Estate Planning 101

Estate planning can be one of the hardest topics to talk about. No one likes to confront their own mortality, but there are several things you can do to make it easier on the loved ones you leave behind.

Prepaid funeral arrangements

Arranging for your funeral can be done at any point in your life and can help ensure that your arrangements will be taken care of later. The type of funeral service, the location of your grave, and even what kind of casket or urn you will have can all be planned and paid for in advance. Funeral planning will save friends and family from having to figure out these details in their time of grief.

In Michigan, when you prepay for a funeral, the funeral home may secure your funds in a couple of ways. The funds could be used to purchase a life insurance policy with the funeral home named as the beneficiary, or the funds could be placed in an escrow account in low-risk investments. Funeral homes that use the latter option have a yearly examination by an accountant to ensure your deposit is handled appropriately.

Prepaid funeral arrangements can be guaranteed or non-guaranteed.

A guaranteed contract means that the funeral home will perform the services you agreed to regardless of the current cost of those services. These types of contracts are an excellent way to ensure there will be no additional expenses for your funeral, but excess funds will not be refunded to the family.
A non-guaranteed contract will apply the balance of the funds deposited and their earnings toward the current cost of the funeral. With this option, there may be a balance due or a refund of an overpayment.

Either option will allow you to preplan your funeral. Irrevocable funeral contracts are an option for individuals who are on means-tested assistance. These types of contracts cannot be canceled, but can use up excess funds the individual may have received and plan for their funeral at the same time.

Wills, trusts, and designated beneficiaries

A will is a legal document declaring what a person wishes to happen to their property, and a trust is an arrangement where a designated person (or persons) manage assets for the good of one or more beneficiaries. Probate is a court process that handles the distribution of a decedent’s property. A will is still subject to probate but gives direction as to the estate’s executor and how the assets will be distributed.

One way to avoid probate is to transfer all assets into a revocable trust, sometimes referred to as a living trust. The trust document will determine how the assets and income of the trust are to be distributed, name the beneficiaries, and designate a trustee who will manage and execute the trust. Often, living trusts are used in conjunction with a pour-over will that simply designates that any remaining assets in the decedent’s estate will automatically transfer to the trust.

Several account types have their own designated beneficiary and are not subject to probate. These include life insurance policies, some bank accounts, and retirement plans with beneficiaries or payable-on-death designations. For these accounts, it is very important to keep the beneficiary information up to date with your wishes.

Succession planning

For every business owner, it is a good idea to have a long-term succession plan for eventual retirement and an emergency succession plan in case of a sudden emergency. A long-term plan allows you to lay out the future of your business and your involvement in it. Will you eventually sell the business to fund retirement or pass it on to the next generation? Whichever option you elect, planning options are available to help you along the way, including business valuations and gifting. Sometimes, things do not go according to plan, and an unexpected death can leave your business in disarray. Having an emergency succession plan mapped out can give employees and family members guidance and stability while ensuring everything will be handled how you would want.

Which options are best?

The options listed above each have pros and cons that fit different situations and should be considered carefully. Yeo & Yeo’s Trust and Estate Services Group can help you evaluate the best options to serve your situation. Please reach out to us at 800.968.0010.

If you’re taking a second trip down the aisle, you may have different expectations than you did when you got married the first time — especially when it comes to estate planning. For example, if you have children from a previous marriage, your priority may be to provide for them. Or perhaps you feel that your new spouse should have limited rights to your assets compared to those of your spouse from your first marriage.

Unfortunately, the law doesn’t see it that way. In nearly every state, a person’s spouse has certain property rights that apply regardless of the terms of the estate plan. And these rights are the same, whether it’s your first marriage or your second. Here’s an introduction to spousal property rights and strategies you may be able to use to limit them.

Defining a spouse’s “elective share”

Spousal property rights are creatures of state law, so it’s critical to familiarize yourself with the laws in your state to achieve your planning objectives. Most, but not all, states provide a surviving spouse with an “elective share” of the deceased spouse’s estate, regardless of the terms of his or her will or certain other documents.

Generally, a surviving spouse’s elective share ranges from 30% to 50%, though some states start lower and provide for progressively larger shares as the duration of the marriage increases. Perhaps the most significant variable, with respect to planning, is the definition of assets subject to the surviving spouse’s elective share rights.

In some states, the elective share applies only to the “probate estate” — generally, assets held in the deceased spouse’s name alone that don’t have a beneficiary designation. In other states, it applies to the “augmented estate,” which is the probate estate plus certain nonprobate assets. These assets may include revocable trusts, life insurance policies, and retirement or financial accounts that pass according to a beneficiary designation or transfer-on-death designation.

By developing an understanding of how elective share laws apply in your state, you can identify potential strategies for bypassing them.

Using planning strategies

Elective shares are designed to protect surviving spouses from being disinherited. But there may be good reasons for limiting the amount of property that goes to your spouse when you die. For one thing, your spouse may possess substantial wealth in his or her own name. And you may want most of your estate to go to your children from a previous marriage.

Strategies for minimizing the impact of your spouse’s elective share on your estate plan include making lifetime gifts. By transferring property to your children or other loved ones during your lifetime (either outright or through an irrevocable trust), you remove those assets from your probate estate and place them beyond the reach of your surviving spouse’s elective share. If your state uses an augmented estate to determine a spouse’s elective share, lifetime gifts will be protected so long as they’re made before the lookback period or, if permitted, your spouse waives the lookback period.

Seeking professional help

Elective share laws are complex and can vary dramatically from state to state. If you’re remarrying, we can help you evaluate their impact on your estate plan and explore strategies for protecting your assets.

An impressive 432,834 new business applications for tax identification numbers were submitted during October 2022, according to the U.S. Census Bureau. Indeed, despite the relatively higher costs of doing business these days, plenty of start-ups are still launching.

One thing that every new company needs, along with a business plan, is a sensible budget. And that holds true for well-established entities as well. Let’s review some fundamentals of budgeting for start-ups, which can also apply in some shape or form to companies that have been around for a while.

Forecast your financial statements

Many businesses that have been up and running for a while base their budgets on the previous year’s financial results. Of course, start-ups lack historical financial statements, which can make budgeting difficult.

For the first year of operation, however, an entrepreneur can create an annual budget by forecasting the monthly numbers that will likely be reflected in the three basic parts of their financial statements:

1. The income statement. Start your annual budget by estimating how much you expect to sell each month. Then, estimate direct costs (such as materials, labor, sales tax and shipping) based on that sales volume. Many operating costs (such as rent, salaries and insurance) will be fixed over the short run.

Once you spread overhead costs over your sales, you might not be able to report a net profit in your first year of operation. Don’t panic! Profitability takes time and hard work. Once you turn a profit, however, remember to save room in your budget for income taxes.

2. The balance sheet. To start generating revenue, you’ll also need equipment and marketing materials — including a website. Other operating assets, such as accounts receivable and inventory, typically move in tandem with revenue. How will you finance these assets? Entrepreneurs may invest personal funds, take out loans or receive money from other investors. These items fall under liabilities and equity on the balance sheet.

3. The statement of cash flows. This report tracks sources and uses of cash from operating, investing and financing activities. Essentially, it shows how your business will make ends meet each month. In addition to acquiring assets, start-ups need to cover fixed monthly expenses.

Ask for help

By forecasting these three statements every month for at least a year, you can identify when cash shortfalls, as well as seasonal peaks and troughs, are likely to occur. Naturally, you should expect to adjust the budget occasionally or even frequently to account for miscalculations and macroeconomic forces.

We can help you put together a realistic budget based on industry benchmarks and market research into the likely demand for your products or services. And, again, even if your company has been operating for a while now, you may be able to gain some helpful insights from having an objective professional review your budget.

It’s been a tumultuous year for many businesses, and the current economic climate promises more uncertainty for the short term, if not longer. Regardless of how your company has fared so far in 2022, there’s still time to make moves that may reduce your federal tax liability. Read on for some strategies worth your consideration.

Time your income and expenses

When it comes to year-end tax reduction strategies, the granddaddy of them all — for businesses that use cash-basis accounting — is probably the practice of accelerating deductions into the current tax year and deferring income into the next year. You can accelerate deductions by, for example, paying bills or employee bonuses due in 2023 before year end and stocking up on supplies. Meanwhile, you can defer income by holding off on invoicing until late December or early January.

You should consider this strategy only if you don’t expect to see significantly higher profits next year. If you think you will, flip the approach, accelerating income and pushing deductions into the future when they’ll be more valuable. Also, bear in mind that reducing your income could reduce your qualified business income (QBI) deduction, depending on your business entity.

Maximize your QBI deduction

Pass-through entities (that is, sole proprietors, partnerships, limited liability companies and S corporations) can deduct up to 20% of their QBI, subject to certain limitations based on W-2 wages paid, the unadjusted basis of qualified property and taxable income. The deduction, created by the Tax Cuts and Jobs Act (TCJA), is set to expire after 2025, absent congressional action, so make the most of it while you can.

You could increase your deduction by increasing wages (for example, by converting independent contractors to employees or raising pay for existing employees) or purchasing capital assets. (Of course, these moves usually have other consequences, such as higher payroll taxes, that you should weigh before proceeding.) You can avoid the income limit by timing your income and deductions, as discussed above.

If the W-2 wage limitation doesn’t limit the QBI deduction, S corporation owners can increase their QBI deductions by reducing the wages the business pays them. (This won’t work for sole proprietorships or partnerships, which don’t pay their owners salaries.) Conversely, if the wage limitation does limit the deduction, S corporation owners might be able to take a greater deduction by boosting their wages.

Accelerate depreciation — while you can

The TCJA also increased the Section 168(k) first-year bonus depreciation to 100% of the purchase price, through 2022. Beginning next year, the allowable deduction will drop by 20% each year until it evaporates altogether in 2027 (again, absent congressional action). Combining bonus depreciation with the Section 179 deduction can produce substantial tax savings for 2022.

Under Sec. 179, you can deduct 100% of the purchase price of new and used eligible assets in the year you place them in service — even if they’re only in service for a day or two. Eligible assets include machinery, office and computer equipment, software, and certain business vehicles. The deduction also is available for improvements to nonresidential property.

The maximum Sec. 179 deduction for 2022 is $1.08 million and it begins phasing out on a dollar-for-dollar basis when your qualifying property purchases exceed $2.7 million. The maximum deduction also is limited to the amount of your income from the business, although unused amounts can be carried forward indefinitely.

Alternatively, you can claim excess amounts as bonus depreciation, which is subject to no limits or phaseouts in 2022. Bonus depreciation is available for computer systems, software, vehicles, machinery, equipment, office furniture and qualified improvement property (generally, interior improvements to nonresidential property).

For all their immediate appeal, bonus depreciation and Sec. 179 expensing aren’t always advisable. You may, for example, want to skip accelerated depreciation if you claim the QBI deduction. The deduction is limited by your taxable income, and depreciation reduces such income.

It might be wise to have some depreciation available to offset your income in 2023 through 2025 so you can claim the QBI deduction while it’s still around. You might think twice, too, if you have expiring net operating losses, charitable contributions or credit carryforwards that are affected by taxable income.

The good news is that you don’t have to decide now. As long as you place qualified property in service by December 31, 2022, you have the option of choosing the most advantageous approach when you file your tax return in 2023.

Get real about your bad debts

Business owners are sometimes slow to accept that they’re going to go unpaid for services rendered or goods delivered. If you use accrual-basis accounting, though, facing the facts can land you a bad debt deduction.

The IRS allows businesses to deduct “worthless” debts, in full or in part, that they’ve previously included in their income. To show that a debt is worthless, you need to show that you’ve taken reasonable steps to collect but without success. You aren’t required to go to court if you can show that a judgment from a court would be uncollectible.

You still have time to take reasonable steps to collect outstanding debts. It’s important to keep detailed records of these efforts. If you determine you can’t collect, you may be able to deduct some or all of those debts for 2022.

Start or replace your retirement plan

If you’ve put off establishing a retirement plan, or simply outgrown the plan you started years ago, you have time to possibly trim your taxes this year — and likely improve your employee recruitment and retention at the same time — by starting a new plan. Eligible employers can claim a tax credit of up to $5,000, for the first three years, for the costs of starting a SEP IRA, SIMPLE IRA or a qualified plan such as a 401(k) plan.

The credit is 50% of your costs to set up and administer the plan and educate your employees about it. You can claim up to the greater of $500 or the lesser of:

$250 multiplied by the number of non-highly compensated employees who are eligible to participate in the plan, or
$5,000.

You can begin to claim the credit in the tax year before the year the plan becomes effective. And, if you add an auto-enrollment feature, you can claim a tax credit of $500 per year for a three-year period beginning in the first taxable year the feature is included.

Leverage your startup expenses

If you launched a new business this year, you might qualify for a limited deduction for certain costs. The IRS allows you to deduct up to $5,000 of startup costs and $5,000 of organizational costs (such as the costs of creating a partnership). The deduction is reduced by the amount by which your total startup or organizational costs exceed $50,000. You must amortize any remaining costs.

An eligible cost is one that you could deduct if it were paid or incurred to operate an existing business in the same field. Eligible costs also must be paid or incurred before the active business begins. Examples include business analysis costs, advertisements for the business’s opening, travel and other costs related to lining up prospective distributors, suppliers or customers, and certain salaries, wages and fees.

Turn to us for planning advice

Many of the strategies detailed here involve tradeoffs that require thoughtful evaluation and analysis. We can help you make the right choices to minimize your company’s tax bill.

For wage reporting purposes, employers periodically need to verify the identities of their employees. To do so, someone in your organization must lay hands and eyes on a worker’s Social Security card, right?

Not necessarily. In the Fall 2022 SSA/IRS Reporter, a quarterly newsletter published by the U.S. Social Security Administration, the federal agency reminds employers that they don’t need to physically inspect an employee’s Social Security card to verify a name and Social Security number.

Instead, employers may use the Social Security Number Verification Service, which is available through the Social Security Administration’s Business Services Online website. The service allows users to immediately verify up to 10 names and Social Security numbers online. Users can also upload up to 250,000 names and Social Security numbers, and usually receive next day results.

If you encounter a mismatch between the Social Security number presented by an employee and the results provided by the Social Security Number Verification Service, don’t immediately take an adverse action such as suspending or terminating the individual. Also keep in mind that a mismatch isn’t indicative of a worker’s immigration status.

Here are some commonly recommended steps to handling a mismatch:

Review your own employment records to verify the Social Security number.
Ask the employee to confirm the Social Security number on file.
Double-check the spelling of the employee’s name — particularly if it’s hyphenated or relatively easy to misspell.

If your records and/or the employee confirms the Social Security number as accurate, but you still get a mismatch, ask the employee to check into the matter with the local Social Security office. Then, resubmit with updated information when it’s available.

In some cases, an employee might refuse to provide a current valid Social Security number. Or you may be unable to reach someone who works remotely. If either circumstance arises, carefully document your efforts to obtain the correct info and retain this documentation for at least three years.

Finally, should you furnish a W-2 with an incorrect name and/or Social Security number, you’ll need to submit a Form W-2c, “Corrected Wage and Tax Statement,” to the IRS. Contact us for further information on wage reporting or other issues related to payroll tax compliance.

Did you know that one of the most effective estate-tax-saving techniques is also one of the simplest and most convenient? By making maximum use of the annual gift tax exclusion, you can pass substantial amounts of assets to loved ones during your lifetime without any gift tax. For 2022, the amount is $16,000 per recipient. In 2023, the amount will increase by $1,000, to $17,000 per recipient.

Maximizing your gifts

Despite a common misconception, federal gift tax applies to the giver of a gift, not to the recipient. But gifts can generally be structured so that they’re — at least to a limited degree — sheltered from gift tax. More specifically, they’re covered by the annual gift tax exclusion and, if necessary, the unified gift and estate tax exemption for amounts above the exclusion. (Using the unified exemption during your lifetime, however, erodes the available estate tax shelter.)

For 2022, you can give each family member up to $16,000 a year without owing any gift tax. For instance, if you have three adult children and seven grandchildren, you may give each one up to $16,000 by year end, for a total of $160,000. Then you can turn around and give each one $17,000 beginning in January 2023, for $170,000. In this example, you could reduce your estate by a grand total of $330,000 in a matter of months.

Furthermore, the annual gift exclusion is available to each taxpayer. If you’re married and your spouse consents to a joint gift, also called a “split gift,” the exclusion amount is effectively doubled to $32,000 per recipient in 2022 ($34,000 in 2023).

Bear in mind that split gifts and large gifts trigger IRS reporting responsibilities. A gift tax return is required if you exceed the annual exclusion amount, or you give joint gifts with your spouse. Unfortunately, you can’t file a “joint” gift tax return. In other words, each spouse must file an individual gift tax return for the year in which they both make gifts.

Coordinating with the lifetime exemption

The lifetime gift tax exemption is part and parcel of the unified gift and estate tax exemption. It can shelter from tax gifts above the annual gift tax exclusion. Under current law, the exemption effectively shelters $10 million from tax, indexed for inflation. In 2022, the amount is $12.06 million, and in 2023 the amount will increase to $12.92 million. However, as mentioned above, if you tap your lifetime gift tax exemption, it erodes the exemption amount available for your estate.

Exceptions to the rules

Be aware that certain gifts are exempt from gift tax, thereby preserving both the full annual gift tax exclusion amount and the exemption amount. These include gifts:

From one spouse to the other,
To a qualified charitable organization,
Made directly to a healthcare provider for medical expenses, and
Made directly to an educational institution for a student’s tuition.

For example, you might pay the tuition for a grandchild’s upcoming school year directly to the college. That gift won’t count against the annual gift tax exclusion.

Planning your gifting strategy

The annual gift tax exclusion remains a powerful tool in your estate-planning toolbox. Contact us for help developing a gifting strategy that works best for your specific situation.

It has been quite a year — high inflation, rising interest rates and a bear stock market. While there’s not a lot you can do about any of these financial factors, you may have some control over how your federal tax bill for the year turns out. Here are some strategies to consider executing before year end that may reduce your 2022 or future tax liability.

1. Convert your traditional IRA to a Roth IRA

The down stock market could make this an especially lucrative time to convert all or some of the funds in a traditional pre-tax IRA to an after-tax Roth IRA. Although you must pay income tax on the amount converted in 2022, Roth accounts hold some significant advantages over their traditional counterparts.

Unlike traditional IRAs, for example, Roths aren’t subject to required minimum distributions (RMDs). The funds in a Roth will appreciate tax-free. Qualified future distributions also will be tax-free, which will pay off if you’re subject to higher tax rates at that time, whether due to RMDs or other income.

How does the poorly performing stock market incentivize a Roth conversion? If your traditional IRA contains stocks or mutual funds that have lost significant value, you can convert more shares than you could if they were worth more, for the same amount of tax liability.

Roth conversions are also advisable if you have lower income and therefore are in a lower tax bracket this year. Perhaps you lost your job at the end of 2021 and didn’t resume working until this past summer, or you’re retired but not yet receiving Social Security payments. You may be able to save by converting before the end of the year.

Currently, you can use a Roth conversion as a workaround for the income limits on your ability to contribute to Roth IRAs — what’s known as a backdoor Roth IRA — because converted funds aren’t treated as contributions. But be aware that, if you’re under age 59½, you can’t access the transferred funds without penalty.

Further, be aware that a Roth conversion will likely increase your adjusted gross income (AGI). As such, it could affect your eligibility for tax breaks that phase out based on AGI or modified adjusted gross income (MAGI).

2. Defer or accelerate income and deductions

A common tax reduction technique is to defer income into the next year and accelerate deductions into the current year. Doing so can allow you to make the most of tax breaks that phase out based on income (such as the IRA contribution deduction, child tax credits and education tax credits). If you’re self-employed, for example, you might delay issuing invoices until late December (increasing the odds they won’t be paid until 2023) and make equipment purchases in December, rather than January (assuming you use cash-basis accounting).

On the other hand, you might want to defer deductions and accelerate income if you expect to land in a higher tax bracket in the future. You can accelerate income by, for example, realizing deferred compensation, exercising stock options, recognizing capital gains or engaging in a Roth conversion.

High-income individuals should think about income deferral from the perspective of the 3.8% net investment income tax (NIIT), too. The NIIT kicks in when MAGI is more than $200,000 for single and head of household filers, $250,000 for married filing jointly and $125,000 for married filing separately. Deferring investment income could mean escaping that potentially hefty tax bite.

3. Manage your itemized deductions wisely

Accelerating deductions generally is helpful only if you itemize your deductions, of course. If you don’t think you’ll qualify to itemize, think about “bunching” itemized deductions so that they exceed the standard deduction (in 2022, $12,950 for single filers, $25,900 for married filing jointly and $19,400 for heads of household). If you claim itemized deductions this year and the standard deduction next year, you could end up with a larger two-year total deduction than if you took the standard deduction both years.

Potential expenses ripe for bunching include medical and dental expenses (if you qualify to deduct eligible expenses that exceed 7.5% of your AGI), charitable contributions, and state and local tax (SALT). For example, you could get dental services before year end, make your 2022 and 2023 charitable donations in December of this year, and pre-pay property taxes due next year, if possible.

The deduction for SALT-like property tax generally is subject to a $10,000 cap. Check, though, to determine if you might be able to take advantage of a pass-through entity (PTE) tax. More than two dozen states and New York City have enacted these laws, which permit a PTE to pay state tax at the entity level, rather than the individual taxpayer level. PTEs aren’t subject to a federal limit on SALT deductions.

4. Give to charity

The AGI limit for deductible cash donations has returned to 60% of AGI for 2022. But the possibility for substantial savings from making a charitable donation remains. For example, if you donate appreciated assets that you’ve held at least one year, you can deduct their fair market value and avoid income tax on the amount of appreciation if you itemize.

A qualified charitable distribution (QCD) from your IRA may confer tax benefits. Taxpayers who are age 70½ years or older can make a direct transfer of up to $100,000 per year from their IRAs to a qualified charity — and exclude the transferred amount from their gross income. (Note that transfers to a donor-advised fund or supporting organization don’t qualify). If you’re age 72 or older, a QCD can count toward your RMDs, as well.

You also may want to explore establishing a donor-advised fund. You can set it up and contribute assets in 2022 to claim a deduction for this year, while delaying your selection of the recipient charity and the actual contribution until 2023.

5. Harvest your capital losses

This is another way to leverage the poor market performance in 2022 — selling off your investments that have lost value to offset any capital gains. If your capital losses exceed your capital gains, you can deduct up to $3,000 ($1,500 for married filing separately) a year from your ordinary income and carry forward any remaining excess indefinitely.

You could further juice the benefit of loss harvesting by donating the proceeds from the sale to charity. You’ll offset realized gains while boosting your charitable contribution deduction (subject to AGI limitations on the charitable contribution deduction).

Take heed of the wash-rule, though. It says you can’t write off losses if you acquire “substantially identical” securities within 30 days before or after the sale.

Act now

It’s been a rocky financial year for many people, and uncertainty about the economy will continue into next year. One thing is certain, though — everyone wants to cut their tax bills. Contact us to help you with your year-end tax planning.

My husband was killed in action while deployed to Afghanistan in 2006. Shortly after, I was approached by the Saginaw County Veterans Memorial Plaza, which was in search of a treasurer. The Plaza is a beautiful place where you can go to honor and remember those who have passed away or who have served. I felt like it was the right organization to join and be a part of, as I had just lost someone very important to me.

Fourteen years later, I am on my fourth four-year term as treasurer, attending monthly meetings and continuing to support the organization. As a board member, I help plan free public ceremonies on Memorial Day and Veterans Day. When we aren’t putting on ceremonies, we maintain the grounds and the bricks people can buy for their loved ones.

The Plaza relies on its volunteers and donations from the Saginaw area and will put on fundraisers like 5k races to help provide adequate funding. We also hold appreciation lunches around Flag Day for the companies and individuals who have donated their services and time to help take care of the Plaza.

Through giving my time, I have realized that the more people you talk to, the more you understand that everyone has a story. Sometimes they might even have one that is similar to yours. Finding an organization that speaks to you and developing more of a connection by giving your time is key. It is very rewarding, and I think it is our duty to volunteer where we can.

I give back because I want to support those who have lost a loved one fighting for our country.

No one needs to remind business owners that the cost of employee health care benefits keeps going up. One way to provide some of these benefits is through an employer-sponsored Health Savings Account (HSA). For eligible individuals, an HSA offers a tax-advantaged way to set aside funds (or have their employers do so) to meet future medical needs. Here are the key tax benefits:

Contributions that participants make to an HSA are deductible, within limits.
Contributions that employers make aren’t taxed to participants.
Earnings on the funds in an HSA aren’t taxed, so the money can accumulate tax-free year after year.
Distributions from HSAs to cover qualified medical expenses aren’t taxed.
Employers don’t have to pay payroll taxes on HSA contributions made by employees through payroll deductions.

Eligibility and 2023 contribution limits

To be eligible for an HSA, an individual must be covered by a “high deductible health plan.” For 2023, a “high deductible health plan” will be one with an annual deductible of at least $1,500 for self-only coverage, or at least $3,000 for family coverage. (These amounts in 2022 were $1,400 and $2,800, respectively.) For self-only coverage, the 2023 limit on deductible contributions will be $3,850 (up from $3,650 in 2022). For family coverage, the 2023 limit on deductible contributions will be $7,750 (up from $7,300 in 2022). Additionally, annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits for 2023 will not be able to exceed $7,500 for self-only coverage or $15,000 for family coverage (up from $7,050 and $14,100, respectively, in 2022).

An individual (and the individual’s covered spouse, as well) who has reached age 55 before the close of the tax year (and is an eligible HSA contributor) may make additional “catch-up” contributions for 2023 of up to $1,000 (unchanged from the 2022 amount).

Employer contributions

If an employer contributes to the HSA of an eligible individual, the employer’s contribution is treated as employer-provided coverage for medical expenses under an accident or health plan. It’s also excludable from an employee’s gross income up to the deduction limitation. Funds can be built up for years because there’s no “use-it-or-lose-it” provision. An employer that decides to make contributions on its employees’ behalf must generally make comparable contributions to the HSAs of all comparable participating employees for that calendar year. If the employer doesn’t make comparable contributions, the employer is subject to a 35% tax on the aggregate amount contributed by the employer to HSAs for that period.

Making withdrawals

HSA withdrawals (or distributions) can be made to pay for qualified medical expenses, which generally means expenses that would qualify for the medical expense itemized deduction. Among these expenses are doctors’ visits, prescriptions, chiropractic care and premiums for long-term care insurance.

If funds are withdrawn from the HSA for other reasons, the withdrawal is taxable. Additionally, an extra 20% tax will apply to the withdrawal, unless it’s made after reaching age 65, or in the event of death or disability.

HSAs offer a flexible option for providing health care coverage and they may be an attractive benefit for your business. But the rules are somewhat complex. Contact us if you have questions or would like to discuss offering HSAs to your employees.

When new technologies emerge, it can take time for the general public to learn how they work. Non-fungible tokens, or NFTs, first appeared in 2014, yet many people are still confused about what they are and how to buy and store them. This gives criminals who understand the technology an advantage. In addition to money laundering, tax evasion and terrorist funding, NFTs are being used to commit fraud and steal from unsuspecting asset buyers. For example, more than $100 million in NFTs was stolen between July 2021 and July 2022, according to analytics company Elliptic.

Snapshot view

In their simplest form, NFTs are immutable digital assets — often related to art, sports, music, digital culture and avatars — linked to the blockchain, the digital ledger used to support cryptocurrencies. Many artists sell unique pieces in the form of NFTs. And one of the best known NFTs is Twitter founder Jack Dorsey’s first tweet, which was sold in 2021 for $2.9 million.

The blockchain enables NFT creators and owners to establish and maintain a digital certificate of authenticity. Most NFT buyers pay with cryptocurrency on the Ethereum network and use a digital wallet to store NFT assets. But there’s no guarantee NFTs will retain their value. When the buyer of the Jack Dorsey tweet tried to flip it in 2022, the highest bid he received was $277.

Where criminals come in

Not surprisingly, there’s plenty of opportunity for fraud on the NFT market. The following are some of the more common schemes buyers should watch out for:

Counterfeits. Some criminals create NFTs using intellectual property that doesn’t belong to them. When it becomes apparent an NFT is counterfeit, its resale value plummets. There’s no recourse for the buyer because cryptocurrency transactions provide sellers with anonymity.

“Free” assets. Scammers might offer a free NFT for signing up for a new website or service. To facilitate the NFT transfer, the mark is told to provide crypto wallet information. Criminals then use that information to steal the wallet’s contents.

Fake marketplaces. Here, fraudsters create websites that look like well-known NFT marketplaces. Users enter their login credentials and receive error messages. Behind the scenes, fraudsters use the newly acquired login data to raid the user’s real account and take control of their digital wallets.

Rug pulls. Dishonest creators might promote a forthcoming NFT via social media, generating interest that pushes up the asset’s bid price. Once buyers pay for the NFT, the promoters disappear, causing the digital asset to plunge in value.

Pump and dump. Similar to “rug pulls” and stock pump-and-dumps, this scheme drives up the price of otherwise valueless NFTs using hype and deception. Co-conspirators help boost prices by buying and selling the NFTs. But once a victim bites, the sellers and co-conspirators disappear and the buyer is left with a worthless asset.

Be careful

As with all financial transactions, exercise caution and skepticism when buying NFTs. Take time to scrutinize your transaction’s details, and if you’re at all suspicious about the legitimacy of the asset or seller, cancel it immediately. Contact us for more information about cryptocurrency and digital asset fraud.

The IRS recently finalized regulations that change the eligibility standards for the Affordable Care Act’s (ACA’s) premium tax credit. This is important news if your organization is an applicable large employer (ALE) under the ACA, or will be in 2023, and there’s any chance your health care coverage won’t be considered “affordable” and of “minimum value” next year.

The family glitch

Under the ACA, if an ALE doesn’t offer minimum essential coverage that’s affordable and provides minimum value to its full-time employees and their dependents, the employer may be subject to a penalty. This penalty is triggered if at least one of its full-time employees receives a premium tax credit for buying individual coverage through a Health Insurance Marketplace (commonly referred to as an “exchange”).

In 2022, employer-sponsored coverage is considered affordable if the required employee contribution for self-only coverage doesn’t exceed 9.5% of the employee’s household income. This threshold is indexed annually for inflation.

Historically, minimum value has been determined solely by reference to the employee’s coverage. Regulations provided that, if self-only minimum value coverage under an employer-sponsored plan is affordable for an employee, then the coverage is also affordable for a spouse with whom the employee is filing a joint return and any dependents who may be eligible to enroll in the employer’s coverage.

Accordingly, neither the spouse nor dependents would qualify for a premium tax credit — regardless of the required employee contribution for their coverage or whether their coverage provides minimum value. This has been sometimes referred to as “the family glitch.”

A new interpretation

The IRS has concluded that the ACA should be interpreted to require separate affordability determinations for employees and for their related individuals. Thus, as amended, the final regs provide that an eligible employer-sponsored plan is affordable for related individuals — thereby disqualifying them from a premium tax credit — only if the required employee contribution for family coverage doesn’t exceed 9.5% (or the indexed amount in future years) of household income.

For this purpose, family coverage means all employer plans that cover any related individual other than the employee, including a “self plus one” plan. The final regs also establish a separate minimum value rule for related individuals.

Ultimately, regardless of a plan’s cost, related individuals will no longer lose eligibility for the premium tax credit if the offered employer plan didn’t provide them affordable and minimum value coverage for the period in question. In addition, the IRS finalized a regulation that expands the definition of minimum value to require substantial coverage of inpatient hospital services and physician services.

Related IRS guidance was also issued allowing certain additional cafeteria plan election changes. Consult your benefits advisor for further details on these.

Some things remain the same

These final regs don’t affect the ACA’s information-reporting requirements, and safe harbors that employers may use to determine affordability are still available. Our firm can help you manage the tax and information-reporting complexities of offering health care coverage.

From an early age, my parents taught me to give back – especially my mom. She is one of the most caring and generous people; she always thinks of others before herself. I wanted to be a similar role model to my kids. So, when I was approached to serve as treasurer for the Mid-Michigan Children’s Museum, I readily agreed.

The Children’s Museum offers a safe and fun environment for children and their families to learn. They have many interactive exhibits, including a water table and air tunnel system. As a mom, I am always looking for different places to take my children, and we all enjoy going to the museum.

I am passionate about supporting the museum and its family-focused atmosphere. I am glad that, as treasurer, I can provide valuable insights by reviewing financial statements and budgets. Everyone I work with on the board is a leader in the Saginaw community, and I am proud to work for this great organization with them.

I give back because I want to help provide a safe place for kids to play and learn.

How much can you and your employees contribute to your 401(k)s next year — or other retirement plans? In Notice 2022-55, the IRS recently announced cost-of-living adjustments that apply to the dollar limitations for pensions, as well as other qualified retirement plans for 2023. The amounts increased more than they have in recent years due to inflation.

401(k) plans

The 2023 contribution limit for employees who participate in 401(k) plans will increase to $22,500 (up from $20,500 in 2022). This contribution amount also applies to 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan.

The catch-up contribution limit for employees age 50 and over who participate in 401(k) plans and the other plans mentioned above will increase to $7,500 (up from $6,500 in 2022). Therefore, participants in 401(k) plans (and the others listed above) who are 50 and older can contribute up to $30,000 in 2023.

SEP plans and defined contribution plans

The limitation for defined contribution plans, including a Simplified Employee Pension (SEP) plan, will increase from $61,000 to $66,000. To participate in a SEP, an eligible employee must receive at least a certain amount of compensation for the year. That amount will increase in 2023 to $750 (from $650 for 2022).

SIMPLE plans

Deferrals to a SIMPLE plan will increase to $15,500 in 2023 (up from $14,000 in 2022). The catch-up contribution limit for employees age 50 and over who participate in SIMPLE plans will increase to $3,500 in 2023, up from $3,000.

Other plan limits

The IRS also announced that in 2023:

The limitation on the annual benefit under a defined benefit plan will increase from $245,000 to $265,000. For a participant who separated from service before January 1, 2023, the participant’s limitation under a defined benefit plan is computed by multiplying the participant’s compensation limitation, as adjusted through 2022, by 1.0833.
The dollar limitation concerning the definition of “key employee” in a top-heavy plan will increase from $200,000 to $215,000.
The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period will increase from $1,230,000 to $1,330,000, while the dollar amount used to determine the lengthening of the five-year distribution period will increase from $245,000 to $265,000.
The limitation used in the definition of “highly compensated employee” will increase from $135,000 to $150,000.

IRA contributions

The 2023 limit on annual contributions to an individual IRA will increase to $6,500 (up from $6,000 for 2022). The IRA catch-up contribution limit for individuals age 50 and older isn’t subject to an annual cost-of-living adjustment and will remain $1,000.

Plan ahead

Current high inflation rates will make it easier for you and your employees to save much more in your retirement plans in 2023. The contribution amounts will be a great deal higher next year than they’ve been in recent years. Contact us if you have questions about your tax-advantaged retirement plan or if you want to explore other retirement plan options.

Does your company use supplier finance programs to buy goods or services? If so, and if you must adhere to U.S. Generally Accepted Accounting Principles (GAAP), there will be changes starting next year. At that time, you must disclose the full terms of supplier finance programs, including assets pledged to secure the transaction. Here are the details of this new requirement under GAAP.

Gap in GAAP

Supplier finance programs — sometimes called “structured payables” and “reverse factoring” — are popular because they offer a flexible structure for paying for goods and services. In a traditional supplier arrangement, the buyer agrees to pay the supplier directly within, say, 30 to 45 days.

Conversely, with a supplier finance program, the buyer arranges for a third-party finance provider or intermediary to pay approved invoices before the due date at a discount from the stated amount. Meanwhile the buyer receives an extended payment date, say, 90 to 120 days, in exchange for a fee. This enables the buyer to keep more cash on hand. However, many organizations haven’t been transparent in disclosing in their financial statements the effects those programs have on working capital, liquidity and cash flows.

That’s the reason the Financial Accounting Standards Board recently issued Accounting Standard Update (ASU) No. 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. It will require buyers to disclose the key terms of supplier finance programs and where any obligations owed to finance companies have been presented in the financial statements.

More details

Supplier finance programs are a relatively new form of arrangement that continues to evolve and grow in popularity. Even after this ASU becomes effective, GAAP doesn’t provide any specific guidance on where to present the amounts owed by the buyers to finance companies. It’s up to the buyer to decide whether these obligations should be presented as accounts payable or short-term debt.

However, the updated guidance does require that in each annual reporting period, a buyer must disclose:

The key terms of the program, including a description of the payment terms and assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary, and
For the obligations that the buyer has confirmed as valid to the finance provider or intermediary 1) the amount outstanding that remains unpaid by the buyer as of the end of the annual period, 2) a description of where those obligations are presented in the balance sheet, and 3) a roll-forward of those obligations during the annual period, including the amounts of obligations confirmed and obligations subsequently paid.

In each interim reporting period, the buyer must disclose the amount of obligations outstanding that the buyer has confirmed as valid to the finance provider or intermediary as of the end of the period.

Ready, set, go

The new rules take effect for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll-forward information. That provision is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. Contact us for more information or help implementing the changes.

The IRS recently issued its 2023 cost-of-living adjustments for more than 60 tax provisions. With inflation up significantly this year, many amounts increased considerably over 2022 amounts. As you implement 2022 year-end tax planning strategies, be sure to take these 2023 adjustments into account.

Also, keep in mind that, under the Tax Cuts and Jobs Act (TCJA), annual inflation adjustments are calculated using the chained consumer price index (also known as C-CPI-U). This increases tax-bracket thresholds, the standard deduction, certain exemptions and other figures at a slower rate than was the case with the consumer price index previously used, potentially pushing taxpayers into higher tax brackets and making various breaks worth less over time. The TCJA adopts the C-CPI-U on a permanent basis.

Individual income taxes

Tax-bracket thresholds increase for each filing status but, because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket increases by $725, to $1,450, depending on filing status, but the top of the 35% bracket increases by $22,950 to $45,900, again depending on filing status.

2023 ordinary-income tax brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
10%	$0 – $ 11,000	$0 – $ 15,700	$0 – $ 22,000	$0 – $ 11,000
12%	$11,001 – $ 44,725	$15,701 – $ 59,850	$22,001 – $ 89,450	$11,001 – $ 44,725
22%	$44,726 – $ 95,375	$59,851 – $ 95,350	$89,451 – $190,750	$44,726 – $ 95,375
24%	$95,376 – $182,100	$95,351 – $182,100	$190,751 – $364,200	$95,376 – $182,100
32%	$182,101 – $231,250	$182,101 – $231,250	$364,201 – $462,500	$182,101 – $231,250
35%	$231,251 – $578,125	$231,251 – $578,100	$462,501 – $693,750	$231,251 – $346,875
37%	Over $578,125	Over $578,100	Over $693,750	Over $346,875

The TCJA suspended personal exemptions through 2025. However, it nearly doubled the standard deduction, indexed annually for inflation through 2025. For 2023, the standard deduction will be $27,700 (married couples filing jointly), $20,800 (heads of households), and $13,850 (singles and married couples filing separately). After 2025, standard deduction amounts are scheduled to drop back to the amounts under pre-TCJA law unless Congress extends the current rules or revises them.

Changes to the standard deduction could help some taxpayers make up for the loss of personal exemptions. But it might not help taxpayers who typically used to itemize deductions.

AMT

The alternative minimum tax (AMT) is a separate tax system that limits some deductions, doesn’t permit others and treats certain income items differently. If your AMT liability is greater than your regular tax liability, you must pay the AMT.

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. For 2023, the threshold for the 28% bracket will increase by $14,600 for all filing statuses except married filing separately, which increased by half that amount.

2023 AMT brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
26%	$0 – $220,700	$0 – $220,700	$0 – $220,700	$0 – $110,350
28%	Over $220,700	Over $220,700	Over $220,700	Over $110,350

The AMT exemptions and exemption phaseouts are also indexed. The exemption amounts for 2023 will be $81,300 for singles and $126,500 for joint filers, increasing by $5,400 and $8,400, respectively, over 2022 amounts. The inflation-adjusted phaseout ranges for 2023 will be $578,150–$903,350 (singles) and $1,156,300–$1,662,300 (joint filers). Amounts for married couples filing separately are half of those for joint filers.

Education and child-related breaks

The maximum benefits of certain education and child-related breaks generally remain the same for 2023. But most of these breaks are limited based on a taxpayer’s modified adjusted gross income (MAGI). Taxpayers whose MAGIs are within an applicable phaseout range are eligible for a partial break — and breaks are eliminated for those whose MAGIs exceed the top of the range.

The MAGI phaseout ranges will generally remain the same or increase modestly for 2023, depending on the break. For example:

The American Opportunity credit. For tax years beginning after December 31, 2020, the MAGI amount used by joint filers to determine the reduction in the American Opportunity credit isn’t adjusted for inflation. The credit is phased out for taxpayers with MAGI in excess of $80,000 ($160,000 for joint returns). The maximum credit per eligible student is $2,500.

The Lifetime Learning credit. For tax years beginning after December 31, 2020, the MAGI amount used by joint filers to determine the reduction in the Lifetime Learning credit isn’t adjusted for inflation. The credit is phased out for taxpayers with MAGI in excess of $80,000 ($160,000 for joint returns). The maximum credit is $2,000 per tax return.

The adoption credit. The phaseout ranges for eligible taxpayers adopting a child will also increase for 2023 — by $15,820, to $239,230–$279,230 for joint, head-of-household and single filers. The maximum credit will increase by $1,060, to $15,950 for 2023.

(Note: Married couples filing separately generally aren’t eligible for these credits.)

These are only some of the education and child-related breaks that may benefit you. Keep in mind that, if your MAGI is too high for you to qualify for a break for your child’s education, your child might be eligible to claim one on his or her tax return.

Gift and estate taxes

The unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption are both adjusted annually for inflation. For 2023, the amounts will be $12.92 million (up from $12.06 million for 2022).

The annual gift tax exclusion will increase by $1,000 to $17,000 for 2023.

Retirement plans

Nearly all retirement-plan-related limits will increase for 2023. Thus, depending on the type of plan you have, you may have limited opportunities to increase your retirement savings if you’ve already been contributing the maximum amount allowed:

Your MAGI may reduce or even eliminate your ability to take advantage of IRAs. Fortunately, IRA-related MAGI phaseout range limits all will increase for 2023:

Type of limitation	2022 limit	2023 limit
Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans	$20,500	$22,500
Annual benefit limit for defined benefit plans	$245,000	$265,000
Contributions to defined contribution plans	$61,000	$66,000
Contributions to SIMPLEs	$14,000	$15,500
Contributions to IRAs	$6,000	$6,500
“Catch-up” contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans for those age 50 and older	$6,500	$7,500
Catch-up contributions to SIMPLEs	$3,000	$3,500
Catch-up contributions to IRAs	$1,000	$1,000
Compensation for benefit purposes for qualified plans and SEPs	$305,000	$330,000
Minimum compensation for SEP coverage	$650	$750
Highly compensated employee threshold	$135,000	$150,000

Traditional IRAs. MAGI phaseout ranges apply to the deductibility of contributions if a taxpayer (or his or her spouse) participates in an employer-sponsored retirement plan:

For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan:
- For a spouse who participates, the 2023 phaseout range limits will increase by $7,000, to $116,000–$136,000.
- For a spouse who doesn’t participate, the 2023 phaseout range limits will increase by $14,000, to $218,000–$228,000.
For single and head-of-household taxpayers participating in an employer-sponsored plan, the 2023 phaseout range limits will increase by $5,000, to $73,000–$83,000.

Taxpayers with MAGIs in the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range can’t deduct any IRA contribution.

But a taxpayer whose deduction is reduced or eliminated can make nondeductible traditional IRA contributions. The $6,500 contribution limit for 2023 (plus $1,000 catch-up, if applicable, and reduced by any Roth IRA contributions) still applies. Nondeductible traditional IRA contributions may be beneficial if your MAGI is also too high for you to contribute (or fully contribute) to a Roth IRA.

Roth IRAs. Whether you participate in an employer-sponsored plan doesn’t affect your ability to contribute to a Roth IRA, but MAGI limits may reduce or eliminate your ability to contribute:

For married taxpayers filing jointly, the 2023 phaseout range limits will increase by $14,000, to $218,000–$228,000.
For single and head-of-household taxpayers, the 2023 phaseout range limits will increase by $9,000, to $138,000–$153,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

(Note: Married taxpayers filing separately are subject to much lower phaseout ranges for both traditional and Roth IRAs.)

Crunching the numbers

With the 2023 cost-of-living adjustment amounts soaring higher than 2022 amounts, it’s important to understand how they might affect your tax and financial situation. We’d be happy to help crunch the numbers and explain the best tax-saving strategies to implement based on the 2023 numbers.

Shannon Champagne, CPA, was recently promoted to manager. Let’s learn about Shannon and how her career has progressed since joining Yeo & Yeo.

Tell me about your career path.

I joined Yeo & Yeo as an intern during my last semester of college in January 2018. I was offered a full-time position shortly after. I blinked, and now I’ve been here for nearly five years. I passed the CPA exam and worked through the staff, senior, and now onto manager levels. It could not have been possible without my mentors here at Yeo & Yeo.

What do you enjoy most about your career with Yeo & Yeo?

The people are unmatched. I have built some great friendships with coworkers, and I have the best mentors. I truly feel cared about and know I can go into a partner’s office with a question or just to chat about the weekend. I have role models I trust who have set me up for success, and I know that I will be able to continue to succeed in my career because of that. As a member of the Assurance Service Line, I also enjoy meeting different clients and guiding them through the audit process.

How has the firm supported your work-life presence?

One of the best things about Yeo & Yeo is the culture that encourages a work-life balance. The flexibility is great and has allowed me to do the things I love, like traveling, golfing and spending time with my family and my pride and joy, a three-year-old golden retriever.

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

Be willing to learn, soak up all the knowledge you can, listen to conversations around you and ask questions. Focus on your communication skills. I never thought that, as an accountant, I would be doing as much talking and communicating as I am. We interact with clients and colleagues daily, answering client questions, giving feedback on staff performance and much more, so it is crucial to know how to communicate effectively.

What makes being an accountant fun?

The people and the culture of Yeo & Yeo. Our audit department does several team-building events throughout the year, like golf leagues and axe throwing. It’s fun to build relationships with coworkers outside of a work setting.

Shannon is a member of the firm’s Nonprofit Services Group. Her areas of expertise include audits for nonprofits, school districts and healthcare organizations. She holds a Bachelor in Professional Accountancy from Saginaw Valley State University. Shannon is a member of the Saginaw Young Professionals Network and Women in Leadership Great Lakes Bay Region. She is based in the firm’s Saginaw office.

Roselynn Sharman was recently promoted to Outsourced Business Operations Manager. Let’s learn about Rose and her insights on a career in accounting.

Tell me about your career path.

I joined the firm in 2017 as a staff accountant in the Consulting Department. I took an interest in payroll processing and payroll taxes, as well as providing QuickBooks consulting services. I also took on a role in YeoConsults Outsourced Accounting, providing clients with back-office accounting and HR consulting services. I am now transitioning into the Outsourced Services Operations Manager role, where I will continue to serve clients in outsourced accounting, human resource services, payroll tax reporting, and training and mentoring new staff.

What do you enjoy most about your career with Yeo & Yeo?

I enjoy the variety of clients I work with and learning about their industry challenges so I can best serve them. I also enjoy the family atmosphere and flexibility Yeo & Yeo delivers to its employees.

How has the firm supported your work-life presence?

I love how family-focused Yeo & Yeo is. I appreciate how flexible everyone is, and the ability to work remotely has really helped me to take time for my family and balance that with my career.

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

Try to find an area within accounting that you enjoy and focus on specializing in it. It will help you become a trusted advisor, and it will be very rewarding to have knowledge and expertise in a specific area.

What makes being an accountant fun?

Not a single day is the same in accounting. I enjoy having a variety of projects to work on and clients to serve.

Rose’s areas of expertise include business advisory services, outsourced accounting and payroll tax reporting. She is a member of the Valley Society of Human Resources Management. In the community, she serves as board treasurer of Major Chords for Minors and board treasurer for the Lutheran Women’s Missionary League at St. Lorenz Lutheran Church. She is based in the firm’s Saginaw office.

Is your business ready to take its health care benefits to the next level? One way to do so is to supplement group health coverage with an Excepted Benefit Health Reimbursement Arrangement (EBHRA). Here are some pertinent details.

Rules to follow

Under a traditional HRA, the employer owns and funds the tax-advantaged account up to any chosen amount. However, traditional HRAs are subject to mandates under the Public Health Service Act (PHSA), which was amended by the Affordable Care Act (ACA).

Because employer contributions to EBHRAs are limited, these accounts qualify as “excepted benefits” and aren’t subject to the PHSA mandates. EBHRAs can be offered by companies or other employers of any size, but they must follow certain rules, such as:

Limited-dollar benefits. In 2022, up to $1,800 can be newly allocated to each participant per plan year to reimburse eligible medical expenses. This amount will rise to $1,950 for plan years beginning in 2023 — the first time the limit has increased since these arrangements were launched in 2020.

Carryovers, which are permitted under both traditional HRAs and EBHRAs, are disregarded when applying the limit. Amounts made available under other HRAs or account-based plans provided by the employer for the same period will count against the dollar limit unless those arrangements reimburse only excepted benefits.

Qualified reimbursements. An EBHRA may reimburse any qualifying, out-of-pocket medical expense other than premiums for individual health coverage, Medicare or non-COBRA group coverage. Premiums for coverage consisting solely of excepted benefits can be reimbursed, as can premiums for short-term limited-duration insurance (STLDI). However, under certain circumstances, federal agencies may prohibit small employer EBHRAs in particular states from allowing STLDI premium reimbursement.

Required other coverage. The employer must make other nonexcepted, non–account-based group health plan coverage available to EBHRA participants for the plan year. Thus, participants in the EBHRA couldn’t also be offered a traditional HRA.

Uniform availability. An EBHRA must be made available under the same terms and conditions to all similarly situated individuals, as provided by applicable regulations.

HIPAA and ERISA

An EBHRA’s status as an excepted benefit means only that it’s not subject to the ACA’s PHSA mandates or the portability and nondiscrimination rules of the Health Insurance Portability and Accountability Act (HIPAA).

However, EBHRAs are subject to HIPAA’s administrative simplification requirements. This includes the law’s privacy and security rules unless an exception applies — such as for certain small self-insured, self-administered plans.

And, like traditional HRAs, EBHRAs are subject to the Employee Retirement Income Security Act (ERISA) unless an exception applies — such as for church or governmental plans. Thus, reimbursement requests must be handled in accordance with ERISA’s claim and appeal procedures; EBHRA participants must receive a summary plan description; and other ERISA requirements apply.

Finally, EBHRAs must comply with nondiscrimination rules. These generally prohibit discrimination in favor of highly compensated individuals regarding eligibility and which benefits are offered.

Various factors

When deciding whether to offer an EBHRA at your business, you’ll need to consider various factors. These include the impact on existing benefits, which employees will be covered, how much you’ll contribute and which expenses you’ll reimburse. We can help you assess the costs, advantages and risks of this or any other employee benefit you’re considering.

Derrick Friend, CPA, was recently promoted to manager. Let’s learn about Derrick and how his career has progressed since joining Yeo & Yeo.

Tell me about your career path.

I joined the firm in 2016 after returning to school for my master’s degree. I was immediately given opportunities to prepare a wide variety of tax returns and received a great amount of on-the-job training. Over the next few years, I narrowed my niche to state and local tax and 1040 returns. Two years ago, I joined the 1040 tax group, where I specialize in reviewing a high volume of individual tax returns.

What do you enjoy most about your career with Yeo & Yeo?

The people at Yeo & Yeo are great to work with. My mentors and peers have helped me grow my knowledge and career. I enjoy working with clients, too, and helping them navigate their unique tax situations.

How has the firm supported your work-life presence?

Yeo & Yeo provides a very flexible work schedule, even during the busy season. The Hybrid Work Plan, allowing for days to work from home, has been a huge benefit to our family. It makes raising four kids with a working spouse a lot less stressful.

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

Take advantage of the opportunities provided to you and get a feel for what you enjoy doing, then focus on that as your career progresses.

What makes being an accountant fun?

A tax return is like a puzzle, and it’s oddly satisfying when you get all the pieces together. Plus, I like helping people save money through tax-smart strategies.

Derrick specializes in tax planning and preparation with an emphasis on individual taxes. He holds a Master of Accountancy from Walsh College. He joined the firm in 2016 and is based in the Auburn Hills office. In the community, Derrick volunteers at Linden Community Schools.

Major Chords for Minors (MCFM) was created and founded to provide one-on-one music lessons on piano, guitar and drums to at-risk kids whose families cannot afford to give their children lessons. Their mission is to build better children through music and create a community where all children have access to growth through music and mentorship, regardless of their families’ economic circumstances. The program also has a performance band that plays at various events throughout the community, including Party on McCarty, the Saginaw Art Fair, and Friday Night Live.

I love music and playing music. I have been a band kid since middle school and play clarinet, guitar, drums, piano and accordion. I think that being in band gave me a sense of belonging in school and taught me the value of having to practice something to get better at it. When I heard about the opportunity to join the board of MCFM, I decided to get involved. I loved the organization’s mission and purpose. Playing an instrument is expensive so having the opportunity to have free lessons is incredible.

I joined the organization in April 2021, and I am the current board treasurer. Seeing the dedication of the founders, director, instructors and support staff is amazing. They all have a great passion for music but also want to see kids be successful and have the opportunity to grow through music.

I give back because I want all kids to have the same opportunities to learn and share their love of music and the arts.