COVID-19 Resource Center

Gov. Gretchen Whitmer has signed Executive Order 2020-10 temporarily expanding eligibility for unemployment benefits effective immediately, and until Tuesday, April 14, at 11:59 p.m. 

Under the order, unemployment benefits would be extended to the following:

• Workers who have an unanticipated family care responsibility, including those who have childcare responsibilities due to school closures, or those who are forced to care for loved ones who become ill.
• Workers who are sick, quarantined, or immunocompromised and who do not have access to paid family and medical leave or are laid off.
• First responders in the public health community who become ill or are quarantined due to exposure to COVID-19.

The State is also seeking solutions for self-employed workers and independent contractors who traditionally do not have access to unemployment insurance. 

Access to benefits for unemployed workers will also be extended: 

• Benefits will be increased from 20 to 26 weeks. 
• The application eligibility period will be increased from 14 to 28 days.  
• The normal in-person registration and work search requirements will be suspended.  

Eligible employees should apply for unemployment benefits online at www.michigan.gov/UIA or 1-866-500-0017. A factsheet on how to apply for benefits can be found here.  

This response came following the Governor signing an order earlier today suspending the operations of all restaurants and bars, theaters, casinos, and other public spaces in the state of Michigan to help mitigate the novel coronavirus pandemic. The order will go into effect at 3 p.m. on Monday, March 16, and is in effect through March 30.

The order states that it applies to:

• Restaurants, cafes, coffee houses, bars, taverns, brewpubs, distilleries and clubs
  • Restaurants may allow five customers inside at a time to pick up orders, so long as they stay six feet apart from each other, according to the order.
• Movie theaters, indoor and outdoor performance venues
• Gymnasiums, fitness centers, recreation centers, indoor sports facilities, indoor exercise facilities, exercise studios and spas
• Casinos

The order states that it does not apply to:

• Office buildings
• Grocery stores, markets and food pantries
• Pharmacies, drug stores, providers of medical equipment and supplies, health care facilities and residential care facilities
• Juvenile justice facilities
• Warehouse and distribution centers, and industrial and manufacturing facilities

To stay informed of the most recent Executive Orders and for other business and individual resources available from the State, please refer to the State of Michigan’s dedicated Coronavirus site at www.michigan.gov/coronavirus.

Questions from employers and employees about coronavirus (COVID-19) pandemic are multiplying almost as fast as the virus itself. Employers need to rely on a combination of authoritative legal and medical advice, and their own common sense, to keep employees safe.

Guidance issued almost daily from the Centers for Disease Control (CDC), the U.S. Department of Labor’s Occupational Health and Safety Administration (OSHA) and other sources, reveal the wide scope of employment issues caused by the pandemic.

A good place to start to understand an employer’s basic legal obligations is found in the Occupational Health and Safety Act. Employers are obligated, the law states, to “furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees.”

“Recognized Hazards”

The word “recognized” plays a key role in the current situation. On a webpage dedicated to COVID-19, OSHA points out that its standards, including those dealing with personal protective equipment and respiratory protection, “require employers to assess the hazards to which their workers may be exposed.”

Hazard levels vary from one employer to the next, as well as for different jobs that your employees perform. However, if most of your employees work in relatively close proximity to each other, it wouldn’t matter much that some deal more directly with the public and some stay in the back office, because there’s a risk that one employee will spread the virus to another. That means that your hazard assessment must include the danger that your employees pose to each other.

OSHA has placed jobs and workplaces into four COVID-19 exposure risk categories, ranging from “very high” to “lower.” As you’d expect, the highest risk categories are for jobs such as health care providers who come into regular contact with people who have, or are suspected of having, been infected.

Employees under “medium” exposure risk are those “with high-frequency contact with the general population,” such as in a retail sales environment. The “lower” risk category involves “employees who have minimal occupational contact with the general public and other coworkers, such as office employees.”

Appoint a COVID-19 Czar

How specifically should you be responding to the COVID-19 pandemic? Before diving into the sanitary and legal matters, establish an organizational structure fit to meet the challenge. Appoint a COVID-19 response czar.

In addition to determining and taking the necessary steps to assess and mitigate the risks and address problems that arise, your COVID czar needs to be your point person in communicating with employees. Workers at all levels of your organization need consistent direction and responses to their questions. Ideally the czar will anticipate questions and answer them proactively.

The easiest questions to address are how employees can minimize their chances of becoming infected (washing their hands frequently, etc.). But it’s important to be sure that the resources (for example, soap) are on hand for them to follow those directions, as well as sufficient custodial services to keep the workplace as virus-free as possible.

It’s not too soon to make policy decisions about arranging for telework, eliminating non-essential travel, extending paid leave benefits, and a host of other issues that may arise, if a COVID-19 outbreak occurs in your area. The key is striking the right balance between possibly erring miles too far on the side of caution (thereby undermining your operational capacity) and putting employees at risk.

Use Facts, Shun Rumors

Grounding your policy decisions in reliable threat assessments by respected organizations such as the Centers for Disease Control (and not the most alarm-generating local news stories) is the way to go. It’s also important for employees to understand the basis upon which you’re making decisions affecting their jobs, pay, and health.

Click here for some advice from the CDC on what businesses and employers can do now:

Sound legal advice is critical since a host of labor laws and regulations come into play, including the Equal Employment Opportunity Act, the Fair Labor Standards Act, the Americans With Disabilities Act, the Family and Medical Leave Act, and HIPAA. Labor law firms are busy dispensing guidance on many COVID-19 related questions.

Here are a few Q&As to give you a sense of current concerns — but contact your own employment attorney or HR advisor for complete guidance appropriate to your unique circumstances:

HR Question Sampler

Q: One of my employees has tested positive for COVID-19. Now what?

A: Not only should you keep that employee away from work but you should send other employees who worked closely with the infected employee home and ask them to stay away for two weeks. That’s the amount of time needed to determine whether they were infected, as symptoms can take that long to manifest.

Q: Would an infected employee, who is likely to have been infected at work, qualify to make a Workers Comp claim?

A: Probably not, since getting the infection was not caused by a hazard specific to the employee’s job, like being contaminated by a toxic chemical used in connection with that specific job.

Q: Is an individual affected by COVID-19 eligible to receive unemployment compensation (UC)?

A: Maybe. The U.S. Department of Labor (DOL) issued guidance on this situation. The DOL has stated that the unemployment Insurance program requires individuals to be able and available for work and to actively seek work. However, states have significant flexibility in implementing these requirements, as well as in determining the type of work that may be suitable given the individual’s circumstances. What this means is an individual may be quarantined or otherwise affected by COVID-19 but still eligible for UC, depending on state law. For more information: https://wdr.doleta.gov/directives/attach/UIPL/UIPL_10-20_Acc.pdf

Q: One of my employees just returned from a trip to a place where many people have been infected by COVID-19. Can I require the employee to be tested?

A: Ordinarily you can’t intrude into an employee’s health issues. However, if you can show that the test you’re requesting is job-related and you have reason to believe the employee could pose a direct threat to coworkers, you’re probably within your rights to make that request. Consult with an employment attorney.

For more information about COVID-19 in the workplace, OSHA has issued this publication: https://www.osha.gov/Publications/OSHA3990.pdf

President Trump announced that the April 15 tax filing and tax paying deadline will be extended for “certain” taxpayers due to the coronavirus (COVID-19). Trump announced the extension in an address to the nation on March 11.

Earlier that day, Treasury Sec. Steven Mnuchin said the payment delay would put more than $200 billion into the economy that would have gone into paying taxes in April. Trump and Mnuchin didn’t specify what the new deadline will be, or which taxpayers will get an extension. We’ll keep you updated.

Congress is also working on a package of economic stimulus and other provisions to help individuals and businesses cope with the virus.

High Deductible Health Plans and COVID-19 Costs
The IRS also issued Notice 2020-15 on March 11. The guidance allows high-deductible health plans (HDHPs) to pay for COVID-19-related testing and treatment, without jeopardizing their status. This also means that an individual with an HDHP that covers these costs may continue to contribute to a Health Savings Account.

According to the guidance, an HDHP won’t lose its HDHP status if it pays, without applying the minimum deductible or any cost sharing, for a plan participant’s testing for and treatment of COVID-19. However, the notice doesn’t require HDHPs to provide testing and treatment services without a deductible or cost sharing. It only provides that an HDHP may provide such benefits without losing its HDHP status.

The notice also doesn’t modify previous guidance regarding the requirements to be an HDHP other than with respect to testing for and treatment of COVID-19. As in the past, any vaccination costs continue to count as preventive care and can be paid for by an HDHP.

HDHP plan participants should consult their health plans to determine any health benefits for testing for and treatment of COVID-19 provided by their plans, including the potential application of any deductible or cost-sharing

Yeo & Yeo’s top priority is to deliver outstanding business solutions to our clients. During this time of challenge over the situation with the coronavirus (COVID-19), our commitment to the health and well-being of our clients, our team members, family members and community is of our highest regard.

At this time, we are fortunate to have had no confirmed cases or known encounters among any of our team members — and hope that you, your families and team members will continue to stay healthy too. At the onset of this outbreak, we put in place extra measures to ensure the health and safety of our staff and visitors and will continue to do so. We’ve encouraged every Yeo & Yeo team member to stay home if sick and to contact our HR representative if they or anyone in their household experiences symptoms or are diagnosed with or exposed to the coronavirus. Yeo & Yeo has supported flexible work practices with technology that enables remote access as well as alternate work schedules to accommodate our team members and their situations.

With that, to continue to serve our clients, it is business as usual at this time. If you feel uncomfortable with coming into any of our offices, are considered at-risk or vulnerable, or present any symptoms, we would like to remind you that we have the tools and resources necessary (via portals, email, etc.) by which you can send us  information needed without coming into the office. And, if you have meetings scheduled with anyone on our team, and you would prefer to speak by phone or video chat, that option is available as well.

Yeo & Yeo has a robust plan in place for continuing operations in the coming months. We are confident in our ability to provide essential services without interruption while ensuring our employees remain healthy and safe. 

In a matter of just 24 hours, we have seen unthinkable measures to protect our great nation from a massive outbreak. By the time you read this, it’s likely more will have developed. We are closely monitoring our federal, state, and local government updates. We are committed to serving you with as little disruption to our services as possible.

On behalf of all of us at Yeo & Yeo, thank you for your understanding and support during this health challenge. If you have any questions or concerns, please do not hesitate to contact us.

Stay safe. Stay healthy!

Longer life expectancies and rising health care costs make saving for retirement more important than ever before. A Health Savings Account (HSA) can be a powerful tool for financing health care expenses while supplementing your other retirement savings vehicles. And it offers estate planning benefits to boot.

What’s an HSA?

An HSA is a tax-advantaged savings account funded with pretax dollars. Funds can be withdrawn tax-free to pay for a wide range of qualified medical expenses. (Withdrawals for nonqualified expenses are taxable and, if you’re under 65, subject to penalties.)

To provide these benefits, an HSA must be coupled with a high-deductible health plan (HDHP). For 2020, an HDHP is a plan with a minimum deductible of $1,400 ($2,800 for family coverage) and maximum out-of-pocket expenses of $6,900 ($13,800 for family coverage). In addition, you must not be enrolled in Medicare or covered by any non-HDHP insurance (a spouse’s plan, for example). Once you enroll in Medicare, you can no longer contribute to an HSA, but you can continue to withdraw funds from your account to pay for qualified expenses.

Currently, the annual contribution limit for HSAs is $3,550 for individuals with self-only coverage and $7,100 for individuals with family coverage. If you’re 55 or older, you can add another $1,000. Typically, contributions are made by individuals, but some employers contribute to employees’ accounts.

HSAs can lower health care costs in two ways: by reducing your insurance expenses (HDHP premiums are substantially lower than those of other plans) and allowing you to pay qualified expenses with pretax dollars.

In addition, any funds remaining in an HSA may be carried over from year to year, continuing to grow on a tax-deferred basis indefinitely. And, to the extent that HSA funds aren’t used to pay for qualified medical expenses, they behave much like an IRA or a 401(k) plan.

What are the estate planning benefits?

The estate tax implications of inheriting an HSA differ substantially depending on who receives it, so it’s important to consider your beneficiary designation(s). If you name your spouse as beneficiary, the inherited HSA will be treated as his or her own HSA. That means your spouse can allow the account to continue growing and withdraw funds tax-free for his or her own qualified medical expenses.

If you name your child or someone else other than your spouse as beneficiary, the HSA terminates and your beneficiary is taxed on the account’s fair market value. It’s possible to designate your estate as beneficiary, but in most cases that’s not the best choice, because a beneficiary other than your estate can avoid taxes on qualified medical expenses paid with HSA funds within one year after death.

A flexible tool

An HSA is a flexible tool that can be used to reduce health care costs, supplement your retirement savings, provide additional wealth for your heirs — or all three. Contact us for additional details.

© 2020

The Michigan School Business Officials Annual Conference will be held at the DeVos Place in Grand Rapids, April 21-23. Members of Yeo & Yeo’s Education Services Group will present three of the sessions. We welcome you to join us to gain new insights into managing your Michigan school.

PTO and Booster Groups: On or Off the District’s Books?
– Jennifer Watkins, CPA

Get answers to common questions about booster and Parent Teacher Organizations (PTO) groups’ financial reporting and how your district’s involvement impacts your GASB 84 reporting requirements.

The ABCs of Federal Program Compliance and Accounting Along with Preparing for Your Audit
– Kristi Krafft-Bellsky, CPA

Learn everything you need to have in place for a successful federal program audit, which includes examples of policies and procedures to meet the federal requirements. Understand how to prepare your Schedule of Expenditures of Federal Awards (SEFA) and prepare for your audit (including single audit). Get examples of necessary documents and common findings.

IT Vendor Fraud
– Taylor Diener, CPA

Technology directors work with many vendors to secure the equipment and services for their district. Sometimes they are put in unexpected situations with vendors that may make it easy to fall into a fraud trap. Understand Information Technology (IT) vendor fraud and ways to mitigate those risks through necessary controls.

We encourage you to attend. Register and learn more about the MSBO Annual Conference.

Today, almost everything your nonprofit does is accumulated within information technology, computers. There is personally identifiable information related to your donors, employees, and customers. Processes and plans that give your nonprofit a strategic advantage are stored within IT. Documentation of compliance with grants and laws is also stored within IT.

Knowing how much of your nonprofit’s vital information is held on computers, having internal controls over information technology is just as important as having internal controls over cash. IT controls need to cover both accidental loss of information, such as a crashed hard drive, and purposeful theft of information, such as ransomware attacks. Controls should cover the following areas:

1. Access to the computers, both physical and virtual, including how it is granted and removed
2. Limiting access to information to only what is applicable for a person’s job; this means different people have different access
3. Training on information technology security; people are the weakest link in IT security
4. Strong passwords, multi-factor authentication, and policies to prevent sharing them
5. Software updates, including antivirus
6. Spam filtering
7. Cyber insurance
8. Evaluating service organization controls (third parties you rely on to accumulate, store, or analyze your data)
9. Backups, including testing
10. Compliance with laws, especially those regarding personally identifiable information

There are many different information technology controls to implement, and above are just a few. Consider which pieces of your information technology your nonprofit couldn’t survive without, and how to ensure continuity of that information.

Government entities in Michigan face numerous compliance requirements. Does your government ever have trouble keeping up with the filing requirements? Below we will highlight the commonly missed requirements to improve state compliance and are often are identified during the annual audit, or some your government should consider for future implementation. This list is not all-inclusive but is intended to be a refresher on several typical compliance requirements.

Tax Increment Financing Annual Reporting
Public Act 57 of 2018 set forth new reporting requirements for tax increment financing plans. Not only were new annual reports required by this act, but it also presented specific requirements about what must be available on the government’s website. The website must include items such as meeting minutes, annual budgets and audits, the tax increment financing plan and development plan and other information. Many other items must be made publicly available as well.

Although a website posting is encouraged, your government may forgo that option and make physical copies of the required documents available in a public area at your office. The tax increment financing annual financial report form is due 180 days after your fiscal year-end.

To learn more about the Tax Increment Financing Act and other applicable items, we encourage you to visit the following websites:

Michigan Department of Treasury – Tax Increment Financing Act
Michigan Legislature – Tax Increment Financing Act

Tax Collections for Other Taxing Units
If your government collects taxes for other taxing units, you must remit those taxes on time. The standard deadline is within 10 business days after the first and the fifteenth day of each month. Therefore, all collections on hand as of the first and fifteenth must be disbursed within 10 business days. If your government finds this to be a challenge or currently has a different schedule, hope is not lost! The State can make an exception if there is a payment arrangement agreement with the taxing authority. For example, imagine your government collects taxes on behalf of a school district, and you remit those taxes monthly. That is allowable, so long as there is an agreement. We suggest these agreements be written and signed by the individuals with the appropriate authority.

Further information is available on the Michigan Legislature website:

Michigan Legislature – General Property Tax Act

Electronic Transactions of Public Funds
Most governments today utilize some form of electronic fund transfers (EFTs) to make payments to their vendors. EFTs can be an excellent way to create efficiencies in the payables department; however, certain compliance requirements and controls must be in place before a government begins to make such disbursements. Public Act 738 of 2002 requires that the governing body adopt, by resolution, the authority of an individual to use electronic transactions. Also, this individual must present to the governing body an Automated Clearing House (ACH) policy that outlines the following:

1. Who is responsible for ACH agreements.
2. Who is responsible for disbursing the funds.
3. How will that information be made available to the local unit.
4. What internal controls will be used to monitor ACH payments.

Further information is available on the Michigan Legislature website:

Michigan Legislature – Electronic Transactions of Public Funds

Credit Card Compliance
For many governments, the use of credit cards is a controversial issue. Concerns often arise over what internal controls are necessary to ensure that use is appropriate for public funds. Public Act 266 of 1995 recognized the need for policies related to this specific issue and outlines what a Michigan government must do to use credit cards for purchases. The act outlines that the governing body must adopt a written policy by board resolution that describes what the responsibilities and internal controls shall be. If your government currently uses credit cards for purchases, be sure to have a written policy adopted by board resolution.

Detailed information about the requirements of this policy are available at the following link:

Michigan Legislature – Credit Card Transactions

In addition to purchases with credit cards, your government may accept credit cards as a method of payment for taxes, assessments or other fees. The State of Michigan, under Public Act 280 of 1995, also requires a formal resolution by the governing body to accept such payments.

Detailed information about the requirements of this policy are available at the following link:

Michigan Legislature – Financial Transaction Device Payments

The items above are a short list of some of the compliance requirements that governments commonly miss. If you believe your government has failed to file any of the annual reports or does not have resolutions as required by the State of Michigan – or if you believe your policies and procedures could use a tune-up – we encourage you to reach out to your Yeo & Yeo CPA for assistance.

You may have heard about changes to the Yellow Book rules for your 2020 year-end and wondered what that will mean to you. For the most part, it means increased documentation that your auditor must contend with. The largest impact to you is related to the nonattest services that your auditor may help you with. For example, does your auditor assist you with the journal entries necessary to record some of the components of your district-wide financial statements, such as fixed assets, long-term debt, net pension liability, or other post-employment benefits? The answer is likely yes for many school districts.

The new Yellow Book rules state that independence would be impaired if the auditor performs the following services:

• Determining or changing journal entries, account codes, or classifications for transactions, or other accounting records for the entity, without obtaining management approval;
• Authorizing or approving the entity’s transactions; and
• Preparing or making changes to source documents without management approval.

If your auditor is helping you calculate adjustments and determine account codes to post adjustments to, you may see an increased level of approvals required by your auditor for such entries. Hopefully, your auditor was providing the information to you previously for approval, but under these new rules, management’s approval is crucial to your auditor remaining independent.

Also, if an auditor assists in preparing your financial statements, it is a threat to independence, and adequate safeguards need to be in place to address that threat. This was true under previous independence rules as well, but a good reminder is that ultimately the financial statements are the responsibility of the school district’s management. Someone from the district should closely review the financial statements to make sure they can take an appropriate level of responsibility.

Auditors are also required to look at the cause of any findings identified to determine what sort of control deficiencies may be present. Now would be a good time to revisit last year’s audit results and look at what sort of findings you may have had, or what types of management comments your auditors may have suggested as areas for improvement. Taking the time now to make sure you have followed your corrective action plan or addressed any of the management comments that were made will help set you up for a more successful audit.

One other change in the rules is the requirement for auditors to report abuse and waste if either are identified. This is anticipated to be a very subjective addition to the rules. Waste is defined as the act of using or expending resources carelessly, extravagantly, or to no purpose. The background on this is that the Government Accountability Office is looking for reporting of instances where funds are mismanaged. Be mindful as your grants are ending, if you have unspent grant dollars, to watch what you are spending the funds on. There should be a purpose for those funds and not extravagant use of those dollars.

If you made large gifts to your children, grandchildren or other heirs last year, it’s important to determine whether you’re required to file a 2019 gift tax return. And in some cases, even if it’s not required to file one, it may be beneficial to do so anyway.

Who must file?

Generally, you must file a gift tax return for 2019 if, during the tax year, you made gifts:

• That exceeded the $15,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
• That you wish to split with your spouse to take advantage of your combined $30,000 annual exclusion,
• That exceeded the $155,000 annual exclusion for gifts to a noncitizen spouse,
• To a Section 529 college savings plan and wish to accelerate up to five years’ worth of annual exclusions ($75,000) into 2019,
• Of future interests — such as remainder interests in a trust — regardless of the amount, or
• Of jointly held or community property.

Keep in mind that you’ll owe gift tax only to the extent that an exclusion doesn’t apply and you’ve used up your lifetime gift and estate tax exemption ($11.4 million for 2019). As you can see, some transfers require a return even if you don’t owe tax.

Who might want to file?

No gift tax return is required if your gifts for 2019 consisted solely of gifts that are tax-free because they qualify as:

• Annual exclusion gifts,
• Present interest gifts to a U.S. citizen spouse,
• Educational or medical expenses paid directly to a school or health care provider, or
• Political or charitable contributions.

But if you transferred hard-to-value property, such as artwork or interests in a family-owned business, you should consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

April 15 deadline

The gift tax return deadline is the same as the income tax filing deadline. For 2019 returns, it’s April 15, 2020 — or October 15, 2020, if you file for an extension. But keep in mind that, if you owe gift tax, the payment deadline is April 15, regardless of whether you file for an extension. If you’re not sure whether you must (or should) file a 2019 gift tax return, contact us.

© 2020

Rental real estate, if managed well, can provide income and tax breaks. But watch out. Problems can arise even with good tenants. Knowing the sources of trouble can help you steer clear of unnecessary problems. Here are six mistakes landlords can make:

1. Inadequate or illegal screening. Don’t let a fear of empty units cause you to shortcut the screening process. Before accepting renters, check their credit and rental history, verify income, and contact personal references.
   
   Also, keep in mind that federal law allows landlords to screen potential tenants, but not on the basis of race, religion, sex, ethnicity, or disability. Some states and localities also prohibit discrimination based on marital status, children, age, and sexual orientation. To avoid discrimination claims, find out the laws in your area and treat all prospective renters with the same respect.
2. Not putting everything in writing. Obviously, you need a written agreement reviewed by a real estate attorney. Be sure it includes the issues within the law that are important to you. Examples: Who pays for utilities? Are pets and sub-lets allowed? What is the fee charged for late rent?
3. Mishandling security deposits. Check for specific state laws concerning security deposits. In many states, these laws are strict, and failing to follow them may result in costly damages.
4. Being unresponsive or hostile. Some tenants can be demanding, but it’s good policy to always respond and fix problems. Keep a record of tenants’ requests and the repairs made. Failing to take care of problems can increase aggravation. It can also cause tenants to call local authorities, such as the health inspector, or pursue their legal remedies, which in most states, are tenant-friendly.
5. Not reacting promptly when rent doesn’t come in. Call or notify tenants after a few days if they don’t pay the rent. Depending on the laws in your state, follow the procedures allowed as soon as possible. When it comes to getting the money you are owed and keeping rental units filled, it is critical to act quickly when tenants don’t pay the rent.
6. Not understanding the tax laws related to rental property. Owning rental real estate can result in some valuable tax breaks. For example, if you qualify, you may be able to use losses to offset other highly-taxed income, such as salary and dividends. When you sell the property, you may be able to defer or reduce the tax owed on the capital gain. However, the rules involving rental real estate are complex. Landlords often have many questions including:

• • What expenses can I deduct and when can I claim them?
  • How is depreciation calculated?
  • What is the best way to sell the property for tax purposes? Do I qualify for a Section 1031 Exchange?
  • Am I involved in a passive real estate activity?
  • Do I have to pay tax on security deposits?

Contact us for help answering these and other tax questions related to rental real estate. We can’t help you deal with barking dogs and late-night complaints from tenants, but we can help ensure you get all the tax breaks you deserve.

Yeo & Yeo CPAs & Business Consultants is pleased to announce that Zaher Basha, CPA, CM&AA, has received the Certified Merger & Acquisition Advisor (CM&AA) credential.

The CM&AA credential is issued by the Alliance of Merger & Acquisition Advisors and demonstrates excellence in middle-market corporate finance, tax, advisory, growth strategies, and transaction services. Basha’s expertise will benefit the firm’s clients through all aspects of the merger and acquisition process, from due diligence and financial modeling to business valuation, negotiations and transaction closing.

Basha is a manager in the Auburn Hills office. His areas of expertise include tax planning and preparation, business advisory services, business valuation, and mergers and acquisitions, with an emphasis on the healthcare industry. He is a member of the firm’s Healthcare Services Group and the Business Valuation and Litigation Support Services Group.

Basha is a member of the Michigan Association of Certified Public Accountants’ Healthcare Task Force, the Auburn Hills Chamber of Commerce and the Troy Chamber of Commerce. In the community, he serves as treasurer of the Foundation for Justice & Development and the Syrian American Rescue Network. He also volunteers for Women for Humanity and The Syria Institute and participates in Making Strides Against Cancer walks annually.

In December, Basha was honored with Yeo & Yeo’s prestigious Spirit of Yeo award, recognizing an individual within the firm who exemplifies the attributes of the organization’s mission and core values.

Take a moment and think about all of the security features that are used to keep your organization’s network safe. Passwords and firewalls help keep the bad guys away from your vital information. But all of these security measures don’t mean a thing if someone clicks on a malware link inside an email.

As phishing attacks have grown, so too has the emphasis on Cybersecurity. One tool that many organizations have begun to deploy is security awareness training as a way to educate employees. Having knowledge of malware and phishing is as important as having proper antivirus and firewall protection.

How does security awareness training work?

A security awareness training provider will begin the training process with an email exposure check that shows which email addresses within an organization’s domain are being exposed to spear-phishing attacks on the Internet. This service looks deep into websites, Word, Excel and PDF files that are on the Internet. By performing these tests, business owners and managers can see which employees are the most susceptible to phishing emails. Training modules soon follow to teach employees what to look for.

Statistics show that it works

Security awareness training helps turn your employees into your organization’s first firewall. Through training, employees become the best defense you can have. We aggregated the numbers and the overall Phish-prone percentage dropped from an average of 15.9 percent to an amazing 1.2 percent in just 12 months. The combination of web-based training and frequently simulated phishing attacks really works.

The focus on Cybersecurity has increased in importance because the occurrences of malware and phishing are now a global epidemic. According to Symantec, $2.3 billion is spent globally on ransomware prevention and recovery. In 2015 alone, 430 million new unique pieces of malware were discovered and over 80 million records were exposed. All industries are vulnerable as hackers continue to expand their target industries and areas.

It’s important to remember that everyone is a target of phishing attacks. These attacks happen every day, but the good news is they can be prevented. Proper training is great a great way to prevent attacks, but equally important is having a proper backup and disaster recovery plan in place. Nothing is bullet-proof in IT, but being prepared for any circumstance can help save money and downtime in the event of a disaster.

For more information about security awareness training for your organization, contact your Yeo & Yeo advisor or Jeff McCulloch, President of Yeo & Yeo Technology, jefmcc@yeoandyeo.com or 800.607.1446.

Southwestern Michigan School Business Officials Mid-Winter Conference

Do you conduct your business as a sole proprietorship or as a wholly owned limited liability company (LLC)? If so, you’re subject to both income tax and self-employment tax. There may be a way to reduce tax by using an S corporation.

Self-employment tax basics

The self-employment tax is imposed on 92.35% of self-employment income at a 12.4% rate for Social Security up to a certain maximum ($137,700 for 2020) and at a 2.9% rate for Medicare. No maximum tax limit applies to the Medicare tax. An additional 0.9% Medicare tax is imposed on income exceeding $250,000 for married couples ($125,000 for married persons filing separately) and $200,000 in all other cases.

Similarly, if you conduct your business as a partnership in which you’re a general partner, in addition to income tax you are subject to the self-employment tax on your distributive share of the partnership’s income. On the other hand, if you conduct your business as an S corporation, you’ll be subject to income tax, but not self-employment tax, on your share of the S corporation’s income.

An S corporation isn’t subject to tax at the corporate level. Instead, the corporation’s items of income, gain, loss and deduction are passed through to the shareholders. However, the income passed through to the shareholder isn’t treated as self-employment income. Thus, by using an S corporation, you may be able to avoid self-employment income tax.

Salary must be reasonable

However, be aware that the IRS requires that the S corporation pay you reasonable compensation for your services to the business. The compensation is treated as wages subject to employment tax (split evenly between the corporation and the employee), which is equivalent to the self-employment tax. If the S corporation doesn’t pay you reasonable compensation for your services, the IRS may treat a portion of the S corporation’s distributions to you as wages and impose Social Security taxes on the amount it considers wages.

There’s no simple formula regarding what is considered reasonable compensation. Presumably, reasonable compensation is the amount that unrelated employers would pay for comparable services under similar circumstances. There are many factors that should be taken into account in making this determination.

Converting from a C to an S corp

There can be complications if you convert a C corporation to an S corporation. A “built-in gains tax” may apply when appreciated assets held by the C corporation at the time of the conversion are subsequently disposed of. However, there may be ways to minimize its impact.

As explained above, an S corporation isn’t normally subject to tax, but when a C corporation converts to S corporation status, the tax law imposes a tax at the highest corporate rate (21%) on the net built-in gains of the corporation. The idea is to prevent the use of an S election to escape tax at the corporate level on the appreciation that occurred while the corporation was a C corporation. This tax is imposed when the built-in gains are recognized (in other words, when the appreciated assets are sold or otherwise disposed of) during the five-year period after the S election takes effect (referred to as the “recognition period”).

Consider all issues

Contact us if you’d like to discuss the factors involved in conducting your business as an S corporation, including the built-in gains tax and how much the business should pay you as compensation.

© 2020

Married couples often wonder whether they should file joint or separate tax returns. The answer depends on your individual tax situation.

It generally depends on which filing status results in the lowest tax. But keep in mind that, if you and your spouse file a joint return, each of you is “jointly and severally” liable for the tax on your combined income. And you’re both equally liable for any additional tax the IRS assesses, plus interest and most penalties. This means that the IRS can come after either of you to collect the full amount.

Although there are provisions in the law that offer relief, they have limitations. Therefore, even if a joint return results in less tax, you may want to file separately if you want to only be responsible for your own tax.

In most cases, filing jointly offers the most tax savings, especially when the spouses have different income levels. Combining two incomes can bring some of it out of a higher tax bracket. For example, if one spouse has $75,000 of taxable income and the other has just $15,000, filing jointly instead of separately can save $2,512.50 for 2020.

Filing separately doesn’t mean you go back to using the “single” rates that applied before you were married. Instead, each spouse must use “married filing separately” rates. They’re less favorable than the single rates.

However, there are cases when people save tax by filing separately. For example:

One spouse has significant medical expenses. For 2019 and 2020, medical expenses are deductible only to the extent they exceed 7.5% of adjusted gross income (AGI). If a medical expense deduction is claimed on a spouse’s separate return, that spouse’s lower separate AGI, as compared to the higher joint AGI, can result in larger total deductions.

Some tax breaks are only available on a joint return. The child and dependent care credit, adoption expense credit, American Opportunity tax credit and Lifetime Learning credit are only available to married couples on joint returns. And you can’t take the credit for the elderly or the disabled if you file separately unless you and your spouse lived apart for the entire year. You also may not be able to deduct IRA contributions if you or your spouse were covered by an employer retirement plan and you file separate returns. You also can’t exclude adoption assistance payments or interest income from series EE or Series I savings bonds used for higher education expenses.

Social Security benefits may be taxed more. Benefits are tax-free if your “provisional income” (AGI with certain modifications plus half of your Social Security benefits) doesn’t exceed a “base amount.” The base amount is $32,000 on a joint return but zero on separate return (or $25,000 if the spouses didn’t live together for the whole year).

No hard and fast rules

The decision you make on your federal tax return may affect your state or local income tax bill, so the total tax impact should be compared. There’s often no simple answer to whether a couple should file separate returns. A number of factors must be examined. We can look at your tax bill jointly and separately. Contact us to prepare your return or if you have any questions.

© 2020

Yeo & Yeo CPAs & Business Consultants is proud to announce the promotion of two associates effective January 1, 2020.

Ashley Rabie, CPA, Ann Arbor, was promoted to Manager and transferred to the firm’s Ann Arbor office. She specializes in business consulting services with an emphasis on the healthcare and retail sectors. Rabie joined the firm in 2014 and provides financial statement compilation services, business tax planning and preparation, and accounting system advisory services. She is a QuickBooks Certified ProAdvisor and a member of the firm’s Healthcare Services Group and the Client Accounting Software Team. She holds a Bachelor of Business Administration, majoring in accounting, from Saginaw Valley State University

In the community, Rabie is a member and former treasurer of Women in Leadership – Great Lakes Bay Region. She looks forward to becoming more involved in her new community in Ann Arbor.

Chelsea Meyer, CPA, Kalamazoo, was promoted to Manager. She specializes in tax planning and preparation for individuals, businesses, trusts and estates. She also provides compilations of financial statements and financial reviews for businesses, with an emphasis on the death care industry. Meyer is a QuickBooks Certified ProAdvisor and a member of the firm’s Client Accounting Software Team, assisting clients with improving efficiency in their accounting systems.

Meyer has been with Yeo & Yeo since 2013. She holds a Bachelor of Business Administration in accounting and a Master of Science in Accounting from Grand Valley State University.

Revenue and receipts are an important cycle in any nonprofit organization’s day-to-day business. This is how the nonprofit receives the funds it needs, whether in the form of contributions or exchange revenue, to continue to fulfill its programs and mission. Yet, does your nonprofit have effective internal controls in place for processing revenue and receipts? In this Nonprofit Quick Tip, let’s look at internal controls for receipts.

A nonprofit’s biggest nightmare is becoming a top story in the news for fraud or inappropriate use of funds. Incoming funds are one of the areas most susceptible to fraud and errors. A strong internal control environment can help deter fraud and errors and keep revenue coming in uninterrupted.

So how do you protect your organization when it comes to receipts? Like any internal control matters, you must think about how someone could steal or make an error in the process. Then, you implement controls to help strengthen those identified weaknesses.

All nonprofit organizations should implement a few simple controls regarding receipts.

• Someone who is not performing the general ledger accounting should open the mail and make a receipts listing. Also, it’s a good practice to stamp any incoming checks immediately as “for deposit only.”
• The individual collecting the receipts should not be the person depositing them. This segregation helps ensure that all receipts coming in make it to the bank.
• The receipt listings created when opening the mail should be compared to the general ledger and deposit slips to ensure everything was deposited and recorded.
• Receipts on hand should be kept in a secured location, such as a safe, to which a limited number of people have access.
• Making deposits timely is also a good practice.

Read more in-depth internal controls recommendations in our blog article, Internal Controls: Segregation of Duties in Small Nonprofits. If you have questions about your internal controls or are interested in Yeo & Yeo’s YeoConsults Internal Controls services for your organization, contact us.