When Are Estimated Taxes Due?

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.

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 and Tom 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.

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.

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.

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.

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.

As your company plans for the coming year, management should assess your strengths, weaknesses, opportunities and threats. A SWOT analysis identifies what you’re doing right (and wrong) and what outside forces could impact performance in a positive (or negative) manner. A current assessment may be particularly insightful, because market conditions have changed significantly during the year — and some changes may be permanent.

Inventorying strengths and weaknesses

Start your analysis by identifying internal strengths and weaknesses keeping in mind the customer’s perspective. Strengths represent potential areas for boosting revenues and building value, including core competencies and competitive advantages. Examples might include a strong brand or an exceptional sales team.

It’s important to unearth the source of each strength. When strengths are largely tied to people, rather than the business itself, consider what might happen if a key person suddenly left the business. To offset key person risks, consider purchasing life insurance policies on key people, initiating noncompete agreements and implementing a formal succession plan.

Alternatively, weaknesses represent potential risks and should be minimized or eliminated. They might include low employee morale, weak internal controls, unreliable quality or a location with poor accessibility. Often weaknesses are evaluated relative to the company’s competitors.

Anticipating opportunities and threats

The next part of a SWOT analysis looks externally at what’s happening in the industry, economy and regulatory environment. Opportunities are favorable external conditions that could increase revenues and value if the company acts on them before its competitors do.

Threats are unfavorable conditions that might prevent your company from achieving its goals. They might come from the economy, technological changes, competition and government regulations, including COVID-19-related operating restrictions. The idea is to watch for and minimize existing and potential threats.

Think like an auditor

During a financial statement audit, your accountant conducts a risk assessment. That assessment can provide a meaningful starting point for your SWOT analysis. Contact us for more information.

On November 20, the Michigan Department of Education (MDE) issued a memo to clarify the documentation they will require school districts (including public school academies) to maintain for Coronavirus Relief Fund (CRF) grants and the allowable uses of the funds.

Specifically, the memo states that unless a school district receives and spends more than $500 of CRF funding per pupil, MDE will not require supporting documentation to be submitted or maintained. However, be aware that the Compliance Supplement related to the CRF grants’ audit requirements has not been released yet and may include other requirements.

For documentation related to the allowability of costs, we recommend at a minimum that school districts record CRF expenditures in the proper general ledger expenditure account as to function, object and grant code. We also recommend maintaining support as to specific purchases (for example, computers, iPads, hot spots or protective equipment) and a memo to support the school district’s reason for charging other expenditures, including how the expenditures were related to COVID-19.

In its memo, the MDE provided examples of allowable costs, which include:

expanding broadband capacity
hiring new teachers
developing an online curriculum
acquiring computers and similar digital devices
acquiring and installing additional ventilation or other air filtering equipment
incurring additional transportation costs
incurring additional costs of providing meals

For more information, including CRF guidance and CRF Frequently Asked Questions, refer to MDE’s memo #COVID-19-139.

Remember, all costs need to be spent by December 31, 2020. If your school district has questions about the CRF or other items related to coronavirus funding, please reach out to a member of Yeo & Yeo’s Education Services Group.

The YeoConsults Payroll Solutions Group would like to make you aware of important payroll updates that will affect you and your employees next year.

New Form 1099-NEC
Reporting of FFCRA wages in Box 14 on W-2

It is unlikely that the State of Michigan minimum wage will increase to $9.87 per hour. Also, please subscribe and watch for future eAlerts to keep you informed.

Need guidance on closing 2020, preparing for 2021 payroll or meeting payroll deadlines? Contact the payroll professionals at Yeo & Yeo.

Download 2021 Payroll Planning Brief

The U.S. Department of Agriculture (USDA) Farm Service Agency reminds farmers and ranchers to apply for the Coronavirus Food Assistance Program 2 (CFAP 2) by December 11, 2020. This program provides financial assistance to agricultural producers who continue to face market disruptions and associated costs because of COVID-19.

CFAP 2 is a separate program from the first iteration of CFAP. Producers who applied for CFAP 1 are not automatically signed up for CFAP 2 and must complete a new application to be eligible for assistance.

To be eligible for payments, a person or legal entity must either:

have an average adjusted gross income of less than $900,000 for tax years 2016, 2017, and 2018; or
derive at least 75 percent of their adjusted gross income from farming, ranching or forestry-related activities.

Eligible commodities for CFAP 2 include, but are not limited to:

Row crops
Wool
Livestock
Specialty livestock
Dairy
Specialty crops
Floriculture and nursery crops
Aquaculture
Broilers and eggs
Tobacco

Producers can find more eligibility requirements, and a full list of eligible commodities, payment rates and options to apply on the USDA’s website.

Visit the following USDA resources for additional information about CFAP 2:

Eligible Commodities Finder
CFAP 2 Fact Sheet
Video, “How to Apply for CFAP 2”
Blog, “Myths Debunked: Coronavirus Food Assistance Program 2”

Who to Call for Help

Farm Service Agency staff at your local USDA Service Center will work with producers to file applications. A call center is available for producers who would like one-on-one support with the CFAP 2 application process. Please call 877-508-8364 to speak directly with a USDA employee who can help.

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 eight 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 the benefits of trusts as part of your estate plan and when you should consider setting up your own trust.

What is a trust? (1:20)
When should you set up a trust? (2:50)
What are the benefits of trusts? (3:41)
Can a trust help minimize taxes? (6:28)

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.

It’s been estimated that there are roughly 5 million family-owned businesses in the United States. Annually, these companies make substantial contributions to both employment figures and the gross domestic product. If you own a family business, one important issue to address is how to best weave together your succession plan with your estate plan.

Rise to the challenge

Transferring ownership of a family business is often difficult because of the distinction between ownership and management succession. From an estate planning perspective, transferring assets to the younger generation as early as possible allows you to remove future appreciation from your estate, minimizing any estate taxes. However, you may not be ready to hand over control of your business or you may feel that your children aren’t yet ready to run the company.

There are various ways to address this quandary. You could set up a family limited partnership, transfer nonvoting stock to heirs or establish an employee stock ownership plan.

Another reason to separate ownership and management succession is to deal with family members who aren’t involved in the business. Providing such heirs with nonvoting stock or other equity interests that don’t confer control can be an effective way to share the wealth with them while allowing those who work in the business to take over management.

Consider an installment sale

An additional challenge to family businesses is that older and younger generations may have conflicting financial needs. Fortunately, strategies are available to generate cash flow for the owner while minimizing the burden on the next generation.

For example, consider an installment sale. These transactions provide liquidity for the owner while improving the chances that the younger generation’s purchase can be funded by cash flows from the business. Plus, so long as the price and terms are comparable to arm’s-length transactions between unrelated parties, the sale shouldn’t trigger gift or estate taxes.

Explore trust types

Or, you might want to create a trust. By transferring business interests to a grantor retained annuity trust (GRAT), for instance, the owner obtains a variety of gift and estate tax benefits (provided he or she survives the trust term) while enjoying a fixed income stream for a period of years. At the end of the term, the business is transferred to the owner’s children or other beneficiaries. GRATs are typically designed to be gift-tax-free.

There are other options as well, such as an installment sale to an intentionally defective grantor trust (IDGT). Essentially a properly structured IDGT allows an owner to sell the business on a tax-advantaged basis while enjoying an income stream and retaining control during the trust term. Once the installment payments are complete, the business passes to the owner’s beneficiaries free of gift taxes.

Protect your legacy

Family-owned businesses play an important role in the U.S. economy. We can help you integrate your succession plan with your estate plan to protect both the company itself and your financial legacy.

© 2020

Apply for Grants to Meet Capital Needs Beginning December 15, 2020

The Michigan Economic Development Corporation (MEDC) will offer $10 million in grants for Michigan small businesses adversely affected by COVID-19 to meet urgent capital needs such as rent and utilities.

Eligible businesses are limited to the following:

Restaurants, bars and other food and beverage service providers
Travel and tourism destinations including lodging providers
Live event venues and movie theaters
Conference and meeting facilities
Ice skating rinks, indoor water parks and bowling centers
Gyms and fitness centers

Each business can qualify for up to $15,000 in funding if they meet the eligibility criteria, which includes but is not limited to :

Having fewer than 50 employees
Complying with all State and local COVID-19 orders
Identifying a need for payroll, rent or mortgage payments and/or utility expenses.

The grant application opens on Tuesday, December 15. Grants will be awarded on a first-come, first-served basis, and funding will be split among each of Michigan’s ten prosperity regions.

Visit the MEDC website to learn more about the application process, review complete eligibility requirements and submit an application.

Are you thinking about selling stock shares at a loss to offset gains that you’ve realized during 2020? If so, it’s important not to run afoul of the “wash sale” rule.

IRS may disallow the loss

Under this rule, if you sell stock or securities for a loss and buy substantially identical stock or securities back within the 30-day period before or after the sale date, the loss can’t be claimed for tax purposes. The rule is designed to prevent taxpayers from using the tax benefit of a loss without parting with ownership in any significant way. Note that the rule applies to a 30-day period before or after the sale date to prevent “buying the stock back” before it’s even sold. (If you participate in any dividend reinvestment plans, it’s possible the wash sale rule may be inadvertently triggered when dividends are reinvested under the plan, if you’ve separately sold some of the same stock at a loss within the 30-day period.)

The rule even applies if you repurchase the security in a tax-advantaged retirement account, such as a traditional or Roth IRA.

Although the loss can’t be claimed on a wash sale, the disallowed amount is added to the cost of the new stock. So, the disallowed amount can be claimed when the new stock is finally disposed of in the future (other than in a wash sale).

An example to illustrate

Let’s say you bought 500 shares of ABC Inc. for $10,000 and sold them on November 5 for $3,000. On November 30, you buy 500 shares of ABC again for $3,200. Since the shares were “bought back” within 30 days of the sale, the wash sale rule applies. Therefore, you can’t claim a $7,000 loss. Your basis in the new 500 shares is $10,200: the actual cost plus the $7,000 disallowed loss.

If only a portion of the stock sold is bought back, only that portion of the loss is disallowed. So, in the above example, if you’d only bought back 300 of the 500 shares (60%), you’d be able to claim 40% of the loss on the sale ($2,800). The remaining $4,200 loss that’s disallowed under the wash sale rule would be added to your cost of the 300 shares.

If you’ve cashed in some big gains in 2020, you may be looking for unrealized losses in your portfolio so you can sell those investments before year end. By doing so, you can offset your gains with your losses and reduce your 2020 tax liability. But be careful of the wash sale rule. We can answer any questions you may have.