When to Use Form 8822-B – Change of Address or Responsible Party

The Internal Revenue Service is reminding nonprofits to complete Form 8822-B, Change of Address or Responsible Party – Business, timely. Many systems for e-filing Form 990 will remind you of this form when you e-file this year. The form is used in two scenarios: 1) a change of address and 2) a change of responsible party. In each case, the information is to be updated with the IRS within 60 days of the change.

Change of address

There are two ways to accomplish a change of address with the IRS, so the applicable way will likely be based on when the change occurs.

If you are filing Form 990, 990-EZ, 990-N, or 990-PF within 60 days of the change of address, you can update the address via the series 990 form and mark the box for change of address; this will fulfill the requirement to update the address with the IRS.
If you are not filing a series 990 form within 60 days of the change of address, Form 8822-B needs to be completed and filed with the IRS to ensure the IRS has the appropriate address for the nonprofit. Simply fill out the type of return it applies to, if the business location is changing, the business name, employer identification number, old mailing address, new mailing address, and new business location.

Change of responsible party

When an Employer Identification Number is originally requested from the IRS, a responsible party from the nonprofit is listed on the request form. When there is a change to that responsible party, the IRS needs to be informed. The responsible party is generally needed when the IRS is dealing with a potential identity theft issue on a return. Forms 990-EZ and 990-PF have no mechanism to report who the responsible party is. Even the 990-N and 990 themselves that ask for the principal officer (which is the responsible party) do not have a mechanism on the form to indicate it is changed; therefore, it does not change the IRS business master file. Form 8822-B must be filed to update the IRS’s records of who the responsible party is.

The responsible party is the person who exercises ultimate effective control over the entity. For nonprofits, this must be an individual, not an entity, and it is generally the same as the principal officer. The principal officer has the ultimate responsibility for implementing the decisions of the organization’s governing body and, therefore, is most likely the equivalent of the president of the board of directors. The AICPA issued an article that indicates in cases where the entity has paid staff, the highest-ranking paid staff, such as the CEO or Executive Director, may meet the definition of responsible party and be included on the form.

When changing the responsible party, the type of return, entity name, entity employer identification number, and responsible party name are required. In addition, the responsible party’s social security number is also required. Because the timing of when the return is due does not align with the series 990 deadlines, there is no easy way for the IRS to see who the responsible party is, so if you are reporting a new responsible party’s name on Form 8822-B, the social security number is necessary. No public record of this form is available, so the social security number will be available only to the IRS.

Requesting CPA assistance

Your CPA will not automatically complete this return as part of the Form 990 series returns. You will need to specifically request this form be filed and provide the information to your CPA.

If your company sells products or services to other businesses, you’re probably familiar with the challenge of growing your sales numbers. At times, you might even struggle to maintain them. One way to put yourself in a better position to succeed is to diversify your approaches, so you’re not limited to a single method by which salespeople interact with customers.

Have you ever considered value-based sales? Under this method, sales reps act as sort of business consultants, working closely with customers or prospects to identify specific needs or solve certain problems. The objective is to provide as much value as possible from the sales that result. This approach has its risks but, under the right circumstances, it can pay off.

What is value?

Before embarking on a value-based sales initiative, you’ll need to identify what kinds of value you may be able to provide. This can’t be a fuzzy concept; sales reps should be able to put dollars and cents to their value-based sales propositions or at least build a compelling case. Value generally takes four forms:

Dollars gained; your product or service will lead to an increase in revenue for the subject based on a reasonable financial projection,
Dollars saved; your product or service will demonstrably save the customer or prospect money,
Risk reduced; your product or service will address and help minimize one or more identifiable threats to the business in question, and
Qualitative; if you can’t make a case for one of the other three value types, you may still be able to argue that your product or service improves the quality of the subject’s operations in some way.

At least one of these four types of value will be the ultimate objective when salespeople engage customers or prospects. However, to identify that objective, your sales team will need to put in considerable effort.

How does the process work?

Perhaps the biggest downside of a value-based sales approach is that it’s labor-intensive. As opposed to, say, making cold calls with a product or service list and a series of talking points, your salespeople will need to do a “deep dive” into targeted businesses. They’ll need to learn details such as each company’s mission, history, management structure, financial status, strengths and weaknesses.

Then, when interacting with customers or prospects, they’ll need to focus on education — both their own and the subject’s. In other words, a sales rep will need to ask the right questions to learn as much as possible about the customer’s or prospect’s business needs and challenges. Meanwhile, the salesperson will need to act much like a consultant, informing the subject about industry trends, potential solutions and perhaps how comparable companies have overcome similar issues.

As you can see, value-based sales is more about relationship building and knowledge sharing than straight selling. Because of this, it can be a gamble. Some sales reps may spend extensive time and effort with a customer or prospect, even helping that business in certain ways, only to reap little to no sales revenue. On the other hand, when the approach works well, your company may be able to build a dynamic, long-lasting relationship with a lucrative customer.

Are there such sales in your pipeline?

If value-based sales sounds like something that could benefit your business, discuss it with your leadership team and sales staff. You’ll likely want to review your sales pipeline and determine which customers or prospects would be good fits for the approach. Contact us for help tracking, organizing and analyzing your sales numbers.

The executor’s role is critical to the administration of your estate and the achievement of your estate planning objectives. So your first instinct may be to name a trusted family member as executor. However, that might not be the best choice.

Duties of an executor

Your executor has a variety of important duties, including:

Arranging for probate of your will (if necessary) and obtaining court approval to administer your estate,
Taking inventory of — and collecting, recovering or maintaining — your assets, including life insurance proceeds and retirement plan benefits,
Obtaining valuations of your assets,
Preparing a schedule of assets and liabilities,
Arranging for the safekeeping of personal property,
Contacting your beneficiaries to advise them of their entitlements under your will,
Paying any debts incurred by you or your estate and handling creditors’ claims,
Defending your will in the event of litigation,
Filing tax returns on behalf of your estate, and
Distributing your assets among your beneficiaries according to the terms of your will.

Family members may lack the skills and time to handle all of these tasks on their own. They’re entitled, of course, to hire accountants, attorneys, financial planners and other advisors — at the estate’s expense — for assistance. But even with professional help, serving as executor is a big job that requires a substantial time commitment during an already stressful period. Plus, if your executor is also a beneficiary of your will, other beneficiaries may view that as a conflict of interest.

Other candidates

So, what are your options? One is to name a trusted advisor, such as an accountant or lawyer, as executor. Another is to appoint an advisor and a family member as co-executors. The advisor would handle most of the executor’s day-to-day responsibilities, while your family member would oversee the process and ensure that the advisor acts in your family’s best interests.

If you have questions about choosing the right executor of your estate, please contact us.

Supply chain disruptions have provided a stark lesson on the weaknesses of traditional budgeting and forecasting methods. Under the best of circumstances, it’s difficult for manufacturers to forecast their performance over the coming year. When market conditions (not to mention economic conditions) are prone to change suddenly and unexpectedly, a traditional static forecast can quickly become obsolete. That’s why many manufacturers are turning to a rolling forecast model.

Static vs. rolling

The problem with static forecasts is that management tends to view them as once-a-year events. After the annual budget is set, managers may not compare actual to forecasted performance until year end. Even if they do recognize midyear that changed conditions have caused the company to fall short of its goals, they may not have the wherewithal to revise the budget.

With a rolling forecast, rather than setting a one-year budget and forgetting about it, management revisits the budget periodically. The review periods can be quarterly or monthly, for example, and certain numbers can be adjusted to reflect changing circumstances.

Rolling benefits

Benefits of rolling forecasts include:

Improved accuracy. By comparing actual to forecasted performance more frequently, and updating the numbers in real time, your forecasts become much more reliable and valuable as a planning tool.

Increased agility. Updating your forecasts regularly allows you to spot trends early and make necessary adjustments for unexpected events or evolving market conditions before it’s too late.

Contingency planning. Some manufacturing processes rely heavily on a particular raw material or component part. Creating “what if” scenarios can allow you to see how a sudden price increase or part shortage might affect your performance. You can then put contingency plans in place to mitigate the impact.

Automate the process

You may be concerned that switching to rolling forecasts will make the budgeting process more costly and time consuming. But once rolling forecast processes are implemented, most manufacturers find that they’re less disruptive than a once-a-year budgeting process. Budgeting and forecasting software is available to automate the processes. Contact us to determine if a rolling forecast is right for your manufacturing business.

Yeo & Yeo, a leading Michigan-based accounting and advisory firm, has been named one of Michigan’s Best and Brightest in Wellness for the tenth consecutive year. The program highlights companies and organizations that promote a culture of wellness, as well as those that plan, implement, and evaluate efforts in employee wellness.

Michigan's Best and Brightest in Wellness 2023 “The Best and Brightest is a powerful community of elite leaders who share ideas and best practices, and have proven they are employers of choice when it comes to wellness and well-being,” said Jennifer Kluge, President and CEO of the Best and Brightest programs.

Wellness at Yeo & Yeo extends beyond health benefits. Highlighting the importance of overall well-being, the firm focuses on supporting its people and creating an environment where they can thrive.

“Investing in the overall health of our employees is something we take pride in,” said Dave Youngstrom, President & CEO of Yeo & Yeo. “At Yeo & Yeo, we believe that a healthy workforce, both physically and mentally, is the foundation for providing exceptional service to our clients. We are honored to receive recognition for our longstanding commitment to our staff’s well-being.”

Yeo & Yeo supports wellness for its employees by paying a large portion of healthcare premiums, helping to keep costs low for employees. The firm has a high percentage of participation in its wellness plan and healthcare premium reduction incentive. The firm offers free health screenings for healthcare participants and flu shots at no cost. An Employee Assistance Program provides confidential guidance and resources to support work‐life balance. The firm also provides a flexible work environment that includes hybrid and remote work capabilities, as well as initiatives like half-day summer Fridays.

Winning companies of Michigan’s 2023 Best and Brightest Companies in Wellness are assessed by an independent research firm, which reviewed several key measures relative to other nationally recognized winners. The categories applicants were scored on included compensation, benefits, and employee solutions; creative wellness and well-being solutions, employee enrichment, engagement, and retention; employee education and development; and recruitment and selection.

Yeo & Yeo and the other winning companies were honored at the Best and Brightest Summit on September 27 and 28.

Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2023. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

Note: Certain tax-filing and tax-payment deadlines may be postponed for taxpayers who reside in or have businesses in federally declared disaster areas.

Monday, October 2

The last day you can initially set up a SIMPLE IRA plan, provided you (or any predecessor employer) didn’t previously maintain a SIMPLE IRA plan. If you’re a new employer that comes into existence after October 1 of the year, you can establish a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence.

Monday, October 16

If a calendar-year C corporation that filed an automatic six-month extension:
- File a 2022 income tax return (Form 1120) and pay any tax, interest and penalties due.
- Make contributions for 2022 to certain employer-sponsored retirement plans.
- Establish and contribute to a SEP for 2022, if an automatic six-month extension was filed.

Tuesday, October 31

Report income tax withholding and FICA taxes for third quarter 2023 (Form 941) and pay any tax due. (See exception below under “November 13.”)

Monday, November 13

Report income tax withholding and FICA taxes for third quarter 2023 (Form 941), if you deposited on time (and in full) all of the associated taxes due.

Friday, December 15

If a calendar-year C corporation, pay the fourth installment of 2023 estimated income taxes.

Contact us if you’d like more information about the filing requirements and to ensure you’re meeting all applicable deadlines.

Yeo & Yeo is pleased to announce that Chris Sheridan, CPA, CVA, has been elected to the Stevens Center for Family Business (SCFB) Executive Council as a sponsor firm representative. This appointment recognizes Chris’s experience as a business advisor and underscores his commitment to advancing the success of family-owned companies.

As part of the Saginaw Valley State University College of Business & Management, the SCFB accomplishes its mission through outreach to family businesses in the Great Lakes Bay Region, academic education about family businesses, and research to expand the body of knowledge about the characteristics and best practices of family businesses. Using national professionals as well as local business leaders, the SCFB provides events, networking opportunities, peer groups, sponsor workshops, and many other activities and resources whereby members can learn about family business best practices. Yeo & Yeo has been involved in the SCFB since its inception, with Lloyd Yeo among the founding board members.

“Being entrusted with the responsibility to carry forward Yeo & Yeo’s legacy of support for family businesses is an honor and a privilege,” said Sheridan. “Throughout my career, I’ve witnessed firsthand the impact that family businesses have on our communities and economy. Joining the Stevens Center for Family Business Executive Council is a remarkable opportunity to contribute to an organization that shares my passion for nurturing these enterprises through generations.”

Sheridan is a senior manager within Yeo & Yeo’s Consulting Service Line. He leads the firm’s Business Valuation and Litigation Support Services Group while also contributing his knowledge as a member of the Manufacturing Services Group. Sheridan’s specialized skills include business valuation and litigation support, serving as an expert witness, providing business consultancy, and fraud investigation and prevention. As a Certified Valuation Analyst (CVA), Sheridan provides attorneys and business owners with defensible and objective business valuation services. Notably, he has been recognized as a “40 Under Forty” honoree by the National Association of Certified Valuators and Analysts / Consultants Training Institute.

Sheridan is a member of the National Association of Certified Valuators and Analysts, the American Institute of Certified Public Accountants, the Michigan Association of Certified Public Accountants’ Manufacturing Task Force, and the Michigan Manufacturers Association. In the community, he serves as a board member for the Great Lakes Bay Economic Club, Bay Future, and the Montessori Children’s House of Bay City.

“Chris possesses a well-established reputation as a respected figure within the business valuation and litigation support sector,” remarked Pete Bender, leader of Yeo & Yeo Wealth Management and a former member of the SCFB Executive Council. “With his capacity for strategic vision and a wealth of advisory background, his commitment to delivering actionable insights and fostering meaningful connections can undoubtedly enrich the Stevens Center’s initiatives.”

In recent years, merger and acquisition activity has been strong in many industries. If your business is considering merging with or acquiring another business, it’s important to understand how the transaction will be taxed under current law.

Stocks vs. assets

From a tax standpoint, a transaction can basically be structured in two ways:

1. Stock (or ownership interest) sale. A buyer can directly purchase a seller’s ownership interest if the target business is operated as a C or S corporation, a partnership, or a limited liability company (LLC) that’s treated as a partnership for tax purposes.

The now-permanent 21% corporate federal income tax rate under the Tax Cuts and Jobs Act (TCJA) makes buying the stock of a C corporation somewhat more attractive. Reasons: The corporation will pay less tax and generate more after-tax income. Plus, any built-in gains from appreciated corporate assets will be taxed at a lower rate when they’re eventually sold.

The TCJA’s reduced individual federal tax rates may also make ownership interests in S corporations, partnerships and LLCs more attractive. Reason: The passed-through income from these entities also will be taxed at lower rates on a buyer’s personal tax return. However, the TCJA’s individual rate cuts are scheduled to expire at the end of 2025, and, depending on future changes in Washington, they could be eliminated earlier or extended.

2. Asset sale. A buyer can also purchase the assets of a business. This may happen if a buyer only wants specific assets or product lines. And it’s the only option if the target business is a sole proprietorship or a single-member LLC that’s treated as a sole proprietorship for tax purposes.

Note: In some circumstances, a corporate stock purchase can be treated as an asset purchase by making a “Section 338 election.” Ask us if this would be beneficial in your situation.

Buyer vs. seller preferences

For several reasons, buyers usually prefer to purchase assets rather than ownership interests. Generally, a buyer’s main objective is to generate enough cash flow from an acquired business to pay any acquisition debt and provide an acceptable return on the investment. Therefore, buyers are concerned about limiting exposure to undisclosed and unknown liabilities and minimizing taxes after the deal closes.

A buyer can step up (increase) the tax basis of purchased assets to reflect the purchase price. Stepped-up basis lowers taxable gains when certain assets, such as receivables and inventory, are sold or converted into cash. It also increases depreciation and amortization deductions for qualifying assets.

Meanwhile, sellers generally prefer stock sales for tax and nontax reasons. One of their main objectives is to minimize the tax bill from a sale. That can usually be achieved by selling their ownership interests in a business (corporate stock, or partnership or LLC interests) as opposed to selling business assets.

With a sale of stock or other ownership interest, liabilities generally transfer to the buyer and any gain on sale is generally treated as lower-taxed long-term capital gain (assuming the ownership interest has been held for more than one year).

Keep in mind that other areas, such as employee benefits, can also cause unexpected tax issues when merging with, or acquiring, a business.

Professional advice is critical

Buying or selling a business may be the most important transaction you make during your lifetime, so it’s important to seek professional tax advice as you negotiate. After a deal is done, it may be too late to get the best tax results. Contact us for the best way to proceed.

On September 6, the Financial Accounting Standards Board (FASB) unanimously voted to finalize new accounting rules on cryptocurrency assets — less than five months after the proposed standard was issued for public comment. Here’s what companies that hold these assets should know.

Need for change

The updated guidance is the first explicit accounting standard on crypto assets in U.S. Generally Accepted Accounting Principles (GAAP). It’s designed to help companies more accurately reflect the economics of such assets. The standard comes at a time of heightened regulatory scrutiny following a series of scandals and bankruptcies in the crypto sector. Volatility in the trillion-dollar crypto sector has caused practitioners to press the FASB to develop accounting rules.

Under current practice, cryptocurrency tokens are accounted for as intangible assets and reported on the balance sheet at historical cost. Those assets are deemed to be impaired when the price falls below historical cost. Impairment is based on the lowest observable value within a given reporting period, causing organizations to continuously monitor the value of these assets. If an asset’s price subsequently recovers, however, impairment losses can never be recovered.

Limited scope

The new standard will apply to well-known crypto assets that trade in active markets, such as Bitcoin and Ethereum. It will also be used for other types of crypto assets that don’t trade nearly as frequently (or perhaps at all). The guidance covers crypto assets that:

Are fungible,
Are deemed to be intangible (which excludes securities and fiat currencies),
Don’t provide the asset holder with enforceable rights to, or claims on, underlying goods, services or other assets,
Are created or reside on a distributed ledger based on technology that’s similar to blockchain technology,
Are secured through cryptography, and
Aren’t created or issued by the reporting entity or its related parties.

The term “fungible” is typically used for commodities or currencies. It refers to an item that can be freely traded or replaced with something of equal value. This condition is specifically designed to exclude non-fungible tokens (NFTs) from the scope of the new rules. In general, financial statement users have told the FASB that they don’t observe companies and nonprofit entities holding material amounts of NFTs, which may come in the form of art, music, in-game items, video clips and more.

Key requirements

The new rules will require crypto assets within the scope of the standard to be measured at fair value at the end of the reporting period. In addition, changes in value recognized in each reporting period will be reported as gains or losses in comprehensive income. Fair value represents the price that will be received if the company were to sell the crypto asset in an orderly transaction to a willing and knowledgeable buyer.

Under the guidance, companies will present crypto assets separately from other intangible assets on the balance sheet because they have different measurement requirements. Crypto assets will be more prominently displayed, providing investors with clear and transparent information about their fair value.

The guidance also calls for detailed disclosures on crypto holdings. For example, disclosures for Bitcoin will include the number of tokens held, the fair value and the cost basis. Organizations also must disclose information about restrictions in crypto holdings, what it would take to lift any restrictions and changes in those holdings.

Coming soon

The final standard will be published in the fourth quarter of 2023. It will go into effect for fiscal years beginning after December 15, 2024, including interim periods within those years, for all entities. Early adoption is permitted. Contact us to help understand how this guidance applies to your organization.

The Internal Revenue Service (IRS) has stopped processing new claims for the Employee Retention Credit (ERC), a pandemic-era tax break for small businesses. The IRS is increasingly alarmed about small business owners being scammed by unscrupulous actors, and growing evidence of questionable ERC claims pouring in. Aggressive marketing to ineligible applicants has created unacceptable risks to businesses and the tax system.

The ERC program will be paused through at least the end of 2023, allowing the IRS to add more safeguards to prevent future abuse and protect businesses from predatory tactics.

Business owners considering applying for the credit should review the ERC guidelines and talk with a trusted tax professional, not a promoter looking to take a large percentage of the refund.

Payouts for existing claims will continue during the moratorium period, but at a slower pace due to stricter compliance reviews. Processing times could be delayed from the standard 90 days to 180 days or longer.

The IRS will provide details later about how a taxpayer can withdraw an ERC claim, an option that will be available to the filers of more than 600,000 claims awaiting IRS review. This withdrawal option will allow the taxpayers to avoid possible repayment issues and keep them from having to pay contingency fees to promoters, the IRS says.

The IRS also is working out details of the settlement initiative that will allow taxpayers to repay a claim that they erroneously received and avoid penalties and future compliance action.

For more information, see the official statement from the IRS.

Please contact your Yeo & Yeo tax professional for guidance on proceeding with ERC claims.

It’s not uncommon for employees to grumble about having to attend too many meetings. Sometimes they have a point; an excessive number of meetings can become a problem at some companies. However, there’s one kind of meeting that business owners and their leadership teams should never scrimp on: strategic planning.

That doesn’t mean you need to have one every week, or even every month. But regularly scheduled strategic planning meetings are critical for establishing, reviewing and, if necessary, adjusting your company’s short- and long-term objectives. Here are four best practices for running effective meetings:

1. Set a focused agenda. Every meeting should have an agenda that’s relevant to strategic planning — and only strategic planning. Allocate an appropriate amount of time for each item so that the meeting is neither too long nor too short.

Before the meeting, distribute a document showing who’ll be presenting on each agenda topic. The idea is to create a “no surprises” atmosphere in which attendees know what to expect and can thereby think about the topics in advance and bring their best ideas and feedback.

2. Lay down rules as necessary. Depending on your company’s culture, you may want to state some upfront rules — either in writing beforehand or by announcement at the beginning of the meeting. Address the importance of timely attendance, professional decorum and constructive criticism. Emphasize that there are no dumb questions or bad ideas.

Every business may not need to do this, but meetings that become hostile or chaotic with personal conflicts or “side chatter” can undermine the efficacy of strategic planning. Also consider whether to identify conflict resolution methods that participants must agree to follow if particularly heated arguments arise.

3. Name (or engage) a facilitator. A facilitator should oversee the meeting. This individual is ultimately responsible for starting and ending on time, transitioning from one agenda item to the next, and enforcing the stated rules. Ideally, a facilitator also needs to be good at motivating participation from everyone and encouraging a positive, productive atmosphere.

If no one at your company feels up to the task, you could engage an outside consultant. Although you’ll need to vet the person carefully and weigh the financial cost, a skilled professional facilitator can make a big difference.

4. Keep minutes. Recording the minutes of every strategic planning meeting is essential. An official record will document what took place and which decisions, if any, were made. It will also serve as a log of potentially valuable ideas or future agenda items.

In addition, accurate meeting minutes curtail miscommunications and prevent memory lapses of what was said and by whom. If no record is kept, people’s memories may differ about the conclusions reached, and disagreements could arise about where your business is striving to go.

In December 2022, President Biden signed the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act. Among other things, the sweeping new law made some significant changes to so-called catch-up contributions, with implications for both employers and employees.

With the new catch-up provisions scheduled to kick in after 2023, many retirement plan sponsors have been struggling to institute the necessary processes and procedures to comply. In recognition of taxpayer concerns, the IRS recently provided some relief in Notice 2023-62. In addition to extending the deadline, the new guidance corrects a technical error in SECURE 2.0 that had left taxpayers and their advisors confused about the continued availability of catch-up contributions for employees.

The new requirements

Tax law allows taxpayers age 50 or older to make catch-up contributions to their 401(k) plans and similar retirement accounts. The permissible amount is adjusted annually for inflation. For 2023, you can contribute an additional $7,500 over the current $22,500 annual 401(k) contribution limit. The contributions are allowed regardless of a taxpayer’s income level.

Under the existing rules, all eligible taxpayers can choose whether to make their contributions on a pre-tax basis or a Roth after-tax basis (assuming the employer allows the Roth option). Section 603 of SECURE 2.0, however, mandates that any catch-up contributions made by higher-income participants in 401(k), 403(b) or 457(b) retirement plans must be designated as after-tax Roth contributions.

Higher-income participants are those whose prior-year Social Security wages exceeded $145,000 (the threshold will be adjusted for inflation going forward). In addition, a plan that allows higher-income participants to make such catch-up contributions also must allow other participants age 50 or older to make their catch-up contributions on an after-tax Roth basis. The law provides that these requirements are effective for tax years beginning after December 31, 2023.

The imminent effective date had plan sponsors and payroll providers worried, due to multiple administrative hurdles. For example, sponsors must develop processes to identify higher-income plan participants — they generally haven’t had the need to calculate employees’ Social Security wages previously — and provide that information to their plan administrators. Sponsors also must institute procedures to restrict catch-up contributions to Roth contributions and communicate the changes to their employees.

The challenges are even greater for employers that don’t already have Roth contribution features in their traditional retirement plans. They have to choose between amending their plans to allow such contributions, which can take months to process and implement, or eliminating the ability to make catch-up contributions for all employees.

The IRS guidance

In Notice 2023-62, the IRS acknowledges the concerns related to the original effective date for the new requirements. In response, it has created an “administrative transition period,” extending the effective date to January 1, 2026. In other words, employers can allow catch-up contributions that aren’t designated as Roth contributions after December 31, 2023, and until January 1, 2026, without violating SECURE 2.0. And plans without Roth features may allow catch-up contributions during this period.

The guidance also addresses a drafting error in SECURE 2.0 that led to some questions about whether the law eliminated the ability of taxpayers to make catch-up contributions after 2023. The IRS made clear that plan participants age 50 or older can continue to make catch-up contributions in 2024 and beyond.

After-tax vs. pre-tax

Unlike pre-tax contributions, after-tax contributions don’t reduce your current-year taxable income, but they grow tax-free. This is a significant advantage if you expect to be subject to a higher income tax rate in retirement than you are at the time of your contributions.

You generally can withdraw “qualified distributions” without paying tax as long as you’ve held the account for at least five years. Qualified distributions are those made:

On account of disability,
On or after death, or
After you reach age 59½.

You may be able to reap other savings from after-tax contributions, as well. For example, lower taxable income in retirement can reduce the amount you must pay for Medicare premiums and the tax rate on your Social Security benefits.

But you could have reasons to reduce your current taxable income with pre-tax contributions. For example, doing so could increase the amount of your Child Tax Credit, which phases out at certain income thresholds, as well as the amount of financial aid your children can obtain for higher education.

Note: Roth 401(k) contributions are currently subject to annual required minimum distributions (RMDs), like traditional 401(k)s. Beginning in 2024, though, designated Roth 401(k) contributions won’t be subject to RMDs until the death of the owner.

Potential future guidance

The IRS also used Notice 2023-62 to preview some additional guidance regarding Section 603 that’s “under consideration.” After taking into account any comments received, the IRS stated it is considering releasing future guidance concerning multi-employer plans and other out-of-the-ordinary situations.

Don’t delay

The IRS’s extension of the effective date for the Section 603 requirements is good news for employers and employees alike. As noted, though, the requisite changes to achieve compliance will take some time and effort to put into place. Plan sponsors would be wise to start sooner rather than later.

The employee stock ownership plan (ESOP) has long shone as a beacon to employers looking to accomplish multiple goals through a benefits arrangement. A properly structured and administered ESOP can boost employee engagement, provide tax benefits and help ownership with succession planning.

However, the rules for setting up and running an ESOP are far from simple. And some employers may be inadvertently or even intentionally abusing those rules to exploit the tax advantages of these plans. Recently, the IRS issued an explicit warning to plan sponsors regarding ESOP compliance issues.

How it works

Under an ESOP, participants invest primarily in their employer’s stock as a way to save for retirement. They also thereby become partial owners of the business or organization itself. To implement an ESOP, the employer establishes a trust fund and either:

Contributes shares of stock or money to buy the stock (an “unleveraged” ESOP), or
Borrows funds to initially buy the stock, and then contributes cash to the plan to enable it to repay the loan (a “leveraged” ESOP).

The shares in the trust are allocated to individual employees’ accounts, often using a formula based on their respective compensation. The employer must formally adopt the plan and submit plan documents to the IRS, along with certain forms.

Tax advantages

Among the biggest benefits of ESOPs is that the IRS considers them “qualified” for tax purposes. Thus, plan contributions are typically tax-deductible for employers. However, employer contributions to all defined contribution plans, including ESOPs, are generally limited to 25% of covered payroll.

However, C corporations with leveraged ESOPs can deduct contributions used to pay interest on the loans. That is, the interest isn’t counted toward the 25% limit. Furthermore, dividends paid on ESOP stock passed through to employees or used to repay an ESOP loan may be tax-deductible for C corporations, so long as they’re reasonable. Dividends voluntarily reinvested by employees in company stock in the ESOP also are usually deductible by the employer.

IRS warning

In a recent news release (IR-2023-144), the IRS warns businesses and tax professionals specifically to watch out for ESOP compliance issues. The tax agency alludes to the problem of the “tax gap” — which is generally defined as the amount of tax revenue the government should receive and the tax revenue it actually does.

“The IRS is now taking swift and aggressive action to close this gap,” IRS Commissioner Danny Werfel states in the news release. “Part of that includes alerting higher-income taxpayers and businesses to compliance issues and aggressive schemes involving complex or questionable transactions, including those involving ESOPs.”

In its current compliance efforts, the tax agency has encountered problems such as:

Valuation issues with employee stock,
Prohibited allocation of shares to disqualified persons, and
Failure to follow tax-law requirements for ESOP loans, which may cause some loans to become prohibited transactions.

In the past, the IRS didn’t always have the budget to investigate these kinds of abuses. However, the Inflation Reduction Act has provided funding so that the tax agency can now pursue wealthy parties that contribute to the tax gap and crack down on the financial tools they misuse — one of which is the ESOP.

A good time

If your organization currently sponsors an ESOP, now may be a good time to review or even audit your plan to ensure it’s not in danger of falling out of compliance with IRS rules. Contact us with questions or for further information.

Granted, a QTIP trust is an odd sounding name for an estate planning technique. Nevertheless, it can be a valuable strategy, especially if you’re currently in a second marriage. The QTIP moniker is an acronym for the technical term of “qualified terminable interest property.” Essentially, the trust provides future security for both a surviving spouse and children from a prior marriage, while retaining estate planning flexibility.

Notably, any federal estate tax due on QTIP trust assets is postponed until the death of the surviving spouse. At that time, his or her gift and estate tax exemption may shelter the remaining trust assets from tax.

A QTIP trust in action

Generally, a QTIP trust is created by the wealthier spouse. When the grantor dies, the surviving spouse assumes a “life estate” in the trust’s assets. This provides the surviving spouse with the right to receive income from the trust, but he or she doesn’t have ownership rights — thus, he or she can’t sell or transfer the assets. Upon the death of the surviving spouse, the assets are passed to the final beneficiaries, who may be the children from the grantor’s prior marriage.

Accordingly, you must designate the beneficiaries of the QTIP trust, as well as the trustee to manage the assets. This could be your spouse, adult child, close friend, or, as is often the case, a third-party professional.

Estate tax ramifications

A QTIP trust is designed to combine the estate tax benefits of the unlimited marital deduction and the gift and estate tax exemption. When you create the trust and provide a life estate to your spouse, the assets are sheltered from tax by the unlimited marital deduction after your death.

After your spouse passes, assets in the QTIP trust are subject to federal estate tax. However, the $12.92 million (for 2023) gift and estate tax exemption will likely shelter most estates from estate tax liability.

Planning flexibility

A QTIP trust can provide added flexibility to your estate plan. For example, at the time of your death, your family’s situation or the estate tax laws may have changed. The executor of your will can choose to not implement a QTIP trust if that makes the most sense. Otherwise, the executor makes a QTIP trust election on a federal estate tax return. (It’s also possible to make a partial QTIP election.)

Once the election is made and the estate tax return is filed within nine months after the death (plus an additional six months if the executor obtains an extension), it’s irrevocable. There’s no going back.

Right for your plan?

If you wish to provide for your spouse after your death, but at the same time ensure that your children ultimately receive the inheritance you want to provide for them, a QTIP trust might be the preferred option. Contact us to learn if a QTIP trust is right for you.

When many business owners see the term “financial reporting,” they immediately think of their year-end financial statements. And, indeed, properly prepared financial statements generated at least once a year are critical.

But engaging in other types of financial reporting more frequently may help your company stay better attuned to the nuances of running a business in today’s inflationary and competitive environment.

Spot trends and trouble

Just how often your company should engage in what’s often referred to as “interim” financial reporting depends on factors such as its size, industry and operational complexity. Nevertheless, monthly, quarterly and midyear financial reports can enable you to spot trends and get early warnings of potential trouble.

For example, you might compare year-to-date revenue for 2023 against your annual budget. If your business isn’t growing or achieving its goals, find out why. Perhaps you need to provide additional sales incentives or change your marketing strategy.

It’s also important to more closely track costs in light of the current level of inflation. If your business is starting to lose money, you might need to consider raising prices or cutting discretionary spending. You could, for instance, temporarily scale back on your hours of operation, reduce travel expenses or implement a hiring freeze.

Your balance sheet is important as well. Reviewing major categories of assets and liabilities can help you detect working capital problems before they spiral out of control. For example, a buildup of accounts receivable could signal troubles with collections. A low stock of key inventory items may foreshadow delayed shipments and customer complaints, signaling an urgent need to find alternative suppliers. Or, if your company is drawing heavily on its line of credit, your operations might not be generating sufficient cash flow.

Don’t panic

If interim financial reports do uncover inconsistencies, they may not indicate a major crisis. Some anomalies might be attributable to more informal accounting practices that are common during the calendar year. Typically, either your accounting staff or CPA can correct these items before year-end financial statements are issued.

For instance, some controllers might liberally interpret period “cutoffs” or use subjective estimates for certain account balances and expenses. In addition, interim financial reports typically exclude costly year-end expenses, such as profit sharing and shareholder bonuses. The interim reports, therefore, tend to paint a rosier picture of a company’s performance than its full year-end financial statements.

Furthermore, many companies perform time-consuming physical inventory counts exclusively at year end. So, the inventory amount shown on the interim balance sheet might be based solely on computer inventory schedules or, in some instances, management’s estimate using historic gross margins.

Similarly, accounts receivable may be overstated because overworked finance managers might lack the time or personnel to adequately evaluate whether the interim balance contains any bad debts.

Glean more insights

Many business owners have had an “aha moment” or two when studying their year-end financial statements. Why not glean those insights more often? We can help you decide how frequently to engage in interim financial reporting and assist you in designing the reports that provide the information you need.

The Tax Cuts and Jobs Act liberalized the rules for depreciating business assets. However, the amounts change every year due to inflation adjustments. And due to high inflation, the adjustments for 2023 were big. Here are the numbers that small business owners need to know.

Section 179 deductions

For qualifying assets placed in service in tax years beginning in 2023, the maximum Sec. 179 deduction is $1.16 million. But if your business puts in service more than $2.89 million of qualified assets, the maximum Sec. 179 deduction begins to be phased out.

Eligible assets include depreciable personal property such as equipment, computer hardware and peripherals, vehicles and commercially available software.

Sec. 179 deductions can also be claimed for real estate qualified improvement property (QIP), up to the maximum allowance of $1.16 million. QIP is defined as an improvement to an interior portion of a nonresidential building placed in service after the date the building was placed in service. However, expenditures attributable to the enlargement of a building, elevators or escalators, or the internal structural framework of a building don’t count as QIP and usually must be depreciated over 39 years. There’s no separate Sec. 179 deduction limit for QIP, so deductions reduce your maximum allowance dollar for dollar.

For nonresidential real property, Sec. 179 deductions are also allowed for qualified expenditures for roofs, HVAC equipment, fire protection and alarm systems, and security systems.

Finally, eligible assets include depreciable personal property used predominantly in connection with furnishing lodging, such as furniture and appliances in a property rented to transients.

Deduction for heavy SUVs

There’s a special limitation on Sec. 179 deductions for heavy SUVs, meaning those with gross vehicle weight ratings (GVWR) between 6,001 and 14,000 pounds. For tax years beginning in 2023, the maximum Sec. 179 deduction for heavy SUVs is $28,900.

First-year bonus depreciation has been cut

For qualified new and used assets that were placed in service in calendar year 2022, 100% first-year bonus depreciation percentage could be claimed.

However, for qualified assets placed in service in 2023, the first-year bonus depreciation percentage dropped to 80%. In 2024, it’s scheduled to drop to 60% (40% in 2025, 20% in 2026 and 0% in 2027 and beyond).

Eligible assets include depreciable personal property such as equipment, computer hardware and peripherals, vehicles and commercially available software. First-year bonus depreciation can also be claimed for real estate QIP.

Exception: For certain assets with longer production periods, these percentage cutbacks are delayed by one year. For example, the 80% depreciation rate will apply to long-production-period property placed in service in 2024.

Passenger auto limitations

For federal income tax depreciation purposes, passenger autos are defined as cars, light trucks and light vans. These vehicles are subject to special depreciation limits under the so-called luxury auto depreciation rules. For new and used passenger autos placed in service in 2023, the maximum luxury auto deductions are as follows:

$12,200 for Year 1 ($20,200 if bonus depreciation is claimed),
$19,500 for Year 2,
$11,700 for Year 3, and
$6,960 for Year 4 and thereafter until fully depreciated.

These allowances assume 100% business use. They’ll be further adjusted for inflation in future years.

Advantage for heavy vehicles

Heavy SUVs, pickups, and vans (those with GVWRs above 6,000 pounds) are exempt from the luxury auto depreciation limitations because they’re considered transportation equipment. As such, heavy vehicles are eligible for Sec. 179 deductions (subject to the special deduction limit explained earlier) and first-year bonus depreciation.

Here’s the catch: Heavy vehicles must be used over 50% for business. Otherwise, the business-use percentage of the vehicle’s cost must be depreciated using the straight-line method and it’ll take six tax years to fully depreciate the cost.

Consult with us for the maximum depreciation tax breaks in your situation.

Financial statements tell investors information about an organization’s financial performance, helping to ensure corporate transparency and accountability. But they can also be used internally to help management make strategic decisions, improve upon past results and add value. There are three parts to comprehensive financial reporting under U.S. Generally Accepted Accounting Principles (GAAP) — each with a unique message.

Income statements

Many people focus on earnings, which are reported on the income statement (also known as the profit and loss statement). This statement provides an overview of revenue, expenses and earnings over a given period.

A common term used when discussing income statements is “gross profit,” or the income earned after subtracting the cost of goods sold from revenue. Cost of goods sold includes the cost of labor, materials and overhead required to make a product. Another important term is “net income.” This is the income remaining after all expenses (including taxes) have been paid.

Though it may be tempting to just review revenue and profit trends, thorough due diligence looks beyond the income statement. Growth and profitability aren’t the only metrics that matter. For example, high-growth companies that report healthy top and bottom lines may not have enough cash on hand to pay their bills.

Balance sheets

The balance sheet (also known as the statement of financial position) provides a snapshot of the company’s financial health. It tallies assets, liabilities and equity.

Under GAAP, assets are reported at the lower of cost or market value. Current assets (such as accounts receivable or inventory) are reasonably expected to be converted to cash within a year, while long-term assets (such as plant and equipment) have longer lives. Similarly, current liabilities (such as accounts payable) come due within a year, while long-term liabilities are payment obligations that extend beyond the current year or operating cycle.

Intangible assets (such as patents, customer lists and goodwill) can provide significant value to a business. But internally developed intangibles aren’t reported on the balance sheet. Intangible assets are only reported when they’ve been acquired externally.

Owners’ equity (or net worth) is the extent to which the book value of assets exceeds liabilities. If liabilities exceed assets, net worth will be negative. However, book value may not necessarily reflect market value. Some companies may provide the details of owners’ equity in a separate statement called the statement of retained earnings. It details sales or repurchases of stock, dividend payments and changes caused by reported profits or losses.

Statements of cash flows

The cash flow statement shows all the cash flowing in and out of your company. For example, your company may have cash inflows from selling products or services, borrowing money and selling stock. Outflows may result from paying expenses, investing in capital equipment and repaying debt.

Typically, cash flows are organized in three categories: operating, investing and financing activities. The bottom of the statement shows the net change in cash during the period. Watch your statement of cash flows closely. To remain in business, companies must continually generate cash to pay creditors, vendors and employees.

Beyond compliance

Financial reporting is more than an exercise in compliance with accounting rules. Financial statements can be a valuable management tool. However, to get a holistic assessment of your organization’s performance, it’s important to look beyond profits. Contact us for help preparing these statements and benchmarking your organization’s performance over time and against competitors.

According to the American Society of Pension Professionals & Actuaries (ASPPA), one of the several organizations that comprises the American Retirement Association (ARA), erroneous notices were issued to taxpayers claiming their 2022 Forms 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits, were filed after the July 31 deadline.

The IRS said that the erroneous messages resulted from a programming error on their part. The IRS further said it will announce in an upcoming newsletter that anyone who received the 8955-SSA late filing letter dated before September 1, 2023, can ignore it.

For more detailed information about the glitch, you can read the summary provided by the American Society of Pension Professionals & Actuaries (ASPPA): IRS Clarifies Erroneous Late-Filing Notices

You can contact your Third Party Administrator (TPA) or your Form 5500 preparer if you have any concerns about the situation.

Yeo & Yeo has joined the BDO Alliance USA, a nationwide association of independently owned local and regional accounting, consulting, and service firms with similar client goals. As an independent member of the BDO Alliance USA, Yeo & Yeo can expand its capabilities by drawing on the resources of BDO USA and other Alliance members. BDO Alliance USA is among the industry’s largest associations of accounting and professional service firms. With more than 800 independent alliance firm locations, the Alliance represents nearly every state and includes a comprehensive range of services.

“We solve challenges and fulfill the specific needs of our clients – but more than that, we are relationship and purpose-driven, helping our clients see what’s possible and achieve their potential,” said Yeo & Yeo President & CEO Dave Youngstrom. ” Becoming an independent member of the BDO Alliance USA opens more possibilities for our clients and our people with access to greater technical knowledge and specialty services of BDO USA and its international organization.”

The BDO Alliance USA enhances member firm capabilities by providing supplementary professional services, comprehensive management consulting services, focused industry knowledge, and internal training programs. Furthermore, the Alliance offers significant advantages for Yeo & Yeo’s team members. By engaging with other professionals and sharing knowledge, team members gain opportunities for continuous learning and growth.

Membership in the BDO Alliance USA allows Yeo & Yeo to:

Enhance client services and broaden its capabilities overall
Expand domestic and international coverage
Gain greater technical knowledge in specialty areas
Utilize professionals with experience in a wide range of industries
Access the most up-to-date technical information
Participate in the latest training programs
Provide clients with key business contacts throughout the U.S. and beyond

“Our goal is to always be at the forefront, providing our clients and our people with the resources they need to succeed in a rapidly changing world. Joining the BDO Alliance USA is just one step of many that we’re taking to stay ahead of the curve and provide the best possible service and experience,” added Youngstrom.

For more information about the BDO Alliance USA, visit https://www.bdo.com/about/bdo-alliance-usa.

About the BDO Alliance USA
The BDO Alliance USA is a nationwide association of independently owned local and regional accounting, consulting and service firms with similar client service goals. The BDO Alliance USA presents an opportunity for these firms, by accessing the resources of BDO USA and other Alliance members, to expand services to their clients without jeopardizing their existing relationships or their autonomy. The BDO Alliance USA was developed to provide Member firms with an alternative strategy for gaining competitive advantage in the face of a changing business landscape. The Alliance represents an opportunity for BDO to enhance relationships with reputable firms. The BDO Alliance USA is a subsidiary of BDO USA, P.A., a Delaware professional service corporation.

About BDO USA, P.A.
The BDO Alliance USA is a subsidiary of BDO USA, P.A., a Delaware professional service corporation. BDO is the brand name for the BDO network and for each of the BDO Member Firms. BDO USA, P.A., a Delaware professional service corporation, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.