is slightly higher than it was a year ago and the 2025 optional standard mileage rate used to calculate the deductible cost of operating an automobile for business has also gone up. The IRS recently announced that the 2025 cents-per-mile rate for the business use of a car, van, pickup or panel truck is 70 cents. In 2024, the business cents-per-mile rate was 67 cents per mile. This rate applies to gasoline and diesel-powered vehicles as well as electric and hybrid-electric vehicles.

The process of calculating rates

The 3-cent increase from the 2024 rate goes along with the recent price of gas. On January 17, 2025, the national average price of a gallon of regular gas was $3.11, compared with $3.08 a year earlier, according to AAA Fuel Prices. However, the standard mileage rate is calculated based on all the costs involved in driving a vehicle — not just the price of gas.

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

Standard rate or real expenses

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

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

Using the cents-per-mile rate is also popular with businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles a great deal for business purposes. Why? Under current law, employees can’t deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.

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

When you can’t use the standard rate

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

As you can see, there are many factors to consider in deciding whether to use the standard mileage rate to deduct vehicle expenses. We can help if you have questions about tracking and claiming such expenses in 2025 — or claiming 2024 expenses on your 2024 income tax return.

Financial statements provide insights into a company’s historical performance. But the parties to a merger or acquisition are also interested in assessing the acquisition target’s potential to generate cash flow in the future. That’s where an independent quality of earnings (QOE) report comes into play.

Looking to the future

QOE reports look beyond the quantitative information provided in the financial statements. While these reports may be customized to meet the needs of the party requesting them, they typically analyze the individual components of earnings (that is, revenue and expenses) on a monthly basis.

The goals are twofold. First, QOE reports help buyers and sellers assess whether earnings are sustainable. Second, they may identify potential risks and opportunities, both internal and external, that could affect the ability of the company to operate as a going concern. Examples of issues that a QOE report might uncover include:

Inadequate accounting policies and procedures,
Customer and supplier concentration risks,
Transactions with undisclosed related parties,
Inaccurate period-end adjustments,
Unusual revenue or expense items,
Insufficient loss reserves, and
Overly optimistic prospective financial statements.

QOE analyses can be performed on financial statements that have been prepared in-house, as well as those that have been compiled, reviewed or audited by a CPA firm.

Adjusting EBITDA

The starting point for assessing earnings quality is usually earnings before interest, taxes, depreciation and amortization (EBITDA) for the trailing 12 months. However, EBITDA may need to be adjusted for elements such as:

Nonrecurring items, including a loss from a natural disaster or a gain from an asset sale,
Above- or below-market owners’ compensation,
Discretionary expenses, and
Differences in accounting methods used by the company compared to industry peers.

Benchmarking results

QOE reports typically include detailed ratio and trend analysis to identify unusual activity. Additional procedures can help determine whether changes are positive or negative.

For example, an increase in accounts receivable could result from revenue growth (a positive indicator) or a buildup of uncollectible accounts (a negative indicator). If it’s the former, the gross margin on incremental revenue may be analyzed to determine whether the new business is profitable or whether the revenue growth results from aggressive price cuts.

We can help

Consider obtaining a QOE report from an objective financial professional. It can help the parties focus on financial matters during M&A discussions and add credibility to management’s historical and prospective financial statements. Contact us for more information.

To help you meet important 2025 deadlines, we’re providing this summary of due dates for various tax-related forms, payments and other actions. Please review the calendar and let us know if you have any questions about the deadlines or would like assistance meeting them.

January 31

Businesses: Provide Form 1098, Form 1099-MISC (except for those with a February 18 deadline), Form 1099-NEC and Form W-2G to recipients.

Employers: Provide 2024 Form W-2 to employees.

Employers: Report Social Security and Medicare taxes and income tax withholding for fourth quarter 2024 (Form 941) if all associated taxes due weren’t deposited on time and in full.

Employers: File a 2024 return for federal unemployment taxes (Form 940) and pay tax due if all associated taxes due weren’t deposited on time and in full.

Employers: File 2024 Form W-2 (Copy A) and transmittal Form W-3 with the Social Security Administration.

Individuals: File a 2024 income tax return (Form 1040 or Form 1040-SR) and pay any tax due to avoid penalties for underpaying the January 15 installment of estimated taxes.

February 10

Employers: Report Social Security and Medicare taxes and income tax withholding for fourth quarter 2024 (Form 941) if all associated taxes due were deposited on time and in full.

Employers: File a 2024 return for federal unemployment taxes (Form 940) if all associated taxes due were deposited on time and in full.

Individuals: Report January tip income of $20 or more to employers (Form 4070).

February 18

Businesses: Provide Form 1099-B, 1099-S and certain Forms 1099-MISC (those in which payments in Box 8 or Box 10 are being reported) to recipients.

Employers: Deposit Social Security, Medicare and withheld income taxes for January if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for January if the monthly deposit rule applies.

Individuals: File a new Form W-4 to continue exemption for another year if you claimed exemption from federal income tax withholding in 2024.

February 28

Businesses: File Form 1098, Form 1099 (other than those with a January 31 deadline), Form W-2G and transmittal Form 1096 for interest, dividends and miscellaneous payments made during 2024. (Electronic filers can defer filing to April 1.)

March 10

Individuals: Report February tip income of $20 or more to employers (Form 4070).

March 17

Calendar-year partnerships: File a 2024 income tax return (Form 1065 or Form 1065-B) and provide each partner with a copy of Schedule K-1 (Form 1065) or a substitute Schedule K-1 — or request an automatic six-month extension (Form 7004).

Calendar-year S corporations: File a 2024 income tax return (Form 1120-S) and provide each shareholder with a copy of Schedule K-1 (Form 1120-S) or a substitute Schedule K-1 — or file for an automatic six-month extension (Form 7004). Pay any tax due.

Employers: Deposit Social Security, Medicare and withheld income taxes for February if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for February if the monthly deposit rule applies.

April 1

Employers: Electronically file 2024 Form 1097, Form 1098, Form 1099 (other than those with an earlier deadline) and Form W-2G.

April 10

Individuals: Report March tip income of $20 or more to employers (Form 4070).

April 15

Calendar-year corporations: File a 2024 income tax return (Form 1120) or file for an automatic six-month extension (Form 7004). Pay any tax due.

Calendar-year corporations: Pay the first installment of 2025 estimated income taxes and complete Form 1120-W for the corporation’s records.

Calendar-year trusts and estates: File a 2024 income tax return (Form 1041) or file for an automatic five-and-a-half-month extension (six-month extension for bankruptcy estates) (Form 7004). Pay any tax due.

Employers: Deposit Social Security, Medicare and withheld income taxes for March if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for March if the monthly deposit rule applies.

Household employers: File Schedule H, if wages paid equal $2,700 or more in 2024 and Form 1040 isn’t required to be filed. For those filing Form 1040, Schedule H is to be submitted with the return and is thus extended to the due date of the return.

Individuals: File a 2024 income tax return (Form 1040 or Form 1040-SR) or file for an automatic six-month extension (Form 4868). (Taxpayers who live outside the United States and Puerto Rico or serve in the military outside these two locations are allowed an automatic two-month extension without requesting one.) Pay any tax due.

Individuals: Pay the first installment of 2025 estimated taxes (Form 1040-ES) if not paying income tax through withholding or not paying sufficient income tax through withholding.

Individuals: Make 2024 contributions to a traditional IRA or Roth IRA (even if a 2024 income tax return extension is filed).

Individuals: Make 2024 contributions to a SEP or certain other retirement plans (unless a 2024 income tax return extension is filed).

Individuals: File a 2024 gift tax return (Form 709), if applicable, or file for an automatic six-month extension (Form 8892). Pay any gift tax due. File for an automatic six-month extension (Form 4868) to extend both Form 1040 and Form 709 if no gift tax is due.

April 30

Employers: Report Social Security and Medicare taxes and income tax withholding for first quarter 2025 (Form 941) and pay any tax due if all associated taxes due weren’t deposited on time and in full.

May 12

Employers: Report Social Security and Medicare taxes and income tax withholding for first quarter 2025 (Form 941) if all associated taxes due were deposited on time and in full.

Individuals: Report April tip income of $20 or more to employers (Form 4070).

May 15

Calendar-year exempt organizations: File a 2024 information return (Form 990, Form 990-EZ or Form 990-PF) or file for an automatic six-month extension (Form 8868). Pay any tax due.

Calendar-year small exempt organizations (with gross receipts normally of $50,000 or less): File a 2024 e-Postcard (Form 990-N) if not filing Form 990 or Form 990-EZ.

Employers: Deposit Social Security, Medicare and withheld income taxes for April if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for April if the monthly deposit rule applies.

June 10

Individuals: Report May tip income of $20 or more to employers (Form 4070).

June 16

Calendar-year corporations: Pay the second installment of 2025 estimated income taxes and complete Form 1120-W for the corporation’s records.

Employers: Deposit Social Security, Medicare and withheld income taxes for May if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for May if the monthly deposit rule applies.

Individuals: File a 2024 individual income tax return (Form 1040 or Form 1040-SR) or file for a four-month extension (Form 4868) if you live outside the United States and Puerto Rico or you serve in the military outside those two locations. Pay any tax, interest and penalties due.

Individuals: Pay the second installment of 2025 estimated taxes (Form 1040-ES) if not paying income tax through withholding or not paying sufficient income tax through withholding.

July 10

Individuals: Report June tip income of $20 or more to employers (Form 4070).

July 15

Employers: Deposit Social Security, Medicare and withheld income taxes for June if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for June if the monthly deposit rule applies.

July 31

Employers: Report Social Security and Medicare taxes and income tax withholding for second quarter 2025 (Form 941) and pay any tax due if all associated taxes due weren’t deposited on time and in full.

Employers: File a 2024 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 11

Employers: Report Social Security and Medicare taxes and income tax withholding for second quarter 2025 (Form 941) if all associated taxes due were deposited on time and in full.

Individuals: Report July tip income of $20 or more to employers (Form 4070).

August 15

Employers: Deposit Social Security, Medicare and withheld income taxes for July if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for July if the monthly deposit rule applies.

September 10

Individuals: Report August tip income of $20 or more to employers (Form 4070).

September 15

Calendar-year corporations: Pay the third installment of 2025 estimated income taxes and complete Form 1120-W for the corporation’s records.

Calendar-year partnerships: File a 2024 income tax return (Form 1065 or Form 1065-B) and provide each partner with a copy of Schedule K-1 (Form 1065) or a substitute Schedule K-1 if an automatic six-month extension was filed.

Calendar-year S corporations: File a 2024 income tax return (Form 1120-S) and provide each shareholder with a copy of Schedule K-1 (Form 1120-S) or a substitute Schedule K-1 if an automatic six-month extension was filed. Pay any tax, interest and penalties due.

Calendar-year S corporations: Make contributions for 2024 to certain employer-sponsored retirement plans if an automatic six-month extension was filed.

Employers: Deposit Social Security, Medicare and withheld income taxes for August if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for August if the monthly deposit rule applies.

Individuals: Pay the third installment of 2025 estimated taxes (Form 1040-ES), if not paying income tax through withholding or not paying sufficient income tax through withholding.

September 30

Calendar-year trusts and estates: File a 2024 income tax return (Form 1041) if an automatic five-and-a-half-month extension was filed. Pay any tax, interest and penalties due.

October 10

Individuals: Report September tip income of $20 or more to employers (Form 4070).

October 15

Calendar-year bankruptcy estates: File a 2024 income tax return (Form 1041) if an automatic six-month extension was filed. Pay any tax, interest and penalties due.

Calendar-year C corporations: File a 2024 income tax return (Form 1120) if an automatic six-month extension was filed and pay any tax, interest and penalties due.

Calendar-year C corporations: Make contributions for 2024 to certain employer-sponsored retirement plans if an automatic six-month extension was filed.

Employers: Deposit Social Security, Medicare and withheld income taxes for September if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for September if the monthly deposit rule applies.

Individuals: File a 2024 income tax return (Form 1040 or Form 1040-SR) if an automatic six-month extension was filed (or if an automatic four-month extension was filed by a taxpayer living outside the United States and Puerto Rico). Pay any tax, interest and penalties due.

Individuals: Make contributions for 2024 to certain existing retirement plans or establish and contribute to a SEP for 2024 if an automatic six-month extension was filed.

Individuals: File a 2024 gift tax return (Form 709), if applicable, and pay any tax, interest and penalties due if an automatic six-month extension was filed.

October 31

Employers: Report Social Security and Medicare taxes and income tax withholding for third quarter 2025 (Form 941) and pay any tax due if all associated taxes due weren’t deposited on time and in full.

November 10

Employers: Report Social Security and Medicare taxes and income tax withholding for third quarter 2025 (Form 941) if all associated taxes due were deposited on time and in full.

Individuals: Report October tip income of $20 or more to employers (Form 4070).

November 17

Calendar-year exempt organizations: File a 2024 information return (Form 990, Form 990-EZ or Form 990-PF) if a six-month extension was filed. Pay any tax, interest and penalties due.

Employers: Deposit Social Security, Medicare and withheld income taxes for October if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for October if the monthly deposit rule applies.

December 10

Individuals: Report November tip income of $20 or more to employers (Form 4070).

December 15

Calendar-year corporations: Pay the fourth installment of 2025 estimated income taxes and complete Form 1120-W for the corporation’s records.

Employers: Deposit Social Security, Medicare and withheld income taxes for November if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for November if the monthly deposit rule applies.

Yeo & Yeo is pleased to welcome Nicole Demand, CPA, to the firm as a Manager. She is an experienced auditor who will specialize in serving nonprofit organizations as a member of the firm’s Assurance Service Line.

“We are excited to welcome Nicole to the firm,” says Jamie Rivette, Principal and Assurance Service Line Leader. “We are confident that she will bring valuable insights and leadership to our engagements, and we look forward to the positive impact she will have on our clients and the firm.”

Demand brings more than five years of experience in public accounting, serving construction, manufacturing, nonprofit, and higher education clients. She holds a Bachelor of Professional Accountancy from Saginaw Valley State University, and is a member of the American Institute of Certified Public Accountants and the Michigan Association of Certified Public Accountants. In the community, she serves on the Investment Committee for the Saginaw Community Foundation and is a member of the Saginaw County Young Professionals Network. Demand is based in the firm’s Saginaw office.

“Joining Yeo & Yeo is an exciting opportunity to work with a team that values excellence and client relationships as much as I do. I’m proud to be part of such a respected firm,” Demand said.

Yeo & Yeo is pleased to welcome Matt Black to the firm as a Senior Business Valuation Manager. Black will join the firm’s Valuation, Forensics, and Litigation Support Services Group, which helps clients face complex transactions with knowledge, experience, and confidence.

“Matt has a proven track record of helping businesses navigate valuations, mergers, and acquisitions,” says Principal and Tax & Consulting Service Line Leader David Jewell. “His insights will undoubtedly enhance the support we provide to our clients.”

Black brings more than 15 years of experience in financial forecasting, capital allocation, and corporate development. His previous roles include serving as a Senior Manager at KPMG, one of the four largest accounting firms in the nation. As a member of the Tax & Consulting Service Line, Black will specialize in business valuation, litigation support services, consulting, and mergers and acquisitions for privately owned businesses.

Black is a member of the American Society of Appraisers and holds a Bachelor of Arts in Finance from Michigan State University. In the community, he volunteers for Special Olympics Michigan and previously served on the organization’s board. He is also actively involved in Make-a-Wish Michigan.

“I am excited to join Yeo & Yeo and collaborate with such a talented team,” said Black. “I look forward to helping clients uncover opportunities and navigate the complexities of growth and change.”

It’s not uncommon for people who live in states with high income taxes to relocate to states with more favorable tax climates. Did you know that you can use a similar strategy for certain trusts? Indeed, if a trust is subject to high state income tax, you may be able to change its residence — or “situs” — to a state with low or no income taxes.

How different trust types are taxed

The taxation of a trust depends on the trust type. Revocable trusts and irrevocable “grantor” trusts — those over which the grantor retains enough control to be considered the owner for tax purposes — aren’t taxed at the trust level. Instead, trust income is included on the grantor’s tax return and taxed at the grantor’s personal income tax rate.

Irrevocable, nongrantor trusts generally are subject to federal and state tax at the trust level on any undistributed ordinary income or capital gains, often at higher rates than personal income taxes. Income distributed to beneficiaries is deductible by the trust and taxable to beneficiaries.

Therefore, relocating a trust may offer a tax advantage if the trust:

Is an irrevocable, nongrantor trust,
Accumulates (rather than distributes) substantial amounts of ordinary income or capital gains, and
Can be moved to a state with low or no taxes on accumulated trust income.

There may be other advantages to moving a trust. For example, the laws in some states allow you or the trustee to obtain greater protection against creditor claims, reduce the trust’s administrative expenses, or create a “dynasty” trust that lasts for decades or even centuries.

Determining if the trust is movable

For an irrevocable trust, the ability to change its situs depends on several factors, including the language of the trust document (does it authorize a change in situs?) and the laws of the current and destination states. In determining a trust’s state of “residence” for tax purposes, states generally consider one or more of the following factors:

The trust creator’s state of residence or domicile,
The state in which the trust is administered (for example, the state where the trustees reside or where the trust’s records are maintained), and
The state or states in which the trust’s beneficiaries reside.

Some states apply a formula based on these factors to tax a portion of the trust’s income. Also, some states tax all income derived from sources within their borders — such as businesses, real estate or other assets located in the state — even if a trust in another state owns those assets.

Depending on state law and the language of the trust document, moving a trust may involve appointing a replacement trustee in the new state and moving the trust’s assets and records to that state. In some cases, it may be necessary to amend the trust document or to transfer the trust’s assets to a new trust in the destination state. A situs change may also require the consent of the trust’s beneficiaries or court approval.

For tax purposes, a final return should be filed in the current jurisdiction. The return should explain the reasons why the trust is no longer taxable in that state. Before taking action, discuss with us the pros and cons of moving your trust. We can help you determine whether it’s worth your while.

The Cannabis Regulatory Agency (CRA) has released important information regarding Annual Financial Statement (AFS) requirements for medical facilities and adult-use establishments in Michigan for Fiscal Year 2025 (FY25). This update outlines key points that cannabis business owners and operators should know to ensure compliance with state regulations.

AFS Report Details

The AFS report for FY25 must cover all medical facility licenses and adult-use establishment licenses held by the licensee during the reporting period. Key aspects of the report include:

An agreed-upon procedures engagement conducted by an independent Certified Public Accountant (CPA)
The CPA must be licensed or authorized to practice in Michigan
The report must be performed in accordance with statements on standards for attestation engagements
Findings must be communicated using the official AFS report form provided by the CRA
The report must be submitted as an Excel document

CPA Requirements and Submission Process

CPA Qualifications:

The CPA and CPA firm must be actively licensed and registered in Peer Review before completing the AFS Report
Licensees should verify CPA qualifications before engagement

Submission Process:

The completed AFS report and AFS Contact Authorization Form must be submitted online through the Accela Citizens Access Portal (ACA)
Reports should be submitted well in advance of the due date to allow time for corrections if needed
Incomplete reports will be returned and may not be considered as filed by the due date

Important Dates and Notifications

Licensees can verify their next AFS due date online through ACA. The CRA will send email reminders from CRA-AFS@michigan.gov six months before the required AFS report is due. These notices will specify the following:

The due date
Reporting period
Licenses to be included in the AFS report

Exemptions and Additional Information

Certain licenses are exempt from FY25 reporting requirements, including:

Marijuana event organizer licenses
Designated consumption establishment licenses
Marijuana educational research licenses

For more information on AFS requirements, refer to MCL 333.27701 and Michigan Admin Code, R 420.20. Questions can be directed to CRA-AFS@michigan.gov or by calling 517-284-8599.

By staying informed and compliant with these AFS requirements, cannabis businesses in Michigan can ensure they meet their financial reporting obligations and maintain good standing with the Cannabis Regulatory Agency.

Assistance for Your AFS Reporting Needs

Yeo & Yeo is proud to meet all the requirements set by the CRA for performing AFS reports. Our firm possesses extensive industry knowledge and specialized expertise in CRA requirements, making us an ideal partner for your cannabis business’s financial reporting needs. If you have received a notice announcing your required AFS, we encourage you to contact us. Our experienced cannabis CPAs and advisors are ready to assist you in navigating the complexities of AFS reporting and ensuring full compliance with CRA regulations.

New and used “heavy” SUVs, pickups and vans placed in service in 2025 are potentially eligible for big first-year depreciation write-offs. One requirement is you must use the vehicle more than 50% for business. If your business usage is between 51% and 99%, you may be able to deduct that percentage of the cost in the first year. The write-off will reduce your federal income tax bill and your self-employment tax bill, if applicable. You might get a state tax income deduction too.

Setting up a business office in your home for this year can also help you collect tax savings. Here’s what you need to know about the benefits of combining these two tax breaks.

First, buy a suitably heavy vehicle

The generous first-year depreciation deal is only available for an SUV, pickup, or van with a manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds that’s purchased (not leased). First-year depreciation deductions for lighter vehicles are subject to smaller depreciation limits of up to $20,400 in 2024. (The 2025 amount hasn’t come out yet.)

It’s not hard to find attractive vehicles with GVWRs above the 6,000-pound threshold. Examples include the Cadillac Escalade, Jeep Grand Cherokee, Chevy Tahoe, Ford Explorer, Lincoln Navigator, and many full-size pickups. You can usually find the GVWR on a label on the inside edge of the driver’s side door.

Take advantage of generous depreciation deductions

Favorable depreciation rules apply to heavy SUVs, pickups and vans that are used over 50% for business because they’re classified as transportation equipment for federal income tax purposes. Three factors to keep in mind:

First-year Section 179 deductions. Many businesses can write off most or all of the business-use portion of a heavy vehicle’s cost in year 1 under the Section 179 deduction privilege. The maximum Sec. 179 deduction for tax years beginning in 2024 is $1.25 million.
Limited Sec. 179 deductions for heavy SUVs. There’s a limit on Sec. 179 deductions for heavy SUVs with GVWRs between 6,001 and 14,000 pounds. For tax years beginning in 2025, the limit is $31,300.
First-year bonus depreciation. For heavy vehicles placed in service in 2025, the first-year bonus depreciation percentage is currently 40%, but future legislation may allow a bigger write-off. There are several limitations on Sec. 179 deductions but no limits on 40% bonus depreciation. So, bonus depreciation can help offset the impact of Sec. 179 limitations, if applicable.

Then, qualify for home office deductions

Again, the favorable first-year depreciation rules are only allowed if you use your heavy SUV, pickup, or van over 50% for business.

You’re much more likely to pass the over-50% test if you have an office in your home that qualifies as your principal place of business. Then, all the commuting mileage from your home office to temporary work locations, such as client sites, is considered business mileage. The same is true for mileage between your home office and any other regular place of business, such as another office you keep. This is also the case for mileage between your other regular place of business and temporary work locations.

Bottom line: When your home office qualifies as a principal place of business, you can easily rack up plenty of business miles. That makes passing the over-50%-business-use test for your heavy vehicle much easier.

How do you make your home office your principal place of business? The first way is to conduct most of your income-earning activities there. The second way is to conduct administrative and management chores there. But don’t make substantial use of any other fixed location (like another office) for these chores.

Key points: You must use the home office space regularly and exclusively for business throughout the year. Also, if you’re employed by your own corporation (as opposed to being self-employed), you can’t deduct home office expenses under the current federal income tax rules.

Double tax break

You can potentially claim generous first-year depreciation deductions for heavy business vehicles and also claim home office deductions. The combination can result in major tax savings. Contact us if you have questions or want more information about this strategy.

Whether you’re an entrepreneur seeking start-up funds or the owner of an established business that needs capital to make an acquisition or develop new product lines, be careful when looking for a lender. To avoid fraudsters and potentially dire consequences, you need to take your time and carefully screen anyone eager to lend you money. After all, there must be something in it for them. Ensure that those motivations are honest.

Signs signifying trouble

Predatory lenders often offer loans with punitive terms and conditions and nonrefundable upfront fees. They especially target businesses with a checkered history or inadequate collateral because they know such borrowers have fewer options and may be more willing to compromise. To tempt borrowers, bad actors might advertise a quick closing or a willingness to skip due diligence.

Another red flag is when a lender demands an upfront loan application fee. Some false lenders don’t actually make money from issuing loans, but by charging fees for loans they never intend to make. These “lenders” may claim they’ll refund your application fee and then disappear. And don’t assume you can use a credit card and simply contest an application fee charge if the lender proves to be illegitimate. That approach may work in certain situations. However, sophisticated fraudsters can dissolve their business once the volume of disputes becomes significant and they start attracting attention. At that point, you may be out of luck.

Best practices

Even if your business is small or has a history of financial distress, don’t act out of desperation. The wrong loan can be fatal to your company. Instead, contact a range of reputable lenders — national names, midsized institutions and community banks — to assess their interest. Even if a bank turns you down, the loan officer may be willing to explain why you didn’t qualify and provide tips for strengthening your application.

In addition, your professional advisors or fellow business owners may be able to make referrals and introductions. And if you haven’t already done so, ask about a loan from the bank where your business holds deposit accounts. Every bank has its own underwriting guidelines, but you’re more likely to hear “yes” and get a decent rate and terms if you’re a long-time customer with a good track record.

On the other hand, skeptically view unsolicited loan offers via phone, email or text. Many people behind these messages aren’t lenders but identity thieves hoping to trick you into giving them personal and financial information. And if you vet lenders online, be wary. Some business rating sites allow companies to pay for endorsements or request the removal of negative reviews. Reviewing multiple rating sites to get a broader view of a lender’s business practices is more likely to provide you with accurate information.

Before choosing equity

Broadcasting your intention to borrow might attract lenders — as well as potential investors. But before you change course and agree to equity financing, talk to us about the possible financial ramifications for your company. You’ll also need to conduct background checks on the principals and meet face-to-face to discuss their motivations, management approach and industry experience. Your attorney should review any legal paperwork before you sign it. Contact us for more information and financial advice.

Auditing standards require auditors to identify and assess the risks of material misstatement due to fraud and to determine overall and specific responses to those risks. Here are some answers to questions about what auditors assess when interviewing company personnel to evaluate potential fraud risks.

What’s on your auditor’s radar?

When planning audit fieldwork, your audit team meets to brainstorm potential company- and industry-specific risks and outline specific areas of inquiry and high-risk accounts. This sets the stage for inquiries during audit fieldwork. Entities being audited sometimes feel fraud-related questions are probing and invasive, but interviews must be conducted for every audit. Auditors can’t just assume that fraud risks are the same as those that existed in the previous accounting period.

Specific areas of inquiry under Clarified Statement on Auditing Standards Section 240, Consideration of Fraud in a Financial Statement Audit, include:

Whether management has knowledge of any actual, suspected or alleged fraud,
Management’s process for identifying, responding to and monitoring the fraud risks in the entity,
The nature, extent and frequency of management’s assessment of fraud risks and the results of those assessments,
Any specific fraud risks that management has identified or that have been brought to its attention,
The classes of transactions, account balances or disclosures for which a fraud risk is likely to exist, and
Management’s communications, if any, to those charged with governance about its process for identifying and responding to fraud risks, and to employees on its views on appropriate business practices and ethical behavior.

Fraud-related inquiries may also be made of those charged with governance, internal auditors and others within the entity. Examples of other people that an auditor might ask about fraud risks include the chief ethics officer, in-house legal counsel, and employees involved in processing complex or unusual transactions.

Why are face-to-face meetings essential?

Whenever possible, auditors meet in person with managers and others to discuss fraud risks. That’s because a large part of uncovering fraud involves picking up on nonverbal clues.

Nuances such as an interviewee’s tone and inflection, speed of response, and body language provide important context to the spoken words. An auditor is also trained to notice signs of stress when an interviewee responds to questions, including long pauses before answering or starting answers over.

In addition, in-person interviews provide an opportunity for immediate follow-up questions. When a face-to-face interview isn’t possible, a videoconference or phone call is the next best option because it provides many of the same advantages as meeting in person.

How can you help the process?

While an external audit doesn’t provide an absolute guarantee against fraud, it’s a popular — and effective — antifraud control. You can facilitate the fraud risk assessment by anticipating the types of questions we’ll ask and the types of audit evidence we’ll need. Forthcoming, prompt responses help keep your audit on schedule and minimize unnecessary delays. Contact us for more information before audit fieldwork begins.

It’s often said that a paycheck isn’t the only reason an employee stays at a job, and there’s certainly evidence to support this. However, let’s be honest: People generally go to work to earn money, and compensation is undoubtedly a significant factor in maintaining their loyalty.

With that in mind, you might think that employers have gotten pretty good at designing, implementing and administering compensation programs that keep employees in the fold. Yet a recent survey indicates otherwise.

Reviewing the survey

In October of last year, global advisor, brokerage and solutions provider WTW released its 2024 Pay Effectiveness and Design Survey. The report’s results were based on the responses of nearly 1,900 companies worldwide, including 332 in the United States.

Of those respondents, only about half stated that they’re effectively fulfilling their compensation programs based on six core objectives:

Driving employee attraction,
2. Driving employee attention,
3. Promoting fair compensation among employees,
4. Promoting competitive compensation compared with other organizations,
5. Aligning pay with their business strategies, and
6. Rewarding employees for current-year performance.

To reinforce the importance of getting a compensation program right, WTW cited its 2024 Global Benefits Attitude Survey in the report, which found that:

48% of respondents said pay was one of the main drivers of retention, and
56% stated they’d consider another job offer for better pay.

The benefits survey results were based on responses from 10,000 U.S. employees of midsize and large private-sector employers.

Reevaluating compensation philosophy

If you’re concerned that your organization’s compensation program may be inadequately supporting employee retention, there are steps you can take. Begin by reevaluating your compensation philosophy.

This is the mindset or framework your organization used to, whether consciously or not, design its compensation program. Ideally, your philosophy should be a carefully considered and formally documented approach that accounts for factors such as:

Aligning compensation with strategic goals,
Staying competitive in your industry’s current job market, and
Promoting pay equity and transparency to the degree your organization deems appropriate.

As you know, the employment landscape has undergone seismic changes over the last five years or so. The pandemic, rising inflation, generational workforce shifts and skilled labor shortages have substantially affected the relationship between employers and employees. You may need to adjust your organization’s compensation philosophy to suit the changed expectations and developing needs of today’s workers.

Adjusting program design

If you decide to make some changes to your compensation philosophy, or even if you don’t, carefully review your compensation program’s design. Look for adjustments you might make that will likely improve employee retention.

Remember that a compensation program is far more than just where you set starting salaries or wages and how you increase them over time. A well-designed program addresses a wide array of elements, including:

Base pay,
Variable pay (such as bonuses and commissions),
Equity compensation (such as stock options),
Fringe benefits,
Position-based pay structures, and
Communication strategies and actions related to compensation.

Be sure your organization has a clear and reasonable rationale for where each element of its compensation program currently stands. You may need to conduct market research and do some external benchmarking to determine just how competitive your program is. And the communications element is huge. In some cases, improving retention could just be a matter of better explaining the total value of compensation for each position.

Rising to the challenge

Precisely how to go about paying employees is one of the most challenging aspects of being an employer. And the complexity of compensation tends to increase as organizations grow. Contact us for help evaluating and improving your compensation philosophy and program.

As 2025 begins and the transition to the new administration in D.C. commences, change is inevitable. This year, new employee benefit plan provisions are taking effect driven by existing laws such as the Employee Retirement Income Security Act of 1974 (ERISA) and the Setting Every Community Up for Retirement Enhancement Act of 2022 (SECURE 2.0). Here, we will review those changes and offer additional insight.

Mandatory automatic enrollment for new plans

SECURE 2.0 established new requirements for new 401(k) and 403(b) plans adopted after December 29, 2022. As of January 1, 2025, employers must automatically enroll eligible employees into these plans with an initial deferral percentage that is between 3% and 10% of compensation. Automatic contributions escalate by at least 1% per year up to a deferral rate of at least 10% but not more than 15% (10% until January 1, 2025). Participants can opt out of automatic enrollment or automatic escalation at any time.

The following may be exempt from the new requirements:

Plans in effect on or before December 29, 2022.
Organizations in existence for less than three years.
Businesses with fewer than 10 employees.
Church and governmental plans.

Catch-up contribution increases

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) first introduced catch-up contribution provisions as a way to help older workers increase retirement savings. Under EGTRRA, plan sponsors could voluntarily amend their plans to allow participants aged 50 and older to contribute additional amounts to their 401(k), 403(b), and 457(b) plans. Prior to December 31, 2024, catch-up contributions to these plans were limited to $7,500, as indexed.

For taxable years beginning after December 31, 2024, those contribution limits change. Participants aged 60 to 63 may make additional contributions of either (i) $11,250 or (ii) 150% of their 2024 contribution limit, as indexed for inflation after 2025.

For SIMPLE IRA plans, before December 31, 2024, participants in SIMPLE IRA plans that allow catch-ups could contribute up to $3,500, as indexed. In 2025, such contributions rely on the participant’s age (50 to 59, or age 64 or older on December 31, 2025) and the company’s number of employees. Depending on these factors, a participant’s contributions above regular deferrals can total between $3,850 and $5,250.

Coverage of long-term part-time employees

The original SECURE Act required employers to include certain part-time employees in their 401(k) plans. To be eligible, the employee must have worked at least 500 hours per year for at least three consecutive years and must be at least 21 years old as of the end of that three-year period. The employee also would earn vesting credits for all years with at least 500 hours of service.

SECURE 2.0 reduces the three-year period to two years for plan years beginning after December 31, 2024. However, service performed before January 1, 2021, is disregarded for both eligibility and vesting purposes.

Although SECURE 2.0 extends this rule to apply to 403(b) plans that are subject to ERISA, the rule does not apply to union plans or defined benefit plans.

Distributions for certain long-term care premiums

Plan participants may receive distributions of up to $2,500 per year to pay for quality long-term care insurance without triggering the 10% early withdrawal penalty that might otherwise apply. This optional change for plan sponsors becomes effective for distributions made after December 29, 2025.

The lost and found database

Retrieval or management of retirement funds can be complicated when workers move from job to job. To help reunite participants and their missing retirement plans, SECURE 2.0 required the Employee Benefits Security Administration to provide a search tool or database of benefits by December 29, 2024. At this time, participation is voluntary, with some groups expressing concern about the breadth of information initially requested by the Department of Labor to populate the database.

Is your plan ready for 2025?

By staying informed and prepared, plan sponsors can navigate these changes effectively. Plan sponsors should proactively review and adjust their plans accordingly to ensure compliance with these new mandates.

If you have questions about the compliance of your plan or would like more detailed guidance, contact our Employee Benefit Plan Audit team for assistance.

When selling business assets, understanding the tax implications is crucial. One area to focus on is Section 1231 of the Internal Revenue Code, which governs the treatment of gains and losses from the sale or exchange of certain business property.

Business gain and loss tax basics

The federal income tax character of gains and losses from selling business assets can fall into three categories:

Capital gains and losses. These result from selling capital assets which are generally defined as property other than 1) inventory and property primarily held for sale to customers, 2) business receivables, 3) real and depreciable business property including rental real estate, and 4) certain intangible assets such as copyrights, musical works and art works created by the taxpayer. Operating businesses typically don’t own capital assets, but they might from time to time.
Sec. 1231 gains and losses. These result from selling Sec. 1231 assets which generally include 1) business real property (including land) that’s held for more than one year, 2) other depreciable business property that’s held for more than one year, 3) intangible assets that are amortizable and held for more than one year, and 4) certain livestock, timber, coal, domestic iron ore and unharvested crops.
Ordinary gains and losses. These result from selling all assets other than capital assets and Sec. 1231 assets. Other assets include 1) inventory, 2) receivables, and 3) real and depreciable business assets that would be Sec. 1231 assets if held for over one year. Ordinary gains can also result from various recapture provisions, the most common of which is depreciation recapture.

Favorable tax treatment

Gains and losses from selling Sec. 1231 assets receive favorable federal income tax treatment.

Net Sec. 1231 gains. If a taxpayer’s Sec. 1231 gains for the year exceed the Sec. 1231 losses for that year, all the gains and losses are treated as long-term capital gains and losses — assuming the nonrecaptured Sec. 1231 loss rule explained later doesn’t apply.

An individual taxpayer’s net Sec. 1231 gain — including gains passed through from a partnership, LLC, or S corporation — qualifies for the lower long-term capital gain tax rates.

Net Sec. 1231 losses. If a taxpayer’s Sec. 1231 losses for the year exceed the Sec. 1231 gains for that year, all the gains and losses are treated as ordinary gains and losses. That means the net Sec. 1231 loss for the year is fully deductible as an ordinary loss, which is the optimal tax outcome.

Unfavorable nonrecaptured Sec. 1231 loss rule

Now for a warning: Taxpayers must watch out for the nonrecaptured Sec. 1231 loss rule. This provision is intended to prevent taxpayers from manipulating the timing of Sec. 1231 gains and losses in order to receive favorable ordinary loss treatment for a net Sec. 1231 loss, followed by receiving favorable long-term capital gain treatment for a net Sec. 1231 gain recognized in a later year.

The nonrecaptured Sec. 1231 loss for the current tax year equals the total net Sec. 1231 losses that were deducted in the preceding five tax years, reduced by any amounts that have already been recaptured. A nonrecaptured Sec. 1231 loss is recaptured by treating an equal amount of current-year net Sec. 1231 gain as higher-taxed ordinary gain rather than lower-taxed long-term capital gain.

For losses passed through to an individual taxpayer from a partnership, LLC, or S corporation, the nonrecaptured Sec. 1231 loss rule is enforced at the owner level rather than at the entity level.

Tax-smart timing considerations

Because the unfavorable nonrecaptured Sec. 1231 loss rule cannot affect years before the year when a net Sec. 1231 gain is recognized, the tax-smart strategy is to try to recognize net Sec. 1231 gains in years before the years when net Sec. 1231 losses are recognized.

Conclusion

Achieving the best tax treatment for Sec. 1231 gains and losses can be a challenge. We can help you plan the timing of gains and losses for optimal tax results.