The Balanced Scorecard Approach to Strategic Planning

In the early 1990s, the Balanced Scorecard approach to strategic planning was developed to enable business owners to better organize and visualize their objectives. With 2021 shaping up to be a year of both daunting challenges and potentially remarkable recovery, your company should have a strategic plan that’s both comprehensive and flexible. Giving this methodology a try may prove beneficial.

Areas of focus

The Balanced Scorecard approach segments strategic planning into four critical areas:

1. Customers. Every business owner knows the importance of customer satisfaction but, to truly know and fulfill customers’ needs, you must identify the right metrics that measure it. Also identify the types of customers you want and, more important, can best serve.

Key question to ask: To fulfill our strategic objectives, how can we attract and retain the customers that build our bottom line?

2. Finance. Companies generally know how to measure their financial performance. However, they too often rely on finances as the only barometer of overall operational stability and success. Financial details are often lagging indicators because they reveal past events — not future performance. So, along with continuing to properly generate financial statements, also track data such as employee productivity and sales growth.

Key question to ask: To achieve our vision, how will our leadership and employees drive our company’s financial success?

3. Internal processes. To operate more productively and efficiently, identify problems and change the related processes. Simply paying closer attention to a shortcoming isn’t an adequate solution. For example, measuring productivity won’t automatically increase it. Your business must analyze the internal components of production — from design to delivery to billing and receipt of revenue — and implement process improvements.

Key question to ask: To meet our goals, in which business processes do we need to excel?

4. Learning and professional growth. Continuing education often calls for more time and effort than businesses are willing or able to devote. Learning must go beyond simply training new hires to include, for instance, mentoring and knowledge sharing through performance management programs. Many companies’ success depends largely on the development and preservation of intellectual capital.

Key question to ask: To accomplish our strategic plan, how can we better preserve and pass along knowledge, as well as encourage learning?

A multipronged effort

Compiling data under the Balanced Scorecard approach requires a multipronged effort. You might use a survey to gather customer info. Your financial statements and industry benchmarks should provide insights into finances. Employee surveys and open forums can illuminate internal operations. And a performance management consultant could help you target learning opportunities and methods.

We can assist you in identifying pertinent financial metrics and incorporating accurate analysis into your strategic plan to help you achieve your profitability goals in the coming year.

© 2020

If you’re self-employed and don’t have withholding from paychecks, you probably have to make estimated tax payments. These payments must be sent to the IRS on a quarterly basis. The fourth 2020 estimated tax payment deadline for individuals is Friday, January 15, 2021. Even if you do have some withholding from paychecks or payments you receive, you may still have to make estimated payments if you receive other types of income such as Social Security, prizes, rent, interest, and dividends.

Pay-as-you-go system

You must make sufficient federal income tax payments long before the April filing deadline through withholding, estimated tax payments, or a combination of the two. If you fail to make the required payments, you may be subject to an underpayment penalty, as well as interest.

In general, you must make estimated tax payments for 2020 if both of these statements apply:

1. You expect to owe at least $1,000 in tax after subtracting tax withholding and credits, and
2. You expect withholding and credits to be less than the smaller of 90% of your tax for 2020 or 100% of the tax on your 2019 return — 110% if your 2019 adjusted gross income was more than $150,000 ($75,000 for married couples filing separately).

If you’re a sole proprietor, partner or S corporation shareholder, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.

Quarterly due dates

Estimated tax payments are spread out through the year. The due dates are April 15, June 15, September 15 and January 15 of the following year. However, if the date falls on a weekend or holiday, the deadline is the next business day.

Estimated tax is calculated by factoring in expected gross income, taxable income, deductions and credits for the year. The easiest way to pay estimated tax is electronically through the Electronic Federal Tax Payment System. You can also pay estimated tax by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.

Seasonal businesses

Most individuals make estimated tax payments in four installments. In other words, you can determine the required annual payment, divide the number by four and make four equal payments by the due dates. But you may be able to make smaller payments under an “annualized income method.” This can be useful to people whose income isn’t uniform over the year, perhaps because of a seasonal business. You may also want to use the annualized income method if a large portion of your income comes from capital gains on the sale of securities that you sell at various times during the year.

Determining the correct amount

Contact us if you think you may be eligible to determine your estimated tax payments under the annualized income method, or you have any other questions about how the estimated tax rules apply to you.

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Late Monday night, the House and Senate passed a COVID Relief Bill, resulting in over $900 billion of much-needed Coronavirus aid to struggling American individuals and businesses. The bill now goes to President Trump, who is expected to sign it quickly.

While the bill is packed with nearly 5,600 pages of relief provisions, this article provides a summary of the key issues that will impact individual and business taxpayers to the greatest extent. 

Key Individual Provisions:

• $600 direct payments to individuals ($1,200 for a married couple), plus $600 per dependent child under age 17. Once again, payments phase out once adjusted gross income (AGI) exceeds $75,000 for single taxpayers and $150,000 for married filing joint taxpayers. The payment is an advance of a credit that will be available on the 2020 tax return.
• Additional $300 per week for all workers receiving unemployment benefits through March 14, 2021.
• Expands CARES Act provision for non-itemizing married filing joint couples to deduct $600 of charitable contributions in arriving at AGI, instead of the previously allowed $300 for a joint tax return.
• “Look-back” provision for lower-income earners, allowing certain taxpayers to utilize 2019 earned income for purposes of the earned income tax credit and child tax credit to maximize these refundable credits.
• Makes unreimbursed medical expenses over 7.5% of a taxpayer’s adjusted gross income a permanent level. The threshold was set to increase to 10% in 2021.

Key Business Provisions:

• Deductibility of expenses paid with forgiven PPP funds – this bill overrules the IRS position, which would have made business expenses paid with forgiven PPP funds nondeductible. Taxpayers receiving Economic Injury Disaster Loan (EIDL) grants will not have to reduce PPP forgiveness by the amount of the grant.
• Streamlined forgiveness of PPP loans for borrowers with loans under $150,000. These borrowers will only have to submit a one-page form and only be subject to audit if fraud was committed or if borrowers misused funds.
• New PPP program – the bill reopens the PPP program, with $35 billion allocated to businesses that have not yet borrowed. Additionally, taxpayers who previously borrowed will be eligible to participate again, with certain additional restrictions, including the requirement that the business has fewer than 300 employees and can prove that revenues for a quarter in 2020 were more than 25% less than the same quarter in the previous year. Full details and definitions are not yet available but should be released within 10 days of the bill being signed.
• Expanded uses of PPP dollars for first-time borrowers include the ability to spend funds on covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection costs. New covered periods are also included in the new bill and range from 8-24 weeks or any period in between.
• Extension of FFCRA credits from December 31, 2020, until March 31, 2021. These credits helped employers who were required to pay for family leave time when adults couldn’t work because a child was without school or care, and up to two weeks of sick pay for various COVID-related reasons.
• Full deduction for business meals in 2021 and 2022. The deduction for these expenses was previously limited to 50% of the meal cost.
• Extension of the employee retention credit through July 1, 2021 with the ability to now claim the credit and take a PPP loan. These two benefits were previously mutually exclusive of each other.

Yeo & Yeo will keep you informed as more information about the second round of PPP loans becomes available. If you have questions, please contact your Yeo & Yeo professional or local Yeo & Yeo office.

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2021. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

February 1 (The usual deadline of January 31 is a Sunday)

• File 2020 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
• Provide copies of 2020 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
• File 2020 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS.
• File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2020. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
• File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2020. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”)
• File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2020 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

March 1 (The usual deadline of February 28 is a Sunday)

• File 2020 Forms 1099-MISC with the IRS if: 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is March 31.)

March 16

• If a calendar-year partnership or S corporation, file or extend your 2020 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2020 contributions to pension and profit-sharing plans.

© 2020

Each year, public companies must assess the effectiveness of their internal controls over financial reporting (ICFR) under Section 404(a) of the Sarbanes-Oxley Act (SOX). In some cases, private companies should follow suit.

In addition, a public company’s independent auditors are generally required to provide an attestation report on management’s assessment of ICFR under Sec. 404(b). But some smaller entities may be exempt.

Assessment guidance

Adherence to Sec. 404(a) is required only of public companies. However, it may be recommended for some larger private companies — particularly if management is planning to go public or sell the business to a public company.

SOX adherence can make a private business more attractive to public companies, which can result in a higher sale price. Compliance with SOX can also improve the company’s reputation with investors, lenders and the public by demonstrating that its financial reporting is transparent.

Attestation exemptions

Proponents of Sec. 404(b) argue that the auditor attestation requirement has led to improvements in the quality of financial reporting and have fought efforts to provide exemptions. But two exemptions are available:

1. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 instructed the Securities and Exchange Commission (SEC) to permanently exempt nonaccelerated filers from Sec. 404(b). Nonaccelerated filers are defined as companies with a public float of less than $75 million on the last business day of their most recent second fiscal quarter.
2. The JOBS Act of 2012 gave emerging growth companies (EGCs) a five-year reprieve from compliance with Section 404(b) following an initial public offering (IPO). But if a company surpasses $1 billion in annual revenue, it will lose its EGC status sooner, after the end of the fiscal year in which it reached that milestone. EGC status also will be lost if it issues more than $1 billion in nonconvertible debt over a three-year period or reaches a public float of $700 million.

SRC vs. accelerated filers

In 2018, the SEC expanded its definition of smaller reporting companies (SRCs) from companies with a public float of less than $75 million to those with a public float of less than $250 million. This change allowed nearly 1,000 more companies to qualify for the lighter set of disclosure rules available to SRCs.

But, the SEC’s expanded definition of SRCs did not raise the public float thresholds for when a company qualifies as an accelerated filer. This means the $75 million threshold still applies in relation to the Sec. 404(b) exemption. Some members of the SEC favored raising the accelerated filer threshold to $250 million to expand the number of companies that would be exempt from Sec. 404(b). But, based on feedback from auditors and investor advocate groups, the SEC decided to keep the threshold at $75 million.

Got questions?

Some smaller public companies — and large private companies considering an IPO or sale — may be unclear about the ICFR assessment and attestation requirements under SOX. Contact us for questions about the rules or for information regarding best practices in internal controls.

© 2020

We invite you to watch a three-minute video by Jennifer Watkins of Yeo & Yeo’s Education Services Group – an update on COVID-19 issues for school districts. Jennifer speaks of the spending deadline for Coronavirus Relief Funds (CRF), MDE’s guidance for spending the funds, documentation of those allowable costs, and compliance requirements for potential single audits of the federal portion of CRF.

Join us for a webinar

Welcome to Everyday Business, Yeo & Yeo’s podcast. We’ve had the privilege of advising Michigan businesses for more than 95 years, and we want to share our knowledge with you.

Covering tax, accounting, technology, financial and advisory topics relevant to you and your business, Yeo & Yeo’s podcast is hosted by industry and subject matter professionals, where we go beyond the beans.

On episode nine of Everyday Business, host Rebecca Millsap, managing principal of the Flint office, is joined by Andrew Matuzak, manager in Saginaw.

Listen in as Rebecca and Andrew discuss personal and business inheritances and the tax impact of receiving an inheritance.

• Ways someone can receive an inheritance (1:15)
• Breaking down different types of inheritance (3:38)
• Passing down real estate and personal property (7:47)
• Inheriting a business and knowing the value (10:19)

Thank you for tuning in to Yeo & Yeo’s Everyday Business Podcast. Yeo & Yeo’s podcast can be heard on Apple Podcasts, PodBean and, of course, our website. Please subscribe, rate and review.

For more business insights, visit our Resource Center and subscribe to our eNewsletters.

DISCLAIMER
The information provided in this podcast is believed to be valid and accurate on the date it was first published. The views, information, or opinions expressed during the podcast reflect the views of the speakers. This podcast does not constitute tax, accounting, legal or other business advice, or an advisor-client relationship. Before making any decision or taking action, consult with a professional regarding your specific circumstances.

With a difficult year almost over, and another one on the horizon, now may be a good time to assess the size of your sales force. Maybe the economic changes triggered by the COVID-19 pandemic led you to downsize earlier in the year. Or perhaps you’ve added to your sales team to seize opportunities. In either case, every business owner should know whether his or her sales team is the right size.

Various KPIs

To determine your optimal sales staffing level, there are several steps you can take. A good place to start is with various key performance indicators (KPIs) that enable you to quantify performance in dollars and cents.

The KPIs you choose to calculate and evaluate need to be specific to your industry and appropriate to the size of your company and the state of the market in which you operate. If you’re comparing your sales numbers to those of other businesses, make sure it’s an apples-to-apples comparison.

In addition, you’ll need to pick KPIs that are appropriate to whether you’re assessing the performance of a sales manager or that of a sales representative. For a sales manager, you could look at average annual sales volume to determine whether his or her team is contributing adequately to your target revenue goals. Ideal KPIs for sales reps are generally more granular; examples include sales by rep and lead-to-sale percentage.

More than math

Rightsizing your sales staff, however, isn’t only a mathematical equation. To customize your approach, think about the specific needs of your company.

Consider, for example, how you handle staffing when sales employees take vacations or call in sick. If you frequently find yourself coming up short on revenue projections because of a lack of boots on the ground, you may want to expand your sales staff to cover territories and serve customers more consistently.

Then again, financial problems that arise from carrying too many sales employees can creep up on you. Be careful not to hire at a rate faster than your sales and gross profits are increasing. If you’re looking to make aggressive moves in your market, be sure you’ve done the due diligence to ensure that the hiring and training costs will likely pay off.

Last, but not least, think about your customers. Are they largely satisfied? If so, the size of your sales force might be just fine. However, salespeople saying that they’re overworked or customers complaining about a lack of responsiveness could mean your staff is too small. Conversely, if you have market segments that just aren’t yielding revenue or salespeople who are continually underperforming, it might be time to downsize.

Reasonable objectives

By regularly monitoring the headcount of your sales staff with an eye on fulfilling reasonable revenue goals, you’ll stand a better chance of maximizing profitability during good times and maintaining it during more challenging periods. Contact us for help choosing the right KPIs and cost-effectively managing your business.

© 2020

Those who pay estimated taxes are on a slightly different schedule from others. People who pay quarterly estimated taxes include workers who are self-employed, earn money from tips, or any similar entrepreneurial or independent contractor jobs. If your paycheck doesn’t have taxes taken out before the money gets to you, you should pay estimated taxes quarterly.

Estimated taxes are due quarterly with Form 1040-ES, and there are two sets of dates. If you’re self-employed or a farmer or fisherman:

• First quarter payments are due April 15
• Second quarter payments are due June 15
• Third quarter payments are due September 15
• Fourth quarter payments are due January 15

If you’re an employee who earns tips, you’ll be paying monthly instead of quarterly:

• January 11
• February 10
• March 10
• April 12
• May 10
• June 10
• July 12
• August 10
• September 10
• October 12
• November 10
• December 10

This is the standard schedule to follow, provided nothing interferes (such as a pandemic). As long as these deadlines aren’t changed, your next estimated taxes payment will be due January 15, 2021, if you’re currently earning self-employment income or January 11 if you earn tips.

If you don’t pay estimated taxes by the deadline, you risk being charged a penalty. The caveat is that if you don’t pay the estimated tax by January 15 but file your 2020 income tax early, you won’t be charged. If you’re self-employed, that date is January 31; for farmers and fishermen, it’s March 1.

If you have questions, contact Yeo & Yeo or visit the Estimated Taxes page on the IRS’s website, www.irs.gov.

Yeo & Yeo proudly recognized 14 professionals across the firm’s companies for milestone anniversaries at the firm’s annual Christmas celebration held virtually this year.

“I am proud to recognize so many employees for their long-standing commitment to the firm,” said President & CEO Thomas Hollerback. “To all our longevity honorees, thank you for everything you do for Yeo & Yeo. Your dedication to supporting your peers, serving our clients and giving back to our communities is inspiring. Congratulations for many successful years, and best wishes to you for many more to come.”

Honored for 25 years of service:

• David Youngstrom, CPA, Principal, Yeo & Yeo CPAs – Saginaw. Youngstrom serves on the firm’s board of directors and is the firm’s Assurance Service Line Leader.

Honored for 20 years of service:

• Adele Hetzner, Marketing Coordinator, Yeo & Yeo Firm Administration – Saginaw
• Jamie Rivette, CPA, CGFM, Principal, Yeo & Yeo CPAs – Saginaw
• Rob Schmidt, Senior Technician, Yeo & Yeo Firm Administration – Saginaw
• Terrie Chronowski, E.A., Tax Supervisor, Yeo & Yeo CPAs – Saginaw

Honored for 15 years of service:

• Brad DeVries, CPA, CAE, Principal, Yeo & Yeo CPAs – Lansing
• Jennifer Watkins, CPA, Principal, Yeo & Yeo CPAs – Flint
• Julie Surprenant, Administrative Assistant, Yeo & Yeo CPAs – Saginaw
• Mary Kreider, CPA, CPPM, Senior Manager, Yeo & Yeo CPAs – Saginaw
• Tanya Harrison, Medical Biller, Yeo & Yeo Medical Billing & Consulting
• Thomas O’Sullivan, CPA, CFE, Managing Principal, Yeo & Yeo CPAs – Ann Arbor

Honored for ten years of service:

• Andrew Licht, CPA, Senior Manager, Yeo & Yeo CPAs – Saginaw
• Cathy Hammis, Executive Assistant and Facilities Manager – Yeo & Yeo Firm Administration
• Terra Lewis, FPQP^TM, Administrative Assistant – Yeo & Yeo Wealth Management

Also recognized during the virtual program were 11 professionals celebrating their five-year anniversary with Yeo & Yeo.

You may be able to deduct some of your medical expenses, including prescription drugs, on your federal tax return. However, the rules make it hard for many people to qualify. But with proper planning, you may be able to time discretionary medical expenses to your advantage for tax purposes.

Itemizers must meet a threshold

For 2020, the medical expense deduction can only be claimed to the extent your unreimbursed costs exceed 7.5% of your adjusted gross income (AGI). This threshold amount is scheduled to increase to 10% of AGI for 2021. You also must itemize deductions on your return in order to claim a deduction.

If your total itemized deductions for 2020 will exceed your standard deduction, moving or “bunching” nonurgent medical procedures and other controllable expenses into 2020 may allow you to exceed the 7.5% floor and benefit from the medical expense deduction. Controllable expenses include refilling prescription drugs, buying eyeglasses and contact lenses, going to the dentist and getting elective surgery.

In addition to hospital and doctor expenses, here are some items to take into account when determining your allowable costs:

• Health insurance premiums. This item can total thousands of dollars a year. Even if your employer provides health coverage, you can deduct the portion of the premiums that you pay. Long-term care insurance premiums are also included as medical expenses, subject to limits based on age.
• Transportation. The cost of getting to and from medical treatments counts as a medical expense. This includes taxi fares, public transportation, or using your own car. Car costs can be calculated at 17¢ a mile for miles driven in 2020, plus tolls and parking. Alternatively, you can deduct certain actual costs, such as for gas and oil.
• Eyeglasses, hearing aids, dental work, prescription drugs and more. Deductible expenses include the cost of glasses, hearing aids, dental work, psychiatric counseling and other ongoing expenses in connection with medical needs. Purely cosmetic expenses don’t qualify. Prescription drugs (including insulin) qualify, but over-the-counter aspirin and vitamins don’t. Neither do amounts paid for treatments that are illegal under federal law (such as medical marijuana), even if state law permits them. The services of therapists and nurses can qualify as long as they relate to a medical condition and aren’t for general health. Amounts paid for certain long-term care services required by a chronically ill individual also qualify.
• Smoking-cessation and weight-loss programs. Amounts paid for participating in smoking-cessation programs and for prescribed drugs designed to alleviate nicotine withdrawal are deductible. However, nonprescription nicotine gum and patches aren’t. A weight-loss program is deductible if undertaken as treatment for a disease diagnosed by a physician. Deductible expenses include fees paid to join a program and attend periodic meetings. However, the cost of food isn’t deductible.

Costs for dependents

You can deduct the medical costs that you pay for dependents, such as your children. Additionally, you may be able to deduct medical costs you pay for other individuals, such as an elderly parent. Contact us if you have questions about medical expense deductions.

© 2020

The Michigan Bureau of Employment Relations, Wage and Hour Division announced that the state’s scheduled minimum wage increase is not expected to go into effect on January 1, 2021.

The Improved Workforce Opportunity Wage Act of 2018 prohibits minimum wage increases when the state’s annual unemployment rate for the preceding year is above 8.5%. As a result of the coronavirus pandemic, the state’s unemployment average from January to October was more than 10%. 

While Michigan’s October unemployment rate continued its downward trend, the annual average from January through October is 10.2% and is highly unlikely to dip below the 8.5% threshold by year-end.

If, as expected, the annual unemployment rate does not fall below 8.5%, then effective January 1, 2021:

• Michigan’s minimum wage will remain at $9.65 an hour.
• The 85% rate for minors age 16 and 17 remains $8.20 an hour.
• Tipped employees pay remains $3.67 an hour.
• The training wage of $4.25 an hour for newly hired employees age 16 to 19 for their first 90 days of employment remains unchanged.

The state’s minimum wage rate will next increase to $9.87 in January 2022 provided the 2021 annual unemployment rate is less than 8.5%.

For more information, visit the Department of Labor and Economic Opportunity’s website.

Yeo & Yeo CPAs & Business Consultants is pleased to announce that Melissa (Dean) Lindsey, PCM^®, was recently honored with the most prestigious award bestowed by the firm, the Spirit of Yeo award. The Spirit of Yeo award recognizes an individual within the firm who exemplifies the organization’s mission and core values.

“We have experienced growth in many of our practice areas. Melissa played a vital part in continuing our success by providing our professionals with the strategic direction and resources they need to align Yeo & Yeo’s solutions with their clients’ goals,” says Thomas Hollerback, President & CEO.

Melissa has more than 11 years of marketing, business development, client service and consulting experience. She is the firm’s Practice Growth Manager, helping to drive Yeo & Yeo’s growth strategy, provide executive coaching for the firm’s senior employees, and manage lead generation marketing initiatives. She is based in the firm’s Saginaw office.

Melissa received multiple nominations for the Spirit of Yeo award. One of her nominators said, “Melissa genuinely cares about Yeo & Yeo employees and will do everything in her power to help them succeed. She is passionate about what she does and is our employees’ biggest cheerleader. Her encouragement is inspiring and motivates us to be even better. She is creative and does an amazing job of tailoring goals to each person to capitalize on their strengths.”

Another nominator said, “Melissa constantly pushes us to be better while encouraging us at the same time. She helps us put our thoughts into well‐defined goals and highlights our strengths when looking for ways to bring success to the firm. She loves what she does and gives 100% to every person she works with. She helps employees feel more valued and is crucial to firm morale.”

Another nominator continues, “Melissa helps me and others view things through a different lens and find opportunities that might have been overlooked. She takes the time to look at where my strengths are, and instead of expecting me to approach business development the way that someone with a “rainmaker” personality would, she finds where my skill set can benefit the firm and our clients and helps me create goals around that. The professionals at Yeo & Yeo are fortunate to work with such a positive and upbeat person whose focus is to help others in the organization succeed.”

Another nominator concludes, “Melissa is someone I can count on. She is reliable, timely, efficient, and kind.”

Melissa holds the Professional Certified Marketer (PCM^®) designation from the American Marketing Association. She is a member of Thomson Reuters’ Checkpoint Marketing for Firms Advisory Board, the Association for Accounting Marketing, and the LinkedIn Advisors Community. She is active in the Marketing & Business Development special interest group of PrimeGlobal, a global association of independent accounting firms.

In the community, Melissa volunteers for the Saginaw Community Foundation annual scholarship program and Yeo & Yeo’s charitable endeavors. She has also been involved in the Rotary Youth Leadership Awards (RYLA) for Rotary District 6310.

2020 marked the seventh year of the award, with Yeo & Yeo employees submitting 25 nominations.

Are you considering replacing a car that you’re using in your business? There are several tax implications to keep in mind.

A cap on deductions

Cars are subject to more restrictive tax depreciation rules than those that apply to other depreciable assets. Under so-called “luxury auto” rules, depreciation deductions are artificially “capped.” So is the alternative Section 179 deduction that you can claim if you elect to expense (write-off in the year placed in service) all or part of the cost of a business car under the tax provision that for some assets allows expensing instead of depreciation. For example, for most cars that are subject to the caps and that are first placed in service in calendar year 2020 (including smaller trucks or vans built on a truck chassis that are treated as cars), the maximum depreciation and/or expensing deductions are:

• $18,100 for the first tax year in its recovery period (2020 for calendar year taxpayers);
• $16,100 for the second tax year;
• $9,700 for the third tax year; and
• $5,760 for each succeeding tax year.

The effect is generally to extend the number of years it takes to fully depreciate the vehicle.

The heavy SUV strategy

Because of the restrictions for cars, you might be better off from a tax standpoint if you replace your business car with a heavy sport utility vehicle (SUV), pickup or van. That’s because the caps on annual depreciation and expensing deductions for passenger automobiles don’t apply to trucks or vans (and that includes SUVs). What type of SUVs qualify? Those that are rated at more than 6,000 pounds gross (loaded) vehicle weight.

This means that in most cases you’ll be able to write off the entire cost of a new heavy SUV used entirely for business purposes as 100% bonus depreciation in the year you place it into service. And even if you elect out of bonus depreciation for the heavy SUV (which generally would apply to the entire depreciation class the SUV belongs in), you can elect to expense under Section 179 (subject to an aggregate dollar limit for all expensed assets), the cost of an SUV up to an inflation-adjusted limit ($25,900 for an SUV placed in service in tax years beginning in 2020). You’d then depreciate the remainder of the cost under the usual rules without regard to the annual caps.

Potential caveats

The tax benefits described above are all subject to adjustment for non-business use. Also, 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.

Contact us if you’d like more information about tax breaks when you buy a heavy SUV for business. 

© 2020

It’s almost time for calendar-year businesses to prepare their year-end financial statements. If used correctly, these reports can be a valuable management tool. Use them in benchmarking and forecasting to be proactive, not reactive, to market changes.

1. Benchmarking

Historical financial statements can be used to evaluate the company’s current performance vs. past performance or industry norms. A comprehensive benchmarking study includes the following elements:

Size. This is usually in terms of annual revenue, total assets or market share.

Growth. This shows how much the company’s size has changed from previous periods.

Liquidity. Working capital ratios help assess how easily assets can be converted into cash and whether current assets are sufficient to cover current liabilities.

Profitability. This section evaluates whether the business is making money from operations — before considering changes in working capital accounts, investments in capital expenditures and financing activities.

Turnover. Such ratios as total asset turnover (revenue divided by total assets) or inventory turnover (cost of sales divided by inventory) show how effectively the company manages its assets.

Leverage. This refers to how the company finances its operations — through debt or equity. Each has pros and cons.

No universal benchmarks apply to all types of businesses. So, it’s important to seek data sorted by industry, size and geographic location, if possible. To understand what’s normal for businesses like yours, consider such sources as trade journals, conventions or local roundtable meetings. Your accountant can also provide access to benchmarking studies they use during audits, reviews and consulting engagements.

2. Forecasting

Historical financial statements also may serve as the starting point for forecasting, which is a critical part of strategic planning. Comprehensive business plans include forecasted balance sheets, income statements and statements of cash flows.

Many items in your forecasts will be derived from revenue. For example, variable expenses and working capital accounts are often assumed to grow in tandem with revenue. Other items, such as rent and management salaries, are fixed over the short run. These items may need to increase in steps over the long run. For example, if a company is currently at (or near) full capacity, it may eventually need to expand its factory or purchase equipment to grow.

By tracking sources and uses of cash on the forecasted statement of cash flows, management can identify when cash shortfalls might happen and plan how to make up the difference. For example, the company might need to draw on its line of credit, lay off workers, reduce inventory levels or improve its collections. In turn, these changes will flow through to the company’s forecasted balance sheet.

For more information

Let’s take your financial statements to the next level! We can help you benchmark your company’s performance and create forecasts from your year-end financial statements.

© 2020

This article contains information that has since changed. Please check our blog regularly for recent updates. 

On September 11, 2020, the Families First Coronavirus Response Act (FFCRA) was revised to implement the paid sick leave and expanded family and medical leave provisions. The revised rule clarifies workers’ rights and employers’ responsibilities regarding FFCRA paid leave. The Department issued its initial temporary rule implementing provisions under the FFCRA on April 1, 2020. FFCRA includes both the Emergency Paid Sick Leave Act (EPSLA) and Emergency Family and Medical Leave Expansion Act (EMLA).

Under the FFCRA, private employers with fewer than 500 employees, and most public sector employers, must provide their employees sick pay for specified reasons related to COVID-19. Public sector employers (i.e., governments, school districts, etc.) must comply with the FFCRA; however, they are not eligible for the credits that private employers are eligible for.

In general, FFCRA requires that employees be provided the following:

• Two weeks (up to 80 hours) of paid sick leave at the employee’s regular rate of pay where the employee is unable to work because the employee is quarantined (under federal, state, or local government order or advice of a health care provider), and/or experiencing COVID-19 symptoms and seeking a medical diagnosis; or
• Two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s regular rate of pay because the employee is unable to work because of a need to care for an individual subject to quarantine (under federal, state, or local government order or advice of a health care provider), or care for a child (under 18 years of age) whose school or child care provider is closed or unavailable for reasons related to COVID-19, and/or the employee is experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of the Treasury and Labor.

Also, employers must provide to employees that have been with the organization for at least 30 days:

• Up to an additional ten weeks of paid expanded family and medical leave at two-thirds the employee’s regular rate of pay where an employee is unable to work due to a need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.

The duration of leave and calculation of pay is dependent on the individual employee’s qualifying factor(s). Additional information can be found on the Department of Labor’s website and should be consulted frequently. Also, refer to the Department of Labor’s FFCRA: Questions and Answers.

If wages are being provided to employees under FFCRA, they must be properly recorded on the fourth quarter Form 941 and employees’ W-2 forms for 2020. Even though public sector employers are not eligible to receive the reimbursement through tax credits, taxable wages for Form 941 are still impacted. Follow the instructions for Form 941 carefully.

As the regulations regarding COVID-19 are continually evolving, specific employee questions and human resource matters should be directed to your local health department.

The COVID-19 pandemic and resulting economic impact have hurt many companies, especially small businesses. However, for others, the jarring challenges this year have created opportunities and accelerated changes that were probably going to occur all along.

One particular area of speedy transformation is technology. It’s never been more important for businesses to wield their internal IT effectively, enable customers and vendors to easily interact with those systems, and make the most of artificial intelligence and “big data” to spot trends.

Accomplishing all this is a tall order for even the most energetic business owner or CEO. That’s why many companies end up creating one or more tech-specific executive positions. Assuming you don’t already employ such an individual, should you consider adding an IT exec? Perhaps so.

3 common positions

There are three widely used position titles for technology executives:

1. Chief Information Officer (CIO). This person is typically responsible for managing a company’s internal IT infrastructure and operations. In fact, an easy way to remember the purpose of this position is to replace the word “Information” with “Internal.” A CIO’s job is to oversee the purchase, implementation and proper use of technological systems and products that will maximize the efficiency and productivity of the business.

2. Chief Technology Officer (CTO). In contrast to a CIO, a CTO focuses on external processes — specifically, with customers and vendors. This person usually oversees the development and eventual production of technological products or services that will meet customer needs and increase revenue. The position demands the ability to live on the cutting edge by doing constant research into tech trends while also being highly collaborative with employees and vendors.

3. Chief Digital Officer (CDO). For some companies, the CIO and/or CTO are so busy with their respective job duties that they’re unable to look very far ahead. This is where a CDO typically comes into play. His or her primary objective is to spot new markets, channels or even business models that the company can target, explore and perhaps eventually profit from. So, while a CIO looks internally and a CTO looks externally, a CDO’s gaze is set on a more distant horizon.

Costs vs. benefits

As mentioned, these are three of the most common IT executive positions. Their specific objectives and job duties may vary depending on the business in question. And they are by no means the only examples of such positions. There are many variations, including Chief Marketing Technologist and Chief Information Security Officer.

So, getting back to our original question: is this a good time to add one or more of these execs to your staff? The answer very much depends on the financial strength and projected direction of your company. These positions will call for major expenditures in hiring, payroll and benefits. Our firm can help you weigh the costs vs. benefits.

© 2020

Yeo & Yeo has been selected as one of Corp! magazine’s Best of Michigan Businesses. The MichBusiness program highlights Michigan-based businesses and organizations that have realized company growth in 2020, as well as those that have pivoted their business model, grown in size of employees, locations, or revenue or have created a new platform for their business to thrive.

“Yeo & Yeo has always had a strong commitment to our people, clients and communities,” said CEO Thomas Hollerback. “With the changes this year brought, we pivoted and learned new ways to support these groups in the increasingly remote world.”

“We prioritized our employees’ needs, providing them with flexible situations to successfully and safely balance their work and home responsibilities,” added Auburn Hills managing principal Tammy Moncrief. “We helped our clients navigate challenges and ever-changing guidance resulting from the pandemic. We created a virtual COVID-19 resource center and helped clients stay up to date with communications regarding PPP loans, the CARES Act and more. We also developed the Yeo & Yeo Foundation, through which our employees donated more than $72,000 to organizations in our communities.”

A total of 106 companies and organizations won awards in categories according to company size. Yeo & Yeo was among 26 organizations to win in the medium-size business category.

Yeo & Yeo was recognized at the two-day virtual Best of MichBusiness Awards Show on December 9.

Contributing to a tax-advantaged retirement plan can help you reduce taxes and save for retirement. If your employer offers a 401(k) or Roth 401(k) plan, contributing to it is a smart way to build a substantial sum of money.

If you’re not already contributing the maximum allowed, consider increasing your contribution rate. Because of tax-deferred compounding (tax-free in the case of Roth accounts), boosting contributions can have a major impact on the size of your nest egg at retirement.

With a 401(k), an employee makes an election to have a certain amount of pay deferred and contributed by an employer on his or her behalf to the plan. The contribution limit for 2020 is $19,500. Employees age 50 or older by year end are also permitted to make additional “catch-up” contributions of $6,500, for a total limit of $26,000 in 2020.

The IRS recently announced that the 401(k) contribution limits for 2021 will remain the same as for 2020.

If you contribute to a traditional 401(k) 

A traditional 401(k) offers many benefits, including:

• Contributions are pretax, reducing your modified adjusted gross income (MAGI), which can also help you reduce or avoid exposure to the 3.8% net investment income tax.
• Plan assets can grow tax-deferred — meaning you pay no income tax until you take distributions.
• Your employer may match some or all of your contributions pretax.

If you already have a 401(k) plan, take a look at your contributions. Try to increase your contribution rate to get as close to the $19,500 limit (with an extra $6,500 if you’re age 50 or older) as you can afford. Keep in mind that your paycheck will be reduced by less than the dollar amount of the contribution, because the contributions are pretax — so, income tax isn’t withheld.

If you contribute to a Roth 401(k)

Employers may also include a Roth option in their 401(k) plans. If your employer offers this, you can designate some or all of your contributions as Roth contributions. While such contributions don’t reduce your current MAGI, qualified distributions will be tax-free.

Roth 401(k) contributions may be especially beneficial for higher-income earners, because they don’t have the option to contribute to a Roth IRA. Your ability to make a Roth IRA contribution for 2021 will be reduced if your adjusted gross income (AGI) in 2021 exceeds:

• $198,000 (up from $196,000 for 2020) for married joint-filing couples, or
• $125,000 (up from $124,000 for 2020) for single taxpayers.

Your ability to contribute to a Roth IRA in 2021 will be eliminated entirely if you’re a married joint filer and your 2021 AGI equals or exceeds $208,000 (up from $206,000 for 2020). The 2021 cutoff for single filers is $140,000 or more (up from $139,000 for 2020).

The best mix

Contact us if you have questions about how much to contribute or the best mix between traditional and Roth 401(k) contributions. We can discuss the tax and retirement-saving strategies in your situation.

© 2020

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

The QBI deduction:

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

Taxpayers other than corporations may be entitled to a deduction of up to 20% of their QBI. For 2020, if taxable income exceeds $163,300 for single taxpayers, or $326,600 for a married couple filing jointly, the QBI deduction may be limited based on different scenarios. These include whether the taxpayer is engaged in a service-type of trade or business (such as law, accounting, health, or consulting), the amount of W-2 wages paid by the trade or business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the trade or business.

The limitations are phased in. For example, the phase-in for 2020 applies to single filers with taxable income between $163,300 and $213,300 and joint filers with taxable income between $326,600 and $426,600.

For tax years beginning in 2021, the inflation-adjusted threshold amounts will be $164,900 for single taxpayers, and $329,800 for married couples filing jointly.

Year-end planning tip

Some taxpayers may be able to achieve significant savings with respect to this deduction, by deferring income or accelerating deductions at year end so that they come under the dollar thresholds (or be subject to a smaller phaseout of the deduction) for 2020. Depending on your business model, you also may be able to increase the deduction by increasing W-2 wages before year end. The rules are quite complex, so contact us with questions and consult with us before taking steps.

© 2020