Accelerate Your Retirement Savings with a Cash Balance Plan

Business owners may not be able to set aside as much as they’d like in tax-advantaged retirement plans. Typically, they’re older and more highly compensated than their employees, but restrictions on contributions to 401(k) and profit-sharing plans can hamper retirement-planning efforts. One solution may be a cash balance plan.

Defined benefit plan with a twist

The two most popular qualified retirement plans — 401(k) and profit-sharing plans — are defined contribution plans. These plans specify the amount that goes into an employee’s retirement account today, typically a percentage of compensation or a specific dollar amount.

In contrast, a cash balance plan is a defined benefit plan, which specifies the amount a participant will receive in retirement. But unlike traditional defined benefit plans, such as pensions, cash balance plans express those benefits in the form of a 401(k)-style account balance, rather than a formula tied to years of service and salary history.

The plan allocates annual “pay credits” and “interest credits” to hypothetical employee accounts. This allows participants to earn benefits more uniformly over their careers, and provides a clearer picture of benefits than a traditional pension plan.

Greater savings for owners

A cash balance plan offers significant advantages for business owners — particularly those who are behind on their retirement saving and whose employees are younger and lower-paid. In 2017, the IRS limits employer contributions and employee deferrals to defined contribution plans to $54,000 ($60,000 for employees age 50 or older). And nondiscrimination rules, which prevent a plan from unfairly favoring highly compensated employees (HCEs), can reduce an owner’s contributions even further.

But cash balance plans aren’t bound by these limits. Instead, as defined benefit plans, they’re subject to a cap on annual benefit payouts in retirement (currently, $215,000), and the nondiscrimination rules require that only benefits for HCEs and non-HCEs be comparable.

Contributions may be as high as necessary to fund those benefits. Therefore, a company may make sizable contributions on behalf of owner/employees approaching retirement (often as much as three or four times defined contribution limits), and relatively smaller contributions on behalf of younger, lower-paid employees.

There are some potential risks. The most notable one is that, unlike with profit-sharing plans, you can’t reduce or suspend contributions during difficult years. So, before implementing a cash balance plan, it’s critical to ensure that your company’s cash flow will be steady enough to meet its funding obligations.

Right for you?

Although cash balance plans can be more expensive than defined contribution plans, they’re a great way to turbocharge your retirement savings. We can help you decide whether one might be right for you.

Yeo & Yeo CPAs & Business Consultants is pleased to announce that Alan D. Panter, CPA, has joined the firm as audit principal based in the firm’s Auburn Hills office, and as a member of Yeo & Yeo’s Education Services Group and Government Services Group.

Most recently Panter was a principal at Abraham & Gaffney, P.C. Three staff accountants from Abraham & Gaffney who specialize in audit services also joined Yeo & Yeo’s Auburn Hills office.

“Alan brings a wealth of experience in serving the Audit & Assurance needs of government and education entities,” says David Youngstrom, Principal and Yeo & Yeo’s Assurance Service Line Leader. “With double-digit growth in governmental audits this past year and a growing client base, Alan and his team are a welcome addition to the Assurance Service Line.”

Panter has 28 years of experience working in Big 4 and corporate accounting, including five years’ experience in financial software for government entities. His areas of specialization include audit and consulting services for local government entities, education and nonprofit organizations. He also performs single audits and audits of employee benefit plans, with expertise in internal controls.

“I am excited about the depth of services that Yeo & Yeo provides and to be a part of this talented team. I look forward to extending additional resources to my existing client base, and contributing to the firm’s continued growth in southeast Michigan,” says Panter.

Panter is a member of the Michigan Government Finance Officers Association, Michigan School Business Officials, and Central Michigan School Business Officials.

Any Michigan farmers who grew corn, or had corn grown on their land between the years 2013 and 2016, may be affected by an important legal issue with a substantial financial impact.

In 2013, Syngenta, a Swiss agricultural business, advertised and sold a genetically modified corn seed, Agrisure Duracade, in the United States. At that time the seed had not been approved for use by China, one of the largest exporters of corn in the world.Shortly after that, China rejected all U.S. corn for a period of time due to the possibility of contamination with the unapproved seeds.In response to the change in market demand, corn prices dropped significantly in 2013 and 2014 and still have not fully recovered to this day, causing severe economic damage.

Since this occurrence negatively impacted the entire corn market as a whole, all corn growers who sold corn from 2013 to the present day are potentially entitled to be compensated for damages as part of a class action lawsuit, not just corn growers who used Agrisure Duracade.The potential recovery for damages ranges from 6.5 to 70 cents per bushel of corn produced from 2013 to present day.

This summer, a jury awarded nearly $218 million to Kansas corn producers in the first of eight Syngenta GMO corn class action lawsuits. The other certified state class action lawsuits involve Arkansas, Missouri, Illinois, Iowa, Nebraska, Ohio, and South Dakota corn producers. Numerous other state class action lawsuits in this matter are awaiting certification, including Michigan’s.
Michigan is one of the few states where the window to file an individual claim is still open – the cutoff date is October 15, 2017 .Once a class action is certified in Michigan, the time to make an individual claim ends.

If you or someone you know has been impacted by the significant drop in corn prices in recent years and would like to consider filing an individual lawsuit against Syngenta, please contact your local Yeo & Yeo office (link to office locations) and ask to speak with a member of Yeo & Yeo’s Agribusiness Services Group. We can help assess your situation and provide guidance on next steps.

Whether you are new to the construction industry or have been working in it for years, you have probably realized that understanding and getting the proper surety coverage can be overwhelming. Surety bonds are a risk mitigation insurance that helps insure those involved in a contract through all phases of the project, from the bidding process all the way through performance and final payment. With the many different types of surety bonds, it is important to identify the type of bond that is necessary for your phase of the project and to mitigate your company’s exposure and ensure you have a high level of coverage if some portion of the contract fails.

In order to be successful in anything, it is important to surround yourself with a strong team and to have the right people in the right place to set yourself up for success. This applies not only to your organization, but with professionals who help support your efforts and objectives (bonding agent, CPA, attorney, etc.). Your bonding agent is vital in keeping you informed of the different types of bonds, ensuring that your company is properly covered and that you are aware of your level of risk if a situation should surface.

While all of this may seem easy enough, your company’s bonding capacity and bonding rate is only as good as the surety’s analysis of your business. A surety is backing your company to follow through on your obligations and as a result they need to be comfortable with that decision. The surety is looking for long-term survival and stability of a company. Some factors used for analysis include analyzing the contractor’s experience, the organization’s management team and employee group and, most importantly, the company financials.

Financial stability plays a significant role in your bonding limitations. Numerous ratios and other metrics are used to analyze your financial data; however, the primary areas analyzed are the company’s equity, debt, and liquidity. Sureties focus on the strength of equity in comparison with levels of debt and the amount of backlog being carried. A contractor’s ability to operate their business without dependence on outside financing is ideal for a surety and results in the greatest level of support. Liquidity is vital in any business, but especially in the construction industry. Rarely in other industries are companies expected to front large sums of money for customers for 60 to 90 days and on top of that they hold back 10 percent retainage. However, this is the norm in the construction world. In order to operate under these circumstances, surety companies evaluate the company’s liquid assets and working capital. These amounts are compared to the remaining costs to complete their backlog projects in order to determine the company’s ability to meet their short-term needs.

Most sureties require financials statements to be audited, reviewed, or at the very least compiled by a CPA. Bonding rates and bonding capacity are directly related to the surety’s level of comfort with the company including the quality of their financial data. Accurate, detailed, and timely financial information is essential. Having up-to-date work in progress (WIP) and job costing allows a project manager the ability to correct problems in a timely manner and prevents projects from sliding. Accurate estimating and WIP analysis when compared to the final contract will build confidence and trust in your financial data. It is important to choose a CPA who understands the construction industry and the unique aspects of construction accounting in order to put the best foot forward with the surety company. With a good understanding of the surety’s perspective and the right team in place to support your organization, you can set your business up for long-term success.

If you have questions or need assistance with strategically positioning your company for bonding, please contact Yeo & Yeo’s Construction Services Group.

Internal controls fight technology-related fraud

The ability to accept and make online payments offers obvious benefits to municipalities that are under constant time and budgetary pressures. It may also be subject to fraud attempts that can dodge traditional internal controls. Fortunately, measures are available to combat these risks.

Making online disbursements

Many municipalities are now paying certain bills online, rather than mailing payments. Of course, the ability to make online payments essentially makes the employee who does so a check signer who can, in turn, make unauthorized payments. Similarly, the employee who oversees direct deposit payroll transactions may choose to pay “ghost” employees, give unauthorized raises or otherwise divert funds.

If your municipality makes these types of online disbursements, ensure that all payments are subject to an independent review by a different employee. The reviewer can check payments online or examine the bank statements for discrepancies. The reviewer should also study payroll reports that come directly from the payroll system (vs. coming from the employee who oversees payroll). The reviewer should be aware that those two employees might be working together to commit fraud. Your bank might offer verification services to confirm that payments are authorized before they clear.

Accepting payments

One of the most significant changes in municipalities’ revenue cycles in recent years has been the adoption of systems that allow online payments for services, taxes, and fees. These payments generally are deposited directly into the municipality’s bank account.

The risk is that the employee responsible for the online payment system could redirect the ultimate destination of payments. If the accounting department records income based on bank deposits, this fraud could go undetected. To close this control gap, make sure you take the added step of reconciling the bank deposits against online income from the receipt system.

Protecting privacy

Many municipalities possess their citizens’ credit card information and other personal data, making them potential targets for both internal and external hackers and fraud. Imagine the consequences if criminals were to access confidential data. It could be disastrous in terms of remedial costs, legal liability and reputational damage.

Perhaps the most effective privacy control is adherence to the Payment Card Industry (PCI) Data Security Standard (DSS). DSS applies to all entities that store, process or transmit credit cardholder data and outlines technical and operational system requirements to protect that data. Although DSS is not technically a law, several states have enacted legislation mandating compliance with some of its provisions.

The DSS requirements vary depending on the number and type of credit card transactions an organization conducts, both online and offline. It is a good idea, though, to take steps to comply with the strictest requirements, including:

Installing and maintaining a firewall to protect cardholder data,
Encrypting the transmission of cardholder data,
Restricting access to cardholder data with unique IDs and on the basis of “need to know,” and
Using and regularly updating antivirus software.

Although it is not a requirement, PCI also strongly recommends “segmenting” (or isolating) the cardholder data environment from the rest of the network. (To learn more, visit https://www.pcisecuritystandards.org.)

Required resolutions

As a general reminder, in Michigan, if a municipality accepts or makes online payments, such as payments through the automated clearing house or credit card transactions, certain written policies are required and must be adopted, by resolution, by the governing body.

Electronic transactions of public funds – if bills are paid electronically, the governing body must adopt a resolution in accordance with Public Act 738 of 2002; MCL 124.301 – 124.305.
Credit card purchases – if a municipality pays bills using a credit card, a separate resolution must be adopted by the governing body in accordance with Public Act 266 of 1995; MCL 129.241 – 129.247.
Credit card receipts – if a municipality accepts credit cards as a form of payment, a resolution must be adopted by the governing board in accordance with Public Act 280 of 1995; MCL 129.221 – 129.224.

The overall purpose of these laws and the resolutions created through them are to ensure municipalities establish solid internal control structures before allowing electronic transactions. This will help prevent, or detect and correct, fraud or errors.

Proceed with caution

There is no turning back from the technological advances municipalities are currently enjoying. The key is to remain vigilant against the evolving risk of fraud.

If your municipality does not have appropriate policies in place and you would like help establishing sound policies, contact your Yeo & Yeo professional.

Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

October 16

If a calendar-year C corporation that filed an automatic six-month extension:
- File a 2016 income tax return (Form 1120) and pay any tax, interest and penalties due.
- Make contributions for 2016 to certain employer-sponsored retirement plans.

October 31

Report income tax withholding and FICA taxes for third quarter 2017 (Form 941) and pay any tax due. (See exception below.)

November 13

Report income tax withholding and FICA taxes for third quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.

December 15

If a calendar-year C corporation, pay the fourth installment of 2017 estimated income taxes.

Equifax, one of the three major credit reporting companies, announced on September 7, 2017, a cybersecurity incident potentially impacting approximately 143 million U.S. consumers. Criminals exploited a U.S. website application vulnerability to gain access to certain files. Based on the company’s investigation, the unauthorized access occurred from mid-May through July 2017.

According to Equifax, “The information accessed primarily includes names, social security numbers, birth dates, addresses and, in some instances, driver’s license numbers. In addition, credit card numbers for approximately 209,000 U.S. consumers, and certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers, were accessed.”

Equifax has established a dedicated website, www.equifaxsecurity2017.com, to help consumers determine if their information has been potentially impacted. In addition to the website, Equifax will send direct mail notices to consumers whose credit card numbers or dispute documents with personal identifying information were impacted. If your information has been compromised, Equifax is providing free identity theft protection and credit file monitoring services. As with any contractual service, be sure to read all terms and conditions.

Please visit www.equifaxsecurity2017.com to learn more about the incident and determine if your information may have been affected.

Two associates within Yeo & Yeo Medical Billing & Consulting have received professional credentials.

Traci Cook completed the required training to become a Certified Professional Medical Auditor (CPMA^®) through the American Academy of Professional Coders. The knowledge required for this certification includes medical documentation, fraud, abuse, and penalties for documentation and coding violations based on governmental guidelines. Traci’s expertise will benefit the company’s healthcare clients as she performs medical record audits to decrease risk and improve compliance.

Traci is a billing and coding consultant and an account manager and has been with Yeo & Yeo Medical Billing & Consulting since 1999. She is a Certified Professional Coder with expertise in the coding of diagnoses, services, and procedures for physician practices, clinics and third-party payors. She is a member of the American Academy of Professional Coders and the Michigan Medical Billers Association.

Denise Garrett completed the required training to become a Certified Physician Practice Manager (CPPM®), through the American Academy of Professional Coders. The knowledge required for this certification includes revenue cycle management, human resources, health information and general business processes. Denise’s expertise will benefit the company’s medical practice clients as she focuses on their business needs including operational efficiencies, staff training, and technology.

Denise is an account manager and has been with Yeo & Yeo Medical Billing & Consulting since 1998. She is a Certified Professional Coder and a Certified Foot & Ankle Surgical Coder, with expertise in the coding of diagnoses, services, and procedures for physician practices.

Learn more about medical billing and practice management consulting services offered by Yeo & Yeo Medical Billing & Consulting.

A renaissance is occurring in the brewing industry — consumers’ tastes are shifting away from the products of the leading beer manufacturers and toward small craft brewers. The craft beers have distinct tastes and are quickly gaining a larger piece of the overall beer market. The industry is growing at such a rapid rate that many are considering jumping in on the action. The question is, then, what should someone looking to start a new operation consider before finishing their pint and making the next one themselves?

The four main ingredients in beer are grain, hops, yeast and water. Each of these is relatable to a functional part of accounting that is important if you ever decide to scale up and brew for the world or even your local watering hole.

Grain – Grain is combined with hot water and is transformed into a brew-ready malt. This combination causes the grain to create enzymes that transform proteins and starches into fermentable sugars for the yeast to feed on and create alcohol. Much like the transformation of the grain, your accounting transformation begins with numbers in your head, then eventually materializing in an advanced accounting software.

An accounting software will help you track your receivables, sales, expenses and whatever else you need to create your next batch. As the business grows, you can add on third party apps that help with the brewing process. These apps are synced with your accounting software to take your efficiency to the next level. This hands-off accounting process will leave you more time for quality control!

The options available for accounting software are endless, but the key is having one. Yeo & Yeo’s Computer Accounting Solutions Group regularly evaluates accounting software and third party apps to align the correct option to the needs of our clients and create custom reports. The process of selection and implementation is simple when you are working with a professional who understands your unique needs.

Hops – Hops are used primarily as a flavoring and stability agent in beer which can create bitter, zesty, or citric flavors. In addition, hops are a preservative and extend the life of beer. When it comes to accounting, an immediate need that affects your stability is knowing when to file the proper paperwork.

Tax planning today can impact the success of tomorrow. Part of tax planning is having a professional who knows which forms need to be filed and when. The professionals will also open your eyes to available tax credits and help minimize tax burdens over the life of the business.

Now when it comes to stability and filing paperwork on time, your tax returns for local, state, and federal governments are just the beginning for a brewery. You will encounter requested forms from banks and the liquor control commission. Working with an accountant who understands your needs and maintains a close working relationship with your attorneys and bankers will be key in keeping your business running smoothly.

Yeast – This feeds on the fermentable sugars mentioned above which creates alcohol and carbon dioxide. It creates the finishing touch and many brewers consider this their secret ingredient. Yeast has cell-splitting capabilities, but the $5 bill in my hand does not unless it is used to create $10 worth of beer. Make your investment multiply just like the yeast by creating a profitable operation and understanding items such as break-evens and cash flows.

Water – This component can account for up to 95% of beer’s content and affects the pH, seasoning from the sulfate to chloride ratio, and can cause off flavors from chlorine to contaminants. So what is the most important part of accounting for a new brewery? Actually doing all three of the previously mentioned items, of course. If you complete only one or some of these foundations for beer, your next batch probably won’t be a big hit since it will not be beer. The same goes for the accounting since without doing the items above, your business will not be a desired brew and likely be dumped down the drain.

You may be able to get by for a short period of time without doing these items, but sooner or later your hops will run out. So as you craft your next recipe that includes the four main ingredients of beer, make sure your plans for your new brewery include the four main ingredients of accounting so we can all enjoy your creations for years to come. And for the love of beer if you have accounting questions, or need help, call me so the rest of us are able to enjoy your next concoction!

It has come to our attention through state monitoring reviews, and from questions throughout the school nutrition industry, that school districts need to be aware of new standards when hiring nutrition program employees.

The Healthy, Hunger-Free Kids Act of 2010 established professional standards for state and local school nutrition programs personnel. The U.S. Department of Agriculture’s Final Rule, published on March 2, 2015, clarified the Act with an effective date of July 1, 2015.

The Final Rule includes hiring standards, training standards, and training requirements. The goal is to improve the quality of student meals, reduce waste and improve the overall integrity of child nutrition programs.

The Final Rule provides comprehensive guidance:

Annual continuing education/training standards for all school nutrition program employees, based on position
Training requirements for all state agency directors
Hiring standards for new school nutrition program directors, including minimum education standards broken down by school student enrollment and minimum prior training standards.
Hiring standards for new state directors, including education, knowledge and experience, and skills and abilities minimum criteria.

The complete details of the Final Rule are available at http://www.fns.usda.gov/school-meals/professional-standards.

Furthermore, if multiple schools are utilizing a single food service director, the Michigan Department of Education (MDE) released additional clarification guidance on how to calculate student enrollment size. See the MDE Food Service Administrative Policy No. 12 School Year 2016-2017.

If you have questions, contact your Yeo & Yeo professional.

Several months ago, the Michigan Department of Education (MDE) issued guidance in an administrative policy that requires districts to put a written Meal Charging Policy in place. With that, a Bad Debt Policy is also required. The guidance was the topic of many discussions, and parts of the guidance did not seem practical. Although it is still a bit confusing, MDE has now clarified many of the issues and made it more feasible.

Here are the highlights that are most helpful:

A written Meal Charging Policy is required to be in place at all districts effective 7/1/17.
The policy should include a Bad Debt Policy (unless done separately).
Bad Debt is an unallowable cost in the Food Service Fund (this has always been the case).
MDE clarified what “bad debt” is — bad debt is an uncollectible balance for inactive students only. Therefore, if the student still attends the district, they are active and would not have to be written off.
Any “bad debt” must be written off both on the Food Service Fund and the District’s POS system.
The Food Service Fund must be made whole for any bad debt. For example, the General Fund (or possibly an activity fund) would have to make a transfer to cover the bad debt.
Once an account has been determined to be bad debt, the district’s business office is responsible for trying to collect those balances, not the Food Service Department.
The uncollectible balances must be tracked and collected by the business office by December 31 (not June 30).

Here is a link to several pieces of guidance on the Michigan Department of Education’s website: MDE School Nutrition Program. Also, the USDA website has some helpful guidance as well, specifically in the area of unpaid meal charges: USDA – Schools Nutrition.

If you have questions, contact your Yeo & Yeo professional.

Occupational fraud is an unfortunate reality for just about every employer, governmental entity or otherwise. But you might be able to reduce the risk of costly losses if you understand some of the common traits of fraud perpetrators. The 2016 Report to the Nations on Occupational Fraud and Abuse from the Association of Certified fraud Examiners (ACFE) provides some useful insights on these characteristics.

How old are the perpetrators?

The ACFE found that 55% of the fraudsters in its study were between the ages of 31 and 45, and the size of the losses rose with the age of the perpetrator. It identified a “line of demarcation” around the age of 40: In all age ranges at or below that age, the highest median loss was $100,000, while the median loss in the ranges above age 40 was $250,000 or higher.

fraud losses also tend to increase the longer a fraudster has worked for the victim organization. Those with six to ten years’ tenure caused a median loss of $210,000, and those with more than ten years’ tenure caused a median loss of $250,000. People who remain with an organization for a long time often move up to higher levels of authority, the ACFE notes, and that gives them the opportunity to commit larger misdeeds.

Which gender are they?

Fraud obviously isn’t limited to one gender, but 69% of perpetrators in the ACFE study were male. This is consistent with gender distributions in previous studies.

Moreover, men generally cause larger losses. The median loss caused by a male perpetrator was $187,000, while the median loss caused by a female was $100,000. This disparity also is consistent with previous studies.

What about educational level?

Perpetrators with a college degree caused a median loss of $200,000, and those with postgraduate degrees rang up a median loss of $300,000. These losses were significantly higher than the losses caused by less educated fraudsters.

The ACFE theorizes that the discrepancy may be heavily influenced by the perpetrator’s department and position of authority. The perpetrators with degrees were more likely to be managers or owner-executives. Higher-level fraudsters are better positioned to override or circumvent anti-fraud measures, so their schemes are harder to detect, run longer and generate more losses.

What should you look for?

Perpetrators tend to exhibit some red flags that may indicate fraud. In the study, of the 17 traits identified, the most common warning signs were:

Living beyond their means,
Financial difficulties,
Unusually close association with a vendor or customer,
Excessive control issues,
A general “wheeler-dealer” attitude involving unscrupulous behavior, and
Recent divorce or family problems.

At least one of the six indicators listed above was displayed in 79% of the cases.

It’s important to remember that the behaviors described above are merely signs of fraud — they aren’t conclusive. Further investigation is required before you take any action, particularly with suspension or termination.

Stay alert

The ACFE estimates that organizations lose 5% of their annual revenues to occupational fraud. That’s a significant chunk of change for any organization, especially a budget-conscious governmental unit. If you suspect your governmental unit might have fallen prey to a fraud perpetrator, or just want to do everything you can to help combat it, your CPA can help.

Regardless of the size of your nonprofit organization, well-documented policies and procedures are an essential component to your continued success. Most nonprofit organizations are designed to carry on their missions beyond the tenure of their current directors, employees and trustees. With that in mind, a well-documented Policies and Procedures manual should serve as a roadmap to operating at your organization’s peak potential. Additionally, get the most mileage from your efforts by using the policies and procedures as a tool to:

Train new employees, and fill in the gaps after an employee’s unexpected departure
Define roles and responsibilities regarding your organization’s internal controls
Hold employees accountable to roles and responsibilities, including frequency of performing certain duties
Reduce the risk of fraud by ensuring adequate segregation of duties and oversight
Comply with documentation requirements set by government grantors, in particular, awards subject to the Uniform Grant Guidance
Improve efficiency in the organization and streamline processes
Document cost allocation methodologies

With so many possible uses, it is imperative not only to establish a Policies and Procedures manual, but also keep it up to date. A good rule of thumb to ensure it is up-to-date is to review existing policies and procedures at least annually, or more frequently during periods of operational change or employee turnover. Using calendar reminders or recurring board agenda items are a great way to integrate this into the organization’s routine. During these reviews, pay particular attention to the following:

Unnecessary redundancies in controls
Controls that have been replaced by automated processes
Adequate documentation regarding intended flow of information and responsibilities for documenting approval and oversight
Appropriate dollar thresholds (including those used for capitalizing fixed assets, use of dual check signers, level of authorization needed for purchases, approval of journal entries, setting employee credit card or P-card limits, board approval of grant contracts, and determining de-minimus gift acceptance thresholds, among others)

The effectiveness of a Policies and Procedures manual requires not only diligence in keeping it up-to-date, but acceptance by those responsible for ensuring its success, including both management and boards. Therefore, management should play a key role in developing, operating and monitoring the established manual, while the board or its designee should review the effectiveness of the policies, procedures and related internal controls. While a template Policies and Procedures manual will rarely capture all the policies and procedures applicable and necessary for each organization, this Policies and Procedures to Document table can serve as a great starting point for developing or evaluating the current processes.

For more information and guidance, contact your Yeo & Yeo advisor.

What’s the value of a financial advisor?

Two studies found that working with a financial professional can result in higher returns and potentially lower personal stress.

Lower Stress

Seventy-seven percent of people within 11-15 years of retirement are stressed when thinking about retirement savings and investments.¹

Working with a financial advisor to develop a written retirement income strategy, however, can increase your financial confidence leading up to retirement, according to Franklin Templeton’s annual Retirement Income Strategies and Expectations Survey.

With and Without²

Investors…	Worry about running out of money	Worry about being a burden on family
With an advisor	23%	5%
Without an advisor	30%	6%

Higher Returns In addition to providing financial guidance, financial advisors may also add about three percentage points in net portfolio returns over time, according to a study by Vanguard.³

Financial Advisor Advice Components⁴

Advice	Advice Elements	Potential Added Return to Investor Portfolio
Portfolio Construction	Asset allocation Asset location	Up to 1.2%
Wealth Management	Rebalancing Drawdown strategies	Up to over 1%
Behavioral Coaching	Managing investor emotions Aiding decision-making	Up to 1.5%

It’s important to remember that financial advisors also may offer guidance that wasn’t measured in the two studies. Advisors can help develop strategies that protect against the financial consequences of loss of income, and coordinate with other financial professionals on tax and estate management.

1. Franklin Templeton, 2016

2. Franklin Templeton, 2016

3. Vanguard.com, 2015

4. Vanguard.com, 2015

Tax reform has been a major topic of discussion in Washington, but it’s still unclear exactly what such legislation will include and whether it will be signed into law this year. However, the last major tax legislation that was signed into law — back in December of 2015 — still has a significant impact on tax planning for businesses. Let’s look at three midyear tax strategies inspired by the Protecting Americans from Tax Hikes (PATH) Act:

1. Buy equipment. The PATH Act preserved both the generous limits for the Section 179 expensing election and the availability of bonus depreciation. These breaks generally apply to qualified fixed assets, including equipment or machinery, placed in service during the year. For 2017, the maximum Sec. 179 deduction is $510,000, subject to a $2,030,000 phaseout threshold. Without the PATH Act, the 2017 limits would have been $25,000 and $200,000, respectively. Higher limits are now permanent and subject to inflation indexing.

Additionally, for 2017, your business may be able to claim 50% bonus depreciation for qualified costs in excess of what you expense under Sec. 179. Bonus depreciation is scheduled to be reduced to 40% in 2018 and 30% in 2019 before it’s set to expire on December 31, 2019.

2. Ramp up research. After years of uncertainty, the PATH Act made the research credit permanent. For qualified research expenses, the credit is generally equal to 20% of expenses over a base amount that’s essentially determined using a historical average of research expenses as a percentage of revenues. There’s also an alternative computation for companies that haven’t increased their research expenses substantially over their historical base amounts.

In addition, a small business with $50 million or less in gross receipts may claim the credit against its alternative minimum tax (AMT) liability. And, a start-up company with less than $5 million in gross receipts may claim the credit against up to $250,000 in employer Federal Insurance Contributions Act (FICA) taxes.

3. Hire workers from “target groups.” Your business may claim the Work Opportunity credit for hiring a worker from one of several “target groups,” such as food stamp recipients and certain veterans. The PATH Act extended the credit through 2019. It also added a new target group: long-term unemployment recipients.

Generally, the maximum Work Opportunity credit is $2,400 per worker. But it’s higher for workers from certain target groups, such as disabled veterans.

One last thing to keep in mind is that, in terms of tax breaks, “permanent” only means that there’s no scheduled expiration date. Congress could still pass legislation that changes or eliminates “permanent” breaks. But it’s unlikely any of the breaks discussed here would be eliminated or reduced for 2017. To keep up to date on tax law changes and get a jump start on your 2017 tax planning, contact us.

Unemployment tax rates for employers vary from state to state. Your unemployment tax bill may be influenced by the number of former employees who’ve filed unemployment claims with the state, your current number of employees and your business’s age. Typically, the more claims made against a business, the higher the unemployment tax bill.

Here are six ways to control your unemployment tax costs:

1. Buy down your unemployment tax rate if your state permits it. Some states allow employers to annually buy down their rate. If you’re eligible, this could save you substantial dollars in unemployment taxes.

2. Hire new staff conservatively. Remember, your unemployment payments are based partly on the number of employees who file unemployment claims. You don’t want to hire employees to fill a need now, only to have to lay them off if business slows. A temporary staffing agency can help you meet short-term needs without permanently adding staff, so you can avoid layoffs. This is also a good way to try out a candidate.

3. Assess candidates before hiring them. Often it’s worth a small financial investment to have job candidates undergo prehiring assessments to see if they’re the right match for your business and the position available. Hiring carefully will increase the likelihood that new employees will work out.

4. Train for success. Many unemployment insurance claimants are awarded benefits despite employer assertions that the employee failed to perform adequately. Often this is because the hearing officer concluded the employer hadn’t provided the employee with enough training to succeed in the position.

5. Handle terminations thoughtfully. If you must terminate an employee, consider giving him or her severance as well as offering outplacement benefits. Severance pay may reduce or delay the start of unemployment insurance benefits. Effective outplacement services may hasten the end of unemployment insurance benefits, because the claimant has found a new job.

6. Leverage an acquisition. If you’ve recently acquired another company, it may have a lower established tax rate that you can use instead of the tax rate that’s been set for your existing business. You also may be able to request the transfer of the previous company’s unemployment reserve fund balance.

If you have questions about unemployment taxes and how you can reduce them, contact our firm. We’d be pleased to help.

Now that Affordable Care Act (ACA) repeal and replacement efforts appear to have collapsed, at least for the time being, it’s a good time for a refresher on the tax penalty the ACA imposes on individuals who fail to have “minimum essential” health insurance coverage for any month of the year. This requirement is commonly called the “individual mandate.”

Penalty exemptions

Before we review how the penalty is calculated, let’s take a quick look at exceptions to the penalty. Taxpayers may be exempt if they fit into one of these categories for 2017:

Their household income is below the federal income tax return filing threshold.
They lack access to affordable minimum essential coverage.
They suffered a hardship in obtaining coverage.
They have only a short-term coverage gap.
They qualify for an exception on religious grounds or have coverage through a healthcare sharing ministry.
They’re not a U.S. citizen or national.
They’re incarcerated.
They’re a member of a Native American tribe.

Calculating the tax

So how much can the penalty cost? That’s a tricky question. If you owe the penalty, the tentative amount equals the greater of the following two prongs:

The applicable percentage of your household income above the applicable federal income tax return filing threshold, or
The applicable dollar amount times the number of uninsured individuals in your household, limited to 300% of the applicable dollar amount.

In terms of the percentage-of-income prong of the penalty, the applicable percentage of income is 2.5% for 2017.

In terms of the dollar-amount prong of the penalty, the applicable dollar amount for each uninsured household member is $695 for 2017. For a household member who’s under age 18, the applicable dollar amounts are cut by 50%, to $347.50. The maximum penalty under this prong for 2017 is $2,085 (300% of $695).

The final penalty amount per person can’t exceed the national average cost of “bronze coverage” (the cheapest category of ACA-compliant coverage) for your household. The important thing to know is that a high-income person or household could owe more than 300% of the applicable dollar amount but not more than the cost of bronze coverage.

If you have minimum essential coverage for only part of the year, the final penalty is calculated on a monthly basis using prorated annual figures.

Also be aware that the extent to which the penalty will continue to be enforced isn’t certain. The IRS has been accepting 2016 tax returns even if a taxpayer hasn’t completed the line indicating health coverage status. That said, the ACA is still the law, so compliance is highly recommended. For more information about this and other ACA-imposed taxes, contact us.

Yeo & Yeo, a leading Michigan accounting firm, has completed the move of its Saginaw office (headquarters) to 5300 Bay Road in Saginaw. The move includes relocation of Yeo & Yeo CPAs & Business Consultants Saginaw office and affiliates Yeo & Yeo Technology, Yeo & Yeo Medical Billing & Consulting, and Yeo & Yeo Financial Services.

“Yeo & Yeo’s new headquarters reflects our desire to bring our affiliates together under one roof in a modern environment that fosters greater cross-discipline collaboration and innovation, while further strengthening our ability to attract the best and brightest professionals. The result will be a stronger, more responsive, more efficient and forward-thinking firm,” said Thomas Hollerback, president & chief executive officer of Yeo & Yeo.

Yeo & Yeo purchased the former Davenport University building in April 2016, having reached capacity at its Saginaw location on Davenport Avenue. The Bay Road building offered 30,000 square feet of space; another 14,000 square feet was added to accommodate all affiliates and allow for future growth of up to 160 professionals.

Jeff McCulloch, president of Yeo & Yeo Technology, said, “We were simply out of space, so this move will allow us to keep pace with our clients’ growing needs. The technology advances and open-concept office spaces in the new building create greater efficiency to be recognized by our employees and clients.”

The newly renovated, energy-efficient and technology-driven space, currently housing more than 120 Saginaw office employees, reinforces the firm’s mission of delivering outstanding business solutions:

State-of-the-art conferencing capabilities allow effective communication with their clients and colleagues, who span locations throughout Michigan and beyond
Flexible collaborative spaces foster a team-driven atmosphere and promote interaction
Large, open spaces with ample natural light provide a bright, energizing environment
Ergonomic and efficient work spaces create better workflow and support well-being

“A commitment to the communities we live and work in has been a long-standing part of Yeo & Yeo’s culture – we are committed to keeping our headquarters rooted in the Saginaw community,” said David W. Schaeffer, managing principal of Yeo & Yeo’s Saginaw office. “We have served our clients from the Davenport location for more than 40 years. Moving to the new location is a milestone for the firm, and demonstrates our commitment to serving our community, maintaining a motivating environment for staff and providing top-notch support for our clients – both locally and globally.”

Yeo & Yeo’s new Saginaw office (headquarters) is located at the corner of Bay Road and Trautner Drive, next to Garber Bay Road, and offers convenient access for our clients and professionals in and around the Great Lakes Bay Region.

Yeo & Yeo employs nearly 220 professionals and has nine offices throughout Michigan. During the last three years, Yeo & Yeo’s Ann Arbor and Lansing offices also relocated within their communities to accommodate growth and offer a contemporary work environment for employees.

Read more about Yeo & Yeo’s relocation.

In the quest to reduce your tax bill, year end planning can only go so far. Tax-saving strategies take time to implement, so review your options now. Here are three strategies that can be more effective if you begin executing them midyear:

1. Consider your bracket

The top income tax rate is 39.6% for taxpayers with taxable income over $418,400 (singles), $444,550 (heads of households) and $470,700 (married filing jointly; half that amount for married filing separately). If you expect this year’s income to be near the threshold, consider strategies for reducing your taxable income and staying out of the top bracket. For example, you could take steps to defer income and accelerate deductible expenses. (This strategy can save tax even if you’re not at risk for the 39.6% bracket or you can’t avoid the bracket.)

You could also shift income to family members in lower tax brackets by giving them income-producing assets. This strategy won’t work, however, if the recipient is subject to the “kiddie tax.” Generally, this tax applies the parents’ marginal rate to unearned income (including investment income) received by a dependent child under the age of 19 (24 for full-time students) in excess of a specified threshold ($2,100 for 2017).

2. Look at investment income

This year, the capital gains rate for taxpayers in the top bracket is 20%. If you’ve realized, or expect to realize, significant capital gains, consider selling some depreciated investments to generate losses you can use to offset those gains. It may be possible to repurchase those investments, so long as you wait at least 31 days to avoid the “wash sale” rule.

Depending on what happens with healthcare and tax reform legislation, you also may need to plan for the 3.8% net investment income tax (NIIT). Under the Affordable Care Act, this tax can affect taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for joint filers). The NIIT applies to net investment income for the year or the excess of MAGI over the threshold, whichever is less. So, if the NIIT remains in effect (check back with us for the latest information), you may be able to lower your tax liability by reducing your MAGI, reducing net investment income or both.

3. Plan for medical expenses

The threshold for deducting medical expenses is 10% of AGI. You can deduct only expenses that exceed that floor. (The threshold could be affected by healthcare legislation. Again, check back with us for the latest information.)

Deductible expenses may include health insurance premiums (if not deducted from your wages pretax); long-term care insurance premiums (age-based limits apply); medical and dental services and prescription drugs (if not reimbursable by insurance or paid through a tax-advantaged account); and mileage driven for healthcare purposes (17 cents per mile driven in 2017). You may be able to control the timing of some of these expenses so you can bunch them into every other year and exceed the applicable floor.

These are just a few ideas for slashing your 2017 tax bill. To benefit from midyear tax planning, consult us now. If you wait until the end of the year, it may be too late to execute the strategies that would save you the most tax.

Since 1955, the State of Michigan has exempted various prosthetic devices from sales and use tax. In 1985, the Treasury issued Letter Ruling 1985-20 addressing sales of a specific type of dental prosthetic (dental ceramics), essentially including these dental prosthetics with other exempt devices. When Letter Ruling 1985-20 was issued, the sales and use tax acts exempted “any … apparatus, device, or equipment used to replace or substitute for a part of the human body …”

With the passage 100c of 2004 Michigan Public Acts 172 and 173, the sales and use tax acts directed that dental prosthetics were excluded from the statutory exemption under the definition of “prosthetic device.” These acts defined a “prosthetic device” as “a replacement, corrective, or supportive device, other than contact lenses and dental prosthesis, dispensed under a prescription, including repair or replacement parts for that device, worn on or in the body …” Since Letter Ruling 1985-20 was still in effect, the 2004 Michigan Public Acts did not change how prosthetic devices were taxed.

In June 2017, the Michigan Department of Treasury announced that it had revoked Letter Ruling 1985-20 effective July 1, 2017. For transactions before this date, dental labs do not need to collect sales tax on custom dental products.However, the Treasury now considers the dentist the end user, as they use the material in the services they provide to their patients.After July 1, dental lab sales of dental prostheses to dentists are subject to sales tax based on the sales price of the prosthetic.

Because these transactions will now be treated as a sale at retail, dental labs may claim the industrial processing exemption for property used in manufacturing its products, if the property used to make such dental products qualifies for the industrial processing exemption.

Please contact your Yeo & Yeo professional if you have questions.