Rounding Third Base: Effectively Managing the Review Phase of an Audit

You’ve answered hundreds of questions, pulled countless documents, and are sliding toward home plate for this year’s audit. You’re almost done! Reviewing draft reports and providing feedback is one of the last steps to wrapping up the audit and resuming business as usual. Following are tips to aid in this crucial audit step:

1. Review the proposed journal entries. Throughout the audit, if adjustments were needed, these were likely brought to your attention by the auditor once discovered. At the end of the audit, a comprehensive list of all adjustments should be provided. If one is not, ask for it or confirm that no adjustments were made. Review the journal entries to verify you agree with the amounts, accounts and why the entry is being recorded. The journal entries should be recorded in your general ledger once you agree with them. Be sure to follow your internal process for posting journal entries and retain appropriate supporting documentation for the journal entries. If the organization uses a tool to document how to prepare for year-end, update this tool as necessary to prevent similar adjustments from being missed in future years.

2. Compare your trial balance to the auditor’s trial balance. Once the proposed journal entries have been recorded, compare ending balances in your trial balance to the final trial balance generated by the auditor. There are times when they won’t match. Sometimes this is acceptable; other times, further investigation and resolution are required. Here are a few examples of differences that can occur:

1. The auditor posts a journal entry to reclassify amounts as part of the financial statement preparation process, but the organization does not maintain that level of detail in the general ledger. This may be the case when classifying amounts as short-term versus long-term on the balance sheet.
2. A journal entry was made on your general ledger that was never provided to the auditor. Review the journal entry to confirm it was, in fact, necessary. Then, provide the auditor with the journal entry and have further discussions to ensure they agree with posting the adjustment.

3. Review how the trial balance accounts are grouped and mapped to the financial statements. Suppose the auditor is preparing the financial statements. In that case, they should provide you with a grouping schedule that delineates which trial balance accounts are combined to equal lines on the financial statements. Review the grouping of accounts and be sure to understand why certain accounts are grouped. If a grouping doesn’t make sense, or you identify an obvious error, bring this up with the auditor.

4. Read the footnotes. The footnotes contain an explanation of the organization’s accounting policies and seek to enhance the reader’s understanding of the amounts presented in the financial statements. The footnotes should accurately reflect the accounting policies the organization uses. Additional information related to certain transactions, such as collectability of receivables, long-term debt terms, and revenue recognition practices, to name a few, need to reflect the specific circumstances of your organization.

5. Consider completeness of the information presented. This is the final “gut check” as to whether the materials are complete. Consider if the big-ticket financial transactions are included and make sense. If new debt was issued, was it properly presented? If a construction project was underway, were amounts properly capitalized? If a significant event happened after fiscal year-end, is the situation disclosed? Does the bottom line make sense?

At the end of the audit, management must attest to certain representations and take responsibility for the financial statements and all that is contained within them. Throughout the process above, if you notice errors, have questions, or don’t understand something, speak up. Issuing complete and accurate financial statements is the home run that results from collaboration and collective understanding among all members of the audit team.

School district technology teams continue to face numerous challenges as information technology and its risks develop rapidly. Students and teachers likely use various equipment and operating systems, including Windows, macOS, Chrome, Android and iOS, each with its own security risks and vulnerabilities. Software requires frequent monitoring for updates and patches, which may have unknown effects on other hardware or software the school district uses. Many users accessing the school district’s network will be legitimate users, but additional remote users and publicly accessible wireless networks make the school district vulnerable to intruders.

Although your school district likely has some controls in place to monitor these risks, your technology team cannot rely on best practices of the past. Failure of your technology team to focus on changing technology and controls can have serious consequences. For example, cybersecurity insurance is a common tool school districts use to mitigate loss related to malware and loss of data. However, the latest trend is that insurers provide coverage based on risk; a school district that cannot sufficiently demonstrate a response to significant information technology risks could be denied coverage or face a substantial increase in cost. Also, malware that locks your files in exchange for money continues to become more aggressive. In the past, backups were the best way to avoid having to pay to restore access to files, but malware has demonstrated the ability to infect network-connected backups.

The controls and infrastructure to mitigate information technology risks can be comprehensive and specific to each school district’s software and hardware environment. However, your technology team could use several simple and cost-effective tools to reduce the risk of malware and network intruders.

Enforce passwords meeting minimum complexity requirements, including minimum length and a combination of lower and uppercase characters, numbers and special characters for software and network access. Passwords should automatically require changing at reasonable intervals.
For most software and website access, passwords alone are not enough. The school district should require the use of multi-factor authentication, preferably via an authentication app on a phone, whenever possible. This reduces the risk that an intruder would gain access to secure information if a password were to be compromised.
Automatic backups should occur frequently and at regular intervals. Keep a backup offline and away from network access in the event malware affects your network and your automatic backups. Backups should be tested and restored regularly to ensure they function as intended.
Educate your employees on what risks they face and how their actions can impact their data and the school district’s data. Hackers can invade your systems and bypass security with malicious emails that look legitimate but instead lock files or gain access to sensitive information. Programs such as KnowBe4 offer low-cost training via short videos that help employees detect red flags and delete the emails before clicking on them. Contact your Yeo & Yeo professional if you would like more information about the Security Awareness Training program.

The following text was take from our eBook: 5 Steps to Drive Business Growth and Recovery to Fuel Your Dreams.

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Pivoting isn’t a new concept. Some of the most profitable and recognizable businesses in the country changed paths midstream before they truly became successful.

A classic example is Starbucks. The company didn’t start out as a franchiser of coffee shops. Initially, it sold coffee makers, bulk coffee beans and other items before shifting to its current model of coffee houses with a sense of community, like those in Italy and other European countries. Now it seems as if Starbucks has a coffee shop at every busy intersection in the country — and a loyal following of coffee aficionados.

Each situation is different as well as the sense of urgency and uncertainty varies for businesses experiencing challenges or a stunt in growth. In situations like millions of businesses have experienced in 2020, pivoting is one strategy to consider.

6 Tips for a Successful Pivot Strategy

Pivoting requires a transition period, especially if you’re shifting to a new product line or paradigm. It’s not as easy as snapping your fingers and announcing a change of plans. Here are six practical suggestions to smooth out the rough edges.

1. Communicate.

Let your customers know that you’re still there to serve them as you always have with expanded opportunities. Share new products and services on your website. If customers don’t know what you’re selling, they won’t be buying. Expand the reach of your social media accounts.

2. Adapt to meet new demands and needs.

Be creative about serving your customers. Can you offer new services that would be attractive to your buyers that would make you stand out from your competition? If a car dealership can drive a new vehicle to a buyer’s residence, can you do the same for your products? Can you use teleconferencing, or utilize demos to walk a client through the steps of a purchase? A small change can not only help you meet your clients’ need, but can also preserve resources such as transportation and travel cost when cash flow is low

3. Think ahead.

If demand for your product or service is low currently, you may be able to encourage your clients to purchase later. For example, if you own a retail outlet that’s had to close its doors, you might offer gift cards for future purchases at discounted rates. When restrictions in your area have been lifted, customers can cash in. In the meantime, you’ve boosted current cash flow. If you own a service business, would your clients be willing to schedule for services or appointments at a later date or sign a contract?

4. Learn a new skill.

Faced with necessity, owners may delve into areas they previously hadn’t touched. For instance, you could become adept at scheduling pick-ups through software. Or maybe ask employees to take on administrative work that had previously been delegated to others to reduce your staff.

5. Inform your employees.

Workers appreciate honesty. So, inform them as soon as possible if layoffs are coming, benefits are being scaled back or bonuses won’t be paid this year. These challenging times present an opportunity to build long-term loyalty among your workers.

6. Monitor your pivot strategy regularly.

Don’t rely on gut instinct or quarterly financial statements to monitor your company’s performance. Timely, accurate financial reporting is key during volatile market conditions. Consider producing daily or weekly “flash” reports that highlight what’s working and what’s not — and then take corrective measures. For example, you might need to adjust your pricing, staffing or hours of operation to improve profitability.

Which metrics should be included in your company’s flash report? Keep a close watch on revenue, payroll costs, and sources (and uses) of cash.

Article Updated September 17, 2021

The American Rescue Plan Act of 2021 requires all employers to whom COBRA applies to offer free COBRA coverage for up to six months to workers who lost health insurance due to involuntary termination of employment or a reduction in hours. The requirement went into effect on April 1, 2021. The free coverage is to be offset by tax credits to the entity providing the free coverage. Specifically, the Act allows employers to claim a refundable tax credit for any COBRA premiums waived due to the subsidy provision. Employers claim this credit through their quarterly Medicare tax filings as an offset to the liability the employer would otherwise have for Medicare taxes. The new law requires prompt action from employers and health plan administrators.

What is the Benefit?

Eligible individuals are to be provided a 100% COBRA premium subsidy for the six months starting April 1, 2021, through September 30, 2021.

Who Gets the Benefit?

An individual eligible for benefits under the Act is referred to as an “Assistance Eligible Individual” (“AEI”). An AEI is a COBRA qualified beneficiary eligible for COBRA coverage due to involuntary termination of employment or reduction in hours and who actually elects COBRA coverage. AEIs include both the employee and eligible family member dependents. Importantly, an individual who previously declined COBRA or dropped COBRA and who would otherwise currently be eligible for COBRA if a COBRA election were in effect is eligible for the COBRA subsidy if certain election requirements are satisfied.

How is the Benefit Provided?

Each AEI is deemed to have satisfied the requirement to pay premiums for a maximum period of April 1, 2021, through September 30, 2021. Therefore, AEIs who elected and are currently receiving COBRA coverage should have their premiums waived starting April 1, 2021. AEIs who previously dropped or declined COBRA coverage are allowed a window period to elect coverage during the six-month subsidy period. It is important to note that the subsidy is available only so long as the individual remains eligible for COBRA. The Act does not extend the availability of COBRA coverage beyond the 18 months following the involuntary termination or reduction in hours. This means, for example, that an employee (or his or her dependents) whose COBRA rights have expired as of April 1, 2021, are not eligible for the subsidy.

What is the Election Process?

AEIs not currently on COBRA will have 60 days from the date the employer notifies them of the COBRA premium subsidy’s availability to opt-in. The Department of Labor (“DOL”) is mandated to publish model notices within 30 days of the Act’s passage. Whether the DOL meets this requirement or not, employers are required to notify AEIs of their election option by May 31, 2021. AEIs have the right to retroactive subsidized coverage back to April 1, 2021. Their subsidized coverage does not expire until the end of the individual’s maximum COBRA coverage period or September 30, 2021, whichever is earlier.

Importantly, the ARPA required employers to notify each “assistance eligible individual” (employees who lost group coverage due to reduced hours or involuntary termination and who elect coverage) no more than 45 days, but no less than 15 days, before his or her subsidy termination date that their subsidized coverage is about to end. For most individuals still receiving subsidized coverage, this means they must be notified of the September 30 termination date no later than September 15, 2021. No notice is required, however, to those individuals whose premium assistance expires due to their eligibility for another group health plan or Medicare.

The expiration notice must specify that (1) premium assistance for the individual is about to expire, (2) the date of the expiration, and (3) that the individual may be eligible for coverage without any premium assistance through COBRA continuation coverage or coverage under a group health plan, Medicaid, or the Health Insurance Marketplace. The U.S. Department of Labor (the “DOL”) published guidance and a model form employers may utilize in providing notice of the expiration of ARPA’s premium subsidy. This model notice form can be obtained or viewed on the DOL’s website, please visit:

https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/laws/cobra/premium-subsidy/notice-of-premium-assistance-expiration-premium.pdf

What Should Employers Do Now?

Employers should work with their COBRA vendors to coordinate not only communication of the required notices, but also to determine which former employees and dependents will be eligible to receive notice. Employers should also modify existing notices for any individuals who become eligible for COBRA coverage during the subsidy period. Finally, employers should work with their COBRA vendors and tax professionals to clarify their understanding of which entity is actually providing the subsidy and, accordingly, which entity is entitled to claim the tax credits.

For more information, visit the U.S. Department of Labor’s COBRA Premium Subsidy website page and read FAQs About COBRA Premium Assistance Under the American Rescue Act of 2021.

The preceding summary of COBRA requirements for employers was provided by Masud Labor Law.

The Internal Revenue Service warns of an IRS-impersonation scam that primarily targets educational institutions, including university and college students and staff who have “.edu” email addresses.

The suspect emails display the IRS logo and use subject lines such as “Tax Refund Payment” or “Recalculation of your tax refund payment.” It asks people to click a link and submit a form to claim their refund. The phishing website asks taxpayers to provide personal information such as their Social Security number, date of birth, income, driver’s license number, electronic filing PIN and more. People who receive this scam email should not click on the link in the email.

While the scammers are primarily targeting universities, all education entities have the potential to be affected. The IRS will never initiate contact with taxpayers via email about a bill or tax refund. Always think before you click.

Read more. Learn how to report these scam emails to the IRS and what to do if you believe you may have provided identity thieves with this information.

Stop Cyberattacks in Their Tracks with These 10 Security Tips

If you were to ask your IT staff about how tech support for remote employees is going, they might say something along the lines of, “Fantastic! Never better!” However, if you asked remote workers the same question, their response could be far less enthusiastic.

This was among the findings of a report by IT solutions provider 1E entitled “2021: Assessing IT’s readiness for the year of flexible working,” which surveyed 150 IT workers and 150 IT managers in large U.S. organizations. The report strikingly found that, while 100% of IT managers said they believed their internal clients were satisfied with tech support, only 44% of remote employees agreed.

Bottom line impact

By now, over a year into the COVID-19 pandemic, remote work has become common practice. Some businesses may begin reopening their offices and facilities as employees get vaccinated and, one hopes, virus metrics fall to manageable levels. However, that doesn’t mean everyone will be heading back to a communal working environment.

Flexible work arrangements, which include the option to telecommute, are expected to remain a valued employment feature. Remote work is also generally less expensive for employers, so many will likely continue offering or mandating it after the pandemic fades.

For business owners, this means that providing optimal IT support to remote employees will remain a mission-critical task. Failing to do so will likely hinder productivity, lower morale, and may lead to reduced employee retention and longer times to hire — all costly detriments to the bottom line.

Commonsense tips

So, how can you ensure your remote employees are well-supported? Here are some commonsense tips:

Ask them about their experiences. In many cases, business owners are simply unaware of the troubles and frustrations of remote workers when it comes to technology. Develop a relatively short, concisely worded survey and gather their input.

Invest in ongoing training for support staff. If you have IT staffers who, for years, provided mostly in-person desktop support to on-site employees, they might not serve remote workers as effectively. Having them take one or more training courses may trigger some “ah ha!” moments that improve their interactions and response times.

Review and, if necessary, upgrade systems and software. Your IT support may be falling short because it’s not fully equipped to deal with so many remote employees — a common problem during the pandemic. Assess whether:

Your VPN system and licensing suit your needs,
Additional or better cloud solutions could help, and
Your remote access software is helping or hampering support.

Ensure employees know how to work safely. Naturally, the remote workers themselves play a role in the stability and security of their devices and network connections. Require employees to undergo basic IT training and demonstrate understanding and compliance with your security and usage policies.

Your technological future

The pandemic has been not only a tragic crisis, but also a marked accelerator of the business trend toward remote work. We can help you evaluate your technology costs, measure productivity and determine whether upgrades are likely to be cost-effective.

When you file your tax return, you must check one of the following filing statuses: Single, married filing jointly, married filing separately, head of household or qualifying widow(er). Who qualifies to file a return as a head of household, which is more favorable than single?

To qualify, you must maintain a household, which for more than half the year, is the principal home of a “qualifying child” or other relative of yours whom you can claim as a dependent (unless you only qualify due to the multiple support rules).

A qualifying child?

A child is considered qualifying if he or she:

Lives in your home for more than half the year,
Is your child, stepchild, adopted child, foster child, sibling stepsibling (or a descendant of any of these),
Is under age 19 (or a student under 24), and
Doesn’t provide over half of his or her own support for the year.

If a child’s parents are divorced, the child will qualify if he meets these tests for the custodial parent — even if that parent released his or her right to a dependency exemption for the child to the noncustodial parent.

A person isn’t a “qualifying child” if he or she is married and can’t be claimed by you as a dependent because he or she filed jointly or isn’t a U.S. citizen or resident. Special “tie-breaking” rules apply if the individual can be a qualifying child of (and is claimed as such by) more than one taxpayer.

Maintaining a household

You’re considered to “maintain a household” if you live in the home for the tax year and pay over half the cost of running it. In measuring the cost, include house-related expenses incurred for the mutual benefit of household members, including property taxes, mortgage interest, rent, utilities, insurance on the property, repairs and upkeep, and food consumed in the home. Don’t include items such as medical care, clothing, education, life insurance or transportation.

Special rule for parents

Under a special rule, you can qualify as head of household if you maintain a home for a parent of yours even if you don’t live with the parent. To qualify under this rule, you must be able to claim the parent as your dependent.

Marital status

You must be unmarried to claim head of household status. If you’re unmarried because you’re widowed, you can use the married filing jointly rates as a “surviving spouse” for two years after the year of your spouse’s death if your dependent child, stepchild, adopted child, or foster child lives with you and you “maintain” the household. The joint rates are more favorable than the head of household rates.

If you’re married, you must file either as married filing jointly or separately, not as head of household. However, if you’ve lived apart from your spouse for the last six months of the year and your dependent child, stepchild, adopted child, or foster child lives with you and you “maintain” the household, you’re treated as unmarried. If this is the case, you can qualify as head of household.

We can answer questions if you’d like to discuss a particular situation or would like additional information about whether someone qualifies as your dependent.

As a business owner, you should be aware that you can save family income and payroll taxes by putting your child on the payroll.

Here are some considerations.

Shifting business earnings

You can turn some of your high-taxed income into tax-free or low-taxed income by shifting some business earnings to a child as wages for services performed. In order for your business to deduct the wages as a business expense, the work done by the child must be legitimate and the child’s salary must be reasonable.

For example, suppose you’re a sole proprietor in the 37% tax bracket. You hire your 16-year-old son to help with office work full-time in the summer and part-time in the fall. He earns $10,000 during the year (and doesn’t have other earnings). You can save $3,700 (37% of $10,000) in income taxes at no tax cost to your son, who can use his $12,550 standard deduction for 2021 to shelter his earnings.

Family taxes are cut even if your son’s earnings exceed his standard deduction. That’s because the unsheltered earnings will be taxed to him beginning at a 10% rate, instead of being taxed at your higher rate.

Income tax withholding

Your business likely will have to withhold federal income taxes on your child’s wages. Usually, an employee can claim exempt status if he or she had no federal income tax liability for last year and expects to have none this year.

However, exemption from withholding can’t be claimed if: 1) the employee’s income exceeds $1,100 for 2021 (and includes more than $350 of unearned income), and 2) the employee can be claimed as a dependent on someone else’s return.

Keep in mind that your child probably will get a refund for part or all of the withheld tax when filing a return for the year.

Social Security tax savings

If your business isn’t incorporated, you can also save some Social Security tax by shifting some of your earnings to your child. That’s because services performed by a child under age 18 while employed by a parent isn’t considered employment for FICA tax purposes.

A similar but more liberal exemption applies for FUTA (unemployment) tax, which exempts earnings paid to a child under age 21 employed by a parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting only of his or her parents.

Note: There’s no FICA or FUTA exemption for employing a child if your business is incorporated or is a partnership that includes non-parent partners. However, there’s no extra cost to your business if you’re paying a child for work you’d pay someone else to do.

Retirement benefits

Your business also may be able to provide your child with retirement savings, depending on your plan and how it defines qualifying employees. For example, if you have a SEP plan, a contribution can be made for the child up to 25% of his or her earnings (not to exceed $58,000 for 2021).

Contact us if you have any questions about these rules in your situation. Keep in mind that some of the rules about employing children may change from year to year and may require your income-shifting strategies to change too.

On March 30, the Financial Accounting Standards Board (FASB) published an updated accounting standard on events that trigger an impairment test under U.S. Generally Accepted Accounting Principles (GAAP). This simplified alternative may provide relief to private companies and not-for-profit entities that have been adversely affected by the COVID-19 pandemic. Here’s what you should know.

Simplified options for certain entities

Under GAAP, goodwill appears on a company’s balance sheet only when it’s been acquired in an M&A transaction. It represents what’s left over after the purchase price has been allocated to the fair value of identifiable tangible and intangible assets acquired and liabilities assumed. When goodwill declines in value, it’s considered “impaired.” Impairment charges can lower a company’s earnings.

Private companies and not-for-profits that report goodwill on their balance sheets have been given various simplified financial reporting alternatives over the years. One such alternative allows these entities to amortize goodwill generally over a 10-year period, rather than capitalize it and test annually for impairment. However, entities that elect this alternative still must test goodwill for impairment when a triggering event happens.

Triggering events

Examples of triggering events include the loss of a key customer, unanticipated competition and negative cash flows from operations. Impairment also may occur if, after an acquisition has been completed, there’s a stock market or economic downturn — such as the market and economic downturn caused by COVID-19 — that causes the parent company or the acquired business to lose value.

Accounting Standards Update No. 2021-03, Intangibles — Goodwill and Other (Topic 350): Accounting Alternative for Evaluating Triggering Events, provides an accounting alternative that allows private companies and not-for-profit organizations to perform a goodwill triggering event assessment as of the end of the reporting period only, whether the reporting period is an interim or annual period. It eliminates the requirement for entities that elect this alternative to perform this assessment during the reporting period.

The changes go into effect on a prospective basis for fiscal years beginning after December 15, 2019. Private companies and not-for-profits can adopt the changes early for interim and annual financial statements that haven’t yet been issued or made available for issuance as of March 30, 2021. But they aren’t allowed to adopt the changes retroactively for interim financial statements already issued in the year of adoption.

Welcome relief

The updated guidance on evaluating triggering events will help reduce financial reporting complexity for private companies and not-for-profits in the midst of the pandemic — and for other triggering events that happen in the future. Contact us for more information.

The American Rescue Plan Act (ARPA), signed into law in early March, aims at offering widespread financial relief to individuals and employers adversely affected by the COVID-19 pandemic. The law specifically targets small businesses in many of its provisions.

If you own a small company, you may want to explore funding via the Small Business Administration’s (SBA’s) Economic Injury Disaster Loan (EIDL) program. And if you happen to own a restaurant or similar enterprise, the ARPA offers a special type of grant just for you.

EIDL advances

Under the ARPA, eligible small businesses may receive targeted EIDL advances from the SBA. Amounts received as targeted EIDL advances are excluded from the gross income of the person who receives the funds. The law stipulates that no deduction or basis increase will be denied, and no tax attribute will be reduced, because of the ARPA’s gross income exclusion.

In the case of a partnership or S corporation that receives a targeted EIDL advance, any amount of the advance excluded from income under the ARPA will be treated as tax-exempt income for federal tax purposes. Because targeted EIDL advances are treated as such, they’ll be allocated to the partners or shareholders — increasing their bases in their partnership interests.

The IRS is expected to prescribe rules for determining a partner’s distributive share of EIDL advances for federal tax purposes. S corporation shareholders will receive allocations of tax-exempt income from targeted EIDL advances in proportion to their ownership interests in the company under the single-class-of-stock rule.

Restaurant revitalization grants

Under the ARPA, eligible restaurants, food trucks and similar businesses may receive restaurant revitalization grants from the SBA. As is the case for EIDL loans:

Amounts received as restaurant revitalization grants are excluded from the gross income of the person who receives the funds, and
No deduction or basis increase will be denied, and no tax attribute will be reduced, because of the ARPA’s gross income exclusion.

In the case of a partnership or S corporation that receives a restaurant revitalization grant, any amount of the grant excluded from income under the ARPA will be treated as tax-exempt income for federal tax purposes. Because restaurant revitalization grants are treated as tax-exempt income, they’ll be allocated to partners or shareholders and increase their bases in their partnership interests.

Just like EIDL advances, the IRS is expected to prescribe rules for determining a partner’s distributive share of the grant for federal tax purposes. And S corporation shareholders will receive allocations of tax-exempt income from restaurant revitalization grants in proportion to their ownership interests in the company under the single-class-of-stock rule.

Help with the process

The provisions related to EIDL advances and restaurant revitalization grants are effective as of the ARPA’s date of enactment: March 11, 2021. Contact us for help determining whether your small business or restaurant may qualify for financial relief under the ARPA and, if so, for assistance with the application process.

Yeo & Yeo is proud to celebrate 98 years of delivering outstanding business solutions. Serving our clients and communities is at the core of what we do, and it’s our people who go above and beyond every day to support them. We thank you all for making 98 years possible!

This past year marks …

Announcing our CEO-elect, Dave Youngstrom, who will assume leadership of the firm’s nine offices and all Yeo & Yeo companies in January 2022,
Receiving the Best of Michigan Business Award from MichBusiness,
Recognition from Forbes as one of America’s best tax and accounting firms,
Becoming a member of PrimeGlobal, a global association of independent accounting firms, providing a wide range of tools and resources to help member firms furnish superior accounting, auditing and management services to clients around the globe,
Expanding our Yeo & Yeo Wealth Management services to help clients connect tax advice to financial planning goals,
Making Accounting Today’s 2021 Regional Leader and Firms to Watch lists,
And the first fully operational year of our Yeo & Yeo Foundation.

But most importantly, it marks another year of serving you, our valued clients.

“This past year has shown us the true value of working together with our clients, professionals and communities,” says Thomas Hollerback, President & CEO. “We rose to the occasion to meet new needs and help one another. As always, we are honored to work with and support our local Michigan businesses.”

Today Yeo & Yeo has more than 200 professionals in nine offices across Michigan. Through our companies, Yeo & Yeo CPAs & Business Consultants, Yeo & Yeo Technology, Yeo & Yeo Medical Billing & Consulting and Yeo & Yeo Wealth Management, we provide a complete resource for our clients.

We look forward to many more years of serving you – our clients and communities – with the highest level of quality and trust!

President Biden has signed the PPP Extension Act of 2021. The new law extends the Paycheck Protection Program (PPP) application filing deadline from March 31, 2021, to May 31, 2021, thus providing potential PPP borrowers additional time to submit their applications. The law doesn’t provide the PPP with any additional funding. However, $7.25 billion in additional funding was recently provided in the American Rescue Plan Act.

PPP basics

The PPP was established in March 2020 by the CARES Act. The program was designed to help small employers meet their payrolls during the economic crisis caused by the COVID-19 pandemic. PPP loans are available to virtually every U.S. business with fewer than 500 employees that was affected by COVID-19, including sole proprietors, self-employed individuals, independent contractors and nonprofits.

PPP loans generally are 100% forgivable if the borrower allocates the funds on a 60/40 basis between payroll and eligible nonpayroll costs. Nonpayroll costs originally were limited to mortgage interest, rent, utilities and interest on any other existing debt, but the Consolidated Appropriations Act (CAA), enacted in late 2020, significantly expanded the eligible nonpayroll costs. For example, borrowers now can apply the funds to cover certain operating expenses and worker protection expenses.

The CAA added an additional $284 billion in funding for PPP loans for both first-time and so-called “second draw” borrowers (the latter are restricted to smaller and harder hit businesses). It also clarified that PPP borrowers aren’t required to include any forgiven amounts in their gross income for tax purposes and that borrowers can deduct otherwise deductible expenses paid with forgiven PPP proceeds. In addition, it simplified the forgiveness process by calling for a one-page forgiveness application for loans up to $150,000.

The new law

To recap, the new PPP Extension Act provides no additional funding for the program but extends the filing deadline for both first- and second-draw loan applications to May 31, 2021. The deadline extension may increase the odds of securing a loan, particularly for businesses that have struggled with the application process.

The law also gives the Small Business Administration (SBA) an additional 30 days — through June 30, 2021 — after the extended application deadline to complete its processing of applications. The SBA has a backlog of applications because of a variety of factors, including coding errors, delays in the release of guidance on implementation of the program and its many changes, and a recent revision of the formula used to calculate an applicant’s loan amount.

Previously, the loan amount was based on an applicant’s net profits, to the detriment of sole proprietors, independent contractors and self-employed individuals whose Schedule C tax forms didn’t show a net profit. In February, the Biden administration announced that it was revising the formula to focus on gross profits — the amount of money earned before taxes or expenses are deducted. While welcomed news for applicants, the revised formula required loan processors to make changes, leading to further delays and strain to keep up with demand.

Act now

With the PPP application filing deadline being extended, coupled with several recent reforms that widen the loan eligibility, more businesses have the opportunity the take advantage of PPP loans. We can help you determine if you’re eligible and ensure you comply with the applicable requirements to qualify for 100% forgiveness.

New legislation extends the Paycheck Protection Program (PPP) application deadline from March 31 to May 31. The PPP Extension Act of 2021 also gives the Small Business Administration (SBA) an additional 30 days beyond May 31 to process those loans.

The new deadline applies whether a business is applying for a first-time PPP loan or a second-draw PPP loan.

Changes made to the PPP in the past few months were designed to give businesses more flexibility with PPP funding, including tax exemption for expenses paid for with PPP monies, and eligibility for sole proprietors, independent contractors, and self-employed. The application and reporting have also been streamlined.

Visit the SBA website for details and loan applications.

If you have a life insurance policy, you may want to ensure that the benefits your family will receive after your death won’t be included in your estate. That way, the benefits won’t be subject to federal estate tax.

Current exemption amounts

For 2021, the federal estate and gift tax exemption is $11.7 million ($23.4 million for married couples). That’s generous by historical standards but in 2026, the exemption is set to fall to about $6 million ($12 million for married couples) after inflation adjustments — unless Congress changes the law.

In or out of your estate

Under the estate tax rules, insurance on your life will be included in your taxable estate if:

Your estate is the beneficiary of the insurance proceeds, or
You possessed certain economic ownership rights (called “incidents of ownership”) in the policy at your death (or within three years of your death).

It’s easy to avoid the first situation by making sure your estate isn’t designated as the policy beneficiary.

The second rule is more complicated. Just having someone else possess legal title to the policy won’t prevent the proceeds from being included in your estate if you keep “incidents of ownership.” Rights that, if held by you, will cause the proceeds to be taxed in your estate include:

The right to change beneficiaries,
The right to assign the policy (or revoke an assignment),
The right to pledge the policy as security for a loan,
The right to borrow against the policy’s cash surrender value, and
The right to surrender or cancel the policy.

Be aware that merely having any of the above powers will cause the proceeds to be taxed in your estate even if you never exercise them.

Buy-sell agreements and trusts

Life insurance obtained to fund a buy-sell agreement for a business interest under a “cross-purchase” arrangement won’t be taxed in your estate (unless the estate is the beneficiary).

An irrevocable life insurance trust (ILIT) is another effective vehicle that can be set up to keep life insurance proceeds from being taxed in the insured’s estate. Typically, the policy is transferred to the trust along with assets that can be used to pay future premiums. Alternatively, the trust buys the insurance with funds contributed by the insured. As long as the trust agreement doesn’t give the insured the ownership rights described above, the proceeds won’t be included in the insured’s estate.

The three-year rule

If you’re considering setting up a life insurance trust with a policy you own currently or simply assigning away your ownership rights in such a policy, consult with us to ensure you achieve your goals. Unless you live for at least three years after these steps are taken, the proceeds will be taxed in your estate. (For policies in which you never held incidents of ownership, the three-year rule doesn’t apply.)

The due date for filing 2020 individual income tax returns, and paying any tax due with the 2020 return, is now Monday, May 17. Interest and penalties will also not apply for that period.

The IRS has clarified contribution deadlines and other issues related to the extension:

Contributions to IRAs and Roth IRAs, Health Savings Accounts (HSAs), Archer Medical Savings Accounts (Archer MSAs), and Coverdell Education Savings Accounts (Coverdell ESAs) for 2020 are now allowed to be made through May 17, 2021.
Tax on premature distributions from retirement plans will also not be due until May 17, 2021:
Form 5498 – IRA Contributions Information reports your IRA contributions to the IRS. Your IRA trustee or issuer is required to file the form and provide it to participants and beneficiaries by June 30.

Visit Yeo & Yeo’s Tax Resource Center for useful links, tax guides, tax articles on our blog, webinars, podcasts and more. Please contact your Yeo & Yeo tax professional with questions or concerns

Also read:

Michigan Extends 2020 Tax Filing and Payment Deadline from April 15 to May 17

IRS Extends 2020 Individual Tax Filing and Payment Deadline from April 15 to May 17

Yeo & Yeo is pleased to welcome Stephanie Vogel as the firm’s Senior Human Resources Manager. Stephanie will take charge of the firm’s four-person HR team following Kelly Smith’s retirement on March 31 from the Director of Human Resources position.

Smith joined the firm in 2002 and was instrumental in implementing the firm’s automated employee performance appraisal process and paperless personnel files. She was responsible for the firm’s payroll administration system and managed the firm’s healthcare plan, employee benefits and human resource policies and procedures. She received the firm’s prestigious Tom Thompson Award in 2009 and the Spirit of Yeo Award in 2017.

“Kelly has worked tirelessly to ensure our HR systems, policies, practices and benefit programs are among the best in our industry,” said President & CEO Thomas Hollerback. “Under Kelly’s leadership, the firm won numerous awards for many of our HR initiatives, including Michigan’s Best in Wellness for seven consecutive years. She has been a dedicated and hardworking team player with a deep understanding of our values and culture.”

Stephanie Vogel will lead the firm’s HR team as Senior Human Resources Manager. Vogel earned a Master of Science in Administration from Central Michigan University and has more than 17 years of HR experience. She holds the SHRM-SCP credential and is a Certified Benefits Professional (CBP) and Certified Compensation Professional (CCP). In addition to her HR management expertise, Vogel is a big-picture strategist, developing and implementing firm-wide HR programs and policies.

“Yeo & Yeo’s HR processes far surpass those of other HR teams I’ve worked with,” Vogel said. “I am excited to be part of the firm’s family-focused and community-oriented culture, and I can’t wait to continue Kelly’s legacy of developing state-of-the-art processes and benefits programs.”

The American Rescue Plan Act of 2021 (ARPA), signed by President Biden on March 11, 2021, extended and significantly modified the payroll tax credits for qualifying sick leave and family leave wages. Below is a summary of the key provisions.

Background: Both COVID-19-related credits were initially provided by the Families First Coronavirus Response Act and first applied to eligible wages paid from April 1, 2020, through December 31, 2020. In December of 2020 the Consolidated Appropriations Act of 2021 extended the credits, with some modifications, to apply to wages paid through March 31, 2021.

Extension of both credits. ARPA further extended both the paid sick leave credit and paid family leave credit to apply to wages paid through September 30, 2021.

Modifications to both credits. Beginning with respect to wages paid on April 1, 2021, ARPA made modifications to the credits. The following are the modifications that affect non-government employers:

The credits are applied against the Medicare portion of payroll taxes instead of the OASDI (Social Security) portion. The Medicare portion taxes against which the credit is applied are those of all employees, not just employees to whom qualifying leave wages are paid. Additionally, the credits continue to be refundable (and thus allowed in excess of the Medicare taxes) and advance refundable (they can be applied against any employment taxes, including income tax withholding, for the quarter in which eligible leave wages are being paid, with any remaining credit refundable at the end of the quarter).
Unlike under the Consolidated Appropriations Act of 2021, ARPA allows employers who voluntarily provide 80 hours of emergency paid sick leave and 12 weeks of emergency family leave beginning after March 31, 2021, to claim the leave tax credits, thereby resetting the leave bank regardless if the employee used leave previously or has exhausted leave.
Reasons for eligible leave are expanded to include obtaining or recovering from COVID-19 immunization.
The credits are increased by both the amount of the OASDI taxes paid and Medicare taxes paid with respect to eligible wages, instead of just the Medicare taxes.
The credits are increased by the amounts of certain collectively bargained pension and apprenticeship program benefits. Under ARPA, the credits continue to be increased by qualified health plan expenses, but under clarified rules.
Rules are provided that coordinate the credits with second draw Payroll Protection Program loans and certain government grants.
The no-double-benefit rule, which disallows claiming both: 1) either of the above credits, and 2) the income tax credit for family or medical leave, is expanded to include similar coordination with certain other income and payroll tax credits.
An employer is ineligible for the credits if, in providing paid leave, the employer discriminates in favor of highly compensated or full-time employees or on the basis of employment tenure.
IRS is allowed an extended limitation-on-assessment period for deficiencies due to claiming either of the credits.

Modification to the paid sick leave credit. Effective beginning with wages paid on April 1, 2021, in determining whether the 10-day limit on eligible wages is complied with, only days after March 31, 2021, are taken into account.

Modifications to the paid family leave credit. Effective beginning with wages paid on April 1, 2021:

The per-employee limit of wages taken into account is raised from $10,000 to $12,000.
Reasons for eligible leave are expanded to include any qualifying reasons for taking paid sick leave.
The two-week waiting period has been eliminated.

Contact your Yeo & Yeo professional if you have questions about the ARPA changes to the credits or how they apply to your business.

Are you considering buying or replacing a vehicle that you’ll use in your business? If you choose a heavy sport utility vehicle (SUV), you may be able to benefit from lucrative tax rules for those vehicles.

Bonus depreciation

Under current law, 100% first-year bonus depreciation is available for qualified new and used property that’s acquired and placed in service in a calendar year. New and pre-owned heavy SUVs, pickups and vans acquired and put to business use in 2021 are eligible for 100% first-year bonus depreciation. The only requirement is that you must use the vehicle more than 50% for business. If your business usage is between 51% and 99%, you can deduct that percentage of the cost in the first year the vehicle is placed in service. This generous tax break is available for qualifying vehicles that are acquired and placed in service through December 31, 2022.

The 100% first-year bonus depreciation write-off will reduce your federal income tax bill and self-employment tax bill, if applicable. You might get a state tax income deduction, too.

Weight requirement

This option is available only if the manufacturer’s gross vehicle weight rating (GVWR) is above 6,000 pounds. You can verify a vehicle’s GVWR by looking at the manufacturer’s label, usually found on the inside edge of the driver’s side door where the door hinges meet the frame.

Note: These tax benefits are subject to adjustment for non-business use. And if business use of an SUV doesn’t exceed 50% of total use, the SUV won’t be eligible for the expensing election, and would have to be depreciated on a straight-line method over a six-tax-year period.

Detailed, contemporaneous expense records are essential — in case the IRS questions your heavy vehicle’s claimed business-use percentage.

That means you’ll need to keep track of the miles you’re driving for business purposes, compared to the vehicle’s total mileage for the year. Recordkeeping is much simpler today, now that there are apps and mobile technology you can use. Or simply keep a small calendar or mileage log in your car and record details as business trips occur.

If you’re considering buying an eligible vehicle, doing so and placing it in service before the end of this tax year could deliver a big write-off on your 2021 tax return. Before signing a sales contract, consult with us to help evaluate the right tax moves for your business.

Audit committees face many challenges in 2021. As the economy rebounds from the COVID-19 pandemic, there are new dimensions to the oversight roles and responsibilities of the audit committees. Consider taking these following four steps to fortify your committee’s effectiveness.

1. Focus on fundamentals

Once you’ve wrapped up the financial reporting process for fiscal year 2020, take the time to revisit goals and expectations to develop an agenda for 2021 that directs the audit committee’s attention back to the basics. The committee is responsible for oversight of the following key areas:

Financial reporting,
Disclosures,
Internal controls, and
The company’s audit process.

Each agenda item before the audit committee should ideally relate to one of these areas.

2. Assess the composition of the audit committee

Periodically, it’s appropriate to assess the level of financial expertise that each member of the committee possesses, especially if the composition of the group has recently changed. If the company anticipates significant changes in the regulatory environment, now may be the time to add suitably qualified members to the audit committee. At least one member of the audit committee should possess in-depth financial expertise.

Today, companies are increasingly recognizing the value of adding gender and racial diversity to decision-making bodies, including audit committees. These companies believe diversity is a strength that leads to better-informed decisions and fresh perspectives.

3. Get a handle on operational risk

Your company’s risk profile may have changed during the pandemic. For example, you may have temporarily cut staff or deferred capital investments to preserve cash flow during uncertain times.

However, these crisis-driven decisions may adversely affect the company’s long-term financial performance. The audit committee should consider asking management to review significant operational decisions made in the last year to determine if excess risk was created and whether it’s time to change course.

In addition, operational changes and increased financial pressures on accounting staff may expose the company to increased risk of internal and external fraud. And remote working arrangements could lead to cyberattacks and theft of intellectual property. Proactively assessing these issues can dramatically reduce the probability of losses occurring.

4. Consider exposure to financial difficulties across the supply chain

The pandemic also may have affected certain suppliers and customers, especially those located in states with COVID-19-restrictions on business operations. The audit committee should evaluate whether management has identified the company’s material relationships and the potential financial and operational impact if any of those businesses close or file for bankruptcy.

Full speed ahead

By taking proactive measures, your audit committee can help improve your company’s performance as the economy returns to full capacity. Contact us to help position your company to minimize risks and maximize value-added opportunities in 2021 and beyond.

Information in this article has been updated as of April 28, 2021.

The SBA will release the grant application on Friday, April 30, starting at 9:00 a.m. The SBA will begin accepting applications on Monday, May 3, at noon. Visit restaurants.sba.gov to apply.

The American Rescue Plan created the Restaurant Revitalization Fund (RRF) to provide $28.6 billion in relief for small and mid-sized restaurants. The Fund grants will be distributed by the Small Business Administration (SBA).

Restaurants, bars and other food service businesses that receive grants through the relief package would not need to pay them back as long as they use the funds for essential operating expenses. Such expenses include payroll, mortgages, rent, utilities, and personal protection equipment.

Other entities eligible for support from the RRF include food stands, food trucks, food carts, caterers, saloons, inns, taverns, lounges, brewpubs, tasting rooms, taprooms, and licensed beverage alcohol producers where the public may taste, sample, or purchase products.

Grants will be equal to pandemic-related revenue losses of up to $10 million per entity or $5 million per physical location. The grants are calculated by subtracting 2020 revenue (and any PPP monies received) from 2019 revenue. Entities are limited to 20 locations.

Grant timeline

The SBA will release the grant application on Friday, April 30. The SBA will begin accepting applications on Monday, May 3.

All eligible applicants should submit applications as soon as the portal opens. During the first 21 days of grants, the SBA will prioritize applications from women-, veteran- and minority-owned establishments. After the 21 days, eligible applications will be funded on a first-come-first-served basis.

As part of the program, $5 billion in funding will also be reserved for the smallest independent restaurants, which before COVID-19 earned $500,000 or less in a year.

Restaurant relief grants could be used for a variety of expenses, including:

Payroll costs
Principal and interest on a mortgage
Rent payments, including rent on a lease agreement (not including prepayments)
Utilities
Maintenance, including new outdoor seating construction
Supplies including PPE and cleaning materials
Food and beverage inventory
Covered supplier costs
Operational expenses
Paid sick leave

The covered period for what expenses can be paid by the grant must be incurred between February 15, 2020, to December 31, 2021.

Restaurant and bar owners can prepare now

Register for an account in advance at restaurants.sba.gov starting Friday, April 30, at 9 a.m. EDT. According to the SBA, if you are working with Square or Toast, you do not need to register beforehand on the application portal.

To assist you in the application process, refer to the following SBA resources:

It was previously reported that businesses planning to apply for the RRF grant would need to sign up for a Data Universal Numbering System (DUNS) number and register with the U.S. Federal Government’s System for Award Management (SAM). On March 30, 2021, the SBA confirmed that RRF grant program applicants will not need to register for a DUNS number or register on SAM.gov. This is a change from early March when it was expected that applications would require this process.

You should work with your accountant to prepare documentation that clearly shows your gross revenue loss in 2020 compared to 2019.

Contact your Yeo & Yeo professional if you have questions or need assistance.