To Avoid Confusion After Your Death, Have Only an Original, Signed Will

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

Indeed, a Michigan court recently ruled that a separate, handwritten will dated 2014, found in between couch cushions superseded a different document, dated 2010, that was found around the same time.

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

Living trust vs. a will

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

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

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

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

Reason for an original will

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

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

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

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

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

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

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

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

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

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

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

Steps for Succession Planning

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

Step 1: Identify Key Positions

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

Step 2: Identify Potential Successors

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

Step 3: Develop a Succession Plan

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

Step 4: Communicate and Support the Plan

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

Step 5: Evaluate and Adjust the Plan

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

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

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

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

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

See Something, Say Something

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

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

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

Incident Reporting Is Everyone’s Responsibility

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

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

Incident Reporting and Security Culture

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

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

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

The requirements

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

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

The definition of “cash” and “cash equivalents”

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

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

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

The reasons for reporting

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

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

Forms can be sent electronically

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

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

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

Record retention

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

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

Recognition standard

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

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

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

Audit presumption

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

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

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

We can help

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

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

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

The tax deduction connection

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

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

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

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

Self-certification now allowed

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

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

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

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

A good time for a reminder

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

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

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

Protecting your personal assets

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

Tax issues

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

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

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

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

Consider all angles

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

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

The need for RMD relief

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

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

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

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

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

The IRS response

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

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

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

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

The 10-year rule conundrum

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

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

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

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

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

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

Final regs are pending

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

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

Make a QTIP trust election

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

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

Use a qualified disclaimer

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

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

Take advantage of exemption portability

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

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

Keep on track

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

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

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

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

Potential tax-saving solution

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

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

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

Three-step strategy

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

1. Establish an S corporation

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

2. Sell the land to the S corp

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

3. Develop the property and sell it off

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

Favorable treatment

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

Does your organization offer health care and retirement benefits for its employees? Benefit plans with 100 or more participants are generally required to have their annual reports audited under the Employee Retirement Income Security Act of 1974 (ERISA). Here’s some guidance to help plan administrators fulfill their fiduciary responsibilities for hiring independent qualified public accountants to perform audits.

Assess risks

Under ERISA, plan administrators are responsible for ensuring that benefit plan financial statements follow U.S. Generally Accepted Accounting Principles (GAAP) and are properly audited. Independent audits of plan financial statements help stakeholders assess whether they provide reliable information about the plan’s ability to pay retirement, health and other promised benefits to participants. They also help management evaluate and improve internal controls over the plan’s financial reporting.

Administrators who hire unqualified plan auditors face substantial penalties from the U.S. Department of Labor (DOL). In addition, plan administrators who don’t follow the basic standards of conduct under ERISA and DOL regulations may be personally liable to restore any losses to the plan.

Auditor qualifications

To demonstrate your commitment to quality and due care, it’s important to carefully review auditor qualifications, rather than simply accept the lowest-bid contract offer. Only after the technical evaluation is complete and the qualified respondents have been identified should the administrator review the audit fees quoted by the qualified respondents.

Evaluating auditor qualifications requires consideration of licensing and independence rules. Independent plan auditors don’t have any financial interests in the plan (or the plan administrator) that would affect their ability to render an objective, unbiased opinion about the plan’s financial statements. The DOL doesn’t consider a plan auditor to be independent if the audit firm or any of its employees also maintain the plan’s financial records.

RFP process

The American Institute of Certified Public Accountants (AICPA) provides recommendations on how to put together a comprehensive request for proposal (RFP) that can be used to evaluate bidders. Comprehensive RFPs provide detailed explanations of the audit engagement, including its objectives, scope, special considerations and expected timeline.

Once plan administrators weed out unqualified respondents to their RFPs, they should invite the finalists to present and discuss their proposal letters. It’s important to interview prospective auditors to assess relevant experience and training. Also consider asking prospective auditors to provide a copy of their firms’ latest peer review report. A clean peer review report can provide additional assurance that a firm is applying best practices when auditing benefit plans.

When evaluating potential auditors, discuss the auditor’s work for other benefit plan clients and obtain references. Also review the audit team’s continuing professional education records over the last three years to determine whether they possess recent benefit-plan-specific training.

For more information

Not every CPA is qualified to audit employee benefit plans. These engagements require specialized training and experience. Contact us to find out more about employee benefit plan audits.

In light of this year’s bank failures, it’s important to understand how to safeguard your funds. At Yeo & Yeo, we prioritize your financial security and want to ensure you have a clear understanding of how you can protect your money under the FDIC or SPIC insurance programs. Here are some essential guidelines and strategies to maximize these coverage limits.

The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States government that safeguards bank depositors against losses if an FDIC-insured depository institution fails. Established in 1933 and backed by the full faith and credit of the United States government, the FDIC offers crucial protection. Under this program, your deposits are insured up to $250,000 per depositor, per FDIC-insured bank, and ownership category. Understanding the rules surrounding ownership categories is key to maximizing your coverage.

These ownership categories include single accounts, joint accounts, trust accounts, business accounts, certain retirement and employee benefit accounts, and government accounts. For instance, a married couple can leverage this rule to potentially have FDIC coverage of up to $1 million at one financial institution by maintaining multiple accounts titled correctly. Each spouse can have an account in their name, providing $250,000 coverage for both accounts and totaling $500,000 in coverage. Additionally, the couple can open a joint account at the same bank, granting them an extra $500,000 of insurance coverage, as each owner is entitled to their own $250,000 limit. It’s important to note that if a single owner has a checking account, savings account, and a CD in the same bank, the total coverage would be limited to $250,000 since the depositor, bank, and ownership categories are identical.

The National Credit Union Administration (NCUA) is the independent agency that administers the National Credit Union Share Insurance Fund (NCUSIF), offering protection for deposits in credit unions similar to the FDIC’s coverage for banks. While the $250,000 limit and rules remain largely the same, the NCUA covers a wide range of accounts at credit unions.

Remember that none of the accounts should have named beneficiaries in the scenario provided. Designating beneficiaries would classify the account as a revocable trust for insurance coverage purposes, potentially altering the insurance limits depending on how the account is titled and the number of beneficiaries named.

The FDIC insures various deposit products, including:

Checking accounts
Savings accounts
Money market deposit accounts
Certificates of deposit (CDs)

It’s crucial to note that the following products are not insured by the FDIC, even if they were acquired from an insured bank:

Stock and bond investments
Mutual funds
Crypto assets
Annuities and life insurance products
Municipal Securities
U.S. Treasury bills, notes, or bonds (though the full faith and credit of the U.S. government backs them)
Safe deposit boxes and their contents

To provide further peace of mind, you should know that you don’t need to apply for or purchase FDIC or NCUA insurance. Coverage is automatic when you open a deposit account at an FDIC-insured bank or an NCUA-covered credit union.

In addition to FDIC and NCUA coverage, the Securities Investor Protection Corporation (SIPC) is a non-government entity that replaces missing stock and other securities in customer accounts held by its members, up to $500,000, including up to $250,000 in cash, in case of a member brokerage or bank brokerage subsidiary failure. However, note that SIPC insurance does not protect against the loss in value of a given investment.

To determine your coverage on a per-bank basis and assess the insured amount of your deposits, you can utilize the FDIC’s Electronic Deposit Insurance Estimator (EDIE), available online. By entering your current account information, you can obtain a comprehensive report outlining your coverage amount and how it is calculated.

For more detailed information, we recommend visiting the FDIC website at www.fdic.gov. If you would like to discuss your personal situation further or have any concerns, please reach out to your dedicated Yeo & Yeo advisor.

When it comes to estate planning, your ultimate goal likely is to provide for your family after your death. To achieve this goal, consider placing assets in an irrevocable trust to protect against creditors and drafting a will to clearly state who gets what.

But estate planning isn’t just about what happens to your assets after you die. It’s also about protecting yourself and your loved ones during your life. In this regard, it’s important to have a plan in place for making critical medical decisions in the event you’re unable to make them yourself. And, as with other aspects of your estate plan, the time to act is now, while you’re healthy. If an illness or injury renders you unconscious or otherwise incapacitated, it’ll be too late.

2 documents, 2 purposes

To ensure that your health care wishes are carried out, and that your family is spared the burden of guessing — or arguing over — what you would decide, put those wishes in writing. Generally, that means executing two documents: a living will and a health care power of attorney (HCPA).

Unfortunately, these documents are known by many different names, which can lead to confusion. Living wills are sometimes called “advance directives,” “health care directives” or “directives to physicians.” And HCPAs may also be known as “durable medical powers of attorney,” “durable powers of attorney for health care” or “health care proxies.” In some states, “advance directive” refers to a single document that contains both a living will and an HCPA.

For the sake of convenience, we’ll use the terms “living will” and “HCPA.” Regardless of terminology, these documents serve two important purposes: 1) to guide health care providers in the event you become terminally ill or permanently unconscious, and 2) to appoint someone you trust to make medical decisions on your behalf.

Living will

A living will expresses your preferences for the use of life-sustaining medical procedures, such as artificial feeding and breathing, surgery, invasive diagnostic tests, and pain medication. It also specifies the situations in which these procedures should be used or withheld.

Living wills often contain a do not resuscitate order, which instructs medical personnel to not perform CPR in the event of cardiac arrest.

HCPA

An HCPA authorizes a surrogate — your spouse, child or another trusted representative — to make medical decisions or consent to medical treatment on your behalf when you’re unable to do so. It’s broader than a living will, which generally is limited to end-of-life situations, although there may be some overlap.

An HCPA might authorize your surrogate to make medical decisions that don’t conflict with your living will, including consenting to medical treatment, placing you in a nursing home or other facility, or even implementing or discontinuing life-prolonging measures.

Put your plan into action

No matter how carefully you plan, living wills and HCPAs are effective only if your documents are readily accessible and health care providers honor them. Store your documents in a safe place that’s always accessible and be sure your loved ones know where they are. Also, keep in mind that health care providers may be reluctant to honor documents that are several years old, so it’s a good idea to sign new ones periodically. Contact us with questions.

“It’s in the pipeline!” Business owners often hear this rather vague phrase, which may be good news in some cases or code for “don’t hold your breath” in others.

Your sales pipeline, however, is a very real thing. Simply defined, it identifies and quantifies the prospective deals in progress at various stages of the sales process. Properly managing your pipeline can help your business avoid losses and meet or even exceed its revenue goals.

6 commonly held stages

Many people confuse the sales pipeline with a sales funnel, but these are two separate concepts. A sales funnel is a visual representation of the sales process from the buyer’s perspective. It typically begins with someone becoming aware of a product or service and then moving on to interest, decision and finally action.

The sales pipeline also has several commonly held stages, but they’re a bit different. Most models identify them as:

Lead generation,
Lead qualification,
Engagement with the lead,
Relationship building,
Deal negotiation, and
Closing.

As you might suspect, volumes could be written and discussed about each stage of the pipeline. Suffice to say that effective sales pipeline management entails knowing precisely where each prospective deal lies among these six stages. Then you must push those deals, with appropriate pressure, through closing to become sales wins.

From data to done deal

Like so many other things, sales pipeline management in today’s business environment is data driven. Succeeding at this task generally begins with identifying, calculating and tracking the metrics that provide the best insights into how to efficiently and effectively run your pipeline. These may differ somewhat depending on your mission and customer base, but common ones include:

Average deal size (the sum of total revenue achieved in a given period divided by the number of sales wins for the same period),
Sales win rates (the total number of sales opportunities created in a given period divided by the number of sales wins in the same period),
Number of deals in the pipeline (simply the number of vetted, bona fide leads in the pipeline), and
Sales pipeline value (the total estimated value of all active, viable opportunities currently in the pipeline).

The purpose of these and the many other pipeline-related metrics isn’t to create data in a vacuum. Your objective is to channel this raw data into accurate sales forecasts that enable you to discern which customers and prospects offer the highest likelihood of success. From there, your sales team can devise broad strategies and specific tactics to move deals through the pipeline as quickly as possible.

And while your salespeople are out on the front lines doing their thing, management and company leadership need to be able to keep a close eye on progress. For this purpose, many businesses invest in software that provides real-time info and “dashboard” visuals. Dedicated sales pipeline management software is available. However, if you already have a customer relationship management system, it may offer suitable functionality.

Optimize, optimize, optimize

Your ultimate objective in sales pipeline management is optimization. By mindfully building, vigilantly monitoring and constantly improving your pipeline, you’ll improve the odds that your sales team will meet its goals and, in turn, your company will achieve its profitability objectives. Contact us for help reviewing your sales numbers, choosing the right pipeline-related metrics and analyzing the data involved.

Zoey Provenzano, CPA, was recently promoted to Manager. Let’s learn about Zoey and her perspective on her career, giving back to the community, and what it takes to be successful.

What are your roles in the firm?

As a member of the Consulting Service Line, I have many different roles in the firm, working with businesses, conducting compilations and reviews, and helping with tax returns. I work with a lot of nonprofit and construction clients and also do specialized work with ESOPs and payroll tax returns. I am also a QuickBooks Online and Desktop ProAdvisor, and I train clients and staff as needed on those programs.

Describe your career path.

During my time at the University of Michigan, I did two internships with PwC in Grand Rapids. After graduating with a bachelor’s and master’s, I spent the summer during the pandemic studying and taking the CPA exams. Shortly after, I joined PwC full-time as an auditor, but I wanted to expand my impact to multiple clients and businesses. That’s when I found Yeo & Yeo. In September 2021, I joined the firm’s Consulting Service Line, and I have enjoyed the variety of projects and working with different clients every day.

Are there any causes or charitable organizations you are passionate about and actively support? Why are they important to you?

I enjoy being involved in the Midland community. My mom is the conductor of the Midland Community Orchestra, which provides free concerts, and I regularly volunteer and give back to the group. I also serve on the board of Midland Recyclers because I value sustainability and creating a healthier planet for future generations.

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

There are a few mottos I live by – be authentically yourself, stay organized, take lots of notes (and reference them later), continuously challenge yourself and keep learning, and stay positive even when there is a lot to do. I am a triplet with two awesome sisters, so I’ve always had some friendly competition my whole life. My siblings have been my biggest supporters and have pushed me to achieve my goals.

What makes being an accountant fun?

You can help your clients be successful in their businesses, which helps our local communities thrive and grow. In addition, you get to meet a lot of great people!

What are your hobbies or interests outside of accounting?

Singing: I have been in choirs throughout middle school, high school, and college. I currently sing in the Chorale at the Midland Center for the Arts. I’ve been able to perform with the Midland Symphony Orchestra for Mozart’s Requiem and with Broadway stars. It is great to be able to sing in my community!
Attending Broadway and Broadway National Tour shows: At this point, I’ve seen 15 different shows and will be adding four more in the upcoming year! My favorites so far are Jersey Boys, Beetlejuice, and Wicked.

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

I read a lot of books, typically nonfiction or biographies. I also do plenty of CPE and stay up on the trends in business by being active on LinkedIn and doing free LinkedIn Learning courses.

Asset misappropriation schemes make up more than half of all occupational fraud schemes, according to the Association of Certified Fraud Examiners. It’s a broad category that includes everything from skimming cash to stealing inventory to paying “ghost” employees. One hotspot for asset misappropriation is the accounts receivables department, where dishonest staffers could potentially divert customer payments for their own use. If you don’t have strong internal controls for receivables, what are you waiting for?

Lapping leads

The most common form of receivables fraud is lapping, where perpetrators apply receipts from one account to cover misappropriations from another. For example, rather than credit Customer A’s account for its payment, a thief may pocket the funds and later post a payment from Customer B to A’s account, Customer C’s payment to B’s account, and so on.

Unethical write-offs and discounts are also popular. Instead of crediting a payment to a customer’s account, fraudsters might pocket the funds and then record a bad debt write-off or discount to the customer. Even though incoming payments are diverted, the customer’s account would reflect the expected current balance.

Investigation and prevention

If receivables fraud is suspected, a forensic expert usually can trace a sample of cash receipts to the sales ledger and deposit slips to find discrepancies in dates, payee names and amounts. An expert also may compare deposit slips against the books and send requests for confirmations to a sample of customers to verify current balances and payment histories. Bad debt write-offs, accounts with unexplained credits, increased customer credit limits and random adjustments to the accounts receivable ledger could also come under scrutiny during a fraud investigation.

But to help prevent receivables fraud from occurring in the first place, businesses should segregate duties. This means that an employee who handles incoming payments from customers should be different from the person who handles invoicing. Also consider assigning a different employee to manage customer complaints because complaints tend to increase if someone is misappropriating receivables. Other helpful controls include mandating vacation time and job rotation for all accounting staffers.

Consider audits

You may also want to consider conducting regular (and surprise) audits of receivables. Not only might audits help catch schemes in progress, but they enable you to test your controls and ensure employees are following them to the letter. Contact us for help.

If you play a major role in a closely held corporation, you may sometimes spend money on corporate expenses personally. These costs may end up being nondeductible both by an officer and the corporation unless the correct steps are taken. This issue is more likely to happen with a financially troubled corporation.

What can’t you deduct?

In general, you can’t deduct an expense you incur on behalf of your corporation, even if it’s a legitimate “trade or business” expense and even if the corporation is financially troubled. This is because a taxpayer can only deduct expenses that are his own. And since your corporation’s legal existence as a separate entity must be respected, the corporation’s costs aren’t yours and thus can’t be deducted even if you pay them.

To make matters worse, the corporation won’t generally be able to deduct them either because it didn’t pay them itself. Accordingly, be advised that it shouldn’t be a practice of your corporation’s officers or major shareholders to cover corporate costs.

What expenses may be deductible?

On the other hand, if a corporate executive incurs costs that relate to an essential part of his or her duties as an executive, they may be deductible as ordinary and necessary expenses related to his or her “trade or business” of being an executive. If you wish to set up an arrangement providing payments to you and safeguarding their deductibility, a provision should be included in your employment contract with the corporation stating the types of expenses which are part of your duties and authorizing you to incur them. For example, you may be authorized to attend out-of-town business conferences on the corporation’s behalf at your personal expense.

What’s the best alternative?

Alternatively, to avoid the complete loss of any deductions by both yourself and the corporation, an arrangement should be in place under which the corporation reimburses you for the expenses you incur. Turn the receipts over to the corporation and use an expense reimbursement claim form or system. This will at least allow the corporation to deduct the amount of the reimbursement.

For many companies, a significant line item on the balance sheet is accounts receivable. But can you take the amount reported at face value, or could there be more to the story? It’s important to dig deeper to understand the quality of accounts receivable. Balances might include stale invoices, bad debts — and even fictitious entries.

Benchmarking receivables

A logical starting point for evaluating the quality of receivables is the days sales outstanding (DSO) ratio. This represents the average number of days you take to collect money after booking sales. It can be computed by dividing the average accounts receivable balance by annual sales and then multiplying the result by 365 days.

Companies that are diligent about managing receivables typically have lower DSO ratios than those that are lax about collections. Companies with relatively high DSO ratios may have accounts of the books that may be overdue by 31 to 90 days — or longer. If more than 20% of receivables are stale, it may indicate lax collection habits, a poor-quality customer base or other serious issues.

The percentage of delinquent accounts is another critical number. You may decide to outsource these accounts to third-party collectors to eliminate the hassles of making collections calls and threatening legal actions to collect what you’re owed.

Diagnosing fraud symptoms

Accounts receivable also may be a convenient place to hide fraud because of the high volume of transactions involved. Warning signs that receivables are being targeted in a fraud scheme include:

An increase in stale receivables,
A higher percentage of write-offs compared to previous periods, and
An increase in receivables as a percentage of sales or total assets.

In addition to creating phony invoices or customers, a dishonest worker may engage in lapping scams. This happens when a receivables clerk assigns payments to incorrect accounts to conceal systematic embezzlement.

Alternatively, a fraudster may send the customer an inflated invoice and then “skim” the difference after applying the legitimate amount to the customer’s account. Using separate employees for invoicing and recording payments helps reduce the likelihood that skimming will occur, unless two or more employees work together to steal from their employer.

Seeking outside help

Like any valuable asset, accounts receivable needs to be managed and safeguarded. Auditors evaluate receivables as part of their standard auditing procedures, including performing ratio analysis, sending confirmation letters and reconciling bank deposits with customer receipts.

Contact us if you have concerns about your company’s receivables trends. In addition to conducting surprise audits, we can customize agreed-upon-procedures engagements or forensic accounting investigations that dig deeper.