Kati Krueger Promoted to Vice President of Affiliated Medical Billing

Affiliated Medical Billing (AMB), an affiliate of Yeo & Yeo CPAs & Business Consultants, is pleased to announce the promotion of Kati Krueger to vice president. Krueger will oversee business operations, talent management, continuous advancement, and training for AMB personnel.

“The healthcare industry is changing in dramatic ways. Expanding leadership will enable us to put additional emphasis on strategies that will drive growth and continuous advancement for AMB, and for our clients,” says Julia Lowe, president of AMB.

“Yeo & Yeo CPAs has been very successful in implementing LEAN Six Sigma methodologies in the audit and tax practices, a process we refer to as YeoLEAN. Under the leadership of Kati, AMB will employ the YeoLEAN concepts to be continuously proactive in the fast-changing healthcare industry and best serve the evolving needs of our clients,” adds Thomas Hollerback, president & CEO of Yeo & Yeo and its affiliates.

Krueger has an extensive background with AMB, having joined the company in 2002. She has over ten years’ experience in medical billing and revenue cycle management, helping several physicians and group practices throughout Michigan be efficient and compliant. Prior to her promotion, Krueger held the position as Billing Manager. Krueger also served as marketing manager for nearly five years, overseeing client relations and business development opportunities.

“I am excited to be such an instrumental part in the future advances at AMB, and to help clients maximize profitability and efficiency in this ever-changing industry. The advancements we are planning through YeoLEAN will further streamline processes for our clients,” says Krueger.

Krueger holds a Bachelor in Business Administration with a major in marketing from Saginaw Valley State University. She is a member of the Medical Group Management Association. In addition to her work at Yeo & Yeo, Krueger is an active volunteer in the Saginaw community.

November 29, 2016, is Giving Tuesday. Never heard of it? Known on social media as #GivingTuesday, the Tuesday after Thanksgiving has grown into one of the biggest fundraising drives for the Non-Profit industry.

Similar to Cyber Monday, it’s a day when charities encourage people to make year-end donations using their computers and mobile devices. Blackbaud, a software developer for Non-Profits, expects 2016 to be a record-breaking year. Here’s more about this event — and how you can deduct contributions to your favorite charitable organization on your 2016 tax return.

Charities Turn to the Internet

Blackbaud has tracked donations since the Giving Tuesday project launched in 2012. In its first year, Giving Tuesday generated $10.1 million in online donations in the United States. That total grew to $39.6 million last year, an increase of 52% over 2014. In general, online donations tend to be larger than traditional direct mail gifts.

A key reason for the growth in online donations is the prevalence of mobile devices. Blackbaud reports that on Giving Tuesday, 17% of U.S. online donations were made on mobile devices. That number is expected to be even higher in 2016.

Feeling Generous?

Overall, Non-Profits experience spikes in financial contributions and volunteer hours during the holiday season. Although you can’t deduct the time you spend volunteering, donations of cash and other assets may be deductible on your 2016 federal tax return if you follow the IRS rules.

First and foremost, you must itemize deductions to deduct charitable contributions. Additionally, your contributions must be made to “qualified” organizations. To see whether an organization qualifies, visit the IRS’s online search tool, Exempt Organizations Select Check. Giving money to an individual or a foreign organization generally isn’t deductible, except for donations made to certain qualifying Canadian Non-Profits.

For a charitable donation of cash, regardless of the amount, you must have a bank record or a written document from the charity. Bank records include canceled checks, bank or credit union statements, and credit card statements. These statements should show the name of the charity, the date and the amount paid. Credit card statements should also show the transaction posting date.

Clothing and household items donated to charity generally must be in good used condition or better. However, this requirement may be waived for deductions of clothing or household items of more than $500 if you include a qualified appraisal with the return. Household items include furniture, electronics, appliances and linens.

If a contribution entitles you to merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.

Remember to Document Higher Value Gifts

IRS substantiation rules vary depending on how much you’re claiming for each contribution:

Gifts of $250 or more (cash or property). You must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization (in other words, a receipt).

The acknowledgment must state whether the organization provided goods or services in exchange for the gift. If so, the nonprofit must provide a description and good faith estimate of the value of the goods or services. One document from an organization can satisfy both the written communication requirement for monetary gifts and the contemporaneous written acknowledgment requirement for all contributions of $250 or more.

Deductions related to noncash contributions worth more than $500. IRS Form 8283 must be filled out and attached to your return. For each item, you’re also required to maintain written records that include:

The approximate date the property was acquired and how you acquired it,
A description of the property,
The cost or other basis of the property,
The fair market value of the property at the time it was contributed, and
The method used in determining its fair market value.

Similar items of property are aggregated for purposes of the substantiation rules. The term “similar items of property” means property of the same generic category or type, such as clothing, jewelry, furniture, electronic equipment, household appliances or kitchenware.

The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. IRS Form 1098-C or a similar statement must be provided to you by the organization and attached to your tax return.

Deductions related to contributions of noncash property worth more than $5,000. Unless you’re giving publicly traded securities, you must obtain a qualified appraisal. (The threshold is $10,000 for nonpublicly traded securities.) If you claim a deduction for a contribution of noncash property worth more than $500,000, you must attach the qualified appraisal to your return.

There’s Still Time to Donate

Contributions are deductible in the tax year they’re made, but many people put off donating until the last minute. Fortunately, you have until December 31 to donate for the 2016 tax year. Donations made online, by phone or via social media that are charged to a credit card on or before midnight on December 31 count for 2016 — even if the bill isn’t paid until 2017. Mailed checks also count for 2016 as long as they’re postmarked no later than December 31.

If you plan to deduct a sizable charitable contribution on your 2016 tax return, consult with your tax advisor before year end to ensure you’re following all the rules.

Yeo & Yeo is pleased to announce that Amy R. Buben, CPA, CFE, and Eric J. Sowatsky, CPA, CGMA, NSSA, have been promoted to the position of principal.

Thomas E. Hollerback, president and CEO, says, “Our two new principals are talented professionals who are committed to helping Yeo & Yeo’s clients succeed. They are strong leaders in serving clients in their respective industries with energy and enthusiasm. We are proud to welcome Amy and Eric to the principal/ownership group.”

Buben leads the firm’s Manufacturing Services Group and is a member of the Tax Services Group. Her areas of expertise include business consulting, financial reporting and tax issues with a strong focus on manufacturers and auto dealers, as well as the retail and wholesale sectors. Buben joined Yeo & Yeo in 2006 and has more than 20 years of experience working with manufacturers. She is also a Certified Fraud Examiner highly trained in the prevention and examination of fraudulent financial activity. She serves in the management advisory services department of the Saginaw office.

Buben is a member of the Michigan Manufacturers Association and treasurer of the Great Lakes Bay Manufacturers Association. She is a member of the Saginaw County Chamber of Commerce Ambassador Alumni, a 1000 Leaders program participant, and a graduate of the Leadership Saginaw Class of 2011. In our community, Buben is vice chair of Women in Leadership Great Lakes Bay, and a volunteer and past board member for Junior Achievement of North Central Michigan. In 2014, the Michigan Association of Certified Public Accountants recognized Buben with its Women to Watch – Emerging Leader award.

Sowatsky leads the firm’s Agribusiness Services Group and is a member of the Tax Services Group. He assists farm and agribusiness operations with business and tax planning issues, and succession planning. He is a Certified Grain Accountant with expertise in proper accounting procedures for grain elevators. He conducts collateral field exams for lending institutions providing review of collateral for the agribusiness, manufacturing and automotive industries. Sowatsky is also a National Social Security Advisor, certified in counseling clients on optimal strategies for claiming social security benefits. He joined Yeo & Yeo in 2004. He serves in the management advisory services department of the Saginaw office.

Sowatsky is a member of the Michigan Agribusiness Association’s Grain Committee and the Farm Financial Standards Council. He is a presenter at Michigan Agribusiness Association conferences. He is past president of the Great Lakes Bay Economic Club, a Leadership Bay County Alumni and past treasurer of the Rotary Club – Saginaw Sunrise. In the community, Sowatsky is treasurer of Bethlehem Lutheran Church and chair of Bethlehem Lutheran School’s Athletics Advisory Committee.

The U.S. Department of Labor’s new rule on overtime exemptions set to go into effect December 1, 2016, has been blocked by a U.S. District Judge who agreed with arguments made by 21 states and several business organizations, including the U.S. Chamber of Commerce. This nationwide injunction stops the rule that would have affected over four million workers who may have qualified for overtime pay.

Under prior ruling, workers who earned more than $23,660 per year, or $455 per week, were exempt from overtime if they performed managerial or professional duties. Under the new rule, the salary threshold was to be increased to $47,476 per year, or $913 per week.

How does this judgment impact employers?

This ruling is likely to remain in effect for the remainder of the Obama administration, yet it is unknown what actions the Trump administration will take.

Employers who have already made changes in employee salaries in order to comply will need to make the difficult decision to keep the changes in place or revert, keeping in mind that further changes may take place in the coming months under the new administration. Compliance steps that should not be changed back include updated personnel policies that may be more specific about cell phone use, travel time, etc., recordkeeping compliance updates, and confirmation that exempt employees met duty and salary requirements.
For those who have not implemented any changes, it may make sense to wait to make any changes until this is sorted out.

If you have questions or need assistance, please contact Yeo & Yeo.

Congress made year-end tax planning a little easier for 2016. The Protecting Americans from Tax Hikes (PATH) Act of 2015 made a number of expiring tax provisions permanent, such as the Section 179 deduction and Research and Development Credit, but extended others only through the end of 2016. While this legislation gave clarity to 2016 tax planning, several provisions require action on the part of Congress in order to be extended into tax year 2017 and beyond.

Yeo & Yeo’s 2016 Year-end Tax Planning Checklist provides action items that may help you save tax dollars if you act before year-end. Yeo & Yeo’s tax professionals can help narrow down the specific actions that you can take and tailor a tax plan for your current situation and future changes.

Year-end tax planning should be a part of everyone’s financial routine. Usually there are many tax planning decisions you can make at year-end to drastically improve your tax situation. A thorough review of your tax picture before year-end can let you know where you stand and suggest potential tax-saving opportunities. Make sure you are doing all you can to minimize your taxes by taking action soon.

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

Paying people used to be simple. More and more federal and state regulations have complicated the payroll process. Important changes in 2017 include the State of Michigan minimum wage increase to $8.90 per hour for wages earned starting January 1, 2017.

Following are payroll changes for 2017.

Social Security Wage Base. The 2017 wage base will be $127,200. The employee and employer match will be 6.2%. The maximum deduction will be $7,886.40 ($127,200 x 6.2%).

Medicare Tax. As in prior years, there is no limit to the wages subject to the Medicare Tax; therefore, all covered wages are still subject to the 1.45% tax. Wages paid in excess of $200,000 will be subject to an extra 0.9% Medicare tax that will be withheld only from employees’ wages.

Health Flexible Spending Arrangements. The dollar limitation on voluntary employee salary reductions for contributions to a health flexible spending arrangement (FSA) is $2,600.

Medical Savings Accounts. A high-deductible health plan is a plan with an annual deductible of $2,250-$3,350 for individual coverage and $4,500-$6,750 for family coverage.

IRA Contribution Limits. The 2017 contribution limit for Simple IRAs is $12,500. The catch-up contribution for those age 50 or older by December 31, 2017, is $3,000.

401(k), 403(b) and 457 Contribution Limits. The contribution limit for these plans’ employee deferrals is $18,000. The catch-up contribution for those age 50 or older by December 31, 2017, is $6,000.

Federal Standard Mileage Rates. The 2017 mileage rates are 53.5 cents per mile for business miles driven, 17 cents per mile for medical or moving purposes and 14 cents per mile driven in service of charitable organizations.

Dependent Care Limits. The maximum exclusion from gross income under a dependent care program is $5,000 for an individual or a married couple filing jointly.

Learn more about the other important upcoming changes by viewing our 2017 Payroll Planning Brief.

Updated December 14, 2016

Winter is coming, and so are changes to accounting standards.

Changes in revenue recognition were introduced recently and now changes are coming for lease accounting. Although FASB’s Accounting Standards Update of Topic 842 isn’t effective for nonpublic entities until years beginning after December 15, 2019 (years beginning January, 1, 2020 with restatement of prior year for comparative statements), you need to start planning now in order to be able to implement the new standards.

FASB Topic 842 is merely titled ‘Leases,’ but the topic isn’t quite so simple. FASB has not only expanded the definition of leases, but also the requirements for recording, tracking, disclosing and understanding them. In a nutshell, the requirements will change the way businesses and organizations have historically recorded leases and will impact decisions for lease-vs.-buy transactions.

FASB 842 calls for change in the theory for when we should capitalize leases. Historically we have utilized a control-based method. If you controlled the asset, you recorded it and the liability associated with it (the lease). Under the new standards this theory changes to a right-of-use approach; if you use it as an asset, you record it as an asset along with the offsetting liability.

There is still a distinction between operating financing leases and operating leases. The historical method will still be used to determine financing leases, if more than 75% of the useful life is leased and you pay 90% of the fair value. If the lease includes a maintenance or common-area care component and is not specifically separated in the lease terms, then an estimate for those services will need to be developed.

A few key changes to consider include:

Financing leases

Capital leases are referred to as ‘Financing leases’ – that’s a big one.
The practice of accounting for financing leases remains relatively unchanged.

Operating leases – The Big One!

Leases with more than 12-month terms must be capitalized. Yes, that building you rent with a five-year lease will now be recorded as an asset and a liability on your balance sheet, where the lease term will be recognized. And those leases for vehicles, copiers, storage trailers, tractors or any equipment that you thought you could exclude from your balance sheet, not any more.
Operating leases will need to be recorded on the balance sheet for the right-of-use asset and the operating obligation liability.
The asset is amortized over the life of the lease and imputed interest is expensed annually.
The effect on the cash flow will be applicable to the operations.

Let’s walk backwards. If you implement the presentation of your two-year presentation of December 31, 2020 financials, then you will need to start tracking on January 1, 2019. But wait! If you want to implement in the same year as new Revenue Recognition Standards, then you need to back everything up a year. This means you need to understand your operating leases by January 1, 2018, not to mention make any changes to existing leases.

How can you get started?

Talk to your Yeo & Yeo consultant. We can help you understand the impact to your balance sheet. Too, start the discussion with your lessors and bank to gain an understanding of the impact.

Recently I came across these slick tricks for agribusiness users of QuickBooks. As co-leader of Yeo & Yeo’s Computer Accounting Solutions Group and a member of the firm’s Agribusiness Services Group, software solutions as they relate to agribusiness are among my passions.

The tips in this article are too good not to share with those using QuickBooks. From when to issue sales receipts vs. invoices and creating custom fields, to tracking notes on crops or livestock and using classes, this article is very helpful. On a side note, while it references QuickBooks for Mac, the concepts are the same for Windows users, so you may want to bookmark this site – it offers great tips for QuickBooks users.

In 2014, Governor Snyder signed legislation increasing the Michigan minimum wage rate in stages. The first increase took effect on September 1, 2014, increasing the hourly Michigan minimum rate to $8.15. The second increase took effect on January 1, 2016, raising it to $8.50 per hour.

On January 1, 2017, Michigan minimum wage will increase to $8.90 per hour; and
On January 1, 2018, to $9.25 per hour.

Beginning in 2019, the rate will be adjusted annually for inflation, up to a maximum of 3.5 percent per year.

Note that the rate increases are effective for wages earned on or after the indicated date, and not the actual wage payment date.

On January 1, 2017, tipped employee hourly wage rates will also increase to $3.38 an hour. The State of Michigan has a reduced rate of $7.57 available for minors age 16 to 17. A youth training wage of $4.25 per hour may be paid to employees 16-19 years of age for the first 90 days of their employment.

The full rate schedule is available on the Michigan Department of Licensing and Regulatory Affairs website.

Contact your Yeo & Yeo payroll solutions professional for assistance.

Yeo & Yeo is proud to sponsor the SPARK FastTrack Awards which celebrate the economic prosperity of the greater Ann Arbor region. Since 2010, it has been the firm’s privilege to support this initiative and perform the review of the FastTrack applications.

FastTrack is an exciting annual program sponsored by Ann Arbor SPARK, recognizing companies with notable growth over the past few years. FastTrack awards are presented to the applying companies that are identified as having achieved 20 percent annual growth and substantial revenue. This year’s FastTrack Awards for both 2016 and 2017 will be presented at the Ann Arbor SPARK Annual Meeting, which will be held on April 24, 2017, at the Eastern Michigan University Student Center in Ypsilanti, Mich.

FastTrack awardees for 2016 are required to have revenue of at least $100,000 in 2012, with an annual growth of 20 percent for the following three years. Recipients of the 2017 FastTrack Award will have revenue of at least $100,000 in 2013, with an annual growth of 20 percent for the following three years. Companies will complete separate applications for the 2016 and 2017 FastTrack Awards.

Applications are now available for both the 2016 and 2017 Ann Arbor SPARK’s annual FastTrack Awards. The deadline to apply is January 31, 2017.

This is the first year FastTrack Awards will be presented at Ann Arbor SPARK’s Annual Meeting. In prior years, the FastTrack awards were presented at MLive “Deals of the Year” event, which the media organization announced it would no longer host.

Learn more about the SPARK FastTrack awards.

Interest rates remain painfully low – historically low – but they are rising slowly. Governmental units should review the earning rates on their certificates of deposit (CD) to ensure they are not at the low end. As I recently discovered, there is a wide range in the low category; between a high of 1.05 percent to a low of .1 percent. With interest rates being anemic for so long, CDs have often been renewed automatically. Accepting an automatic renewal may cost as much as $4,000 on a $500,000 CD.

Now is a great time to start shopping around for better CD rates and to strategize how to take advantage of the expected gradual increase. CD laddering is one such strategy to consider, in which you have multiple CDs with staggered maturity rates. The result is every few months, a CD matures and you can potentially roll the cash into a new CD with a higher yield. With CD laddering, you will want to watch the yields more closely on both your long and short term CDs to ensure you are maximizing the earning potential.

Strategizing and shopping around when CDs mature could be a good return on the time spent.

Employers and small businesses will soon face a new filing deadline for Form W-2 reporting wages and Form 1099-MISC reporting non-employee compensation. This new deadline was enacted by the PATH Act of 2015 to help the IRS verify the legitimacy of tax refunds before issuing them.

Beginning with the 2016 forms (those filed in 2017), Form W-2 and Form 1099-MISC must be filed with the Social Security Administration and the IRS, respectively, by January 31, rather than the prior deadline of February 28 (March 31 if filing electronically). The new January 31 deadline applies regardless of whether the forms are filed on paper or electronically.
Copies must still be provided to employees and payees by January 31.

Also, beginning with the 2016 forms, only one 30-day extension to file Form W-2, which is not automatic, will be available. The IRS has stated they will grant the single 30-day extension to file Forms W-2 only in limited circumstances where the request for extension demonstrates that there were “extraordinary circumstances or catastrophe, such as a natural disaster or fire destroying the books and records needed for filing the forms.” Late filed returns may be subject to penalties starting at $50 per form.

Please be prepared to meet these new deadlines. Contact your Yeo & Yeo tax professional for assistance.

Our affiliate, Yeo & Yeo Technology, will host the webinar, CyberSecurity Threat Landscape, on November 10, 2016 from 10:00 to 11:00 a.m. EST.

Cybercrime is a rapidly growing criminal business, impacting millions of people and organizations around the world. In fact, one in five small and medium-sized businesses have been targeted by cybercrime. Don’t let your business be one that falls victim to a cyberattack, especially one that could have been prevented!

Presenter, Daniel Faltisco from Ingram Micro, will discuss:

Current CyberSecurity trends and the crimes to be aware of
How cybercriminals operate – their way of thinking
Proper protection and steps to secure your data
What to do if your data has been compromised

Click here to register for this informative seminar that could help save your data!

Learn more about the presenter, Daniel Faltisco | Learn more about Yeo & Yeo Technology

Protecting a company from attack by third parties intent on stealing money, data — or both — is a constant challenge. Companies must anticipate where the threat is the most severe and defenses are the weakest and dedicate the appropriate resources there.

However, given the complexity of a company’s information technology environment, as well as its physical footprint, it is often a challenge to identify and prioritize which areas in the organization pose the greatest threat.

Understanding how the enemy views your company’s infrastructure is critical to deploying a robust defense. Companies of all sizes are asking “red teams” — a covert team of experienced professionals — to launch attacks against their infrastructure and report back on the findings. For example, companies that are interested in assessing their network security can engage a team of network intrusion analysts who have experience penetrating corporate and government networks.

Regardless of the exact makeup of the teams deployed, the primary goal of a red team is to find the weaknesses in your company’s IT and/or physical environment. Simply put, if the red team can uncover vulnerabilities, so too can attackers.

Before your company deploys a red team to probe its defenses, think about the following elements of the team’s responsibilities and feedback process:

Start with the end in mind.

The end result of the team’s work must be actionable intelligence that places the company in a better position to combat attacks. To that end, ask the red team leader to provide an example of the report that your company will receive at the conclusion of the exercise. Unfortunately, despite the best intentions, companies can sometimes be overwhelmed with the results of the red team exercise and fail to implement a plan to bridge gaps uncovered during the process.

Test the red team’s defenses.

Given the highly sensitive nature of the work that red teams conduct, it is important that members of that team treat the information uncovered as highly confidential. The professional services firm must have processes and technology in place to prevent unauthorized access. Before engaging a firm, ask them how it protects customer and client data.

For example, is client data shared on a central server within the company’s offices — or placed on a third-party cloud server? How will the firm ensure that only those with a “need to know” will be granted access to the data?

Convene a steering committee.

In anticipation of the red team exercise, it is important that your company form a steering committee with representatives from the departments most likely to be affected by the exercise. Before sharing information regarding the red team project, require that all steering committee members sign a non-disclosure agreement. Doing so will impress upon the members that the company views the exercise as highly sensitive and that secrecy must be maintained in order for it to be beneficial.

Timing is important in red team exercises. A company needs to test during a time when other important IT projects and upgrades are not going on. Further, in the event that the team triggers red flags in a particular area of the company, the department head should be able to monitor his or her department’s response without losing focus since ultimately he or she knows it is part of an exercise.

Suspend disbelief and interference.

Since the red team’s approach is supposed to mimic the activity of a criminal or attacker, it is not meant to be a highly structured event that is defined by the same people and thinking that created the company’s defenses in the first place. The red team must be able to explore the company’s defenses with relatively few limitations — just as an attacker would do. Short of inflicting harm on a business and creating significant financial losses, the red team should be allowed to conduct their work unimpeded.

The key concept that staff members must firmly grasp is that attackers intent on overcoming your company’s defenses are typically limited only by their imagination and the time needed to defeat your organization’s countermeasures. The same should apply to the red team’s efforts.

Share results on a need-to-know basis.

At the conclusion of the exercise, your company should make sure the intelligence gathered during the process is only made available to those who have a defined business need. In addition, ensure that all meetings that take place within the organization to discuss the red team findings are controlled to prevent the introduction of individuals who have not been suitably briefed on the purpose of the exercise and the associated sensitivity of the data.

Look beyond your company’s infrastructure.

Depending on the size and nature of your company’s business, employees may be asked to travel domestically as well as internationally. When they do so, they are obviously subject to an entirely different set of risks than are present in their offices.

For example, if employees travel to foreign countries, has your company taken the time to determine which hotels offer the best physical security so that laptops and smart phones are less likely to be stolen? If employees use wireless networks while in the hotel, what protections can your company put in place to minimize the potential that data will be intercepted by a third party? Hotels and offices overseas can be easily overlooked if an organization’s people and assets are largely concentrated in the company’s home market.

Red team exercises are not a one-time event.

As your business grows, the risks that it faces change. Periodically, your company should consider re-engaging the red team to conduct additional exercises. In fact, conducting regular tests can reduce your company’s risk exposure and the associated costs involved in remediating potential gaps. The drive and determination of “would be” attackers seldom wavers. A commitment to use red teams over an extended period can ultimately help your company deflect attackers and will help reveal system vulnerabilities. Your competitors may not be so prepared.

Most closely held business owners want to know the value of their investments, especially if they are going to sell or gift shares to family members or charities. Valuing a private business is a complex undertaking, however. The only sure way to appraise a business interest is to hire a valuation professional who understands the current marketplace and the relevant value drivers for your business. Valuing a Business

Valuators use three general approaches to appraise private businesses and business interests.

Here is a brief summary of each approach:

Asset-Based (or Cost) Approach

Under this technique, value is calculated by subtracting the market values of the company’s liabilities from the market values of its assets. The balance sheet serves as a starting point for this approach. But the book value of equity doesn’t necessarily equate with the fair market value of equity. Some assets may be understated on the books (such as equipment subject to accelerated depreciation methods) or missing (such as internally-generated intangible assets). Off-balance sheet liabilities (such as pending Litigation Support or environmental liabilities) also must be considered when adjusting the balance sheet to market values.

This approach is commonly used for asset-holding companies or other businesses that rely heavily on tangible assets. It may also serve as the “floor” for the value of an operating business, in case the other approaches indicate a value below its adjusted net worth.

Market Approach

When using the market approach to estimate business value, appraisers compare the subject company to similar businesses or business interests that have been sold. Here are two common methods that fall under the market approach:

Guideline Public Company Method. Here, the valuator identifies publicly traded companies that are similar to the subject company and develops pricing multiples (for example, price-to-earnings or price-to-revenues). Nearly 30,000 companies trade stock on public exchanges, creating a wealth of transaction data. Many closely-held companies are too small and specialized to compare to large, diversified public stocks, however.
Merger and Acquisition Method. This method examines sales of similar companies. These deals may involve privately held or publicly traded companies. There are a number of proprietary databases available to business valuators that provide the details of these transactions. As with the guideline public company method (above), the valuator computes pricing multiples (such as price-to-earnings) and applies them to the subject company’s financial metrics to determine value.

When searching transaction databases for comparable companies, a valuator uses specific “selection criteria” to obtain a relevant sample of transactions.

Examples of selection criteria include:

Industry
Size
Methods of operations
Markets and customers served
Accounting methods
Projected growth in sales and earnings

Income Approach

This technique is based on the assumption that the value of a business is equal to the sum of the current values of expected future benefits. In other words, value is based on the subject company’s ability to generate income in the future. The two most common methods within this approach are:

Capitalization of Earnings Method. Here, the value of a business is based on a single estimate of what the future income of the business is likely to be. In turn, the single representative period is divided by a capitalization rate that’s based on the company’s required rate of return and its long-term sustainable growth rate. This method is better suited for companies with established, stable cash flows.
Discounted Cash Flow Method. Discounting is a multi-period method of valuation. As such, the value of a business equals the net present value of its expected future cash flows or income. The cash flow or income stream is discounted by the company’s required rate of return. Under this method, cash flows are projected over a finite period and then they’re assumed to stabilize. Once earnings are presumed to be stable, a “terminal value” is calculated, typically using the capitalization of earnings or merger and acquisition method.

What’s the Preferred Valuation Technique?

Valuators consider all three of these approaches when valuing a private business. But they may use only one or two methods when valuing a specific company. No technique works best for all cases. There are many factors that go into determining the value of a business. A valuation expert is trained in the art and science of applying these approaches to value your business. Contact Yeo & Yeo’s Business Valuation leaders today to understand what your business is currently worth.

The Michigan State Housing Development Authority (MSHDA) and the U.S. Department of Agriculture’s Office of Rural Development (RD) recently released the allowable multifamily property management fees for 2017.

MSHDA

The maximum fees allowed by MSHDA for the 2017 calendar year are as follows:

Management fee per unit – $508
Premium management fee per unit – $78

This is almost a 1% increase from the calendar year 2016 maximum fees of $504 for the management fee per unit and $77 for the premium management fee per unit.

See MSHDA’s 2017 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 2017 can be found here.

Highlights for Michigan include an approximate 4% increase from the 2016 fee of $47 to $49 per occupied unit per month beginning in 2017.

HUD

Multifamily projects subject to the U.S. Department of Housing and Urban Development (HUD) should review the guidelines in The Management Agent Handbook (4381.5) 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 time period, such as three years.

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

Medical malpractice insurance isn’t just a requirement — it’s also a major practice expense. Selecting the terms of coverage is a complex, critical task, as is evaluating insurance carriers. In fact, the future of the practice and the reputation of physicians may rest in the balance.

How Much Coverage Do You Need?

Every practice must address its malpractice coverage by asking: How much protection does it want, for what period and events? Malpractice coverage is stated in terms of limits per claim (usually $1 million is the minimum coverage needed for a low-risk specialty in a low-risk geographic area) and the aggregate limit on payments over the life of the policy (frequently $3 million, again if risks are low).

There are several types of coverage to choose from.

Most practices will be concerned with claims-made, tail and nose policies. A “claims-made” policy covers incidents that may occur during the policy period and that are reported while the policy is still in force.

When a physician changes policies, it’s possible that some claims will be uncovered before the new policy kicks in. The gap can be filled by either “tail” coverage, which takes care of claims that arise after leaving the previous carrier, or “nose” coverage, which extends coverage of the new policy to an earlier date.

Which Provisions Must You Scrutinize?

There are several policy provisions that physicians should review. Most doctors will want to include a “consent to settle” clause. It requires the carrier to obtain the physician’s written permission before settling a claim against him or her. Without it, the insurer can settle a claim that the physician believes is defensible.

Another provision is related to the legal costs of defending a claim. Those costs, which can be upwards of $100,000, may be included “inside” or “outside” the policy limits. The latter is better. Otherwise, a $100,000 legal defense bill will be subtracted from a $1 million per occurrence limit, leaving $900,000 to cover court awards and damages.

It’s also important to consider claim acknowledgment. An insurance carrier may acknowledge that a claim has been made in one of two ways:

1. It may require that the insured physician receive a “written demand for damages” from a prospective plaintiff, which means the physician must wait to actually be sued, or

2. The doctor is allowed to report an adverse outcome as a potential claim, known as “incident reporting.”

The latter is the better choice because the physician can report the incident as soon as he or she becomes aware of it, thus precluding negative PR that comes with a written demand for damages. It also avoids delay in getting the issue out in the open and resolving it. The physician has more control over the process.

Finally, every malpractice insurance policy excludes certain activities from its protection. So, make sure you check the exclusions provision to ensure it fits the kinds of practice activities you have in mind.

Which Carrier Should You Use?

Malpractice insurance companies take many forms. Some are physician-owned. Others are traditional commercial entities. Work with a broker or an independent agent to find the insurer that best suits your practice.

What to look for:

The carrier must have sufficient financial resources to satisfy all current and future damages claims against its policyholders. A close look at the carrier’s annual report and other financial statements will reveal information about its surplus, net written premiums and loss reserves — key metrics of financial strength.
Also look at ratings issued by industry analysts such as A.M. Best Company and Fitch. A rating of “A-” or better is desirable.
Equally important is the carrier’s management philosophy, which is reflected in its underwriting standards, claims management and actuarial policies.

The cost will depend on the carrier as well as the coverage needed and the physician’s history of adverse events. To get more bang for your buck, take advantage of valuable preventive services that carriers offer to physician practices to help reduce their legal risk and maintain patient safety. For example, they may provide risk management tools through bulletins, publications and educational programs and even offer premium discounts for practices participating in the programs.

As you know, physicians must carefully consider their malpractice insurance. If they don’t, they may face serious legal and financial implications from not having proper coverage when they need it. To ensure the well-being of your physicians and your practice, work with an insurance broker, your attorney and your CPA.

Having a strong password associated with your QuickBooks file is important for two reasons:

1. It will help keep external hackers from accessing your financial information.

2. It will keep internal staff members from accessing information.

It’s easy to get your head around number 1 but what about number 2? Yes, there are those rare times when an employee may not be as trustworthy as you had hoped. And he or she may be able to view or even manipulate data in QuickBooks, simply because of a weak password or because it was shared. There also may be data you don’t want certain staff members to see.

Layers of Security

Besides just requiring a password to get into QuickBooks, Intuit has extra layers of security for users. One layer requires a person attempting access to QuickBooks to verify that he or she is authorized to use the file. Another has to do with credit card information. If a user stores customer credit card data in QuickBooks, or has the “credit card protection” feature turned on, a password must be created to get into the software.

The final layer is for the administrator of the account. QuickBooks will notify the admin if other users haven’t set up a password. The admin will have the ability to recommend other users create a password or the admin can assign a password to a user.

Here are other security tips to ensure data safety:

All users should have a password for their QuickBooks desktop file.
Users should choose a strong user name and password. Use unique combinations of letters, numbers and characters (such as $ and %) in a password — not basic words that can easily be found online or in the dictionary.
Users should protect all personal information. Don’t share a user name and password with others or let colleagues sign in with your information. Make sure to use different passwords for each account.
Users should be using the latest version of QuickBooks or on versions released within two years back. Those versions have the most up-to-date security features.
What if a user needs to share a QuickBooks file? It’s recommended he or she use a secure method such as the Accountant’s Copy File Transfer (ACFT) service, when sharing QuickBooks files.

So, yes, passwords can be a pain to come up with and update. But the real problems will begin if your data is hacked or money is stolen from your business. So, keep things easy. Make your passwords difficult.

With the ever-increasing cost of health insurance and medical care, you should be vigilant in finding ways to claim tax breaks related to healthcare. Unfortunately, that’s now harder than before because a change included in the Affordable Care Act (ACA) increased the income-based threshold for deducting itemized medical expenses.

Medical Expense Deductions

However, some seniors have been given a one-year reprieve: A lower deduction threshold will apply for 2016 to people who are at least 65 years old as of year end. But the lower threshold is scheduled to expire after 2016. So, it could make sense for seniors to load up on medical expenditures before the end of this year to take advantage of the lower threshold.

Here are the details and some tax-planning guidance to help you make the most of itemized medical expense deductions over the next two years.

Higher Threshold for Medical Expense Deductions

Before 2013, you could claim an itemized deduction for medical expenses paid for you, your spouse and your dependents, to the extent those expenses exceeded 7.5% of your adjusted gross income (AGI). AGI includes all of your taxable income items, and it’s reduced by certain write-offs, including those for deductible IRA contributions, alimony payments and student loan interest.

Now, thanks to the ACA, a higher deduction threshold of 10% of AGI applies to most taxpayers. However, if either you or your spouse will be at least 65 as of December 31, 2016, the unfavorable 10%-of-AGI deduction threshold won’t affect you until 2017. (For 2016, the longstanding 7.5%-of-AGI deduction threshold still applies for qualifying seniors.)

Consider “Bunching” Medical Expense Deductions in Alternating Years

If you have flexibility about when medical expenses are incurred, try to concentrate them in alternating years. That way, you can claim an itemized medical expense deduction every other year or so — instead of losing the opportunity to claim any deduction for your healthcare costs.

Example 1

Suppose you’re a 40-year-old single person with an AGI of $65,000 for 2016 and 2017. Your threshold for deducting medical expenses is $6,500 (10% of $65,000) in 2016 and 2017. This year, you pay $9,000 of medical expenses, including an elective surgery, new glasses and contact lenses, and some dental work. Next year you expect to pay only about $2,000.

On your 2016 personal tax return, you can claim an itemized deduction of $2,500 ($9,000 – $6,500). For 2017, you can’t claim any itemized deduction for medical expenses.

However, if you had spread the two-year total ($11,000) equally between 2016 and 2017, you couldn’t have deducted any medical expenses in either year. The lesson: Deductions for concentrated (or “bunched”) expenses in some years are better than no deductions ever.

Example 2

Alternatively, let’s suppose you’re a 70-year-old single person with AGI of $65,000 in 2016 and 2017. Your threshold for deducting medical expenses is only $4,875 (7.5% of $65,000) for 2016. In 2017, your threshold increases to 10% of AGI (or $6,500).

As in the previous example, you pay $9,000 of medical expenses in 2016, including an elective surgery, new glasses and contact lenses, and some dental work. Next year you expect to pay only about $2,000.

On your 2016 personal tax return, you can claim an itemized medical expense deduction of $4,125 ($9,000 – $4,875). Next year, the 10%-of-AGI deduction threshold will apply to you, and you won’t get any deduction.

If you had spread the two-year total of $11,000 of medical costs evenly over this year and next year, you could deduct $625 this year ($5,500 – $4,875) and nothing next year.

Take Advantage of Your Company’s healthcare FSA

Here’s another tax-savvy move to consider: Contribute to an employer-provided healthcare FSA plan. These contributions can be subtracted from your taxable salary, and then you can use the funds to reimburse yourself tax-free to cover qualified medical expenses.

For 2016, the maximum FSA contribution for each employee is capped at $2,550. Next year, the cap may be slightly higher due to an inflation adjustment. If your company has a healthcare FSA plan, failing to participate is like leaving money on the table. The sign-up period to participate in 2017 is rapidly approaching. (It may be as early as sometime in October for some employers.)

Instead of making contributions to an employer-provided healthcare FSA, self-employed taxpayers who pay their own medical and dental insurance premiums are generally allowed to deduct those costs “above the line.” (In other words, these costs are a deduction for AGI, not from AGI.) This rule is helpful, because you aren’t required to itemize to benefit from an above-the-line deduction.

Need Help?

Your tax results can be improved if you plan ahead for medical expenditures (to the extent possible) and take advantage of your employer’s healthcare FSA (if one is offered). But that’s where the year-end planning ends for itemized medical expense deductions.

Unfortunately, your only recourse for other out-of-pocket medical expenses (other than health premiums) is to claim an itemized deduction when those costs exceed 10% of AGI — or 7.5% of AGI for 2016 if you qualify for the lower threshold due to your age or your spouse’s age. If you have questions or want more information, contact your Yeo & Yeo tax advisor.

There can be negative tax consequences when purported loan payments are recast as corporate distributions to shareholders. In some cases, the courts have ruled that withdrawals from two closely held corporations were constructive corporate distributions rather than loan proceeds and repayments. As such, the withdrawals triggered taxable dividends and capital gains for the shareholders.

Corporate Distribution Basics

For federal income tax purposes, non-liquidating distributions paid by C corporations to individual shareholders can potentially fall into three different layers. Withdrawals from each layer have different tax consequences.

First Layer: Taxable Dividends to Extent of Earnings and Profits.

Corporate distributions of cash or property are classified as taxable dividends to the extent of the corporation’s current or accumulated earnings and profits, which is a tax accounting concept that is somewhat similar to the financial accounting concept of retained earnings.

Dividends may be formally declared or they may be constructive. A constructive dividend arises when a corporation distributes earnings and profits to shareholders without formally declaring a dividend but without the expectation of repayment.

The maximum federal income tax rate on C corporation dividends is 20% for single people with taxable income above $400,000 ($450,000 for married joint-filing couples). Upper-income individuals may also owe the 3.8% Medicare net investment income tax on dividend income. For other taxpayers, the tax rate on dividends remains 15%.

Second Layer: Tax-Free Return of Capital to Extent of Stock Basis.

After the distributing corporation’s E&P is exhausted, subsequent distributions reduce each shareholder’s basis in his or her stock. In other words, distributions up to basis are treated as tax-free returns of shareholder capital.

Third Layer: Capital Gain after Stock Basis Is Exhausted.

After a shareholder’s stock basis is reduced to zero, any additional distributions are treated as capital gains. Assuming the gains are long-term because the stock has been held for more than a year, the maximum individual federal income tax rate is 20% for high income taxpayers.

This applies to singles with taxable income above $400,000, (married joint-filing couples with income above $450,000). For taxpayers with income below that, the maximum long-term capital gains rate is 15%.

Steer Clear of Negative Tax Consequences

Whenever cash or property passes between closely held corporations and their shareholders, there are tax consequences. The only way to control the tax consequences is to document what the transactions are intended to be and follow through by acting accordingly.

When transactions are intended to be loans, the objective factors in the right-hand box must be considered and respected. Otherwise, the IRS can re-characterize the transactions in ways that have negative tax consequences for shareholders, their corporations, or both. Consult with your Yeo & Yeo tax advisor for guidance in your situation.

Also see, Shareholder Loans: Courts Examine 8 Factors.