New Principal Spotlight: Get to Know Timothy Crosson Jr.

Timothy Crosson Jr., CPA, will be promoted to Principal effective January 1, 2023. Tim said about his promotion, “I have always been dedicated to being a team player and providing the best service and support to my clients and coworkers, and I plan to continue that work in my new role. I am excited about this next chapter in my career. It means a lot to be an integral part of a great firm that continues to grow.”

Let’s learn about Tim and his perspective on accounting and building a meaningful career.

Tell me about your career path.

I started with Hungerford & Company, a small, 20-person CPA firm, right out of college in 2008. I had a lot of great mentors there, like Mike Georges, now a Principal in the Ann Arbor office. He pushed me to work hard and complete the CPA exam. In 2014, Hungerford merged with Yeo & Yeo. A year or two later, I was promoted to Manager and began focusing on audit. I grew from there and was promoted to Senior Manager and now Principal.

What do you enjoy most about working with clients?

Clients are challenged by many of the same things we are – they have staff turnover, new software, and changing regulations, on top of managing their day-to-day work. When auditors like me come around, our clients view us as a resource. We become part of their team and help them deal with the challenges they face throughout the year. It is really rewarding to help clients overcome obstacles and improve their organization.

What are your specific areas of specialization?

One of the great things about working for Yeo & Yeo is that I can specialize. I do a lot of work for school districts and nonprofits. I particularly enjoy working on nonprofit engagements because they force us to look at things differently. Often, nonprofits have their own unique challenges that require us to think critically and find solutions to meet their situations.

When did you know you wanted to be a CPA, and why did you gravitate toward this profession?

I started studying at community college in part because I didn’t know exactly what I wanted to do. I was torn between engineering and accounting, but something about the business side of accounting appealed to me, and I gravitated more toward that. After taking my first college-level accounting class, I really enjoyed the problem-solving, math, and interpretation behind the numbers, so I decided to pursue accounting.

What do you enjoy most about your career?

I enjoy the people-focused side of accounting. I like helping clients solve problems and feel more confident in their business decisions. I also like working with the staff at Yeo & Yeo and mentoring those who are early in their career. It’s really fulfilling to see young staff learn and complete projects on their own.

What was the best advice you ever received?

When I was in high school, I had a teacher with a quote on his wall that said, “The biggest failure in life is the failure to try.” I’ve received similar advice from others throughout my career, and it has been very valuable, especially when I was studying for the CPA exam or going into another busy season. I’ve always believed that when challenges arise, you push through them, and you can feel a sense of accomplishment when you overcome them.

What advice would you give to an aspiring accountant progressing in their career?

One of the biggest challenges young professionals face is transitioning from school to work and finding a work-life balance. To me, work-life balance means that sometimes work comes first, and sometimes family comes first. There might be a time when you have to help a client meet their goal or complete a deadline, and in that case, work comes first. There may be other times when you have to be there for your kids for school or sports, and that is when family comes first. As a young professional, you have to find that balance, and working for a company like Yeo & Yeo that values flexibility and has a family-focused culture really helps.

Tim provides audit services with an emphasis on nonprofit organizations, government entities, and school districts. He has more than 12 years of public accounting and business consulting experience. He is a member of the firm’s Education Services Group and Audit Services Group and serves in the Ann Arbor office. At numerous statewide conferences, Crosson has presented on topics relevant to the education and nonprofit industries.

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Yeo & Yeo proudly recognized 25 professionals across the firm’s companies for milestone anniversaries at the firm’s virtual Employee Recognition and Holiday celebration.

“Our people are at the core of everything we do,” said President & CEO Dave Youngstrom. “It’s a pleasure to recognize our professionals for their longstanding commitment to the firm. Through the years, their abilities and efforts have helped shape the success of Yeo & Yeo. They are all valuable members of our team dedicated to helping our clients, communities, and our businesses succeed.”

Honored for 20 years of service:

David Milka, Controller, Firm Administration – Saginaw
Kati Krueger, President, Yeo & Yeo Medical Billing & Consulting – Saginaw
Kimberlee Dahl, Director of Marketing, Firm Administration – Saginaw
John Haag Sr., CPA/ABV, CVA, CFF, Managing Principal, Yeo & Yeo CPAs – Midland

Honored for 15 years of service:

Tracy Fenelon, Administrative Assistant, Yeo & Yeo CPAs – Ann Arbor
Amy Dittenber, Administrative Assistant, Yeo & Yeo CPAs – Saginaw

Honored for 10 years of service:

Stephanie Witt, Medical Biller, Yeo & Yeo Medical Billing & Consulting – Saginaw
James Kuch, Digital Marketing Coordinator, Firm Administration – Saginaw
Tammy Moncrief, CPA, Managing Principal, Yeo & Yeo CPAs – Auburn Hills
Jordan Hale, CPA, Manager, Yeo & Yeo CPAs – Lansing
Rachel Van Slembrouck, CPA, Senior Manager, Yeo & Yeo CPAs – Saginaw

Also recognized during the virtual program were 14 professionals celebrating their fifth anniversary with Yeo & Yeo.

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If you own a business, you may wonder if you’re eligible to take the qualified business income (QBI) deduction. Sometimes this is referred to as the pass-through deduction or the Section 199A deduction.

The QBI deduction is:

Available to owners of sole proprietorships, single-member limited liability companies (LLCs), partnerships, and S corporations, as well as trusts and estates.
Intended to reduce the tax rate on QBI to a rate that’s closer to the corporate tax rate.
Taken “below the line.” In other words, it reduces your taxable income but not your adjusted gross income.
Available regardless of whether you itemize deductions or take the standard deduction.

Taxpayers other than corporations may be entitled to a deduction of up to 20% of their QBI. For 2022, if taxable income exceeds $170,050 for single taxpayers or $340,100 for a married couple filing jointly, the QBI deduction may be limited based on different scenarios. For 2023, these amounts are $182,100 and $364,200, respectively.

The situations in which the QBI deduction may be limited include whether the taxpayer is engaged in a service-type of trade or business (such as law, accounting, health or consulting), the amount of W-2 wages paid by the trade or business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the trade or business. The limitations are phased in.

Year-end planning tip

Some taxpayers may be able to achieve significant savings with respect to this deduction (or be subject to a smaller phaseout of the deduction), by deferring income or accelerating deductions at year-end so that they come under the dollar thresholds for 2022. Depending on your business model, you also may be able to increase the deduction by increasing W-2 wages before year-end. The rules are quite complex, so contact us with questions and consult with us before taking the next steps.

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In October, the IRS released the 2023 cost-of-living adjustments (COLAs) for a wide variety of tax-related limits applicable to many popular fringe benefits. Shall we pop open a few? Here are some highlights:

Health Flexible Spending Accounts (FSAs). For 2023, the dollar limit on employee salary reduction contributions to health FSAs will rise from $2,850 to $3,050.

Qualified transportation fringe benefits. The monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will increase from $280 to $300. The combined monthly limit for transit passes and vanpooling expenses will also be $300.

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). The maximum amount of payments and reimbursements under a QSEHRA will be $5,850 for self-only coverage and $11,800 for family coverage (up from $5,450 and $11,050, respectively, for 2022).

Adoption assistance exclusion and adoption credit. The maximum amount that may be excluded from an employee’s gross income under an employer-provided adoption assistance program for the adoption of a child will rise to $15,950 from $14,890. In addition, the maximum adoption credit allowed to an individual for the adoption of a child will also be $15,950.

Both the exclusion and credit will begin to be phased out for individuals with modified adjusted gross incomes greater than $239,230 and will be entirely phased out for individuals with modified adjusted gross incomes of $279,230 or more.

Dependent Care Assistance Plans (DCAPs), also known as dependent care FSAs. The DCAP limit isn’t indexed for inflation so, for 2023, it will remain at $5,000 for single taxpayers and married couples filing jointly, or $2,500 for married people filing separately. These dollar amounts will apply in future years as well unless extended or otherwise changed by Congress.

That said, some adjustments to certain general tax limits are relevant to the federal income tax savings under a DCAP. These include the 2023 tax rate tables, earned income credit amounts and the standard deduction.

Archer Medical Savings Accounts (MSAs). For Archer MSA-compatible high-deductible health coverage, the 2023 annual deductible for self-only coverage must not be less than $2,650 (up from $2,450) or more than $3,950 (up from $3,700), with an out-of-pocket maximum of $5,300 (up from $4,950). For family coverage, the 2023 annual deductible must not be less than $5,300 (up from $4,950) or more than $7,900 (up from $7,400), with an out-of-pocket maximum of $9,650 (up from $9,050).

Note that the Archer MSA pilot program expired at the end of 2007, and no new Archer MSAs can be established after that date. Many employers that previously offered Archer MSAs have switched to Health Savings Accounts, which are generally more favorable.

With the end of the year fast approaching, employers should act quickly to determine whether their plans automatically apply the latest limits or need to be amended, if so desired, to recognize changes. If you do make revisions, be sure to clearly communicate the changes to employees. Our firm can provide further information on next year’s COLAs as well as other aspects of offering tax-friendly fringe benefits.

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What do Tesla cars, smart TVs and equipment used for making french fries have in common? The answer is embedded software, according to recent comments by Financial Accounting Standards Board (FASB) Vice Chair James Kroeker. He also told the Private Company Council that today’s mixed accounting model for software costs is outdated and should be modernized under one model.

Here’s an update on the FASB’s project to revamp the rules for recognizing, measuring, presenting and disclosing software costs. The project is based on feedback from companies that find the current rules complex and costly.

Applying the existing guidance

There are two main areas of U.S. Generally Accepted Accounting Principles (GAAP) that provide accounting guidance for software costs. To determine how to account for software costs, a company first must evaluate which area of GAAP applies. The guidance that a company must follow is largely dependent on how a company plans to use the software.

Specifically, when a company determines that it has a substantive plan to sell, lease or otherwise market software externally (including licensing), it’s required to account for the software costs as external use. In this situation, Accounting Standards Codification Subtopic 985-20, Software — Costs of Software to Be Sold, Leased, or Marketed, would be applied.

Conversely, if a company doesn’t have such a substantive plan in place when software is under development, it’s required to account for the software costs incurred to develop or purchase software as internal use. In this situation Subtopic 350-40, Intangibles — Goodwill and Other — Internal-Use Software, would be applied.

The guidance for internal-use software is generally applied to hosting arrangements by both the vendor that’s incurring costs to develop the hosting arrangement for customers (such as software-as-a-service) and the customer incurring costs to implement the hosting arrangement. However, Subtopic 985-20 applies to hosting arrangements in which 1) a customer has a contractual right to take possession of the software at any time during the hosting period without significant penalty, and 2) it’s feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software.

Designing a one-size-fits-all approach

The ultimate goal of the FASB’s project on reporting software is to align the differing accounting models for external and internal use. If the project takes shape as planned, companies will no longer have to distinguish between two sets of guidance. Instead, they’ll apply a single model for all software. That means everyone would follow the same model, regardless of whether they purchased software as a license, entered into a cloud computing arrangement, or developed internal software, licenses or cloud solutions.

However, there’s little consensus now on how that model would work. Approaches currently being researched by FASB staff include:

Requiring software costs to be capitalized based on a principle such as when there’s a present right to the economic benefit as a result of incurring the software costs,
Requiring software costs to be capitalized if they’re undertaken during certain development activities, and
Expensing all software costs, including cloud computing.

Members of the Private Company Council gave mixed views on which approach they favored, reflecting the difficulty the FASB could ultimately face on the topic. Some financial statement preparers prefer a principles-based approach, while others said they like the idea of expensing software costs as there’s no true prediction of its future useful life.

Stay tuned

This project is currently in the deliberation phase. No proposals have yet been issued, but the FASB plans to discuss this topic in the coming months.

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Family-owned businesses face distinctive challenges when it comes to succession planning. For example, it’s important to address the distinction between ownership succession and management succession.

When a nonfamily business is sold to a third party, ownership and management succession typically happen simultaneously. However, in the context of a family business, there may be reasons to separate the two.

Retaining control

From an estate planning perspective, transferring ownership of assets to the younger generation as early as possible allows you to remove future appreciation from your estate, thereby minimizing estate taxes. Proactive estate planning may be especially relevant today, given changes to the federal estate and gift tax regime under the Tax Cuts and Jobs Act.

For 2023, the unified federal estate and gift tax exemption will be $12.92 million, or effectively $25.84 million for married couples. That’s generous by historical standards. In 2026, the exemption is set to fall to about $6 million, or $12 million for married couples, after inflation adjustments — unless Congress acts to change the law.

However, when it comes to transferring ownership of a family business, older generations may not be ready to hand over the reins — or they may feel that their children aren’t yet ready to take over. Another reason to separate ownership and management succession is to deal with family members who aren’t involved in the company. Providing heirs outside the business with equity interests that don’t confer control may be an effective way to share the wealth.

Possible solutions

Several tools may allow you to transfer family business interests without immediately giving up control, including:

Trusts,
Family limited partnerships,
Nonvoting stock, and
Employee stock ownership plans (ESOPs).

Owners of smaller family businesses may perceive ESOPs as a complex tool, reserved primarily for large public companies. However, an ESOP can be an effective way to transfer stock to family members who work in the company and other employees, while allowing the owners to cash out some of their equity in the business.

Owners can use this newfound liquidity to fund their retirements, diversify their portfolios or provide for family members who aren’t involved in the business. If an ESOP is structured properly, an owner can maintain control over the business for an extended period even if the ESOP acquires a majority of the company’s stock.

Conflicting needs

When it comes to succession planning, older and younger generations of a family business may have conflicting objectives and financial needs. If any of the strategies mentioned here interest you, or you’d like to discuss other aspects of succession planning, please contact us.

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Year-end is the traditional time for manufacturers and other business entities to conduct employee performance reviews. Unfortunately, reviews are often done as quickly as possible, with little thought given to providing the type of feedback to employees that will ultimately help the company achieve its strategic goals. It’s also important to allow employees to respond and provide their own feedback. Doing so can lead to greater worker satisfaction and increased productivity. Here are some ways manufacturers can improve employee performance reviews.

Objective vs. subjective review

While the particulars vary from company to company, an employee review generally is a formal assessment of the worker’s performance over the review period, including evaluations of strengths, weaknesses and overall activity. The review is documented and placed in the employee’s HR file.

Technology can facilitate better tracking and monitoring of an employee’s output. This can be especially important when it comes to assessing remote workers.

Taking this into account, the performance review may be objective or subjective — or a combination of both. An objective review goes strictly by the numbers, based on data. Automated processes can eliminate the guesswork. An objective review may include:

Units produced in comparison to other employees,
Average time for units produced,
Relation to the company’s expectations, and
Time spent on manufacturing activities.

A subjective review, on the other hand, requires input from sources such as an assembly line supervisor or a department head. This type of review may include:

Willingness to work as part of the team,
Strengths and weaknesses,
Flexibility,
Ability to meet company standards, and
General attitude and performance.

Either method may prove adequate, but manufacturers will generally find that a combination of the two is optimal because it paints the big picture of an employee’s performance.

Benefits of comprehensive reviews

Conducting comprehensive employee performance reviews can be challenging to manufacturing managers. They require significant effort, and the potential for conflict exists if an employee is offended or disagrees with the assessments. But it can otherwise be a rewarding experience that provides valuable insights.

A review can foster efficiency if employees take constructive feedback to heart. By learning about areas in need of improvement, workers can refocus efforts to sharpen their skills. Also, if you offer clear advice or instruction going forward, your employees are more likely to meet companywide objectives.

Positive feedback in reviews can boost morale and make employees feel appreciated and inspired to continue to perform at a high level for the next year. This often results in a better workplace environment.

However, don’t discount the employee’s side of the process. The review is an opportunity for employees to discuss personal needs and what they view as obstacles to achieving the company’s goals. Remote workers may especially benefit from this additional communication.

5 strategies for success

Consider these five strategies for improving your manufacturing company’s performance review process:

Set employee expectations. All too often, employees aren’t exactly sure what the review is supposed to cover. For that reason, they tend to hold back. If pressed on a particular issue, they might become defensive. Conversely, if you establish an agenda before meeting with employees so that they can anticipate what will be discussed, the evaluation will likely be more productive.
Keep it simple. Frequently, the most effective reviews are ones that eliminate much of the extra noise. The primary goal should be to try to help employees realize their potential. Don’t get sidetracked by too many peripheral issues. If you find yourself veering off, get right back on track.
Make the review a collaboration. The review path shouldn’t be a one-way street. Provide employees the time to present their own long-term objectives and see how they align with your manufacturing company’s needs. Furthermore, ask employees about obstacles they’re facing and what can be done to eliminate or, at least, minimize them.
Present both sides of the coin. Although you may have to discuss some negatives, don’t turn the review into a complete downer. Balance any “bad news” with some “good news” about the employee’s achievements. Rely on the metrics, but take a well-rounded approach to the meeting. In addition, highlight any milestones that the employee reached during the year.
Develop a plan of action. Don’t just throw a bunch of suggestions against a wall and see what sticks. Lay out a plan, preferably in writing, that points employees in a direction that you want them to go. Offer to meet at regular intervals to assess progress. This will help you align your expectations with those of your employees.

Avoid the pitfalls

Employee performance reviews can be a win-win situation for employers and employees, but there are potential pitfalls. Take the time to ensure that your reviews are meaningful. Doing more than just going through the motions year-in and year-out can pay off in the long term.

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The YeoConsults Payroll Solutions Group would like to make you aware of important payroll updates that will affect you and your employees next year.

Please refer to our 2023 Payroll Planning Brief.

Michigan minimum wage will increase to $10.10 per hour. For more information on the minimum wage increase, visit the State of Michigan Website and watch Yeo & Yeo’s website for future eAlerts and new developments.

Need guidance on closing 2022, preparing for 2023 payroll or meeting payroll deadlines? Contact the payroll professionals at Yeo & Yeo.

Download 2023 Payroll Planning Brief

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If you’re launching a new business venture, you’re probably wondering which form of business is most suitable. Here is a summary of the major advantages and disadvantages of doing business as a C corporation.

A C corporation allows the business to be treated and taxed as a separate entity from you as the principal owner. A properly structured corporation can protect you from the debts of the business yet enable you to control both day-to-day operations and corporate acts such as redemptions, acquisitions and even liquidations. In addition, the corporate tax rate is currently 21%, which is lower than the highest noncorporate tax rate.

Following formalities

In order to ensure that a corporation is treated as a separate entity, it’s important to observe various formalities required by your state. These include:

Filing articles of incorporation,
Adopting bylaws,
Electing a board of directors,
Holding organizational meetings, and
Keeping minutes of meetings.

Complying with these requirements and maintaining an adequate capital structure will ensure that you don’t inadvertently risk personal liability for the debts of the business.

Potential disadvantages

Since the corporation is taxed as a separate entity, all items of income, credit, loss and deduction are computed at the entity level in arriving at corporate taxable income or loss. One potential disadvantage to a C corporation for a new business is that losses are trapped at the entity level and thus generally cannot be deducted by the owners. However, if you expect to generate profits in year one, this might not be a problem.

Another potential drawback to a C corporation is that its earnings can be subject to double tax — once at the corporate level and again when distributed to you. However, since most of the corporate earnings will be attributable to your efforts as an employee, the risk of double taxation is minimal since the corporation can deduct all reasonable salary that it pays to you.

Providing benefits, raising capital

A C corporation can also be used to provide fringe benefits and fund qualified pension plans on a tax-favored basis. Subject to certain limits, the corporation can deduct the cost of a variety of benefits such as health insurance and group life insurance without adverse tax consequences to you. Similarly, contributions to qualified pension plans are usually deductible but aren’t currently taxable to you.

A C corporation also gives you considerable flexibility in raising capital from outside investors. A C corporation can have multiple classes of stock — each with different rights and preferences that can be tailored to fit your needs and those of potential investors. Also, if you decide to raise capital through debt, interest paid by the corporation is deductible.

Although the C corporation form of business might seem appropriate for you at this time, you may in the future be able to change from a C corporation to an S corporation, if S status is more appropriate at that time. This change will ordinarily be tax-free, except that built-in gain on the corporate assets may be subject to tax if the assets are disposed of by the corporation within 10 years of the change.

The optimum choice

This is only a brief overview. Contact us if you have questions or would like to explore the best choice of entity for your business.

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If you ask some business owners why they do things a certain way, they might answer, “Because we’ve always done it that way.” But with all the changes that have taken place in the financial and accounting realm, doing things the way you’ve always done them could be costing your business in terms of lost efficiency and profits. Here are five considerations to help modernize your accounting processes and systems.

1. Automate payables

If you’re using traditional paper-based processes to manage accounts payable, you could be wasting time and money. Automation technology solutions can help you streamline the payables process. The result is greater efficiency, lower cost, more security and the ability to capture early payment discounts that may be available.

With most AP systems, invoices are scanned in and posted automatically to the system based on the purchase or invoice number. The person responsible for reviewing the invoice (for example, the payables clerk) makes sure everything matches and approves it for payment if it does. The invoice is then paid electronically based on the payment terms negotiated with the vendor.

2. Accelerate monthly accounting tasks

There’s no reason to wait until month end to reconcile bank accounts. Daily reconciliation provides several benefits, such as catching payments in transit that have been cashed but not recorded. It also can help speed up monthly closings by eliminating the reconciliation “crush” at month end. Consider purchasing software that can read bank records daily, automatically match outstanding checks that have cleared and update the payables check file.

In addition, you don’t have to wait for standard monthly entries that remain the same, such as depreciation, prepaid expenses, and property tax or insurance accruals. Integrated software can shorten the monthly closing lag by feeding subsystems (such as accounts payable) into the general ledger. Starting your month-end closing process sooner puts less pressure on your accounting staff and improves the accuracy and timeliness of your financial statements.

3. Use corporate purchase cards

Corporate purchase cards (or p-cards) can be issued to at least one employee in each department to cover small items — say, those under $100 — as well as travel and entertainment expenses. This enables accounting to make a single payment for multiple small items, instead of processing a lot of small-dollar checks. As an added benefit, most p-cards offer points and cash-back rewards that can be used to pay expenses.

4. Go paperless

Many businesses have largely converted their paper processes to digital to help lower expenses, increase efficiency, meet compliance regulations and be more eco-friendly. Using an electronic document management system could save up to 50% of physical and digital storage space and up to 40% on document handling. It could also reduce the time needed to create and modify documents by up to 90%, according to Gartner, Inc., a research and advisory firm.

While it might not be possible to completely eliminate paper, plenty of documents can be digitized. These include contracts, invoices, payables, payroll documents and employee records. Several off-the-shelf document management solutions are available to help you convert from paper to digital.

5. Optimize your accounting software

In today’s volatile marketplace, it’s more important than ever to leverage your accounting software to stay solvent, compliant and competitive. Evaluate whether you’re making the most out of your current accounting system or whether it’s time to switch to a new system. As a business grows, it tends to need more advanced functionality.

Start by making a list of the types of activities and reporting you require. Next, match those needs against software features — from billing to job-cost tracking and payroll to inventory control. Another priority to consider is remote access. These days, mobile access to your accounting system allows team members to see real-time project data from anywhere.

In addition, for seamless information sharing, your accounting solution should integrate with other software and platforms. For example, your accounting software should support various forms of timecard entry and project management software. Your system also should integrate with third-party payroll platforms so it can import information in a timely manner with minimal manual input.

Ready to update?

Just because you’ve always done things a certain way doesn’t mean it’s the best way. Talk with your management team about which accounting processes and systems might be due for a makeover. We can also do a complete assessment on the effectiveness of your accounting system and how you’re using it. Contact us for more information.

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Under the Affordable Care Act (ACA), applicable large employers (ALEs) must offer minimum essential health care coverage that’s affordable and provides minimum value to full-time employees and their dependents. An ALE may incur a penalty if at least one full-time employee receives a premium tax credit for buying coverage through a Health Insurance Marketplace (commonly known as an “exchange”).

Recently, the IRS finalized regulations that change the eligibility standards for the premium tax credit. Beginning in 2023, affordability of employer-sponsored coverage for an employee’s family members will be based on the employee’s cost for family coverage, rather than the cost of employee-only coverage. The tax agency took this step to fix what was referred to as “the family glitch.”

The IRS also issued related guidance allowing participants in only non–calendar-year cafeteria plans to revoke their elections for family health coverage midyear to allow one or more family members to enroll in a qualified health plan (QHP) through a Health Insurance Marketplace. This guidance has been revised.

Conditions must be satisfied

According to the revised guidance, any cafeteria plan — regardless of plan year — can be amended to allow prospective midyear election changes from family coverage to employee-only coverage under a group health plan that’s not a health flexible spending account and provides minimum essential coverage. However, the following two conditions must be met:

One or more related individuals are eligible for a special enrollment period to enroll in a QHP through a Health Insurance Marketplace, or one or more already-covered related individuals seek to enroll in a QHP during the Marketplace’s annual open enrollment period, and
The election change corresponds to the intended QHP enrollment for new coverage effective beginning no later than the day immediately following the last day of the revoked coverage.

Plans may rely on an employee’s reasonable representation regarding enrollment or intended enrollment in a QHP. The guidance applies to elections that are effective on or after January 1, 2023.

Amendments must be adopted on or before the last day of the plan year in which the changes are allowed. An amendment may be effective retroactively to the first day of that plan year if the plan operates in accordance with the guidance and participants are informed of the amendment. However, amendments for a plan year beginning in 2023 can be adopted on or before the last day of the plan year beginning in 2024.

Flexibility granted

The new family-member enrollment event is optional, but employers that sponsor calendar-year cafeteria plans have been granted the flexibility to offer it under their plans. Although plan amendments may be adopted retroactively as provided in the guidance, election changes to revoke coverage retroactively aren’t permitted. Our firm can help you manage the tax and information-reporting complexities of offering health care coverage.

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These days, most businesses have some intangible assets. The tax treatment of these assets can be complex.

What makes intangibles so complicated?

IRS regulations require the capitalization of costs to:

Acquire or create an intangible asset,
Create or enhance a separate, distinct intangible asset,
Create or enhance a “future benefit” identified in IRS guidance as capitalizable, or
“Facilitate” the acquisition or creation of an intangible asset.

Capitalized costs can’t be deducted in the year paid or incurred. If they’re deductible at all, they must be ratably deducted over the life of the asset (or, for some assets, over periods specified by the tax code or under regulations). However, capitalization generally isn’t required for costs not exceeding $5,000 and for amounts paid to create or facilitate the creation of any right or benefit that doesn’t extend beyond the earlier of 1) 12 months after the first date on which the taxpayer realizes the right or benefit or 2) the end of the tax year following the tax year in which the payment is made.

What’s an intangible?

The term “intangibles” covers many items. It may not always be simple to determine whether an intangible asset or benefit has been acquired or created. Intangibles include debt instruments, prepaid expenses, non-functional currencies, financial derivatives (including, but not limited to options, forward or futures contracts, and foreign currency contracts), leases, licenses, memberships, patents, copyrights, franchises, trademarks, trade names, goodwill, annuity contracts, insurance contracts, endowment contracts, customer lists, ownership interests in any business entity (for example, corporations, partnerships, LLCs, trusts, and estates) and other rights, assets, instruments and agreements.

Here are just a few examples of expenses to acquire or create intangibles that are subject to the capitalization rules:

Amounts paid to obtain, renew, renegotiate or upgrade a business or professional license;
Amounts paid to modify certain contract rights (such as a lease agreement);
Amounts paid to defend or perfect title to intangible property (such as a patent); and
Amounts paid to terminate certain agreements, including, but not limited to, leases of the taxpayer’s tangible property, exclusive licenses to acquire or use the taxpayer’s property, and certain non-competition agreements.

The IRS regulations generally characterize an amount as paid to “facilitate” the acquisition or creation of an intangible if it is paid in the process of investigating or pursuing a transaction. The facilitation rules can affect any type of business, and many ordinary business transactions. Examples of costs that facilitate acquisition or creation of an intangible include payments to:

Outside counsel to draft and negotiate a lease agreement;
Attorneys, accountants and appraisers to establish the value of a corporation’s stock in a buyout of a minority shareholder;
Outside consultants to investigate competitors in preparing a contract bid; and
Outside counsel for preparation and filing of trademark, copyright and license applications.

Are there any exceptions?

Like most tax rules, these capitalization rules have exceptions. There are also certain elections taxpayers can make to capitalize items that aren’t ordinarily required to be capitalized. The above examples aren’t all-inclusive, and given the length and complexity of the regulations, any transaction involving intangibles and related costs should be analyzed to determine the tax implications.

Need help or have questions?

Contact us to discuss the capitalization rules to see if any costs you’ve paid or incurred must be capitalized or whether your business has entered into transactions that may trigger these rules. You can also contact us if you have any questions.

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Most growing small businesses reach a point where the owner looks around at the leadership team and says, “It’s time. We need to offer employees a retirement plan.”

Often, this happens when the company is financially stable enough to administer a retirement plan and make substantive contributions. Other times it occurs when the business grows weary of losing good job candidates because of a less-than-impressive benefits package.

Whatever the reason, if you don’t have a retirement plan and see one in your immediate future, you’ll want to carefully select the one that will work best for your company and its employees. Here are some basics about three of the most tried-and-true plans.

1. 401(k) plans offer flexibility

Available to any employer with one or more employees, a 401(k) plan allows employees to contribute to individual accounts. Contributions to a traditional 401(k) are made pretax, reducing taxable income, but distributions are taxable.

Both employees and employers can contribute. For 2023, employees can contribute up to $22,500 (up from $20,500 in 2022). Participants who are age 50 or older by the end of the year can make an additional “catch-up” contribution of $7,500 (up from $6,500 in 2022). Within limits, employers can deduct contributions made on behalf of eligible employees.

Plans may offer employees a Roth 401(k) option, which, on some level, is the opposite of a traditional 401(k). This is because contributions don’t reduce taxable income currently but distributions are tax-free.

Establishing a 401(k) plan typically requires, among other steps, adopting a written plan and arranging a trust fund for plan assets. Annually, employers must file Form 5500 and perform discrimination testing to ensure the plan doesn’t favor highly compensated employees. With a “safe harbor” 401(k), however, the plan isn’t subject to discrimination testing.

2. Employers fully fund SEP plans

Simplified Employee Pension (SEP) plans are available to businesses of any size. Establishing one requires completing Form 5305-SEP, “Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement,” but there’s no annual filing requirement.

SEP plans are funded entirely by employer contributions, but you can decide each year whether to contribute. Contributions immediately vest with employees. In 2023, contribution limits will be 25% of an employee’s compensation or $66,000 (up from $61,000 in 2022).

SIMPLEs target small businesses

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a type of plan available only to businesses with no more than 100 employees. It’s up to employees whether to contribute. Although employer contributions are required, you can choose whether to:

Match employee contributions up to 3% of compensation, which can be reduced to as low as 1% in two of five years, or
Make a 2% nonelective contribution, including to employees who don’t contribute.

Employees are immediately 100% vested in contributions, whether from themselves or their employers. The contribution limit in 2023 will be $15,500 (up from $14,000 in 2022).

A big step forward

Obviously, choosing a retirement plan to offer your employees is just the first step in the implementation process. But it’s a big step forward for any business. Let us help you assess the costs and tax impact of any plan type that you’re considering.

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You create an estate plan to meet technical objectives, such as minimizing gift and estate taxes and protecting your assets from creditors’ claims. But it’s also important to consider “softer,” yet equally critical, goals.

These softer goals may include educating your children or other loved ones on how to manage wealth responsibly. Or, you may want to promote shared family values and encourage charitable giving. Using a family advancement sustainability trust (FAST) is one option to achieve these goals.

Fill the leadership gap

It’s not unusual for the death of the older generation to create a leadership gap within a family. A FAST can help fill this gap by establishing a leadership structure and providing resources to fund educational and personal development activities for younger family members.

For example, a FAST might finance family retreats and educational opportunities. It also might outline specific best practices and establish a governance structure for managing the trust responsibly and effectively.

Form a common governance structure

Typically, FASTs are created in states that 1) allow perpetual, or “dynasty,” trusts that benefit many generations to come, and 2) have directed trust statutes, which make it possible to appoint an advisor or committee to direct the trustee with regard to certain matters. A directed trust statute makes it possible for both family members and trusted advisors with specialized skills to participate in governance and management of the trust.

A common governance structure for a FAST includes four decision-making entities:

An administrative trustee, often a corporate trustee, that deals with administrative matters but doesn’t handle investment or distribution decisions,
An investment committee — consisting of family members and an independent, professional investment advisor — to manage investment of the trust assets,
A distribution committee — consisting of family members and an outside advisor — to help ensure that trust funds are spent in a manner that benefits the family and promotes the trust’s objectives, and
A trust protector committee — typically composed of one or more trusted advisors — which stands in the shoes of the grantor after his or her death and makes decisions on matters such as appointment or removal of trustees or committee members and amendment of the trust document for tax planning or other purposes.

Explore funding options

Establish a FAST during your lifetime. Doing so helps ensure that the trust achieves your objectives and allows you to educate your advisors and family members on the trust’s purpose and guiding principles.

FASTs generally require little funding when created, with the bulk of the funding provided upon the death of the trust holder. Although funding can come from the estate, a better approach is to fund a FAST with life insurance or a properly structured irrevocable life insurance trust. Using life insurance allows you to achieve the FAST’s objectives without depleting the assets otherwise available for the benefit of your family.

Is a FAST right for you?

If your children or other family members are in line to inherit a large estate, a FAST may be right for you. Properly designed and implemented, this trust type can help prepare your heirs to receive wealth and educate them about important family values and financial responsibility. We can help you determine if a FAST should be part of your estate plan.

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Quality Living Systems (QLS) is an organization in Flint that houses and cares for individuals with mental disabilities. The organization helps those who need 24-hour care and those living independently who need help with grocery shopping and other tasks. I have been a part of QLS for around 20 years, and I volunteer whenever I can with fundraisers and other events.

My oldest brother, Jimmy, is a resident in one of their assisted living homes with 11 others. The staff have taken great care of him and even helped him get a job. They cook his meals, host different parties, and make sure to give him a comfortable life.

It is always great walking into QLS. The residents always have a smile on their faces when you show up. Even though they might not know who you are, they make you feel like the most special person in the world. And the staff are some of the most kind and patient people I know.

When I called to tell the staff at QLS that they had received a Yeo & Yeo Foundation grant, they were ecstatic. Through this experience and my time as the Foundation’s Grant Committee Representative for the Flint office, I have learned that no matter how small, donations of time and treasures go a long way.

I give back because I want to support those who selflessly care for others.

As year-end approaches, now is a good time to think about planning moves that may help lower your tax bill for this year and possibly next.

This year likely brought challenges and disruptions that impacted your personal and business financial situation. This year’s planning could be more challenging as you contend with the provisions of the American Rescue Plan Act from 2021 and the new Inflation Reduction Act in 2022.

Yeo & Yeo’s Year-end 2022 Tax Guide provides action items that may help you save tax dollars if you act before year-end. These are just some of the steps that can be taken to save taxes. Not all actions may apply in your particular situation, but you or a family member can likely benefit from many of them.

Next steps

After reviewing the Year-end Tax Guide, reach out to your Yeo & Yeo tax advisor, who can help narrow down the specific actions you can take and tailor a tax plan unique to your current personal and business situation.

Together we can:

Identify tax strategies and advise you on which tax-saving moves to make.
Evaluate tax planning scenarios.
Determine how we can help.

We will continue to monitor tax changes and share information as it becomes available.

Middle-market businesses lose an average of almost $300,000 annually to invoice fraud, according to a recent survey by software company Medius and researcher Censuswide. Invoice fraud can be challenging to spot — and even more difficult to recover from — but your company can take steps to prevent it from happening.

Common types

The most common type of invoice fraud is fraudulent billing. In billing schemes, a real or fake vendor sends an invoice for goods or services that the business never received (and may not have ordered in the first place). Overbilling schemes are similar. Your company may have received goods it ordered, but the vendor’s invoice is higher than agreed upon. Duplicate billing is where a fraud perpetrator sends you the same invoice more than once, even though you’ve already paid.

Employees sometimes commit invoice fraud as well. This can happen when a manager approves payments for personal purchases. In other cases, a manager might create fictitious vendors, issue invoices from the fake vendors and approve the invoices for payment. Such schemes generally are more successful when employees collude. For example, one perpetrator might work in receiving and the other in accounts payable. Or a receiving worker might collude with a vendor or other outside party.

4 steps

To stop invoice fraud and perpetrators from succeeding in their schemes, take the following four steps:

1. Conduct due diligence. Verify the identity of any new supplier before doing business with it. Research its ownership, operating history, registered address and customer reviews, if they exist online. Also, try to find someone who has done business with the vendor and can vouch for its legitimacy. This could be a competitor or an employee who knows the supplier from working at another company.

2. Review invoices carefully and methodically. Don’t “rubber stamp” invoices for payment. Look them over for any red flags, such as unexpected changes in the amount due or unusual payment terms. Manual alterations to an invoice require additional scrutiny, as do invoices from new vendors. If something seems wrong, contact the vendor that issued the invoice to confirm it’s legitimate. If the response lacks credibility or raises additional concerns, decline to pay until you’ve cleared up any confusion.

3. Control the review and approval process. Implement and adhere to antifraud controls when processing invoices. For example, confirm with your receiving department that goods were delivered and check invoices against previous ones from the same vendor to ensure no discrepancies. Also, you may want to require more than one person to approve invoices for payment.

4. Depend on technology solutions. Automating your accounts payable process can help prevent and detect invoice fraud. For example, using optical character recognition (OCR) to scan and read invoices can help ensure they’re paid on time and that the amounts and line items match the prices quoted and any documentation in your company’s financial records. OCR minimizes employee intervention and the potential to divert payments to personal accounts. It also makes collusion with vendors more difficult.

If the worst occurs

Even if you take all precautions, invoice fraud may occur. If you discover a scheme in progress, act quickly to minimize the damage. Notify your bank or credit card company to stop payment on invoices that haven’t yet been paid. And if you intend to file an insurance claim or want to pursue criminal charges, be sure to file a police report.

We can help you and your attorney build a case against a suspect by gathering and analyzing fraud evidence and even testifying in court. Contact us if you need assistance or have questions about invoice fraud.

Businesses shut down for many reasons. Some of the reasons that businesses shutter their doors:

An owner retirement,
A lease expiration,
Staffing shortages,
Partner conflicts, and
Increased supply costs.

If you’ve decided to close your business, we’re here to assist you in any way we can, including taking care of the various tax obligations that must be met.

For example, a business must file a final income tax return and some other related forms for the year it closes. The type of return to be filed depends on the type of business you have. Here’s a rundown of the basic requirements.

Sole Proprietorships. You’ll need to file the usual Schedule C, “Profit or Loss from Business,” with your individual return for the year you close the business. You may also need to report self-employment tax.

Partnerships. A partnership must file Form 1065, “U.S. Return of Partnership Income,” for the year it closes. You also must report capital gains and losses on Schedule D. Indicate that this is the final return and do the same on Schedules K-1, “Partner’s Share of Income, Deductions, Credits, Etc.”

All Corporations. Form 966, “Corporate Dissolution or Liquidation,” must be filed if you adopt a resolution or plan to dissolve a corporation or liquidate any of its stock.

C Corporations. File Form 1120, “U.S. Corporate Income Tax Return,” for the year you close. Report capital gains and losses on Schedule D. Indicate this is the final return.

S Corporations. File Form 1120-S, “U.S. Income Tax Return for an S Corporation” for the year of closing. Report capital gains and losses on Schedule D. The “final return” box must be checked on Schedule K-1.

All Businesses. Other forms may need to be filed to report sales of business property and asset acquisitions if you sell your business.

Duties involving workers

If you have employees, you must pay them final wages and compensation owed, make final federal tax deposits and report employment taxes. Failure to withhold or deposit employee income, Social Security and Medicare taxes can result in full personal liability for what’s known as the Trust Fund Recovery Penalty.

If you’ve paid any contractors at least $600 during the calendar year in which you close your business, you must report those payments on Form 1099-NEC, “Nonemployee Compensation.”

More tax issues to consider

If your business has a retirement plan for employees, you’ll want to terminate the plan and distribute benefits to participants. There are detailed notice, funding, timing and filing requirements that must be met by a terminating plan. There are also complex requirements related to flexible spending accounts, Health Savings Accounts, and other programs for your employees.

We can assist you with many other complicated tax issues related to closing your business, including debt cancellation, use of net operating losses, freeing up any remaining passive activity losses, depreciation recapture and possible bankruptcy issues.

We can advise you on the length of time you need to keep business records. You also must cancel your Employer Identification Number (EIN) and close your IRS business account.

If your business is unable to pay all the taxes it owes, we can explain the available payment options to you. Contact us to discuss these issues and get answers to any questions.

We’re excited for what’s ahead. 2023 marks Yeo & Yeo’s 100th anniversary, and we’re enthusiastically planning for what’s next. We’ve been working hard as a team and have reached out to our clients and communities to help us embrace our authentic differences, our longstanding values, and our vision for the future.

The result? In January, we’ll unveil our new brand identity, which builds upon our story. It spotlights our points of difference: the power of listening, the benefit of our perspective, and the connectedness of our purpose. The Yeo & Yeo name is not changing — but our look, feel, and clarity of message are taking a bold step forward. We simply can’t wait to show you.

Keep an eye out for updates and be the first to see it all by staying in touch with us through our social channels, our website, and email updates.

Defined benefit retirement plans, better known as pensions, have been at risk for decades now. In fact, the Pension Benefit Guaranty Corporation (PBGC), a federal agency dedicated to protecting “the retirement incomes of over 33 million American workers in private sector defined benefit pension plans,” was created under the Employee Retirement Income Security Act of 1974.

One of the functions of the PBGC is to periodically increase the federal guarantee (insurance) limit for pension plans that fail. The annual changes are linked to increases in a Social Security index.

The guarantee formula provides for different limits based on a covered person’s age when that individual begins getting benefits from the PBGC. For example, the limit is lower for people who begin getting benefits at a younger age, reflecting the fact that they’ll receive more monthly pension checks over their expected lifetimes. Conversely, the limit is higher for people who start receiving benefits later in life. In addition, the formula calls for adjustments for retirees who choose a payment form that continues payments to a beneficiary after the retiree’s death.

In October, the PBGC announced that the guarantee limit for single-employer pension plans that are insured by the agency and fail in 2023 will be 8.79% higher than the limit that applied for 2022. A table showing the 2023 guarantee limits for various ages and payment forms — that is, straight-life annuities and joint and 50% survivor annuities — is posted on the PBGC’s website. (The guarantee limit under a separate program for multiemployer plans isn’t indexed and, thus, remains unchanged.)

Earlier in 2022, the PBGC reminded participating employers that the login process for its My Plan Administration Account (PAA) online portal has been modified to meet new federal cybersecurity requirements for public-facing websites. Most notably, there’s now a requirement to implement two-factor authentication. My PAA users may now log in via Login.gov, a secure sign-in service used by the public to access participating government services — including the U.S. Transportation Security Administration’s PreCheck, Social Security and USAJobs. With this new process, users can use the same email address and password to access all participating government services.

Our firm can provide further information on the single-employer guarantee limit, as well as offer support in managing the financial challenges of a pension plan.