Message from the CEO

2023 is an exciting year for Yeo & Yeo, marking the firm’s 100^th anniversary and the launch of our new brand experience. Coming into this year, I am excited to share our refreshed look and feel with everyone, and I am looking forward to celebrating the accomplishment of a century of business.

100 Years

Yeo & Yeo has withstood the Great Depression, World War II, the Space Age, the Tech Revolution, and the pandemic. Our ability to adapt, evolve, and thrive while staying true to our core values and our clients is a point of immense pride.

I have been with the firm for more than 27 years, as a staff accountant to Principal, and now President & CEO. A lot has changed in that time, from technology to regulations, hybrid work, and beyond. But I am proud of our ongoing commitment to our most important asset – our employees.

As we focus on the future and look ahead to the next 100 years, I want to take a moment to acknowledge this accomplishment and thank everyone who has made these last 100 years so successful.

To our clients, thank you for placing your trust in us. We are grateful to be a part of your journey. Your support means we can continue to do what we love – helping our clients, communities, and colleagues thrive.

To our professionals, thank you for your hard work and commitment to delivering unparalleled service to our clients. Because of you, we have reached the milestone of 100 years.

To our communities, families, and friends, thank you for everything you do for us and one another. We are proud to be a Michigan-based business, and we are incredibly thankful for your support.

On behalf of all of us at Yeo & Yeo today, and every day, thank you. I wish you all a fantastic and prosperous new year.

Cheers to 100 years!

Remote work became a buzz topic when the United States went into lockdown mode in 2020 to combat the effects of COVID-19. Like many companies, audit firms quickly shifted to remote auditing with video conferencing and drones. Now that the country has largely reopened, will auditors continue to work remotely?

Remote auditing “definitely continues to be a hot topic today,” said Sara Lord, chair of the AICPA’s Auditing Standards Board, which sets standards that are used by auditors of private companies. Here are some lessons learned about this topic over the last three years.

Looking back

The concept of remote auditing didn’t start during the pandemic. Rather, COVID-related lockdowns served as a catalyst to expand the use of remote audit procedures.

Prior to the pandemic, accounting firms had already been transitioning to remote auditing for certain procedures. Specifically, many firms invested in staff training and technology — such as cloud computing, remote access, videoconferencing software and drones with cameras — to work offsite. This was done primarily to reduce business disruptions and costs during normal operating conditions.

When workplaces were shuttered in the spring of 2020, most audit firms were able to quickly adapt. Plus, many calendar-year audits were already done by mid-March of 2020, giving smaller firms time to adjust their audit procedures to facilitate social distancing and invest in technology and training to work remotely.

Forging ahead

Remote working conditions during the pandemic have altered the traditional audit process, in some ways permanently. Firms recognized that remote procedures offer many benefits over onsite procedures, including lower costs, improved timeliness and fewer disruptions. These benefits have been amplified given the talent shortage in public accounting. Remote work allows audit firms to perform more tasks with a smaller audit staff than they previously could using traditional in-person procedures.

While auditors have learned to embrace remote work for certain types of procedures, most have settled on a hybrid approach that involves both in-person and remote work. Three examples of audit procedures that are generally more effective in-person include:

1. Internal control testing. Auditors must determine whether the controls are adequately designed, put in place and operating effectively. Obtaining an understanding of the company’s control system is difficult through Zoom calls, however. Plus, auditors may need to re-evaluate how companies’ remote workers process transactions and consider additional testing to help ensure effectiveness. Controls that have been effective in prior periods may not suffice in when a company’s employees are working remotely all or part of the time.

2. Fraud-related inquiries. The auditing standard on fraud states that general inquiry of management and those charged with governance with respect to fraud is most effective when it’s done in person. Onsite interviews allow the auditor to read body language and evaluate the dynamics between co-workers.

3. Inventory observations. Auditing standards require auditors to obtain sufficient, appropriate audit evidence that inventory exists and is in good condition. Normally, auditors go where inventory is located and observe the counting process. They also perform independent test counts and check them against the inventory records. Live feeds from drones and security cameras have limits when used to ensure physical inventory counts are accurate. Onsite procedures — even if conducted for a random sample of a company’s locations — may be necessary post-pandemic.

Companies that refuse to allow auditors to conduct these types of procedures in-person may raise red flags to auditors about potential audit risks. When auditors work remotely, they need to have heightened professional skepticism and training on how to use technology effectively.

Auditing smarter

What’s the right blend of in-person and remote procedures for your next audit? There’s no one-size-fits-all solution. Contact us to discuss ways to leverage remote procedures to streamline the audit process, while maintaining audit quality.

Are you charitably inclined? If so, you probably know that donations of long-term appreciated assets, such as stocks, have an advantage over cash donations. But in some cases, selling appreciated assets and donating the proceeds may be a better strategy.

That’s because adjusted gross income (AGI) limitations on charitable deductions are higher for cash donations. Plus, if the assets don’t qualify for long-term capital gain treatment, the deduction rules are different.

Tax treatments by type of gift

All things being equal, donating long-term appreciated assets directly to charity is preferable. Not only do you enjoy a charitable deduction equal to the assets’ fair market value on the date of the gift (assuming you itemize deductions on your return), you also avoid capital gains tax on their appreciation in value. If you were to sell the assets and donate the proceeds to charity, the resulting capital gains tax could reduce the tax benefits of your gift.

But all things aren’t equal. Donations of appreciated assets to public charities are generally limited to 30% of AGI, while cash donations are deductible up to 60% of AGI. In either case, excess deductions may be carried forward for up to five years.

Work the math

If you’re contemplating a donation of appreciated assets that’s greater than 30% of your AGI, crunch the numbers first. Then determine whether selling the assets, paying the capital gains tax and donating cash up to 60% of AGI will produce greater tax benefits in the year of the gift and over the following five tax years. The answer will depend on several factors, including the size of your gift, your AGI in the year of the gift, your projected AGI in the following five years and your ability to itemize deductions in each of those years.
Before making charitable donations, discuss your options with us. We can help you make charitable gifts at the lowest tax cost.

A new year has arrived. For many businesses, this means employees’ paid time off (PTO) arrangements have reset. And at companies with “use it or lose it” policies, workers have likely left a few or perhaps many unused hours on the table.

It’s a growing problem. A July 2022 survey conducted by Sorbet, a provider of PTO solutions, found that 55% of the PTO offered by responding companies was left unused last year — a notable rise from only 28% in 2019. (This is the first such survey the company has done since the pandemic.) Overall, 57% of employees who participated in the study had unused PTO in 2022, up from 37% in 2019.

Conventional methods

There are various ways for businesses to help employees better or, ideally, fully use their PTO. Regular reminders from supervisors and helpful information about wellness might do the trick.

However, taking these steps will require that your company has systems set up to deliver running PTO totals to supervisors and that the supervisors themselves can keep up with the reminders. You may also need to engage a third-party provider to send accurate and easily digestible wellness content to employees.

An alternate strategy

If your business offers a 401(k) plan, there’s an alternate strategy to consider: a PTO contribution program. It allows employees with unused vacation hours to elect to convert them to retirement plan contributions. A 401(k) plan can treat these amounts as a pretax benefit — similar to typical employee deferrals. Alternatively, the plan can treat the amounts as employer profit sharing, converting excess PTO amounts to employer contributions.

A PTO contribution arrangement may be a better option than increasing the number of days employees can roll over, assuming you allow rollovers to begin with. Larger rollover limits can result in employees building up large balances that create a significant liability on your books.

To offer a PTO contribution arrangement, you’ll need to amend your 401(k) plan. And you must still follow the plan document’s eligibility, vesting, rollover, distribution and loan terms.

Many details

Additional rules may apply to creating and administering a PTO contribution arrangement. To learn more about one, including the tax implications, please contact us. We can also help you measure and assess the cost of unused PTO for you and your employees.

Although the national price of gas is a bit lower than it was a year ago, the optional standard mileage rate used to calculate the deductible cost of operating an automobile for business will be going up in 2023. The IRS recently announced that the 2023 cents-per-mile rate for the business use of a car, van, pickup or panel truck is 65.5 cents. These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.

In 2022, the business cents-per-mile rate for the second half of the year (July 1 – December 31) was 62.5 cents per mile, and for the first half of the year (January 1 – June 30), it was 58.5 cents per mile.

How rate calculations are done

The 3-cent increase from the 2022 midyear rate is somewhat surprising because gas prices are currently lower than they have been. On December 29, 2022, the national average price of a gallon of regular gas was $3.15, compared with $3.52 a month earlier and $3.28 a year earlier, according to AAA Gas Prices. However, the standard mileage rate is calculated based on all the costs involved in driving a vehicle — not just the price of gas.

The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, including gas, maintenance, repair and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the cents-per-mile rate midyear, as it did in 2022.

Standard rate versus actual expenses

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

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

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

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

The standard rate can’t always be used

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

As you can see, there are many factors to consider in deciding whether to use the standard mileage rate to deduct vehicle expenses. We can help if you have questions about tracking and claiming such expenses in 2023 — or claiming 2022 expenses on your 2022 income tax return.

Marking their 100th anniversary, the company taps into its authentic differences

Yeo & Yeo, a business success partner serving organizations throughout Michigan, announces a new brand experience to mark its 100th anniversary. The transformation includes all of Yeo & Yeo’s companies: CPAs & Advisors, Technology, Medical Billing & Consulting, and Wealth Management.

“As we look forward to the next century, it is important for us to embrace our partnership approach, our client stories, and our unique spirit and capture them in our brand,” stated Kimberlee Dahl, Yeo & Yeo’s Director of Marketing. “We saw it as more than a new look and feel — we wanted to celebrate our dynamic culture, our diverse services, and our focus on possibilities for our clients.”

The company embarked upon a journey that included team members, clients, and community partners. They uncovered some authentic truths: the company was known for its services, but truly driven by empathy, possibility, agility, and enthusiasm, and was defined by the success of clients and communities. The brand was fully updated to reflect the firm’s true nature.

“We are our stories, and the more stories we captured, the more we realized who we truly are: Business Success Partners helping organizations and individuals thrive on their unique journeys,” said Dave Youngstrom, President & CEO of Yeo & Yeo. “We unearthed a very human company that is relationship- and connection-based, with a spirit of serving.”

Over the next several months, the new brand will be introduced in everything from the website to signage to documents and beyond. But more importantly, it will be embraced in the spirit of the organization in everyday interactions.

“This is a celebration of our work, and a new vision to live up to,” said Youngstrom. “We’re excited to do so — one client, one day, one experience at a time.”

On December 23, 2022, Congress passed the Consolidated Appropriations Act of 2023. The sprawling year-end spending “omnibus” package includes two important new laws that could affect your financial planning: the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act (also known as SECURE 2.0) and the Conservation Easement Program Integrity Act. President Biden is expected to sign the legislation soon.

Bolstering retirement savings

The original SECURE Act, enacted in 2019, was a significant bipartisan law related to retirement savings. In the spring of 2022, with an eye toward building on the reforms in that law, the U.S. House of Representatives passed the Securing a Strong Retirement Act. Despite strong bipartisan support, the bill stalled. Then, the U.S. Senate introduced its own retirement legislation, dubbed the Enhancing American Retirement Now Act.

SECURE 2.0 incorporates provisions from both bills and addresses a wide array of areas that make major changes to retirement planning, including:

Required minimum distributions (RMDs). The first SECURE Act generally raised the age at which you must begin to take RMDs — and pay taxes on them — from traditional IRAs and other qualified plans, from 70½ to 72. The new law increases the age to 73, starting January 1, 2023, and boosts it to 75 on January 1, 2033. This change allows people to delay taking RMDs and paying tax on them.

The law also relaxes the penalties for failing to take full RMDs, reducing the 50% excise (or penalty) tax to 25%. If the failure is corrected in a “timely” manner, the penalty would drop to 10%.

Catch-up contributions. Beginning January 1, 2025, individuals who are ages 60 to 63 can make catch-up contributions to 401(k) plans and SIMPLE plans up to the greater of $10,000 or 50% more than the regular catch-up amount. The increased amounts are indexed for inflation after 2025. (The annual dollar limit on catch-up contributions is $7,500 for 2023, up from $6,500 for 2022.)

The law also changes the taxation of catch-up contributions, though, which could reduce the upfront tax savings for those who max out their annual contributions. Catch-up contributions will be treated as post-tax Roth contributions. Previously, you could choose whether to make catch-up contributions on a pre- or post-tax basis. An exception is provided for employees whose compensation is $145,000 or less (indexed for inflation).

Qualified charitable distributions (QCDs). QCDs have gained in popularity as a way to satisfy RMD requirements while also fulfilling philanthropic goals. With a QCD, you can distribute up to $100,000 per year directly to a 501(c)(3) charity after age 70½. You can’t claim a charitable deduction, but the distribution is removed from taxable income.

Under the new law, you also can make a one-time QCD transfer of up to $50,000 through a charitable gift annuity or charitable remainder trust (as opposed to directly to the charity). The law also indexes for inflation the annual IRA charitable distribution limit of $100,000.

Automatic enrollment. Beginning in 2025, new 401(k) plans must automatically enroll participants when they become eligible. However, the employees may opt out. The initial contribution amount is at least 3% but no more than 10%. Then, the amount is automatically increased every year until it reaches at least 10% but no more than 15%. Existing plans are exempt, and the law provides exceptions for small and new businesses.

Annuities. Annuities can help reduce retirees’ risk of depleting their savings before they die. But RMD regulations have interfered with the availability of annuities in qualified plans and IRAs. For example, the regulations prohibit annuities with guaranteed annual increases of only 1% to 2%, return of premium death benefits and period-certain guarantees. SECURE 2.0 removes these RMD barriers to annuities.

The law also makes qualified longevity annuity contracts (QLACs) — inexpensive deferred annuities that don’t begin payment until the end of the individual’s life expectancy — more appealing. Among other things, it repeals the 25% cap on the maximum annuity purchase and allows up to $200,000 (indexed for inflation) from an account balance to be used to purchase a QLAC.

Matching contributions on student loan payments. The law also aims to help employees who miss out on their employers’ matching retirement contributions because their student loan obligations prevent them from making retirement contributions. It allows them to receive matching contributions to retirement plans based on their qualified student loan repayments. Employers can make matching contributions to 401(k) plans or SIMPLE IRAs. These provisions are effective for contributions made for plan years beginning January 1, 2024.

Part-time employee eligibility. SECURE 2.0 lowers the hurdles for long-term, part-time employees to participate in 401(k) plans. They’ll still need to work at least 500 hours before becoming eligible but they’ll have to work for only two consecutive years, rather than the three years required by the first SECURE Act. The provision takes effect for plan years beginning January 1, 2025.

Small business tax credits. To incentivize small businesses to establish retirement plans, SECURE 2.0 creates or enhances some tax credits. For example, it increases the startup credit from 50% to 100% of administrative costs for employers with up to 50 employees. An additional credit is available for some non-defined benefit plans, based on a percentage of the amount the employer contributes, up to $1,000 per employee.

Tax-free rollovers from 529 plans to Roth IRAs. The new law permits a beneficiary of a 529 college savings account to make direct rollovers from a 529 account in his or her name to a Roth IRA without tax or penalty. This provides an option for 529 accounts that have a balance remaining after the beneficiary’s education is complete. The 529 account must have been open for more than 15 years and other rules apply. The provision is effective for distributions beginning in 2024.

Cracking down on certain tax shelters

The retirement provisions in the omnibus law are partially offset by the law addressing conservation easements. Current law generally allows taxpayers to claim a charitable deduction for qualified donations of real property to charity. According to the IRS, though, promoters have twisted the relevant tax provision to develop abusive “syndicated” conservation easements that use inflated appraisals and partnership arrangements to reap “grossly inflated” deductions.

Going forward, the Conservation Easement Program Integrity Act disallows charitable deductions for qualified conservation contributions if the claimed deduction exceeds 2.5 times the sum of each partner’s relevant basis in the partnership making the contribution. An exception is granted if the contribution meets a three-year holding period test, substantially all of the partnership is owned by family members or the contribution relates to the preservation of a certified historic structure.

More to come

These are only some of the provisions in the new law. The entire omnibus law is sure to generate additional questions and guidance. We’ll keep you apprised of the developments that could affect your financial health.

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

January 17 (The usual deadline of January 15 is on a Sunday and January 16 is a federal holiday)

Pay the final installment of 2022 estimated tax.
Farmers and fishermen: Pay estimated tax for 2022. If you don’t pay your estimated tax by January 17, you must file your 2022 return and pay all tax due by March 1, 2023, to avoid an estimated tax penalty.

January 31

File 2022 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
Provide copies of 2022 Forms 1099-NEC, “Nonemployee Compensation,” to recipients of income from your business where required.
File 2022 Forms 1099-MISC, “Miscellaneous Income,” reporting nonemployee compensation payments in Box 7, with the IRS.
File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2022. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2022. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”)
File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2022 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

February 15

Give annual information statements to recipients of certain payments you made during 2022. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient. This due date applies only to the following types of payments:

All payments reported on Form 1099-B.
All payments reported on Form 1099-S.
Substitute payments reported in box 8 or gross proceeds paid to an attorney reported in box 10 of Form 1099-MISC.

February 28

File 2022 Forms 1099-MISC with the IRS if: 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is March 31.)

March 15

If a calendar-year partnership or S corporation, file or extend your 2022 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2022 contributions to pension and profit-sharing plans.

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Yeo & Yeo, a leading Michigan CPA and advisory firm, announces the election of Jamie Rivette, CPA, CGFM, and the re-election of David Jewell, CPA, to Yeo & Yeo’s board of directors, effective January 1, 2023.

“It’s a privilege to have such talented and accomplished leaders who are committed to our firm’s people, clients and communities,” says Dave Youngstrom, President & CEO. “I look forward to serving with each of them in the coming year as the firm celebrates its hundredth anniversary.”

Jamie Rivette, CPA, CGFM, is a principal based in Yeo & Yeo’s Saginaw office and leads the firm’s Assurance Service Line. Holding the Certified Government Financial Manager accreditation, Rivette is highly knowledgeable in governmental accounting, auditing, financial reporting, internal controls and budgeting. As assurance service line leader, Rivette is responsible for the quality management and growth of Yeo & Yeo’s firm-wide audit and assurance practice. She serves on the Accounting and Auditing Standards Committee for the Michigan Government Finance Officers Association. In the community, she is treasurer of the Hemlock School Board of Education and a member of the Junior League Community Advisory Board.

David Jewell, CPA, will serve his second two-year term. Jewell is the Managing Principal of Yeo & Yeo’s Kalamazoo office and leader of the firm’s Tax Service Line and Tax Advisory Group. In this role, Jewell develops strategy and manages growth of the firm’s tax practice, workforce and capabilities. His areas of expertise include tax planning and preparation, business succession planning and business consulting services. He joined Yeo & Yeo in 2008 and has more than 20 years of experience in public accounting. In the community, Jewell serves on the board of directors for the Boys & Girls Clubs of Greater Kalamazoo and the Portage Community Center.

Jacob Sopczynski, CPA, principal in Yeo & Yeo’s Flint office, and Michael Georges, CPA, principal in the Ann Arbor office, will serve the second year of their two-year terms on the board.

The firm thanks outgoing board member Tammy Moncrief, CPA, for her outstanding service and leadership. Moncrief is Managing Principal of Yeo & Yeo’s Auburn Hills office and served six years on the firm’s board.

“I especially want to thank Tammy Moncrief for her service on the board,” Youngstrom said. “Tammy’s insight is invaluable. She contributed greatly to the success of the entire firm as a board member and will continue to be a valuable leader and mentor for many of our professionals.”

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Timely, accurate financial information is essential to running a successful business. There are a number of accounting methods you can use to record and track your business’s financial performance. Here’s an overview of cash, tax and accrual basis accounting to help you choose a method that’s appropriate for your situation.

Cash basis

Often startups and sole proprietorships default to the cash method of accounting because it’s simple and provides an immediate picture of available funds. This may suffice for small businesses with uncomplicated financial affairs.

Under cash-basis accounting, you record transactions only when money changes hands. For example, if you buy a new computer on credit, you only record it as an expense once you pay cash for it. While this recordkeeping is easy, it can be challenging to get an accurate picture of your business’s financial situation. This method also isn’t suitable for tax purposes.

Telltale signs that a company is using cash-basis accounting can be found on the balance sheet: The company won’t report any accrual-basis items, such as accounts receivable, prepaid assets, accounts payable or deferred expenses.

Tax basis

Another financial reporting option is to use the same accounting method for book and tax purposes. Under tax-basis accounting, you only record transactions when they relate to tax.

This method can be helpful for companies that want to minimize their tax liability. It can also be beneficial if your business doesn’t have complex financial affairs and you don’t need up-to-date information about your financial situation.

Accrual basis

As your business grows and has more sophisticated financial reporting needs, you may decide to transition to the accrual method of accounting. Businesses that issue financial statements under U.S. Generally Accepted Accounting Principles (GAAP) must use accrual-basis accounting. GAAP is considered by many to be the “gold standard” in financial reporting. Most lenders and investors prefer statements prepared using this method because it’s the most reliable for long-term financial planning and decision-making purposes.

Under accrual-basis accounting, revenue is recognized when earned (regardless of when it’s received), and expenses are recognized when incurred (not necessarily when they’re paid). This methodology matches revenue to the corresponding expenses in the proper period. Compared to the cash and tax methods, the accrual method helps you more accurately evaluate growth and profit margins over time and against competitors.

Using the accrual method also can help you manage cash flow. For example, with more timely financial data, you can negotiate payment terms with suppliers, plan for significant expenses and forecast future cash needs.

What’s right for your business?

Choosing the right accounting method for your business depends on your financial needs and accounting skills. Some businesses use a hybrid approach incorporating elements from two or more methods. The method you’ve used in the past may not be appropriate for your current situation. Contact us to help you find the optimal approach.

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“Well, it still works, and everyone knows how to use it, but….”

Do these words sound familiar? Many businesses stick with their accounting software far too long for these very reasons. What’s important to find out and consider is everything that comes after the word “but.”

Managers and employees often struggle with systems that don’t provide all the functionality they need, such as being able to generate certain types of reports that could help the company better analyze its financials. Older software might constantly freeze up or crash. In some cases, the product may even be so old that support is no longer provided.

When it comes to accounting software upgrades, timing is everything. You don’t want to spend money unnecessarily if your system is fully functional and secure. But you also don’t want to wait too long and risk losing a competitive edge, suffering data loss or corruption, or incurring a security breach.

Building a knowledge base

The first question to ask yourself is: When was the last time we meaningfully upgraded our accounting software?

Many more products may have hit the market since you bought yours — including some that were developed specifically for your industry. Although most accounting software has the same essential features, it’s these specialized functions that hold the most potential value for certain types of companies.

To make an educated choice, business owners and their leadership teams need to gain a detailed understanding of their specific needs and the technological savvy of their employees. You can go about this knowledge-building effort in various ways, including conducting a user survey and putting together a comprehensive, detailed comparison of three or four accounting software products that appear best-suited to your business.

If it appears highly likely that a new accounting system would markedly improve your financial tracking and reporting, you’ll be able to make a confident and well-advised purchasing decision.

Preparing for the transition

Bear in mind that buying the software will be the easy part. Transitioning to the new system will probably be much more challenging. When changing or significantly upgrading their accounting software, companies have to walk a fine line between:

Rushing the timeline, potentially mishandling setup issues and not providing sufficient training, and
Dragging their feet, potentially falling behind on financial reporting.

You might need to engage an IT consultant to help oversee the data transfer from the old system to the new, catch and clean up errors, and ensure strong cybersecurity measures are in place.

It’s a big decision

Moving onward and upward from a long-used accounting system is a big decision. Let us help you determine what software features would be most beneficial to your business, identify which current products would best fulfill your needs, and develop a sensible budget for the purchase.

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Yeo & Yeo CPAs & Business Consultants is pleased to announce that Timothy Crosson Jr., CPA, has been promoted to principal.

Dave Youngstrom, President & CEO, says, Tim has excelled in providing professional services to our clients and is committed to helping them succeed. He is a great thinker and is always looking out for his team. We are proud to welcome him to the principal group.”

Crosson 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.

Crosson holds a Bachelor of Business Administration, majoring in accounting, from The University of Michigan-Dearborn. He is a member of Michigan School Business Officials. Crosson serves as vice chairman of the board for the Community Choice Credit Union and Community Choice Foundation. He is also a member of the University of Michigan-Dearborn Alumni Association.

Crosson 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.”

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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 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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