New Rules Will Soon Require Employers to Annually Disclose Retirement Income to Employees

As you’ve probably heard, a new law was recently passed with a wide range of retirement plan changes for employers and individuals. One of the provisions of the SECURE Act involves a new requirement for employers that sponsor tax-favored defined contribution retirement plans that are subject to ERISA.

Specifically, the law will require that the benefit statements sent to plan participants include a lifetime income disclosure at least once during any 12-month period. The disclosure will need to illustrate the monthly payments that an employee would receive if the total account balance were used to provide lifetime income streams, including a single life annuity and a qualified joint and survivor annuity for the participant and the participant’s surviving spouse.

Background information

Under ERISA, a defined contribution plan administrator is required to provide benefit statements to participants. Depending on the situation, these statements must be provided quarterly, annually or upon written request. In 2013, the U.S. Department of Labor (DOL) issued an advance notice of proposed rulemaking providing rules that would have required benefit statements provided to defined contribution plan participants to include an estimated lifetime income stream of payments based on the participant’s account balance.

Some employers began providing this information in these statements — even though it wasn’t required.

But in the near future, employers will have to begin providing information to their employees about lifetime income streams.

Effective date

Fortunately, the effective date of the requirement has been delayed until after the DOL issues guidance. It won’t go into effect until 12 months after the DOL issues a final rule. The law also directs the DOL to develop a model disclosure.

Plan fiduciaries, plan sponsors, or others won’t have liability under ERISA solely because they provided the lifetime income stream equivalents, so long as the equivalents are derived in accordance with the assumptions and guidance and that they include the explanations contained in the model disclosure.

Stay tuned

Critics of the new rules argue the required disclosures will lead to confusion among participants and they question how employers will arrive at the income projections. For now, employers have to wait for the DOL to act. We’ll update you when that happens. Contact us if you have questions about this requirement or other provisions in the SECURE Act.

© 2019

The Michigan State Housing Development Authority (MSHDA) and the U.S. Department of Agriculture’s Office of Rural Development (RD) released the allowable multifamily property management fees for 2020.

MSHDA

The maximum fees allowed by MSHDA for the 2020 calendar year are as follows:

• Management fee per unit – $534
• Premium management fee per unit – $82
• This is slightly more than a one percent increase from the 2019 maximum fees of $527 for the management fee per unit and $81 for the premium management fee per unit.

See MSHDA’s 2020 Annual Budget Guide Policy

Rural Development

RD management fees vary from state to state based on the increase of HUD’s Operating Cost Adjustment Factor.

The fees in effect for 2020 can be found in the attachments to HB 3560-2, Chapter 3.

Highlights for Michigan include an approximate four percent increase from the 2019 fee of $52 to $54 per occupied unit per month beginning in 2020.

HUD

Multifamily projects subject to the U.S. Department of Housing and Urban Development (HUD) should review the guidelines in The Management Agent Handbook for requirements in determining allowable fee amounts to be paid with project funds.

HUD management fees are typically calculated using a fee per unit, per month calculation that is converted to a percent of the total rental income of a property. Management fee agreements may be open-ended or define a set period, such as three years.

For more information, please contact your Yeo & Yeo advisor. 

Yeo & Yeo CPAs & Business Consultants has been named to Forbes’ Top Recommended Tax and Accounting Firms for 2020. Yeo & Yeo was listed as one of 112 firms nationwide recommended for tax services.

“Being named as a top tax firm in the country is a tremendous honor,” said David Jewell, Principal and leader of the firm’s Tax Service Line. “We are thankful for the trust that our clients have put in our tax professionals, and for the long-term relationships that we have with so many of them. We also thank our staff for their commitment and dedication to our clients and the firm, which has built our reputation.”

To create the list of America’s Top Recommended Tax and Accounting Firms, Forbes partnered with the market research company Statista to consider 1,800 survey responses from CPAs, enrolled agents, tax lawyers, accountants, and CFOs. Survey participants who worked for a tax or accounting firm could name a maximum of ten firms for both tax and accounting that they would recommend if their company were not able to take on a client. Also, survey participants who worked in a company on the client side were asked to name up to ten firms each in tax and accounting that they would recommend based on their professional experience over three years. The survey identified 227 firms, from the largest in the country to some of the smallest.

According to Statista, they’re all tackling the complexities of the ever-changing tax laws, such as the Tax Cuts and Jobs Act (TCJA), head-on. Yeo & Yeo offers several resources regarding the TCJA that can help families and businesses understand the sweeping changes.

See the complete list of Forbes’ Top Recommended Tax and Accounting Firms for 2020.

The Further Consolidated Appropriations Act, 2020 was signed into law on December 20, 2019. This law retroactively removed the transportation fringe benefits tax for nonprofit organizations. Specifically, it struck out the wording that required transportation fringe benefit expenses (parking and transit passes) to be included in the unrelated business income definition.

Going forward, this means the only time a nonprofit needs to be concerned about calculating the amount of nondeductible transportation fringe benefit expenses is when the nonprofit already has another unrelated business. The transportation fringe benefit expenses are nondeductible for that unrelated business. In other words, they cannot be considered expenses on the 990-T. “Taxable expenses” will no longer be included on the 990-T.

This bill is retroactive. This means all the taxable transportation fringe benefits reported on the fiscal year 2017 or 2018 Form 990-T can be refunded to the nonprofit. Currently, the refund may be requested by filing an amended 990-T return. Even if no tax was paid, due to using a net operating loss carryforward, it may be beneficial to amend the 990-T return to get the net operating loss carryforward back to its original, larger amount. For organizations that paid interest and penalties for late payment on a notice, rather than on the return, it is not clear how those amounts will be refunded via an amended 990-T return.

We will keep you updated if the IRS provides any additional guidance on obtaining refunds for transportation fringe benefits or reclaiming net operating loss carryforwards that were used against transportation fringe benefits. If you would like Yeo & Yeo to prepare your amended 990-T return, please contact your Yeo & Yeo professional. Preparation of an amended 990-T would be a separate and distinct engagement with a separate engagement letter and fee.

If you save for retirement with an IRA or other plan, you’ll be interested to know that Congress recently passed a law that makes significant modifications to these accounts. The SECURE Act, which was signed into law on December 20, 2019, made these 4 new law changes that may affect your retirement plan.

Change #1: The maximum age for making traditional IRA contributions is repealed. Before 2020, traditional IRA contributions weren’t allowed once you reached age 70½. Starting in 2020, an individual of any age can make contributions to a traditional IRA, as long he or she has compensation, which generally means earned income from wages or self-employment.

Change #2: The required minimum distribution (RMD) age was raised from 70½ to 72. Before 2020, retirement plan participants and IRA owners were generally required to begin taking RMDs from their plans by April 1 of the year following the year they reached age 70½. The age 70½ requirement was first applied in the early 1960s and, until recently, hadn’t been adjusted to account for increased life expectancies.

For distributions required to be made after December 31, 2019, for individuals who attain age 70½ after that date, the age at which individuals must begin taking distributions from their retirement plans or IRAs is increased from 70½ to 72.

Change #3: “Stretch IRAs” were partially eliminated. If a plan participant or IRA owner died before 2020, their beneficiaries (spouses and non-spouses) were generally allowed to stretch out the tax-deferral advantages of the plan or IRA by taking distributions over the beneficiary’s life or life expectancy. This is sometimes called a “stretch IRA.”

However, for deaths of plan participants or IRA owners beginning in 2020 (later for some participants in collectively bargained plans and governmental plans), distributions to most non-spouse beneficiaries are generally required to be distributed within 10 years following a plan participant’s or IRA owner’s death. That means the “stretch” strategy is no longer allowed for those beneficiaries.

There are some exceptions to the 10-year rule. For example, it’s still allowed for: the surviving spouse of a plan participant or IRA owner; a child of a plan participant or IRA owner who hasn’t reached the age of majority; a chronically ill individual; and any other individual who isn’t more than 10 years younger than a plan participant or IRA owner. Those beneficiaries who qualify under this exception may generally still take their distributions over their life expectancies.

Change #4: Penalty-free withdrawals are now allowed for birth or adoption expenses. A distribution from a retirement plan must generally be included in income. And, unless an exception applies, a distribution before the age of 59½ is subject to a 10% early withdrawal penalty on the amount includible in income.

Starting in 2020, plan distributions (up to $5,000) that are used to pay for expenses related to the birth or adoption of a child are penalty-free. The $5,000 amount applies on an individual basis. Therefore, each spouse in a married couple may receive a penalty-free distribution up to $5,000 for a qualified birth or adoption.

Questions?

These are only some of the changes included in the new law. If you have questions about your situation, don’t hesitate to contact us.

© 2020

A significant law, the SECURE Act, was recently passed that adds tax breaks and makes changes to employer-provided retirement plans. If your small business has a current plan for employees or if you’re thinking about adding one, you should familiarize yourself with the new rules.

The SECURE Act was signed into law on December 20, 2019 as part of a larger spending bill. Here are three provisions of interest to small businesses.

1. Employers that are unrelated will be able to join together to create one retirement plan. Beginning in 2021, new rules will make it easier to create and maintain a multiple employer plan (MEP). A MEP is a single plan operated by two or more unrelated employers. But there were barriers that made it difficult to setting up and running these plans. Soon, there will be increased opportunities for small employers to join together to receive better investment results, while allowing for less expensive and more efficient management services.
2. There’s an increased tax credit for small employer retirement plan startup costs. If you want to set up a retirement plan, but haven’t gotten around to it yet, new rules increase the tax credit for retirement plan start-up costs to make it more affordable for small businesses to set them up. Starting in 2020, the credit is increased by changing the calculation of the flat dollar amount limit to: The greater of $500, or the lesser of: a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan, or b) $5,000.
3. There’s a new small employer automatic plan enrollment tax credit. Not surprisingly, when employers automatically enroll employees in retirement plans, there is more participation and higher retirement savings. Beginning in 2020, there’s a new tax credit of up to $500 per year to employers to defray start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. This credit is on top of an existing plan start-up credit described above and is available for three years. It is also available to employers who convert an existing plan to a plan with automatic enrollment.

These are only some of the retirement plan provisions in the SECURE Act. There have also been changes to the auto enrollment safe harbor cap, nondiscrimination rules, new rules that allow certain part-timers to participate in 401(k) plans, increased penalties for failing to file retirement plan returns and more. Contact us to learn more about your situation.

© 2019

David R. Youngstrom, CPA, and Michael A. Georges, CPA, have been reelected to Yeo & Yeo’s board of directors effective January 1, 2020, announced Thomas E. Hollerback, president & CEO. They will each serve a two-year term.

David R. Youngstrom, CPA, principal, is the firm’s Assurance Service Line leader. He is responsible for all audits performed throughout Michigan and provides audit services for school districts, government entities, and for-profit businesses. He is a frequent presenter on audit topics at statewide conferences and also provides various consulting services. He is a member of the firm’s Government Services Group, the Education Services Group, and the Quality Assurance Committee. He has 24 years of public accounting experience.

In the community, Youngstrom serves on the Executive Committee of the Saginaw Valley State University Alumni Association, has served on the Freeland Community School District Board of Education for more than 10 years, and is past chairman of the United Way of Saginaw County. He is based in the firm’s Saginaw office.

Michael A. Georges, CPA, principal in the Ann Arbor office, joined Yeo & Yeo in 2014 and has 40 years of public accounting experience. He is a member of the firm’s Nonprofit Services Group. His areas of expertise include audit services for nonprofit organizations, government entities and school districts, as well as tax planning and preparation for individuals, small and medium-size businesses, and nonprofit organizations. He is a member of Michigan School Business Officials and the Southern Wayne County Chamber of Commerce.

In the community, Georges serves as a board member for the Grosse Ile Education Foundation, and the Child’s Hope Child Abuse Prevention Council of Out-Wayne County.

The Tax Cuts and Jobs Act created a new program to encourage investment in economically distressed areas through generous tax incentives. The Qualified Opportunity Zone (QOZ) program relies on investments in Qualified Opportunity Funds (QOFs) — funds that can provide wealthy taxpayers with some new avenues for estate planning.

3 big tax benefits

Investors in QOFs stand to reap three significant tax breaks:

1. They can defer capital gains on the disposition of appreciated property by reinvesting the gains in a QOF within 180 days of disposition. The tax is deferred until the QOF investment is sold or Dec. 31, 2026, whichever is earlier.
2. Depending on how long they hold their QOF investment, they can eliminate 10% to 15% of the tax.
3. After 10 years, post-acquisition appreciation on the investment is tax-exempt.

By incorporating QOFs in your estate planning, you can reduce both capital gains and transfer tax liabilities.

Estate planning implications

Proposed regulations make clear that a QOF investor’s death isn’t an “inclusion event” that would trigger tax on the deferred gains. In addition, most of the activities involved in administering an estate or trust (for example, transferring the interest to the estate or distributing the interest) won’t trigger the gain. But the sale of the QOF interest by the estate, the trust or a beneficiary would. Gifts of QOF interests also are generally considered inclusion events that make the deferred gains immediately taxable.

You could avoid this, though, by gifting your interest to a grantor trust. Both revocable living trusts and irrevocable grantor trusts qualify. However, transfers to the latter are completed gifts and therefore produce greater potential tax savings in situations where the income and gains of the trust are taxed to the grantor, in turn reducing the grantor’s estate by the amount of income taxes paid. (Note, though, that the termination of grantor trust status for reasons other than the grantor’s death is treated as an inclusion event.)

For example, you could transfer a highly appreciated asset to an irrevocable trust with no gift tax under the federal gift and estate tax exemption ($11.40 million for 2019 and $11.58 million for 2020). The trust could sell the asset and defer the gains into a QOF investment.

Another option for transferring QOF interests is the grantor retained annuity trust (GRAT), which allows you to make a gift to a trust and receive an annuity interest roughly equal to the fair market value of the gift. Any appreciation beyond the amount required to pay the annuity also passes to the beneficiaries without gift tax.

Contact us for additional information.

© 2019

As part of a year-end budget bill, Congress just passed a package of tax provisions that will provide savings for some taxpayers. The White House has announced that President Trump will sign the Further Consolidated Appropriations Act of 2020 into law. It also includes a retirement-related law titled the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

Here’s a rundown of some provisions in the two laws.

The age limit for making IRA contributions and taking withdrawals is going up. Currently, an individual can’t make regular contributions to a traditional IRA in the year he or she reaches age 70½ and older. (However, contributions to a Roth IRA and rollover contributions to a Roth or traditional IRA can be made regardless of age.)

Under the new rules, the age limit for IRA contributions is raised from age 70½ to 72.

The IRA contribution limit for 2020 is $6,000, or $7,000 if you’re age 50 or older (the same as 2019 limit).

In addition to the contribution age going up, the age to take required minimum distributions (RMDs) is going up from 70½ to 72.

It will be easier for some taxpayers to get a medical expense deduction. For 2019, under the Tax Cuts and Jobs Act (TCJA), you could deduct only the part of your medical and dental expenses that is more than 10% of your adjusted gross income (AGI). This floor makes it difficult to claim a write-off unless you have very high medical bills or a low income (or both). In tax years 2017 and 2018, this “floor” for claiming a deduction was 7.5%. Under the new law, the lower 7.5% floor returns through 2020.

If you’re paying college tuition, you may (once again) get a valuable tax break. Before the TCJA, the qualified tuition and related expenses deduction allowed taxpayers to claim a deduction for qualified education expenses without having to itemize their deductions. The TCJA eliminated the deduction for 2019 but now it returns through 2020. The deduction is capped at $4,000 for an individual whose AGI doesn’t exceed $65,000 or $2,000 for a taxpayer whose AGI doesn’t exceed $80,000. (There are other education tax breaks, which weren’t touched by the new law, that may be more valuable for you, depending on your situation.)

Some people will be able to save more for retirement. The retirement bill includes an expansion of the automatic contribution to savings plans to 15% of employee pay and allows some part-time employees to participate in 401(k) plans.

Also included in the retirement package are provisions aimed at Gold Star families, eliminating an unintended tax on children and spouses of deceased military family members.

Stay tuned

These are only some of the provisions in the new laws. We’ll be writing more about them in the near future. In the meantime, contact us with any questions.

© 2019

President Trump signed the SECURE Act on December 20, 2019, as part of the federal government’s spending bill, and it will affect most retirement savers, as well as employers who offer retirement plans to their employees.

The SECURE Act legislation — which stands for “Setting Every Community Up for Retirement Enhancement” — puts into place numerous provisions intended to strengthen retirement security across the country. The Act includes a significant number of changes for both individuals with qualified retirement accounts, as well as employers who currently offer retirement plans to their employees.

Key provisions of the SECURE Act include:

• Stretch IRAs eliminated – all funds from an inherited IRA generally must now be distributed to non-spouse beneficiaries within ten years of the owner’s death, with some exceptions for specified circumstances. Beneficiaries may no longer stretch inherited IRAs out over their expected lifetime.
• Allows penalty-free withdrawals from qualified plans for the birth or adoption of a child.
• Required minimum distributions (RMDs) must now begin at age 72, not at 70½.
• No age restrictions on IRA contributions for taxpayers who continue to work into their 70s and have earned income.
• 401(k) eligibility for part-time employees who have worked at least 500 hours per year for at least three consecutive years and have attained age 21 by the end of the three years.
• Allows expansion of access to multi-employer plans, allowing unrelated businesses to provide defined contribution plans at lower costs.
• Section 529 plan distributions may now be used for costs associated with registered apprenticeships, and up to $10,000 of qualified student loan repayments (principal or interest).

Contact your Yeo & Yeo professional with questions about how these changes may impact your personal retirement and your business.

New Budget Bill Extends Many Expiring Tax Provisions

Congress passed the Taxpayer Certainty and Disaster Relief Act of 2019 as part of the Further Consolidated Appropriations Act on December 19, 2019, and on December 20, President Trump signed the bill into law.

The Act contains disaster relief provisions, repeals some of the tax provisions of the Affordable Care Act, and increases funding for the Internal Revenue Service. The Disaster Relief Act extends more than 30 expired tax provisions through 2020.

Key provisions extended through 2020 include:

• Mortgage debt forgiveness on a principal residence in certain situations
• The ability to deduct mortgage insurance premiums as an itemized deduction
• Medical deduction for qualified expenses exceeding 7.5% of adjusted gross income (versus 10%)
• Tuition and fees deduction as an “above-the-line” deduction
• Work Opportunity Tax Credit (WOTC) for employers hiring from certain targeted pools of employees
• Family and Medical Leave credit for employers meeting certain criteria and offering such benefits
• Plug-in vehicle credit for certain qualifying vehicles

Provisions that were not included in the Act:

• Reinstatement of unreimbursed employee expenses being deductible as an itemized deduction
• Increase in the $10,000 cap on state and local tax deductions allowed as itemized deductions

Contact your Yeo & Yeo tax professional with questions about how these changes may impact your specific tax situation.

Yeo & Yeo is pleased to provide 2020 Tax Planning Calendars and other helpful tax planning resources.

What are the due dates for next year’s tax filings? When are the various tax payments due?

• The 2020 Tax Calendar for Business and the 2020 Tax Calendar for Individuals and Trusts are valuable tools to help you plan for the deadlines.

What can you do now to save tax dollars?

• Yeo & Yeo’s 2019 Year-end Tax Planning Checklist of action items may help you or your business save tax dollars. Please review the checklist and contact us soon if you would like help with deciding which tax-saving moves to make.

For more extensive information, visit Yeo & Yeo’s Tax Guide Online. 

Yeo & Yeo honors employees for longevity, proudly recognizing 11 associates across the firm’s companies for milestone anniversaries at the firm’s annual holiday celebration held at Horizons Conference Center in Saginaw.

The following professionals were honored for 25 years of service.

Fred Miller, Vice President, Yeo & Yeo Technology, assists with the administration of YYTECH, works with clients as an Account Manager to support their technology goals, and works with the Business Applications team to implement solutions to meet clients’ business needs. He is a Boy Scout leader.

Rebecca Millsap, Managing Principal, Yeo & Yeo CPAs – Flint, leads the firm’s Estate & Trust Group and is a member of the Tax Services Group. Her areas of expertise include tax and business consulting, and assisting small businesses with financial reporting and strategic planning. Becky is the treasurer of the Rotary Club of Flint and serves on the Finance Council and Building Committee of Holy Family Catholic Church in Grand Blanc.

The following professional was honored for 20 years of service.

Traci Cook, CPC, CPMA^®, Billing and Coding Consultant and Account Manager, Yeo & Yeo Medical Billing & Consulting, performs billing and coding reviews for physicians’ offices and advises them on how to maximize their reimbursement. She also provides training for billing and coding staff. She oversees the billing process for several accounts.

The following professionals were honored for 15 years of service.

Matt Dubay, Senior Systems Engineer, Yeo & Yeo Technology, provides support for YYTECH’s external clients. He implements and troubleshoots computer server environments such as Microsoft and VMware.

Chloe Eggleston, Receptionist, Yeo & Yeo CPAs – Saginaw, is the Ambassador of First Impressions, responsible for welcoming clients and visitors, and maintaining security and telecommunications. For 17 years she has been an advisor and board member for Young Champions, an organization that encourages young people to serve others.

Gus Hendrickson, Account Executive, Yeo & Yeo Technology, consults with businesses to help them achieve their objectives through the use of technology. Gus is engaged with organizations that make a positive impact on kids such as the CAN Council, READ Association, United Way, youth sports and scouting.

Jacob Sopczynski, CPA, Principal, Yeo & Yeo CPAs – Flint, provides audits for governmental entities, school districts and nonprofit organizations, as well as strategic tax planning for businesses and individuals. He is a member of the firm’s Manufacturing Services Group. He also serves clients as a consultant and specialist in the application of data extraction techniques. He is treasurer of the International Academy of Flint.

Eric J. Sowatsky, CPA, CGMA, NSSA^®, Principal, Yeo & Yeo CPAs – Saginaw, Eric leads the firm’s Agribusiness Services Group and the Saginaw tax department. At Bethlehem Lutheran Church & School, he is treasurer, finance committee chairman and a member of the athletics committee, and he sings in the church’s Boar’s Head Christmas Festival.

The following professionals were honored for 10 years of service.

Michael Evrard, CPA, Senior Manager, Yeo & Yeo CPAs – Kalamazoo, primarily works on audit engagements for nonprofit organizations and school districts, in addition to serving on the firm’s Audit Services Group and the Nonprofit Services Group.

Dan Featherston, Sales Support Specialist, Yeo & Yeo Technology, works with multiple YYTECH Account Executives to prepare quotes, proposals and other documentation. He researches new devices, including servers and computers, to find the appropriate device for each client.

Jesse Marenger, CPA, Senior Manager, Yeo & Yeo CPAs – Saginaw, is the Retirement Plan Audit Services Group Leader, specializing in auditing 401(k), 403(b), employee stock ownership, defined benefit pension, and health & welfare plans.

Consider how many capital asset purchases your municipality makes each year. The capital assets purchased and disposed of include everything from water and sewer system lines to copiers used in daily operations. Many governmental entities face the challenge of properly accounting for these purchases and sales. It is imperative to track and report them to the finance department to ensure that the capital asset balances presented in the government entity’s annual financial report are accurate and represent the actual capital assets the entity has in its possession. There are a number of common capital asset reporting issues encountered by municipalities.

It may be difficult for the finance department to report the capital asset balances accurately. Two common hurdles that a governmental entity may encounter are:

1. The capital asset listing contains assets that the governmental entity no longer possesses.
2. The capital asset listing is missing key information required to physically identify the asset.

Each of these hurdles is addressed below in more detail, with recommendations for overcoming them.

Disposal of assets

Capital asset listings for governmental entities are typically very large and contain assets from many years ago that are likely still in use, such as buildings or land. However, it is common for a capital asset listing to contain assets that may have been disposed of long ago, which were unidentified. This is partially because many governmental entities focus heavily on the capital assets that are being purchased each year as they require approvals and additional documentation that flows directly through the finance department. Also, disposal of capital assets does not always result in the governmental entity receiving proceeds; therefore, individual departments may dispose of capital assets (due to obsolescence, malfunction, etc.) without notifying the finance department.

To help mitigate the risk that disposed capital assets will not be removed from the listing, capital asset policies should be in place that include capitalization thresholds for each major capital asset category as well as detailed capital asset purchase and disposal procedures. Further, strong communication of these policies by the finance department to all other departments of the governmental entity is key to ensure that they are aware of the requirements and are adequately tracking their purchases and disposals throughout the year and reporting this information to the finance department.

Asset identification

Since most capital asset listings for governmental entities were set up many years ago, governmental entities may be challenged to know which description corresponds to which asset. Typically, this happens because the description is too vague. For example, a governmental entity purchases a truck for public works and labels it on the capital asset listing as “Truck.” While this description states what the asset being added to the listing is, it does not contain any other specific information such as a model number, vehicle identification number (VIN), etc. The description should contain enough detailed information so that any person in the governmental entity could physically verify that the asset exists from the information contained in the listing.

A best practice that could be incorporated into a governmental entity’s capital asset policies would be to require a serial number for the asset (such as a VIN), the fiscal year it was added to the listing, or some additional piece of information that would assist in identification. Assigning each purchase a unique capital asset number and tagging the actual asset is also encouraged as it provides another layer of identification.

By establishing clear policies and procedures related to the purchase and disposition of capital assets and communicating them to individual departments, the governmental entity will have a more accurate capital asset listing. Individual departments should be encouraged to review their capital asset listings periodically to help identify items that need to be removed. For federally purchased assets, Uniform Guidance requirements should be considered in the policies and procedures to ensure compliance with all grant requirements.

A purchasing card (p-card) program can be a flexible and timesaving tool in the school district’s purchasing process. This specialized credit card allows authorized school district employees to purchase certain goods and services through any merchant that accepts such payments, including those purchases through the internet. The program can greatly streamline the purchasing process and possibly provide valuable rebates. It can reduce the administrative burden and costs related to check writing, provide faster payment to vendors, and reduce the paperwork typically associated with the traditional procurement process. To run an effective card purchasing program, the school district must establish appropriate policies and procedures from the onset.

Policy and Guidelines

The school district should create a board-approved policy outlining the basic governance of the p-card program. At a minimum, the policy should contain the following elements:

• Issuance procedures – Include who is responsible for the issuance and monitoring of the credit card(s) and the groups of employees who are eligible to receive a card. Also, document that an employee is to return the card upon the termination of employment. A cardholder agreement should be obtained upon issuance of a p-card to a district employee. The agreement should include the elements of the policy and guidelines noted below and establish that the card is to be used for school business expenditures only. This agreement must be signed by the employee and maintained throughout the program.
• Documentation – A detailed receipt of goods or services purchased, which includes an itemized list of costs, the date of purchase, and the purpose of the purchase must be provided for each transaction.
• Payment – Include who will be an appropriate approver of payment and how that payment will be made.
• Misuse and/or Unauthorized Use – Violations of the policy will include disciplinary action.

In addition to the above policy, the school district should establish more specific administrative guidelines related to the program. These guidelines should include the following:

• Transaction limits – Establish both the formal credit card limits, as well as internal purchase thresholds. These limits should be appropriate to their position and likely spending. These limits should be reviewed annually.
• Eligible goods and services – This will vary based on the needs and comfort of your school district. Typical allowable transactions include travel (conference registrations, hotels, transportation, meal expenses) and small supply purchases. Employees should be conscious of the school district’s tax-exempt status and provide the proper forms to the merchant to ensure no such tax is paid.
• Lack of documentation – Consequences should be established for lack of documentation. Typically, reimbursement from the employee must be made, or a payroll reduction will be enforced.
• Reconciliation – A standard reconciliation form should be established by the school district to ensure consistency among cardholders. Employees should be responsible for reconciling their account statements and providing appropriate documentation. Timelines should be established to ensure the timely payment of the balance.
  The school district must maintain appropriate controls, following their purchasing policy, to ensure the success of the p-card program. They should provide ongoing training for both cardholders and supervisor and the above guidelines should be modified as the needs of the program change.

Audit

Internal audits should be performed regularly, and employees must be held accountable for failure to follow the established guidelines. Audits should be strategic and include a closer look at transactions near limits (look for split transactions), with unusual vendors, or those that contain key words that could contain a prohibited purchase. Other things to watch for include, is the employee providing reconciliations on a timely basis? Were transactions properly approved? Are any purchases for personal gain?

Reporting Requirements

As part of the annual budget/transparency reporting, MCL 388.1618 of the State School Aid Act requires all public schools to provide the type, credit limit, authorized individual(s), and authorized dollar limit(s) of all credit cards maintained by the school district. This report should be updated within 30 days of any changes made to a district credit card. If you have no credit cards, you must provide a line stating such.
A purchasing card program provides numerous benefits. With the proper internal controls, the program can provide valuable time and cost savings for a school district.

A common question that arises when preparing an estate or trust return is, can capital gains be distributed to the beneficiary? Most often, the answer is no, capital gains remain in and are taxed at the trust level. In many cases, this is the correct answer. However, let’s consider three exceptions to this general rule.

For an income item to be eligible to be distributed to the beneficiary, it must be included as part of distributable net income (DNI). DNI acts as a ceiling for the amount a trust or estate can take as a distribution deduction and as a ceiling for the amount of income that the beneficiary is required to account for on their personal income tax return. So how exactly is DNI calculated? Per Section 643(a), the general formula for DNI is:

Taxable income
+ Distribution deduction
+ Personal exemption
+ Tax-exempt income
+ Capital losses
– Capital gains
– Dividends allocated to corpus
= Distributable net income

As stated above, capital gains are normally allocated to trust principal and, therefore, are taxed to the estate or trust. Trusts and estates, in general, can result in higher taxes on capital gains than if the same capital gains were taxed at the individual level. So, to help save tax dollars, following is more information about the three exceptions where capital gains can be included in DNI and distributed to the beneficiary.

Exceptions That Allow Capital Gains to Be Distributed

Reg. 1.643(a) – 3(b) has specific requirements that must be met to allocate capital gains to the beneficiaries.

Prerequisites that must be met
1) Trust agreement and local law; or
2) A reasonable and impartial exercise of discretion by the trustee

Three methods available to allocate capital gains

Method 1: Capital gains allocated to income. This method is limited unless the trust instrument or state law allocates capital gains to income, which is unlikely in most instances, or the fiduciary has broad discretion to allocate capital gains to income.

Method 2: Capital gains are allocated to corpus but treated consistently by the fiduciary on the trust’s books, records and tax returns. This method requires consistent practice in allocating capital gains to DNI. This method is most common when a trust is in its first year of existence, as no precedent has been set for how capital gains will be treated. If the fiduciary, in their discretion, allocates capital gains to DNI in the first year, this sets the precedent for treatment of capital gains in future years. If a trust has been in existence for several years and capital gains have never been allocated to DNI before, the fiduciary cannot start doing so now.

Method 3: Capital gains are allocated to corpus but are distributed to the beneficiary or utilized by the fiduciary in determining the amount to be distributed. This method does not require a consistent requirement and appears to be the most flexible.

This article provides only brief information as to when capital gains could be allocated to a trust or estate beneficiary. If you would like more information, please contact a Yeo & Yeo professional, and we will be happy to discuss your situation.

Don’t let the holiday rush keep you from taking some important steps to reduce tax liability reduce in 2019. You still have time to execute a few strategies, including:

Buying assets

Thinking about purchasing new or used heavy vehicles, heavy equipment, machinery or office equipment in the new year? Buy it and place it in service by December 31, and you can deduct 100% of the cost as bonus depreciation.

Although “qualified improvement property” (QIP) — generally, interior improvements to nonresidential real property — doesn’t qualify for bonus depreciation, it’s eligible for Sec. 179 immediate expensing. And QIP now includes roofs, HVAC, fire protection systems, alarm systems and security systems placed in service after the building was placed in service.

You can deduct as much as $1.02 million for QIP and other qualified assets placed in service before January 1, not to exceed your amount of taxable income from business activity. Once you place in service more than $2.55 million in qualifying property, the Sec. 179 deduction begins phasing out on a dollar-for-dollar basis. Additional limitations may apply.

Making the most of retirement plans

If you don’t already have a retirement plan, you still have time to establish a new plan, such as a SEP IRA, 401(k) or profit-sharing plans (the deadline for setting up a SIMPLE IRA to make contributions for 2019 tax purposes was October 1, unless your business started after that date). If your circumstances, such as your number of employees, have changed significantly, you also should consider starting a new plan before January 1.

Although retirement plans generally must be started before year-end, you usually can deduct any contributions you make for yourself and your employees until the due date of your tax return. You also might qualify for a tax credit to offset the costs of starting a plan.

Timing deductions and income

If your business operates on a cash basis, you can significantly affect your amount of taxable income by accelerating your deductions into 2019 and deferring income into 2020 (assuming you expect to be taxed at the same or a lower rate next year).

For example, you could put recurring expenses normally paid early in the year on your credit card before January 1 — that way, you can claim the deduction for 2019 even though you don’t pay the credit card bill until 2020. In certain circumstances, you also can prepay some expenses, such as rent or insurance and claim them in 2019.

As for income, wait until close to year-end to send out invoices to customers with reliable payment histories. Accrual-basis businesses can take a similar approach, holding off on the delivery of goods and services until next year.

Proceed with caution

Bear in mind that some of these tactics could adversely impact other factors affecting your tax liability, such as the qualified business income deduction. Contact us to make the most of your tax planning opportunities.

© 2019

January 29-30, 2020

1. A sample notice to send to your employees that announces the new form and encourages them to perform a “paycheck checkup.”
2. The 2020 Form W-4 — What is Your Situation? includes answers to frequently asked questions to help employees complete the form depending on their circumstances.
3. The 2020 Form W-4 with instructions. The 2020 withholding tables work with both the new form and prior-year forms.