Help Protect Your Employees’ 401(k) Plan Savings From Fraud

Recently, a 401(k) plan participant was defrauded of approximately $740,000 when he fell victim to an elaborate scheme perpetrated by overseas criminals. However, even friends, family members and employers have been discovered stealing from 401(k) accounts, adding up to millions of dollars in losses every year. Here’s what your organization can do to help keep your employees’ retirement savings safe from theft.

Assessing existing protections

If your organization sponsors a 401(k) plan, assessing plan service providers’ protection systems and policies is essential. Most providers carry cyber fraud insurance that they extend to plan participants. But there may be limits to this protection if, for example, the provider determines that you (the sponsor) or employees (participants) opened the door to a security breach.

Your plan’s documents may say that participants must adopt the provider’s recommended security practices. These could include checking account information “frequently” and reviewing correspondence from the administrator “promptly.” Make sure you and your employees understand what these terms mean — and follow them.

Using technology to foil thieves

In recent years, several 401(k) plan sponsors have been sued for not adequately protecting the personal data of participants whose accounts were hacked. Although every business needs comprehensive and up-to-date cybersecurity protection, you should be even more vigilant if you keep 401(k) plan information on your servers.

Know that two-factor authentication when signing in to an account may not be enough. Some professionals now encourage plan sponsors to enable three-factor authentication to foil fast-evolving fraud schemes. Also, employees should be strongly encouraged to follow strict security protocols when managing their 401(k) accounts. For example, they should:

Choose complex passwords they don’t use on other sites — and change them often,
Never write down account logins/passwords or store them in their browsers,
Be suspicious if they have trouble logging in to their account or if the sign-in page looks different from what they’re used to, and
Independently confirm the identity of anyone who contacts them claiming to be from the government, law enforcement, their 401(k) plan sponsor or a financial institution, and asks for account information.

Some more complex 401(k) plan schemes have involved crooks pretending to be fraud investigators. These criminals usually instruct account holders to move their savings to “safer” locations. Then they abscond with the funds. Make sure employees have a number they can call for official plan information or if they need to verify someone who has contacted them.

A rare but worrisome issue

Finally, although employer theft of employees’ 401(k) plan funds is relatively rare, some financially troubled companies have been accused of illegally withdrawing or retaining participants’ 401(k) contributions. According to the DOL, 401(k) sponsors must deposit participants’ contributions as soon as they can be segregated from the organization’s assets — no later than the 15th business day of the month after the amounts were withheld. A safe harbor rule for smaller companies (fewer than 100 participants) says that employers should deposit contributions within seven business days of the withholding pay date.

For questions about protecting your organization’s assets and workers from fraud, contact us.

As a business owner, you may travel to visit customers, attend conferences, check on vendors and for other purposes. Understanding which travel expenses are tax deductible can significantly affect your bottom line. Properly managing travel costs can help ensure compliance and maximize your tax savings.

Your tax home

Eligible taxpayers can deduct the ordinary and necessary expenses of business travel when away from their “tax homes.” Ordinary means common and accepted in the industry. Necessary means helpful and appropriate for the business. Expenses aren’t deductible if they’re for personal purposes, lavish or extravagant. That doesn’t mean you can’t fly first class or stay in luxury hotels. But you’ll need to show that expenses were reasonable.

Your tax home isn’t necessarily where you maintain your family home. Instead, it refers to the city or general area where your principal place of business is located. (Special rules apply to taxpayers with several places of business or no regular place of business.)

Generally, you’re considered to be traveling away from home if your duties require you to be away from your tax home for substantially longer than an ordinary day’s work and you need to get sleep or rest to meet work demands. This includes temporary work assignments. However, you aren’t permitted to deduct travel expenses in connection with an indefinite work assignment (more than a year) or one that’s realistically expected to last more than a year.

Deductible expenses

Assuming you meet these requirements, common deductible business travel expenses include:

Air, train or bus fare to the destination, plus baggage fees,
Car rental expenses or the cost of using your vehicle, plus tolls and parking,
Transportation while at the destination, such as taxis or rideshares between the airport and hotel, and to and from work locations,
Lodging,
Tips paid to hotel or restaurant workers, and
Dry cleaning / laundry.

Meal expenses are generally 50% deductible. This includes meals eaten alone. It also includes meals with others if they’re provided to business contacts, serve an ordinary and necessary business purpose, and aren’t lavish or extravagant.

Claiming deductions

Self-employed people can deduct travel expenses on Schedule C. Employees currently aren’t permitted to deduct unreimbursed business expenses, including travel expenses.

However, businesses may deduct employees’ travel expenses to the extent they provide advances or reimbursements or pay the expenses directly. Advances or reimbursements are excluded from wages (and aren’t subject to income or payroll taxes) if they’re made according to an “accountable plan.” In this case, the expenses must have a business purpose, and employees must substantiate expenses and pay back any excess advances or reimbursements.

Mixing business and pleasure

If you take a trip in the United States primarily for business, but also take some time for personal activities, you’re still permitted to deduct the total cost of airfare or other transportation to and from the destination. However, lodging and meals are only deductible for the business portion of your trip. Generally, a trip is primarily for business if you spend more time on business activities than on personal activities.

Recordkeeping

To deduct business travel expenses, you must substantiate them with adequate records — receipts, canceled checks and bills — that show the amount, date, place and nature of each expense. Receipts aren’t required for non-lodging expenses less than $75, but these expenses must still be documented in an expense report. Keep in mind that an employer may have its own substantiation policies that are stricter than the IRS requirements.

If you use your car or a company car for business travel, you can deduct your actual costs or the standard mileage rate.

For lodging, meals and incidental expenses (M&IE) — such as small fees or tips — employers can use the alternative per-diem method to simplify expense tracking. Self-employed individuals can use this method for M&IE, but not for lodging.

Under this method, taxpayers use the federal lodging and M&IE per-diem rates for the travel destination to determine reimbursement or deduction amounts. This avoids the need to keep receipts to substantiate actual costs. However, it’s still necessary to document the time, place and nature of expenses.

There’s also an optional high-low substantiation method that allows a taxpayer to use two per-diem rates for business travel: one for designated high-cost localities and a lower rate for other localities.

Turn to us

The business travel deduction rules can be complicated. In addition, there are special rules for international travel and travel with your spouse or other family members. If you’re uncertain about the tax treatment of your expenses, contact us.

It’s critical for business owners and managers to understand how to present contingent liabilities accurately in the financial statements. Under U.S. Generally Accepted Accounting Principles (GAAP), some contingent losses may be reported on the balance sheet and income statement, while others are only disclosed in the footnotes. Here’s an overview of the rules for properly identifying, measuring and reporting contingencies to provide a fair and complete picture of your company’s financial position.

Likelihood vs. measurability

Under GAAP, contingent liabilities are governed by Accounting Standards Codification (ASC) Topic 450, Contingencies. It requires companies to recognize liabilities for contingencies when two conditions are met:

The contingent event is probable, and
The amount can be reasonably estimated.

If these criteria aren’t met but the event is reasonably possible, companies must disclose the nature of the contingency and the potential amount (or range of amounts). If the likelihood is remote, no disclosure is generally required unless required under another ASC topic. However, if a remote contingency is significant enough to potentially mislead financial statement users, the company may voluntarily disclose it.

Common examples

For instance, a company must estimate a contingent liability for pending litigation if the outcome is probable and the loss can be reasonably estimated. In such cases, the company must recognize a liability on the balance sheet and record an expense in the income statement. If the loss is reasonably possible but not probable, the company must disclose the nature of the litigation and the potential loss range. However, when disclosing contingencies related to pending litigation, it’s important to avoid revealing the company’s legal strategies. If the outcome is remote, no accrual or disclosure is required.

Other common types of contingent liabilities include:

Product warranties. If the company can reasonably estimate the cost of warranty claims based on historical data, it should record a warranty liability. Otherwise, it should disclose potential warranty obligations.

Environmental claims. Some businesses may face environmental obligations, particularly in the manufacturing, energy and mining sectors. If cleanup is probable and measurable, a liability should be recorded. If the obligation is uncertain, the business should disclose it, describing the nature and extent of the potential liability.

Tax disputes. If a company is involved in a dispute with the IRS or state tax agency, it should assess whether it is likely to result in a payment and whether the amount can be estimated.

Under GAAP, companies are generally prohibited from recognizing gain contingencies in financial statements until they’re realized. These may involve potential benefits, such as the favorable outcome of a lawsuit or a tax rebate.

Transparency is essential in financial reporting. However, some companies may be reluctant to recognize contingent liabilities because they lower earnings and increase liabilities, potentially raising a red flag for stakeholders.

Best practices

To help ensure transparency when reporting contingencies, companies must maintain thorough records of all contingencies. Proper documentation may include contracts, legal filings, and communications with attorneys and regulatory bodies. Legal and financial advisors can provide insights into the likelihood of contingencies and help estimate potential losses.

As new information becomes available, management may need to reassess contingencies. For instance, if new evidence in a lawsuit makes a favorable outcome more likely, the financial statements may need to be updated in future accounting periods.

We can help

In today’s uncertain marketplace, accurate, timely reporting of contingencies helps business owners and other stakeholders manage potential risks and make informed financial decisions. Contact us for help categorizing contingencies based on likelihood and measurability and disclosing relevant information in a clear, concise manner.

The U.S. Department of Health and Human Services reports that roughly 70% of Americans age 65 or over will require some form of long-term care (LTC). How will you pay for these services?

For many people, the possibility that they’ll incur significant LTC expenses is one of the biggest threats to their estate plans. These expenses — such as for nursing home stays or home health aides — can quickly deplete funds you’ve set aside for retirement or to provide for your family. A practical solution is to purchase an LTC insurance policy.

What does LTC insurance cover?

Most LTC policies operate like some other forms of insurance that you’re probably familiar with, such as homeowners or auto insurance. The policy’s terms control the amount of benefits you’ll receive daily or monthly, up to a stated lifetime maximum or number of years. This is predicated on the type of care provided, for example, in-home care or a nursing home. You may be able to add to your coverage over time.

Typically, you’re subject to a waiting period of 30 to 180 days before you’re eligible for benefits (90 days is the norm). Generally, the shorter the waiting period, the more expensive the policy. Similarly, you can expect to pay more for policies with higher maximum benefits.

LTC policies typically provide benefits when you can no longer perform several basic activities of daily living — including bathing, dressing, eating, transferring and managing incontinence — or if you’re cognitively impaired. Once that occurs and you start receiving benefits, your premiums cease. However, if you stop paying on the policy first, you usually forfeit any future benefits. Note that coverage may be affected by several factors. For example, you may not qualify for coverage because of a preexisting condition.

Any factors to take into account?

Unlike homeowners and auto insurance, you typically have only one good shot at buying LTC insurance. Should you take the plunge, there are several key factors to consider, including your:

Financial situation. Do you have the wherewithal to pay for long-term care assistance without jeopardizing your overall financial situation? Take an objective look at your entire financial picture.

Estate planning objectives. An LTC policy may make sense if preserving wealth to pass on to your family is a primary estate planning objective.

Age and health. As you continue to age, the cost of LTC insurance premiums will increase. Also, you may have to pay more if you have a preexisting condition (if you can secure coverage at all). Apply for a policy as soon as possible and check for more lenient policies at a relatively reasonable cost.

There might be ways of obtaining coverage without buying a policy privately. For instance, you may be able to participate in a group policy offered by your employer or from another affiliation. This can be especially helpful if health conditions would otherwise cause insurers to hike your premiums or deny you coverage.

Assess your options

To determine whether an LTC policy is right for you, compare the costs, benefits and tax implications of various LTC insurance options. Your advisor can assess your specific needs and help you make an informed decision.

Artificial intelligence (AI) is a powerful tool that can enhance your staff’s productivity, efficiency, and creativity. However, AI also comes with some challenges and risks.

Establishing clear and ethical guidelines, or “AI rules,” for staff interaction is essential. Otherwise, you may not know when AI is used for business data. Employees may also be scared to use AI without direction. This can leave them missing out on incredible time savings.

This article will share some tips for setting up AI rules for your staff. These tips can help you harness the benefits of AI while avoiding the pitfalls.

Define the scope and purpose of AI use.

Before introducing AI to your staff, you must have a clear vision. Know what you want to achieve with AI and how it aligns with your business goals and values.

You also need to communicate this vision to your staff. Explain how AI will support their work and improve their outcomes. This will help you set realistic expectations and avoid confusion or frustration.

Establish ethical principles and guidelines.

AI can have significant impacts on your staff, customers, and partners. As well as society at large. So, you must ensure that your AI use is ethical, fair, transparent, and accountable. You can do this by developing a set of ethical principles and guidelines. They should reflect your organizational culture and values. As well as follow relevant laws and regulations. You must also educate your staff on these guidelines and track their compliance.

Involve stakeholders in the decision-making process.

AI rule-setting should not be a top-down process. Involve key stakeholders, including employees, in the decision-making process. Gather insights from different departments and roles. This helps ensure that AI rules are reflective of diverse perspectives. This collaborative approach enhances the quality of the rules. It also fosters a sense of ownership and engagement among staff members.

Assign roles and responsibilities.

AI is not a magic solution that can replace human judgment and oversight. You still need to have a clear division of roles and responsibilities. This would be between your staff and the AI systems they use.

It would be best if you defined who handles the following AI system tasks:

Design
Development
Deployment
Maintenance
Auditing
Updating

Define who is accountable for the outcomes and impacts of AI use. Ensure you support your staff with training, enablement, and change management.

Provide training and support.

Empower your staff with the skills necessary to work effectively alongside AI. Offer comprehensive training programs. They should cover the basics of AI technology, its applications within the organization, and guidelines for AI interaction. Providing ongoing support ensures employees feel confident and capable in their roles within an AI-enhanced environment.

Ensure data security and privacy.

AI systems often rely on vast amounts of data. As such, it emphasizes robust data security and privacy measures. Communicate the steps taken to safeguard sensitive information. Adhere to data protection regulations. Establish a strong cybersecurity framework. One that protects both employee and organizational data from potential breaches.

Put a feedback loop in place.

Create a system for gathering feedback from employees about their interactions with AI. This feedback loop serves as a valuable mechanism. It helps identify areas for improvement and refine AI rules, as well as address any concerns or challenges that arise during implementation. Actively listen to employee feedback to foster a culture of continuous improvement.

Review and update your AI rules regularly.

AI is a dynamic and evolving field. It requires constant adaptation and improvement. You cannot set up your AI rules once and forget about them. You need to review and update these rules regularly. This is to ensure that they are still relevant and practical. As well as aligned with your business goals and values. You also need to evaluate the performance, outcomes, and impacts of your AI use. Use this information to make adjustments as needed.

Encourage a growth mindset.

Foster a culture of curiosity and a growth mindset within your organization. Encourage employees to embrace AI as a tool for augmentation. But not a replacement. Communicate that AI is here to enhance their capabilities and streamline processes. It allows them to focus on more strategic and creative aspects of their roles.

Get Professional Guidance with an AI Transformation

AI can be a game-changer for your business. That is, if you use it wisely and responsibly. You can set up AI rules for your staff by following these tips. Do you need an expert guide for a digital or AI transformation? Call us today to schedule a chat.

The article is used with permission from The Technology Press.

Running a closely held business is challenging. Owners usually prioritize core business operations — such as managing employees, serving customers and bringing in new sales — over tedious bookkeeping tasks. Plus, the accounting rules can be overwhelming.

However, access to timely, accurate financial data is critical to your business’s success. Could outsourcing bookkeeping tasks to a third-party provider be a smart business decision? Here are five reasons why the answer might be a resounding “Yes!”

1. Lower costs and scalability

Your company could hire a full-time bookkeeper, but the expenses of hiring an employee go beyond just his or her salary. You also need to factor in benefits, payroll taxes, office space and equipment. It’s one more employee for you to manage — and accounting talent may be hard to find these days, especially for smaller companies. Plus, your access to financial data may be interrupted if your in-house bookkeeper takes sick or vacation time — or leaves your company.

With outsourcing, you pay for only the services you need. Outsourcing firms offer scalable packages for these services that you can dial up (or down) based on the complexity of your business at any given time. Outsourcing also involves a team of bookkeeping professionals, so you have continuous access to bookkeeping services without worrying about staff absences or departures.

2. Enhanced accuracy

Do-it-yourself bookkeeping can be perilous. Mistakes in recording transactions can have serious consequences, including tax assessments, cash flow problems and loan defaults.

Professional bookkeepers are trained to pay close attention to detail and follow best practices, minimizing the risk of errors. Outsourcing firms work with many companies and are aware of common pitfalls — and how to steer clear of them. They’re also familiar with the latest fraud schemes and can help your business detect anomalies and implement accounting procedures to minimize fraud risks.

3. Expanded access to expertise

The accounting rules and tax regulations continually change. It may be difficult for you or an in-house bookkeeper to stay updated.

With outsourcing, you have experienced professionals at your disposal who specialize in bookkeeping, accounting and tax. This helps ensure you comply with the latest rules, accurately report financial results and minimize taxes. In addition, as you encounter special circumstances, such as a sales tax audit or a merger, you can quickly call on other professionals at the same firm who can help manage the situation. If your provider lacks the necessary in-house expertise, the firm can refer you to another reputable professional to meet your special needs.

4. Improved timeliness

Timely financial data helps you identify problems before they spiral out of control — and opportunities you need to jump on before your competitors do. Outsourcing professionals typically use cloud-based platforms and set up automated processes for routine tasks, like invoicing and expense management. This improves efficiency and gives you access to real-time financial data to make better-informed decisions.

5. Reliable security protocols

Cyberattacks are a serious threat to any business. Stolen data can lead to monetary losses, operational downtime and reputational damage.

Many business owners are understandably cautious about sharing financial data with third parties. Reputable outsourced bookkeeping providers use advanced security measures, encryption and secure software to protect your financial data and client records from hackers. However, not all providers have the same level of security. So, it’s essential to carefully vet outsourcing firms to ensure that your company’s data is adequately protected.

Work smarter, not harder

At any given moment, business owners are being pulled in multiple directions by customers, employees, lenders, investors and other stakeholders. Outsourcing your bookkeeping helps alleviate some of that stress by ensuring your financial records are up-to-date, accurate and secure. Contact us for more information.

The IRS has issued its 2025 inflation adjustment numbers for more than 60 tax provisions in Revenue Procedure 2024-40. Inflation has moderated somewhat this year over last, so many amounts will increase over 2024 but not as much as in the previous year. Take these 2025 numbers into account as you implement 2024 year-end tax planning strategies.

Individual income tax rates

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 will increase by $325–$650, depending on filing status, but the top of the 35% bracket will increase by $10,200–$20,400, again depending on filing status.

2025 ordinary-income tax brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
10%	$0 – $11,925	$0 – $17,000	$0 – $23,850	$0 – $11,925
12%	$11,926 – $48,475	$17,001 – $64,850	$23,851 – $96,950	$11,926 – $48,475
22%	$48,476 – $103,350	$64,851 – $103,350	$96,951 – $206,700	$48,476 – $103,350
24%	$103,351 – $197,300	$103,351 – $197,300	$206,701 – $394,600	$103,351 – $197,300
32%	$197,301 – $250,525	$197,301 – $250,500	$394,601 – $501,050	$197,301 – $250,525
35%	$250,526 – $626,350	$250,501 – $626,350	$501,051 – $751,600	$250,526 – $375,800
37%	Over $626,350	Over $626,350	Over $751,600	Over $375,800

Note that under the TCJA, the rates and brackets are scheduled to return to their pre-TCJA levels (adjusted for inflation) in 2026 if Congress doesn’t extend the current levels or make other changes.

Standard deduction

The TCJA nearly doubled the standard deduction, indexed annually for inflation, through 2025. In 2025, the standard deduction will be $30,000 for married couples filing jointly, $22,500 for heads of households, and $15,000 for singles and married couples filing separately.

After 2025, the standard deduction amounts are scheduled to drop back to the amounts under pre-TCJA law unless Congress extends the current rules or revises them. Also worth noting is that the personal exemption that was suspended by the TCJA is scheduled to return in 2026. Of course, Congress could extend the suspension.

Long-term capital gains rate

The long-term gains rate applies to realized gains on investments held for more than 12 months. For most types of assets, the rate is 0%, 15% or 20%, depending on your income. While the 0% rate applies to most income that would be taxed at 12% or less based on the taxpayer’s ordinary-income rate, the top long-term gains rate of 20% kicks in before the top ordinary-income rate does.

2025 long-term capital gains brackets*
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
0%	$0 – $48,350	$0 – $64,750	$0 – $96,700	$0 – $48,350
15%	$48,351 – $533,400	$64,751 – $566,700	$96,701 – $600,050	$48,351 – $300,000
20%	Over $533,400	Over $566,700	Over $600,050	Over $300,000
* Higher rates apply to certain types of assets.

As with ordinary income tax rates and brackets, those for long-term capital gains are scheduled to return to their pre-TCJA levels (adjusted for inflation) in 2026 if Congress doesn’t extend the current levels or make other changes.

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 exceeds your regular tax liability, you must pay the AMT.

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. In 2025, the threshold for the 28% bracket will increase by $6,500 for all filing statuses except married filing separately, which will increase by half that amount.

2025 AMT brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
26%	$0 – $239,100	$0 – $239,100	$0 – $239,100	$0 – $119,550
28%	Over $239,100	Over $239,100	Over $239,100	Over $119,550

The AMT exemptions and exemption phaseouts are also indexed. The exemption amounts in 2025 will be $88,100 for singles and $137,000 for joint filers, increasing by $2,400 and $3,700, respectively, over 2024 amounts. The inflation-adjusted phaseout ranges in 2025 will be $626,350–$978,750 for singles and $1,252,700–$1,800,700 for joint filers. Phaseout ranges for married couples filing separately are half of those for joint filers.

The exemptions and phaseouts were significantly increased under the TCJA. Without Congressional action, they’ll drop to their pre-TCJA levels (adjusted for inflation) in 2026.

Education and child-related breaks

The maximum benefits of certain education and child-related breaks will generally remain the same in 2025. 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 in 2025, 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 MAGIs 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 MAGIs in excess of $80,000 ($160,000 for joint returns). The maximum credit is $2,000 per tax return.

The adoption credit. The MAGI phaseout range for eligible taxpayers adopting a child will increase in 2025 — by $7,040. It will be $259,190–$299,190 for joint, head-of-household and single filers. The maximum credit will increase by $470, to $17,280 in 2025.

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

These are only some of the education and child-related tax 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. In 2025, the amount will be $13.99 million (up from $13.61 million in 2024). Beware that the TCJA approximately doubled these exemptions starting in 2018. Both exemptions are scheduled to drop significantly in 2026 if lawmakers don’t extend the higher amount or make other changes.

The annual gift tax exclusion will increase by $1,000, to $19,000 in 2025. (It isn’t part of a TCJA provision that’s scheduled to expire.)

Crunching the numbers

With the 2025 inflation adjustment amounts trending slightly higher than 2024 amounts, it’s important to understand how they might affect your tax and financial situation. Also keep in mind that many amounts could change substantially in 2026 because of expiring TCJA provisions — or new tax legislation, which could even go into effect sooner. We’d be happy to help crunch the numbers and explain the tax-saving strategies that may make the most sense for you in the current environment of tax law uncertainty.

If you hold an interest in a business that’s closely held or family owned, a buy-sell agreement should be a component of your estate plan. The agreement provides for the orderly disposition of each owner’s interest after a “triggering event,” such as death, disability, divorce, termination of employment or withdrawal from the business.

A buy-sell agreement accomplishes this by permitting or requiring the company or the remaining owners to purchase the departing owner’s interest. Often, life insurance is used to fund the buyout. And because circumstances frequently change, reviewing your buy-sell agreement periodically is important to ensure that it continues to meet your needs.

Valuation provision must be current

It’s essential to revisit the agreement’s valuation provision — the mechanism for setting the purchase price for an owner’s interest — to ensure that it reflects the business’s current value. A pressing reason to do this sooner rather than later is because, absent congressional action, the federal gift and estate tax exemption is scheduled to be halved beginning in 2026.

As you review your agreement, pay close attention to the valuation provision. Generally, a valuation provision follows one of three approaches when a triggering event occurs:

Independent appraisal by one or more business valuation professionals,
Formulas, such as book value or a multiple of earnings or revenues as of a specified date, or
Negotiated price.

Independent appraisals almost always produce the most accurate valuations. Formulas tend to become less reliable over time as circumstances change and may lead to over- or underpayments if earnings have fluctuated substantially since the valuation date.

A negotiated price can be a good approach in theory, but expecting owners to reach an agreement under stressful, potentially adversarial conditions is asking a lot. One potential solution is to use a negotiated price but provide for an independent appraisal in the event the parties fail to agree on a price within a specified period.

“Redemption” vs. “cross-purchase” agreement

The type of buy-sell agreement you use can have significant tax and estate planning implications. Generally, the choices are structured either as “redemption” or “cross-purchase” agreements. A redemption agreement permits or requires the company to purchase a departing owner’s interest, while a cross-purchase agreement permits or requires the remaining owners to make the purchase.

A disadvantage of cross-purchase agreements is that they can be cumbersome, especially if there are many owners. For example, if life insurance is used to fund the purchase of a departing owner’s shares, each owner will have to purchase an insurance policy on the lives of each of the other owners. Note that redemption agreements may trigger a variety of unwelcome tax consequences.

A versatile document

A buy-sell agreement can provide several significant benefits, including keeping ownership and control within your family, creating a market for otherwise unmarketable interests, and providing liquidity to pay estate tax and other expenses. In some cases, a buy-sell agreement can even establish the value of an ownership interest for estate tax purposes. We can work with you to design a buy-sell agreement that helps preserve the value of your business for your family.

The SECURE 2.0 Act significantly updates retirement plans, affecting both plan sponsors and participants. Understanding the distinction between its mandatory and voluntary provisions is essential for compliance and strategic planning. Here’s an overview of some key things you need to know. Note that this is not an all-encompassing list, so ensure you review the law closely to maintain compliance.

Mandatory Provisions: Some Provisions You Must Implement

Automatic Enrollment (Effective 2025)
Starting in 2025, all new 401(k) and 403(b) plans established after December 29, 2022, must automatically enroll eligible employees. The initial enrollment rate must be set between 3% and 10%, with annual increases of 1% until it reaches at least 10% (but no more than 15%). Small businesses with fewer than ten employees and new businesses under three years old are exempt from this requirement.

Other Mandatory Provisions

Required Minimum Distributions (RMDs): The RMD age increased to 73 starting January 1, 2023, and will rise further to 75 beginning January 1, 2033.
Eligibility for Part-time Workers: As of December 31, 2024, long-term, part-time workers will become eligible to participate in 401(k) and 403(b) plans after two years of service (down from three years), provided they work at least 500 hours annually.
Catch-up Contributions: Effective for taxable years beginning after December 31, 2025, for employees with compensation of $145,000 or more, all catch-up contributions to qualified retirement plans are subject to Roth tax treatment.

Voluntary Provisions: Optional Enhancements

Student Loan Payment Matching
Beginning in 2025, employers can match employees’ student loan payments with 401(k), 403(b), or SIMPLE IRA contributions. This allows employees to save for retirement while repaying student debt, giving them a dual benefit.

Emergency Savings Accounts
Beginning in 2024, employers could offer emergency savings accounts linked to retirement plans for non-highly compensated employees. These accounts, which operate similarly to Roth IRAs with tax-free withdrawals, are designed to help employees build short-term savings without detracting from their long-term retirement goals.

Penalty-free Withdrawal for Individual Case of Domestic Abuse

Beginning in 2024, employers could permit participants who self-certify that they experienced domestic abuse to withdraw a small amount of money (the lesser of $10,000, indexed for inflation, or 50% of the participant’s account). This would not be subject to the 10% tax on early distributions.

Considerations for Plan Sponsors

Timeline Compliance: The mandatory provisions come with specific effective dates. Failing to comply could result in penalties, so ensure your plans are up to date.
Weighing Costs and Benefits: Assess whether the potential employee retention benefits outweigh the administrative and financial costs for voluntary provisions.
Communication: A clear strategy for informing participants about these changes is crucial, especially for mandatory provisions that will directly impact their accounts and contributions.
Audit Readiness: New provisions could affect audit procedures, particularly those regarding eligibility, contributions, and distributions. Prepare now to stay ahead of potential audit challenges.

How Yeo & Yeo Can Support You

SECURE 2.0 offers both new opportunities and increased responsibilities for retirement plan sponsors. Whether you are navigating mandatory provisions or exploring optional enhancements, Yeo & Yeo’s experienced CPAs and employee benefit plan auditors can help ensure compliance while maximizing the value of your retirement offerings. Contact us to get started.

Source: https://www.aicpa-cima.com/resources/download/secure-2-0-act-of-2022-considerations-for-auditors

Earlier this year, the U.S. Department of Labor (DOL) announced a new final rule on the minimum annual salary threshold that partly determines whether employees are exempt from overtime pay. Under the final rule, the threshold increased on July 1 from a $35,568 annual salary amount to $43,888. It will rise again to $58,656 on January 1, 2025. The threshold will then be updated every three years beginning on July 1, 2027.

For employers, this significant change brought about an intense renewed focus on the age-old “exempt vs. nonexempt” quandary. It also reinforced the importance of complying with other provisions of the Fair Labor Standards Act (FLSA), including those governing minimum wage requirements, recordkeeping rules and child labor standards.

How can you ensure your organization is on the right side of the law? One comprehensive way is to voluntarily conduct regular or occasional “wage and hour” audits. If that sounds like a hassle, bear in mind that FLSA compliance failures could lead to a team of government auditors showing up at your door to do the job for you.

Key features

Wage and hour audits methodically review key features of an employer’s compensation and labor practices, including:

Employee classification (employees must be properly designated as exempt or nonexempt under the current FLSA rules),
Payroll records (employees must be paid at least the current minimum wage, overtime pay needs to be correctly calculated and remitted, and records must be sufficiently detailed and securely maintained),
Timekeeping methods (regular work hours and overtime must be accurately tracked, and “off-the-clock work” shouldn’t be happening),
Rest and meal breaks (employees must receive mandated breaks), and
Wage deductions (all must comply with applicable laws).

While scrutinizing these and other aspects of payroll administration, audits need to account for not only federal requirements but also state and local laws. Some states and municipalities impose much stricter rules than the widely known federal ones.

Simple reason

Dedicating time and resources to wage and hour audits may seem burdensome. However, as mentioned, there’s a simple reason to do so: All it takes to trigger an involuntary audit of your organization is one disgruntled employee filing a complaint with a regulatory body.

At the federal level, the DOL’s Wage and Hour Division is charged with enforcing the FLSA and conducting audits in response to complaints. The agency may also audit an employer as part of a routine or targeted investigation. In addition, every U.S. state has its own labor department or agency with an online reporting system set up to allow employees to file complaints about alleged compensation and overtime violations.

Whether state or federal, auditors tend to take an “employee advocate” perspective when responding to complaints. In other words, while conducting the audit, they’ll likely be on the complainant’s side, not yours. The process can be lengthy, expensive and disruptive. Worst of all, if you’re found liable for violations, your organization may be on the hook for back wages, overtime pay and even penalties.

Knock on the door

The bottom line is it’s usually less expensive and stressful for employers to audit their own payroll practices regularly, or at least occasionally, than to risk that proverbial knock on the door.

How often you should conduct internal audits and who should do the work will depend, at least in part, on the size of your organization and the complexity of its payroll. Larger employers may be able to train and dedicate staff for this purpose; smaller ones can engage third-party auditors or consultants. Contact us for more information or assistance.

As we approach 2025, changes are coming to the Social Security wage base. The Social Security Administration recently announced that the wage base for computing Social Security tax will increase to $176,100 for 2025 (up from $168,600 for 2024). Wages and self-employment income above this amount aren’t subject to Social Security tax.

If your business has employees, you may need to budget for additional payroll costs, especially if you have many high earners.

Social Security basics

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees and self-employed workers. One is for Old Age, Survivors and Disability Insurance, which is commonly known as the Social Security tax, and the other is for Hospital Insurance, which is commonly known as the Medicare tax.

A maximum amount of compensation is subject to the Social Security tax, but there’s no maximum for Medicare tax. For 2025, the FICA tax rate for employers will be 7.65% — 6.2% for Social Security and 1.45% for Medicare (the same as in 2024).

Updates for 2025

For 2025, an employee will pay:

6.2% Social Security tax on the first $176,100 of wages (6.2% × $176,100 makes the maximum tax $10,918.20), plus
1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns, $125,000 for married taxpayers filing separate returns), plus
2.35% Medicare tax (regular 1.45% Medicare tax plus 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns, $125,000 for married taxpayers filing separate returns).

For 2025, the self-employment tax imposed on self-employed people will be:

12.4% Social Security tax on the first $176,100 of self-employment income, for a maximum tax of $21,836.40 (12.4% × $176,100), plus
2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a return of a married individual filing separately), plus
3.8% (2.90% regular Medicare tax plus 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing separate returns).

History of the wage base

When the government introduced the Social Security payroll tax in 1937, the wage base was $3,000. It remained that amount through 1950. As the U.S. economy grew and wages began to rise, the wage base needed to be adjusted to ensure that the Social Security system continued to collect sufficient revenue. By 1980, it had risen to $25,900. Twenty years later it had increased to $76,200 and by 2020, it was $137,700. Inflation and wage growth were key factors in these adjustments.

Employees with more than one employer

You may have questions about employees who work for your business and have second jobs. Those employees would have taxes withheld from two different employers. Can the employees ask you to stop withholding Social Security tax once they reach the wage base threshold? The answer is no. Each employer must withhold Social Security taxes from an employee’s wages, even if the combined withholding exceeds the maximum amount that can be imposed for the year. Fortunately, the employees will get a credit on their tax returns for any excess withheld.

Looking ahead

Do you have questions about payroll tax filing or payments now or in 2025? Contact us. We’ll help ensure you stay in compliance.

Prepare for 2025: A Guide for Employers

Download the Guide

The Michigan Supreme Court’s decision on July 1, 2024, to fully restore the state’s original minimum wage and paid sick leave laws marks a pivotal moment for workers and employers alike. This decision, stemming from the case of Mothering Justice v. Attorney General, overturns the legislature’s previous amendments and restores the Improved Workforce Opportunity Wage Act (IWOWA) and the Earned Sick Time Act (ESTA) to their initial forms.

Effective February 21, 2025, the reinstated laws will significantly increase the minimum wage and expand paid sick leave benefits, impacting nearly all Michigan employers.

For businesses and organizations, this ruling necessitates substantial adjustments in payroll, budgeting, and human resources policies to comply with the new standards. While the changes aim to enhance worker protections and benefits, they also present challenges for employers who must navigate the increased financial and administrative burdens.

Yeo & Yeo has developed this comprehensive guide to assist employers in navigating the reinstated Michigan minimum wage and paid sick leave laws, helping to ensure an understanding of the rules and compliance with the new regulations.

Visit our Michigan Minimum Wage and Earned Sick Time resource page for additional information and ongoing guidance.

In recent years, the accounting rules have undergone significant changes, including updated standards for reporting revenue, leases and credit losses. While business owners and managers often express frustration over the complexity of these rules, they’re more than an exercise in compliance. They help promote investor confidence and efficient capital markets. Here’s an overview of why standardized financial reporting is essential and how it’s changed over the last century.

Need for guidance

In response to the stock market crash of 1929 and the Great Depression, the U.S. government created the Securities and Exchange Commission (SEC). Its mission is to regulate the securities industry and enforce standardized financial reporting standards. Around the same time, the American Institute of Certified Public Accountants (AICPA) was established to develop accounting principles.

In the mid-20th century, the AICPA issued a series of pronouncements that laid the groundwork for U.S. Generally Accepted Accounting Principles (GAAP). These principles provide a framework for financial reporting, ensuring consistency and comparability across U.S. companies. The Financial Accounting Standards Board (FASB) was established in 1973 to take over the standard-setting responsibilities from the AICPA’s Accounting Principles Board (APB). Ever since, the FASB has been responsible for developing and updating GAAP.

GAAP instructs businesses on how to report their historical financial results. It promotes transparency and consistency in financial reporting, allowing business owners and investors to compare companies’ results over time and across industries. U.S. public companies are required to follow GAAP, and many private businesses follow suit.

Global standards

The need for worldwide financial reporting standards arose as global trade expanded. In 1973, the International Accounting Standards Committee (IASC) was established mainly to develop a set of international accounting standards. The IASC issued International Accounting Standards (IAS) to coordinate accounting practices across different countries.

In 2001, the International Accounting Standards Board (IASB) replaced the IASC. The IASB’s goal was to create a single set of high-quality, globally accepted accounting standards. It developed the International Financial Reporting Standards (IFRS) that are used today.

Convergence efforts

In the early 2000s, the FASB and IASB launched a major project to align U.S. GAAP and IFRS. The goal was to reduce differences between the two sets of standards and improve the comparability of financial statements globally.

One convergence success story is the standards on revenue from contracts with customers, Accounting Standards Update (ASU) No. 2014-09 and IFRS 15. The updated guidance required U.S. companies that followed GAAP to abandon roughly 180 business- and transaction-specific guidelines for a principles-based approach to recognizing revenue. The FASB and IASB issued these standards in 2014, which went into effect for publicly traded companies in 2017 and private ones in 2018.

The joint project on accounting for leases was less successful, but it narrowed the differences between reporting leases under GAAP and IFRS. After a decade of debate, the standard-setting bodies published divergent lease reporting standards — ASU 2016-02 and IFRS 16 — in 2016.

While significant progress has been made toward aligning the standards, some differences remain. Essentially, GAAP tends to be more prescriptive, while IFRS tends to be more principles-based and require less-detailed disclosures. It’s clear that the United States isn’t yet ready to abandon GAAP for IFRS. However, the FASB and the IASB are still working toward greater comparability in global reporting. For instance, the FASB participates in the IASB’s Accounting Standards Advisory Forum (ASAF). This group was created in 2013 to advise the IASB as it develops accounting standards. In addition to participating in ASAF meetings, the FASB also meets individually with standard setters from various countries to exchange ideas on improving their respective standards.

The future of financial reporting

The financial reporting standards continually evolve to address emerging issues and challenges, including sustainability and environmental, social, and governance (ESG) reporting. The standard setters are increasingly focused on developing frameworks for nonfinancial reporting to provide stakeholders with a comprehensive view of a company’s performance and impact.

From the early days of unregulated financial reporting to the development of GAAP and IFRS, accounting standards have played a crucial role in the financial markets. However, staying atop the ever-changing accounting rules can be challenging for public and private businesses alike. Contact us to help ensure you’re in compliance and aware of impending changes.

As a business owner or HR professional, providing paid voting leave for your employees is more than just a benefit—it’s a legal requirement in many states. With 29 states mandating paid voting leave, including a clear voting leave policy in your employee handbook is crucial to ensure compliance and avoid potential penalties.

While paid voting leave is not mandated in Michigan, employers with remote workers in other states need to be aware of and comply with the voting leave laws in those states. View the voting leave laws for all states here: state-specific regulations.

A voting leave policy shows your company’s commitment to civic responsibility while protecting your business from legal exposure. Voting laws vary from state to state, but if you operate in one of the 29 states that require paid voting leave or have employees who work in one or more of these states, failing to provide it can lead to fines, lawsuits, or even civil penalties. By outlining the policy in your employee handbook, you provide clarity for both employees and management, ensuring that everyone understands the rules surrounding time off for voting.

For example, states like New York, Illinois, and California require employers to offer paid time off to vote, with specific stipulations on how much notice employees must provide and how much time they are entitled to. If your handbook does not specify this leave, employees may not know they are entitled to it, leading to confusion or even disputes on Election Day.

Implementing a Voting Leave Policy

To create a compliant voting leave policy, consult state-specific regulations for each location where your employees work. Common elements to include in your policy are:

Eligibility: Define who is eligible for voting leave based on state laws.
Notification Requirements: Clearly state how much advance notice employees must provide before Election Day.
Duration of Leave: Specify how much time off employees are entitled to and whether it is paid or unpaid.
Proof of Voting: Mention if any proof of voting is required upon return.

Yeo & Yeo Can Help

Navigating the complexities of voting leave requirements—and other employment laws—can be challenging. Yeo & Yeo’s HR Advisory Solutions Group can work with your team to create or refine policies that ensure compliance across all the states where you operate. We also offer policy audits to identify any gaps or inconsistencies in your employee handbook. Additionally, our team can monitor changes in state laws so your policies remain current, safeguarding your business from legal risks. Let us help you build a legally sound and employee-friendly workplace.

The State Voting Leave Chart was provided by Mineral, Inc.

Few estate planning subjects are as misunderstood as probate. Its biggest downside, and the one that grabs the most attention, is the fact that probate is public. Indeed, anyone who’s interested can find out what assets you owned and how they’re being distributed after your death.

And because of its public nature, the probate process can draw unwanted attention from disgruntled family members who may challenge the disposition of your assets, as well as from other unscrupulous parties.

What does the probate process entail?

Probate is predicated on state law, so the exact process varies from state to state. This has led to numerous misconceptions about the length of probate. On average, the process takes no more than six to nine months, but it can run longer for complex situations in certain states. Also, some states exempt small estates or provide a simplified process for surviving spouses.

In basic terms, probate is the process of settling an estate and passing legal title of ownership of assets to heirs. If the deceased person has a valid will, probate begins when the executor named in the will presents the document in the county courthouse. If there’s no will — the deceased has died “intestate” in legal parlance — the court will appoint someone to administer the estate. After that, this person becomes the estate’s legal representative.

With that in mind, here’s how the process generally works, covering four basic steps.

First, a petition is filed with the probate court, providing notice to the beneficiaries of the deceased under the will. Typically, such notice is published in a local newspaper for the general public’s benefit. If someone wants to object to the petition, they can do so in court.

Second, the executor takes an inventory of the deceased’s property, including securities, real estate and business interests. In some states, an appraisal of value may be required. Then the executor must provide notice to all known creditors. Generally, a creditor must stake a claim within a limited time specified under state law.

Third, the executor determines which creditor claims are legitimate and then meets those obligations. He or she also pays any taxes and other debts that are owed by the estate. In some cases, state law may require the executor to sell assets to provide proceeds sufficient to settle the estate.

Fourth, ownership of assets is transferred to beneficiaries named in the will, following the waiting period allowed for creditors to file claims. If the deceased died intestate, state law governs the disposition of those assets. However, before any transfers take place, the executor must petition the court to distribute the assets as provided by will or state intestacy law.

For some estate plans, the will provides for the creation of a testamentary trust to benefit heirs. For instance, a trust may be established to benefit minor children who aren’t yet capable of managing funds. In this case, control over the trust assets is transferred to the named trustee. Finally, the petition should include an accounting of the inventory of assets unless this is properly waived under state law.

Can probate be avoided?

A revocable living trust may be used to avoid probate and protect privacy. The assets are typically transferred to the trust during your lifetime and managed by a trustee that you designate. You may even choose to act as a trustee during your lifetime. Upon your death, the assets will continue to be managed by a trustee or, should you prefer, the assets will be distributed outright to your designated beneficiaries.

Hurricane Helene has affected millions of people in multiple states across the southeastern portion of the country. It’s just one of many weather-related disasters this year. Indeed, natural disasters have led to significant losses for many taxpayers, from hurricanes, tornadoes and other severe storms to the wildfires again raging in the West.

If your family or business has been affected by a natural disaster, you may qualify for a casualty loss deduction and federal tax relief.

Understanding the casualty loss deduction

A casualty loss can result from the damage, destruction or loss of property due to any sudden, unexpected or unusual event. Examples include floods, hurricanes, tornadoes, fires, earthquakes and volcanic eruptions. Normal wear and tear or progressive deterioration of property doesn’t constitute a deductible casualty loss. For example, drought generally doesn’t qualify.

The availability of the tax deduction for casualty losses varies depending on whether the losses relate to personal- or business-use items. Generally, you can deduct casualty losses related to your home, household items and personal vehicles if they’re caused by a federally declared disaster. Under current law, that’s defined as a disaster in an area that the U.S. president declares eligible for federal assistance. Casualty losses related to business or income-producing property (for example, rental property) can be deducted regardless of whether they occur in a federally declared disaster area.

Casualty losses are deductible in the year of the loss, usually the year of the casualty event. If your loss stems from a federally declared disaster, you can opt to treat it as having occurred in the previous year. You may receive your refund more quickly if you amend the previous year’s return than if you wait until you file your return for the casualty year.

Factoring in reimbursements

If your casualty loss is covered by insurance, you must reduce the loss by the amount of any reimbursement or expected reimbursement. (You also must reduce the loss by any salvage value.)

Reimbursement also could lead to capital gains tax liability. When the amount you receive from insurance or other reimbursements (less any expense you incurred to obtain reimbursement, such as the cost of an appraisal) exceeds the cost or adjusted basis of the property, you have a capital gain. You’ll need to include that gain as income unless you’re eligible to postpone reporting the gain.

You may be able to postpone the reporting obligation if you purchase property that’s similar in service or use to the destroyed property within the specified replacement period. You can also postpone if you buy a controlling interest (at least 80%) in a corporation owning similar property or if you spend the reimbursement to restore the property.

Alternatively, you can offset casualty gains with casualty losses not attributable to a federally declared disaster. This is the only way you can deduct personal-use property casualty losses incurred in locations not declared disaster areas.

Calculating casualty loss

For personal-use property, or business-use or income-producing property that isn’t completely destroyed, your casualty loss is the lesser of:

The adjusted basis of the property immediately before the loss (generally, your original cost, plus improvements and less depreciation), or
The drop in fair market value (FMV) of the property as a result of the casualty (that is, the difference between the FMV immediately before and immediately after the casualty).

For business-use or income-producing property that’s completely destroyed, the amount of the loss is the adjusted basis less any salvage value and reimbursements.

If a single casualty involves more than one piece of property, you must figure each loss separately. You then combine these losses to determine the casualty loss.

An exception applies to personal-use real property, such as a home. The entire property (including improvements such as landscaping) is treated as one item. The loss is the smaller of the decline in FMV of the whole property and the entire property’s adjusted basis.

Other limits may apply to the amount of the loss you can deduct, too. For personal-use property, you must reduce each casualty loss by $100 (after you’ve subtracted any salvage value and reimbursement).

If you suffer more than one casualty loss during the tax year, you must reduce each loss by $100 and report each on a separate IRS form. If two or more taxpayers have losses from the same casualty, the $100 rule applies separately to each taxpayer.

But that’s not all. For personal-use property, you also must reduce your total casualty losses by 10% of your adjusted gross income after you’ve applied the $100 rule. As a result, smaller personal-use casualty losses often provide little or no tax benefit.

Keeping necessary records

Documentation is critical to claim a casualty loss deduction. You’ll need to show:

That you were the owner of the property or, if you leased it, that you were contractually liable to the owner for the damage,
The type of casualty and when it occurred,
That the loss was a direct result of the casualty, and
Whether a claim for reimbursement with a reasonable expectation of recovery exists.

You also must be able to establish your adjusted basis, reimbursements and, for personal-use property, pre- and post-casualty FMVs.

Qualifying for IRS relief

This year, the IRS has granted tax relief to taxpayers affected by numerous natural disasters. For example, Hurricane Helene relief was recently granted to the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia. The relief typically extends filing and other deadlines. (For detailed information about your state, visit: https://bit.ly/3nzF2ui.)

Be aware that you can be an affected taxpayer even if you don’t live in a federally declared disaster area. You’re considered affected if records you need to meet a filing or payment deadline postponed during the applicable relief period are located in a covered disaster area. For example, if you don’t live in a disaster area but your tax preparer does and is unable to pay or file on your behalf, you likely qualify for filing and payment relief.

Turning to us for help

If you’ve had the misfortune of incurring casualty losses due to a natural disaster, contact us. We’d be pleased to help you take advantage of all available tax benefits and relief.

Does your business require real estate for its operations? Or do you hold property titled under your business’s name? It might be worth reconsidering this strategy. With long-term tax, liability and estate planning advantages, separating real estate ownership from the business may be a wise choice.

How taxes affect a sale

Businesses that are formed as C corporations treat real estate assets as they do equipment, inventory and other business assets. Any expenses related to owning the assets appear as ordinary expenses on their income statements and are generally tax deductible in the year they’re incurred.

However, when the business sells the real estate, the profits are taxed twice — at the corporate level and at the owner’s individual level when a distribution is made. Double taxation is avoidable, though. If ownership of the real estate is transferred to a pass-through entity instead, the profit upon sale will be taxed only at the individual level.

Safeguarding assets

Separating your business ownership from its real estate also provides an effective way to protect the real estate from creditors and other claimants. For example, if your business is sued and found liable, a plaintiff may go after all of its assets, including real estate held in its name. But plaintiffs can’t touch property owned by another entity.

The strategy also can pay off if your business is forced to file for bankruptcy. Creditors generally can’t recover real estate owned separately unless it’s been pledged as collateral for credit taken out by the business.

Estate planning implications

Separating real estate from a business may give you some estate planning options, too. For example, if the company is a family business but all members of the next generation aren’t interested in actively participating, separating property gives you an extra asset to distribute. You could bequest the business to one member and the real estate to another.

Handling the transaction

If you’re interested in this strategy, the business can transfer ownership of the real estate and then the transferee can lease it back to the company. Who should own the real estate? One option: The business owner can purchase the real estate from the business and hold title in his or her name. One concern though, is that it’s not only the property that’ll transfer to the owner but also any liabilities related to it.

In addition, any liability related to the property itself may inadvertently put the business at risk. If, for example, a client suffers an injury on the property and a lawsuit ensues, the property owner’s other assets (including the interest in the business) could be in jeopardy.

An alternative is to transfer the property to a separate legal entity formed to hold the title, typically a limited liability company (LLC) or limited liability partnership (LLP). With a pass-through structure, any expenses related to the real estate will flow through to your individual tax return and offset the rental income.

An LLC is more commonly used to transfer real estate. It’s simple to set up and requires only one member. LLPs require at least two partners and aren’t permitted in every state. Some states restrict them to certain types of businesses and impose other restrictions.

Tread carefully

It isn’t always advisable to separate the ownership of a business from its real estate. If it’s a valuable move, the right approach will depend on your individual circumstances. Contact us to help determine the best way to minimize your transfer costs and capital gains taxes while maximizing other potential benefits.

You may trust your executive management team implicitly. But the research is clear: In organizations where executives turn to fraud, the results are very costly. According to the Association of Certified Fraud Examiners’ (ACFE’s) Occupational Fraud 2024: A Report to the Nations, owner/executive fraud makes up only 19% of all cases but has a median loss of $459,000 per incident. That compares with $60,000 per incident for nonmanagerial employees.

Part of the reason behind such great financial losses is the fact that it generally takes longer to detect fraud perpetrated by executives (24 months vs. eight months for rank-and-file worker schemes). So the more proactive you are about preventing and detecting occupational fraud at the highest levels, the better.

3 factors

You might start by considering how the “fraud triangle” paradigm (which forensic accountants use to understand the incidence of occupational fraud) applies to executives.

The triangle’s first element is pressure. Executives can face lifestyle pressures — for example, to live in an exclusive neighborhood and drive an expensive car, even if they can’t afford them. They may also feel pressure to pump up sales numbers or falsify financial statements to make their companies (and their own performance) look better.

The second factor is opportunity. As high-ranking employees, executives generally have the power and authority to steal or cheat. This is particularly true if their company doesn’t enforce adequate internal controls.

The last leg of the triangle is rationalization. Executives who steal may think “everybody does it” or that they “deserve” more than they legitimately earn. Substance abuse or gambling issues may also interfere with their judgment.

Controls that cover everyone

Internal controls are critical to preventing all occupational fraud. But you may need to take extra steps to help ensure executives don’t override internal controls. Clearly communicate when overrides are permissible and when they’re not. If an executive believes an override is necessary, that person should be required to get a second executive’s opinion or document the incident.

Also mandate fraud training for all employees — no exceptions. And empower workers to anonymously report suspicions about executives and other managers by providing a third-party fraud hotline (or online portal). You can help ensure the integrity of your hotline and protect whistleblowers by limiting access to any tips.

Other controls include:

Giving auditors access. Whether your company has an internal audit team, outside auditors — or a combination of both — give them full access to your company’s records. If the audit team encounters a roadblock or is denied access to information, they should know how to proceed.

Treating every allegation seriously. Sometimes tips involving executives are ignored or result in less rigorous investigations. To ensure an unbiased investigation, engage an external fraud expert to look into every legitimate-seeming allegation.

Taking legal action. The ACFE has reported that executives generally receive less punishment for fraud offenses than other employees. Organizations may avoid civil litigation or criminal prosecution for fear of bad publicity. However, if you allow executives to steal or falsify information without ramifications, it could embolden other would-be perpetrators.

Demographic data

Not surprisingly, schemes perpetrated by individuals with 10 or more years tenure are much more expensive than those perpetrated by individuals with even six to 10 years tenure (median losses of $250,000 vs. $137,000, respectively). Also, although every case is unique, occupational fraudsters are more likely to be men with at least a college degree and between 31 and 50 years old. Such characteristics are common among executives.

Although members of your leadership team are almost certainly trustworthy and dedicated to your business’s success, you need to foil potential rogue actors with strong controls. We can help.

When reviewing their income statements, business owners tend to focus on profits (or losses). But focusing solely on the bottom line can lead to mismanagement and missed opportunities. Instead, you should analyze this financial report from top to bottom for deeper insights.

Think like an auditor

Review your company’s income statement with an auditor’s mindset. External auditors are trained to have professional skepticism, ask questions continually and evaluate evidence without bias. They pay close attention to details and rely on data to identify risks and formulate evidence-based conclusions.

This approach can improve your knowledge of your company’s financial health and help you make more strategic decisions based on the key drivers of profitability — revenue and expenses. It can also help expose fraud and waste before they spiral out of control.

Start with revenue

Revenue (or sales) is the money generated from selling goods or services before any expenses are deducted. It’s the top line of your income statement.

Compare revenue for the current accounting period to the previous period and your budget. Has revenue grown, declined or held steady? Did your company meet the sales goals you set at the beginning of the year? If not, investigate what happened. Perhaps management’s goals were unrealistic. Alternatively, the cause might relate to internal issues (such as the loss of a key salesperson or production delays) or external issues (such as the emergence of a new competitor or weak customer demand). Pinpointing the reasons behind lackluster sales is critical. View internal mistakes as opportunities to learn and improve performance in the future.

Evaluating revenue can be particularly challenging for cyclical or seasonal businesses. These businesses should compare results for one time period to those from the same period the previous year. Or they may need to look back more than just one year to evaluate revenue trends over an entire business cycle.

It also may be helpful to look at industry trends to gauge your business’s performance. If your industry is growing but your company is faltering, the cause is likely internal.

If your business offers more than one type of product or service, break down the composition of revenue to see what’s selling — and what’s not. Variances in sales composition over time may reveal changes in customer demand. This analysis can lead to modifications in marketing, sales, production and purchasing strategies.

Move on to cost of sales

The next line item on your company’s income statement is the cost of sales (or cost of goods sold). It includes direct labor, direct materials and overhead. These are costs incurred to make products and provide services. The difference between revenue and cost of sales is your gross profit.

Look at how the components of cost of sales have changed as a percentage of revenue over time. The relationship between revenue and direct costs generally should be stable. Changes may relate to the cost of inputs or your company’s operations. For example, hourly wages might have increased over time due to inflation or regulatory changes. You might decide to counter increasing labor costs by purchasing automation equipment that makes your company less reliant on human capital or adding a shift to reduce overtime wages.

Changes in your revenue base can also affect cost of sales. For instance, if your company is doing more custom work than before, the components of direct costs as a percentage of revenue will likely differ from past results. Evaluating gross profit on a product or job basis can help you understand what’s most profitable so you can pivot to sell more high-margin items.

It’s also helpful to compare the components of your company’s cost of sales against industry benchmarks. This can help evaluate whether you’re operating as efficiently as possible. For instance, compute your company’s direct materials as a percentage of total revenue. If your ratio is significantly higher than the industry average, you might need to negotiate lower prices with suppliers or take steps to minimize waste and rework.

Monitor operating expenses

Operating expenses are ongoing costs related to running your business’s day-to-day operations. They’re necessary for a company to generate revenue but aren’t directly tied to producing goods or services. Examples of operating expenses include:

Compensation for managers, salespeople and administrative staff,
Rent,
Insurance,
Office supplies,
Facilities maintenance and utilities,
Advertising and marketing,
Professional fees,
Travel and entertainment, and
Depreciation and amortization.

Many operating expenses are fixed over the short run. That is, they aren’t affected by changes in revenue. For instance, rent and the marketing director’s salary usually don’t vary based on revenue. Compare the total amount spent on fixed costs in the current accounting period to the amount spent in the previous period. Auditors review individual operating expenses line by line and inquire about any change that’s, say, greater than $10,000 or 10% of the cost from the prior period. This approach can help you ask targeted questions to find the root causes of significant cost increases and make improvements.

To illustrate, let’s say your company’s maintenance costs increased by 20% this year. After further investigation, you might discover that you incurred significant, nonrecurring charges to clean up and repair damages from a major storm — or maybe you discover that your payables clerk is colluding with a friend who works at the landscaping company to bilk your company for excessive fees. You won’t know the reason for a cost increase without digging into the details like an auditor would.

Use the income statement as a management tool

Your company’s income statement contains valuable information if you take the time to review it thoroughly. Adopting an auditor’s mindset can help business owners identify trends quickly, detect problems and anomalies early, and make better-informed decisions. Contact us for help interpreting your company’s historical results and using them to improve its future performance.

Historically, retirement has been a bit like jumping off a cliff. Employees pick a date, maybe enjoy a going-away party and then off they go into the great golden years beyond.

But it doesn’t have to be that way. Under the concept of phased retirement, prospective retirees transition out of the workforce gradually by working reduced schedules or other types of alternate work arrangements. Think of it as carefully rappelling down the cliff rather than jumping off.

At least one recent survey indicates that many of today’s older workers may hold the concept in high regard. In August, global professional advisory firm Willis Towers Watson released its 2024 Global Benefits Attitudes Survey. It found that, of 10,000 U.S. employees working for midsize to large private employers, 15% of those age 50 or older are already engaging in phased retirement while another 19% wish to do so.

Various arrangements, varied benefits

Employers can set up various phased retirement arrangements. Prospective retirees may, for example:

Shift to four-day work weeks,
Move into job-sharing agreements,
Convert to part-time status,
Work remotely all or most of the time, or
Retire, but stay on as contract-based consultants.

Some valid reasons exist for employers to spend time and resources establishing phased retirement arrangements. Many employees head into their golden years possessing vast amounts of “intellectual capital” — that is, knowledge of their industries, organizations and jobs that no one else has. A transitional employment arrangement gives you more time to preserve this know-how, perhaps in part by asking prospective retirees to mentor younger employees.

Phased retirement can also help preserve external relationships. If a long-time employee fully retires, key customers may take their business elsewhere. Your organization might also struggle to maintain strong relationships with vendors, regulatory officials or other important contacts. “Phased retirees” can serve as bridges between themselves and their successors to retain high-value accounts or help manage other critical matters.

Plus, phased retirement tends to ease hiring pressure and lower training costs. Finding an ideal candidate, winning over that person with a job offer, and teaching the new employee the “ins and outs” of the position could take months or even years — and many, many dollars. You can create more time to hire by keeping the soon-to-be retiree on staff and involved in the selection and training processes. At the same time, the older employee may be working fewer hours and, therefore, drawing less in compensation.

Risk management

Naturally, there are risks to consider. Employees nearing retirement who have “checked out” or are disgruntled may not pass along their knowledge completely or accurately.

Some employers might be concerned about older workers driving up the costs of their health insurance plans because of increased claims. Bear in mind, however, that advances in medical care and greater awareness of wellness have resulted in many people remaining healthy later in life. In other words, a spike in benefits costs isn’t a certainty. Consult an employment attorney regarding how selective you can be when offering phased retirement.

Brain-drain stopper

If your organization is concerned about “brain drain” as employees retire, working in good faith with older employees to set up phased retirement arrangements could help mitigate the problem. It may not suit every situation, and some workers might still want to dive into retirement in one fell swoop. But as is so often the case with employment policies these days, flexibility is key.