Charity Scams: A Small Business Perspective

Many businesses support their communities by donating to local charities. Although there are plenty of nonprofits that deserve your support, some exist solely to facilitate fraud. How can you avoid the latter? Familiarize yourself with the deceptive tactics scammers use and carefully screen charities for legitimacy — before you write a check.

Branding tricks

Fraud perpetrators employ many tried-and-tested approaches to trick businesses into donating to fake charities. One of the most effective ways that they secure donations is by creating entities that resemble established nonprofits. They use familiar-sounding names and familiar-looking logos. They also make their websites and marketing materials appear like those of the charities they’re impersonating.

These scammers often use their fake branding in emails and on social media platforms. Not only do they hope you’ll donate money, but many also try to lure potential victims into clicking on links that download malware. The fraudsters might use the malware to hack networks, steal data and commit identity theft.

Tried-and-tested cons

Some other common methods used by con artists include:

Telemarketing scams. Using readily available technology, scammers can disguise their phone numbers to make it look like they’re calling from legitimate charities. During calls, they use high-pressure tactics that leave little time for would-be supporters to vet their organizations. This approach can be especially effective when a natural disaster occurs and potential donors understand the need to take quick action.

Fake endorsements. Some perpetrators use “endorsements” from celebrities, prominent companies and community leaders to lend fake charities an air of legitimacy and encourage you to donate. In most instances, the quoted individuals didn’t actually provide endorsements — or they might have been conned into lending their support. Artificial intelligence increasingly is being used by bad actors to impersonate the voices and appearances of well-known individuals.

False invoices. Most businesses receive a lot of invoices, and it may be easy to overlook an invoice for a charitable pledge you never made. To encourage prompt payment, an invoice from a fake charity might include a note referencing a previous conversation in which you or another person in your company approved the donation.

The real deal

There are a few simple steps you can take to help ensure your business’s charitable contributions go to real nonprofits. Most states require legitimate charities to register, and your state should have a website that will confirm whether a charity has filed and is in good standing. You can also enter a charity’s tax ID number on the IRS’s website to learn whether the organization is tax-exempt and if donations to it are eligible for deductions.

Keep in mind that a fake charity could potentially provide you with the tax ID number of a real charity. If you’re suspicious, further investigate the claims of the person soliciting donations. The websites of Charity Navigator, GuideStar and BBB Wise Giving Alliance can provide addresses, phone numbers, key performance metrics, tax and compliance information, and ratings relative to other nonprofits.

To help ensure you’re using best practices to avoid fraud, write and circulate a charitable donation policy. Your policy should describe processes to verify a nonprofit’s legitimacy and authorize donations in your company’s name. And it should specify approved payment methods and include instructions on tracking and reporting all charitable contributions. Also, make sure you educate employees about charitable scams and how to respond to unsolicited calls, texts and emails. If they’re in doubt, employees should feel empowered to ignore and delete messages.

Importance of philanthropy

Many businesses donate to charities in their communities to demonstrate their commitment to helping others. While there’s no shortage of worthy charities with important missions, scammers often take advantage of philanthropic businesses. Putting in place a donation policy, vetting charities and ensuring employees know how to handle unsolicited requests can go a long way to ensuring your giving ends up in deserving hands.

Open enrollment for most health care plans is many months away. That makes now a good time for businesses to consider changing their employer-sponsored coverage for next year, or perhaps to think about launching a plan for the very first time.

If you’re going to do either, you’ll have many details to sort through. To simplify matters a bit, let’s look at a few “big picture” factors that can serve as good starting points for contemplating the size and shape of your plan.

Funding approach

As you’re likely aware, there are two broad types of employer-sponsored health insurance plans: fully insured and self-funded (also known as self-insured). A fully insured plan is simply one you buy from an insurer. This is the most common approach for small to midsize businesses because it limits financial risk while offering the most predictable costs.

Under a self-funded plan, your company funds and administers the insurance, usually with the help of a third-party administrator. This approach may save money if your business can design its own plan and manage the claims process. However, you assume financial risk for the plan — costs can be unpredictable and potentially catastrophic.

Size of network

The size of a plan’s network determines how many options employees have when picking providers and how much they’ll pay out of pocket. A smaller network of preferred providers often grants the most coverage with lower out-of-pocket costs for employees when they visit those providers. Participants can typically still pick out-of-network services, but they’ll usually pay more out of pocket. Rightsizing your network is critical to participant satisfaction.

Tax-advantaged accounts

Although technically not insurance, widely used tax-advantaged accounts can be strong additions to a benefits package. These include Health Savings Accounts (HSAs), which must be offered in conjunction with high-deductible health plans, and Flexible Spending Accounts (FSAs).

HSAs and FSAs let employees set aside pretax dollars from their paychecks to use for eligible medical expenses. HSA funds remain in participants’ accounts until used, while FSA dollars typically must be spent within the year or lost (though a plan can provide for a grace period of up to 2½ months after the end of the plan year). A third option is a Health Reimbursement Arrangement (HRA). This is an employer-funded plan under which participants submit out-of-pocket medical expenses, such as deductibles and copays, for tax-free reimbursement.

Availability of government assistance

If your business happens to be considered a small business for health insurance purposes, you may want to check out the Small Business Health Options Program (SHOP). This federal marketplace is designed for small-business owners looking for health care plans. To qualify, a company typically must:

Have one to 50 employees,
Provide health benefits to all staffers working 30 or more hours per week,
Reach plan enrollment of at least 70% of employees,
Maintain an office or have an employee in the state of the SHOP used.

Every state runs its own SHOP marketplace, but they’re similar. Your state’s SHOP may be a good place to start if you’re ready to sponsor a plan but aren’t sure where to begin.

A major decision

Making changes to an existing health care plan or launching a new one is a major business decision, so be sure to go about it carefully. Hold honest discussions with your leadership team. Perhaps survey your employees to get a better idea of what plan features they value and whether there are any you should add. Consider engaging an insurance broker for assistance. For help identifying the costs and tax impact of health insurance, or any employer-sponsored benefit, contact us.

President Biden has released his proposed budget for the 2025 fiscal year, including numerous tax provisions affecting both businesses and individual taxpayers. While most of these provisions have little chance of coming to fruition while the U.S. House of Representatives remains controlled by the Republican Party, they might gain new life depending on the outcome of the November elections. Here’s an overview of the major tax proposals included in the budget.

Business tax provisions

The budget proposal includes many changes that could affect businesses’ tax outlook, several of which Biden has previously endorsed. Among the most notable:

Corporate tax rates. Under this proposal, the tax rate for C corporations would increase from 21% to 28% — still below the 35% rate that was in effect before the Tax Cuts and Jobs Act (TCJA). The effective global intangible low-taxed income (GILTI) rate would increase to 14%, and additional proposed changes would further increase the effective GILTI rate to 21%. The corporate alternative minimum tax rate would go up to 21%, from 15%.

Executive compensation. Biden proposes extending the current limitation on the deductibility of compensation in excess of $1 million for certain executives in publicly owned C corporations to privately held C corporations. A new aggregation rule would treat all members of a controlled group as a single employer for purposes of determining covered executives.

Excess business loss (EBL) limitation. Under the TCJA, noncorporate taxpayers can apply their business losses to offset only business-related income or gain, plus there’s an inflation-adjusted threshold (for 2024, $305,000 or $610,000 if filing jointly). The proposal would make this limitation permanent and treat EBLs carried forward from the prior year as current-year business losses rather than as net operating loss deductions.

Stock buyback excise tax. The Inflation Reduction Act (IRA) created a 1% excise tax on the fair market value when corporations repurchase their stock to reduce the difference in the tax treatment of buybacks and dividends. The proposal would quadruple the tax to 4%. It also would extend the tax to the acquisition of an applicable foreign corporation by certain affiliates of the corporation.

Like-kind exchanges. Owners of certain real property can defer the taxable gain on the exchange of the property for real property of a “like-kind.” The proposal would allow the deferral of gain up to an aggregate amount of $500,000 for each taxpayer ($1 million for joint filers) each year for real property like-kind exchanges. (Other types of assets wouldn’t be eligible.) Excess like-kind gains would be recognized in the year the taxpayer transfers the real property.

Individual tax provisions

Biden continues to promise that he won’t raise taxes on filers earning less than $400,000 annually but opposes extending tax cuts for those making more than that amount. Among other things, his budget proposal would affect:

Tax rates. The proposal would return the top individual marginal income tax rate for single filers earning more than $400,000 ($450,000 for joint filers) to the pre-TCJA rate of 39.6%.

Net investment income tax (NIIT). The NIIT on income over $400,000 would include all pass-through business income not otherwise covered by the NIIT or self-employment tax. The budget also would increase both the additional Medicare tax rate (on earnings above $400,000) and the NIIT rate (on investment income above $400,000) to 5%.

Capital gains taxes. Individuals with taxable income exceeding $1 million would see capital gains taxed at ordinary income rates, up from the current highest capital gains rate of 20%. Also, unrealized gains at death would be taxed, subject to a $5 million exemption ($10 million for married couples).

Child Tax Credit (CTC). The proposal would boost the maximum per-child credit — to $3,600 for qualifying children under age six and $3,000 for all other qualifying children — and increase the maximum age to 17, through 2025. It also would implement an advance monthly payment program, establish a “presumptive eligibility” concept and permanently make the CTC fully refundable.

Premium tax credits (PTCs). Biden would make permanent the IRA’s expansion of health insurance subsidies to taxpayers with household income above 400% of the federal poverty line, as well as the reduction in the amount of household income that must be contributed to qualify for PTCs.

Gift and estate taxes. The proposal would close several gift and estate tax loopholes that help the wealthy reduce their taxes. For example, certain transfers would be subject to a new annual gift tax exclusion, whereby a donor’s transfers that exceed a total of $50,000 in a year would be taxable regardless of whether the total gifts to each individual recipient didn’t exceed the annual gift exclusion amount ($18,000 per recipient in 2024).

Tax changes are coming one way or another

Even if none of these provisions are enacted as proposed, new legislation addressing taxes is likely in the next year or two. Indeed, absent congressional action, many significant TCJA provisions are scheduled to expire after 2025. Extensive tax debates and negotiations will likely soon take center stage. Turn to us for the latest developments.

Managing accounts receivable can be challenging, especially in an uncertain economy. To keep your company financially fit, it’s a good idea to occasionally revisit your billing and collections processes to ensure they’re as efficient and effective as possible. Consider these helpful tips.

Resolve billing issues quickly

The quality of your products or services, and the efficiency of order fulfillment and distribution processes, can significantly impact collections. When an order arrives damaged, late or not at all, the customer has an excuse to question or not pay your invoice. Other mistakes include incorrectly billing a customer or failing to deliver on promised discounts or special offers.

Make sure you resolve billing mistakes quickly and ask customers to pay any portion of the bill they’re not disputing. Once the matter has been resolved and the product or service has been delivered, ask the customer to pay the remainder of the bill. Depending on the circumstances, you also may consider asking the customer to sign off on the matter by making a note on the final invoice. Doing so will help protect you from potential future claims.

A lengthy cycle time for resolving billing disputes can have ripple effects on finance and accounting processes, such as reporting and forecasting. For instance, if you prepare your first quarter financial statements with numerous outstanding adjustments, management won’t be able to evaluate first quarter results until the adjustments are made. Delays in financial reporting can lead to missed business opportunities and postpone detection of impending financial problems.

Send timely invoices

If you haven’t already done so, implement an automated collection system that generates invoices when work is complete, flags problem accounts and produces useful financial reports. Consider sending invoices electronically and enabling customers to pay online. You can still send statements out monthly as a routine reminder of outstanding balances.

Delays in invoicing can impair collection efforts. Familiarize yourself with industry norms before setting payment schedules (whether they’re on 30-, 45- or 60-day cycles). If your most important or largest customers have their own payment schedules, be sure to set them up in your system.

It’s also important to regularly verify account information to ensure invoices and statements are accurate and they get into the right hands. Set clear standards and expectations with customers — both verbally and in writing — about your credit policy, including pricing, delivery and payment terms.

Consider rewards for early payment and penalties for delays

Despite your best efforts, you’re still likely to encounter slow-paying customers. Here are some ideas to encourage timely payments:

Request payment up front with deposits or service retainers,
Reward timely payments with early-payment discounts, and
Provide incentives to customers that improve their payment practices.

If positive reinforcement isn’t working, consider implementing late-payment penalties. For instance, you could assess fees on past-due accounts. You might also put a credit hold on extremely delinquent accounts or adjust their payment terms to cash on delivery.

Stay connected with high-maintenance customers

Make regular calls and send e-mail reminders to customers who haven’t settled their accounts. If necessary, the manager who works directly with the customer should try to resolve the payment issues with the lead contact at the company — or even the owner. Consider executing a promissory note to prevent the customer from disputing the charges in the future. If your efforts aren’t fruitful, get help from an attorney or collection agency. Keep in mind, though, that third-party fees may consume much of the collected amount.

If an outstanding debt is uncollectible, you can write it off as an ordinary business expense. Be sure to document customers’ promises to pay and your collection efforts, as well as why you believe the debt is worthless.

We can help

Solid billing and collections strategies are integral to a company’s financial health. Contact us for more ideas for improving your company’s approach to accounts receivable.

Many employers now allow employees to work remotely, either all or part of the time. If your organization does and sponsors a health care plan, here’s a brief refresher on some of the rules regarding protected health information (PHI) and the Health Insurance Portability and Accountability Act (HIPAA).

The Privacy Rule

One major feature of HIPAA is its Privacy Rule. This is essentially a set of national standards for safeguarding PHI. Always keep in mind that PHI is much broader than details about diagnosis and treatment. It also includes demographic data such as participants’ addresses, phone numbers, email addresses and financial information, as well as details about their plan participation.

Some staff members — managers, in particular — may be able to access PHI. When working remotely, these employees should ideally:

Have private workspaces where others can’t overhear conversations involving PHI,
Use only employer-issued devices and never access electronic PHI (ePHI) on shared devices, and
Put hard copies of PHI in a locked filing cabinet, shredding anything they can’t store securely.

Be sure to know which remote workers can access PHI. Each should be able to verify that there are proper measures in place to protect it.

The Security Rule

Another major HIPAA feature is its Security Rule, which is essentially a set of regulations for safeguarding ePHI. Every plan sponsor should conduct an organizational risk analysis and implement a risk management plan that addresses remote work. Doing so is even more important if, in recent years, you’ve seen a substantial increase in the number of remote workers. Your risk management plan should address the three prongs of the HIPAA Security Rule. These are:

1. Physical safeguards. Although the Security Rule applies to ePHI, physical safeguards are still important. Employers should track the location of each computer accessing ePHI. Lost or stolen computers may result in unauthorized disclosure of large amounts of ePHI, so making sure employees keep them in a secure room is critical.

In addition, employees need to report loss or theft immediately. Devices should never be left unattended in a vehicle or public space. Employees may be tempted to write down passwords and keep them near their computers. However, this practice is as unacceptable when working remotely as it is when working on-site.

2. Technical safeguards. Controlling access is key. This includes:

Restricting access to the minimum-necessary ePHI for each employee’s job function,
Requiring unique user IDs, passwords and multifactor authentication,
Implementing automatic log off or lock screen, and
Using robust encryption tools.

Advise employees to avoid downloading and storing ePHI on their computers. An individual machine often has weaker protection than a network — cloud storage may be more secure. Warn them against using portable storage media, such as thumb drives, from unknown or unauthorized sources. These items may install malware onto an employee’s computer.

3. Administrative safeguards. Implement procedures to supervise remote employees. Routinely monitor logins and system activity to identify potential security incidents, such as transfers or removal of large amounts of data. For new employees, or those new to remote work, mandate training on your organization’s policies and procedures.

Even with heightened awareness and safeguards, the nature of remote work increases the possibility of unauthorized use or disclosure of ePHI. Because the breach notification rules continue to apply, and you could incur HIPAA penalties if breach notification is inadequate or untimely, train employees to recognize and promptly report possible breaches.

Top of mind

Regular reminders and occasional retraining are good ways to keep HIPAA compliance top of mind for employees involved in plan administration, whether they work remotely or on-site. For help identifying and managing the costs and financial risks of your health care plan, contact us.

Few things can derail your estate plan as quickly as unanticipated long-term care (LTC) expenses. Most people will need some form of LTC — such as a nursing home or an assisted living facility stay — at some point in their lives. And the cost of this care is steep.

Contrary to popular belief, LTC expenses generally aren’t covered by traditional health insurance policies, Social Security or Medicare. So, to help ensure that LTC expenses don’t deplete savings or other assets meant to go to your heirs, have a plan for funding them. Here are some of your options.

Self-funding

If your nest egg is large enough, it may be possible to pay for LTC expenses out-of-pocket as (or if) they’re incurred. An advantage of this approach is that you’ll avoid the high cost of LTC insurance premiums. In addition, if you’re fortunate enough to avoid the need for LTC, you’ll enjoy a savings windfall that you can use for yourself or your family. The risk, of course, is that your LTC expenses will be significantly larger than anticipated, eroding the funds available to your heirs.

Any type of asset or investment can be used to self-fund LTC expenses, including savings accounts, pension or other retirement funds, stocks, bonds, mutual funds, or annuities. Another option is to tap the equity in your home by selling it, taking out a home equity loan or line of credit, or obtaining a reverse mortgage.

Two vehicles that are particularly effective for funding LTC expenses are Roth IRAs and Health Savings Accounts (HSAs). Roth IRAs aren’t subject to minimum distribution requirements, so you can let the funds grow tax-free until they’re needed. And an HSA, coupled with a high-deductible health insurance plan, allows you to invest pretax dollars that can be withdrawn tax-free to pay for qualified unreimbursed medical expenses, including LTC. Unused funds may be carried over from year to year, making an HSA a powerful savings vehicle.

LTC insurance

LTC insurance policies — which are expensive — cover LTC services that traditional health insurance policies typically don’t cover. Determining when to purchase such a policy can be a challenge. The younger you are, the lower the premiums, but you’ll be paying for insurance coverage during a time that you’re not likely to need it.

Although the right time for you to buy coverage depends on your health, family medical history and other factors, many people purchase these policies in their early to mid-60s. Keep in mind that once you reach your mid-70s, LTC coverage may no longer be available to you or may be prohibitively expensive.

Hybrid insurance

Hybrid policies combine LTC coverage with traditional life insurance. Often, these take the form of a permanent life insurance policy with an LTC rider that provides for tax-free accelerated death benefits in the event of certain diagnoses or medical conditions.

These policies can have advantages over stand-alone LTC policies, such as less stringent underwriting requirements and guaranteed premiums that won’t increase over time. The downside, of course, is that to the extent you use the LTC benefits, the death benefit available to your heirs will be reduced.

Potential tax breaks

If you buy LTC insurance, you may be able to deduct a portion of the premiums on your tax return. And if you need LTC, you may be able to deduct some of the costs. If you have questions regarding LTC funding or the tax implications, please don’t hesitate to contact us.

The qualified business income (QBI) deduction is available to eligible businesses through 2025. After that, it’s scheduled to disappear. So if you’re eligible, you want to make the most of the deduction while it’s still on the books because it can potentially be a big tax saver.

Deduction basics

The QBI deduction is written off at the owner level. It can be up to 20% of:

QBI earned from a sole proprietorship or single-member LLC that’s treated as a sole proprietorship for tax purposes, plus
QBI from a pass-through entity, meaning a partnership, LLC that’s treated as a partnership for tax purposes or S corporation.

How is QBI defined? It’s qualified income and gains from an eligible business, reduced by related deductions. QBI is reduced by: 1) deductible contributions to a self-employed retirement plan, 2) the deduction for 50% of self-employment tax, and 3) the deduction for self-employed health insurance premiums.

Unfortunately, the QBI deduction doesn’t reduce net earnings for purposes of the self-employment tax, nor does it reduce investment income for purposes of the 3.8% net investment income tax (NIIT) imposed on higher-income individuals.

Limitations

At higher income levels, QBI deduction limitations come into play. For 2024, these begin to phase in when taxable income before any QBI deduction exceeds $191,950 ($383,900 for married joint filers). The limitations are fully phased in once taxable income exceeds $241,950 or $483,900, respectively.

If your income exceeds the applicable fully-phased-in number, your QBI deduction is limited to the greater of: 1) your share of 50% of W-2 wages paid to employees during the year and properly allocable to QBI, or 2) the sum of your share of 25% of such W-2 wages plus your share of 2.5% of the unadjusted basis immediately upon acquisition (UBIA) of qualified property.

The limitation based on qualified property is intended to benefit capital-intensive businesses such as hotels and manufacturing operations. Qualified property means depreciable tangible property, including real estate, that’s owned and used to produce QBI. The UBIA of qualified property generally equals its original cost when first put to use in the business.

Finally, your QBI deduction can’t exceed 20% of your taxable income calculated before any QBI deduction and before any net capital gain (net long-term capital gains in excess of net short-term capital losses plus qualified dividends).

Unfavorable rules for certain businesses

For a specified service trade or business (SSTB), the QBI deduction begins to be phased out when your taxable income before any QBI deduction exceeds $191,950 ($383,900 for married joint filers). Phaseout is complete if taxable income exceeds $241,950 or $483,900, respectively. If your taxable income exceeds the applicable phaseout amount, you’re not allowed to claim any QBI deduction based on income from a SSTB.

Other factors

Other rules apply to this tax break. For example, you can elect to aggregate several businesses for purposes of the deduction. It may allow someone with taxable income high enough to be affected by the limitations described above to claim a bigger QBI deduction than if the businesses were considered separately.

There also may be an impact for claiming or forgoing certain deductions. For example, in 2024, you can potentially claim first-year Section 179 depreciation deductions of up to $1.22 million for eligible asset additions (subject to various limitations). For 2024, 60% first-year bonus depreciation is also available. However, first-year depreciation deductions reduce QBI and taxable income, which can reduce your QBI deduction. So, you may have to thread the needle with depreciation write-offs to get the best overall tax result.

Use it or potentially lose it

The QBI deduction is scheduled to disappear after 2025. Congress could extend it, but don’t count on it. So, maximizing the deduction for 2024 and 2025 is a worthy goal. We can help.

Occupational fraud is a crime generally committed by employees against their employers. Ironically, employees also are most likely to notice or suspect occupational fraud schemes conducted by their coworkers or managers. Whether they report through an anonymous tipline or directly to management or HR, rank-and-file workers often are the first to raise the alarm.
If an employee alleges that someone has committed theft or fraud, or simply exhibits suspicious behavior, it’s your responsibility is to take the charges seriously and investigate them. Here’s how.

Preliminary digging

If you receive a fraud tip, you’ll need to assess its validity by conducting preliminary interviews — even if you plan to eventually turn the investigation over to legal and fraud professionals. To help avoid unnecessary legal complications, keep details of any allegation private, particularly the identities of the accused and the accuser.

Assure workers involved that the investigation will be held in strict confidence and inform them that they can’t discuss any part of the process with anyone outside it. Remind managers that they need to have all conversations behind closed doors, store all meeting notes securely and speak only to those people who are necessary to the complaint investigation.

One-on-one interviews

When you sit down with the accuser, the accused or potential witnesses, start with an opening statement that describes what’s being investigated and then ask open-ended questions that encourage employees to say more than “yes” or “no.” Ask all interviewees the same questions so that you can compare answers, identify patterns and uncover discrepancies. Also, have a witness present to verify what was said and what occurred during the interviews.

Keep an open mind while gathering facts. Just because an employee has a reputation around the office as a “troublemaker” or “crank,” doesn’t mean that person is lying or guilty of an impropriety. If an interview seems to veer into dangerous territory — for example, an accused individual claims harassment or asks about legal rights — contact your attorney immediately. Also consider allowing a third-party investigator, such as a fraud expert, to handle future interviews. This can help preserve impartiality and show all parties that the investigation is being taken seriously.

Tying up loose ends

You’ll want to keep detailed notes on all the steps of your investigation. Include the dates and times of workspace searches, computer forensic activity and conversations. After every interview or action taken, review your notes to ensure they capture all relevant information.

Even if your investigation turns up no evidence of misconduct or criminal behavior, you’ll need to follow up and close the loop with those involved. When complaints are found to have merit, take appropriate action as quickly as possible. You may be able to handle some minor issues with in-house personnel. But consult legal and financial advisors — and possibly law enforcement — if a crime seems to have occurred or you detect financial losses.

Document your policy

So that workers know what to expect if they make a complaint — of any kind — detail the resolution process in your employee handbook. Just make sure your managers understand and adhere to anything you put in writing. Contact us if you need help investigating fraud.

Auditor independence is the cornerstone of the accounting profession. Auditors’ commitment to follow the standards set forth by the American Institute of Certified Public Accountants (AICPA), the Securities and Exchange Commission (SEC), and the International Auditing and Assurance Standards Board (IAASB) ensures stakeholders can trust that audited financial statements present an accurate picture of the performance and condition of companies.

Close-up on AICPA standards

Auditors of U.S. publicly traded and privately held companies must be members of the AICPA. According to AICPA standards, “Accountants in public practice should be independent in fact and appearance when providing auditing and other attestation services.” Specifically, the Professional Ethics Division of the AICPA defines independence as, “The state of mind that permits a member to perform an attest service without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism.”

In short, auditors can’t provide any services for an audit client that would normally fall to the company’s management to complete. Auditors also can’t engage in any relationships with their clients that would:

Compromise their objectivity,
Require them to audit their own work, or
Result in self-dealing, a conflict of interest or advocacy.

In addition to maintaining their independence, all AICPA members must comply with a code of professional conduct. This code requires every member of the AICPA to act with integrity, objectivity, due care and competence, and maintain client confidentiality.

Benefits for your organization

Although auditor independence might seem relevant only to the accounting profession, it matters to the entire business community. When auditors adhere to the profession’s independence and ethics standards, they enhance the reliability of the financial reports they audit. The production of audited financial statements helps companies establish and maintain stakeholder confidence. This can help companies attract investors, secure bank loans and demonstrate financial stability to other stakeholders, including employees, suppliers and regulators.

Auditor independence is a critical issue for public and private companies alike. Contact us to discuss any questions you may have regarding independence.

The updated Form W-9, released in March 2024, plays a crucial role in tax compliance and reporting by serving as a fundamental document for individuals and entities required to file information returns with the IRS. This form is essential for gathering precise taxpayer information, especially for reporting payments to contractors or vendors through Form 1099 at the end of the year. Ensuring accurate completion of the Form W-9 is vital to avoid potential complications. The recent updates to the Form W-9 aim to enhance clarity and accuracy in taxpayer information reporting.

View Updated Form W-9

Notable changes include:

Clarification of Taxpayer Identification Number (TIN) Requirement: The revised form stresses the importance of providing a correct TIN to prevent backup withholding on payments, emphasizing the significance of accurate taxpayer information.
Addition of Legal Entity Box: A new box has been introduced to specify the type of legal entity, such as sole proprietorship, corporation, partnership, or LLC. This addition simplifies the identification process, ensuring precise categorization of taxpayer entities.
Removal of Exempt Payee Code: The updated form no longer features an exempt payee code box, streamlining the form and eliminating potential confusion for taxpayers.
Updated Instructions: The accompanying instructions have been revamped to offer more explicit guidance on accurately completing the form. This ensures taxpayers have clear directions to follow, reducing errors in the submission process.

By acquainting themselves with the modifications in the new Form W-9, taxpayers can effectively navigate its requirements, guaranteeing the correct completion and submission of this critical document for tax reporting purposes. Contact your Yeo & Yeo advisor if you have questions.

Michigan has recently made significant updates to its antidiscrimination law, expanding protections for employees and applicants. As of February 13, 2024, Michigan now prohibits discrimination against individuals on various fronts, affecting employers of all sizes.

Key Updates:

Inclusion of “Sex” Definition: The definition of “sex” has been broadened to encompass all terminations of pregnancy and related medical conditions. Previously, this definition excluded abortions not intended to save the mother’s life.
Addition of Protected Categories: Michigan has added sexual orientation and gender identity or expression as protected categories under the statute. While federal law already prohibits discrimination based on sexual orientation and gender identity for employers with 15 or more employees, Michigan has extended these protections statewide.

Action Item:

Employers are advised to update their Equal Employment Opportunity (EEO) policy and other relevant policies referencing protected classes. Ensure that sexual orientation and gender identity or expression are included in these policies if they are not already.
Additionally, if your policy consists of a definition of sex, make sure to update it accordingly. These changes mark a significant step towards ensuring equal rights and protections for all Michigan workforce individuals. Michigan aims to create a more inclusive and equitable environment for its residents by aligning state laws with evolving societal norms.

These updates reflect Michigan’s commitment to fostering a more inclusive and diverse workplace environment while upholding the rights of all individuals within the state.

The U.S. Department of Labor (DOL) is on track to finalize a new overtime rule in April 2024, with a swift implementation timeline of just 60 days after that. This accelerated process deviates from past practices, where employers had up to 192 days to comply. The DOL’s rationale for this expedited timeline stems from economic shifts necessitating an update to the salary level standard. Should the DOL adhere to its April deadline, the new rule could be enacted by June 2024. While the DOL has faced challenges meeting deadlines, employers are advised to prepare for timely implementation this time.

The impending overtime rule will elevate the minimum annual salary for most exempt employees paid on a salary basis from $35,568 to an estimated range of $55,068-$60,209 per year. Approximately 3.4 million exempt employees earning below this threshold will require adjustments in salaries or classification as nonexempt employees.

Considering these anticipated changes, consider the following proactive steps:

Identify Impacted Employees

Determine which employees are exempt from federal overtime regulations and fall below the proposed new salary threshold.

Consider Base Pay Adjustments

Evaluate whether transitioning affected employees to nonexempt status or raising their salaries above the new threshold is the best action.

Implement Time Tracking and Training

Initiate work hours tracking for potentially nonexempt employees to accurately anticipate overtime payments.

Review Telework and Flex-time Policies

Assess existing policies related to remote work and non-standard hours to ensure precise compensation and overtime tracking.

Evaluate Compensation Methods

Consider paying newly nonexempt employees hourly to streamline tracking working hours and ensure compliance with FLSA regulations.

Calculate Potential Costs and Budget Impact

Conduct a thorough analysis of the financial implications of adjusting salary levels and overtime payments on yearly budgets, making necessary updates.

For inquiries or clarification regarding the proposed overtime rule changes, reach out to your dedicated advisor at Yeo & Yeo. The specialists in our Payroll Solutions Group and HR Advisory Solutions Group are ready to provide further assistance.

International Women’s Day is, first and foremost, a day to celebrate the social, economic, cultural, and political achievements of women. It is also an important day to raise awareness, educate and inspire communities, and highlight the significance of gender equity.

This year, the theme of International Women’s Day is “Inspire Inclusion,” a call to action for individuals and organizations to foster environments that embrace diversity and empower women. Here are some ways to mark the day – whether with friends, family, colleagues, or the global community.

Support women-owned businesses: Encourage economic empowerment by supporting businesses owned and led by women.
Volunteer: Get involved with organizations that support and empower women to make a positive impact in your community.
Reach out to a friend: Send a text, email, or handwritten note to each of your female friends to let them know what you admire about them and how much you appreciate them.
Mentorship: Offer mentorship to women in your community or workplace to help them navigate their professional journeys.

Yeo & Yeo is incredibly proud of its family-friendly culture and ability to attract and retain women. In 1987, Mari McKenzie became the first female Principal at Yeo & Yeo. She was a trailblazer in a male-driven industry, serving on Yeo & Yeo’s board of directors and forging the way for future women leaders in the firm. Today, our workforce is more than 54% female, and the number of women in leadership positions exceeds 50%, well above the industry average in professional service firms. Internally, the firm’s mentorship and career advocacy programs ensure that everyone receives support to achieve their goals and be successful. We are passionate about supporting our many women-owned business clients, helping them navigate challenges and achieve their goals. Through the Yeo & Yeo Foundation, our people also support women-focused organizations, including Girl Scouts, Women of Colors, Self Love Beauty, the Clean Love Project, and more.

“Yeo & Yeo has given me incredible opportunities to learn and grow in my career,” said Principal Rachel Van Slembrouck. “As a woman in accounting, I am truly grateful for the incredible support system I have both personally and professionally.”

Today and every day, we thank our women for providing valuable insights that uplift our clients and communities. We encourage you to take time to reflect on the achievements of the women in your life and watch Yeo & Yeo’s women’s success stories video, which celebrates our women’s accomplishments over the past year. Through their experiences, we hope to inspire and empower women to achieve their full potential and celebrate their accomplishments.

The driving revenue force of just about every kind of business is sales. But all too often, once a sales team is up and running, it’s left to its own devices to maintain its strengths, develop new skills and upgrade its technology. This can produce mixed results — some sales departments are remarkably self-sufficient while others could really use more organizational support.

To remove the guesswork, many of today’s businesses are investing in sales enablement. This is an enterprise-wide, collaborative and continuous approach to empowering the sales department to do its best work.

Pillars of the concept

Wait a minute, you might say, isn’t sales enablement just another name for sales training? No, not entirely.

Training is certainly a part of the equation. A sales enablement program will involve ongoing training on the latest sales techniques, changes in the marketplace, the company’s latest products or services, and so forth. But this training doesn’t occur haphazardly — it’s regularly scheduled and typically segmented into easily digestible learning modules, generally a more effective approach than overloading sales reps with info on a sales retreat or in sporadic seminars.

There are several other pillars of sales enablement as well. One is content. Under their programs, many companies build a library of materials that features items such as:

Books and articles on best practices,
Customer testimonials,
Product “spec sheets,” slide decks and demos, and
Reports and spreadsheets with the latest competitive intelligence.

Another key feature of a sales enablement program is coaching. This may involve engaging outside consultants to provide coaching services to sales reps or developing internal mentoring or partnering.

Technology is also central to sales enablement. Most programs involve regular discussions with the leadership team and IT department about what tools could best serve the sales team. Notably, there are multiple software platforms on the market focused on sales enablement that can help businesses set up and manage their programs. Some customer relationship management software offers help in this area, too.

Benefits in the offing

There’s a reason sales enablement has caught on with many different types of companies. There are significant benefits in the offing.

First, a well-designed program can get new hires up to speed much more quickly than a more casual, ad hoc approach to “rookie” training. And for fully onboarded and seasoned employees, sales enablement can save time and effort by providing easy access to the relevant and up-to-date data, content and tools that support their activities. Ultimately, it can boost productivity for the whole team and, thereby, revenue for the business.

Also, the ongoing training and coaching features of sales enablement help sales reps keep their skills sharp and their knowledge growing. The aforementioned learning modules, webinars, podcasts, quizzes and other learning formats may give them an edge over competitors with less educational support.

There’s the engagement factor, too. A sales enablement program communicates to new hires, as well as established reps, that the organization fully supports them. As word gets around, you may attract stronger job candidates and enjoy better employee retention rates.

A major initiative

As the saying goes, nothing worth doing is easy. To implement and run a successful sales enablement program, you’ll need to invest considerable time and resources. And before any of that, you’ll need to set clear, measurable objectives — as well as a reasonable budget. For help with the financial side of planning a major initiative like this, contact us.

Estate planning isn’t just about sharing wealth with the younger generation. For many people, it’s equally important to share one’s values and to encourage their children or other heirs to lead responsible, productive and fulfilling lives. One tool for achieving this goal is an incentive trust, which conditions distributions on certain behaviors or achievements that you wish to inspire.

Incentive trusts can be effective, but they should be planned and drafted carefully to avoid unintended consequences. Let’s examine four tips for designing a more effective incentive trust.

1. Focus on the positives

Avoid negative reinforcement, such as conditioning distributions on the avoidance of undesirable or self-destructive behavior. This sort of “ruling from the grave” is likely to be counterproductive. Not only can it lead to resentment on the part of your heirs, but it may backfire by encouraging them to conceal their conduct and avoid seeking help. Trusts that emphasize positive behaviors, such as going to college or securing gainful employment, can be more effective.

2. Be flexible

Leading a worthy life means different things to different people. Rather than dictating specific behaviors, it’s better to establish the trust with enough flexibility to allow your loved ones to shape their own lives.

For example, some people attempt to encourage gainful employment by tying trust distributions to an heir’s earnings. But this can punish equally responsible heirs who wish to be stay-at-home parents or whose chosen careers may require them to start with low-paying, entry-level jobs or unpaid internships. A well-designed incentive trust should accommodate nonfinancial measures of success.

3. Consider a principle trust

Drafting an incentive trust can be a challenge. Rewarding positive behavior requires a complex set of rules that condition trust distributions on certain achievements or milestones, such as gainful employment, earning a college degree or reaching a certain level of earnings. But it’s nearly impossible to anticipate every contingency.

One way to avoid unintended consequences is to establish a principle trust. Rather than imposing a complex, rigid set of rules for distributing trust funds, a principle trust guides the trustee’s decisions by setting forth the principles and values you hope to encourage and providing the trustee with discretion to evaluate each heir on a case-by-case basis. Bear in mind that for this strategy to work, the trustee must be someone you trust to carry out your wishes.

4. Provide a safety net

An incentive trust need not be an all-or-nothing proposition. If your trust beneficiaries are unable to satisfy the requirements you set forth in your incentive trust, consider offering sufficient funds to provide for their basic needs and base additional distributions on the behaviors you wish to encourage.

According to Warren Buffett, the ideal inheritance is “enough money so that they feel they could do anything, but not so much that they could do nothing.” A carefully designed incentive trust can help you achieve this goal. If you have questions regarding the use of an incentive trust, please contact us.

The Michigan Department of Treasury announced a return to the 4.25% income tax rate for individuals and fiduciaries for the 2024 tax year.

A law passed in 2015 by the Michigan legislature requires a decrease in the state’s individual income tax rate when general fund revenue grows by a higher percentage than the inflation rate for the same period. That led to the income tax rate falling from 4.25% to 4.05% in 2023. Michiganders will see the 2023 rate adjustment in the form of less total tax when they file their 2023 state income taxes.

State officials have determined that the conditions requiring a formulary reduction to the rate for 2024 have not been met; therefore, the state income tax rate for individuals and trusts will return to 4.25%.

Read the notice published by the Michigan Department of Treasury here.

The credit for increasing research activities, often referred to as the research and development (R&D) credit, is a valuable tax break available to certain eligible small businesses. Claiming the credit involves complex calculations, which we’ll take care of for you.

But in addition to the credit itself, be aware that there are two additional features that are especially favorable to small businesses:

Eligible small businesses ($50 million or less in gross receipts for the three prior tax years) may claim the credit against alternative minimum tax (AMT) liability.
The credit can be used by certain smaller startup businesses against their Social Security payroll and Medicare tax liability.

Let’s take a look at the second feature. The Inflation Reduction Act (IRA) has doubled the amount of the payroll tax credit election for qualified businesses and made a change to the eligible types of payroll taxes it can be applied to, making it better than it was before the law changes kicked in.

Election basics

Subject to limits, your business can elect to apply all or some of any research tax credit that you earn against your payroll taxes instead of your income tax. This payroll tax election may influence you to undertake or increase your research activities. On the other hand, if you’re engaged in — or are planning to undertake — research activities without regard to tax consequences, you could receive some tax relief.

Many new businesses, even if they have some cash flow, or even net positive cash flow and/or a book profit, pay no income taxes and won’t for some time. Thus, there’s no amount against which business credits, including the research credit, can be applied. On the other hand, any wage-paying business, even a new one, has payroll tax liabilities. Therefore, the payroll tax election is an opportunity to get immediate use out of the research credits that you earn. Because every dollar of credit-eligible expenditure can result in as much as a 10-cent tax credit, that’s a big help in the start-up phase of a business — the time when help is most needed.

Eligible businesses

To qualify for the election a taxpayer must:

Have gross receipts for the election year of less than $5 million, and
Be no more than five years past the period for which it had no receipts (the start-up period).

In making these determinations, the only gross receipts that an individual taxpayer considers are from the individual’s businesses. An individual’s salary, investment income or other income aren’t taken into account. Also, note that an entity or individual can’t make the election for more than six years in a row.

Limits on the election

The research credit for which the taxpayer makes the payroll tax election can be applied against the employer portion of Social Security and Medicare. It can’t be used to lower the FICA taxes that an employer withholds and remits to the government on behalf of employees. Before a provision in the IRA became effective for 2023 and later years, taxpayers were only allowed to use the payroll tax offset against Social Security, not Medicare.

The amount of research credit for which the election can be made can’t annually exceed $500,000. Prior to the IRA, the maximum credit amount allowed to offset payroll tax before 2023 was only $250,000. Note, too, that an individual or C corporation can make the election only for those research credits which, in the absence of an election, would have to be carried forward. In other words, a C corporation can’t make the election for the research credit to reduce current or past income tax liabilities.

These are just the basics of the payroll tax election. Keep in mind that identifying and substantiating expenses eligible for the research credit itself is a complex task. Contact us about whether you can benefit from the payroll tax election and the research tax credit.

Employers have long been told that, to create and maintain an engaged workforce, they’ve got to do more than pay competitively. At least one recent survey supports the notion, if only by a percentage point.

In November 2023, online job-postings provider Monster conducted a poll exploring the workplace trend of why employees decide to give their two weeks’ notice and quit. The number one reason was feeling underappreciated, cited by 50% of respondents. But as alluded to above, compensation came in a close second — 49% of respondents said their salaries were too low.

What can your organization do to keep employees engaged — or boost engagement if it’s lagging? There are plenty of ways to do so. The tough part is figuring out which engagement measures will bring about the best results for you.

Money still matters

Although engagement isn’t solely determined by compensation, it’s the easiest place to start. After all, you’re dealing with numerical amounts quite amenable to analysis. By conducting a benchmarking study, for example, you can figure out exactly what salary ranges or wage amounts are typical for your industry and area — and how your organization compares to the norm.

From there, you may be able to make adjustments to ensure your employees, or key employees, are compensated more competitively. Doing so is easier said than done, however, if your organization is operating under financial constraints. In such a case, you might need to consider looking for outside investors or perhaps even reducing your workforce to raise compensation levels.

Also bear in mind that compensation goes beyond base pay. To further help employees feel like they’re truly well paid, choose carefully from the wide array of fringe benefits available. Ideally, you want to curate a package that suits the demographics and values of your workforce.

Top-down approach

Now let’s discuss the more challenging aspect of engagement. As indicated by the Monster survey, employees largely want to feel appreciated for their work. And this is where employers can struggle to find a balance between going so far overboard with praise and recognition that it loses meaning and doing so little that employees feel taken for granted.

Solving the riddle starts at the top. Ownership and management should mindfully and regularly acknowledge in communications that employees are the organization’s most valuable resource. But don’t just talk the talk. Show employees that they’re appreciated by providing:

Ongoing education, training and upskilling,
Proper equipment and up-to-date technology,
Flexible scheduling to allow for a healthy work-life balance, and
A clear path forward with the organization.

Supervisors also play a critical role. In one way or another, it’s been said that “people leave bosses, not employers.” Be sure to continuously train and manage the performance of those in charge of your teams so they know how to communicate with and support workers.

Some supervisors may turn to micromanaging to show employees that they’re paying attention. But workers tend to feel more appreciated when they’re given the autonomy to make decisions and perform in a productive manner of their own choosing. They want to be appreciated for their work, not told precisely how to do it.

Address the issue

Naturally, there are obvious ways to appreciate employees — solicit their feedback on strategic decisions, offer financial incentives, throw parties, give awards — but it’s important to choose the approaches that suit your budget and culture. The most important thing to do is view engagement as something that needs to be continuously nurtured. Contact us for help identifying cost-effective ways of addressing the issue.

Owners of closely held businesses typically have a significant portion of their wealth tied up in their enterprises. If you own a closely held business with your relatives involved, and don’t take the proper estate planning steps to ensure that it lives on after you’re gone, you may be placing your family at financial risk.

Differences between ownership and management succession

One challenge of transferring a family-owned business is distinguishing between ownership and management succession. When a business is sold to a third party, ownership and management succession typically happen simultaneously. But in a family-owned business, there may be reasons to separate the two.

From an estate planning perspective, transferring assets to the younger generation as early as possible allows you to remove future appreciation from your estate, minimizing any estate tax liability. However, you may not be ready to hand over the reins of your business or you may feel that your children aren’t yet ready to take over.

There are several strategies owners can use to transfer ownership without immediately giving up control, including:

Placing business interests in a trust, family limited partnership (FLP) or other vehicle that allows the owner to transfer substantial ownership interests to the younger generation while retaining management control,
Transferring ownership to the next generation in the form of nonvoting stock, or
Establishing an employee stock ownership plan.

Another reason to separate ownership and management succession is to deal with family members who aren’t involved in the business. Providing heirs outside the business with nonvoting stock or other equity interests that don’t confer control can be an effective way to share the wealth while allowing those who work in the business to take over management.

Conflicts may arise

Another unique challenge presented by family businesses is that the older and younger generations may have conflicting financial needs. Fortunately, several strategies are available to generate cash flow for the owner while minimizing the burden on the next generation. They include:

An installment sale of the business to children or other family members. This provides liquidity for the owners while easing the burden on the younger generation and improving the chances that the purchase can be funded by cash flows from the business. Plus, as long as the price and terms are comparable to arm’s-length transactions between unrelated parties, the sale shouldn’t trigger gift or estate taxes.

A grantor retained annuity trust (GRAT). By transferring business interests to a GRAT, owners obtain a variety of gift and estate tax benefits (provided they survive the trust term) while enjoying a fixed income stream for a period of years. At the end of the term, the business is transferred to the owners’ children or other beneficiaries. GRATs are typically designed to be gift-tax-free.

Because each family business is different, it’s important to work with your estate planning advisor to identify appropriate strategies in line with your objectives and resources.

Plan sooner rather than later

Regardless of your strategy, the earlier you start planning the better. Transitioning the business gradually over several years or even a decade or more gives you time to educate family members about your succession planning philosophy. It also allows you to relinquish control over time and implement tax-efficient business transfer strategies.

Michigan’s Flow-Through Entity (FTE) tax became available for tax years beginning January 1, 2021, as a workaround to the $10,000 state and local tax limitation imposed by the 2017 Tax Cuts and Jobs Act. Flow-through entities (partnerships and S-corporations) that elect into the tax receive the benefit of deducting Michigan income tax at the entity level for its shareholders or members, thus saving federal income tax. Members or shareholders can then receive a credit on their personal income tax returns to offset the Michigan tax liability created by the flow-through entity income reported on their K-1s.

The Michigan FTE tax is unique compared to many other states’ FTE taxes. The election must be made in advance, by March 15 of the year the election is for. The election is irrevocable and effective for three years, beginning with the year of election plus the two subsequent years. Therefore, if an entity first elected into Michigan’s FTE tax for the 2021 tax year, its election expired with the 2023 tax year. If you made a Michigan FTE election for the 2021 tax year, you must renew it by March 15, 2024, if you want to continue the election.

If a company wishes to retain the federal tax benefit for the 2024 tax year or make a first-time election, an election must be made by March 15, 2024. To make an election, a payment must be made through Michigan Treasury Online (MTO) in the amount of $1 or more, applied towards the 2024 tax year. There is no option for late elections. Since MTO does not post same-day payments, taxpayers should initiate their payment no later than March 14 on MTO to have a timely election.

Key dates for Michigan FTE during the first few months of 2024:

March 15 – new or renewal elections due (requires payment on MTO)
March 31 – annual 2023 filing due on MTO
April 15 – first quarter 2024 estimate due

With limited time to renew your election or make a first-time FTE election, contact your Yeo & Yeo advisor with questions.