You May Have To Pay Tax On Social Security Benefits

During your working days, you pay Social Security tax in the form of withholding from your salary or self-employment tax. And when you start receiving Social Security benefits, you may be surprised to learn that some of the payments may be taxed.

If you’re getting close to retirement age, you may be wondering if your benefits are going to be taxed. And if so, how much will you have to pay? The answer depends on your other income. If you are taxed, between 50% and 85% of your payments will be hit with federal income tax. (There could also be state tax.)

Important: This doesn’t mean you pay 50% to 85% of your benefits back to the government in taxes. It means that you have to include 50% to 85% of them in your income subject to your regular tax rates.

Calculate provisional income

To determine how much of your benefits are taxed, you must calculate your provisional income. It starts with your adjusted gross income on your tax return. Then, you add certain amounts (for example, tax-exempt interest from municipal bonds). Add to that the income of your spouse, if you file jointly. To this, add half of the Social Security benefits you and your spouse received during the year. The figure you come up with is your provisional income. Now apply the following rules:

If you file a joint tax return and your provisional income, plus half your benefits, isn’t above $32,000 ($25,000 for single taxpayers), none of your Social Security benefits are taxed.
If your provisional income is between $32,001 and $44,000, and you file jointly with your spouse, you must report up to 50% of your Social Security benefits as income. For single taxpayers, if your provisional income is between $25,001 and $34,000, you must report up to 50% of your Social Security benefits as income.
If your provisional income is more than $44,000, and you file jointly, you must report up to 85% of your Social Security benefits as income on Form 1040. For single taxpayers, if your provisional income is more than $34,000, the general rule is that you must report up to 85% of your Social Security benefits as income.

Caution: If you aren’t paying tax on your Social Security benefits now because your income is below the floor, or you’re paying tax on only 50% of those benefits, an unplanned increase in your income can have a significant tax cost. You’ll have to pay tax on the additional income, you’ll also have to pay tax on (or on more of) your Social Security benefits, and you may get pushed into a higher tax bracket.

For example, this might happen if you receive a large retirement plan distribution during the year or you receive large capital gains. With careful planning, you might be able to avoid this tax result.

Avoid a large tax bill

If you know your Social Security benefits will be taxed, you may want to voluntarily arrange to have tax withheld from the payments by filing a Form W-4V with the IRS. Otherwise, you may have to make estimated tax payments.

Contact us to help you with the exact calculations on whether your Social Security will be taxed. We can also help you with tax planning to keep your taxes as low as possible during retirement.

Small businesses may find it beneficial to barter for goods and services instead of paying cash for them. If your business engages in bartering, be aware that the fair market value of goods that you receive in bartering is taxable income. And if you exchange services with another business, the transaction results in taxable income for both parties.

Income is also realized if services are exchanged for property. For example, if a construction firm does work for a retail business in exchange for unsold inventory, it will have income equal to the fair market value of the inventory.

Barter clubs

Many business owners join barter clubs that facilitate barter exchanges. In general, these clubs use a system of “credit units” that are awarded to members who provide goods and services. The credits can be redeemed for goods and services from other members.

Bartering is generally taxable in the year it occurs. But if you participate in a barter club, you may be taxed on the value of credit units at the time they’re added to your account, even if you don’t redeem them for actual goods and services until a later year. For example, let’s say that you earn 2,000 credit units one year, and that each unit is redeemable for $1 in goods and services. In that year, you’ll have $2,000 of income. You won’t pay additional tax if you redeem the units the next year, since you’ve already been taxed once on that income.

If you join a barter club, you’ll be asked to provide your Social Security number or employer identification number. You’ll also be asked to certify that you aren’t subject to backup withholding. Unless you make this certification, the club will withhold tax from your bartering income at a 24% rate.

Required forms

By January 31 of each year, the barter club will send you a Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” which shows the value of cash, property, services, and credits that you received from exchanges during the previous year. This information will also be reported to the IRS.

If you don’t contract with a barter exchange but you do trade services, you don’t file Form 1099-B. But you may have to file a form 1099-MISC.

Many benefits

By bartering, you can trade away excess inventory or provide services during slow times, all while hanging onto your cash. You may also find yourself bartering when a customer doesn’t have the money on hand to complete a transaction. As long as you’re aware of the federal and state tax consequences, these transactions can benefit all parties. Contact us for more information.

The IRS uses Audit Techniques Guides (ATGs) to help IRS examiners get ready for audits. Your business can use the same guides to gain insight into what the IRS is looking for in terms of compliance with tax laws and regulations.

Many ATGs target specific industries or businesses, such as construction, aerospace, art galleries, child care providers and veterinary medicine. Others address issues that frequently arise in audits, such as executive compensation, passive activity losses and capitalization of tangible property.

How they’re used

IRS auditors need to examine all types of businesses, as well as individual taxpayers and tax-exempt organizations. Each type of return might have unique industry issues, business practices and terminology. Before meeting with taxpayers and their advisors, auditors do their homework to understand various industries or issues, the accounting methods commonly used, how income is received, and areas where taxpayers may not be in compliance.

By using a specific ATG, an auditor may be able to reconcile discrepancies when reported income or expenses aren’t consistent with what’s normal for the industry or to identify anomalies within the geographic area in which the business is located.

For example, one ATG focuses specifically on businesses that deal in cash, such as auto repair shops, car washes, check-cashing operations, gas stations, laundromats, liquor stores, restaurants., bars, and salons. The “Cash Intensive Businesses” ATG tells auditors “a financial status analysis including both business and personal financial activities should be done.” It explains techniques such as:

How to examine businesses with and without cash registers,
What a company’s books and records may reveal,
How to analyze bank deposits and checks written from known bank accounts,
What to look for when touring a business,
Ways to uncover hidden family transactions,
How cash invoices found in an audit of one business may lead to another business trying to hide income by dealing mainly in cash.

Auditors are obviously looking for cash-intensive businesses that underreport their cash receipts but how this is uncovered varies. For example, when examining a restaurants or bar, auditors are told to ask about net profits compared to the industry average, spillage, pouring averages and tipping.

Learn the red flags

Although ATGs were created to help IRS examiners ferret out common methods of hiding income and inflating deductions, they also can help businesses ensure they aren’t engaging in practices that could raise audit red flags. Contact us if you have questions about your business. For a complete list of ATGs, visit the IRS website here: https://bit.ly/2rh7umD

HK Financial Services (HKFS) named Yeo & Yeo CPAs & Business Consultants the 2018 New Firm of the Year at the HKFS annual conference held recently in Dubuque, Iowa. Yeo & Yeo was selected in recognition of its commitment and dedication in providing financial planning services for its clients.

Representatives of HKFS stated that Yeo & Yeo received the award because the firm “has displayed excellence in client communication, guidance and results.”

Yeo & Yeo works in alliance with HKFS to provide independent and objective financial services for clients. Combining the strengths of Yeo & Yeo and HKFS allows Yeo & Yeo to provide more robust financial planning services that help clients better understand their financial situation and reach their goals.

Disclosure
Investment advisory services offered through HK Financial Services (HKFS), an Independent Registered Investment Adviser. Commission-based securities products are sold by ProEquities registered representatives and offered through ProEquities, Inc., a Registered Broker-Dealer and Member FINRA and SIPC. HKFS, ProEquities, and Yeo & Yeo are unrelated entities. Neither HKFS nor ProEquities offer accounting, tax or legal services.

Yeo & Yeo CPAs & Business Consultants is pleased to announce that Peter J. Bender, CPA, CFP®, has received the President’s Club Award from HK Financial Services (HKFS).

The President’s Club award recognizes outstanding individuals for providing wealth management services for high-net-worth clients. It also recognizes a high level of ethics and integrity, and leadership, and exemplifies the best of the best of HKFS affiliates. Yeo & Yeo works closely with HKFS to provide independent and objective financial services for their clients.

Bender is the managing principal of Yeo & Yeo’s Saginaw office and leads the firm’s wealth management services. He serves on Yeo & Yeo’s board of directors and is a member of the firm’s Agribusiness Services Group and the Estate Planning Group. He has 30 years of experience in auditing, financial planning, and tax planning and preparation for businesses and individuals with a focus on family business.

Bender is a member of the Michigan Association of Certified Public Accountants’ Agribusiness Task Force. He is a Certified Financial Planner™ and a member of the Financial Planning Association. In our community, Bender serves on the board of directors for Frankenmuth Credit Union and Wellspring Lutheran Services. He also serves on the St. Lorenz Foundation Finance Committee and the Valley Lutheran High School Growing Campaign Cabinet.

This award was presented to Bender at the HK Financial Services Conference in Dubuque, Iowa.

Disclaimer
Investment advisory services offered through HK Financial Services (HKFS), an Independent Registered Investment Adviser. Commission-based securities products are sold by ProEquities registered representatives and offered through ProEquities, Inc., a Registered Broker-Dealer and Member FINRA and SIPC. HKFS, ProEquities, and Yeo & Yeo are unrelated entities. Neither HKFS nor ProEquities offer accounting, tax or legal services.

Check the background of Pete Bender on FINRA’s BrokerCheck.

Yeo & Yeo CPAs & Business Consultants welcomes Robert Sanders to the firm as a retirement plan auditor in the Saginaw office.

“We are excited to welcome Robert to Yeo & Yeo,” says David Youngstrom, Principal. “He is a great addition to our Service Line and allows us to continue to grow our retirement services practice.Robert will work directly with our clients to proactively manage their employee retirement plans audits and expand our menu of services.”

Sanders provides employer-sponsored retirements plan audits, including 401(k) plans, 403(b) plans, employee stock ownership plans, defined benefit pension plans, and health and welfare plans. He holds a Bachelor of Business Administration from Northwood University, majoring in accounting.

There’s good news about the Section 179 depreciation deduction for business property. The election has long provided a tax windfall to businesses, enabling them to claim immediate deductions for qualified assets, instead of taking depreciation deductions over time. And it was increased and expanded by the Tax Cuts and Jobs Act (TCJA).

Even better, the Sec. 179 deduction isn’t the only avenue for immediate tax write-offs for qualified assets. Under the 100% bonus depreciation tax break provided by the TCJA, the entire cost of eligible assets placed in service in 2019 can be written off this year.

Sec. 179 basics

The Sec. 179 deduction applies to tangible personal property such as machinery and equipment purchased for use in a trade or business, and, if the taxpayer elects, qualified real property. It’s generally available on a tax year basis and is subject to a dollar limit.

The annual deduction limit is $1.02 million for tax years beginning in 2019, subject to a phaseout rule. Under the rule, the deduction is phased out (reduced) if more than a specified amount of qualifying property is placed in service during the tax year. The amount is $2.55 million for tax years beginning in 2019. (Note: Different rules apply to heavy SUVs.)

There’s also a taxable income limit. If your taxable business income is less than the dollar limit for that year, the amount for which you can make the election is limited to that taxable income. However, any amount you can’t immediately deduct is carried forward and can be deducted in later years (to the extent permitted by the applicable dollar limit, the phaseout rule, and the taxable income limit).

In addition to significantly increasing the Sec. 179 deduction, the TCJA also expanded the definition of qualifying assets to include depreciable tangible personal property used mainly in the furnishing of lodging, such as furniture and appliances.

The TCJA also expanded the definition of qualified real property to include qualified improvement property and some improvements to nonresidential real property, such as roofs; heating, ventilation and air-conditioning equipment; fire protection and alarm systems; and security systems.

Bonus depreciation basics

With bonus depreciation, businesses are allowed to deduct 100% of the cost of certain assets in the first year, rather than capitalize them on their balance sheets and gradually depreciate them. (Before the TCJA, you could deduct only 50% of the cost of qualified new property.)

This break applies to qualifying assets placed in service between September 28, 2017, and December 31, 2022 (by December 31, 2023, for certain assets with longer production periods and for aircraft). After that, the bonus depreciation percentage is reduced by 20% per year, until it’s fully phased out after 2026 (or after 2027 for certain assets described above).

Bonus depreciation is now allowed for both new and used qualifying assets, which include most categories of tangible depreciable assets other than real estate.

Important: When both 100% first-year bonus depreciation and the Sec. 179 deduction are available for the same asset, it’s generally more advantageous to claim 100% bonus depreciation, because there are no limitations on it.

Maximize eligible purchases

These favorable depreciation deductions will deliver tax-saving benefits to many businesses on their 2019 returns. You need to place qualifying assets in service by December 31. Contact us if you have questions, or you want more information about how your business can get the most out of the deductions.

School districts manage many traditional risks, including operational, compliance and program risks, as part of their daily operations. Cybercriminals, however, are putting a new risk on your radar – the “click risk.”

The days of obvious and even comical scams to steal your money or information are history. Today’s cybercriminals are sophisticated and have become a pervasive part of our day by using well-thought-out attacks to lure unsuspecting employees into sending them money and confidential information via simple email clicks. Proven tactics for generating email clicks include mimicking legitimate companies’ emails, using readily available social media or school district websites to create personalized emails, and using phony emergencies to prompt quick action. All of these methods have the same goal: steal your money or gain access to your network.

How does it work?

Cybercriminals are taking advantage of our busy lives and full email inboxes by developing realistic emails that include plausible requests targeting you and your co-workers. For example, using social media or even the employee directory available on your district’s website, cybercriminals will send a reasonable request such as “change your password” or “transfer money to this account” to a district employee from another district employee or vendor. The email will look legitimate but, once an employee clicks on it, malicious software could be installed on that computer, giving the cybercriminal access to software and passwords. Other attacks could even walk an employee through sending money directly to cybercriminals.

Recently, in Florida, a city employee was tricked into following instructions in an email sent by a cybercriminal. As a result, malicious software was installed that locked the city out of their email and computers. The city’s systems remained locked until they paid the cybercriminals’ demand for $600,000 in bitcoin.

How can the risk be reduced?

Several low-cost ways to manage the “click risk” are available.

First, back up all data routinely, including your accounting and pupil information systems, emails and all network files. The backups should occur automatically, be stored off-site on regular intervals and be tested at least annually. If your software is backed up or hosted by a vendor, make sure you understand the vendor’s security system and how the vendor’s restore process works.

Second, be proactive and train your district’s employees. Emails sent by cybercriminals will include red flags that can be quickly detected with simple training. These programs offer low-cost training via short videos that help employees detect red flags and delete the emails before clicking on them.

Finally, take the “click risk” seriously regardless of your district’s size. Cybercriminals win any time they hijack your files or have you transfer money outside of the district regardless of the amount. As large organizations invest increasing amounts of time and money to combat cybercriminals, it is more likely that smaller organizations – which are more likely to be unprepared – will become cybercriminals’ new preferred target.

Many local government officials and employees struggle with determining what is considered a lawful expenditure. While some expenditures may appear to be lawful at first glance, it is important that government officials and employees be aware of the basic guidelines and legal restrictions for expenditures. This will help to ensure that all purchases made by the governmental unit are allowable and in compliance with laws and regulations.

Essentially, governmental units are not to expend public funds on activities that do not benefit the residents of the governmental unit or are unrelated to operating the governmental unit.

The following are three common examples of unlawful expenditures that may be incurred by a governmental unit and suggestions for how to avoid them.

It may seem completely reasonable for an employer to offer refreshments for employees such as coffee, soda or bottled water. It is also very common for employers to host company picnics in the summer for employees, or parties around the holidays. These are not allowable expenditures for governmental units since the purchases are not benefiting the general public and are not furthering the government’s activities. To avoid these expenditures, employees of governmental units often will pool their own funds to purchase bottled water, coffee, soda, and other refreshments. If the governmental unit wants to host a picnic or party, they can avoid unlawful expenditures by opening up the event to the public which may or may not be ideal depending on the size of the governmental unit and other factors.
Another typical unlawful expenditure for governmental units is the purchase of retirement gifts for employees or officials. For example, a city is not allowed to purchase a recognition award for a firefighter who has worked for the governmental unit for 30 years. This can be a controversial area for employers because they want to recognize employees for their years of service and commitment to the governmental unit. These expenses are specifically not allowable per the State of Michigan. These expenditures can also be avoided by asking employees to contribute to purchasing the award rather than the governmental unit incurring the expenditure.
Finally, purchasing flowers or cards for sick employees or for someone who has passed away is not an allowable expenditure for a governmental unit. This can also be a sensitive subject as employees may be close or want to express their sympathy to a fellow co-worker; however, these types of items should not be purchased with governmental monies. Again, collecting amounts from employees voluntarily for these expenditures is the easiest way for governmental units to avoid these types of charges.

To help avoid incurring unlawful expenditures, those charged with approving expenditures should be knowledgeable in what is considered unlawful by law. Governmental units should educate employees who have authority to make purchases, or access to a government credit card, about common unlawful expenditures. Including the definition and examples of unlawful expenditures in the governmental unit’s purchasing policy will also help to clarify what unlawful expenditures are and will help to ensure that the governmental unit remains in compliance.

Social media allows nonprofits to interact and share their mission, vision, and core values with many audiences. Developing a social media policy to enact clear guidelines is essential in the development of a nonprofit organization’s online presence.

A social media policy outlines how the organization and its employees should conduct themselves online. Alignment with the organization’s core values is vital to a quality policy. For some, this may be spelling out what staff can or cannot do by establishing roles and rules. For others, it could be a vision statement that guides staff and empowers them to make an acceptable decision while advocating for the organization and at the same time safeguarding the organization’s reputation. By sharing content relating to the organization’s mission and finding an individual niche, the organization will continuously draw the right audience and entice them to return.

Check Out Our eBook on Creating Policies for Your Nonprofit

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Yeo & Yeo CPAs & Business Consultants is pleased to announce that Jennifer M. Watkins, CPA, has been elected president of the Zonta Club of Flint and was named Zontian of the Year.

Jennifer was elected to a two-year term as president, beginning June 1, 2019, by members of the club who also named her Zontian of the Year. This year, Jennifer chaired the club’s fundraising committee and planned two fundraisers, increasing fundraising profits by more than 25 percent. She also hosted a pool party at the Whaley House during the summer and planned the Thanksgiving event for the Whaley Children’s Center. She previously served a two-year term as the club’s vice president and has been a member of the club since 2011.

The Zonta Club of Flint was chartered in 1923 as a charter club of Zonta International. Flint-area Zontians are committed to improving the status of women locally and worldwide by empowering women through service and advocacy. The Zonta Club includes women from a variety of traditional and non-traditional professions, including law, education, medicine, and finance.

At Yeo & Yeo, Jennifer has extensive experience in providing audit services for nonprofit organizations and school districts and is the Education Services Group’s technical advisor. She is a frequent presenter at regional and statewide school and governmental accounting conferences and is a member of Michigan Department of Education Committees that provide accounting guidance for school districts. She is a member of the Association of School Business Officials, Michigan School Business Officials and several regional School Business Officials organizations. Jennifer is based in the firm’s Flint office.

In addition to her work with the Zonta Club of Flint, Jennifer also volunteers for Genesee County Habitat for Humanity, Carriage Town Ministries and United Way of Genesee County. She is a graduate of Leadership Genesee.

Yeo & Yeo CPAs & Business Consultants is pleased to announce the promotion of three associates to manager.

Kelly J. Brown, CPA, MST, provides tax planning and preparation services for individuals, partnerships, and corporations. She is a member of the firm’s State and Local Tax Services Group, specializing in sales tax.She holds a Master of Science in Taxation from Walsh College and with her advanced education in complex tax topics assists both the firm’s individual tax clients, as well as business entities as they face a challenging tax environment. She is a member of the Michigan Association of Certified Public Accountants and the American Institute of Certified Public Accountants. She joined Yeo & Yeo in 2016 and serves in the firm’s Saginaw headquarters. In our community, Brown serves as a board member for the Bay County Salvation Army, as a Community Investment Process chairperson for the United Way of Bay County and also volunteers with Making Strides of Saginaw Bay.

Nolan Felsing, CPA, provides business valuation services for the firm’s top manufacturing clients. He is a member of the firm’s Manufacturing Services Group, specializing in personal property tax, and federal and state tax preparation. He is also a member of the firm’s Business Valuation Services Group. Felsing joined Yeo & Yeo in 2015 and serves in the firm’s Midland office. He is an active member of the Great Lakes Bay Manufacturers Association and the Central Michigan Manufacturers Association, the Hemlock Business Association and is a member of the Michigan Manufacturers Association. He holds a Bachelor of Business Administration in accounting and a Master of Business Administration from Central Michigan University.

Steven Treece, CPA, provides tax planning and preparation services, and management consulting services, for the firm’s agribusiness, for-profit, and individual clients. He joined Yeo & Yeo in 2013 and serves in the firm’s Flint office. He is a member of the firm’s Agribusiness Services Group. Treece holds a Bachelor of Business Administration in accounting from The University of Michigan. In the community, he is a member of the Rotary Club of Burton and serves as a Committee Chairperson for the Boy Scouts of America and the Old Newsboys of Flint.

If you’re a volunteer who works for charity, you may be entitled to some tax breaks if you itemize deductions on your tax return. Unfortunately, they may not amount to as much as you think your generosity is worth.

Because donations to charity of cash or property generally are tax deductible for itemizers, it may seem like donations of something more valuable for many people — their time — would also be deductible. However, no tax deduction is allowed for the value of time you spend volunteering or the services you perform for a charitable organization.

It doesn’t matter if the services you provide require significant skills and experience, such as construction, which a charity would have to pay dearly for if it went out and obtained itself. You still don’t get to deduct the value of your time.

However, you potentially can deduct out-of-pocket costs associated with your volunteer work.

The basic rules

As with any charitable donation, to be able to deduct your volunteer expenses, the first requirement is that the organization be a qualified charity. You can check by using the IRS’s “Tax Exempt Organization Search” tool at https://www.irs.gov/charities-non-profits/tax-exempt-organization-search.

If the charity is qualified, you may be able to deduct out-of-pocket costs that are unreimbursed; directly connected with the services you’re providing; incurred only because of your charitable work; and not “personal, living or family” expenses.

Expenses that may qualify

A wide variety of expenses can qualify for the deduction. For example, supplies you use in the activity may be deductible. And the cost of a uniform you must wear during the activity may also be deductible (if it’s required and not something you’d wear when not volunteering).

Transportation costs to and from the volunteer activity generally are deductible — either the actual expenses (such as gas costs) or 14 cents per charitable mile driven. The cost of entertaining others (such as potential contributors) on behalf of a charity may also be deductible. However, the cost of your own entertainment or meal isn’t deductible.

Deductions are permitted for away-from-home travel expenses while performing services for a charity. This includes out-of-pocket round-trip travel expenses, taxi fares and other costs of transportation between the airport or station and hotel, plus lodging and meals. However, these expenses aren’t deductible if there’s a significant element of personal pleasure associated with the travel, or if your services for a charity involve lobbying activities.

Recordkeeping is important

The IRS may challenge charitable deductions for out-of-pocket costs, so it’s important to keep careful records and receipts. You must meet the other requirements for charitable donations. For example, no charitable deduction is allowed for a contribution of $250 or more unless you substantiate the contribution with a written acknowledgment from the organization. The acknowledgment generally must include the amount of cash, a description of any property contributed, and whether you got anything in return for your contribution.

And, in order to get a charitable deduction, you must itemize. Under the Tax Cuts and Jobs Act, fewer people are itemizing because the law significantly increased the standard deduction amounts. So even if you have expenses from volunteering that qualify for a deduction, you may not get any tax benefit if you don’t have enough itemized deductions.

If you have questions about charitable deductions and volunteer expenses, please contact us.

Yeo & Yeo CPAs & Business Consultants was selected by the readers of Great Lakes Bay Magazine as Greatest of the Great Lakes Bay in Accounting.

Each year, Great Lakes Bay Magazine invites its readers to select the best of the best in the Great Lakes Bay Region. Readers can vote for their favorite business in categories including restaurants, home improvement, shopping, health, and services. 2019 is the first year that readers could vote for local businesses in the accounting category.

“It is an honor for Yeo & Yeo to be selected as Greatest of the Great Lakes Bay by those who live and work where our headquarters is based,” said Thomas Hollerback, President & CEO. “We are pleased to be recognized for providing accounting and consulting services that benefit individuals and businesses in our community. We are proud to be a respected member of the Great Lakes Bay Region.”

For 96 years, individuals in the Great Lakes Bay Region have trusted Yeo & Yeo with their business. It is the community’s continued support that allows the firm to provide outstanding business solutions. In addition to accounting services, Yeo & Yeo and its affiliates have created a strong network of professionals who are a complete resource for their clients.

Yeo & Yeo CPAs & Business Consultants has been listed as one of the top 10 largest CPA firms in Michigan by Crain’s Detroit Business.

The Largest Michigan Accounting Firms annual survey ranks firms by the size of local professional staff. The list of 34 firms also highlights the number of local CPAs, the number of firm-wide professionals, and worldwide revenue.

“We are proud to be recognized as one of Michigan’s top 10 largest CPA firms by Crain’s Detroit Business,” said Thomas Hollerback, president and CEO of Yeo & Yeo. “We credit the firm’s success to our clients, communities and employees. They are all essential to our continued growth.”

Founded in 1923, the firm has grown to more than 200 professionals with nine locations throughout Michigan and three affiliates. Yeo & Yeo’s industry-specialized Michigan accountants and consultants provide clients with outstanding business solutions in accounting, audit, tax, business consulting, technology and medical billing.

The number of Yeo & Yeo employees has continued to increase. The firm provides the venue for individuals who have the desire and drive to grow as leaders in the accounting industry and their communities. The firm develops future leaders through its award-winning CPA certification bonus program, in-house training department, professional development training, and formal mentoring while sustaining work-life balance.

Yeo & Yeo and the other ranking firms were announced in the June issue of Crain’s Detroit Business.

John Haag Yeo & Yeo CPAs & Business Consultants is pleased to announce that John W. Haag Sr., CPA/ABV, CVA, CFF, has received the State Chapter President Leadership Award from the National Association of Certified Valuators and Analysts (NACVA).

Haag has been a member of the NACVA Michigan State Chapter for the past 15 years, served as president since 2017, and previously served as its vice president. NACVA is a global, professional association that delivers training and certification in accounting and financial consulting fields and has over 7,000 members worldwide.

Haag is the managing principal of Yeo & Yeo’s Midland office. His areas of expertise include business valuation and Litigation Support services for privately owned businesses. He provides managerial consulting services and prepares individual and corporate income tax returns. Haag is a Certified Valuation Analyst and also holds the Accredited in Business Valuation and Certified in Financial Forensics designations.

In our community, Haag is a member of the Midland Community Foundation Grant Committee, a member of the United Way of Midland County Campaign Cabinet, treasurer of the Midland Experimental Aircraft Association Chapter 1093, and past president of the Midland Noon Rotary Club.

Now that most schools are out for the summer, you might be sending your children to day camp. It’s often a significant expense. The good news: You might be eligible for a tax break for the cost.

The value of a credit

Day camp is a qualified expense under the child and dependent care credit, which is worth 20% to 35% of qualifying expenses, subject to a cap. Note: Sleep-away camp does not qualify.

For 2019, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.Other expenses eligible for the credit include payments to a daycare center, nanny, or nursery school.

Keep in mind that tax credits are especially valuable because they reduce your tax liability dollar-for-dollar — $1 of tax credit saves you $1 of taxes. This differs from deductions, which simply reduce the amount of income subject to tax.

For example, if you’re in the 32% tax bracket, $1 of deduction saves you only $0.32 of taxes. So it’s important to take maximum advantage of all tax credits available to you.

Work-related expenses

For an expense to qualify for the credit, it must be related to employment. In other words, it must enable you to work — or look for work if you’re unemployed. It must also be for the care of your child, stepchild, foster child, or other qualifying relative who is under age 13, lives in your home for more than half the year and meets other requirements.

There’s no age limit if the dependent child is physically or mentally unable to care for him- or herself. Special rules apply if the child’s parents are divorced or separated or if the parents live apart.

Credit vs. FSA

If you participate in an employer-sponsored child and dependent care Flexible Spending Account (FSA), you can’t use expenses paid from or reimbursed by the FSA to claim the credit.

If your employer offers a child and dependent care FSA, you may wish to consider participating in the FSA instead of taking the credit. With an FSA for child and dependent care, you can contribute up to $5,000 on a pretax basis. If your marginal tax rate is more than 15%, participating in the FSA is more beneficial than taking the credit. That’s because the exclusion from income under the FSA gives a tax benefit at your highest tax rate, while the credit rate for taxpayers with adjusted gross income over $43,000 is limited to 20%.

Proving your eligibility

On your tax return, you must include the Social Security number of each child who attended the camp or received care. There’s no credit without it. You must also identify the organizations or persons that provided care for your child. So make sure to obtain the name, address and taxpayer identification number of the camp.

Additional rules apply to the child and dependent care credit. Contact us if you have questions. We can help determine your eligibility for the credit and other tax breaks for parents.

The Tax Cuts and Jobs Act (TCJA) has changed the landscape for business taxpayers. That’s because the law introduced a flat 21% federal income tax rate for C corporations. Under prior law, profitable C corporations paid up to 35%.

The TCJA also cut individual income tax rates, which apply to sole proprietorships and pass-through entities, including partnerships, S corporations, and LLCs (treated as partnerships for tax purposes). However, the top rate dropped from 39.6% to only 37%.

These changes have caused many business owners to ask: What’s the optimal entity choice for me?

Entity tax basics

Before the TCJA, conventional wisdom was that most small businesses should be set up as sole proprietorships or pass-through entities to avoid the double taxation of C corporations. A C corporation pays entity-level income tax and then shareholders pay tax on dividends — and on capital gains when they sell the stock. For pass-through entities, there’s no federal income tax at the entity level.

Although C corporations are still potentially subject to double taxation, their current 21% tax rate helps make up for it. This issue is further complicated, however, by another tax provision that allows noncorporate owners of pass-through entities to take a deduction equal to as much as 20% of qualified business income (QBI), subject to various limits. But, unless Congress extends it, that deduction is available only through 2025.

Many factors to consider

The best entity choice for your business depends on many factors. Keep in mind that one form of doing business might be more appropriate at one time (say, when you’re launching), while another form might be better after you’ve been operating for a few years. Here are a few examples:

Suppose a business consistently generates losses. There’s no tax advantage to operating as a C corporation. C corporation losses can’t be deducted by their owners. A pass-through entity would generally make more sense in this scenario because losses would pass through to the owners’ personal tax returns.
What about a profitable business that pays out all income to the owners? In this case, operating as a pass-through entity would generally be better if significant QBI deductions are available. If not, there’s probably not a clear entity-choice answer in terms of tax liability.
Finally, what about a business that’s profitable but holds on to its profits to fund future projects? In this case, operating as a C corporation generally would be beneficial if the corporation is a qualified small business (QSB). Reason: A 100% gain exclusion may be available for QSB stock sale gains. Even if QSB status isn’t available, C corporation status is still probably preferred — unless significant QBI deductions would be available at the owner level.

As you can see, there are many issues involved and taxes are only one factor.

For example, one often-cited advantage of certain entities is that they allow a business to be treated as an entity separate from the owner. A properly structured corporation can protect you from business debts. But to ensure that the corporation is treated as a separate entity, it’s important to observe various formalities required by the state. These include filing articles of incorporation, adopting by-laws, electing a board of directors, holding organizational meetings and keeping minutes.

The best long-term choice

The TCJA has far-reaching effects on businesses. Contact us to discuss how your business should be set up to lower its tax bill over the long run. But remember that entity choice is easier when starting up a business. Converting from one type of entity to another adds complexity. We can help you examine the ins and outs of making a change.

There is an old saying, “The best time to plant a tree was 20 years ago; the next best time is now.” This saying can be used when thinking about future planning for your family business. Only one-third of all family businesses successfully make the transition to the next generation. Many different factors can play into this statistic, but almost all of them can be related to the lack of proper family planning.

Most family businesses never have an actual plan in place for the transition of owners, and this can cause major issues when the time comes for the transition to happen. Sometimes, nothing has been put in place, and the transition happens because of a death or tragedy that forcefully leaves the next generation in charge. Below are some simple considerations to make when you are preparing a succession plan.

Identify who is interested. Most family businesses struggle tremendously after the transition process because the members who inherit the business want nothing to do with it. They either already have jobs, or they have no interest in continuing the business. On the other hand, some situations have multiple members that want to run the company, and there is no true hierarchy or plan set in place. The disputes and clashing management styles can end up running the business under.

It is important to have conversations and plans in place with members to determine who is interested and who isn’t. Once this is determined, set up a plan outlining who will be responsible for what, and start getting them exposed to the business.
Don’t lose key contacts. Most family businesses are built strongly on the owner’s relationship with vendors, customers and suppliers. When the owner transitions out, key driving factors of the business can be lost. To ensure that your transition out of the business doesn’t hurt your company’s relationships, introduce the successor to key business contacts so that they can build their own relationships and trust.
Consider changing your business entity. Planning the transition can mean changing the entity of the business. If the company is a sole proprietorship, it may make more sense to change to an S corporation or C corporation. These changes will allow you to have stock in the company, which is easily transferrable.

Stock can be purchased, gifted or inherited very easily without having to halt business operations. Having stock also allows numerous owners, such as children, to have different amounts of shares, which is important if multiple children want to be part of the business but have different roles or responsibilities.
Have a business valuation performed. Families are often faced with the difficult decision of whether to sell, close or pass down the business to family members. Passing down the business involves several complicated issues, such as how to logically divide the business and allocate value. Business valuations help owners establish a baseline value that they can use as a springboard for future succession or sale.

In planning for succession, it is critical to work with many experienced advisors — starting with a business valuation advisor and CPA — to review your company’s financials and determine its value. A valuation advisor can help you, your family and your attorney customize solutions to meet your goals and special needs. Read more about business valuations here.

Succession planning for family businesses is typically overlooked or put off because people are unsure about where or how to start. There doesn’t have to be a formal business plan in place. Sometimes, it just takes a simple conversation. If you are in the process of planning for the future, these are some simple ideas to help you get started. If you want to learn more, check out this article on succession planning.

The Michigan Department of Treasury has released the following information about scammers targeting northern Michigan residents.

Northern Michigan taxpayers with past-due tax debts should be aware of an aggressive scam making the rounds through the U.S. Postal Service, according to the Michigan Department of Treasury.

Recently, an Emmet County taxpayer received what appeared to be an official-looking letter about an overdue tax bill, asking the individual to immediately contact a toll-free number to resolve their outstanding state tax debt. The letter threatened to seize the taxpayer’s assets ― including property, bank accounts and income ― if the state tax debt wasn’t settled.

The piece of correspondence appeared credible to the taxpayer because it used specific personal facts about their real outstanding tax debt that was pulled directly from publicly available information. The scammer’s letter attempted to lure the taxpayer into a situation where they could make a payment to a criminal.

“Please don’t fall victim to this terrible scam,” State Treasurer Rachael Eubanks said. “Taxpayers have rights. If you have questions about an outstanding state tax debt, please contact us through a verified number so we can talk about options.”

The state Treasury Department corresponds with taxpayers through official letters sent through the U.S. Postal Service, providing several options to resolve an outstanding debt and information outlining taxpayer rights.

Taxpayers who receive a letter from a scammer or have questions about their state debts should call Treasury’s Collections Service Center at 517-636-5265. A customer service representative can log the scam, verify outstanding state debts and provide flexible payment options.

To learn more about Michigan’s taxes and the collections process, go to www.michigan.gov/taxes or follow the state Treasury Department on Twitter at @MITreasury.