Businesses Should Review Their Key Payroll Tax Responsibilities

As a business owner, you know that running payroll involves much more than just compensating employees. Every paycheck represents a complex web of tax obligations that your company must handle accurately and consistently.

Indeed, staying compliant with payroll tax rules is essential to maintaining your business’s reputation and avoiding costly penalties. That’s why it’s essential to regularly review your key payroll tax responsibilities to ensure nothing falls through the cracks.

Federal, state and local

Let’s start with the big ones. As you’re well aware, employers must withhold federal income tax from employees’ paychecks. The amount withheld from each person’s pay depends on two factors: 1) the wage amount, and 2) information provided on the employee’s Form W-4, “Employee’s Withholding Certificate.” Additional withholding rules may apply to commissions and other forms of compensation.

Be sure to stay apprised of your non-federal payroll tax obligations. State income tax withholding rules, for example, apply to many employers. However, nine states have no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

Certain localities also impose income taxes. And in some places, withholding is required to cover short-term disability, paid family leave or unemployment benefits.

FICA and FUTA

Many an accounting or HR staffer has had to repeatedly explain what these two abbreviations mean. The first one stands for the Federal Insurance Contributions Act (FICA). Under this law, payroll taxes consist of two individual taxes.

First is Social Security tax, which is 6.2% of wages up to an annually inflation-adjusted wage base limit. For 2025, that limit is $176,100 (up from $168,600 in 2024). Both the employee and employer pay 6.2% up to that amount, meaning the business withholds the employee’s share and contributes a matching amount for a total of 12.4%. The second is Medicare tax, which is 1.45% of all wages, with no wage base cap. Again, both the employee and employer pay the percentage for a total of 2.9%.

The other abbreviation stands for the Federal Unemployment Tax Act (FUTA). Under it, employers must pay 6% on the first $7,000 of each employee’s annual wages, before any credit. In many cases, if state unemployment taxes are paid fully and on time, the business can receive a credit of up to 5.4%, yielding an effective rate of 0.6%.

Be aware that certain states with outstanding federal unemployment-trust-fund loans may not qualify for the full credit, so employers could face higher effective FUTA rates in those jurisdictions. FUTA taxes are paid only by the employer, so you shouldn’t withhold them from employees’ wages.

Additional Medicare tax

This payroll tax often flies under the radar. Under a provision of the Affordable Care Act, an additional Medicare tax of 0.9% applies to employee wages above:

$200,000 for single filers,
$250,000 for married couples filing jointly, and
$125,000 for married couples filing separately.

Only employees pay this tax. However, employers are responsible for withholding it once an employee’s wages exceed $200,000 — even if the employee ultimately may not owe it (for example, for joint filers).

State unemployment insurance

Every state also runs its own unemployment insurance program to provide benefits to eligible workers who are involuntarily terminated. State unemployment obligations vary widely in terms of wage base, rate and employer vs. employee contributions.

Generally, the rate employers must pay is based on their experience rating. The more claims made by former employees, the higher the tax rate. States update these rates annually.

Get stronger

Managing payroll taxes can be complex — especially as rates and rules may change from year to year. But you can confidently meet your compliance requirements with the right system, procedures, employees and professional guidance in place. We’d be happy to review your current approach, flag potential risks and recommend ways to strengthen your payroll tax processes. Contact us for more information.

Projecting your business’s income for this year and next can allow you to time income and deductible expenses to your tax advantage. It’s generally better to defer tax — unless you expect to be in a higher tax bracket next year. Timing income and expenses can be easier for cash-basis taxpayers. But accrual-basis taxpayers have some unique tax-saving opportunities when it comes to deductions.

Review incurred expenses

The key to saving tax as an accrual-basis taxpayer is to properly record and recognize expenses that were incurred this year but won’t be paid until 2026. This will enable you to deduct those expenses on your 2025 federal tax return. Common examples of such expenses include:

Commissions, salaries and wages,
Payroll taxes,
Advertising,
Interest,
Utilities,
Insurance, and
Property taxes.

You can also accelerate deductions into 2025 without actually paying for the expenses in 2025 by charging them on a credit card. (This works for cash-basis taxpayers, too.)

Look at prepaid expenses

Review all prepaid expense accounts. Then write off any items that have been used up before the end of the year.

If you prepay insurance for a period of time beginning in 2025 and ending in 2026, you can expense the entire amount this year rather than spreading it between 2025 and 2026, as long as a proper method election is made.

More tips to consider

Be sure to review your outstanding receivables and write off any that you can establish as uncollectible. Also, pay interest on shareholder loans. For more information on these strategies and to discuss other ways your business can reduce 2025 taxes, contact us.

In 2024, a whopping 22.4 billion parcels were shipped in the United States, according to shipping management vendor Pitney Bowes. The average American received 78% more packages in 2024 than in 2017 (growth fueled primarily by online purchasing). And this total is expected to climb even higher in 2025.

Many consumers and businesses have already experienced package theft or shipping fraud. But even if you haven’t, know that crooks have devised ways to take advantage of shifting consumer behavior. As the holidays approach, protect your packages — whether you’re sending or receiving — by learning about common schemes and how to foil them.

Outside theft

For consumers, “porch piracy” is probably the biggest threat, and it’s particularly prevalent around the holidays. Unfortunately, home security systems, including cameras, don’t always prevent such theft.

So if you’re expecting a package, use its tracking number to monitor its progress. You might also request a delivery signature — either your own or, if you won’t be home, a neighbor’s. Some retailers provide the option of delivering to a locker at a central location or a local business. Or have packages sent to your workplace, where a receptionist or shipping department employee can accept them.

If a package seems to be taking an unusually long time to be delivered or the tracking record shows no progress after a certain point, contact the shipping vendor for more information. You may need to be persistent.

If your business ships packages to residential addresses, provide buyers with email or text notifications that include tracking numbers once packages leave your facility. Consider using plain packaging that doesn’t tip off thieves to a parcel’s content — particularly if it’s an electronic device or other pricey merchandise. Insurance is usually a good idea. Package recipients are generally responsible for stolen deliveries to their address. But you may offer customers automatic replacements or refunds if packages are stolen, and, without insurance, theft will ultimately affect your bottom line.

Inside jobs

Last year, four employees of a major delivery service provider were arrested for stealing packages from their employer’s Arizona warehouse. They were nabbed after the company discovered suspicious transaction log items, revealing surveillance camera footage and fake shipping labels that contained the workers’ home addresses. Similar “inside jobs” have been discovered by other shipping vendors.

Perhaps you suspect some of your own employees are helping themselves to goods you’re shipping or receiving. Investigate with the help of a forensic accountant. Your business may need stronger internal controls, including greater management oversight, increased stock checks and regular audits.

Happy holidays

Remain vigilant this holiday season to ensure your online purchases arrive safely or your customer orders are fulfilled without issue. If you’re a business owner, contact us for fraud prevention tips or help investigating potential workplace theft — because nothing should steal the joy of the season.

Many nonprofits rely on the generosity of longtime supporters who want to give back in a tax-smart way. One of the most powerful, yet often overlooked, tools for these individuals is the Qualified Charitable Distribution (QCD).

Helping your donors understand this giving option can increase contributions, deepen relationships, and create win-win outcomes for both donors and your organization.

What Is a QCD?

A Qualified Charitable Distribution allows individuals age 70½ or above to make direct transfers—up to certain limits each year—from their Individual Retirement Account (IRA) to a qualified charity.

For 2025, the annual QCD limit is $108,000 per individual.
For 2026, the limit increases to $115,000, adjusted for inflation.

The amount donated counts toward the donor’s Required Minimum Distribution (RMD) (which now begins at age 73) but is excluded from taxable income. In other words, donors can satisfy their RMD obligations while supporting your mission—without increasing their adjusted gross income (AGI).

Why This Matters to Your Donors

For many individuals in or nearing retirement, IRA withdrawals can push them into higher tax brackets and increase the taxation of their Social Security benefits or Medicare premiums. QCDs help avoid those problems.

When donors give through a QCD:

They can prevent phaseouts or surcharges tied to income thresholds.
They can support your organization in a way that maximizes their after-tax giving power.

Such benefits can make a meaningful difference for supporters who want to align their financial planning with their charitable goals.

Why It Matters to Your Nonprofit

Nonprofits that proactively educate donors about QCDs often see an increase in year-end and recurring gifts. Here’s why:

Untapped Giving Potential
Many supporters don’t realize they can give directly from their IRA. Highlighting this option can turn routine RMD withdrawals into impactful, tax-efficient gifts.
Larger, More Strategic Donations
Since QCDs are pre-tax transfers, donors may feel more comfortable giving larger amounts—especially when doing so doesn’t increase their taxable income.
Deeper Relationships
Conversations about QCDs position your organization as a trusted partner, not just a recipient. You’re helping donors achieve both their financial and philanthropic goals.
Year-End Opportunities
The QCD deadline is December 31 each year, which aligns perfectly with year-end fundraising campaigns, providing a timely reason to reach out.

How to Get Your Organization QCD-Ready

To make the most of this opportunity, your nonprofit should:

Educate your team. Ensure your development staff, board, and volunteers know what a QCD is and who qualifies.
Communicate clearly. Include QCD messaging in newsletters, appeal letters, and on your giving web page (e.g., “Did you know you can make a tax-free gift directly from your IRA if you’re 70½ or older?”).
Make it easy. Provide clear instructions and sample language donors can use with their IRA custodians.
Acknowledge appropriately. Send thank-you letters confirming no goods or services were provided, and note that the gift was made via QCD.
Collaborate with advisors. Partner with local CPAs, financial advisors, or estate planners to co-host informational sessions about charitable giving strategies like QCDs.

Important Rules to Remember

The donor must be age 70½ or older at the time of the distribution.
Funds must come from an IRA (not a 401(k) or donor-advised fund).
The transfer must go directly from the IRA custodian to the charity.
QCDs cannot go to donor-advised funds, supporting organizations, or private foundations.
Donors cannot claim an additional charitable deduction for the QCD.

The Bottom Line

Qualified Charitable Distributions represent one of the most powerful giving tools available to individuals with IRAs—and one of the least understood. By taking the lead in educating your donors, your organization can:

Strengthen donor relationships
Unlock larger, tax-efficient gifts
Align your fundraising strategy with your donors’ financial goals

QCDs truly are a win-win: your donors can give more effectively, and your mission can thrive.

Now is the perfect time to incorporate QCD education into your year-end fundraising and donor stewardship plans—before the December 31 deadline.

Yeo & Yeo is pleased to announce that Christopher Sheridan, CPA, CVA, and Danielle Lutz, CPA, have earned the Certified Fraud Examiner (CFE) credential. This certification recognizes professionals with advanced fraud prevention, detection, and investigation expertise.

CFEs combine knowledge of complex financial transactions with an understanding of investigation methods and legal frameworks to uncover and resolve fraud allegations. The credential requires rigorous testing across four core areas: financial transactions, law, investigation, and fraud prevention. By earning this credential, Lutz and Sheridan further strengthen Yeo & Yeo’s ability to help clients safeguard their organizations.

Christopher Sheridan is a principal based in Yeo & Yeo’s Saginaw office. He leads the firm’s Valuation, Forensics, and Litigation Support Services Group and is a member of the Manufacturing Services Group. His specialized skills include business valuation and litigation support, serving as an expert witness, providing business consultancy, and fraud investigation and prevention. Sheridan is involved in several professional organizations, including the Michigan Association of Certified Public Accountants’ (MICPA) Manufacturing Task Force and multiple regional manufacturing associations. In 2021, his leadership and expertise were recognized when he was named a “40 Under Forty” honoree by the National Association of Certified Valuators and Analysts. Just as committed to his community as he is to his profession, he serves on the boards of the Montessori Children’s House of Bay City and the Great Lakes Bay Economic Club.

Danielle Lutz is a manager with more than five years of public accounting experience and is based in Yeo & Yeo’s Saginaw office. Her areas of specialization include business consulting and financial statement reporting with a focus on the manufacturing, construction, and agribusiness industries. She also assists businesses and individuals with tax planning and preparation. A Michigan State University graduate with a Master of Science in Accounting, Lutz is known for her dedication to client relationships and proactive, problem-solving approach. Beyond her client work, she is engaged in the community as a member of the Bay Area Energize – Young Professionals Network and serves as treasurer of the Mid-Michigan Manufacturers Association.

“Achieving the CFE credential reflects our commitment to protecting our clients,” said Sheridan. “With the CFE designation, Danielle and I are equipped with the unique tools and training to investigate concerns over the misappropriation of funds or potential financial statement fraud, and assess clients’ vulnerabilities. This expertise can give our clients the peace of mind that their businesses are being evaluated with precision, integrity, and a proactive approach to risk.”

Yeo & Yeo’s Valuation, Forensics, and Litigation Services Group delivers trusted expertise in forensic accounting, business valuation, and litigation support. The team combines technical knowledge, third-party objectivity, and a comprehensive understanding of business operations to help business owners navigate disputes, plan for growth, and protect what they’ve built.

Financial statements report historical financial performance. But sometimes management or external stakeholders want to evaluate how a business will perform in the future. Forward-looking estimates are critical when evaluating strategic decisions, such as debt and equity financing, capital improvement projects, shareholder buyouts, mergers, and reorganization plans. While company insiders may see the business through rose-colored glasses, external accountants can prepare prospective financial reports that are grounded in realistic, market-based assumptions.

3 reporting options

There are three types of reports to choose from when predicting future performance:

1. Forecasts. These prospective statements present an entity’s expected financial position, results of operations and cash flows. They’re based on assumptions about expected conditions and courses of action.

2. Projections. These statements are based on assumptions about conditions expected to exist and the course of action expected to be taken, given one or more hypothetical assumptions. Financial projections may test investment proposals or demonstrate a best-case scenario.

3. Budgets. Operating budgets are prepared in-house for internal purposes. They allocate money — usually revenue and expenses — for particular purposes over specified periods.
Although the terms “forecast” and “projection” are sometimes used interchangeably, there are important distinctions under the attestation standards set forth by the American Institute of Certified Public Accountants (AICPA).

Leverage your financials

Historical financial statements are often used to generate forecasts, projections and budgets. But accurate predictions usually require more work than simply multiplying last year’s operating results by a projected growth rate — especially over the long term.

For example, a start-up business may be growing 30% annually, but that rate is likely unsustainable over time. Plus, the business’s facilities and fixed assets may lack sufficient capacity to handle growth expectations. If so, management may need to add assets or fixed expenses to take the company to the next level.

Similarly, it may not make sense to assume that annual depreciation expense will reasonably approximate the need for future capital expenditures. Consider a tax-basis entity that has taken advantage of the expanded Section 179 and bonus depreciation deductions, which permit immediate expensing in the year qualifying fixed assets are purchased and placed in service. Because depreciation is so boosted by these tax incentives, this assumption may overstate depreciation and capital expenditures going forward.

Various external factors, such as changes in competition, product obsolescence and economic conditions, can affect future operations. So can events within a company. For example, new or divested product lines, recent asset purchases, in-process research and development, and outstanding litigation could all materially affect future financial results.

We can help

When preparing prospective financial statements, the underlying assumptions must be realistic and well thought out. Contact us for objective insights based on industry and market trends, rather than simplistic formulas, gut instinct and wishful thinking.

When creating a will, most people focus on the big-ticket items — including who gets the house, the car and specific family heirlooms. But one element that’s often overlooked is the residuary clause. This clause determines what happens to the remainder of your estate — the assets not specifically mentioned in your will. Without one, even a carefully planned estate can end up in legal limbo, causing unnecessary stress, expense and conflict for your loved ones.

Defining a residuary clause

A residuary clause is the part of your will that distributes the “residue” of your estate. This residue includes any assets left after specific bequests, debts, taxes and administrative costs have been paid. It might include forgotten bank accounts, newly acquired property or investments you didn’t specifically name in your will.

For example, if your will leaves your car to your son and your jewelry to your daughter but doesn’t mention your savings account, the funds in that account would fall into your estate’s residue. The residuary clause ensures those funds are distributed according to your wishes — often to a named individual, group of heirs or charitable organization.

Omitting a residuary clause

Failing to include a residuary clause can create serious problems. When assets aren’t covered by specific instructions in a will, they’re considered “intestate property.” This means those assets will be distributed according to state intestacy laws rather than your personal wishes. In some cases, this could result in distant relatives inheriting part of your estate or assets going to individuals you never intended to benefit.

Without a residuary clause, your executor or family members may also need to seek court intervention to determine how to handle the leftover property. This adds time, legal costs and emotional strain to an already difficult process.

Moreover, the absence of a residuary clause can lead to family disputes. When the law, rather than your will, determines who gets what, heirs may disagree over how to interpret your intentions. A simple clause could prevent these misunderstandings and preserve family harmony.

Adding flexibility to your plan

A key advantage of a residuary clause is added flexibility. Life circumstances change — new assets are acquired, accounts are opened or closed, and property values fluctuate.

If your will doesn’t specifically list every asset (and most don’t), a residuary clause acts as a safety net to ensure nothing is left out. It can even account for unexpected windfalls or proceeds from insurance or lawsuits that arise after your passing.

Providing extra peace of mind

Including a residuary clause in your will is one of the simplest ways to make sure your entire estate is handled according to your wishes. It helps avoid gaps in your estate plan, minimizes legal complications and ensures your executor can distribute your assets smoothly. Contact us for additional details. Ask your estate planning attorney to add a residuary clause to your will.

Artificial intelligence (AI) is changing the way businesses operate. Its capacity to gather and process data, as well as to mimic human interactions, offers remarkable potential to streamline operations and boost productivity.

But AI presents considerable challenges and concerns, too. With so many tools available, employees may inadvertently or purposely misuse the technology in ways that are unethical or even illegal. Compounding the problem is that many companies lack a formal AI governance policy.

Few in place

In August 2025, software platform provider Genesys released the results of an independent survey of 4,000 consumers and 1,600 enterprise customer experience and information technology (IT) leaders in more than 10 countries. It found that over a third (35%) of tech-leader respondents said their organizations have “little to no formal [AI] governance policies in place.”

This is a pointed problem, the survey notes, because many businesses are gearing up to deploy agentic AI. This is the latest iteration of the technology that can make decisions autonomously and act independently to achieve specific goals without depending on user commands or predefined inputs. The survey found that while 81% of tech leaders trust agentic AI with sensitive customer data, only 36% of consumers do.

7 steps to consider

Whether or not you’re eyeing agentic AI, its growing popularity is creating a trust-building imperative for today’s businesses. That’s why you should consider writing and implementing an AI governance policy.

Formally defined, an AI governance policy is a written framework that establishes how a company may use AI responsibly, transparently, ethically and legally. It outlines the decision-making processes, accountability measures, ethical standards and legal requirements that must guide the development, purchase and deployment of AI tools.

Creating an AI governance policy should be a collaborative effort involving your company’s leadership team, knowledgeable employees (such as IT staff) and professional advisors (such as a technology consultant and attorney). Here are seven steps your team should consider:

1. Audit usage. Identify where and how your business is using AI. For instance, do you use automated tools in marketing or when screening job applicants, auto-generated financial reports, or customer service chatbots? Inventory everything and note who’s using it, what data it relies on and which decisions it influences.

2. Assign ownership for AI oversight. This may mean appointing a small internal team or naming (or hiring) an AI compliance manager or executive. Your oversight team or compliance leader will be responsible for maintaining the policy, reviewing new tools and handling concerns that arise.

3. Establish core principles. Ground your policy in ethical and legal principles — such as fairness, transparency, accountability, privacy and safety. The policy should reflect your company’s mission, vision and values.

4. Set standards for data and vendor use. Include guidelines on how data used by AI tools is collected, stored and shared. Pay particular attention to intellectual property issues. If you use third-party vendors, define review and approval steps to verify that their systems meet your privacy and compliance standards.

5. Require human oversight. Clearly state that employees must remain in control of AI-assisted work. Human judgment should always be part of the process, including approving AI-generated content and reviewing automated financial reports.

6. Include a mandatory review-and-update clause. Schedule regular reviews — at least annually — to assess whether your policy remains relevant. This is especially important as innovations, such as agentic AI, come online and new regulations emerge.

7. Communicate with and train staff. Incorporate AI governance into onboarding for new employees and follow up with regular training and reminder sessions thereafter. Ask staff members to sign an acknowledgment that they’ve read the policy and perhaps another to confirm they’ve completed the required training. Encourage everyone to ask questions and report potential issues.

Financial impact

Writing an AI governance policy is just one part of preparing your business for the future. Understanding its financial impact is another. Let us help you analyze the costs, tax implications and return on investment of AI tools so you can make informed decisions that balance innovation with sound financial management and robust compliance practices.

Now is a good time to review your business’s expenses for deductibility. Accelerating deductible expenses into this year generally will reduce 2025 taxes and might even provide permanent tax savings. Also consider the impact of the One Big Beautiful Bill Act (OBBBA). It makes permanent or revises some Tax Cuts and Jobs Act (TCJA) provisions that reduced or eliminated certain deductions.

“Ordinary and necessary” business expenses

There’s no master list of deductible business expenses in the Internal Revenue Code (IRC). Although some deductions are expressly authorized or excluded, most are governed by the general rule of IRC Section 162, which permits businesses to deduct their “ordinary and necessary” expenses.

An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your business. (It doesn’t have to be indispensable.) Even if an expense is ordinary and necessary, it may not be deductible if the IRS considers it lavish or extravagant.

OBBBA and TCJA changes

Here are some types of business expenses whose deductibility is affected by OBBBA or TCJA provisions:

Entertainment. The TCJA eliminated most deductions for entertainment expenses beginning in 2018. However, entertainment expenses for employee parties are still deductible if certain requirements are met. For example, the entire staff must be invited — not just management. The OBBBA didn’t change these rules.

Meals. Both the TCJA and the OBBBA retained the pre-2018 50% deduction for business meals. What about business meals provided in connection with nondeductible entertainment? They’re still 50% deductible, as long as they’re purchased separately from the entertainment or their cost is separately stated on invoices or receipts.

Through 2025, the TCJA also expanded the 50% deduction rule to meals provided via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. (Previously, such meals were 100% deductible.) The deduction was scheduled to be eliminated after 2025. The OBBBA generally retains this deduction’s 2026 elimination, with some limited exceptions that will qualify for a 100% deduction. But meal expenses generally can be 100% deducted if the meals are sold to employees.

Transportation. Transportation expenses for business travel are still 100% deductible, provided they meet the applicable rules. But the TCJA permanently eliminated most deductions for qualified transportation fringe benefits, such as parking, vanpooling and transit passes. However, those benefits are still tax-free to recipient employees, up to applicable limits. The OBBBA doesn’t change these rules.

Before the TCJA, employees could also exclude from taxable income qualified bicycle commuting reimbursements, and this break was scheduled to return in 2026. However, the OBBBA permanently eliminates it.

Employee business expenses

The TCJA suspended through 2025 employee deductions for unreimbursed employee business expenses — previously treated as miscellaneous itemized deductions. The OBBBA has permanently eliminated this deduction.

Businesses that don’t already have an employee reimbursement plan for these expenses may want to consider implementing one for 2026. As long as the plan meets IRS requirements, reimbursements are deductible by the business and tax-free to employees.

Planning for 2025 and 2026

Understanding exactly what’s deductible and what’s not isn’t easy. We can review your current expenses and help determine whether accelerating expenses into 2025 makes sense for your business. Contact us to discuss year-end tax planning and to start strategizing for 2026.

Inventory is one of the most significant assets on a balance sheet for many businesses. If your business owns inventory, you have some flexibility in how it’s tracked and expensed under U.S. Generally Accepted Accounting Principles (GAAP). The method you use to report inventory can have a dramatic impact on your bottom line, tax obligations and financial ratios. Let’s review the rules and explore your options.

The basics

Inventory varies depending on a business’s operations. Retailers may have merchandise available for sale, while manufacturers and contractors may have materials, work in progress and finished goods.

Under Accounting Standards Codification Topic 330, you must generally record inventory when it’s received and the title (or the risks and rewards of ownership) transfers to your company. Then, it moves to cost of goods sold when the product ships and the title (or the risks and rewards of ownership) transfers to the customer.

4 key methods

While inventory is in your possession, you can apply different accounting methods that will affect its value on your company’s balance sheet. When inventory is sold, your reporting method also impacts the costs of goods sold reported on your income statement. Four common methods for reporting inventory under GAAP are:

1. First-in, first-out (FIFO). Under this method, the first items entered into inventory are the first ones presumed sold. In an inflationary environment, units purchased earlier are generally less expensive than items purchased later. As a result, applying the FIFO method will generally cause a company to report lower expenses for items sold, leaving higher-cost items on the balance sheet. In short, this method enhances pretax profits and balance sheet values, but it can have adverse tax consequences (because you report higher taxable income).

2. Last-in, first-out method (LIFO). Here, the last items entered are the first presumed sold. In an inflationary environment, units purchased later are generally more expensive than items purchased earlier. As a result, applying the LIFO method will generally cause a company to report higher expenses for items sold, leaving lower-cost items on the balance sheet. In short, this method may defer tax obligations, but its effects on pretax profits and balance sheet values may raise a red flag to lenders and investors.

Under the LIFO conformity rule, if you use this method for tax purposes, you must also use it for financial reporting. It’s also important to note that the tax benefits of using this method may diminish if the company reduces its inventory levels. When that happens, the company may start expensing older, less expensive cost layers.

3. Weighted-average cost. Some companies use this method to smooth cost fluctuations associated with LIFO and FIFO. It assigns a weighted-average cost to all units available for sale during a period, producing a consistent per-unit cost. It’s common not only for commodities but also for manufacturers, distributors and retailers that handle large volumes of similar or interchangeable products.

4. Specific identification. When a company’s inventory is one of a kind, such as artwork, luxury automobiles or custom homes, it may be appropriate to use the specific identification method. Here, each item is reported at historic cost, and that amount is generally carried on the books until the specific item is sold. However, a write-off may be required if an item’s market value falls below its carrying value. And once inventory has been written down, GAAP prohibits reversal of the adjustment.

Under GAAP, inventory is valued at the lower of 1) cost, or 2) net realizable value or market value, depending on the method you choose.

Choosing a method for your business

Each inventory reporting method has pros and cons. Factors to consider include the type of inventory you carry, cost volatility, industry accounting conventions, and the sophistication of your bookkeeping personnel and software.

Also evaluate how each method will affect your financial ratios. Lenders and investors often monitor performance based on profitability, liquidity and asset management ratios. For instance, if you’re comparing LIFO to FIFO, the latter will boost your pretax profits and make your balance sheet appear stronger — but you’ll lose out on the tax benefits, which could strain your cash flow. The weighted-average cost method might smooth out your profitability, but it might not be appropriate for the types of products you sell. The specific identification method may provide the most accurate insight into a company’s profitability, but it’s reserved primarily for easily identifiable inventory.

Whatever inventory accounting method you select must be applied consistently and disclosed in your financial statements. A change in method is treated as a change in accounting principle under GAAP, requiring justification, disclosure and, if material, retrospective application.

We can help

Choosing the optimal inventory accounting method affects more than bookkeeping — it influences tax obligations, cash flow and stakeholders’ perception of your business. Contact us for help evaluating your options strategically and ensuring your methods are clearly disclosed.

Job postings aren’t as simple as they used to be. Before the advent and all-consuming influence of the internet, most “want ads” (as they were popularly known) appeared in newspapers or trade publications. They were generally short and followed a certain format.

Most job seekers are now online and have, shall we say, considerable expectations. Today’s job postings must find the right balance between hard data and enticing language to attract attention and drive engagement. One recent survey provides some interesting insights about the current state of affairs.

The dreaded “icks”

Are your job postings inadvertently turning off candidates? That’s the premise of a March 2025 study by U.K.-based consultants StandOut CV. The firm surveyed 1,092 adults in October 2024 to discover what job applicants find “most off-putting when applying for a role.” Although living and working across the pond, the survey’s participants served up some interesting food for thought in their answers.

For example, 65.5% of the study’s respondents ranked employers offering only the minimum annual leave allowance as the top “ick” in job listings. Of course, U.S. employers aren’t federally required to provide paid time off (PTO), though the Family and Medical Leave Act does mandate up to 12 weeks of unpaid leave for qualifying reasons. Nonetheless, the message is clear: Workers want to see generous PTO policies and respect for work-life balance in postings.

The second biggest ick reported by the study, with 64.6% of respondents chiming in, is employers requiring or heavily encouraging applicants to engage with social media content from the organization or its employees. This suggests that, even when a job is on the line, candidates don’t want to be forced to socialize — even digitally.

The third biggest ick cited is something most U.S. employers are familiar with by now: pay transparency. That is, 63.8% of respondents were disappointed when a job listing contained no salary information. Bear in mind that many states now have pay transparency laws on the books. So, be sure staff members who are creating job postings know the rules in your location, as well as what’s become standard in your industry.

Best practices

How can you create effective job postings that won’t give candidates the dreaded icks? Here are some best practices to consider:

Focus on clarity. Start postings with a concise, engaging summary of the role and why it matters to your organization. Avoid jargon or vague terms like “rock star” or “hustle.” Instead, use plain language that describes job responsibilities, measurable expectations, and how the position contributes to your mission and vision.

Appeal to what they value. Highlight what candidates care about most: compensation, benefits, flexibility and culture. As mentioned, today’s job seekers value pay transparency, so provide at least a salary range for the position. Also, clearly describe your organization’s PTO policy and fringe benefits, such as its health insurance and retirement plan. To both attract applicants and build trust, be transparent about everything you offer.

Be authentic. Find a voice that appropriately represents your distinctive employer brand. But keep it professional and inclusive. Define your organization’s values without slipping into buzzwords or clichés. Consider including quotes or brief testimonials from current employees to give job postings a human touch.

Make it easy. Link job postings to a straightforward and intuitive application process. Provide clear instructions, minimize unnecessary steps and enable mobile-friendly online submissions. Frustrating digital hurdles can discourage strong candidates before they even hit “submit.”

Put your best foot forward

It’s easy to make mistakes when creating job postings in today’s competitive hiring market. Take the time to craft yours with care, including just enough information and highlighting your organization’s distinctive traits. We can help you align your hiring approach with your financial goals and strategic objectives.

The IRS recently issued its 2026 cost-of-living adjustments for more than 60 tax provisions. The One Big Beautiful Bill Act (OBBBA) makes permanent or amends many provisions of the Tax Cuts and Jobs Act (TCJA). It also makes permanent most TCJA changes to various deductions and makes new changes to some deductions. OBBBA-affected changes have been noted throughout.

As you implement 2025 year-end tax planning strategies, be sure to take these 2026 numbers into account.

Individual income tax rates

Tax-bracket thresholds increase for each filing status, but because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket will increase by $475–$950, depending on filing status, but the top of the 35% bracket will increase by $8,550–$17,100, depending on filing status.

2026 ordinary-income tax brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
10%	$0 – $12,400	$0 – $17,700	$0 – $24,800	$0 – $12,400
12%	$12,401 – $50,400	$17,701 – $67,450	$24,801 – $100,800	$12,401 – $50,400
22%	$50,401 – $105,700	$67,451 – $105,700	$100,801 – $211,400	$50,401 – $105,700
24%	$105,701 – $201,775	$105,701 – $201,750	$211,401 – $403,550	$105,701 – $201,775
32%	$201,776 – $256,225	$201,751 – $256,200	$403,551 – $512,450	$201,776 – $256,225
35%	$256,226 – $640,600	$256,201 – $640,600	$512,451 – $768,700	$256,226 – $384,350
37%	Over $640,600	Over $640,600	Over $768,700	Over $384,350

Note that the OBBBA makes the rates and brackets permanent. The income tax brackets will continue to be annually indexed for inflation.

Standard deduction

The OBBBA makes permanent and slightly increases the TCJA’s nearly doubled standard deduction for each filing status. The amounts will continue to be annually adjusted for inflation.

In 2026, the standard deduction will be $32,200 for married couples filing jointly, $24,150 for heads of households, and $16,100 for singles and married couples filing separately.

Long-term capital gains rate

The long-term gains rate applies to realized gains on investments held for more than 12 months. For most types of assets, the rate is 0%, 15% or 20%, depending on your income. While the 0% rate applies to most income that would be taxed at 12% or less based on the taxpayer’s ordinary-income rate, the top long-term gains rate of 20% kicks in before the top ordinary-income rate does.

2026 long-term capital gains brackets*
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
0%	$0 – $49,450	$0 – $66,200	$0 – $98,900	$0 – $49,450
15%	$49,451 – $545,500	$66,201 – $579,600	$98,901 – $613,700	$49,451 – $306,850
20%	Over $545,500	Over $579,600	Over $613,700	Over $306,850
* Higher rates apply to certain types of assets.

AMT

The alternative minimum tax (AMT) is a separate tax system that limits some deductions, doesn’t permit others and treats certain income items differently. If your AMT liability exceeds your regular tax liability, you must pay the AMT.

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. In 2026, the threshold for the 28% bracket will increase by $5,400 for all filing statuses except married filing separately, which will increase by half that amount.

2026 AMT brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
26%	$0 – $244,500	$0 – $244,500	$0 – $244,500	$0 – $122,250
28%	Over $244,500	Over $244,500	Over $244,500	Over $122,250

The AMT exemption amounts were significantly increased under the TCJA. The OBBBA makes the higher exemptions permanent, continuing to index them for inflation. The exemption amounts in 2026 will be $90,100 for singles and heads of households, and $140,200 for joint filers, increasing by $2,000 and $3,200, respectively, over 2025 amounts.

The AMT exemption phases out over certain income ranges. It’s completely phased out if AMT income exceeds the top of the applicable range.

Under the OBBBA, the income thresholds for the phaseout revert to their 2018 levels for 2026 (i.e., removing the inflation adjustments that had been made for 2019–2025) and then will be annually adjusted for inflation again in subsequent years. Also, the OBBBA phases out the exemption twice as quickly beginning in 2026.

So, the exemption phaseout ranges in 2026 will be $500,000–$680,200 for singles and $1,000,000–$1,280,400 for joint filers. These are significantly lower than the 2025 ranges of $626,350–$978,750 and $1,252,700–$1,800,700, respectively.

Amounts for married couples filing separately are half of those for joint filers.

Child-related breaks

Certain child-related breaks are annually adjusted for inflation but don’t necessarily go up every year. In addition, these breaks are limited based on a taxpayer’s modified adjusted gross income (MAGI). Taxpayers whose MAGIs are within an applicable phaseout range are eligible for a partial break — and breaks are eliminated for those whose MAGIs exceed the top of the range.

Here are the 2026 figures for two important child-related breaks:

The Child Tax Credit. The OBBBA makes permanent the TCJA’s $2,000 per qualifying child credit amount, plus it increases it to $2,200 for 2025. The OBBBA also adjusts the credit annually for inflation starting in 2026. However, because inflation is relatively low and the dollar amount of the credit is relatively small, the credit will remain at $2,200 for 2026. The OBBBA also makes permanent the annual inflation adjustment to the limit on the refundable portion of the credit, but, again, there’s no increase for 2026. The refundable portion will remain at $1,700.

Beware that the Child Tax Credit phases out for higher-income taxpayers, and the phaseout thresholds aren’t inflation-indexed. Under the OBBBA, they’re permanently $200,000 for singles and heads of households, and $400,000 for married couples filing jointly.

The adoption credit. The MAGI phaseout range for eligible taxpayers adopting a child will increase in 2026 — by $5,890. It will be $265,080–$305,080 for joint, head of household and single filers. The maximum credit will increase by $390, to $17,670 in 2026. Under the OBBBA, a portion of the credit is refundable, and that portion is annually indexed. For 2026, the refundable portion is $5,120 (up from $5,000 for 2025).

Gift and estate taxes

The unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption had been scheduled to return to an inflation-adjusted $5 million in 2026. But the OBBBA permanently increases both exemption amounts to $15 million for 2026 and annually indexes the amount for inflation after that.

The annual gift tax exclusion in 2026 remains the same as the 2025 amount: $19,000 per giver per recipient.

2026 cost-of-living adjustments and tax planning

With many of the 2026 cost-of-living adjustment amounts trending higher, you may have an opportunity to realize some tax relief next year. However, beware that some taxpayers might be at greater AMT risk because of the reductions to the exemption phaseout ranges. If you have questions on the best tax-saving strategies to implement based on the 2026 numbers, please contact us.

A do-it-yourself (DIY) estate plan may seem appealing to those who feel confident managing their own affairs and want to save money. With the abundance of online templates and legal software, it’s easier than ever to draft a will, establish powers of attorney or create a trust without professional help. However, there are significant drawbacks to consider.

Online tools vs. professional guidance

Estate planning is a legal matter, and small mistakes can result in major unintended consequences. Errors in wording, missing signatures or failure to meet state-specific requirements can render documents invalid or lead to disputes among heirs.

DIY tools often provide limited customization, which can be problematic for blended families, business owners or those with special needs beneficiaries. Additionally, these online platforms can’t provide personalized advice or foresee complex tax implications the way experienced estate planning attorneys and tax professionals can.

Although online tools can help you create individual documents — the good ones can even help you comply with applicable laws, such as ensuring the right number of witnesses to your will — they can’t help you create an estate plan. Putting together a plan means determining your objectives and coordinating a collection of carefully drafted documents designed to achieve those objectives. And in most cases, that requires professional guidance.

For example, let’s suppose Anna’s estate consists of a home valued at $1 million and an investment account with a $1 million balance. She uses a DIY tool to create a will that leaves the home to her son and the investment account to her daughter. On the surface, this seems like a fair arrangement. But suppose that by the time Anna dies, she’s sold the home and invested the proceeds in her investment account. Unless she amended her will, she’ll have inadvertently disinherited her son.

An experienced estate planning advisor would have anticipated such contingencies and ensured that Anna’s plan treated both children fairly, regardless of the specific assets in her estate.
DIY tools also fall short when a decision demands a professional’s experience rather than mere technical expertise. Online tools make it easy to name a guardian for your minor children, for example, but they can’t help you evaluate the many characteristics and factors that go into selecting the best candidate.

Don’t try this at home

Ultimately, while a DIY estate plan may be better than having no plan at all, it carries considerable risks. Professional guidance ensures your wishes are properly documented and legally sound, reducing the likelihood of costly mistakes or family conflicts. For most people, consulting a qualified estate planning advisor, including an attorney and a CPA who understands estate tax law, is a worthwhile investment in protecting one’s legacy and loved ones’ peace of mind.

The Michigan Unemployment Insurance Agency (UIA) is transitioning its services for employers from the current Michigan Web Account Manager (MiWAM) system to a new platform called MiUI, launching on December 15, 2025.

This transition is part of a modernization effort to create a more efficient and secure system for employers, third-party administrators (TPAs), and claimants. In preparation for the transition, some MIWAM capabilities used by employers and TPAs will be reduced and/or discontinued. The process begins in November, starting with e-Registration being temporarily unavailable.

Key details of the transition

Phased rollout: Certain MiWAM functions, such as eRegistration and business transfers, are being phased out between November 7 and December 5, 2025, in preparation for the launch.
Launch date: MiUI officially launches on December 15, 2025. Employers and TPAs will use MiUI to file quarterly wage and tax reports, upload wage files, and more.
Transition period: After December 15, employers and TPAs will temporarily need to use both the MiUI system for tax functions and the MiWAM system for benefits functions until the summer of 2026, when all functions will be in MiUI.
Access: MiUI will be accessed through a MiLogin for Business account, a single sign-on solution used by the State of Michigan.

What should employers do to prepare?

If you already have a MiLogin account, you do not need to create a new one for MiUI. To log in or create your account, visit the MiLogin for Business website. Additional information about MiLogin for Business and adding MiUI to your account can be found in the Step-by-Step Guide posted on MiUI University.

Employers and TPAs are advised to ensure their MiWAM accounts are active, review contact information, and confirm authorized user permissions before the transition is complete.

To learn more, refer to these resources:

MiUI Employer Checklist
A schedule that lists key dates when functions will cease to be available
MiUI University – a library of resource guides, FAQs, videos, infographics, and blogs

To stay up to date with information about the MiUI implementation, sign up for the UIA’s free Michigan Employer Advisor newsletter, MiUI Minute.

Small businesses often rely on a few trusted employees to be the first people customers encounter — not to mention, the primary ones to collect payments and sensitive data. For example, the front desk is usually the nerve center for dental offices, fitness studios, small hotels and retail boutiques. Although front desk employees can build loyalty by offering customers and clients a smile and immediate service, ethically challenged workers may use these positions to steal. Here’s how these ploys work and ways to prevent them.

Common schemes

Payments, scheduling and customer interactions often happen at the front desk. Minor lapses in oversight, combined with workers bent on committing fraud, can lead to financial losses. Common fraud schemes include:

Cash skimming. This involves underreporting sales and pocketing the difference. Warning signs include mismatched totals or excessive no-sales.

Refund and void abuse. Here, an employee might process false credit card refunds to friends and family members — or even themselves.

Fake discounts or free services. Crooked employees might extend markdowns or complimentary services to people they know. Customer visits without corresponding sales transactions may signal fraud.

Appointment manipulation. This applies to “ghost” appointments or false cancellations that enable perpetrators to hide missing payments or pocket deposits. Appointment activity with no corresponding increase in foot traffic may indicate appointment book manipulation.

Such schemes can flourish when a business places excessive trust in employees, lacks automated point-of-sale and scheduling systems, or fails to segregate tasks involving money and recordkeeping. Frequent cash transactions and reliance on paper (vs. digital) records generally make it easier to perpetrate fraud. Also risky: scant owner or management oversight and infrequent account reconciliation.

Simple prevention methods

Fortunately, effective internal controls don’t require expensive software or new staff, simply a few consistent and well-thought-out habits. For example, you should require supervisor approval for all refunds, voids and manual discounts. That said, don’t ignore the possibility that a supervisor might be colluding with a front desk employee. Unusual increases in the number of refunds, voids and discounts should be investigated.

You might also set transaction limits for the number and amounts associated with specific employee logins. And, when one employee accepts customer payments, another employee should reconcile end-of-day totals. If you don’t have the staffing to segregate these duties every day, doing so on a part-time, random basis can still help reduce fraud risk.

In addition, use technology you already own or invest in inexpensive upgrades. For example, consider producing daily automated reports from point-of-sales and scheduling systems. Or you could place security cameras near your front desk to let employees know that management is watching. Finally, enabling activity alerts on bank and merchant accounts allows you to view questionable transactions in real time.

Controls protect everyone

To help ensure your fraud prevention measures are accepted, explain to employees that internal controls are designed to protect both them and customers from fraudulent activity. Then reinforce your policies through short, periodic staff meetings where you recognize employees who catch errors or deceptive customers.

If you suspect a fraud scheme involving your frontline employees — or anyone in your business — contact us for help. We can also help assess your company’s anti-fraud controls, identify vulnerabilities and suggest cost-effective ways to safeguard your assets and bottom line.

Hiring new employees is exciting—but it also comes with a long list of compliance responsibilities. From I-9s to W-4s to state-specific requirements, getting payroll onboarding right helps you stay compliant and avoid penalties.

In this quick, 10-minute on-demand session, Christine Porras, CPP, Payroll Supervisor, shares the essential steps and forms you need to properly onboard employees in Michigan while staying compliant with federal and state payroll regulations.

What You’ll Learn:

The key federal and state forms required for every new hire
Important deadlines, retention rules, and storage requirements
How to comply with Michigan’s Earned Sick Time Act and new hire reporting
Additional onboarding essentials every practice should know

Why Watch:

Onboarding isn’t just paperwork—it’s the foundation of a successful employer-employee relationship. Learn how to streamline the process, reduce risk, and set your new hires (and your practice) up for long-term success.

Watch the Webinar

Get Practical Resources for Your Practice

Yeo & Yeo’s Smart Medical Practice Toolkit is your go-to resource for navigating the financial, operational, and regulatory complexities of practice management. This collection includes brief, high-impact webinars, downloadable tools, and practical guidance—all built around the real challenges physicians and practice managers face.

Access the Toolkit

Yeo & Yeo is pleased to announce that Eric Sowatsky, CPA, CGMA, NSSA, PFS, has been elected to the Stevens Center for Family Business (SCFB) Executive Council as a sponsor firm representative. This appointment recognizes his experience as a business advisor and underscores his commitment to advancing the success of family-owned companies.

The Stevens Center for Family Business, part of Saginaw Valley State University’s College of Business & Management, supports family enterprises across the Great Lakes Bay Region by offering education, peer groups, networking, and access to national and local professionals. Yeo & Yeo was proud to be among the founding supporters of the Stevens Center for Family Business, joining other Saginaw-area businesses in creating a lasting resource for family-owned companies.

“Family businesses are at the heart of our communities, and I have always been inspired by the passion and dedication it takes to keep them thriving across generations,” said Sowatsky. “I look forward to contributing my accounting and wealth management perspectives to the Stevens Center for Family Business Executive Council, and supporting the members as they grow, protect, and transition their businesses.”

At Yeo & Yeo, Sowatsky focuses on strategic tax planning for businesses and individuals. Over the past two decades, he has developed specialized expertise in the agribusiness industry, frequently speaking on the WSGW Radio Farm Show and actively participating in several statewide agribusiness associations. In addition to his accounting expertise, Sowatsky is a Personal Financial Specialist (PFS), a designation that combines CPA experience with comprehensive financial planning. He is passionate about helping family business owners develop succession plans that support smooth transitions to the next generation.

Sowatsky’s experience in advising family-owned companies gives him a valuable perspective to bring to the Stevens Center for Family Business. His ability to help business owners balance tax strategies, financial planning, and succession goals positions him to contribute meaningfully to the Council’s mission of helping family businesses thrive.

Your estate planning goals likely revolve around your family, including both current and future generations. But don’t forget to take yourself into consideration. What if you become incapacitated and are unable to make financial decisions? A crucial component to include in your estate plan is a financial power of attorney (POA).

What’s a financial POA?

Without a POA, if you become incapacitated because of an accident or illness, your loved ones won’t be able to manage your finances without going through the lengthy and expensive process of petitioning the court for guardianship or conservatorship. Executing a financial POA, also known as a POA for property, protects your family from having to go through this process and helps ensure financial decisions and tasks won’t fall through the cracks.

This document appoints a trusted representative (often called an “agent”) to make financial decisions on your behalf. It authorizes your agent to manage your investments, pay your bills, file tax returns and otherwise handle your finances, within the limits you set.

Differences between springing and durable POAs

One important decision you’ll need to make is whether your POA should be “springing” — effective when certain conditions are met — or nonspringing (also known as “durable”), which is effective immediately.

A springing POA activates under certain conditions, typically when you become incapacitated and can no longer act for yourself. In most cases, to act on your behalf, your agent must present a financial institution or other third party with the POA as well as a written certification from a licensed physician stating that you’re unable to manage your financial affairs.

While a springing POA lets you retain full control over your finances while you’re able, a durable POA offers some distinct advantages:

It takes effect immediately, allowing your agent to act on your behalf for your convenience, not just when you’re incapacitated.
If you do become incapacitated, it allows your agent to act quickly on your behalf to handle urgent financial matters without the need for a physician to certify that you’ve become incapacitated. With a springing POA, the physician certification requirement can lead to delays, disputes or even litigation at a time when quick, decisive action is critical.
It may also be advantageous for elderly individuals who are mentally capable of handling their affairs but prefer to have assistance.

Durable POAs have one potential disadvantage that must be considered: You might be uncomfortable with a POA that takes effect immediately because you’re concerned that your agent may be tempted to abuse his or her authority. However, if you can’t fully trust someone with an immediate POA, it’s even riskier to rely on that person when you’re incapacitated and unable to protect yourself.

In light of the advantages of durable POAs and the potential delays caused by springing POAs, consider granting a durable POA to someone you trust completely, such as your spouse or one of your children. If you’d like added security, you could ask your attorney or another trusted advisor to hold the durable POA and deliver it to the designated agent only when you instruct them to do so or you become incapacitated.

Revisit and update your POAs

A critical estate planning companion to a financial POA is a health care POA (also known as a health care proxy). It gives a trusted person the power to make health care decisions for you. To ensure that your financial and health care wishes are carried out, consider preparing and signing both types of POA as soon as possible.

Also, don’t forget to let your family know how to gain access to the POAs in case of an emergency. Finally, financial institutions and health care providers may be reluctant to honor a POA that was executed years or decades earlier. So, it’s a good idea to sign new POAs periodically. Contact us with any questions regarding POAs.

Launching a new business brings tough decisions. And that holds true whether you’re a fledgling entrepreneur starting your first company or an experienced businessperson expanding into a second or third enterprise.

Among the most important calls you’ll need to make is how to structure the start-up for tax purposes. For many business owners, electing S corporation status is a savvy move. But it’s not right for everyone. Here are some important points to consider before you decide.

What’s it all about?

An S corporation is a tax election available only to certain U.S. companies. To make the election, you’ll need to file IRS Form 2553, “Election by a Small Business Corporation,” typically within 75 days of forming the business or the start of the tax year to which you want the election to apply.

If you elect S corporation status, the IRS will treat your start-up as a “pass-through” entity. This means the business generally won’t pay federal income taxes. Instead, profits and losses will pass through to your individual tax return and those of other shareholders.

As a result, you’ll avoid the “double taxation” faced by shareholders of C corporations — whereby the company pays taxes on the business’s income and then shareholders pay tax on any dividends received. In addition, S corporation shareholders may be eligible for the Section 199A qualified business income deduction for pass-through entity owners. It was recently made permanent under the One Big Beautiful Bill Act.

Which businesses qualify?

IRS rules limit which companies can elect S corporation status. To qualify, your start-up must:

Be an eligible domestic corporation or limited liability company (LLC),
Have no more than 100 shareholders who must be U.S. citizens or residents (certain trusts and estates may also be eligible), and
Offer only one class of stock.

Insurance companies, financial institutions using the reserve method of accounting and domestic international sales corporations are generally ineligible.

Why do it?

As mentioned above, the main advantage of electing S corporation vs. C corporation status is avoiding double taxation. But there are other reasons to do it.

For example, many start-ups incur losses in their first few years. S corporation status allows owners to offset other income with those losses, a tax benefit that’s unavailable to C corporation shareholders.

S corporations also have advantages over other types of pass-through entities. Generally, all trade or business income that flows through to sole proprietors and partners in partnerships is subject to self-employment taxes — even if the income isn’t actually distributed to the owners. S corporations can divide their income into shareholder-employee salaries and distributions. The salary portion is subject to payroll taxes, but distributions aren’t. So, by drawing a smaller salary (but one that’s reasonable in the eyes of the IRS) and taking the remainder as distributions, S corporation shareholder-employees can reduce their overall tax burden.

Liability protection is another advantage S corporations have over sole proprietorships and partnerships. S corporation status shields shareholders’ personal assets from business debts and legal claims, provided applicable rules are followed. Operating as an S corporation can also make your new business appear more credible to lenders, investors and customers because of its formalized, protective framework.

What are the drawbacks?

Electing to be treated as an S corporation has its drawbacks. Your start-up will have to follow strict IRS rules, which include keeping up with filing requirements and maintaining accurate financial records. Failure to comply could lead to back taxes, interest and penalties. It could even mean losing your S corporation status in a worst-case scenario.

Indeed, S corporations tend to incur higher administrative expenses than other pass-through entities. You’ll need to file corporate tax returns and meet state-level requirements. The extra complexity may outweigh the tax advantages — especially for newly launched companies with little to no profits.

Finally, it bears repeating: Although the salary/distributions income-splitting strategy mentioned above is advantageous, it can draw IRS scrutiny. Paying shareholder-employees an unreasonably low salary to avoid payroll taxes could trigger an audit with negative consequences.

Who can help?

Congratulations and best wishes on your forthcoming start-up! Electing S corporation status may be the right way to go. However, you’ll need to assess a wide variety of factors, including projected profits, the number of shareholders and your comfort level with the administrative requirements.

Before you do anything, contact us. We can help you evaluate whether operating as an S corporation aligns with your strategic and financial goals. If it does, we’d be happy to assist you with the filing process and compliance going forward.

The One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, extends or enhances many tax breaks for businesses. But the legislation terminates several business-related clean energy tax incentives earlier than scheduled. For example, the Qualified Commercial Clean Vehicle Credit (Section 45W) had been scheduled to expire after 2032. Under the OBBBA, it’s available only for vehicles that were acquired on or before September 30, 2025. For other clean energy breaks, businesses can still take advantage of them if they act soon.

Deduction for energy-efficient building improvements

The Section 179D deduction allows owners of new or existing commercial buildings to immediately deduct the cost of certain energy-efficient improvements rather than depreciate them over the 39-year period that typically applies. The OBBBA terminates the Sec. 179D deduction for property beginning construction after June 30, 2026.

Besides commercial building owners, eligible taxpayers include:

Tenants and real estate investment trusts (REITs) that make qualifying improvements, and
Certain designers — such as architects and engineers — of government-owned buildings and buildings owned by nonprofit organizations, religious organizations, tribal organizations, and nonprofit schools or universities.

The Sec. 179D deduction is available for new construction as well as additions to or renovations of commercial buildings of any size. (Multifamily residential rental buildings that are at least four stories above grade also qualify.) Eligible improvements include depreciable property installed as part of a building’s interior lighting system, HVAC and hot water systems, or the building envelope.

To be eligible, an improvement must be part of a plan designed to reduce annual energy and power costs by at least 25% relative to applicable industry standards, as certified by an independent contractor or licensed engineer. The base deduction is calculated using a sliding scale, ranging from 50 cents per square foot for improvements that achieve 25% energy savings to $1 per square foot for improvements that achieve 50% energy savings.

Projects that meet specific prevailing wage and apprenticeship requirements are eligible for bonus deductions. Such deductions range from $2.50 per square foot for improvements that achieve 25% energy savings to $5 per square foot for improvements that achieve 50% energy savings.

Other clean energy tax breaks for businesses

Here are some additional clean energy breaks affected by the OBBBA:

Alternative Fuel Vehicle Refueling Property Credit (Section 30C). The OBBBA eliminates the credit for property placed in service after June 30, 2026. (The credit had been scheduled to sunset after 2032.) Property that stores or dispenses clean-burning fuel or recharges electric vehicles is eligible. The credit is worth up to $100,000 per item (each charging port, fuel dispenser or storage property).

Clean Electricity Investment Credit (Section 48E) and Clean Electricity Production Credit (Section 45Y). The OBBBA eliminates these tax credits for wind and solar facilities placed in service after 2027, unless construction begins on or before July 4, 2026. Wind and solar projects begun after that date must be put in service by the end of 2027.

Advanced Manufacturing Production Credit (Section 45X). Under the OBBBA, wind energy components won’t qualify for the credit after 2027. The legislation also modifies the credit in other ways. For example, it adds “metallurgical coal” suitable for the production of steel to the list of critical minerals. And, for critical materials other than metallurgical coal, the credit will now phase out from 2031 through 2033. The credit for metallurgical coal expires after 2029.

Act soon

Many of these clean energy breaks are disappearing years earlier than originally scheduled, leaving limited time for businesses to act. If your business has been exploring clean energy investments, now is the time to consider moving forward. We can help you evaluate eligibility, maximize available tax breaks and structure projects to meet applicable requirements before time runs out. Contact us today to discuss what steps you can take to capture tax benefits while they’re available.