Business Tax Planning

For the sixth consecutive year, Yeo & Yeo CPAs & Business Consultants has been selected as one of Michigan’s Best and Brightest in Wellness. The program highlights companies, schools, and organizations that promote a culture of wellness, as well as those that plan, implement and evaluate efforts in employee wellness to make their business and their community a healthier place to live and work.

“This is an exciting achievement that recognizes Yeo & Yeo’s commitment to the health and well-being of our employees,” said Thomas E. Hollerback, president and CEO of Yeo & Yeo. “We are proud to support and encourage employees looking to live a healthier lifestyle at home and in the workplace.”

Yeo & Yeo supports wellness for its employees by paying a large portion of healthcare premiums, helping to keep costs low for employees. The firm has a high percentage of participation in its wellness plan and healthcare premium reduction incentive. Another initiative is the firm’s Fitbit Fitness Program. Themed, monthly challenges for individuals and teams, along with prizes and friendly competition, have resulted in a high level of participation. Yeo & Yeo also offers an Ergonomic Standing Desk option for employees for a healthier work environment. The firm facilitates convenient onsite health screenings for healthcare participants at each of its office locations, offers onsite flu shots at no cost, and provides an Employee Assistance Program that offers confidential guidance and resources designed to support work‐life balance.

Criteria for selection included wellness programs and policies, culture and awareness, leadership, participation and incentives, communication and measurement, among others.

Yeo & Yeo will be honored at a symposium and awards celebration on October 4 at The Henry Hotel in Dearborn.

These days, most businesses need a website to remain competitive. It’s an easy decision to set one up and maintain it. But determining the proper tax treatment for the costs involved in developing a website isn’t so easy.

That’s because the IRS hasn’t released any official guidance on these costs yet. Consequently, you must apply existing guidance on other costs to the issue of website development costs.

Hardware and software

First, let’s look at the hardware you may need to operate a website. The costs involved fall under the standard rules for depreciable equipment. Specifically, once these assets are up and running, you can deduct 100% of the cost in the first year they’re placed in service (before 2023). This favorable treatment is allowed under the 100% first-year bonus depreciation break.

In later years, you can probably deduct 100% of these costs in the year the assets are placed in service under the Section 179 first-year depreciation deduction privilege. However, Sec. 179 deductions are subject to several limitations.

For tax years beginning in 2019, the maximum Sec. 179 deduction is $1.02 million, subject to a phaseout rule. Under the rule, the deduction is phased out if more than a specified amount of qualified property is placed in service during the year. The threshold amount for 2019 is $2.55 million.

There’s also a taxable income limit. Under it, your Sec. 179 deduction can’t exceed your business taxable income. In other words, Sec. 179 deductions can’t create or increase an overall tax loss. However, any Sec. 179 deduction amount that you can’t immediately deduct is carried forward and can be deducted in later years (to the extent permitted by the applicable limits).

Similar rules apply to purchased off-the-shelf software. However, software license fees are treated differently from purchased software costs for tax purposes. Payments for leased or licensed software used for your website are currently deductible as ordinary and necessary business expenses.

Software developed internally

If your website is primarily for advertising, you can also currently deduct internal website software development costs as ordinary and necessary business expenses.

An alternative position is that your software development costs represent currently deductible research and development costs under the tax code. To qualify for this treatment, the costs must be paid or incurred by December 31, 2022.

A more conservative approach would be to capitalize the costs of internally developed software. Then you would depreciate them over 36 months.

Third party payments

Some companies hire third parties to set up and run their websites. In general, payments to third parties are currently deductible as ordinary and necessary business expenses.

Before business begins

Start-up expenses can include website development costs. Up to $5,000 of otherwise deductible expenses that are incurred before your business commences can generally be deducted in the year business commences. However, if your start-up expenses exceed $50,000, the $5,000 current deduction limit starts to be chipped away. Above this amount, you must capitalize some, or all, of your start-up expenses and amortize them over 60 months, starting with the month that business commences.

We can help

We can determine the appropriate treatment for these costs for federal income tax purposes. Contact us if you have questions or want more information.

© 2019

You may have Series EE savings bonds that were bought many years ago. Perhaps you store them in a file cabinet or safe deposit box and rarely think about them. You may wonder how the interest you earn on EE bonds is taxed. And if they reach final maturity, you may need to take action to ensure there’s no loss of interest or unanticipated tax consequences.

Interest deferral

Series EE Bonds dated May 2005 and after earn a fixed rate of interest. Bonds purchased between May 1997 and April 30, 2005, earn a variable market-based rate of return.

Paper Series EE bonds were sold at half their face value. For example, if you own a $50 bond, you paid $25 for it. The bond isn’t worth its face value until it has matured. (The U.S. Treasury Department no longer issues EE bonds in paper form.) Electronic Series EE Bonds are sold at face value and are worth their full value when available for redemption.

The minimum term of ownership is one year, but a penalty is imposed if the bond is redeemed in the first five years. The bonds earn interest for 30 years.

How they’re taxed

Series EE bonds don’t pay interest currently. Instead, the accrued interest is reflected in the redemption value of the bond. The U.S. Treasury issues tables showing the redemption values.

The interest on EE bonds isn’t taxed as it accrues unless the owner elects to have it taxed annually. If an election is made, all previously accrued but untaxed interest is also reported in the election year. In most cases, this election isn’t made so bond holders receive the benefits of tax deferral.

If the election to report the interest annually is made, it will apply to all bonds and for all future years. That is, the election cannot be made on a bond-by-bond or year-by-year basis. However, there’s a procedure under which the election can be canceled.

If the election isn’t made, all of the accrued interest is finally taxed when the bond is redeemed or otherwise disposed of (unless it was exchanged for a Series HH bond). The bond continues to accrue interest even after reaching its face value, but at “final maturity” (after 30 years) interest stops accruing and must be reported.

Note: Interest on EE bonds isn’t subject to state income tax. And using the money for higher education may keep you from paying federal income tax on your interest.

Deferral won’t last forever

One of the principal reasons for buying EE bonds is the fact that interest can build up without having to currently report or pay tax on it. Unfortunately, the law doesn’t allow for this tax-free buildup to continue indefinitely. When the bonds reach final maturity, they stop earning interest.

Series EE bonds issued in January 1989 reached final maturity after 30 years, in January 2019. That means that not only have they stopped earning interest, but all of the accrued and as yet untaxed interest is taxable in 2019.

If you own EE bonds (paper or electronic), check the issue dates on your bonds. If they’re no longer earning interest, you probably want to redeem them and put the money into something more lucrative. Contact us if you have any questions about the taxability of savings bonds, including Series HH and Series I bonds.

© 2019

Alma

The city of Alma is located in the center of Michigan. A small city with a passionate community, Alma has something for everyone.

What is it like to have a location in Alma, MI?

Known as Scotland USA, Alma is home to the annual Highland Festival, which unites Alma College and the surrounding community by celebrating their Scottish heritage. The festival began in 1968, and for more than 50 years it has brought thousands of people to Alma. The Festival showcases the sense of community and pride residents of Alma have for their city and one another.

Yeo & Yeo’s Alma Services

Yeo & Yeo is among the leading advisory firms in the nation. We provide integrated solutions in areas including accounting, audit, tax, valuation, technology, medical billing and wealth management for individuals and companies in Alma and beyond. Health care, education and manufacturing are among Alma’s three largest industries, employing over 50% of Alma’s working population. We are proud to serve these industries and many more in our Alma office.

For more information on working and living in Alma, visit the Gratiot Area Chamber of Commerce  website.

Saginaw Headquarters

In the mid-1800s, Saginaw was launched into prosperity and fame as the “Lumber Capital of the World.” Today, Saginaw is rich in natural resources. From parks and trail systems to an internationally recognized wildlife refuge, Saginaw is an exciting place to work, live and play.

What is it like to have headquarters in Saginaw, MI?

Saginaw is located in the Great Lakes Bay Region, only a short drive away from Lake Huron’s Saginaw Bay. Ranked consistently as one of the most affordable communities in the United States, Saginaw has a big-city feel with the small city expense and charm. Saginaw is home to the Saginaw Spirit, a major junior ice hockey team that competes in the Canadian Hockey League. With places like the Shiawassee National Wildlife Refuge, the Saginaw Valley Rail Trail, the historic Temple Theatre and the Saginaw Art Museum, Saginaw is rich in opportunity to explore.

Yeo & Yeo’s Saginaw Services

Yeo & Yeo is among the leading accounting, technology, and medical billing firms in the nation with more than 200 employees and several offices throughout Michigan. Yeo & Yeo’s Saginaw office serves as the headquarters of our four companies, Yeo & Yeo CPAs, Yeo & Yeo Medical Billing, Yeo & Yeo Technology and Yeo & Yeo Wealth Management.

For more information on working and living in Saginaw, visit the Saginaw County Chamber of Commerce website.

Many municipalities are subject to a single audit. Is your municipality also subject to group auditing standards? Perhaps that is your exact situation. There are circumstances when your primary government expends much less than $750,000 (the minimum threshold that triggers a single audit) in federal awards, but some of the components of the group also have federal awards. Is the aggregate of all federal awards expended more than $750,000? You may or may not be required to undertake a single audit.

Summary

• Single audits are required when federal expenditures exceed $750,000.
• In the case of group audits, the $750,000 applies to all expenditures of the components of the group.
• If the components of the group have separately issued financial statements (and if applicable, single audits), the primary government does not need to include the expenditures of federal awards of the other components in their schedule of expenditures of federal awards. This situation could, under certain circumstances, eliminate the need for a single audit even if the aggregate expenditures of federal awards are more than $750,000.

Uniform Guidance was effective December 26, 2014, and at that point the threshold of federal expenditures that required entities to undergo a single audit was increased from $500,000 to $750,000. Typically, municipalities apply the $750,000 threshold to expenditures that are directly made by the government or awarded to sub-recipients. When these expenditures exceed $750,000, it is clear that the municipality needs a single audit.

What if the primary government is also a component of a group audit, with several other components that also expend federal awards? When the total of the group exceeds $750,000, a single audit is typically required. In this instance, it can be tricky to gather the necessary information that auditors will request when the federal award programs are spread among various components of the group.

There is a way out of the single audit madness! If each component has its own financial statement audit (and potentially single audit), then the primary government is not required to include the expenditures of federal awards in the primary government’s schedule of expenditures of federal awards. In the case of a primary government with relatively low expenditures of federal awards and components that also have federal expenditures, this could eliminate the need for the primary government to undergo a single audit. The authority to do this is directly from Uniform Guidance – 2 CFR 200.514(a), which reads as follows:

§ 200.514 Scope of audit.

(a)General. The audit must be conducted in accordance with GAGAS. The audit must cover the entire operations of the auditee, or, at the option of the auditee, such audit must include a series of audits that cover departments, agencies, and other organizational units that expended or otherwise administered federal awards during such audit period, provided that each such audit must encompass the financial statements and schedule of expenditures of federal awards for each such department, agency, and other organizational unit, which must be considered to be a non-federal entity. The financial statements and schedule of expenditures of federal awards must be for the same audit period.

The important distinction here is the option to undergo a series of audits. Of course, there are pros and cons to performing a series of audits:

Pros

• No single audit.
• Gathering information can be difficult when the components are widespread.

Cons

• Each component needs a separate financial statement audit (and potentially a single audit).
• The cost to obtain separate audits may be prohibitive.

All of this leads to one question – Is it worth it for your municipality to initiate a series of audits rather than have a single audit performed? That answer will vary by municipality, but at least you know you have the option. It is important to consider all of the factors when making this determination.

A final consideration is to determine what each source of revenue may require. Look through your grant agreements to make sure that those requirements are all still being met before making your final decision.

Manufacturing company owners and managers generally focus their attention on what’s happening — or isn’t happening — on the plant floor. Activities in overhead departments, such as human resources (HR), can become a secondary consideration. If this sounds like your company, consider this: Manufacturing is a labor-intensive industry, and you can’t afford to ignore HR.

A well-oiled HR department enables your business to run on all cylinders and overcome many challenges. Conversely, HR problems can slow down your company’s growth. If, for example, HR doesn’t proactively search for new machine operators, you may not be able to fill a big order that comes in unexpectedly.

7 Critical Functions

Here are seven ways HR departments can support a manufacturing company’s operational and performance objectives:

1. Recruitment. This may be HR’s most important function. Finding the best talent to keep the plant humming without breaking the bank is always an issue, but it’s even more so in the current tight labor market. Today’s unemployment rate has reached record lows in some markets, and many applicants lack the skills and training to operate complex machines and computers that are used by advanced manufacturers.

One challenges for HR is that Millennials have shown less interest in manufacturing than previous generations. This may be due to a widely held misconception that manufacturing isn’t “cutting-edge.” Some younger workers may also believe that manufacturing jobs aren’t secure due to a reliance on temps to handle seasonal or periodic work.

The numbers bear this out. According the National Association of Manufacturers (NAM), in the first quarter of 2019 more than 25% of manufacturers had to turn down new business opportunities for lack of skilled employees. By 2025, millions of manufacturing jobs are expected to go unfilled. Your HR department must constantly strategize and think creatively to ensure that this doesn’t happen to your company.

2. Compensation. For many manufacturers, compensation is the second largest business expense next to raw materials. Of course, wages alone aren’t enough to attract the top talent. Today, jobseekers look for a complete package that includes a good salary, benefits and perks, such as bonuses, paid time off and retirement plans.

Your HR team needs to know enough about the labor market to offer the best combination of these elements. At the same time, HR must align salary and incentive programs with your company’s performance markers — all while working within a tight budget. It’s a tough balancing act.

3. healthcare benefits. No question, the biggest-ticket under the benefits umbrella is health insurance. As healthcare costs rise, premiums will also continue to soar.

HR managers must balance the needs of employees against the cost to your company.Increasingly, this means asking workers to pay a larger percentage of premiums and accept high deductibles. But your company can’t put too much of the burden on employees or it risks losing them. HR must understand the health insurance marketplace and know how to find the best “deals” without sacrificing quality or violating laws governing employer-sponsored health insurance. This may require them to outsource some work to benefits professionals.

4. Training. Manufacturers hoping to rely on “interchangeable” workers probably won’t last long in the global marketplace. You need workers with specialized skills — and that means devoting resources to training.

Extra training isn’t only about the right hands operating critical machines. When workers are well-trained, they tend to care more about the quality of work, leading to higher productivity. Accordingly, HR should use every tool at its disposal, including mentoring, coaching, internships, career development plans, tuition reimbursements and motivational speakers.

5. Performance management. Skilled performance management promotes employee success and, if HR is successful, results in better financial performance. Many HR managers design and implement internal employee appraisal programs. But input from performance management consultants can be valuable as new “best practices” emerge.

6. Labor relations. In most U.S. states, manufacturers can’t ignore unions. Managing union relations may fall to your HR department. It’s important that this team maintains a positive and productive relationship with unions and union members. Of course, if conflict arises, upper management must step in.

7. Compliance. Whether they want to be or not, HR managers must be labor law professionals. Your HR manager may be responsible for drawing up policies that protect workers and keeping corporate officers abreast of changing regulations. There’s little room for error because failure to comply with labor laws can lead to Litigation Support and financial penalties.

Protect Your Assets

Your company’s HR department to integral to its success. Yeo & Yeo offers customizable HR solutions to support recruiting, training, reviewing, policies and procedures and compensating employees. Contact us to discuss how we can help you with your most valuable asset – your workforce.

Farming businesses encompass a wide range of operations. All individuals, partnerships, or corporations that cultivate, operate, or manage farms for profit, either as owners or tenants, are designated as farmers. The term “farm” includes livestock, dairy, poultry, fruit, and truck farms, as well as plantations, ranches, ranges, orchards, groves and all land used for farming operations.

Individuals report their farm income on Schedule F, Profit or Loss From Farming. Whether you raise livestock or poultry, grow fruits or vegetables or engage in another farming activity, here are nine tax tips and reminders from the IRS.

1. Crop insurance. Insurance payments from crop damage count as income. In general, you should report these payments in the year you receive them. There may be a way to postpone reporting of crop insurance proceeds until the following year. Consult with your tax advisor about this exception. Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops because of drought, flood, or any other natural disaster.

2. Sale of items purchased for resale. Let’s say your farming business sold livestock or items that you bought for resale. You must report the sale. Your profit or loss is the difference between your selling price and your basis in the item. Usually, basis is the cost of the item. Your cost may also include other amounts you paid such as sales tax and freight.

3. Weather-related sales. Bad weather such as a drought or flood may force you to sell more livestock than you normally would in a year. If so, you may be able to delay reporting a gain from the sale of the extra animals.

You must meet all the following conditions to qualify:

• Your principal trade or business is farming;
• You use the cash method of accounting;
• You can show that, under your usual business practices, you would not have sold the animals this year except for the weather-related condition; and
• The weather-related condition caused an area to be designated as eligible for assistance by the federal government. The designation can be made by the President, the U.S. Department of Agriculture (or any of its agencies), or by other federal agencies.

4. Farm expenses. Farmers can deduct ordinary and necessary expenses they paid for their business. An ordinary expense is a common and accepted cost for that type of business. A necessary expense means it is appropriate for that business.

Depreciation expenses are among those that are deductible. Farmers can depreciate most types of tangible property — except land — such as buildings, machinery, equipment, vehicles, certain livestock and furniture. Farmers can also depreciate certain intangible property, such as copyrights, patents, and computer software. To be depreciable, the property must

• Be property the farmer owns;
• Be used in the farmer’s business or income-producing activity;
• Have a determinable life; and
• Have a useful life that extends substantially beyond the year placed in service.

Some expenses paid during the tax year may be partly personal and partly business. Examples include gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest and taxes. Farmers must allocate these expenses between their business and personal parts. Generally, the personal part of these expenses is not deductible.

Example: Let’s say a taxpayer-farmer paid $1,500 for electricity during the tax year. The taxpayer used one-third of the electricity for personal purposes and two-thirds for farming. Under these circumstances, two-thirds of the electricity expense, or $1,000, is deductible as a farm business expense. Records must be maintained to document the business portion of the expense.

5. Employee wages. You can deduct reasonable wages you paid to your farm’s full and part-time workers. You must withhold Social Security, Medicare and income taxes from their wages.

If a farmer pays his or her child to do farm work and a true employer-employee relationship exists, reasonable wages or other compensation paid to the child is deductible. The wages are included in the child’s income and the child may have to file an income tax return. These wages may also be subject to Social Security and Medicare taxes if the child is age 18 or older.

6. Loan repayment. You can only deduct the interest you paid on a loan if the loan is used for your farming business. You can’t deduct interest you paid on a loan that you used for personal expenses.

7. Net operating losses. If your expenses are more than income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid in prior years. You may also be able to lower your tax in future years.

Generally, you carry an NOL back to the two tax years before the NOL year and deduct it from income you had in those years. You can choose not to carry back an NOL and only carry it forward. There are rules for figuring how much of the NOL is used in each tax year and how much is carried to the next tax year. Your tax adviser can explain.

8. Farm income averaging. You may be able to average some or all of the current year’s farm income by spreading it out over the past three years. This may cut your taxes if your farm income is high in the current year and low in one or more of the past three years. Ask your tax adviser for more information.

9. Tax credit or refund. You may be able to claim a tax credit or refund of excise taxes you paid on fuel used on your farm for farming purposes. (You cannot currently claim a credit or refund for the tax for the used of dyed diesel fuel or dyed kerosene used on a farm for farming purposes.)

Need more information? Consult with your tax advisor and take a look at IRS Publication 225, Farmer’s Tax Guide.

As you are likely well aware, two important developments that will impact your school district’s financial statements are the implementation of GASB 84 Fiduciary Activities and GASB 87 Leases.

GASB 84 will be required to be implemented for a school district’s June 30, 2020, fiscal year. It will require the evaluation of the district’s activities to determine who controls the assets and who the beneficiaries are, to determine the appropriate fund in which that activity should be recorded.

GASB 87 will be required to be implemented for a school district’s June 30, 2021, fiscal year. The implementation of GASB 87 will require districts to treat their operating leases similarly to how they currently handle capital leases and record a lease asset and a lease liability.

GASB is offering a free CPE webinar on the implementation guide for GASB 84 Fiduciary Activities and GASB 87 Leases on Thursday, September 26, 2019, from 1:30-3:15 p.m. EST. The topics that will be discussed include:

1. Identifying fiduciary activities based on the requirements of Statement No. 84, Fiduciary Activities
2. Reporting fiduciary activities in fiduciary funds
3. Identifying contracts addressed in Statement No. 87, Leases
4. Recognizing and measuring financial statement elements associated with lease transactions
5. Audience question-and-answer session.

You may register for the webinar here. If you are unable to attend the live broadcast, GASB will have the video available on its website for 90 days after the event.

Earlier this year, Yeo & Yeo issued a white paper about implementing GASB 84 that you can download here.

If you have implementation questions, please reach out to Yeo & Yeo’s Education Services Group.

As you are likely well aware, two important developments that will impact your municipality’s financial statements are the implementation of GASB 84 Fiduciary Activities and GASB 87 Leases.

GASB 84 will be required to be implemented for fiscal years beginning after December 15, 2018, which means that governments with year-ends of December 31, 2019, will be the first to implement. It will require the evaluation of the government’s activities to determine who controls the assets and who the beneficiaries are, to determine the appropriate fund in which to record the activity.

GASB 87 will be required to be implemented for fiscal years beginning after December 15, 2019, which means that governments with year-ends of December 31, 2020, would be the first to implement. The implementation of GASB 87 will require governments to treat their operating leases similarly to how they currently handle capital leases and record a lease asset and a lease liability.

GASB is offering a free CPE webinar on the implementation guide for GASB 84 Fiduciary Activities and GASB 87 Leases on Thursday, September 26, 2019, from 1:30-3:15 p.m. EST. The topics that will be discussed include:

1. Identifying fiduciary activities based on the requirements of Statement No. 84, Fiduciary Activities
2. Reporting fiduciary activities in fiduciary funds
3. Identifying contracts addressed in Statement No. 87, Leases
4. Recognizing and measuring financial statement elements associated with lease transactions
5. Audience question-and-answer session.

You may register for the webinar here. If you are unable to attend the live broadcast, GASB will have the video available on its website for 90 days after the event.

Earlier this year, Yeo & Yeo issued a white paper about implementing GASB 84 that you can download here.

If you have implementation questions, please reach out to Yeo & Yeo’s Government Services Group.

As you are probably now aware, the new lease accounting standard has been delayed. In July, the Financial Accounting Standards Board (FASB) voted to propose delaying implementation of the new lease accounting standard for non-public companies (which include private companies and nonprofit organizations) for one year. Based on this proposal, the new standard would become effective for non-public companies in January 2021 and would be reported in December 31, 2021, financial statements.

FASB’s proposal is available for public comment through September 16, 2019, at which point FASB will finalize the new effective date.

The delay reflects a mindset shift by FASB and is the result of the board gaining a greater understanding of the challenges nonpublic companies and nonprofits encounter when adopting major accounting updates. Under this philosophy change, FASB intends to extend and simplify how effective dates are staggered between large public companies and all other entities (which include private companies, and nonprofit organizations).

Yeo & Yeo will continue to provide updates on the proposed change in the accounting standard. If you have questions, please contact your local Yeo & Yeo office.

Do you know what your business is worth right now? Practically speaking, it is worth what the highest bidder is willing to pay for it — no more or no less. Nevertheless, by taking all the relevant factors into account, you can position yourself for the best possible deal.

The first step is to have a business valuation prepared for your company. Our firm can provide a comprehensive report, which can be a starting point for negotiations.

Typically, potential buyers conduct their own due diligence of businesses they are interested in. They may rely on professional appraisers who use different measuring sticks and come up with another valuation. For example, a buyer may seek a valuation based on fair market value, intrinsic value or a different standard might be applied. Internal factors that are unique to the business are taken into account, such as the company’s financial position.

At this juncture, other external factors can also come into play. Some of these issues reflect the economy, market demand for the company’s products or services, and the health of the industry as a whole. If demand is low, it could suggest reduced profitability. Therefore, it might be advantageous to postpone your plans to sell the business until demand increases or stabilizes.

Interest rates can also affect the value of a business. When interest rates are rising, it can have an adverse effect on cash flow, since outstanding debts can result in higher charges. Therefore, you might want to sell a business when interest rates are relatively low.

Our firm provides a comprehensive set of services relating to business valuations. We can walk you through every step of the process so you understand it completely. Our services include an analysis of:

• The relative strengths and weakness of your business.
• Steps you can take to enhance the value.
• How to keep taxes to a minimum.
• Where to find potential buyers.
• The optimal time to sell.
• The value of tangible assets, such as real estate and equipment, as well as intangible assets, such as patents, trademarks and non-compete agreements.

Contact our office to arrange a meeting. Our business valuation professionals understand the complex internal and external factors involved in valuing a business. 

Sooner or later, it will be time to “hand over the reins” to the younger generation. But it’s not as simple as walking out the door at retirement time with a few plaques in your hands. In order to improve the odds for continued success of your family business, you need to develop a plan of succession.

This situation may be complicated if you already have several relatives working for you. You may have to groom one of them for the top spot or divide up the responsibilities in a reasonable manner. Either way, you could be facing some difficult choices in the near future.

With that in mind, here are several practical suggestions:

• Establish strict ground rules for hiring family members. For instance, don’t just hire a nephew or niece because of family obligations. Establish qualifications for each position regardless of a person’s family connection.
• Teach your successor the ropes so he or she can gain the technical expertise and skills needed to lead the company. Implement a plan to evaluate job performance.
• You might rely on an independent board of business professionals. They can help choose and train a successor if you haven’t designated a replacement.
• Find a mediator to break stalemates. When conflicts threaten to disrupt the business operation, your business advisers may be able to patch things up.
• Set up family meetings. Be honest in your discussions. While you lay out your vision of the future, allow younger family members to express their own goals.
• Maximize potential tax benefits. With professional assistance, you may be able to transfer business interests without suffering any dire tax consequences.

A successful plan for succession should address all of these issues – and more. Don’t leave the fate of your business to chance. Contact us for assistance. 

Do you want to withdraw cash from your closely held corporation at a low tax cost? The easiest way is to distribute cash as a dividend. However, a dividend distribution isn’t tax-efficient, since it’s taxable to you to the extent of your corporation’s “earnings and profits.” But it’s not deductible by the corporation.

Different approaches

Fortunately, there are several alternative methods that may allow you to withdraw cash from a corporation while avoiding dividend treatment. Here are five ideas:

1. Capital repayments. To the extent that you’ve capitalized the corporation with debt, including amounts that you’ve advanced to the business, the corporation can repay the debt without the repayment being treated as a dividend. Additionally, interest paid on the debt can be deducted by the corporation. This assumes that the debt has been properly documented with terms that characterize debt and that the corporation doesn’t have an excessively high debt-to-equity ratio. If not, the “debt” repayment may be taxed as a dividend. If you make cash contributions to the corporation in the future, consider structuring them as debt to facilitate later withdrawals on a tax-advantaged basis.

2. Salary. Reasonable compensation that you, or family members, receive for services rendered to the corporation is deductible by the business. However, it’s also taxable to the recipient. The same rule applies to any compensation (in the form of rent) that you receive from the corporation for the use of property. In either case, the amount of compensation must be reasonable in relation to the services rendered or the value of the property provided. If it’s excessive, the excess will be nondeductible and treated as a corporate distribution.

3. Loans. You may withdraw cash from the corporation tax-free by borrowing money from it. However, to avoid having the loan characterized as a corporate distribution, it should be properly documented in a loan agreement or a note and be made on terms that are comparable to those on which an unrelated third party would lend money to you. This should include a provision for interest and principal. All interest and principal payments should be made when required under the loan terms. Also, consider the effect of the corporation’s receipt of interest income.

4. Fringe benefits. Consider obtaining the equivalent of a cash withdrawal in fringe benefits that are deductible by the corporation and not taxable to you. Examples are life insurance, certain medical benefits, disability insurance and dependent care. Most of these benefits are tax-free only if provided on a nondiscriminatory basis to other employees of the corporation. You can also establish a salary reduction plan that allows you (and other employees) to take a portion of your compensation as nontaxable benefits, rather than as taxable compensation.

5. Property sales. You can withdraw cash from the corporation by selling property to it. However, certain sales should be avoided. For example, you shouldn’t sell property to a more than 50% owned corporation at a loss, since the loss will be disallowed. And you shouldn’t sell depreciable property to a more than 50% owned corporation at a gain, since the gain will be treated as ordinary income, rather than capital gain. A sale should be on terms that are comparable to those on which an unrelated third party would purchase the property. You may need to obtain an independent appraisal to establish the property’s value.

Minimize taxes

If you’re interested in discussing any of these ideas, contact us. We can help you get the maximum out of your corporation at the minimum tax cost.

© 2019

Yeo & Yeo CPAs & Business Consultants, a leading Michigan accounting firm, has been named one of Metropolitan Detroit’s Best and Brightest Companies to Work For by the Michigan Business & Professional Association for the eighth consecutive year.

“It is an honor to be recognized as one of the Best and Brightest Companies to Work For,” said Thomas O’Sullivan, managing principal of the Ann Arbor office. “We credit the excellent work environment we’ve created to our dedicated employees. They are engaged in the work they do for our clients and committed to teamwork. The firm also supports their commitment to community service. I am proud of Yeo & Yeo and the employees who made this award possible,” says O’Sullivan.

Yeo & Yeo offers rewarding careers for individuals who have the desire and drive to grow as leaders in the accounting profession. More than 200 employees in offices throughout Michigan, including locations in Ann Arbor, Auburn Hills and Southgate, take pride in the firm’s reputation for personal service, commitment to clients and community support. Yeo & Yeo has a culture of developing future leaders through its in-house training department, professional development training and formal mentoring while sustaining a family friendly work environment. The firm also offers an award-winning CPA certification bonus program. Yeo & Yeo is a strengths-based organization where employees benefit from collaboration across offices and teams and have access to advisors and resources that help them succeed.

The annual competition is a program of the Michigan Business & Professional Association (MBPA) and recognizes organizations that display a commitment to excellence in their human resource practices and employee enrichment. Companies in counties as far north as Midland, Bay and Saginaw, as far west as Clinton, Ingham and Jackson, and those in the entire Thumb and Metropolitan Detroit regions were eligible to participate.

Yeo & Yeo and the other winning companies will be honored at the MBPA’s annual awards program and human resources symposium on October 22 at the Detroit Marriott at the Renaissance Center.

Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2019. Keep in mind that this list isn’t all-inclusive, so additional deadlines may apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

October 15

• If a calendar-year C corporation that filed an automatic six-month extension:
  • File a 2018 income tax return (Form 1120) and pay any tax, interest and penalties due.
  • Make contributions for 2018 to certain employer-sponsored retirement plans.

October 31

• Report income tax withholding and FICA taxes for third quarter 2019 (Form 941) and pay any tax due. (See exception below under “November 12.”)

November 12

• Report income tax withholding and FICA taxes for third quarter 2019 (Form 941), if you deposited on time (and in full) all of the associated taxes due.

December 16

• If a calendar-year C corporation, pay the fourth installment of 2019 estimated income taxes.

© 2019

Although the implementation of the lease accounting standard has been delayed a year for non-public companies, it is not too early to begin looking at policies to implement in advance of this new standard.

To ensure effective implementation of this standard, it is critical that organizations maintain established processes to track the inventory of leases.

Documented procedures should address the following:

1. Determine which positions/departments have authority to enter into leases on behalf of the organization.
2. Establish a point department that is responsible for developing and maintaining a lease inventory list. It would likely be an accounting or legal department.
3. Document a timeline for how frequently the point department should be informed of new leases. Depending on an organization’s size, weekly could be sufficient.
4. Implement controls to ensure the completeness of the list. These will vary based on the size of an organization and number of leases but could include comparison of vendors on the master lease inventory list to active vendors in the payables system.