Preparing for GASB 103, 104, and 105: A Practical Overview

When new GASB standards are issued, government finance teams often ask the same question: What do we need to do differently—and when? With GASB Statements 103, 104, and 105 on the horizon, now is an ideal time to begin answering that question.

While each of these standards addresses a different aspect of financial reporting, they share a common theme: improving clarity, consistency, and transparency for financial statement users. For governments, successful implementation will depend less on last-minute compliance efforts and more on thoughtful preparation.

A practical starting point is understanding scope and applicability. Not every provision of each standard will affect every government in the same way. Taking time to evaluate how your entity’s financial statements, disclosures, and processes align with the new guidance can help narrow the focus to areas that truly require attention.

For GASB 103, governments should consider how changes to the financial reporting model may affect internal reporting, communication with governing bodies, and comparison to prior periods. Even presentation-focused changes can require coordination across teams to ensure consistency and accuracy. This may be particularly true for the newly required budgetary comparison disclosures.

Documentation is an important consideration early in the implementation process. GASB 104 introduces new financial reporting requirements that may require governments to reassess how certain information is identified, evaluated, and captured for disclosure. This standard involves an element of judgment because a new disclosure is now required for significant capital assets that are expected to be sold within one year of the financial statement date.

GASB 105 should also be evaluated carefully, even if the amendments appear narrow or technical. The statement makes targeted changes to existing guidance, and those changes may affect how certain transactions or balances are reported. Governments should review the updates closely to determine when events occurring after the reporting period are required to be recorded, disclosed, or both.

Another practical step is engaging in early conversations with your auditors and advisors. These discussions can help identify common implementation challenges, confirm interpretations, and align expectations well before the standards take effect. Proactive communication can also reduce audit adjustments and last-minute surprises.

To support governments in this process, Yeo & Yeo will be hosting a CPE-eligible webinar on May 27, 2026, dedicated to GASB 103, 104, and 105. The session will provide a practical overview of each standard, discuss implementation considerations, and include live Q&A with experienced government professionals.

View the Government Accounting & Operations Webinar Series

In some workplaces, employees stay late — not to finish pressing company projects — but to use their employers’ resources to pursue unauthorized side work. These workers might use their employers’ equipment and materials, not to mention run up utilities costs. Although side jobs may seem benign relative to outright theft, they can be costly in ways you might not have imagined.

Unexpected risks

Abuse of company resources — for example, computers, printers, paper and electricity — is the most obvious risk of after-hours hustles. Tools used for personal projects may wear out faster or break without direct supervision. What’s more, products created with company tools can blur ownership lines, especially if those products rely on your proprietary technology.

Also consider what might happen if an employee is injured, or injures someone else, while working off-the-clock in your office or factory. Your company could be held liable, especially if a manager knew about the activity and didn’t do anything to stop it. Then there’s the risk of employees claiming overtime for hours they’re actually spending on their own projects.

Employees may think their activities are harmless, particularly if management hasn’t explicitly forbidden such activities or is inconsistent in enforcing rules. But if you don’t establish and enforce rules and monitor workers, side jobs can evolve from one-off projects to routine misuse of resources and ongoing fraud.

Policies and procedures

Stopping employees from engaging in after-hours hustles requires several simple yet effective controls, starting with a written policy prohibiting the practice. Your policy should stipulate what constitutes business property and how it can be used, when employees are allowed to be on your premises, and what approval they need to work on-site after hours. Be explicit about what qualifies as overtime and who must approve it. And make sure the same policies apply to management as to ordinary workers.

Consider these additional control measures to help reduce financial and operational risk:

Monitor and limit access to company facilities. Install a key card system to control access to your facilities. Pay attention to unusual entry and exit patterns and follow up when employees appear to be on-site outside of expected hours.

Install cameras. Visible cameras can reinforce your written policies and key card entry system — and help prevent other criminal activity. Camera footage can also provide information and evidence for official investigations and disciplinary proceedings.

Make surprise visits. Unexpectedly showing up at your facility may help you catch an employee engaging in unauthorized activity. Even if it doesn’t, it can discourage workers who might be tempted to break the rules.

Implement an employee hotline. If you haven’t already, provide workers with an anonymous mechanism (for example, a toll-free tipline or web portal) to report rule infractions and suspected fraud. Often, employees know more about their colleagues’ activities than supervisors do.

Between control and trust

Most employees who work late are on-site to perform legitimate company projects, not to pursue side hustles. So be careful not to accuse someone of misuse or fraud unless you have good evidence of bad intent. After all, you likely want to encourage workers to assume ownership of their work and assert initiative! The best way to prevent after-hours hustles is to balance trust with structure. Contact us to investigate any suspicious activities, conduct a risk assessment and implement internal controls to help prevent financial losses.

The passive activity loss (PAL) rules may limit your ability to deduct losses from a business structured as a limited liability partnership (LLP) or limited liability company (LLC). Depending on how your ownership interest is treated under these rules, you may have more or less flexibility to claim losses in the current year. Here’s a closer look.

The basics

Under the PAL rules, you generally can use passive activity losses only to offset income from other passive activities. (Keep in mind that other limitations, such as basis and at-risk rules, may apply before the PAL rules.)

There are two types of passive activities: 1) trade or business activities in which you don’t materially participate during the year, and 2) rental activities, even if you do materially participate (unless you qualify as a real estate professional under the PAL rules). Disallowed losses may be carried forward to future years and deducted from passive income or recovered when the passive business interest is sold.

If you’re an LLP or LLC owner, you can avoid passive treatment by materially participating in the business’s activities. This allows you to use LLP or LLC losses to offset nonpassive income, such as wages, interest, dividends and capital gains.

7 factors

Material participation in this context means participation on a “regular, continuous and substantial” basis. Unless you’re treated as a limited partner, you’re deemed to materially participate in a business activity during the year by meeting one of the following seven criteria:

You participate in the activity more than 500 hours during the year.
Your participation constitutes substantially all the participation for the year by anyone, including nonowners.
You participate more than 100 hours and as much or more than any other person.
The activity is a “significant participation activity” — that is, you participate more than 100 hours — but you participate less than one or more other people yet your participation in all your significant participation activities for the year totals more than 500 hours.
You materially participated in the activity for any five of the preceding 10 tax years.
The activity is a personal service activity in which you materially participated in any three previous tax years.
Regardless of the number of hours, based on all the facts and circumstances, you participate in the activity on a regular, continuous and substantial basis.

Limited partners face more restrictive rules; they can establish material participation only by satisfying criterion 1, 5 or 6.

Supporting your deductions

If you’re an LLC or LLP owner, it’s important to track the time you spend on business activities. In addition, if your spouse also participates in an activity, you can combine your hours to meet the material participation standards. Contact us for additional guidance on documenting your hours, applying the material participation test and maximizing business loss deductions.

Even financially sound businesses can be vulnerable to market volatility and unexpected disruptions. Many companies discover too late that their financial position, internal controls or contingency plans aren’t built to withstand sudden shocks, potentially leading to cash shortfalls, debt covenant violations and reduced profitability. A “stress test” models how your cash flow, liquidity and overall financial structure would perform under adverse scenarios. Here’s how stress testing can help you proactively evaluate your business’s resilience and strengthen its ability to adapt to changing market conditions.

Identify your organization’s exposure points

Start by identifying your business’s exposure points. Risks are often classified in four categories:

Operational risks. These risks encompass the company’s internal operations. Examples include cybersecurity incidents, supply chain breakdowns or natural disasters.
Financial risks. How well does your company manage its finances? Key financial risks may include liquidity constraints, interest rate exposure and the threat of fraud.
Compliance risks. This category includes issues that might attract the attention of government regulators, such as evolving tax, reporting and industry-specific requirements.
Strategic risks. This term refers to the company’s market focus and its ability to respond to changes in customer demand, competition and technology.

Build a practical response framework

Once you’ve identified key business risks, meet with your management team to improve your collective understanding of their potential financial impacts and the organization’s capacity to absorb them. Encourage team members to share additional risks and model downside scenarios, such as revenue declines, delayed receivables or increased borrowing costs — along with their impact on cash flow and profitability.

In addition to evaluating downside risk, stress testing can help your team identify opportunities to reallocate resources to higher-performing products or services, adjust pricing strategies in response to shifting demand, or make targeted investments when competitors pull back. This approach allows you to respond proactively rather than defensively to emerging threats.

From there, your management team can develop a plan to mitigate risk. For example, if your company operates in an area prone to natural disasters, you should maintain and periodically test a disaster recovery and business continuity plan. If your company relies heavily on a key individual, consider implementing a succession plan and evaluating key person insurance. For financial risks, your plan may include maintaining adequate liquidity buffers, diversifying your revenue base, revisiting debt covenants and strengthening internal controls to reduce fraud risk.

Reassess and refine regularly

Effective risk management is an ongoing process. New risks emerge as markets, technology and regulations evolve, while previously significant risks may diminish over time. Meet with your management team at least annually — or more frequently in periods of change — to review and update your risk management plan. If your organization has recently faced a disruption, use that experience as a learning opportunity. Evaluate how well your plan performed, identify gaps and missed opportunities, and implement improvements to strengthen your response going forward.

Build resilience now

A well-executed stress test identifies blind spots that can affect financial performance and provides a roadmap for building resilience. In today’s environment, proactive risk assessment is a key component of sound financial management and governance. We can help you quantify potential cash flow gaps, evaluate tax and financial risks across multiple scenarios, and identify practical steps to fortify your financial position and uncover strategic opportunities. Contact us to design and perform a stress test tailored to your organization, so you can make timely, data-driven decisions.

With the April 15 tax filing deadline in the rearview mirror, you’re likely to turn your attention to other things. But before you do, it’s in your best interest to tie up a few tax-related loose ends.

IRS statute of limitations

Generally, the IRS’s statute of limitations for auditing a tax return is three years from the return’s due date or the filing date, whichever is later. However, some tax issues are still subject to scrutiny after three years. For example, if the IRS suspects that income has been understated by 25% or more, the statute of limitations for an audit extends to six years. If no return was filed or fraud is suspected, there’s no limit on when the IRS can launch an inquiry.

It’s a good idea to keep copies of your tax returns indefinitely as proof of filing. Supporting records generally should be kept until the three-year statute of limitations expires. These documents may also be helpful if you need to amend a return.

So, which records can you throw away now? Based on the three-year rule, in late April 2026, you’ll generally be able to discard most records associated with your 2022 return if you filed it by the April 2023 due date. Extended 2022 returns could still be vulnerable to audit until October 2026. But if you want extra protection, keep supporting records for six years.

What records should you retain?

Documentation supporting your income, deductions and credits that you generally should retain following the three-year rule may include:

Various series 1099 forms, such as Form 1099-NEC, “Nonemployee Compensation,” Form 1099-MISC, “Miscellaneous Income,” and Form 1099-G, “Certain Government Payments,”
Form 1098, “Mortgage Interest Statement,”
Property tax payment documentation,
Charitable donation substantiation,
Records related to contributions to and withdrawals from Section 529 plans and Health Savings Accounts, and
Records related to deductible retirement plan contributions.

You’ll also want to hang on to some tax-related records beyond the statute of limitations. For example:

Retain Forms W-2, “Wage and Tax Statement,” until you begin receiving Social Security benefits. That may seem long, but if questions arise regarding your work record or earnings for a particular year, you’ll need your W-2 forms as part of the required documentation.
Keep records related to investments and real estate for as long as you own the assets, plus at least three years after you sell them and report the sales on your tax return (or six years if you want extra protection).
Hang on to records associated with retirement accounts until you’ve depleted the accounts and reported the last withdrawal on your tax return, plus three (or six) years.
Retain records that support figures affecting multiple years, such as carryovers of charitable deductions or casualty losses, until they have no effect, plus seven years.
Keep records that support deductions for bad debts or worthless securities that could result in refunds for seven years because you have up to seven years to claim them.

Other tax-related chores

As you can see, keeping tax-related records is critical. So put yourself in a good position for filing your 2026 return next year by carefully tracking expenses potentially eligible for deductions or credits on an ongoing basis.

For example, if you’re self-employed and use your personal vehicle for business purposes, maintain a mileage log recording the date, mileage, purpose and destination of each trip. Or if you regularly donate to charity, keep the receipts or written acknowledgments you receive. (Additional substantiation may be required depending on the size and type of donation.)

In addition, this is a good time to reassess your current tax withholding to determine if you need to update your Form W-4, “Employee’s Withholding Certificate.” You may want to increase withholding if you owed taxes this year. Conversely, you might want to reduce it if you received a hefty refund. Changes also might be in order if you experience certain major life events, such as marriage, divorce, birth of a child or adoption, this year.

If you make estimated tax payments throughout the year, consider reevaluating the amounts you pay. You might want to increase or reduce the payments due to changes in self-employment income, investment income, Social Security benefits and other types of nonwage income.

To preempt the risk of a penalty for underpayment of tax, consider paying at least 100% of the tax shown on your 2025 tax return (110% if your 2025 adjusted gross income was over $150,000 — or over $75,000 if you’re married and filed separately) through withholding and/or four equal estimated tax payments.

What’s this? A letter from the IRS?

After filing your tax return, you may receive a letter in the mail from the IRS. While such letters can be alarming, don’t assume the worst. The letter might simply inform you of a refund adjustment (up or down) based on a math or similar error on your return. If you agree with the change, generally no response is needed. If you disagree, contact the IRS by the date indicated.

Or the letter might propose a change to your return based on information reported by third parties, such as employers or financial institutions. In this case, follow the instructions to respond, include any required documentation, and note whether you agree or disagree with the proposed change.

Of course, an IRS letter could inform you that your return is being audited. It’s important to remember that being selected for an audit doesn’t always mean there’s a significant error on your return. For example, your return could have been flagged based on a statistical formula that compares similar returns for deviations from “norms.”

Further, if selected, you’re most likely going to undergo a correspondence audit. These account for a majority of IRS audits. They’re conducted by mail for a single tax year and involve only a few issues that the IRS anticipates it can resolve by reviewing relevant documents. According to the IRS, most audits involve returns filed within the last two years.

If you receive notification of a correspondence audit, you and your tax advisor should closely follow the instructions. You can request additional time if you can’t submit all the documentation requested by the specified deadline.

Don’t ignore the letter. Failure to respond can lead to the IRS disallowing some tax breaks you claimed and issuing a Notice of Deficiency (that is, a notice that a tax balance is due).

Be proactive

Organizing your past and current-year tax records now can facilitate a smoother tax filing next year or a less painful audit of a recent return. Similarly, adjusting your withholding or estimated tax payments can mean more money in your pocket now or no (or smaller) underpayment penalties next April.

If you have questions on what files to keep and for how long or how to adjust withholding or estimated tax payments, we can help. And if you receive an IRS letter, contact us as soon as possible. We can advise you on complying with any IRS requests.

So you’ve decided to start your own business — congratulations! Many new owners open a business to be their own boss and chart their own course. However, along with those benefits come some complications compared to being someone else’s employee. Planning and budgeting are critical, and you’ll have plenty of new tax compliance responsibilities.

1. It starts with funding

Starting a business takes money. To help you gain access to bank loans and attract equity investors, write a formal business plan that tells your backstory, describes your products and services, and highlights your market research. The plan should explain how you intend to use any capital you raise to grow the business and, of course, why your business will be successful.

Because your new business won’t have a financial track record, you’ll need to create a projected balance sheet, income statement and statement of cash flows using market-based assumptions. Lay out multiple scenarios — including best, worst and most likely results — and identify which variables are critical.

2. Accounting matters

When you set up your business, separate its finances from your personal finances. Commingled financial records can cause tax and financial reporting headaches as your business grows.

Next, understand that lenders and investors will want to know whether your business is meeting performance targets. Establish an accounting system to record transactions and generate financial statements that can easily communicate results to stakeholders. We can recommend cost-effective software solutions.

Initially, you may elect to use the cash-basis or income-tax-basis method of accounting to simplify matters. Indeed, it’s often easier for start-ups to maintain one set of books for both tax and accounting purposes. However, if you have an accounting background, you may opt for accrual-basis accounting from the get-go.

3. Tax planning is a must-do

Many start-up ventures aren’t initially profitable. But it’s essential to start planning for taxes from the beginning. One factor that will affect your company’s tax situation is its entity structure. Depending on your tax, legal and other needs, you might choose a sole proprietorship, partnership, limited liability company (LLC), S corporation or C corporation.

Know that C corporations pay tax at the entity level, then the individual owners pay tax when they receive dividends. This results in double taxation. To avoid this, you may want to consider a “pass-through” entity. Pass-through income generally isn’t taxed at the entity level. Instead, it passes through to the individual owners (along with the business’s deductible expenses) and is taxed on their individual returns. However, the top rates for individual taxpayers are higher than the flat 21% rate for C corporations — though the qualified business income deduction for pass-through entity owners can help make up for that.

Another major tax issue to understand is the appropriate tax treatment for your start-up expenses. The timing and amount of expenses are key to determining what’s immediately deductible and what costs must be capitalized and amortized over time.

New businesses need to plan for other taxes, too. You may need systems in place to file and pay property, sales and employment taxes. Look into initially outsourcing these administrative tasks to third-party specialists so you’ll have time to focus on daily business operations.

4. Estate planning now can save tax later

Another smart consideration if you’re starting a business is estate planning. New entrepreneurs often solicit help from friends and family members. In exchange, founders may make gifts of ownership interests while the business’s fair market value is relatively low, removing potential future appreciation from their estates.

A business valuation professional can help determine the fair market value of your new business based on objective market data and financial projections. Proactive estate planning at this phase can save significant tax dollars over the long run as the company’s value grows.

5. Employees may want equity

Most start-ups operate lean, with only a few employees — each wearing multiple hats. Early employees may agree to forgo high salaries for equity-based compensation, which can help your start-up avoid a cash crisis while still attracting top talent. What’s in it for staffers? Business equity can grow into a valuable financial asset. Plus, employees who own equity may feel more invested and, thus, enjoy greater fulfillment.

There are several types of equity-based compensation to consider, including outright transfers of ownership interests in the business, profits interest awards (partnerships, LLCs and S corporations) and restricted stock or stock options (C corporations). We can help you determine the best form of compensation.

Thoughtful execution

Launching a successful business requires more than vision alone. It also calls for thoughtful execution, informed decision-making and ongoing attention to financial and operational details. Approach start-up matters with strategic foresight by consulting legal, financial and tax advisors. We can help you get off the ground.

Many small businesses don’t have enough employees to worry about the play-or-pay provisions of the Affordable Care Act (ACA). However, as your business grows, these rules can apply sooner than expected. This issue also may not be on your radar because there’s a common misconception that the repeal of ACA penalties under the Tax Cuts and Jobs Act applied to both individuals and businesses. While the individual mandate penalty was eliminated beginning in 2019, the employer shared responsibility rules are still in effect.

Don’t let ACA compliance become a blind spot for your business. Here’s what you need to know to comply with the law’s requirements.

The play-or-pay threshold

The ACA’s employer shared responsibility rules apply to applicable large employers (ALEs). In general, ALEs are businesses with 50 or more full-time employees, including full-time equivalents (FTEs). Once a business crosses that threshold, it must comply with several requirements related to employee health coverage. An employer’s size for the year is determined by the number of full-time employees plus FTEs in its prior year. The challenge is that many business owners don’t realize they’re approaching the ALE threshold until it’s too late.

First, for ACA purposes, a full-time employee generally is an individual employed on average at least 30 hours of service per week or 130 hours per month. So some employees you might consider to be part-time because they work less than 40 hours a week may be considered full-time for ACA purposes.

Second, FTEs are determined by adding all hours of service for the month for employees who weren’t full-time employees (but no more than 120 hours per employee), and dividing by 120. This can push a company into ALE status faster than expected. For example, a small company with 35 full-time employees and a significant number of part-time workers could exceed the 50-full-time-employee threshold once part-time hours are aggregated.

2 types of penalties

Under the ACA, an ALE may incur a penalty if it doesn’t offer minimum essential coverage to its full-time employees and their eligible dependents or if it offers such coverage, but that coverage isn’t affordable and/or fails to provide minimum value. The penalty is typically triggered when at least one full-time employee receives a premium tax credit for buying individual coverage through a Health Insurance Marketplace.

One of two penalty structures may apply, depending on the circumstances. First, under Section 4980H(a), a penalty may be assessed if an ALE fails to offer coverage to at least 95% of its full-time employees and their dependents. This penalty is calculated based on the total number of full-time employees, excluding the first 30. Second, under Section 4980H(b), a penalty may apply for each full-time employee who receives a premium tax credit for purchasing coverage through a Health Insurance Marketplace because the employer’s coverage is unaffordable or doesn’t provide minimum value.

Updated penalties for 2026

The adjusted penalty amounts (per the applicable number of full-time employees used to calculate the specific penalty) for failures occurring in the 2026 calendar year are:

$3,340 (up from $2,900 in 2025) under Sec. 4980H(a), for ALEs not offering health coverage, and
$5,010 (up from $4,350 in 2025) under Sec. 4980H(b), for ALEs offering coverage but that have employees who qualify for premium tax credits or cost-sharing reductions.

The IRS uses Letter 226-J to inform ALEs of their potential liability for an employer shared responsibility penalty. A response form — Form 14764, “ESRP Response” — is included with Letter 226-J so that an ALE can inform the IRS whether it agrees with the proposed penalty. A response is generally due within 30 days. Be on the lookout for this letter so that you’re prepared to promptly review and respond if the IRS contacts you.

Considerations for growing businesses

As your workforce expands, it’s important to address the following questions:

How close is your company to the 50-full-time-employee threshold?
Are you properly identifying who’s a full-time employee under the ACA and calculating your number of FTEs based on part-timers’ hours?
If your company becomes an ALE, how will it structure health coverage to satisfy affordability and minimum value requirements?
Are your payroll and human resource systems prepared to support ACA reporting requirements, including Forms 1094-C and 1095-C?

Addressing these issues early can help ensure that expansion plans don’t come with unexpected ACA penalties.

For more information

Careful compliance with the ACA remains critical for companies that qualify as ALEs. Growing small businesses should be particularly wary as they become midsize ones. Contact us with questions about your obligations and ways to better manage the costs of health care benefits.

Financial Literacy Month is a helpful reminder that money isn’t just about spreadsheets, investment accounts, or retirement calculators. At its core, financial literacy is about confidence—the confidence to make informed decisions, plan with intention, and navigate uncertainty at every stage of life.

If I’m honest, I wish I had been exposed to financial education much earlier. Like many people, I learned by trial and error, and sometimes the hard way. No one sat me down to explain how compound interest really works, how debt can quietly limit opportunity, or how much peace of mind comes from simply having a plan. That knowledge came later, after experience, mistakes, and time.

That experience shaped my belief that financial literacy isn’t just personal. It’s something we need to talk about openly, share more often, and introduce earlier. When people understand how money works—and how it works for them—the impact extends beyond individuals to families, organizations, and entire communities.

Why This Matters—and Why It’s Never Too Late

One of the best pieces of financial advice I was ever given was simple but powerful: “Don’t wait for perfect conditions to start—progress matters more than precision.” That advice applies to investing, saving, and financial planning overall. Too often, people delay action because they feel they don’t know enough or don’t have enough. Confidence grows not from perfection, but from engagement.

That belief sets the foundation for how I think about financial literacy: not as a single lesson or milestone, but as a lifelong conversation that evolves as life changes.

What Financial Confidence Really Means

Financial confidence doesn’t mean having all the answers or never feeling uncertain. It means understanding where you stand, knowing your options, and having a plan—even if that plan changes over time. It’s the difference between reacting to money challenges and proactively managing them.

Confidence grows when education keeps pace with life. And life, as we all know, rarely stays still. Below are a few practical insights and steps I encourage anyone to take at different stages in their financial journey.

Building Financial Literacy Across Every Stage of Life

Early Life & Youth: Building Awareness

Financial literacy should start early—not with complexity, but with familiarity.

Learn the basics of earning, saving, and spending.
Understand the trade‑off between spending now and saving for later.
Introduce concepts like delayed gratification, simple budgeting, and saving for goals.

Early exposure builds comfort. Comfort builds confidence.

Early Career: Creating Strong Habits

The first working years are foundational.

Understand your paycheck, benefits, and taxes.
Build a simple budget aligned to priorities.
Start saving early and learn how compound growth works over time.
Be intentional about debt, especially student loans and high-interest credit.

These habits often matter more than income level.

Mid‑Career & Growing Families: Managing Complexity

As income grows, life gets more complex.

Balance competing priorities: housing, family, education, career growth.
Build and maintain an emergency fund.
Invest with intention, not reaction.
Revisit goals regularly and adjust as life changes.

At this stage, financial literacy becomes less about tactics and more about alignment— ensuring money supports the life you’re building, not the other way around.

Pre‑Retirement & Retirement: Sustaining Confidence

Financial education doesn’t stop when you’ve accumulated wealth.

Understand income strategies, tax efficiency, and withdrawal planning.
Reassess risk tolerance as priorities shift.
Plan for healthcare, longevity, and legacy goals.
Stay engaged. Confidence comes from understanding, not ignoring finances.

Even at higher levels of wealth, clarity matters. Education remains critical to preserving peace of mind and flexibility.

Practical Steps That Apply at Any Stage

No matter where you are in your journey, these principles remain constant:

Understand Your Starting Point: You can’t plan where you’re going without knowing where you are. Take time to know your income, expenses, savings, and obligations—even at a high level. Awareness alone often reduces financial stress.
Be Intentional With Your Money: Budgets aren’t about restriction. They’re about aligning resources with what matters most. Start simple, adjust as life changes, and remember that consistency is more important than precision.
Protect Against the Unexpected: An emergency fund is one of the most powerful tools for financial confidence. It provides flexibility when life doesn’t go as planned—because it won’t. Even starting small can make a meaningful difference over time.
Manage Debt Strategically: Understand how interest and repayment terms impact long‑term outcomes. A clear plan creates momentum.
Think Long‑Term: You don’t need to be an expert to start investing, but understanding basic concepts like compound growth and time horizon can be life-changing. Starting earlier—even with modest amounts—often matters more than trying to time the market.
Keep Learning—and Ask for Help: Financial literacy is ongoing. Ask questions, use reputable resources, and don’t be afraid to seek professional guidance. Confidence grows when you understand not just what to do, but why you’re doing it.

A Shared Responsibility

Financial literacy is not a one‑time milestone—it’s a lifelong skill. The earlier it begins, the more powerful it becomes, but it’s never too late to build confidence and security. Small, consistent steps compound over time, just like good financial habits.

As leaders, employers, parents, and peers, we all have a role to play in encouraging conversations about money that are honest, practical, and empowering. My hope is that by sharing knowledge more openly, we help others avoid learning the hard way—and instead move forward with confidence.

Financial literacy isn’t just about money. It’s about freedom, opportunity, and peace of mind—at every stage of life.

Yeo & Yeo CPAs & Advisors, a leading Michigan-based accounting and advisory firm, has expanded its Ann Arbor office as part of the firm’s continued investment in its people and its ability to serve organizations across Southeast Michigan. The expanded office now spans nearly 14,000 square feet—an increase of 4,000 square feet from its previous footprint—and includes additional meeting rooms, workspace for professionals, and a large training room designed for collaboration with colleagues and clients.

As part of the expansion, Yeo & Yeo HR Advisory Solutions (YYHR) has relocated from SPARK East into the Ann Arbor office effective April 1.

The move follows Yeo & Yeo’s January 2025 acquisition of Amy Cell Talent, an Ann Arbor-based recruiting and HR advisory firm. Over the past year, the firm has expanded those services under the YYHR brand as demand for workforce strategy, outsourced and fractional HR, recruiting, and leadership development support continues to grow.

“Investing in our Ann Arbor office reflects our commitment to our people and to the organizations we serve across Southeast Michigan,” said David Youngstrom, President & CEO of Yeo & Yeo CPAs & Advisors. “As businesses navigate talent shortages and leadership transitions, bringing our HR advisors together with colleagues across accounting, advisory, and technology services allows us to deliver integrated solutions—when our clients need them most.”

YYHR provides recruiting, HR advisory and compliance consulting, compensation strategy, leadership development, and fractional HR services designed to help organizations attract, develop, and retain talent in an increasingly competitive workforce environment.

“We’ve always been deeply connected to the Ann Arbor and Ypsilanti community,” said Amy Cell, President of Yeo & Yeo HR Advisory Solutions. “This next chapter allows us to remain rooted here while continuing to support organizations across Michigan and throughout the country as they navigate today’s evolving workplace.”

The Ann Arbor office expansion reflects Yeo & Yeo’s continued investment in Southeast Michigan and strengthens the firm’s ability to support businesses, nonprofits, and community organizations across the region.

Yeo & Yeo plans to commemorate the office expansion and YYHR relocation with a ribbon cutting in May in partnership with the Ann Arbor/Ypsilanti Regional Chamber.

According to the FBI, staged auto accidents account for approximately $20 billion a year in losses. This type of insurance fraud is particularly harmful to the insurance companies that must pay out liability, disability, medical and other types of claims.

All of this may sound troubling, but what does it have to do with noninsurance businesses? Insurance fraud raises rates for everyone and generally increases your company’s insurance costs. And if your employees either stage accidents or are victims of staged accidents while driving for business purposes, your company could suffer more direct consequences.

Just the facts

Staged accidents are often part of coordinated fraud schemes. In some cases, they may include unscrupulous attorneys and “medical mills” — groups of doctors and other health practitioners who prescribe unnecessary procedures and bill for unperformed services. In some cases, complicit law enforcement officers (and in at least one large-scale scam, 911 operators) are involved.

These illegal enterprises recruit people to sustain “injuries.” Often, crash victims are innocent individuals recruited off the street and promised a quick buck to act as passengers. In staged crashes, one car usually rear-ends, sideswipes or “T-bones” another. After the crash, the claimants or the attorney coordinating the scam submit a police report documenting it.

Passengers are referred to participating doctors, physical therapists, chiropractors and other specialists. The medical practitioners then write up fake treatment plans and send them to insurers for payment. When insurance payments (or legal damages if a case proceeds to litigation) are processed, scheme participants receive kickbacks.

Actual harm

Aside from the aggravation (and, potentially, real physical injuries) they cause, staged accidents pose a serious threat to your company’s insurance coverage. If an innocent employee driving a company vehicle is involved in a staged accident, you could experience commercial liability rate increases and possible reduction — or even elimination — of coverage. The same is true of your company’s health or disability premiums if a dishonest employee fraudulently files claims.

In fact, insurers may either adjust coverage or withdraw from entire geographic areas where medical mills and staged accidents have caused them big losses. Staged accidents are particularly prevalent in big cities and in such states as Florida, New York, California, Texas and Maryland, according to National Insurance Crime Bureau data.

Your business might also be sued for the “pain and suffering” of so-called victims. If your insurance coverage is inadequate, you could incur significant out-of-pocket costs.

Your role in prevention

To help protect your business, establish a company vehicle use policy that documents zero tolerance for intentional involvement in insurance fraud. Also ensure that authorized drivers meet all requirements under your insurance coverage. And train employees who drive on company business on what to do if they’re involved in a collision — for example, wait for the police to arrive, document accident details, and, if possible, obtain witness contact information. Employee drivers should be required to inform someone in your company immediately.

You may also want to strengthen internal controls. For example, conduct appropriate background checks on employees with driving roles.

If an auto accident involves injuries or requires costly repairs, work closely with your insurer and attorney. Most insurance companies are familiar with the red flags of staged accidents, such as passengers claiming major medical expenses after what appears to be a minor collision or hiring disreputable lawyers to sue for damages.

Get involved

To help control rising insurance costs, it’s important to take an active role in preventing insurance fraud. If you’re concerned about the legitimacy of a work-related accident, treat the event like any potential fraud and investigate with the support of appropriate legal and forensic accounting advisors. Contact us. We can help you assess fraud exposure, strengthen internal controls and evaluate the adequacy of your insurance coverage.

Companies that engage in research and development activities may qualify for a federal tax credit for some of those expenses. The credit is complicated to calculate, and not all research activities are eligible — but the tax savings can be significant. Here are answers to questions you might have about this potentially lucrative tax break.

What’s it worth?

The federal research credit — sometimes referred to as the research and development (R&D) credit — is for increasing research activities. Generally, it’s equal to 20% of the amount by which qualified research expenditures (QREs) in a tax year exceed a base amount derived from your company’s historical research expenditures. (There are alternative computation methods for startups and other companies without sufficient historical data.) QREs include wages, supplies, and certain consulting and contract research fees related to qualified research activities.

The credit is nonrefundable — that is, it can’t be used to generate a loss — but unused credits may be carried back one year or forward up to 20 years. Limits on general business credits also prevent companies from using tax credits to erase their tax liability entirely.

In addition, startups may elect to offset research credits against up to $500,000 in employer-paid payroll taxes. For this purpose, “startups” are generally businesses in operation for less than five years with less than $5 million in gross receipts.

And sole proprietors and owners of small pass-through entities (including S corporations, partnerships and most limited liability companies) can use the credit to reduce their alternative minimum tax liability. For this purpose, “small” businesses are generally those with average gross receipts of no more than $50 million for the three preceding tax years.

What costs qualify?

The research credit isn’t just for scientific research. Generally, to qualify for the credit, a research activity must:

Relate to the development or improvement of a “business component,” such as a product, process, technique or software program,
Strive to eliminate uncertainty over how (and whether) the business component can be developed or improved,
Involve a “process of experimentation,” using techniques such as modeling, simulation or systematic trial and error, and
Be technological in nature — that is, it must rely on “hard science,” such as engineering, computer science, physics, chemistry or biology.

To claim the credit, you must bear the financial risk associated with the research and enjoy substantial rights to the results. Otherwise, it will be considered “funded research,” which is ineligible for the credit.

These criteria are broad enough to encompass a wide range of business activities. Examples include developing new products, improving processes (including business or financial processes that involve computer technology) and developing software for internal use.

Finally, only domestic research costs qualify for the federal research credit. Foreign research expenses are excluded and must instead be capitalized and amortized over 15 years.

Can businesses claim the research credit for deductible R&E costs?

Research-related expenses may qualify for two tax breaks. The first is the research credit; the second is the deduction for research and experimental (R&E) costs. Businesses can immediately deduct domestic R&E expenditures paid or incurred in tax years beginning after December 31, 2024. However, you can’t claim both breaks for the same expenses.

In general, the expenses that qualify for the research credit are narrower than those that qualify for the R&E deduction. If you claim the research credit, you must reduce the amount otherwise deductible (or capitalized) for R&E expenditures by the amount of the credit. However, under the One Big Beautiful Bill Act, the amount deducted or charged to a capital account for R&E costs is reduced by the full amount of the research credit, as opposed to being subject to a more complex calculation in effect under prior law.

Next steps

Many businesses overlook the federal research credit because of its complexity. But the tax savings can be substantial — and many states offer research tax incentives in addition to those available at the federal level. If your business invests in developing or improving products, processes or software, we can help you assess eligibility, quantify potential benefits and ensure your research-related tax breaks are properly supported. Contact us for more information.

Many small business owners start with simple accounting processes. But as their companies grow, the choice of accounting method can significantly impact taxes, financial reporting and access to financing. Understanding the differences between the cash and accrual methods — and when each makes sense — can help you make more informed decisions as your business develops.

Cash-basis accounting: Simplicity and tax flexibility

Under the cash method, companies recognize revenue when payments are received and expenses when they’re paid. As a result, cash-basis entities may report fluctuations in profits from period to period, especially if they’re working on long-term projects. This can make it hard to benchmark a company’s performance from year to year — or against other entities that use the accrual method.

Small businesses with average annual gross receipts below an inflation-adjusted threshold may qualify to use the cash method for federal tax purposes. For the 2025 tax year, the inflation-adjusted gross receipts threshold was $31 million. For 2026, the threshold increases to $32 million. These tax thresholds apply to most small businesses, including sole proprietorships, partnerships and corporations.

Businesses that are eligible to use the cash method of accounting for tax purposes may have some ability to manage the timing of income and deductions within the boundaries of tax rules. This typically involves planning around when income is received and expenses are paid.

In some cases, businesses may benefit from deferring revenue and accelerating expenses near year end to reduce current-year taxable income. However, this approach should be evaluated carefully, as it may also make the business appear less profitable to lenders or investors. Conversely, if tax rates are expected to increase substantially in the coming year, it may be advantageous to accelerate revenue recognition and defer expenses at year end. This strategy may increase current-year tax liability but could result in overall tax savings if future rates change.

Accrual-basis accounting: Clearer financial picture for decision-making

The accrual method is more complex but provides a more complete view of a company’s financial performance. It conforms to the matching principle under Generally Accepted Accounting Principles (GAAP), meaning companies recognize revenue and expenses in the period they’re earned or incurred. This method reduces major fluctuations in profits from one period to the next, making performance easier to benchmark.

For example, a business that delivers services in December but isn’t paid until January would still report that revenue in December under the accrual method — providing a more accurate picture of when the work was performed.

In addition, accrual-basis businesses report several asset and liability accounts that are generally absent on a cash-basis balance sheet. Examples include prepaid expenses, accounts receivable, accounts payable, work-in-process inventory and accrued expenses.

The U.S. Securities and Exchange Commission requires public companies to issue financial statements that conform to GAAP, which prescribes the usage of the accrual method. Private companies that are large enough to consider going public, or that are contemplating mergers or acquisitions, may want to issue GAAP financial statements to facilitate these transactions. Likewise, many lenders prefer GAAP financials for underwriting and due diligence purposes.

Some states also require sales tax returns to be filed on an accrual basis. If you don’t track and plan carefully in these states, you might get hit with a sales tax bill on payments you haven’t yet collected. This can affect your cash flow.

Which method is right for you?

Many businesses begin with the cash method but revisit that choice as operations become more complex. Choosing the wrong accounting method — or failing to revisit your approach as your business grows — can affect everything from tax liability to financing opportunities. We can help you evaluate whether your current method remains appropriate and guide you through the transition if a change makes sense. Contact us to evaluate your financial reporting options and help you make an informed decision.

Among employers, the notion of focusing more on skills than education when hiring has gained momentum over the last several years. A recent survey indicates the trend is continuing.

At the end of 2025, Western Governors University (WGU) released its inaugural Workforce Decoded report. It includes results from a survey of more than 3,100 U.S.-based participants representing organizations of various sizes across a range of industries. Notably, 78% of respondents said work experience is equal to or more valuable than a degree, and 86% cited nondegree certificates as valuable indicators of job readiness.

Considerable adjustment

Skills-based hiring represents a considerable adjustment for people raised on the idea that going to college automatically and significantly increases the likelihood of getting a good job. It also suggests that societal attitudes toward university education are changing.

The escalating price tag of tuition and anxiety about student debt have many younger people rethinking whether they want to attend traditional colleges. Meanwhile, the WGU report suggests that employers increasingly value specific job-ready skills alongside or, in some cases, over traditional degrees.

There are other reasons for the ascendance of skills-based hiring. Proponents argue that it may help reduce bias, strengthen objectivity and boost diversity. They say job candidates are more likely to be judged on the skills they bring to the table rather than the prestige of the institution of higher learning they attended. It can also expand candidate pools and influence how your organization defines roles, evaluates performance and compensates workers.

Practical reasons … and risks

If you’re looking for more practical reasons to adjust your organization’s hiring approach, there are plenty. Focusing on skills rather than education may lead to better “job matching” — that is, aligning job listings more closely with qualified applicants. This can reduce time to hire while improving employee engagement and retention. Employees are brought on to do what they do best, rather than based on an educational background that may not fully align with the organization’s needs.

Of course, skills-based hiring has risks all its own. Employers that focus too narrowly on technical abilities may overlook other critical qualities, such as:

Adaptability,
Communication skills,
Leadership potential, and
Alignment with organizational culture.

There’s also the challenge of accurately assessing whether candidates can apply their skills in real-world situations. Resumés, certificates and interviews may provide useful insight, but they don’t always tell the whole story. One way to dig deeper is to incorporate brief, carefully designed and low-pressure skills exercises into the hiring process. It’s also important to consistently evaluate employees’ performance to better assess the long-term results of hiring decisions.

Direct impact

Ultimately, skills-based hiring is an important trend worth keeping an eye on. After all, how your organization fills open positions directly impacts its financial performance. Successful job matching reduces turnover and builds stronger teams, bolstering your ability to control labor costs and support long-term growth. We’d be happy to help you measure and analyze hiring, compensation and labor costs so you can make informed decisions that support both operational goals and financial success.

Life insurance can provide peace of mind. But if your estate is large enough that estate taxes are a concern, it’s important not to own the policy at death. Why? The policy’s proceeds will be included in your taxable estate. To avoid this result, a common estate planning strategy is to set up an irrevocable life insurance trust (ILIT) to hold the policy.

However, there may come a time when you no longer need the ILIT. Does its irrevocable nature mean you’re stuck with it forever? Maybe not. Depending on the ILIT’s terms and applicable state law, you might have the option of pulling a life insurance policy out of an ILIT or even unwinding the ILIT entirely.

How does an ILIT work?

An ILIT shields life insurance proceeds from estate tax because the trust, rather than the insured, owns the policy. (Note, however, that under the “three-year rule,” if you transfer an existing policy to an ILIT and then die within three years, the proceeds remain taxable. That’s why it’s preferable to have the ILIT purchase a new policy, if possible, rather than transferring an existing policy to the trust.)

The key to removing the policy from your taxable estate is to relinquish all “incidents of ownership.” This means, for example, that you can’t retain the power to change beneficiaries; assign, surrender or cancel the policy; borrow against the policy’s cash value; or pledge the policy as security for a loan (though the trustee may have the power to do these things).

What are the options for undoing an ILIT?

Generally, there are two reasons you might want to undo an ILIT:

You no longer need life insurance, or
You still need life insurance, but your estate isn’t large enough to trigger estate tax, and you’d like to eliminate the restrictions and expense associated with the ILIT structure.

Although your ability to undo an ILIT depends on the ILIT’s terms and applicable state law, potential options include:

Allowing the insurance to lapse. This may be a viable option if the ILIT holds a term life insurance policy that you no longer need (and no other assets). You simply stop making contributions to the trust to cover premium payments. Technically, the ILIT continues to exist. But once the policy lapses, the ILIT owns no assets. It’s also possible to allow a permanent life insurance policy to lapse, but other options may be preferable — especially if the policy has a significant cash value.

Swapping the policy for cash or other assets. Many ILITs permit the grantor to retrieve a policy from an ILIT by substituting cash or other assets of equivalent value. If you have illiquid assets but need cash, you may be able to gain access to a policy’s cash value by swapping the policy for illiquid assets of equivalent value.

Surrendering or selling the policy. If your ILIT holds a permanent insurance policy, the trust might surrender it, which will preserve its cash value but avoid the need to continue paying premiums. Alternatively, if you’re eligible, the trust could sell the policy in a life settlement transaction.

Distributing the trust assets. Some ILITs give the trustee the discretion to distribute trust funds (including the policy’s cash value, other trust assets or possibly the policy itself) to your beneficiaries, such as your spouse or children. Typically, these distributions are limited to funds needed for “health, education, maintenance and support.”

Going to court. If the ILIT’s terms don’t permit the trustee to unwind the trust, it may be possible to obtain a court order to terminate it. For example, state law may permit a court to modify or terminate an ILIT if unanticipated circumstances require changes to achieve the trust’s purposes or if the grantor and all beneficiaries consent.

We’re here to help

These are some, but by no means all, of the strategies that may be available to unwind an ILIT. Bear in mind that some of these solutions can have tax implications for you or your beneficiaries. Contact us to learn more about ILITs.

With caregiving costs rising faster than inflation, it’s harder than ever to juggle parenting young children or caring for elderly relatives while also working nine to five. Your business can help support caregiving employees and boost productivity by offering dependent care flexible spending accounts (FSAs). This benefit provides a tax-advantaged method to pay for eligible caregiving expenses using pretax dollars.

Or maybe you want to make a bigger commitment but are concerned about the costs. If you provide child care directly to workers — for example, by setting up a day care facility in your building — your company may qualify for a significant tax credit.

When employees opt in

To sponsor dependent care FSAs, you’ll need to implement a dependent care assistance program (DCAP), which enables you to retain ownership of your workers’ FSAs. Participating employees must opt in, typically during your company’s open enrollment period or after experiencing a qualifying life event. Then they make pretax compensation deferrals to their accounts, up to $7,500 annually for married couples filing jointly, single filers and heads of households, $3,750 for those married and filing separately. These amounts aren’t indexed for inflation.

Workers can use their FSA balances to pay for eligible expenses, including day care, before- and after-school care, summer day camps, and care for dependent adults who can’t care for themselves. Qualifying expenses must enable participants (and, if applicable, their spouses) to work or seek employment. Using pretax dollars to fund accounts allows participants to pay for qualifying care while reducing their taxable incomes.

Employers win, too

For employers, sponsoring dependent care FSAs also offers potential advantages. First, these accounts can help attract strong job candidates and retain employees.

Second, because participants’ contributions occur pretax, they’re exempt from Social Security and Medicare taxes. That reduces your business’s (and your employees’) payroll tax burden. To increase dependent care FSA participation, you may make contributions to employees’ accounts. However, the $7,500/$3,750 annual contribution limits apply to combined employer-employee contributions. Note that you can’t deduct contributions as a business expense.

You’ll need to ensure that your DCAP complies with IRS regulations, including nondiscrimination rules. Proper recordkeeping, timely reimbursements and clear communication are also critical. Be sure to educate participants about the “use-it-or-lose-it” rule that says FSA balances generally must be spent by the end of the year. (Unused account funds generally revert to employers.) Be sure to train employees to estimate expenses and submit claims to minimize the risk of losing FSA funds. And let participants know their FSAs aren’t portable — meaning they can’t take their balances with them if they leave your company.

Tax help with costs

Another way to retain loyal, hardworking staff is to provide child care directly. For 2026, you may be able to claim an employer-provided child care tax credit equal to 40% of your qualified expenses for providing child care to employees, plus 10% of qualified resource and referral expenditures, up to $500,000. For eligible small businesses, these amounts are 50% and up to $600,000, respectively. The maximum dollar amount will be adjusted annually for inflation after 2026. (The additional 10% credit for resource and referral expenses will continue to be available.)

Qualified costs include those spent to acquire, construct, renovate and operate a child care facility. Or you can claim expenses for contracting with a licensed child care facility. If you provide on-site care, at least 30% of the enrolled children must be your employees’ dependents.

Competitive package

Dependent care FSAs and employer-offered child care can be competitive additions to your employee benefits package. But because of the resources involved, think carefully before designing a DCAP or establishing a child care facility. Your workforce may not want them. Consider distributing a survey to gauge interest before you commit to offering new fringe benefits.

And to help ensure you’re offering the most cost- and tax-effective benefits to your workforce, contact us. We can review your benefits lineup, potentially suggest changes and advise on program setup and administration.

Yeo & Yeo CPAs & Advisors is proud to announce that Steven Treece, CPA, PFS, has received the Tomorrow’s 20 Award presented by the Auburn Hills Chamber of Commerce. This award recognizes emerging leaders who demonstrate influence in the community through excellence in business leadership, dedication to innovation, and community service.

Steven Treece joined Yeo & Yeo in 2013 and has built a reputation as a trusted advisor to clients across Michigan and a respected firmwide leader. As a Certified Public Accountant and Personal Financial Specialist, he focuses on complex tax planning and strategy for individuals and closely held businesses, with expertise in real estate, estate and trust planning, and wealth strategy. He is an active member of Yeo & Yeo’s Agribusiness Services Group, Estate & Trust Services Group, and Real Estate Services Group, working closely with business owners and families navigating growth, transition, and long-term planning.

Get to Know Steve:

A graduate of the BDO Alliance USA Emerging Leaders program, Treece brings a forward-looking perspective to practice management and innovation. He has authored articles on tax and industry-specific issues, contributed to implementing Yeo & Yeo’s YeoLEAN Tax process, and helped develop the firm’s Prospective Client Acceptance Matrix—initiatives that enhance efficiency, quality, and sustainable growth.

Treece is also recognized for his commitment to developing others. He serves as a Career Advocate for professionals across multiple offices, teaches best practices in client service, and has hosted internal podcasts focused on elevating service excellence. His leadership has earned recognition both inside and outside the firm, including being named to the Flint & Genesee Group’s 40 Under 40.

Award-Winner As Yeo & Yeo’s presence and client base in Southeast Michigan have expanded, Steve made a purposeful decision to relocate and be based in the Auburn Hills/Troy area to more directly support clients with his technical expertise. That same commitment to being present and engaged extends beyond his professional role. His commitment to community service is longstanding and hands-on. Treece is a past president of the Rotary Club of Burton and has volunteered with Boy Scouts of America, Old Newsboys of Flint, the Food Bank of Eastern Michigan, and Genesee County Habitat for Humanity. As he deepens his roots in the Auburn Hills/Troy area, Treece looks forward to expanding his involvement throughout Southeast Michigan.

“Steve cares deeply about developing the people he leads,” said Tammy Moncrief, CPA, Managing Principal of Yeo & Yeo’s Troy office. “Beyond his professional expertise, he consistently offers encouragement and support as his team takes on new challenges, and his mentorship has a lasting impact. He is a strong role model and well-deserving of this recognition.”

The Tomorrow’s 20 award recipients will be honored at a gala hosted by the Auburn Hills Chamber on April 29 in Pontiac, Michigan.

Annuities have recently gained attention as an employee benefit because of changes in federal retirement law. But their use in workplace plans remains limited. The 68th Annual 401(k) Survey by the Plan Sponsor Council of America, published in late 2025, found that only 8.9% of respondents had an in-plan annuity for the 2024 plan year. That doesn’t mean you should ignore the option, though — particularly if your organization has key employees who’d value this benefit or if it could help attract mission-critical hires.

Defining the concept

Annuities are contracts issued by insurance companies that can provide guaranteed income in retirement, often until the end of the contract owner’s life. Traditional annuity contracts require an individual to make either a lump-sum payment or a series of payments to the insurer in exchange for income paid out at regular intervals during retirement.

Because traditional annuity contracts are typically bought with after-tax dollars, the buyer generally doesn’t receive a current tax deduction. Later, when distributions begin, the earnings portion of each payment is usually taxable as ordinary income, while the portion representing the buyer’s original investment typically isn’t taxed again.

An alternate version is the qualified employee annuity. Under these arrangements, an employer sponsors an annuity through a qualified retirement plan or as a retirement benefit under a plan that meets certain Internal Revenue Code requirements.

In many cases, the annuity serves as an investment or distribution option within a plan rather than as a separate benefit. Contributions are generally made with pretax dollars, earnings grow tax-deferred and distributions are generally taxed as ordinary income. (A portion may be tax-free if after-tax contributions are involved.) In this context, the annuity is simply the investment vehicle — the tax treatment generally follows the rules of the underlying retirement plan.

Recognizing the differences

Annuities and traditional 401(k) plans are similar in that they allow tax-deferred growth of account funds. But they also have key differences, which some employees may appreciate. For example, as mentioned, annuities can provide a predictable income stream that might last throughout a participant’s lifetime. A traditional 401(k) account balance, by itself, doesn’t come with that kind of guarantee.

Also, employee-participants can contribute only a specific amount to their respective 401(k) accounts annually. In 2026, the limit is $24,500 (not including catch-up contributions, if applicable). Whether contribution limits apply to an annuity depends on how it’s offered. If the annuity is held within a qualified retirement plan, the usual limits still apply. That said, some employees may find annuities appealing for their income guarantee rather than for contribution flexibility.

Then again, the fixed rate of return guaranteed by an annuity may be lower than the returns available through other investments. Also, unlike a 401(k), some annuities’ payout options may provide little or no value to heirs after the account owner’s death, depending on the contract terms. (Some annuities can include survivor or death benefit features.)

Another consideration is that annuities typically don’t permit participants to borrow money from their accounts. A loan feature, common to many 401(k) plans, is often appreciated by participants for emergencies, despite the downsides of taking out such loans.

Participants may be able to take early distributions from a qualified employee annuity if the plan permits them. However, the taxable portion is generally subject to ordinary income tax and may also be subject to a 10% additional tax if taken before age 59½, unless an eligible exception applies.

Catching up with the changes

Although 401(k) plans could include annuity features before 2019, the SECURE Act encouraged wider adoption by:

Giving plan sponsors a clearer fiduciary safe harbor for selecting insurers, and
Making certain lifetime income investments easier to preserve when employees change jobs.

SECURE 2.0, enacted in 2022, made several related rule changes. These include updates affecting longevity annuities and retirement plan distributions, which may further support lifetime income planning. In many cases, employers that sponsor annuities do so by offering a lifetime income option within an existing defined contribution plan rather than by replacing the plan altogether.

Assessing the complexities

Many employers remain hesitant to sponsor annuities because of their complexity and fiduciary considerations. For instance, choosing a provider requires a careful review of the insurer’s financial strength, the contract terms and the associated costs. Also, there are generally fees involved with annuities that vary by provider and contract, adding another layer of complexity to administering annuities — particularly when participants leave the organization.

In addition, employers need to think about employee communication. Annuities can be complicated, and participants may need help understanding fees, liquidity restrictions, payout options and beneficiary implications before electing this type of benefit.

Making the right call

For some small and midsize employers, offering an annuity-related benefit may be a worthwhile addition to their benefits package. But, as you can see, these products are hardly simple. Contact us for help determining whether an annuity plan or feature is right for your organization.

GASB Statement No. 103, Financial Reporting Model Improvements, is not a full overhaul like GASB 34 was; instead, it is a targeted refinement. Its new requirements directly affect how government entities prepare annual financial statements, particularly in the areas of MD&A, unusual or infrequent items, proprietary fund reporting, component unit presentation, and budgetary comparisons.

A Sharper, More Analytical MD&A

Under GASB 103, the Management’s Discussion and Analysis (MD&A) must focus on five required areas:

Overview of the financial statements
Financial summary
Detailed analyses
Significant capital and long‑term financing activity
Currently known facts or conditions

This means government entities can no longer rely on template‑style MD&A narratives. Instead, they must provide clear explanations of why property taxes, state funding levels, federal grants, staffing shifts, or capital project activity affected financial results. Think of it as a shift toward an analytical narrative where the MD&A provides explanations as to why things changed, not just what changed. There is also a requirement for a clear distinction between the primary government and any component units.

Reclassification of Unusual or Infrequent Items

GASB 103 replaces “special” and “extraordinary” items with a single category: unusual or infrequent items. For government entities, this may apply to events such as unexpected facility damages, one‑time legal settlements, or rare funding adjustments.

Proprietary Funds

Government entities must follow updated proprietary fund reporting requirements. GASB 103 maintains the distinction between operating and nonoperating activities but updates presentation rules to improve consistency.

Major Component Unit Presentation

GASB 103 enhances consistency in how component units are presented. The standard requires greater disaggregation of major component units to improve consistency and comparability.

Budgetary Comparison Enhancements

Government entities must also adapt to improved consistency requirements for budgetary comparison schedules. These refinements reduce diversity in practice and improve the clarity and comparability of budgetary reporting.

Implementation Timeline

GASB 103 is effective for fiscal years beginning after June 15, 2025, meaning this will be effective starting with the June 30, 2026, financial statements.

If you need assistance or have questions, please contact your auditor or a member of Yeo & Yeo’s Government Services Group. We are here to help.

Be on the lookout for our upcoming webinar in May 2026, where we’ll explore GASB 103 in greater detail.

Yeo & Yeo’s Education Services Group professionals are pleased to present several sessions during the April 21-23 MSBO Conference & Exhibit Show at the Amway Grand Plaza and DeVos Place in Grand Rapids.

We are excited to share our insights to help districts navigate the complexities of school financial management. We look forward to seeing you there and working together to support MSBO and the broader education community.

Tuesday, April 21

Accounting and Auditing Update – 9:30-10:30 a.m.

- Jennifer Watkins, CPA, Yeo & Yeo Principal, shares insights on the latest accounting pronouncements and preparing for this audit season.

Thursday, April 23

School Nutrition Program Financial Reporting and Auditing Considerations – 8:20-9:20 a.m.
- Kristi Krafft-Bellsky, CPA, Yeo & Yeo Principal, joins Michelle Needham, MDE, to help you learn about the main compliance and audit issues in the food service fund and how to navigate them.
Allowable Expenditures – 9:40-10:40 a.m.
- Jacob Walter, Yeo & Yeo Senior Accountant, and Jeremy S. Motz, Clark Hill PLC, share insights on reviewing guidelines for allowable expenditures.
Contractor vs. Employee Tax Filing – 9:40-10:40 a.m.
- Jennifer Watkins, CPA, Yeo & Yeo Principal, joins Jolene Compton, Bay City Public Schools, to share insights into 1099 filing and ensuring you are filing tax forms correctly for staff, vendors, and contractors.
Frequently Found Audit Issues – 1:15-1:45 p.m.
- Jennifer Watkins, CPA, Yeo & Yeo Principal, joins Joselito Quintero and Gloria Jean Suggitt, MDE, to help you understand common audit findings, including compliance and internal controls issues.
Student and School Activity Funds – 1:15-1:45 p.m.
- Jordan Bohlinger, Yeo & Yeo Manager, revisits GASB 84 to help you understand the rules and accounting guidance, and to answer common questions.

Visit our booth!

Stop by Yeo & Yeo’s booth 403 and enter our prize drawing! Our K-12 Education Services Group members welcome the opportunity to hear about challenges your district may be facing and share helpful insights. Hope to see you there!

Yeo & Yeo CPAs & Advisors, a leading Michigan-based accounting and advisory firm, has been named one of West Michigan’s Best and Brightest Companies to Work For for the twenty-second consecutive year.

The Best and Brightest program identifies and honors organizations that excel in their human resource practices and employee enrichment. An independent research firm assesses organizations in categories such as communication, work-life balance, employee education, recognition, retention, and more.

Yeo & Yeo’s long-standing recognition reflects the firm’s commitment to continuous improvement and listening to employee feedback. In the past year, the firm introduced new benefits, including pet insurance, and continues to support employees through its expanded parental leave program and extra time off for long-term team members. A newly formed learning and development committee has enhanced training pathways, refreshed learning guides, and created development plans to support employee growth and advancement.

Beyond professional development, Yeo & Yeo invests in programs that strengthen connection and well-being. From personalized coaching through Boon Health to firmwide appreciation events and summer half-day Fridays, the firm continues to find new ways to help its people thrive—both personally and professionally.

“Receiving this recognition year after year is an incredible achievement and a reflection of the culture we’ve built together,” said David Jewell, Managing Principal of the firm’s Kalamazoo office. “What makes it meaningful is that we’ve never stopped evolving. As we continue to grow and welcome new talent, we remain focused on creating an environment where every employee feels supported, valued, and empowered to succeed.”

The select companies will be honored on Thursday, June 4, 2026, at the JW Marriott Grand Rapids in Grand Rapids, Mich.