Achieve Multiple Estate Planning Goals With One Trust: A CRT

For many people, two common estate planning goals are contributing to a favorite charity and leaving significant assets to your family under favorable tax terms. A charitable remainder trust (CRT) can help you achieve both goals.

ABCs of CRTs

Typically, you set up one of two CRT types (described below) and fund it with assets such as cash and securities. The trust then pays out income to the designated beneficiary or beneficiaries — perhaps yourself or your spouse — for life or a term of 20 years or less. The CRT then distributes the remaining assets to one or more charities.

When using a CRT, you may be eligible for a current tax deduction based on several factors. They include the value of the assets at the time of the transfer, the ages of the income beneficiaries and the government’s Section 7520 rate. Generally, the greater the payout to you (and consequently, the lower the amount that ultimately goes to charity), the lower the deduction.

2 flavors of CRTs

There are two types of CRTs, each with its own pros and cons:

A charitable remainder annuity trust (CRAT) pays out a fixed percentage (ranging from 5% to 50%) of the trust’s initial value and doesn’t allow additional contributions once it’s funded.
A charitable remainder unitrust (CRUT) pays out a fixed percentage (ranging from 5% to 50%) of the trust’s value, recalculated annually, and allows additional contributions.

CRATs offer the advantage of uniform payouts, regardless of fluctuations in the trust’s value. CRUTs, on the other hand, allow payouts to keep pace with inflation because they increase as the trust’s value increases. And, as noted, CRUTs allow you to make additional contributions. One potential disadvantage of a CRUT is that payouts shrink if the trust’s value declines.

Who to choose as a trustee?

When setting up a CRT, appoint a trustee to manage the trust’s assets. The trustee should be someone with the requisite financial knowledge and a familiarity with your personal situation. Thus, it could be a professional or an entity, a family member, or a close friend.

Because of the potentially significant dollars at stake, many trust creators opt for a professional who specializes in managing trust assets. If you’re leaning in this direction, interview several candidates and choose the best one for your situation, considering factors such as experience, investment performance and the level of services provided.

Know that a trustee must adhere to the terms of the trust and follow your instructions. Thus, you still maintain some control if someone else handles these duties. For instance, you may retain the right to change the trustee if you become dissatisfied or designate a different charity to receive the remainder assets.

Finally, be aware that a CRT is irrevocable. In other words, you can’t undo it once it’s executed. So, you must be fully committed to this approach before taking the plunge. Contact us to learn whether a CRT might be a good fit to achieve your estate planning goals.

The U.S. job market has largely stabilized since the historic disruption of the pandemic and the unusual fluctuations that followed. But the fact remains that employee retention is mission-critical for businesses. Retaining employees is still generally less expensive than finding and hiring new ones. And strong retention is one of the hallmarks of a healthy employer brand.

One role that’s been historically challenging to retain is salesperson. In many industries, sales departments have higher turnover rates than other departments. If this has been the case at your company, don’t give up hope. There are ways to address the challenge.

Lay out the welcome mat

For starters, don’t focus retention efforts only on current salespeople. Begin during hiring and ramp up with onboarding. A rushed, confusing or cold approach to hiring can get things off on the wrong foot. In such cases, new hires tend to enter the workplace cautiously or skeptically, with their eyes on the exit sign rather than the “upper floors” of a company.

Onboarding is also immensely important. Many salespeople tell horror stories of being shown to a cubicle with nothing but a telephone on the desk and told to “Get to it.” With so many people still working remotely, a new sales hire might not even get that much attention. Welcome new employees warmly, provide ample training, and perhaps give them a mentor to help them get comfortable with your business and its culture.

Incentivize your team

Even when hiring and onboarding go well, most employees will still consider a competitor’s job offer if the pay is right. So, to improve your chances of retaining top sales producers and their customers, consider financial incentives.

Offering retention bonuses and rewards for maintaining or increasing sales — in addition to existing compensation plans — can help. Make such incentives easy to understand and clearly achievable. Although interim bonus programs might be expensive in the near term, they can stabilize sales and prevent sharp declines.

When successful, a bonus program will help you generate more long-term revenue to offset the immediate costs. That said, financial incentives need to be carefully designed so they don’t adversely affect cash flow or leave your business vulnerable to fraud.

Give them a voice

Salespeople interact with customers and prospects in ways many other employees don’t. As a result, they may have some great ideas for capitalizing on your company’s strengths and shoring up its weaknesses.

Look into forming a sales leadership team to help evaluate the potential benefits and risks of goals proposed during strategic planning. The team should include two to four top sellers who are given some relief from their regular responsibilities so they can offer feedback and contribute ideas from their distinctive perspectives. The sales leadership team can also:

Serve as a clearinghouse for customer concerns and competitor strategies,
Collaborate with the marketing department to improve messaging about current or upcoming product or service offerings, and
Participate in developing new products or services based on customer feedback and demand.

Above all, giving your salespeople a voice in the strategic direction of the company can help them feel more invested in the success of the business and motivated to stay put.

Assume nothing

Business owners and their leadership teams should never assume they can’t solve the dilemma of high turnover in the sales department. The answer often lies in proactively investigating the problem and then taking appropriate steps to help salespeople feel more welcomed and appreciated. We can help your company calculate turnover rate, identify and track its hiring and employment costs, and assess the feasibility of financial incentives.

Yeo & Yeo is proud to have been ranked 16th out of nearly 1,500 accounting firm brands in the 2024 Remarkabrand Index, a testament to our distinctive brand presence.

Resound’s Remarkabrand Index captures more than 40 essential data points, including elements such as logos, taglines, firm size, website content, social media activity, and search engine rankings. It is a rigorous evaluation of not just visual identity but how well a brand differentiates itself in a competitive landscape. Mike Jones, CEO and Managing Partner of Resound, shared, “A brand ranking of 16th is fantastic, putting Yeo & Yeo in the top 1% of the Index in 2024. This accomplishment is a clear testament to their dedication to creating a distinctive brand.”

This ranking reflects the intentional journey we embarked on in 2023, a pivotal year for Yeo & Yeo as we celebrated our 100th anniversary. As part of this celebration, we undertook a brand refresh—not as a mere visual change but as a reflection of our longstanding values and our future vision.

Yeo & Yeo partnered with Phire Group, whose exceptional team members worked alongside us each step of the way. Together, we explored the essence of our brand and expanded on our story. The process involved intensive collaboration, detailed market research, and meaningful conversations with our team, clients, and community members. What we discovered during these discussions is that while our services set us apart, it’s our relationships—with our clients, teams, and communities—that truly define who we are.

Every element of our brand, from our mission to our visual identity, defines how we approach every relationship, every challenge, and every opportunity.

“Our brand journey has been a thoughtful, deliberate process, and this recognition from the Remarkabrand Index affirms the care we’ve put into creating a brand that reflects the uniqueness of the people, clients, and communities we serve,” said Kimberlee Dahl, Yeo & Yeo’s Director of Marketing. “I’m eager to continue sharing Yeo & Yeo’s story and recognizing the talented people who contribute to our mission.”

Discover more about Yeo & Yeo’s brand and explore the impact we’re creating. Watch our brand video.

Yeo & Yeo, a leading Michigan-based accounting and advisory firm, has been named one of Michigan’s Best and Brightest in Wellness for the eleventh consecutive year. The program highlights companies and organizations that promote a culture of wellness, as well as those that plan, implement, and evaluate efforts in employee well-being to make their business and the community a healthier place to live and work.

“Our goal at Yeo & Yeo has always been to create an environment where our employees can thrive—not only professionally but personally,” said Dave Youngstrom, President & CEO of Yeo & Yeo. “This recognition is a testament to the hard work and dedication of our HR team and leaders across the firm who are committed to supporting our people.”

Yeo & Yeo’s growing HR team has been instrumental in implementing a forward-looking benefits strategy that addresses both the current and future needs of employees. Yeo & Yeo offers free health screenings and flu shots for healthcare plan participants at no cost. An Employee Assistance Program provides confidential guidance and resources to support work‐life harmony. The firm also provides a flexible work environment that includes hybrid and remote work capabilities and initiatives like half-day summer Fridays. This year, the firm also began participating in the Boon Health program to provide employees with one-on-one coaching for personal growth, professional development, and overall well-being.

“By continually analyzing our benefits and making improvements based on employee feedback, we are able to offer comprehensive support that covers health, financial well-being, and professional growth,” said Stephanie Vogel, Yeo & Yeo’s Director of Human Resources.

Winners of the Best and Brightest in Wellness award are selected through a rigorous evaluation process. Criteria include the effectiveness of wellness initiatives, employee engagement, and a company’s commitment to fostering physical, mental, and emotional health. Only companies that demonstrate excellence in creating a supportive and healthy workplace culture are recognized.

Yeo & Yeo and the other winning companies will be honored at the Michigan’s Best and Brightest in Wellness awards celebration on November 7.

Yeo & Yeo, a leading Michigan advisory firm, is pleased to announce that Jordan Bohlinger and Shelby Garcia were recently recognized in the 2024 Flint & Genesee Group’s 40 Under 40. The program highlights individuals under age 40 who demonstrate a commitment to excellence and a passion for making a difference in the community.

Jordan Bohlinger started his journey with Yeo & Yeo in 2017 when he joined as a staff accountant in the Assurance Service Line. His dedication and expertise led him to the Education Services Group, and he became a member of the Michigan School Business Officials. Over the years, he has advanced to Senior Accountant and now serves as a Manager. Bohlinger specializes in audits for school districts and nonprofits, always striving to ensure his clients experience a smooth and efficient audit process. His commitment to his team is evident; he is not only an exceptional trainer but also a trusted leader who actively engages in firm activities, including videos and social media outreach. Bohlinger is passionate about nurturing the next generation of accountants through Yeo & Yeo’s Summer Leadership Program and contributes to the community as the treasurer of the Bay Valley Academy Gymnastics Booster Club. He holds a Bachelor of Business Administration in accounting from Northwood University and is based in the firm’s Flint office.

“Jordan is a go-to leader in the firm’s audit department,” said Jennifer Watkins, CPA, principal. “He has exceptional client management skills and has built great trust and loyalty with both his clients and colleagues. He is a driving force for excellence, both within Yeo & Yeo and in the community.”

Shelby Garcia joined Yeo & Yeo as an intern in 2016 and has since grown in her role from Staff Accountant to Senior Accountant. She found her passion in auditing and has honed her knowledge to focus on audits of nonprofit organizations, governmental entities, and school districts. As a member of the firm’s Nonprofit Services Group, she helps her clients identify opportunities and focus on their missions. She enjoys building relationships, getting to know her clients, and helping them improve their processes. She is a University of Michigan-Flint grad and holds a Bachelor of Science in Business and Administration. She participates in numerous community events, including the Food Bank of Eastern Michigan’s Empty Bowls fundraiser, Flint & Genesee Chamber events, Flushing Athletic Boosters and Genesee County Habitat for Humanity golf outings, and most recently volunteered for Genesee County Habitat for Humanity. She is based in the firm’s Flint office.

“Shelby consistently demonstrates her willingness to share expertise and support colleagues,” Watkins said. “She plays an essential role in serving both internal and external clients, setting a stellar example for young professionals, especially women new to the firm, through her mentorship and guidance.”

Read the Flint & Genesee Group’s AND Magazine featuring all the 40 Under 40 honorees.

Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2024. 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.

Note: Certain tax-filing and tax-payment deadlines may be postponed for taxpayers who reside in or have a business in a federally declared disaster area.

Tuesday, October 1

The last day you can initially set up a SIMPLE IRA plan, provided you (or any predecessor employer) didn’t previously maintain a SIMPLE IRA plan. If you’re a new employer that comes into existence after October 1 of the year, you can establish a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence.

Tuesday, October 15

If a calendar-year C corporation that filed an automatic six-month extension:
- File a 2023 income tax return (Form 1120) and pay any tax, interest and penalties due.
- Make contributions for 2023 to certain employer-sponsored retirement plans.

Thursday, October 31

Report income tax withholding and FICA taxes for third quarter 2024 (Form 941) and pay any tax due. (See exception below under “November 12.”)

Tuesday, November 12

Report income tax withholding and FICA taxes for third quarter 2024 (Form 941), if you deposited on time (and in full) all the associated taxes due.

Monday, December 16

If a calendar-year C corporation, pay the fourth installment of 2024 estimated income taxes.

Contact us if you’d like more information about the filing requirements and to ensure you’re meeting all applicable deadlines.

Timing is critical in financial reporting. Under accrual-basis accounting, the end of the accounting period serves as a “cutoff” for when companies recognize revenue and expenses. However, some companies may be tempted to play timing games, especially at year end, to boost financial results or lower taxes.

Observing the end-of-period cutoffs

Under U.S. Generally Accepted Accounting Principles (GAAP), revenue should be recognized in the accounting period it’s earned, even if the cash is received in a subsequent period. Likewise, expenses should be recognized in the period they’re incurred, not necessarily when they’re paid. And expenses should be matched with the revenue they generate, so businesses should record expenses in the period they were incurred to earn the corresponding revenue.

However, some companies may interpret the cutoff rules loosely to present their financial results more favorably. For example, suppose a calendar-year car dealer allows a customer to take home a vehicle on December 28, 2024, to test drive for a few days. The sales manager has verbally negotiated a deal with the customer, but the customer still needs to discuss the purchase with his spouse. He plans to return on January 2 to close the deal or return the vehicle and walk away. Under accrual-basis accounting, should the sale be reported in 2024 or 2025?

Alternatively, consider a calendar-year, accrual-basis retailer that pays January’s rent on December 31, 2024. Rent is due on the first day of the month. Under accrual-basis accounting, can the store deduct an extra month’s rent from this year’s taxable income?

As tempting as it might be to inflate revenue to impress stakeholders or defer taxable income to lower the current year’s tax bill, the cutoff for a calendar-year, accrual-basis business is December 31. So in both examples, the transaction should be reported in 2025.

Auditing cutoffs

Auditors use several procedures to test for compliance with cutoff rules. For example, to ensure revenue is recorded in the correct accounting period, auditors may review:

Shipping documents and customer invoices,
Sales transactions near the cutoff date, and
Returns and allowances near the cutoff date.

Similarly, to ensure expenses are recorded in the correct accounting period, auditors may inspect contracts and invoices near the cutoff date. They also check that expenses are matched with the revenue they help generate, in accordance with the matching principle. An accrual (a liability) is recorded for expenses incurred in the current period that still need to be paid later. Conversely, prepaid assets represent expenses paid in the current period that will be reported later when they’re used to generate future revenue. Auditors also may perform analytical procedures that compare expenses as a percentage of sales from period to period to identify timing errors and other anomalies.

It’s important to note that updated guidance for reporting revenue went into effect for calendar-year public companies in 2018 and for calendar-year private businesses starting in 2019. Under Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, revenue should be recognized “to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services.”

Although this guidance has been in effect for several years, implementation questions linger, especially among smaller private entities. The guidance requires management to make judgment calls each reporting period about identifying performance obligations (promises) in contracts, allocating transaction prices to these promises and estimating variable consideration. The risk of misstatement and the need for expanded disclosures have caused auditors to focus greater attention on companies’ recognition practices for revenue from long-term contracts. During audit fieldwork, expect detailed questions about your company’s cutoff policies and extensive testing procedures to confirm compliance with the accounting rules.

Now or later?

As year end approaches, you may have questions about the cutoff rules for reporting revenue and expenses. Contact us for answers. We can help you comply with the rules and minimize audit adjustments.

Many employers have used noncompete agreements to prevent departing employees from taking valuable information and key customers with them to competitors after they walk out the door. Earlier this year, the U.S. Federal Trade Commission (FTC) appeared to have set the stage for the demise of noncompetes when it announced a final rule that would largely ban their use.

When issued, the rule had an expected effective date of September 4, 2024. However, as of this writing, a recent ruling in a U.S. District Court in Texas has put the final rule in legal limbo.

Agency’s rationale

The final rule would require employers to notify affected employees that existing noncompetes would no longer be enforced as of the rule’s effective date. Also at that time, employers would be prohibited from entering into new noncompetes. The rule includes an exception for existing noncompetes applicable to “senior executives.” It defines these as employees who earn more than $151,164 a year and are in “policy-making positions.”

The FTC’s rationale for creating the rule is that too many U.S. workers have become subject to noncompetes. In fact, the agency contends that the agreements violate Section 5 of the FTC Act, an almost 110-year-old law that regulates unfair competitive methods. In the agency’s view, their predominance is unfairly suppressing wages, hindering innovation and making it more difficult for people to earn a living.

Upon announcing the rule in April, the FTC stated that its research showed 18% of U.S. workers are currently covered by noncompetes. That amounts to nearly one in five workers — or 30 million people. The agency believes that prohibiting the agreements would cause workers’ earnings to rise and more start-up companies to launch. It also asserts there would be a substantial rise in patents issued over the next decade.

Legal decision

Suffice to say, virtually no one expected the FTC’s final rule on noncompetes to breeze through to widespread compliance after issuance.

Sure enough, on the very day the final rule was announced, a Texas-based tax services and software firm, Ryan LLC, filed suit challenging the rule in the U.S. District Court for the Northern District of Texas. The U.S. Chamber of Commerce and other industry groups then joined the suit on the firm’s side as “plaintiff-intervenors.” Judge Ada Brown first issued a decision in the case, Ryan LLC v. Federal Trade Commission, on July 3, 2024, preliminarily enjoining (striking down) the noncompete ban but only with respect to the case’s plaintiff and plaintiff-intervenors.

However, in a final judgment issued on August 20, 2024, the same judge ruled that, in issuing the final rule, the FTC had exceeded its statutory authority to ban practices related to unfair methods of competition. In her decision, she wrote that the agency “lacks the authority to create substantive rules” and the final rule itself is “unreasonably overbroad without a reasonable explanation.”

Ultimately, the judge’s ruling means the FTC can’t enforce the ban unless it files an appeal and prevails. To that end, FTC spokesperson Victoria Graham said in a statement, “We are seriously considering a potential appeal.” If the agency does opt to file one, it would be decided by the U.S. Court of Appeals for the Fifth Circuit. From there, the case could wind up before the U.S. Supreme Court, which many professionals believe would likely benefit opponents of the rule.

Protect your valuables

If your organization uses noncompetes, you’re no doubt aware that the final rule’s original September 4 effective date has come and gone — and the rule’s fate remains uncertain.

Work with your attorney to monitor the Ryan case as well as other ongoing legal challenges. Also, explore how to best protect your intellectual property, customer lists and other valuable information. Although the final rule is in limbo, noncompetes can still be challenged in court by private parties, and even the FTC itself, on a case-by-case basis. Contact us for help measuring, tracking and analyzing all your employment costs.

Legendary singer Aretha Franklin died more than six years ago. However, it wasn’t until last year that a Michigan judge ruled a handwritten document discovered under her couch cushions was a valid will. This case illustrates the dangers of a so-called “holographic” will. It’s one where the entire document is handwritten and signed without the presence of a lawyer or witnesses.

Facts of the case

Initially, Franklin’s family thought she had no will. In that situation, her estate would have been divided equally among her four sons under the laws of intestate succession. A few months after she died, however, the family discovered two handwritten “wills” in her home.

The first, dated 2010 and found in a locked cabinet, was signed on each page and notarized. The second, dated 2014, was found in a spiral notebook under her couch cushions and was signed only on the last page. The two documents had conflicting provisions regarding the distribution of her homes, cars, bank accounts, music royalties and other assets, leading to a fight in court among her heirs. Ultimately, a jury found that the 2014 handwritten document should serve as her will.

Holographic wills can cause unexpected outcomes

Michigan, like many states, permits holographic wills. These wills, which don’t need to be witnessed like formal wills, must be signed and dated by the testator and the material portions must be in the testator’s handwriting. In addition, there must be evidence (from the language of the document itself or from elsewhere) that the testator intended the document to be his or her last will and testament.

Holographic wills can be quick, cheap and easy, but they can come at a cost. Absent the advice of counsel and the formalities of traditional wills, handwritten wills tend to invite challenges and interfamily conflict. In addition, because an attorney doesn’t prepare them, holographic wills tend to be less thorough and often contain ambiguous language.

If you need a will, contact your estate planning attorney for help. Having your will drafted by a professional can give you peace of mind knowing that your assets will be divided as you intended.

Yeo & Yeo, a leading Michigan advisory firm, is pleased to announce that Kellen Riker, CPA, has received the Rising Star Award from the Michigan Association of Certified Public Accountants (MICPA). The Rising Star Award honors the accomplishments and contributions of up-and-coming CPAs who add value to their firm or company through strategic and innovative initiatives, leadership competencies, and commitment to the profession.

Kellen Riker joined Yeo & Yeo in 2018 as a staff accountant in the Assurance Service Line. He earned his CPA license, and his dedication propelled him to become a manager and a member of the firm’s Government Services Group. Riker is passionate about getting to know his clients on a personal level and helping them succeed. Reflecting on his approach to client relationships, he said, “I really enjoy helping clients achieve their goals above and beyond simply delivering a completed audit. Sometimes, that includes providing consulting services, implementing a new standard, or offering training. Helping clients develop their skills and improve their expertise is fun and rewarding.”

Riker was recognized in 2021 with the firm’s Spirit of Yeo award for his resiliency and positive impact during the pandemic. In 2022, he was named a Flint and Genesee Group 40 Under 40 honoree, underscoring his significant community contributions and specialized expertise in governmental audits, which significantly enhances the firm’s capabilities and greatly benefits its public sector clients.

“Kellen embodies the highest standards of the profession,” said Jamie Rivette, CPA, CGFM, principal and Assurance Service Line leader. “He is committed to learning and professional development, and is always looking for innovative solutions to challenges. His clients truly value the knowledge and insight he brings to every engagement.”

Jennifer Watkins, CPA, principal, commended Riker’s exceptional growth and commitment to community service, emphasizing his impact within the firm and beyond. She remarked, “Kellen has shown tremendous leadership throughout his career at Yeo & Yeo. He is dedicated to the community, serving as the Young Professionals Service Chair for the Yeo & Yeo Foundation and volunteering at events for the American Cancer Society and Special Olympics. He is a great role model for his colleagues and the next generation of CPAs.”

Honorees will be recognized at the MICPA Celebrate Awards on November 13, 2024, at the Gem Theatre in Detroit.

Yeo & Yeo, a leading Michigan-based accounting and advisory firm, has been recognized by INSIDE Public Accounting (IPA) as a Best of the Best CPA Firm. This prestigious honor reflects Yeo & Yeo’s excellence within the industry.

Each year, IPA names 75 of the Best of the Best firms, applying a proprietary scoring formula of over 35 metrics to the 600+ firms that participate in the IPA Practice Management Survey. The report provides a clear picture of the best-managed firms based on performance in key areas of management, growth, and strategic vision.

“Being named among the ‘Best of the Best’ firms in the nation is a powerful affirmation of our core values. It proves that by prioritizing our people’s growth and well-being, we’ve created a firm that not only attracts top talent but also delivers outstanding results for our clients,” said Yeo & Yeo President & CEO Dave Youngstrom.

Yeo & Yeo’s success is rooted in the dedication of its talented professionals, who prioritize a client-centric approach by actively listening, responding genuinely, and addressing clients’ needs with expertise, experience, and empathy. “I am especially proud of the dedication of our people whose contributions made this possible,” said Youngstrom.

In addition to being named an IPA Best of the Best firm, Yeo & Yeo was recently ranked among IPA’s Top 200 accounting firms in the nation, demonstrating the firm’s ability to thrive in a dynamic industry. These honors are a testament to the firm’s commitment to its strategic initiatives, which include enhancing professional development and training, expanding benefits, streamlining operations, investing in new technologies, and broadening services to include HR advisory solutions. Most recently, Yeo & Yeo merged in Berger, Ghersi & LaDuke PLC, continuing its growth and expanding presence in Southeast Michigan.

“Adapting to the changing landscape of the accounting profession and succeeding at it takes passion, persistence, and patience,” added Youngstrom. “Through our strategic plan initiatives and the work of our internal development teams, we are continuously evolving in ways that best support our people and meet our client’s growing needs, without sacrificing our dedication to excellence.”

Youngstrom concluded, “This accolade not only affirms our current strategies but also inspires us to keep growing and advancing. We are honored and deeply thankful to our dedicated team, valued clients, and supportive partners for their shared commitment to our collective success.”

When drafting partnership and LLC operating agreements, various tax issues must be addressed. This is also true of multi-member LLCs that are treated as partnerships for tax purposes. Here are some critical issues to include in your agreement so your business remains in compliance with federal tax law.

Identify and describe guaranteed payments to partners

For income tax purposes, a guaranteed payment is one made by a partnership that’s: 1) to the partner acting in the capacity of a partner, 2) in exchange for services performed for the partnership or for the use of capital by the partnership, and 3) not dependent on partnership income.

Because special income tax rules apply to guaranteed payments, they should be identified and described in a partnership agreement. For instance:

The partnership generally deducts guaranteed payments under its accounting method at the time they’re paid or accrued.
If an individual partner receives a guaranteed payment, it’s treated as ordinary income — currently subject to a maximum income tax rate of 37%. The recipient partner must recognize a guaranteed payment as income in the partner’s tax year that includes the end of the partnership tax year in which the partnership deducted the payment. This is true even if the partner doesn’t receive the payment until after the end of his or her tax year.

Account for the tax basis from partnership liabilities

Under the partnership income taxation regime, a partner receives additional tax basis in his or her partnership interest from that partner’s share of the entity’s liabilities. This is a significant tax advantage because it allows a partner to deduct passed-through losses in excess of the partner’s actual investment in the partnership interest (subject to various income tax limitations such as the passive loss rules).

Different rules apply to recourse and nonrecourse liabilities to determine a partner’s share of the entity’s liabilities. Provisions in the partnership agreement can affect the classification of partnership liabilities as recourse or nonrecourse. It’s important to take this fact into account when drafting a partnership agreement.

Clarify how payments to retired partners are classified

Special income tax rules also apply to payments made in liquidation of a retired partner’s interest in a partnership. This includes any partner who exited the partnership for any reason.

In general, payments made in exchange for the retired partner’s share of partnership property are treated as ordinary partnership distributions. To the extent these payments exceed the partner’s tax basis in the partnership interest, the excess triggers taxable gain for the recipient partner.

All other payments made in liquidating a retired partner’s interest are either: 1) guaranteed payments if the amounts don’t depend on partnership income, or 2) ordinary distributive shares of partnership income if the amounts do depend on partnership income. These payments are generally subject to self-employment tax.

The partnership agreement should clarify how payments to retired partners are classified so the proper tax rules can be applied by both the partnership and recipient retired partners.

Consider other partnership agreement provisions

Since your partnership may have multiple partners, various issues can come into play. You’ll need a carefully drafted partnership agreement to handle potential issues even if you don’t expect them to arise. For instance, you may want to include:

A partnership interest buy-sell agreement to cover partner exits.
A noncompete agreement.
How the partnership will handle the divorce, bankruptcy, or death of a partner. For instance, will the partnership buy out an interest that’s acquired by a partner’s ex-spouse in a divorce proceeding or inherited after a partner’s death? If so, how will the buyout payments be calculated and when will they be paid?

Minimize potential liabilities

Tax issues must be addressed when putting together a partnership deal. Contact us to be involved in the process.

Public companies are required to evaluate and report on internal controls over financial reporting using a recognized control framework under rules set forth by the Securities and Exchange Commission (SEC). However, private companies also need checks and balances to help ensure their financial statements are correct and reduce the risk of fraud. Additionally, transparent reporting about the control system can give lenders, investors and other stakeholders greater confidence in a business’s financial results.

Develop an auditor’s mindset

The American Institute of Certified Public Accountants (AICPA) defines control activities as “steps put in place by the entity to ensure that the financial transactions are correctly recorded and reported.” AICPA auditing standards also require external auditors to evaluate their client’s internal controls as part of their audit risk assessment procedures. They routinely monitor the following three control features:

1. Physical restrictions. Employees should have access to only those assets necessary to perform their jobs. Locks and alarms are examples of ways to protect valuable tangible assets, including petty cash, inventory and equipment. But intangible assets — such as customer lists, lease agreements, patents and financial data — also require protection using passwords, access logs and appropriate legal paperwork.

2. Account reconciliation. Management should regularly analyze and confirm account balances. For example, bank statements should be reconciled monthly and inventory should be counted regularly.

Interim financial reports, such as weekly operating scorecards and quarterly financial statements, also keep management informed. However, reports are useful only if management finds time to review them and investigate anomalies. Supervisory oversight takes on many forms, including observation, test counts, inquiry and task replication.

3. Job descriptions. Another essential control is to have detailed job descriptions. Company policies should also call for job segregation, job duplication and mandatory vacations. For example, the person who receives customer payments should not also approve write-offs (job segregation). And two signatures should be required for checks above a prescribed dollar amount (job duplication).

Private company auditors tailor audit programs for potential risks of material misstatement. Still, they aren’t required to specifically perform procedures to identify control deficiencies unless they’re hired to perform a separate internal control study.

Disclosures about the control system

Audited financial statements may include footnote disclosures that describe the control environment, including policies and procedures for risk management, compliance and governance. These disclosures help build trust with stakeholders by providing insights into the company’s control environment and its effectiveness in ensuring accurate financial reporting.

Reporting on internal controls is an ongoing process, not a one-time assessment. Even if you’re not required to follow the SEC’s rules on evaluating internal controls, a thorough system of checks and balances will help your company achieve its goals.

We can help

Company insiders sometimes need more experience or objectivity to assess internal controls. Our auditors have seen the best — and worst — control systems and can help evaluate whether your controls are effective. Contact us for more information.

Tax planning is only a small component of estate planning — and usually not even the most important one for most people. The primary goal of estate planning is to protect your family, and saving taxes is just one of many strategies you can use to provide for your family’s financial security. Another equally important strategy is asset protection. And a spendthrift trust can be an invaluable tool for preserving wealth for your heirs.

Spendthrift trust defined

A spendthrift trust prohibits a beneficiary from directly tapping its funds or transferring its rights to someone else. The trust can also deny access to creditors or a beneficiary’s ex-spouse.

Instead, the trust beneficiary relies on the trustee to provide payments based on the trust’s terms. These could be in the form of regular periodic payouts or on an “as needed” basis. The trust document will spell out the nature and frequency, if any, of the payments. Once a payment has been made to a beneficiary, the money becomes fair game to any creditors.

Be aware that a spendthrift trust isn’t designed primarily for tax-reduction purposes. Typically, this trust type is most beneficial when you want to leave money or property to a family member but worry that he or she may squander the inheritance.

For example, you might think that the beneficiary doesn’t handle money well based on experience, or that he or she could easily be defrauded, has had prior run-ins with creditors or suffers from an addiction that may result in a substantial loss of funds.

If any of these scenarios are possible, a spendthrift trust can provide asset protection. It enables the designated trustee to make funds available for the beneficiary without the risk of misuse or overspending. But that brings up another critical issue.

The trustee plays a major role

Depending on the trust’s terms, the trustee may be responsible for making scheduled payments or have wide discretion as to whether funds should be paid, how much and when. The trustee may even decide if there should be any payment at all.

Or perhaps someone will direct the trustee to pay a specified percentage of the trust’s assets depending on investment performance, so the payouts fluctuate. Similarly, the trustee may be authorized to withhold payment upon the occurrence of certain events (for example, if the beneficiary exceeds a debt threshold or declares bankruptcy).

The designation of the trustee can take on even greater significance if you expect to provide this person with broad discretion. Frequently, the trustee will be a CPA, attorney, financial planner or investment advisor, or someone else with the requisite experience and financial know-how. You should also name a successor trustee in the event the designated trustee passes away before the term ends or otherwise becomes incapable of handling the duties.

Other considerations

Be aware that the protection offered by a spendthrift trust isn’t absolute. Depending on applicable law, government agencies may be able to access the trust’s assets — for example, to satisfy a tax obligation.

It’s also essential to establish how and when the trust should terminate. It could be set up for a term of years or for termination to occur upon a stated event, such as a child reaching the age of majority.

To help ensure continued stability and profitability, businesses need to engage in some form of strategic planning. A recent survey by insurance giant Travelers drives home this point.

In its 2024 CFO Study: A Travelers Special Report, the insurer surveyed 610 chief financial officers (CFOs) from companies with 500 or more employees in various industries. One of the questions posed was: What are the most valuable skills needed by today’s CFOs?

One might assume their answers would relate to being able to crunch numbers or understand complex regulations. But the top skill, coming from 62% of respondents, was “Strategic planning for future company success and resiliency.”

5 critical skills

Along with being somewhat surprising, the survey result begs the question: Which leadership skills, specifically, are essential to strategic planning? Among the five most important are the ability to:

1. View the company realistically and aspirationally. Strategic planning starts with a grounded view of where the company currently stands and a shared vision for where it should go. You and your leadership team need accurate information — including properly prepared financial statements, tax returns and sales reports — to establish a common perception of the state of the business. And from there, you need to be able to reach a mutually agreed-upon vision for the future.

2. Analyze the industry and market — and foresee impending changes. Everyone should be up to speed on the state of your industry and market from the pertinent perspective. Your CFO, for example, needs to be able to report on key performance indicators that place your company’s financial status in the context of industry averages and explain how those metrics compare to competitors in your market.

What’s more, everyone needs to develop the ability to make reasonable, fact-based predictions on where the industry and market are headed. Not every prediction will come true, but you’ve got to be able to forecast effectively as a team.

3. Understand customers and anticipate their needs. Again, from every member’s distinctive perspective, your leadership team needs to know who your customers truly are. This is where your marketing executive can come into play, laying out all the key features and demographics of those who buy your products or services.

Then you’ve got to put in the teamwork to determine what your customers want now and, even more important, what they will want in the future. That latter point is perhaps the biggest challenge of strategic planning.

4. Recognize the capabilities and resources of the business. Your company can operate only within realistic limits. These include the size of its workforce, the skill level of employees, and the availability of resources such as liquidity, physical assets and up-to-date technology.

Every member of your leadership team needs to be on the same page about what your business can realistically do before you decide where you can realistically go. Having a balanced collective of voices — financial, operational and technological — is critical.

5. Communicate effectively. Many companies struggle with strategic planning, not because of a shortage of ideas, but because of a failure to communicate. Leaders who tend to “silo” themselves and the knowledge of their respective departments can be particularly inhibitive. There are also those whose behavior or communication style is simply counterproductive. Continually work on improving how you and your leadership team communicate.

Confident growth

So, does your leadership team have all the requisite skills to succeed at strategic planning? If not, there are certainly ways to upskill your key players through training and performance management. We can help your business gather the financial information it needs to plan for the future confidently and decisively.

Having proper policies and procedures in place over procurement and suspension and debarment is essential for organizations receiving federal financial assistance. This article discusses the common issues nonfederal entities encounter with procurement and suspension and debarment, and best practices for ensuring their processes and controls are properly designed to promote compliance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). The guidelines discussed and referenced in this article are those in effect prior to October 1, 2024.

Background

The Uniform Guidance addresses procurement standards for nonfederal entities other than states, including those operating federal programs as subrecipients of states, in 2 CFR sections 200.318 through 200.326. Requirements for suspension and debarment are found in 2 CFR Part 180. Nonfederal entities must follow their own documented procurement procedures, which reflect applicable state and local laws and regulations, provided such procedures conform to applicable federal requirements.

Common Issues

Below are some of the most common issues noted concerning compliance by nonfederal entities, and the relevant requirements:

Lack of documented procurement procedures. 2 CFR 200.318 states nonfederal entities must have and use documented procurement procedures. Such standards must conform with relevant state, local and tribal laws and regulations, as well as the procurement standards identified in 2 CFR 200.317 through 200.327. The nonfederal entity must maintain written standards of conduct covering conflicts of interest and actions of its employees engaged in the selection, award and administration of contracts.
Inserting restrictions on competition. Procurement transactions are to provide for full and open competition. 2 CFR 200.319 provides examples of inappropriate conditions nonfederal entities will artificially impose to create limitations to competition, such as through placing unreasonable requirements on firms to qualify to do business, requiring unnecessary experience or specifying a “brand name” product. Furthermore, nonfederal entities must avoid use of statutorily or administratively imposed state, local, or tribal geographical preferences except where federal statutes mandate or encourage geographic preference.
Not retaining evidence of price or rate quotations for small purchases. 2 CFR 200.320(a)(2) describes small purchases as those with an aggregate dollar amount higher than the micro-purchase threshold ($10,000, or $2,000 for acquisitions subject to the Davis-Bacon Act) but less than the simplified acquisition threshold ($250,000, or a lower amount as determined by the nonfederal entity). When small purchase procedures are used, the nonfederal entity must obtain price or rate quotations from an adequate number of qualified sources.
Inappropriate use of noncompetitive procurement. 2 CFR 200.320(c) limits the use of noncompetitive procurement to specific circumstances which include: (a) the aggregate dollar amount does not exceed the micro-purchase threshold; (b) the item is available only from a single source; (c) a public exigency or emergency does not permit a delay for competitive solicitation; (d) the federal awarding agency or pass-through entity expressly authorized via response to a written request for noncompetitive procurement; and (e) after solicitation of a number of sources, competition is determined inadequate. Nonfederal entities procuring goods or services noncompetitively outside of the specific circumstances listed risk having the related costs disallowed and other negative ramifications due to noncompliance.
Not checking for suspended or debarred parties. Nonfederal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred. Per 2 CFR 180.220, covered transactions include contracts for goods and services awarded under a nonprocurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000, contracts that require the consent of an official of a federal awarding agency, or contracts for federally required audit services.

Question: Can a nonfederal entity use its history or familiarity with a vendor as criteria for selection?

Answer: No, procurement transactions must be conducted in a manner that provides full and open competition. Relevant technical requirements or the inclusion of minimum essential characteristics or standards may be used for evaluation purposes but must not contain features which unduly restrict competition. “Preferences” are not appropriate criteria for evaluating bids or proposals.

Best Practices

Below are suggested best practices to help ensure compliance with requirements for procurement and suspension and debarment:

Routine review of documented procurement procedures. Nonfederal entities must have written procedures for procurement and should review these procedures routinely to ensure they are in compliance with relevant laws and regulations, and accurately reflect the actual procurement process.
Review of terms and conditions. Invitations to bid, requests for proposal and contracts should be reviewed to ensure the terms and conditions are in compliance with recently enacted federal laws and regulations. For example, effective May 14, 2022, the Build America, Buy America Act (BABA) requires a Buy America preference for iron, steel, manufactured projects, and construction materials used in projects.
Retention of quotes, bids and proposals received. For procurements made under small purchase procedures or formal procurement methods, nonfederal entities should retain copies of the quotes, bids, or proposals received to support compliance for competitive procurement.
Written documentation of noncompetitive procurement. Nonfederal entities should maintain robust documentation as appropriate for their scenario justifying the use of noncompetitive procurement. Such documentation should include:
Written approval from the federal awarding agency or pass-through entity authorizing noncompetitive procurement, when available.
Evidence of inadequate competition when solicited, proof that the item is only available from a single source, and the facts and circumstances explaining why a public exigency or emergency required immediate procurement.
Retention of documentation of the review for suspension and debarment. Nonfederal entities should retain in their procurement files evidence that they verified the entity was not debarred, suspended, or otherwise excluded from federal programs prior to entering a covered transaction. This can include a screenshot of checking the System of Award Management (SAM) Exclusions maintained by the General Services Administration (GSA) available at SAM.gov, collecting a certification from the entity, or adding a clause or condition in the agreement related to the covered transaction.

Question: Are non-federal entities required to have a separate procurement policy for federally funded procurements?

Answer: Nonfederal entities are not required to have separate procurement policies. However, the procurement procedures used when federal funds are involved must conform to applicable federal statutes and the procurement requirements identified in 2 CFR Part 200. Nonfederal entities may opt for more restrictive policies than the requirements in 2 CFR Part 200 if they so choose.

Conclusion

Compliance with the requirements of the Uniform Guidance for procurement and suspension and debarment is essential to continue to receive federal financial assistance. Through adherence to the best practices listed above, nonfederal entities can better position themselves for a successful future.

Note: In April 2024, the Office of Management and Budget released an updated version of the Uniform Guidance. The effective date for the updated version is October 1, 2024. Federal agencies may choose to apply the final guidance to federal awards issued prior to this date but are not required to do so. Nonfederal entities should refer to the updated guidance when applicable.

With Labor Day in the rearview mirror, it’s time to take proactive steps that may help lower your small business’s taxes for this year and next. The strategy of deferring income and accelerating deductions to minimize taxes can be effective for most businesses, as is the approach of bunching deductible expenses into this year or next to maximize their tax value.

Do you expect to be in a higher tax bracket next year? If so, then opposite strategies may produce better results. For example, you could pull income into 2024 to be taxed at lower rates, and defer deductible expenses until 2025, when they can be claimed to offset higher-taxed income.

Here are some other ideas that may help you save tax dollars if you act soon.

Estimated taxes

Make sure you make the last two estimated tax payments to avoid penalties. The third quarter payment for 2024 is due on September 16, 2024, and the fourth quarter payment is due on January 15, 2025.

QBI deduction

Taxpayers other than corporations may be entitled to a deduction of up to 20% of their qualified business income (QBI). For 2024, if taxable income exceeds $383,900 for married couples filing jointly (half that amount for other taxpayers), the deduction may be limited based on whether the taxpayer is engaged in a service-type business (such as law, health or consulting), the amount of W-2 wages paid by the business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the business. The limitations are phased in.

Taxpayers may be able to salvage some or all of the QBI deduction (or be subject to a smaller deduction phaseout) by deferring income or accelerating deductions to keep income under the dollar thresholds. You also may be able increase the deduction by increasing W-2 wages before year end. The rules are complex, so consult us before acting.

Cash vs. accrual accounting

More small businesses are able to use the cash (rather than the accrual) method of accounting for federal tax purposes than were allowed to do so in previous years. To qualify as a small business under current law, a taxpayer must (among other requirements) satisfy a gross receipts test. For 2024, it’s satisfied if, during the three prior tax years, average annual gross receipts don’t exceed $30 million. Cash method taxpayers may find it easier to defer income by holding off on billing until next year, paying bills early or making certain prepayments.

Section 179 deduction

Consider making expenditures that qualify for the Section 179 expensing option. For 2024, the expensing limit is $1.22 million, and the investment ceiling limit is $3.05 million. Expensing is generally available for most depreciable property (other than buildings) including equipment, off-the-shelf computer software, interior improvements to a building, HVAC and security systems.

The high dollar ceilings mean that many small and midsize businesses will be able to currently deduct most or all of their outlays for machinery and equipment. What’s more, the deduction isn’t prorated for the time an asset is in service during the year. Even if you place eligible property in service by the last days of 2024, you can claim a full deduction for the year.

Bonus depreciation

For 2024, businesses also can generally claim a 60% bonus first-year depreciation deduction for qualified improvement property and machinery and equipment bought new or used, if purchased and placed in service this year. As with the Sec. 179 deduction, the write-off is available even if qualifying assets are only in service for a few days in 2024.

Upcoming tax law changes

These are just some year-end strategies that may help you save taxes. Contact us to customize a plan that works for you. In addition, it’s important to stay informed about any changes that could affect your business’s taxes. In the next couple years, tax laws will be changing. Many tax breaks, including the QBI deduction, are scheduled to expire at the end of 2025. Plus, the outcome of the presidential and congressional elections could result in new or repealed tax breaks.

Your business probably has a disaster plan — or a set of procedures for dealing with a fire, natural disaster, terrorist attack or other emergency that could disrupt operations and threaten lives. Although a fraud contingency plan probably isn’t as critical, it’s still important for most companies to have one. Here’s how to draft and put a fraud contingency plan in place.

Where are your weaknesses?

Start by meeting with your senior management team and financial advisors to devise as many fraud scenarios as you can dream up. Consider how your internal controls could be breached — whether the perpetrator is a relatively new hire, an experienced department manager, a high-ranking executive or an outside party.

Next, decide which scenarios are most likely to occur given such factors as your industry and size. For example, retailers are particularly vulnerable to skimming and construction companies are prone to employee/vendor collusion in bid rigging. Small businesses without adequate segregation of duties may be at greater risk for theft in accounts payable.

Also identify the schemes that would be most damaging to your business. Consider them from financial, employee morale and public relations standpoints.

Who will be responsible for what?

As you write your plan, assign responsibilities to specific individuals. When fraud is suspected, one person should lead the investigation and coordinate with staff and any third-party investigators. Put other employees to work where they can be most effective. For example, your IT manager may be tasked with preventing loss of electronic records and your HR head may be responsible for maintaining employee morale.

You’ll also want to define the objectives of any fraud investigation. Some companies want only to fire the person responsible, mitigate the damage and keep news of the incident from leaking. Others may want to seek prosecution of offenders as examples to others or to recover stolen funds. Your fraud contingency plan should include information on who will work with law enforcement and how they’ll do so.

How should you communicate incidents?

Employee communications are particularly important during a fraud investigation. Staff members who don’t know what’s going on will speculate. Although you should consult legal and financial advisors before releasing any information, you probably want to be as honest with your employees as you can. It’s equally important to make your response visible so that employees know you take fraud seriously.

Also designate someone to manage external communications. This person should be prepared to deflect criticism and defend your company’s stability, as well as control the flow of information to the outside world.

Strong internal controls

A fraud contingency plan shouldn’t be your only effort to combat theft and other crimes within your organization. After all, this plan is intended to help you after fraud has occurred. So be sure to establish strong internal controls that can reduce fraud risk. Contact us for help.

Is your company planning to hire a new CFO? A recent survey found that hiring managers look for more than financial acumen when vetting CFO candidates. In fact, only 38.5% of CFOs at Fortune 500 and S&P 500 companies were licensed CPAs in 2023, according to executive recruiting firm Crist Kolder. What other skills may be needed to fill these shoes?

Financial know-how opens doors

The Pennsylvania Institute of Certified Public Accountants recently surveyed over 320 hiring executives about what skills matter most for the CFO role. Not surprisingly, “2024 Corporate Finance Report: CPAs in the C-Suite” found that the top must-have for CFO candidates is the ability to manage the company’s finances effectively.

The top 10 financial skills identified in the survey include:

Capital management and strategy,
Financial forecasting,
Operations and financial reporting,
Critical thinking,
Financial reporting compliance,
Strategy creation,
Industry/product forecast and outlook,
Tax compliance,
Accounts receivable, and
Networking and industry relationships.

The survey draws two key findings. First, CPAs who aspire to become CFOs will need to expand their skill sets beyond traditional accounting to include strategic planning, risk management and technology oversight. Second, today’s CFOs must “strategize for growth and stability, not just report past results.”

Nonfinancial skills seal the deal

Today’s hiring managers are looking for more than finance and accounting skills when filling CFO positions. They prefer candidates with the following general competencies, listed in order of importance:

Leadership/strategic aptitude to develop high-performing teams and strategic goals,
Compliance and regulatory expertise to ensure organizational adherence to laws, regulations and internal policies,
Technology and analytical proficiency to make data-driven decisions and use cutting-edge tools,
Industry-specific knowledge to understand market conditions and how they influence the organization, and
Communication skills to build effective relationships with internal and external stakeholders to maintain alignment with corporate strategy.

In addition, respondents emphasized the need for CFO candidates to possess “general business acumen” and “emotional intelligence.” However, the survey cautions that most hiring managers assume candidates who apply for executive positions have already mastered these general skills.

What’s the right fit for your executive team?

Finding the right person to head up your company’s finance and accounting department can be challenging in today’s tight labor market. The CFO’s main responsibility is to provide timely, relevant financial data to other departments — including information technology, operations, sales and supply chain logistics — to help improve how the business operates. He or she also must be able to drum up cross-departmental support for major initiatives. So, it’s important that you choose a candidate who’s a team player. You might even want to outsource the position to a skilled professional. Contact us for help evaluating CFO candidates to find the right mix of skills and experience for your company’s finance and accounting department.