Tax Mistakes New Business Owners Make in Their First Profitable Year

Your first profitable year in business is worth celebrating. But it can also bring expensive tax surprises. Especially if you’re still managing the business like you did when revenue was lower. 

Once you own and operate a profitable business, the tax picture changes. You may have income that is not subject to withholding. You may owe self-employment tax. You may have pass-through income. And you may have payroll obligations that come with serious penalties if they are missed.

Here are the common mistakes new business owners make in their first profitable year, and what to do instead.

Not preparing for estimated taxes

One of the first surprises for new owners is that taxes are not just a year-end issue.

When you were an employee, your employer withheld taxes from every paycheck. Now that you own a business, some or all of your income may not have withholding attached to it. But the IRS still expects taxes to be paid throughout the year.

If you expect to owe at least $1,000 in federal tax, you’re generally required to make quarterly estimated payments. And these payments should account for your full tax picture, not just regular income tax.

For example, if you are self-employed, you may owe self-employment tax, which covers Social Security and Medicare. The standard self-employment tax rate is 15.3%. When you were an employee, your employer covered part of those payroll taxes and withheld your portion. But when you’re self-employed, you’re responsible for all of it.

Pass-through income may affect estimated taxes

If you own an LLC, partnership, S corporation, or other pass-through entity, you may also be taxed on your share of the business’s profit, not just the cash you actually take out. Depending on the entity, that income may be reported on a Schedule K-1 or through another filing structure. 

Say the business shows $100,000 of taxable profit allocated to you. But you only took $40,000 in distributions. Your tax calculation will still start with the $100,000 figure. That can create a painful surprise if you spent the cash without reserving anything for taxes.

The safe harbor rule isn’t a substitute for planning

There is a safe harbor rule that can help you avoid underpayment penalties on estimated taxes. In general, most taxpayers can avoid the penalty if they pay at least 90% of the current year’s tax or 100% of the prior year’s tax. 

But the safe harbor rule is not a substitute for planning. Your first profitable year is a good time to run projections with your CPA. You need to estimate your income tax, self-employment tax, and pass-through income so you know how much should be paid throughout the year.

You also need a reserve strategy. That reserve may sit at the business level, the personal level, or both. It depends on your entity structure, operating agreement, and cash-flow needs. The important thing is that the money is set aside exclusively for tax payments.

Running out of cash despite showing a profit

Another common mistake is assuming profitability means the business has enough cash.

Your income statement may show that the company is profitable, but that doesn’t mean the cash is sitting in the bank. You may have bought equipment that has to be capitalized. You may have prepaid expenses. You may have receivables that have not been collected. You may have inventory tying up cash before the expense fully shows up on the books.

This is where profitable businesses get into trouble. They see profit on paper, assume the business is healthy, and then run short on cash when taxes, payroll, or year-end adjustments come due.

The fix is to manage cash flow separately from profit. Review receivables consistently. Watch inventory levels. Understand which purchases are deductible now and which may need to be capitalized or depreciated. And do not spend every dollar in the bank just because sales are improving.

A profitable business still needs liquidity. Leaving yourself a cash runway gives you room to handle taxes, slower months, delayed payments, and unexpected expenses without turning every surprise into a crisis.

Mishandling payroll taxes

Payroll is one area where new business owners cannot afford to improvise.

If you have employees, or operate as an S corporation and pay yourself a salary, payroll tax obligations begin immediately. You have to withhold the correct amounts, make deposits on time, file the required forms, and keep accurate backup records.

The biggest mistake is treating payroll withholding like ordinary business cash. It is not. If cash gets tight, you cannot use employee withholding to cover rent, vendors, inventory, or operating expenses. Those funds are being withheld on behalf of employees and must be remitted properly.

Missing payroll tax deposits or filings can lead to serious penalties, interest, and potentially legal exposure. It is not just an administrative cleanup issue.

For most new owners, the best move is to hand payroll to a provider, CPA, or accounting firm. Let them handle the setup, filings, and deposits. Payroll is not the place to save a few dollars by guessing.

Waiting too long to start retirement planning

Retirement planning is one of the most underused tools available to profitable business owners.

Starting now doesn’t mean you have to max out a plan right away. Many owners are still rebuilding cash after years of investing in the business. But once the business becomes profitable, it’s worth starting the conversation.

Contributions to a SEP-IRA, solo 401(k), or other retirement plan may reduce taxable income while helping you build long-term wealth. Even if you start small, the habit matters. You can increase contributions in future years as profitability and cash flow improve.

The main mistake is waiting until the tax bill is already due to start thinking about retirement planning. Talk with your advisor well before the end of the year so you understand your options, deadlines, and how much flexibility you have.

What to do now

Your first profitable year should create momentum, not a tax crisis.

Start by projecting your tax liability. Build a reserve for taxes. Track profit and cash flow separately. Don’t use payroll withholding as operating cash. And begin thinking about retirement contributions, even if you aren’t ready to maximize them yet.

Most importantly, do not assume that a profitable year means the tax side will take care of itself. Even small mistakes can become expensive quickly. 

If you have questions or would like to discuss your unique situation, please contact our office to speak with one of our expert advisors.

The IRS just released some good news for families considering funding a Trump account. In Revenue Procedure 2026-25, the IRS has provided a safe harbor that allows certain donors to avoid filing a federal gift tax return solely because they made contributions to a Trump account, as long as the safe harbor requirements are satisfied.

The guidance is narrow, but it resolves a real problem.

Why the safe harbor was needed

Trump accounts are the new child savings vehicle created under IRC Section 530A, structured similarly to a traditional IRA. To qualify, the child must be under 18 when the account-opening election is made and must have a Social Security number. The child owns and is the beneficiary of the account.

During the “growth period,” which generally runs until January 1 of the year the child turns 18, distributions are highly restricted. Outside a few exceptions (qualified rollovers, ABLE rollovers, excess contribution corrections, and distributions at death), the child cannot access the funds.

That restriction created the underlying tax issue. Under longstanding gift tax rules, a gift the recipient cannot presently use is treated as a “future interest.” Future interest gifts don’t qualify for the annual gift tax exclusion, and they generally must be reported on Form 709, even when no gift tax is ultimately owed. 

What the safe harbor provides

Under the safe harbor, qualifying Trump account contributions are treated as completed gifts rather than future interests. This means the annual per-donee exclusion applies, and donors who meet the requirements don’t need to file a gift tax return solely to report those contributions.

This is a practical fix, not a broad exemption. It gives many donors, parents, grandparents, and other relatives, a clean path to contribute cash to a child’s account without creating a stand-alone filing obligation.

Key requirements

The safe harbor applies only if all of the following are true for the calendar year:

• The donor is an individual.
• The donor’s only taxable gifts for the year are cash contributions to one or more Trump accounts, made before the year the beneficiary turns 18.
• Total gifts to each beneficiary for the year, including Trump account contributions and any other gifts, do not exceed the annual exclusion amount ($19,000 for 2026).
• The contributions do not generate gift or GST tax liability after applying the donor’s remaining applicable credit or GST exemption.
• Disregarding the Trump account contributions, the donor is not otherwise required to file, and does not otherwise file, a gift tax return for that year, including for GST, portability, or other purposes.

That last requirement matters most for those who already have gift tax filing obligations. A donor filing Form 709 for other reasons, such as trust funding, gift-splitting, or GST allocations, generally cannot rely on the simplified no-filing result for Trump account contributions.

A practical example

A grandparent contributes $5,000 to each of three grandchildren’s Trump accounts and makes no other gifts during the year, except an additional $13,000 cash gift to one of those grandchildren. Total gifts to that grandchild remain at $18,000, under the $19,000 annual exclusion. If the other conditions are met, the safe harbor applies, and no gift tax return is required solely for the Trump account contributions.

Change the facts slightly: the grandparent contributes $5,000 to one grandchild’s account and also gives that grandchild $14,500 in cash during the same year. Total gifts to that beneficiary reach $19,500, exceeding the annual exclusion. The safe harbor is not available, and the donor must file a gift tax return reporting all gifts to that beneficiary, including the Trump account contribution.

Planning implications

The safe harbor makes Trump account funding more administratively manageable, but it does not turn these accounts into an unlimited transfer tax tool.

Contributions during the growth period are generally capped at $5,000 annually, adjusted for inflation after 2027, though certain contributions, including the $1,000 federal pilot program contribution and qualified rollovers, are excluded from that cap.

We’d also recommend tracking Trump account contributions alongside other annual exclusion gifts, 529 contributions, UTMA or UGMA transfers, and trust gifts. A contribution that looks modest on its own can still create a filing requirement once combined with other gifts to the same beneficiary.

Recordkeeping still matters

The revenue procedure doesn’t create a new paperwork requirement, but the IRS expects donors to maintain records sufficient to substantiate that the safe harbor conditions were met. That means retaining documentation of the contribution amount, date, form of payment, beneficiary, account information, and any other gifts made to that beneficiary during the year.

Coordinating Trump accounts gifts with your broader plan

Revenue Procedure 2026-25 removes a compliance obstacle that would have significantly increased gift tax filings for families funding Trump accounts. But the safe harbor is conditional, and it’s best understood as a simplification for straightforward cash contributions rather than a substitute for coordinated gift, estate, and GST planning. 

If Trump accounts are part of your broader wealth transfer strategy, we’d recommend a conversation before contributions are made to confirm the safe harbor requirements are met.

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

Presented by the National Association for Business Resources, the Best and Brightest program recognizes organizations that excel in employee engagement, workplace culture, leadership, communication, work-life balance, employee education, recognition, and other human resource best practices.

Yeo & Yeo’s longstanding recognition reflects the firm’s dedication to continuous improvement and listening to employee feedback. This year, the firm introduced new benefits, including pet insurance, while continuing to support employees through its expanded parental leave program, personalized coaching through Boon Health, and additional paid time off for long-term team members.

Yeo & Yeo has also strengthened professional development through a newly formed Learning & Development Committee. The committee has enhanced training pathways, refreshed learning guides, and developed growth plans that help employees build new skills and advance their careers. Those efforts are complemented by the firm’s continued investment in AI-powered tools and automation, which streamline routine work and allow employees to focus on more meaningful, high-value client service.

“It’s rewarding to see our culture recognized year after year because it’s something we work at every day,” said Thomas O’Sullivan, managing principal of Yeo & Yeo’s Ann Arbor office. “We want people to enjoy coming to work, feel supported by their teams, and have every opportunity to build a fulfilling career here.”

Tammy Moncrief, managing principal of the firm’s Troy office, added, “Our people are what make Yeo & Yeo special. As we’ve continued to grow, we’ve stayed focused on listening to our employees, investing in their success, and creating a workplace where they can do their best work.”

The Best and Brightest recognition adds to a growing list of honors celebrating Yeo & Yeo’s workplace culture and talent development. Earlier this year, the firm was named the 2026 Employer of the Year by the Michigan Career Educator & Employer Alliance for its dedication to creating meaningful career opportunities and supporting the next generation of professionals. Yeo & Yeo was also recognized among West Michigan’s Best and Brightest Companies to Work For.

The select companies will be honored on Thursday, October 15, 2026, at The Henry in Dearborn, Michigan.

Yeo & Yeo is pleased to announce the promotion of Brett Lechner from Senior Accountant to Manager. Lechner is a member of the firm’s Tax & Consulting Service Line, working closely with businesses and individuals to provide strategic tax planning, business consulting, financial statement preparation and analysis, and payroll tax services.

Since joining Yeo & Yeo in 2017, Lechner has continued to grow his expertise while building trusted relationships with clients and colleagues. Known for his problem-solving skills and responsive approach, he has become a valued resource for businesses and individuals seeking guidance on tax and accounting matters. He has also contributed to firm initiatives and process improvements, reflecting his commitment to delivering exceptional client service and strengthening the firm.

Based in the Ann Arbor office, Lechner earned his Bachelor of Business Administration in Accounting from Northwood University and is a Certified QuickBooks Online ProAdvisor. In addition to his client service responsibilities, Lechner is committed to giving back to the community. Most recently, he supported the American Heart Association of Michigan through a grant request submitted to the Yeo & Yeo Foundation.

“Brett has consistently demonstrated a strong commitment to our clients, our people, and the success of our firm,” said Dave Jewell, Managing Principal and Tax & Consulting Service Line Leader. “He leads with integrity, approaches challenges with a solutions-focused mindset, and is always willing to support those around him. We are proud to recognize his contributions and look forward to his continued growth at Yeo & Yeo.”

Yeo & Yeo is pleased to welcome Robert Roest, CPA, as a Manager in the firm’s Tax & Consulting service line. Based in the Alma office, Roest works with businesses and individuals to provide strategic tax planning, multi-state tax guidance, and business advisory services.

“Robert brings a strong background in tax planning along with a genuine commitment to helping clients succeed,” said Dave Jewell, Managing Principal and Tax & Consulting Service Line Leader. “As we grow our team in Alma, we’re excited to welcome his knowledge, perspective, and client-focused approach to Yeo & Yeo.”

Roest has more than five years of public accounting experience serving clients across a variety of industries. He holds a Bachelor of Professional Accountancy from Saginaw Valley State University, and is a member of the American Institute of Certified Public Accountants and the Michigan Association of Certified Public Accountants.

“I’m excited for this next chapter and the opportunity to join a company with such a strong reputation and culture,” Roest said. “I look forward to building relationships, serving our clients, and contributing to the continued success of the firm.”

When people think about nonprofit governance, they often focus on bylaws, policies, board meetings, and compliance requirements. While those elements are important, I believe strong governance is about much more than checking boxes. At its core, governance is about creating the structure, leadership, and accountability needed to advance your mission and sustain your organization for years to come.

Balancing Stability and Fresh Perspectives

One of the most common governance challenges I see is balancing continuity with fresh perspectives. This often comes into play when discussing board terms and succession planning. Long-serving board members bring valuable institutional knowledge, historical context, and deep relationships that can be difficult to replace. At the same time, through term limits, organizations benefit from new ideas, diverse experiences, and fresh energy.

This is why many nonprofits choose to establish term limits and staggered board terms. While there is no one-size-fits-all approach, terms that are too short can make it difficult for members to fully contribute, while terms that are too long can limit opportunities for new voices. The goal is not simply turnover for the sake of turnover, but rather to create a healthy balance that allows boards to maintain stability while continuously evolving.

That evolution becomes even more important as organizations seek to strengthen board diversity. Diversity is often discussed in terms of demographics, but effective boards also benefit from diversity of thought, experience, expertise, and perspective. Building a more diverse board requires intentionality. It starts with identifying the skills and viewpoints that may be missing from the current board and developing a thoughtful recruitment process that helps uncover candidates who can contribute in meaningful ways.

The recruitment process itself deserves careful consideration and significant effort. Identifying strong candidates who align with the mission and fill critical gaps is the first step. An application and interview process can help organizations ensure that individuals will align with the organization’s mission, values, and governance expectations. Asking candidates how they would approach real-world scenarios can provide valuable insight into their leadership style, decision-making process, and ability to contribute constructively as part of a governing body.

Expanding Specializations Beyond the Boardroom

As boards become more strategic in their composition, many organizations also explore the role of committees. In my experience, committees can be incredibly valuable when specialized expertise or additional community engagement is needed. They provide an opportunity for individuals to contribute their knowledge and insights without assuming the full responsibilities of board service.

Committees can also serve as a pipeline for future board members, allowing organizations to identify engaged individuals who may eventually be well-suited for joining the board. Most importantly, they create another avenue for connecting talented people to the mission and expanding the organization’s network of support.

Strategy Is Governance Responsibility

Regardless of how a board is structured, one responsibility should never be overlooked: strategy.

There is sometimes confusion about where governance ends and management begins. While organizational leaders are responsible for day-to-day operations, the board plays a critical role in shaping the organization’s strategic direction. In fact, strategy is one of the most important responsibilities a board has.

The board should not be involved in day-to-day operations but should actively participate in discussions about the organization’s future, priorities, risks, and opportunities. Strong organizations foster a collaborative relationship between leadership and the board, where both parties understand their respective roles and work together to advance the mission.

Finding the Right Board Size

Board size can also influence an organization’s effectiveness. Larger boards may provide broader representation and expertise, while smaller boards often find it easier to make decisions and maintain focus. The right size depends on the organization’s needs, complexity, and stage of growth.

Policies Should Support the Mission, Not Just Compliance

Finally, none of these governance practices can succeed without a solid policy foundation. Bylaws and organizational policies provide the framework that guides decision-making, clarifies expectations, and helps organizations navigate challenging situations. Yet many nonprofits rely on generic templates that fail to account for their unique structure, mission, or state-specific requirements.

Thoughtful governance requires thoughtful policies. Organizations should regularly review their governing documents to ensure they reflect current operations, anticipated challenges, and long-term goals. Professional advisors, including legal counsel when appropriate, can provide valuable guidance in developing policies that are both practical and compliant.

Governance as a Long-Term Investment

Strong governance doesn’t happen by accident. It is the result of intentional decisions about leadership, accountability, strategy, and structure. When nonprofit leaders and board members invest in governance, they are investing in their organizations’ future. The result is not only stronger oversight, but a stronger foundation for achieving the mission that brought everyone to the table in the first place.

Yeo & Yeo is proud to announce that tax & consulting principal Alex Wilson, CPA, PFS, received the 2025 Rising Star Award from Avantax Planning Partners, Inc. at the 29th Annual Avantax Elevate conference.

The Rising Star Award recognizes emerging leaders who have demonstrated exceptional growth and a strong ability to build meaningful relationships. Wilson was selected for his strategic approach, commitment to professional growth, and ability to guide individuals and business owners through important financial decisions with clarity and confidence.

Wilson is passionate about helping clients navigate their financial, succession, and retirement goals. To further expand the value and insight he brings, Wilson recently earned the Personal Financial Specialist (PFS) designation from the American Institute of Certified Public Accountants.

“I enjoy building relationships with people and being part of the conversations that shape their future,” said Wilson. “Whether it’s preparing for retirement, planning for a business transition, or navigating new opportunities, I’m passionate about bringing together strategies that provide direction and confidence.”

Yeo & Yeo’s President & CEO, David Youngstrom, commended Wilson’s achievement and his ability to make a meaningful impact on both clients and the firm.

“Alex is someone who embraces professional growth and is always looking for ways to better serve clients,” said Youngstrom. “He has built strong relationships through his thoughtful approach, technical knowledge, and genuine care for helping others succeed.”

Wilson specializes in business consulting services, succession planning, and tax planning and preparation. He is a member of many professional organizations, including the Michigan Association of Certified Public Accountants’ Agribusiness Task Force, the Construction Industry CPAs/Consultants Association, and the Home Builders Association of Central Michigan.

Demonstrating a strong commitment to community service and upholding the values of the firm, Wilson served as the Yeo & Yeo Foundation’s board president for many years and continues to serve as an office grant committee representative. He also serves on the Central Michigan University Accounting Advisory Council. He is based in the firm’s Alma office.

Also recognized was Yeo & Yeo tax & consulting principal and director of Yeo & Yeo Wealth Management, Andrew Matuzak, CPA, PFS, who received the 2025 Client Advocate Award.

*Award(s) are neither representative of any client’s experience nor indicative of future performance.

Yeo & Yeo is proud to announce that Andrew Matuzak, CPA, PFS, tax & consulting principal and director of Yeo & Yeo Wealth Management, received the 2025 Client Advocate Award from Avantax Planning Partners, Inc. at the 29th Annual Avantax Elevate conference.

The Client Advocate Award celebrates individuals who distinguish themselves through exceptional client service, proactive communication, and a deep dedication to understanding and meeting their clients’ financial needs. Matuzak’s commitment to these principles showcases his dedication to providing personalized, strategic financial guidance.

Matuzak is a highly credentialed professional specializing in financial, retirement, tax, and trust and estate planning. As a Certified Public Accountant (CPA), Personal Financial Specialist (PFS), and Investment Advisor Representative with Series 7 and Series 63 securities registrations, Matuzak combines his tax expertise with his knowledge of wealth management to provide clients with comprehensive financial strategies.

“For me, client advocacy starts with listening and truly understanding what matters most to the individuals and families we serve,” said Matuzak. “Financial planning is deeply personal, and I’m grateful for the opportunity to help clients make informed decisions and feel confident about their future.”

Yeo & Yeo President & CEO David Youngstrom praised Matuzak’s dedication to clients and his impact on both the firm and the broader community.

“Andrew leads with integrity, professionalism, and a genuine commitment to helping others succeed,” said Youngstrom. “He consistently goes above and beyond for clients while also investing in his team and community. This recognition reflects the trust he has earned and the positive impact he continues to make through his work.”

Matuzak is a member of the Great Lakes Bay Estate Planning Council and frequently shares his insights on Yeo & Yeo’s Everyday Business Podcast. In the community, he serves as treasurer of the Thomas Township Business Association and is a member of the Saginaw Valley State University Advisory Board Council. Matuzak is also a 2023 graduate of Leadership Saginaw County, exemplifying his dedication to leadership development and community engagement.

In February 2026, Matuzak was recognized as one of eight recipients of the 21^st Annual RUBY Awards, presented by 1st State Bank. The award honors outstanding professionals under the age of 40 who are making a meaningful impact in their careers and throughout the Great Lakes Bay Region. He is also a recipient of the President’s Club Award from Avantax Planning Partners, Inc., recognizing outstanding client service and a high level of ethics, integrity, and leadership. He is based in Yeo & Yeo’s Saginaw office.

Also recognized was Yeo & Yeo tax & consulting principal Alex Wilson, CPA, PFS, who received the 2025 Rising Star Award.

*Awards were presented by Avantax Planning Partners at the 2026 Elevate Conference. Recognition is based on firm-defined criteria and does not imply future performance or guarantee client experience. No compensation was provided for these awards; conference participation may have involved costs.

Alex Wilson is not affiliated or registered with Cetera Wealth Services, LLC. Any information provided with respect to Alex Wilson is in no way related to Cetera, its affiliates, or its registered representatives.

Yeo & Yeo Technology, a leading provider of managed IT and cybersecurity services, has been named to the 2026 Channel Partners MSP 501, earning recognition among the world’s top-performing managed service providers (MSPs).

The annual MSP 501 is a prestigious technology industry benchmark, with managed service providers around the globe submitting for inclusion. Companies are evaluated based on operational performance, sustainable growth, recurring revenue strength, and overall business health. The recognition highlights organizations committed to delivering long-term value and helping clients navigate an increasingly complex technology environment.

“Our team helps organizations use technology with confidence while staying ahead of evolving security risks and operational challenges,” said Jeff McCulloch, President of Yeo & Yeo Technology. “Being recognized on this list reflects the dedication our people bring to serving clients, building trusted relationships, and delivering technology solutions that support long-term success.”

Yeo & Yeo Technology (YYTECH) was recognized for its commitment to helping Michigan organizations strengthen their technology infrastructure through dependable managed IT services and proactive cybersecurity solutions. With more than 40 years of experience, the firm has continuously evolved to meet client needs, transitioning from traditional IT support to a modern managed services model focused on security, business continuity, and strategic technology planning.

Today, YYTECH partners with organizations across financial/banking, manufacturing, healthcare, professional services, and other industries to align technology with business strategy. Through a client-centered approach and expertise in managed IT, cybersecurity, cloud, Microsoft technologies, custom development, and strategic consulting, the firm helps organizations reduce risk, improve efficiency, and support long-term success. As artificial intelligence and automation continue to transform the workplace, YYTECH guides clients in adopting emerging technologies that strengthen operations, enhance security, and turn technology into a competitive advantage.

AI tools like ChatGPT and Copilot have become indispensable productivity partners. They draft emails, generate reports, and write code. So, when you need a secure password, turning to the same AI assistant feels like a natural shortcut. After all, if it can handle complex communications and technical tasks, surely it can generate a strong 16-character password, right?

The answer is more complicated than you might expect.

Why AI-Generated Passwords Look Strong But Aren’t

On the surface, AI-generated passwords look impressive. They contain lengthy strings of uppercase and lowercase letters, numbers, and special characters. Plug them into popular online password strength meters, and you’ll see glowing results, sometimes suggesting it would take centuries to crack them.

But appearances are deceiving.

AI tools are powered by large language models (LLMs), which are fundamentally prediction engines. They were trained on vast amounts of text data, learning patterns, structures, and relationships between characters. When you prompt an AI, it doesn’t generate from a blank slate; it predicts what should come next based on learned patterns. This is exactly what makes AI great at producing human-like text, and exactly what makes it a poor choice for password creation.

A truly secure password depends on one essential quality: genuine randomness. Each character must be selected independently, with no predictable pattern. AI, by its very nature, cannot deliver that.

What Researchers Found

According to a recent Reader’s Digest report, AI chatbots asked to generate passwords didn’t produce truly random results at all. Instead, they predicted what “typical” random passwords would look like based on learned patterns. The resulting passwords followed similar structures, and some were outright duplicates. Attackers can even use LLMs to analyze AI-generated passwords for patterns and then use those findings to train their own brute-force software, making AI-generated passwords doubly risky.

Cybersecurity professionals at Cyber Shift Technologies corroborate these findings, noting that researchers measured entropy, a technical measure of unpredictability, and found that AI-generated passwords scored significantly lower than genuinely random passwords of the same length. That makes them more vulnerable to brute-force attacks than they appear to be. Standard password checkers don’t catch this because they only evaluate visible complexity, not underlying randomness.

Even AI Companies Are Sounding the Alarm

Perhaps the most telling signal comes from the AI developers themselves. Newer models, including Gemini 3 Pro, have begun issuing explicit warnings when users request password generation, advising against relying on chat-generated credentials for sensitive accounts. When the companies building these tools warn you not to use them for a specific task, that’s worth taking seriously.

The Right Solution: A Dedicated Password Manager

If AI isn’t the answer, what is? Dedicated password managers with built-in password generators. Unlike AI, these tools are purpose-built for security. Their generators use cryptographic randomness, mathematical processes specifically engineered to produce truly unpredictable results, where each character is selected independently with no hidden patterns.

Beyond generation, password managers offer critical business benefits: secure storage, team-based password sharing, audit trails showing who accessed which credentials, and integration with single sign-on systems. IT administrators can enforce password complexity requirements, mandate regular rotation, and maintain visibility into the organization’s overall security posture.

A Bigger Lesson for Businesses

The password generation issue illustrates a broader principle: not every task is appropriate for AI, even when AI appears capable of performing it. Security-critical functions require careful scrutiny. The key is matching the right tool to the right job. Use AI where it excels, and use purpose-built security tools where precision and true randomness are non-negotiable.

For businesses concerned about current password practices, now is the time for a review. If your organization has been using AI to generate passwords, those credentials may not provide the security they appear to offer. Consider implementing a password rotation schedule and replacing potentially weak passwords with cryptographically random alternatives from a proper password manager.

Employee education matters too. Many workers don’t understand the difference between passwords that look secure and passwords that actually are. Training should cover why randomness matters, how attackers exploit patterns, and how to use password managers effectively. Pair strong password practices with multi-factor authentication for an additional layer of protection.

How Yeo & Yeo Technology Can Help

At Yeo & Yeo Technology, our cybersecurity professionals help businesses make the right decisions about security tools and practices. We can assess your current password management approach, identify vulnerabilities, and implement solutions tailored to your organization’s needs. We also provide training, so your team understands the reasoning behind security best practices, not just the mechanics.

Don’t leave your business security to a tool not designed for the job. Contact Yeo & Yeo Technology today to strengthen your cybersecurity posture and protect what matters most.

Your email security system just blocked a message from a new vendor. Your sales team missed a proposal deadline because the client’s attachment was quarantined. Your IT team spent another morning releasing emails that never should have been flagged.

This is the false positive problem. While most organizations focus on threats that slip through, fewer address legitimate emails that get caught in overly aggressive filters. False positives can be just as disruptive to your business as the threats you’re trying to stop.

Here’s what makes it worse: phishing attacks have become more convincing. Attackers now mimic trusted domains, copy sender behavior, and craft messages that look like normal business communication. Security systems respond by tightening filters. But without the right context, tighter filters don’t just catch more threats; they also block more legitimate email.

What Are False Positives?

A false positive occurs when a legitimate email is incorrectly identified as malicious and blocked, quarantined, or restricted. False negatives, where actual threats reach inboxes, get more attention. But false positives quietly drain productivity, create manual work for IT, and erode employee trust in your security tools. When users see the system cry wolf too often, they start ignoring warnings and finding workarounds. That’s when your security posture actually weakens.

Why Traditional Filters Fall Short

Most email security systems rely on static rules. A message from a new domain gets flagged, whether it’s a phishing attempt or a recently rebranded vendor. A password-protected PDF triggers the same alarm whether it’s malicious or a legitimate proposal. Without context, these signals look the same to the filter.

Business communication also changes constantly. Companies update their domains. Teams adopt new file types. Communication patterns shift. Static rules can’t keep up, which means they either miss new threats or block activity that doesn’t match outdated patterns.

Eight Ways to Reduce False Positives

1. Review and tune filtering policies regularly. Rules that worked six months ago may be too aggressive today. Audit your thresholds and quarantine behavior regularly. If IT is repeatedly releasing emails from the same senders or domains, that’s a signal that the settings need adjustment.

2. Use context-aware detection. Static rules treat identical signals the same regardless of circumstances. Context-aware systems factor in sender history, communication frequency, and user behavior. The result is fewer misclassifications without lowering your security standards.

3. Apply friction based on actual risk. Not every suspicious signal warrants an outright block. Lower-risk situations, like a first-time sender from a legitimate domain, can be handled with a warning banner. Save the harder stops for higher-risk activity. This keeps communication moving while still interrupting genuinely risky messages.

4. Use employee reports to improve detection. When a user reports a legitimate email as incorrectly blocked, don’t just release it and move on. Analyze why it was flagged and whether similar messages will hit the same rule. Over time, this creates a feedback loop that improves the accuracy of your detection logic.

5. Give users real-time context. Blocking a message with a vague warning leaves users guessing. Clear, specific guidance, such as noting that a sender has never contacted your organization before or that a request matches common phishing patterns, helps users assess the situation themselves. It also turns flagged messages into learning moments rather than frustrations.

6. Connect email security to broader security signals. An email requesting a sensitive action may look routine on its own. Add context from login activity, device posture, or identity risk data, and the picture can change significantly. Decisions based on a single data point are less accurate than those based on combined signals.

7. Link inbound and outbound controls. Outbound email monitoring shows you who your users normally communicate with, what they send, and how often they send it. That behavioral baseline gives inbound controls important context. When outbound patterns inform inbound decisions, you can distinguish expected activity from genuine anomalies without relying on overly broad rules.

8. Measure outcomes and refine continuously. False positives show up in patterns, not isolated incidents. Track release rates, repeat flags, and user reports. Use that data to refine your policies. Email security that isn’t measured and adjusted regularly will drift out of alignment with your actual risk profile.

The Bigger Picture

Reducing false positives is not about loosening your security controls. It’s about making more accurate decisions. A system that blocks too much legitimate email is not secure; it’s just inefficient and frustrating, which leads users to treat security as an obstacle rather than a tool.

Context-aware, adaptive controls, combined with outbound monitoring, broader security signal integration, and regular policy tuning, allow you to maintain strong protection while letting normal business communication through. You stop choosing between security and productivity and start achieving both.

How Yeo & Yeo Technology Can Help

Yeo & Yeo Technology works with businesses to assess their current email security controls and identify where false positives are creating unnecessary friction. We help configure solutions based on your actual communication patterns, integrate email security into your broader cybersecurity infrastructure, and establish the monitoring and feedback processes needed to maintain high accuracy over time. We also provide user training that helps employees understand how email security works and why certain messages are flagged, so they can make better decisions rather than work around the system.

If your IT team is spending too much time releasing legitimate emails or your users have stopped trusting security warnings, those are problems worth fixing. Contact Yeo & Yeo Technology to talk through where your current approach may need adjustment.

When revenues drop and margins tighten, most businesses respond the same way: freeze hiring, cut spending, and ask existing employees to pick up the slack. That last part is where things quietly break down. Your staff is already handling a full workload. Asking them to do more with less does not make processes faster or more accurate. It makes them slower and more error-prone.

Robotic process automation (RPA) is a practical alternative. It will not fix a bad business model, but it will remove manual bottlenecks that worsen under economic pressure, making it harder to serve customers and control costs.

Where Economic Pressure Actually Shows Up in Daily Operations

The problems that surface during a downturn are rarely new. They are existing inefficiencies that become impossible to ignore when resources are stretched. Here are the ones we see most often:

• Data entry backlogs. When staff are reduced or reassigned, manual data entry piles up. Invoices sit unprocessed. Reports do not get generated on time. Decisions get made on outdated information.
• Errors from manual processes. When people are doing more than they should, mistakes happen. A transcription error in inventory data disrupts production planning. A mistake in loan processing creates a compliance issue. These errors cost time and money to correct.
• Customer service delays. When administrative work expands to fill your team’s time, customer-facing work suffers. Response times increase. Follow-ups get missed. Customers notice.
• Month-end bottlenecks. Reporting and reconciliation processes that were manageable during normal operations become all-hands emergencies when staffing is tight.

These are not strategic problems. They are operational ones, and they have operational solutions.

What RPA Actually Does

RPA is software that performs repetitive, rules-based computer tasks the same way a person would – logging into systems, entering data, copying information between applications, generating reports, processing forms – but faster and without errors. It does not replace your existing software. It works on top of it, connecting systems and executing workflows automatically.

RPA is not artificial intelligence, and it is not a full system overhaul. You do not need to replace your ERP, your core banking platform, or your dealer management system to use it. That matters during an economic downturn, when capital expenditure is the last thing you want to commit to.

Specific Processes Worth Automating Now

Not every process is a good candidate for automation. The ones that deliver the fastest returns share a few characteristics: they occur frequently, follow consistent rules, and currently consume employee time that could be spent on higher-value work. Here are concrete examples by function:

Accounts payable and invoice processing. Automation can receive invoices, extract relevant data, match against purchase orders, flag discrepancies, and route for approval – without anyone manually keying information. This eliminates backlogs, reduces errors, and helps you catch billing problems before they compound.

Inventory and production reporting. If someone on your team spends time each day logging into multiple systems, pulling data, and building a report, that is an automation candidate. RPA can pull data from all relevant systems, compile it, and deliver the report on schedule – without human involvement.

New account or application processing. For financial institutions, new account openings and loan applications typically require the same information entered into multiple systems. Automation handles that data movement automatically, reducing processing time and eliminating entry errors.

Customer and member communications. Appointment reminders, order status updates, and routine service notifications can all be triggered automatically based on system data. Customers get timely communication, and your staff does not have to generate it manually.

Compliance and audit trail documentation. By default, automated processes generate consistent, timestamped logs. This is particularly valuable for regulated industries where documentation requirements do not go away just because staffing is tight.

What to Expect in Terms of Results

RPA bots complete repetitive tasks significantly faster than people do – often 15 to 20 times faster. More importantly, they do not make data entry errors. For a manufacturer whose production planning depends on accurate inventory numbers, that accuracy has real downstream value. For a credit union, a processing error that creates a compliance exposure has real risk-reduction value.

The cost savings come from a few sources: fewer person-hours spent on transactional work, lower error-correction costs, and the ability to handle volume increases without adding staff. Most targeted automation projects return measurable value within a few months, not years.

How to Start Without Overcomplicating It

Pick one process. It should be high-volume, clearly defined, and currently causing pain. Automate that process first, measure the results, and then decide what comes next. Trying to automate multiple workflows at once is a common mistake that slows everything down and makes troubleshooting harder when something does not work as expected.

Involve the employees who currently do the work. They know where the exceptions are, where the process breaks down, and what actually happens versus what the procedure document says. That knowledge is essential to building automation that works in practice.

Set specific, measurable targets before you start: processing time, error rate, and hours saved per week. Those numbers tell you whether the automation is working and give you a basis for deciding whether to expand it.

How Yeo & Yeo Technology Can Help

Yeo & Yeo Technology works with manufacturers, credit unions, auto dealers, and other small to mid-sized businesses to identify automation opportunities, build solutions that integrate with existing systems, and measure results. We have over 40 years of experience implementing custom applications and business management software across industries, which means we understand both the technology and the operational context in which it must operate.

If you are dealing with manual bottlenecks that are becoming harder to manage, we can help you determine what to automate and what a realistic implementation would look like for your situation. Reach out to start the conversation.

If your team is using AI tools without spending limits, a formal usage policy, or visibility into costs, you’re at risk of the same problem Uber just ran into. The company burned through its entire annual AI budget in four months and had to scramble to put guardrails in place after the fact. You don’t want to be in that position.

According to a June 2026 report from Bloomberg, Uber instituted a $1,500-per-employee monthly cap on agentic AI coding tools after discovering that costs had spiraled far beyond projections. The company had encouraged staff to use AI “as much as possible,” even ranking internal usage competitively on leaderboards. It worked, maybe too well.

For most businesses, especially those without dedicated IT leadership, the Uber story is a warning sign worth paying attention to now.

The Real Problem Wasn’t AI, It Was a Lack of Governance

Uber’s AI investment didn’t fail because the tools didn’t work. It ran into trouble because there was no framework for managing how those tools were used, by whom, and at what cost. That’s a governance problem, not a technology problem.

The company’s COO acknowledged that it was “very hard to draw a line” between AI usage and actual business results. That’s a significant admission from a global tech giant, and it’s the same challenge businesses of all sizes are facing right now.

A 2026 Bain & Company survey found that AI is delivering less cost reduction than most companies predicted. The ROI is still largely theoretical for many organizations, which means every dollar spent on AI tools must be tied to a measurable outcome.

What “AI Governance” Looks Like in Practice

You don’t need a massive IT department to manage AI responsibly. What you need is a clear set of policies and the right partner to help enforce them. Here’s what that looks like:

• Usage limits by role and department: Not every employee needs access to the same tools at the same tier. Setting role-based access controls prevents runaway spend and keeps AI where it adds real value.
• Cost visibility dashboards: Your organization should have a real-time view of AI tool usage and spend before issues arise, not after.
• Approval workflows for high-usage scenarios: Define when exceptions are allowed and who has the authority to approve them. Unchecked exceptions are where budget blowouts happen.
• Acceptable use policies: What data can employees feed into AI tools? What outputs need human review before use? These questions need written answers, not assumptions.
• Regular ROI reviews: Tie AI usage to outcomes. If a tool isn’t producing measurable results within a defined timeframe, that’s information you need, and you need it before the annual budget cycle, not after.

The Risk of “AI as Much as Possible” Thinking

There’s a dangerous assumption that greater AI use automatically equals greater productivity. Uber’s experience demonstrates that it’s not true. Adoption without accountability creates waste, not output.

For professional services firms, manufacturers, healthcare organizations, and other businesses with real compliance obligations, there are additional risks layered on top of cost. Employees using unapproved AI tools or sharing sensitive data with consumer-grade AI platforms can expose your organization to regulatory and legal liability.

AI governance isn’t a restriction on innovation. It’s what allows you to innovate sustainably, without exposing the business to financial or compliance risk.

Yeo & Yeo Technology: Helping Businesses Implement AI Responsibly

As a managed IT services provider, Yeo & Yeo Technology works with organizations across Michigan to help them implement AI responsibly. That means building the policies, controls, and visibility tools you need before costs become a crisis.

Whether you’re just beginning to deploy AI tools across your team or you’re already seeing usage spike and wondering where the budget is going, we can help you establish a governance framework that makes sense for your size, your industry, and your risk tolerance.

Ready to get your AI strategy under control before it gets away from you?

 Contact Yeo & Yeo Technology to start the conversation.

Frequently Asked Questions

What is AI governance, and why does my business need it?

AI governance is the set of policies, controls, and oversight processes that determine how AI tools are used inside your organization. It covers things like which employees have access to which tools, what data can be shared with AI platforms, how costs are monitored, and how AI-generated outputs are reviewed. Without governance, AI adoption can create compliance gaps, budget overruns, and data security risks, exactly what Uber experienced in 2026.

How much should my business be spending on AI tools per employee?

There’s no universal answer; it depends on the tool, the role, and the measurable output you’re trying to achieve. What matters is that spending is tracked, tied to outcomes, and reviewed regularly. Uber capped its internal AI spend at $1,500 per employee per month per tool after costs spiraled out of control. Most small and mid-sized businesses will operate at far lower thresholds. The key is having a defined number and the visibility to enforce it.

Can employees use personal AI tools like ChatGPT for work tasks?

This is one of the most important questions to address with a written policy. Consumer-grade AI tools may not meet the data privacy or security standards your business requires, especially in regulated industries. Employees using unauthorized tools to process client data, financial records, or protected health information can expose your organization to serious liability. An acceptable use policy, combined with approved tool alternatives, is the right approach.

How do I measure ROI on AI tools?

Start by defining what you’re trying to achieve before you deploy a tool, not after. Are you looking to reduce the time spent on a specific task? Improve response times? Reduce headcount requirements? Quantify the baseline, set a timeframe for evaluation, and track actual outcomes against it. If the numbers aren’t there after a defined period, that’s a signal to adjust your approach, not to keep spending.

What’s the difference between a managed AI strategy and just buying AI subscriptions?

Buying subscriptions gets you access to tools. A managed strategy gets you results. The difference is the policy layer, the governance, cost controls, training, and ongoing review that turns AI access into measurable business value. Yeo & Yeo Technology helps organizations build that layer so AI investments don’t become a budget liability.

There’s a moment in almost every significant asset sale when the seller realizes they should have called their accountant sooner. The deal is done, the documents are signed, and the question becomes: how do we minimize the damage? The honest answer is that the best options are often gone by then.

If you’re thinking about selling a business, rental property, or other large asset this year, the time to understand what’s at stake is before that call happens. 

The tax consequences of a large sale are not simple

When a major asset changes hands, several tax issues typically come into play at once. Understanding them ahead of time is what separates a planned outcome from an unpleasant surprise.

Capital gains tax

Long-term capital gains receive preferential tax rates of 0%, 15%, or 20%, but those rates depend on your total taxable income for the year, not just the gain itself. The gain stacks on top of your other income when determining which rate applies. 

For married couples filing jointly in 2026, the 0% rate applies up to $98,900 of taxable income, the 15% rate applies from there up to $613,700, and the 20% rate applies above that. For single filers, the 20% rate kicks in above $545,500. A large sale can push you across those lines even if your ordinary income alone would not. 

Consider a couple with $200,000 in taxable income before a sale. A $2 million long-term gain brings their total to $2.2 million. The first $413,700 of that gain (the portion that fits under the $613,700 threshold) is taxed at 15%. The remainder is taxed at 20%. The difference between the 15% and 20% rates on that upper portion is roughly $79,000. However, that’s a number you might be able to influence through deal structure, timing, or installment planning if you plan ahead.

Depreciation recapture

Every year you own a rental property or business asset, you’re generally entitled to deduct depreciation on your tax return, and most owners do. Those deductions reduce taxable income while you hold the property. When you sell, the IRS collects on them. This is called depreciation recapture. Basically, the portion of your gain that represents previously deducted depreciation gets taxed at a higher rate than the standard long-term capital gains rate. 

For rental real estate, the recaptured amount is taxed at a maximum of 25% under what the tax code calls “unrecaptured Section 1250 gain.” For business equipment and other personal property, recapture under Section 1245 is taxed as ordinary income, potentially as high as 37%.

Let’s say you purchased a rental property ten years ago for $300,000, with $50,000 allocated to land, which isn’t depreciable, and $250,000 to the building. Residential rental property depreciates over 27.5 years, so your annual deduction has been roughly $9,100. Over ten years, that’s approximately $91,000 in depreciation deductions.

Those deductions reduced your adjusted basis in the property to about $209,000. If you sell for $400,000, your total gain is roughly $191,000, but it breaks down into two pieces:

• $91,000 of unrecaptured gain for the depreciation you took, taxed at a maximum of 25%, and
• $100,000 of remaining long-term capital gain, eligible for the standard 0%, 15%, or 20% rates.

On $91,000 of recapture, that’s approximately $22,750 in federal tax before any consideration of the remaining $100,000 gain or state taxes. 

What catches some sellers off guard is that recapture doesn’t require the property to have appreciated. If you purchased that same property for $300,000 and sold it for $260,000, you’d appear to have lost money on the deal, but your adjusted basis after ten years of depreciation is only $209,000. You’d owe tax on $51,000 of gain, almost all of it recapture. You sold at a loss and still got a tax bill.

This is why basis documentation and a pre-sale tax analysis matter. A CPA who knows the full depreciation history of the property can tell you exactly what you’re walking into before you’re at the closing table.

Net investment income tax

For higher-income sellers, a 3.8% net investment income tax may apply on top of capital gains rates. Whether it applies depends in part on your level of participation in the business or property being sold. This is one of several reasons why entity structure and involvement matter.

Estimated taxes

Many sellers overlook estimated taxes entirely. A large, unexpected gain can result in a significant underpayment of quarterly estimated taxes. Depending on when you close, you may owe a penalty even if you pay the full bill by April. Your CPA can help you plan the right payment timing to avoid that outcome.

The installment sale option

One of the most powerful planning tools available is the installment sale election, which allows you to spread gain recognition across multiple years as you receive payments rather than reporting everything in the year of sale. This can be especially effective when spreading income keeps you below a rate threshold or reduces your exposure to the net investment income tax.

But installment sales come with limits that aren’t always obvious. For instance, depreciation recapture must be reported in the year of sale, even if you elect installment reporting. Understanding which portion of your gain is recapture and which qualifies for installment deferral requires a full analysis of the asset’s tax history.

Basis records matter more than you think

Your taxable gain is the difference between what you receive and your adjusted tax basis. For rental properties, basis includes the original purchase price plus qualifying capital improvements, minus accumulated depreciation. For a business, it may involve goodwill, asset allocations from a prior acquisition, or contributed property with a carryover basis.

Gaps in documentation can increase your taxable gain. Incomplete records also create problems if your return is ever examined. Gathering and organizing this information before you’re in active negotiations gives your CPA time to work through it carefully.

Entity and structural issues

How you hold the asset also has a direct bearing on how the sale is taxed. A sale of C-corporation stock versus an asset sale within a C-corp, for example, produces very different outcomes. Asset sales inside a C-corp may be subject to double taxation. S-corporations that converted from C-corp status within the past five years face a built-in gains tax on appreciated assets. Partnership and LLC sales involve their own allocation and basis considerations.

Buyers and sellers often have competing preferences on deal structure, and those preferences have real tax consequences. Pre-transaction planning gives you a clear picture of what each structure means for your after-tax proceeds, so you can negotiate from an informed position.

Timing is a variable, not a fixed constraint

Closing a sale before or after December 31st can shift gain into a different tax year, which may affect your rate bracket, net investment income tax exposure, or your installment sale elections. It can also affect how estimated tax obligations are calculated and sequenced.

This flexibility exists, but it requires action before the deal closes. Once you sign, your options narrow considerably.

The case for a pre-transaction conversation

Tax planning after a transaction is largely damage control. Planning before it is strategic. The difference can be tens of thousands of dollars, or more.

If a sale is on your horizon, the right time to contact your CPA is before you’re in active negotiations. Even an initial conversation can surface issues worth addressing before you’re at the table. For more personalized guidance, please contact our office. 

Most business owners have a rough number in their heads of what they think the business is worth. That number is usually based on some combination of what a competitor sold for, what a banker once mentioned, or a gut sense built over years of reinvestment. It is not a valuation, and the gap between that mental estimate and a defensible, documented figure has cost business owners real money in taxes, negotiations, and disputes.

A formal business valuation is an independent, methodology-based determination of what your business is worth under a specific standard of value at a specific point in time. “Fair market value,” for example, is considered the price at which a business would change hands between a willing buyer and a willing seller, neither under compulsion, both with reasonable knowledge of the relevant facts. While that definition may seem like legalese, it matters – because the IRS, courts, and lenders all hold valuations to it.

Here is when you need one, and why.

Sale, succession, or exit

The most obvious trigger is also the one most business owners think about too late. If you are planning to sell your business, whether to a third party, a private equity buyer, or a family member, you need a valuation before you enter negotiations, not during them.

A buyer will come with their own number, supported by their own analysis. Without an independent valuation in hand, you are negotiating from memory and instinct. With one, you have documentation of your earnings, a reasoned view of what drives your value, and the foundation to push back when a buyer’s adjustments do not hold up.

The same applies to succession planning. If you are transferring ownership to a co-owner, a key employee, or a next-generation family member through a structured buyout, the purchase price has to be grounded in something. A valuation protects both sides and reduces the likelihood that the transaction gets challenged later by the other party, or the IRS.

Buy-sell agreements

If your business has more than one owner, you almost certainly have (or should have) a buy-sell agreement. That document governs what happens when an owner wants to leave, becomes disabled, dies, or is forced out. It is one of the most important contracts a business can have.

The problem is that many buy-sell agreements are written with valuation language that becomes unworkable over time. A fixed price set years ago no longer reflects current reality. A formula tied to a multiple of earnings may produce a number that is easy to calculate but difficult to defend. And when the triggering event actually happens, that is exactly the wrong time to be arguing about what the business is worth.

A current, third-party valuation, updated on a regular schedule, eliminates most of that friction. It also gives life insurance coverage a defensible target, which matters when funding a buyout.

Estate planning and gifting

Revenue Ruling 59-60, which the IRS has used since 1959 to evaluate closely held business interests for estate and gift tax purposes, sets out factors for determining fair market value. When a business interest transfers at death or through a gifting strategy, the IRS can, and does, challenge valuations it considers aggressive.

If you are transferring business interests to family members, establishing a family limited partnership, or using a trust structure that includes a business stake, the valuation underlying those transfers will be scrutinized. In this context, a well-supported valuation is not a formality. It’s the documentation that helps the transaction withstand IRS review. 

Discounts for lack of marketability and lack of control, which reflect the reality that a minority interest in a closely held business is worth less than a proportionate share of the whole, are legitimate and recognized under federal tax law. But they require professional support to withstand IRS review. An undocumented discount is not a discount; it’s an audit finding waiting to happen.

Consider a business owner with an estate that includes a 40% interest in an S corporation worth $5 million as a whole. A properly supported valuation with applicable discounts might value that 40% interest at $1.6 million rather than $2 million – a $400,000 difference in the taxable estate. That difference, at the federal estate tax rate, is material. But, without documentation, it does not exist.

SBA and commercial lending

When a business is acquired using an SBA loan, the lender is required in many cases to obtain an independent business valuation. This protects the lender and, indirectly, the buyer, from overpaying for a business relative to its actual income-producing capacity.

Even outside of SBA transactions, commercial lenders often request valuations when a business is pledged as collateral, when a significant change of ownership is involved, or when the loan amount is large relative to verifiable business income. Having a current valuation on file can accelerate this process and reduce friction at closing.

Divorce and shareholder disputes

A business interest is a marital asset in most states. When a business owner divorces, the business has to be valued by someone. If both spouses commission their own valuations, those numbers frequently differ by significant margins, and litigation becomes the mechanism for resolving the gap.

The same dynamic plays out in shareholder disputes. When a minority shareholder claims they are being squeezed out, or when a departing partner disputes the buyout price, the absence of a current, agreed-upon valuation turns a business disagreement into prolonged legal conflict.

A periodically updated valuation (ideally one that all owners have reviewed and accepted) reduces that exposure. It does not eliminate the possibility of conflict, but it can remove the question of value from the center of the dispute.

Equity compensation

If your business grants stock options or other equity-based compensation to employees, IRC Section 409A requires that the strike price of those options be set at no less than the fair market value of the underlying stock at the time of grant. For private companies, that typically requires a properly supported independent appraisal or valuation process that meets the applicable 409A requirements. 

Getting this wrong has consequences for both the employee and the company: accelerated income recognition, excise taxes, and penalties. A 409A valuation is not expensive relative to those risks, and it needs to be updated whenever there is a material change in the business.

Strategic planning and benchmarking

Valuations are not exclusively triggered by transactions or legal requirements. A business owner who understands what drives their company’s value is in a better position to make decisions.

If your business relies heavily on a single customer, employee, or product line, a valuator can reflect that concentration risk in the number. If your Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margins are below what buyers in your industry typically pay for, that gap will be visible. Understanding these factors while you have time to address them is different from learning about them at the closing table.

Some owners commission informal valuations every three to five years simply to track progress and understand where they stand relative to an eventual exit goal. This isn’t excessive; it is the kind of planning that makes exits go smoothly.

What makes a valuation defensible

Not every valuation carries the same weight. The level of support needed depends on the purpose. A valuation used for estate or gift tax planning, a shareholder dispute, divorce, SBA financing, or equity compensation generally needs more formal documentation than an internal planning estimate.

A defensible valuation will apply one or more standard approaches – the income approach, based on earnings capacity; the market approach, based on comparable transactions or public company multiples; or the asset approach, based on the fair value of underlying assets. It should also explain why the selected methodology is appropriate for your business, document key assumptions, address risk factors, and produce a written report that can be reviewed by the relevant parties, whether that is a buyer, lender, court, tax authority, or other stakeholder.

An informal estimate from a broker, banker, or industry rule of thumb may be useful as a starting point for discussion. But when the number will be relied on for tax, legal, lending, or transaction purposes, it should be supported by appropriate valuation analysis and documentation.

How your CPA fits in

Your CPA is often the right starting point when a valuation is needed. A CPA who knows your business can help you understand why the valuation is being requested, what type of report or analysis may be appropriate, and what financial information will be needed to support the process.

If you have not had a business valuation performed, it’s worth a conversation. The right time to know what your business is worth is before you need to act on that number. For more personalized guidance, please contact our office. 

If you own or control more than one business entity, you likely move money, goods, or services between them on a regular basis. Maybe your holding company charges a management fee to your operating company. Maybe one LLC sells inventory to another. Maybe you have a real estate entity that leases space to your main business.

These transactions may feel like internal bookkeeping, but in the eyes of the IRS, they are not. They are intercompany transactions subject to transfer pricing rules, and if the prices you charge between your related entities are not set correctly, the consequences can be significant.

What is transfer pricing? 

Transfer pricing refers to the prices set for transactions between related or commonly controlled parties. The concept is most commonly associated with large multinational corporations shifting profits between countries, but the underlying rules apply broadly. Under IRC Section 482, the IRS has authority to reallocate income, deductions, and credits between related entities whenever it determines that the prices used do not clearly reflect income.

That authority is not limited to international arrangements. Any two entities under common control, whether that means common ownership, family relationships, or other control structures, can be subject to Section 482 scrutiny.

The arm’s length standard

The governing principle in transfer pricing is the arm’s length standard. In plain terms, this means that transactions between your related entities should be priced as if they were conducted between two unrelated parties negotiating freely in the marketplace.

If your management company charges your operating company a $25,000 monthly management fee, the IRS can ask: would an unrelated business pay $25,000 for those services? If the answer is clearly no, the IRS can recharacterize the transaction and reallocate income accordingly.

The arm’s length standard applies across common transaction types, including:

• Loans and advances between entities
• Services performed by one entity for another
• Rent or licensing of property
• Sales of goods or inventory
• Use of intellectual property

The test is always the same: would an unrelated party transact on similar terms under similar circumstances?

Why it matters for domestic business owners

The transfer pricing concern that makes headlines typically involves multinationals routing profits through low-tax jurisdictions. But domestic business owners with related entities face real exposure too.

The most common trigger is an IRS audit in which the agent questions whether intercompany pricing reflects economic reality. If your holding company charges your operating company above-market rent, for example, the IRS may conclude that income has been shifted in a way that reduces taxable income at the operating entity level. It can then reallocate that income and assess back taxes, interest, and penalties.

The IRS can also look unfavorably at below-market loans between related entities. If your entity loans money to a related party at zero interest or a rate below the IRS’s applicable federal rates the IRS can impute interest income on the lending entity, even if no interest was actually charged.

The penalty risk

Under IRC Section 6662, transfer pricing penalties apply to underpayments attributable to valuation misstatements. The structure works in two tiers.

The first tier, a 20% penalty, applies when a reported transfer price is 200% or more (or 50% or less) of the arm’s length price determined by the IRS, or when the IRS’s total income reallocation for the year exceeds the lesser of $5 million or 10% of gross receipts.

To illustrate: let’s say your management company charges your operating company $180,000 per year for management services, but the IRS determines the arm’s length value of those services is $60,000. Your reported price is 300% of the correct price, well above the 200% threshold. The IRS reallocates $120,000 of income, assesses back taxes on that amount, and then applies a 20% penalty on top of the resulting underpayment.

The second tier, a 40% penalty, applies to more severe misstatements: when a reported price is 400% or more (or 25% or less) of the correct price, or when the total reallocation exceeds the lesser of $20 million or 20% of gross receipts.

Using the same scenario: if your management company had charged $300,000 for those same $60,000 worth of services, your reported price is 500% of the arm’s length amount, crossing the 400% threshold for the gross valuation misstatement tier. The penalty on the resulting tax underpayment doubles to 40%.

These thresholds are calibrated for larger transactions, but the underlying principle applies broadly: the IRS treats transfer pricing violations seriously, and the further your pricing strays from arm’s length, the steeper the consequences.

Documentation: your first line of defense

The single most important protective step for any business owner with related entities is documentation. The IRS expects that intercompany pricing decisions are made deliberately and supported by a rationale, not set arbitrarily or based solely on what is most tax-advantageous in a given year.

At minimum, your documentation should establish:

• What the transaction is and why it exists
• How the price was determined
• Why that price is consistent with what unrelated parties would pay

For many small and mid-size businesses, this does not need to be a formal transfer pricing study. A written intercompany agreement, a basic comparability analysis, and consistent application of the agreed pricing is often sufficient to demonstrate good faith and reduce audit risk.

If your related-entity transactions are significant in volume or complexity, a more formal analysis with written documentation may be warranted to fully meet the penalty protection provisions in the regulations. Your CPA can help assess the appropriate level of documentation for your situation.

What to do now

If you have related entities and have not reviewed your intercompany pricing recently, that review is worth putting on your agenda. The questions to work through with your advisor are straightforward: Are your intercompany transactions documented? Are the prices defensible under an arm’s length analysis? Are intercompany loans charging at least the applicable federal rate?

Transfer pricing compliance does not require complex structures or expensive studies for most small business owners. It requires intentionality – setting prices deliberately, documenting the rationale, and applying them consistently. That foundation is far easier to build proactively than to reconstruct under audit.

If you have related entities and want to make sure your intercompany pricing is on solid ground, reach out to our office. We can help you assess where you stand and put the right documentation in place.

One of the most common questions I am asked is whether organizations should use assessments. My answer is almost always the same: yes—but thoughtfully.

Whether you’re hiring, building a stronger team, or developing leaders, assessments can provide valuable insights. The key is understanding what they measure, when to use them, and how much weight they should carry in your decision-making.

I emphasize the word thoughtfully because I’ve seen organizations rely too heavily on assessment results without fully understanding what they’re measuring. Assessments should support good judgment—not replace it.

When used appropriately, assessments provide insights into how people think, work, communicate, and lead. Broadly speaking, organizations tend to use three types of assessments:

• Cognitive ability assessments, which measure problem-solving, reasoning, and learning agility.
• Behavioral or personality assessments, which explore work styles, communication preferences, and motivations.
• Skills or competency assessments, which evaluate the technical or professional abilities needed for a specific role.

Each serves a different purpose, and understanding the differences is the first step toward using assessments effectively. My team loves anything that gets people talking and building a common language, and that’s exactly what the right assessment can do.

Today’s blog provides a high-level overview of how assessments can support hiring, team effectiveness, and leadership development. Next month, I’ll take a closer look at some of the most common assessment tools and when to use them. Then, during our August webinar, we’ll dive even deeper into how organizations can use assessments to support employees as they grow within the organization.

The Growing Role of Assessments in Talent Management

For years, many organizations viewed assessments primarily as hiring tools. Today, I see organizations getting the greatest value from assessments long after someone joins the team.

Whether they’re helping a new employee integrate more quickly, improving communication across a department, preparing future leaders, or supporting succession planning, assessments have become an important part of helping people and organizations grow.

Rather than replacing human judgment, assessments provide another layer of information that complements interviews, performance observations, coaching conversations, and business needs.

Assessments in Recruiting: Improving Hiring Decisions

Hiring mistakes are expensive, and this is something I’m painfully aware of through my work as a recruiter. A poor hire affects productivity, employee morale, customer relationships, organizational culture, and frankly, everyone’s emotional energy.

That’s why I think of hiring as putting together a puzzle. A candidate’s resume, experience, education, interviews, references, and technical skills each provide a piece of the puzzle. An assessment can be a valuable addition, but it shouldn’t be used to make the hiring decision. Instead, it should validate what you’re already seeing or uncover areas worth exploring further.

One of the biggest mistakes I see is organizations looking for an assessment to provide “the answer.” It won’t. What it will do is help you ask better questions, challenge assumptions, and make a more informed decision.

The most effective hiring processes combine assessments with structured interviews, relevant experience, work samples, and thoughtful reference checks.

Assessments for Team Building: Understanding How People Work Together

Many workplace challenges aren’t caused by a lack of talent but by differences in communication, work styles, and expectations. That’s where behavioral and personality assessments can make a real difference.

Some of my favorite moments are when someone says, “Now I understand why we keep missing each other.” Assessments don’t change who people are—they create a shared understanding that helps people work together more effectively.

When employees understand one another’s preferences and tendencies, they often:

• Communicate more effectively
• Build trust more quickly
• Reduce unnecessary conflict
• Clarify expectations
• Better leverage one another’s strengths

There are many excellent assessment tools available, each offering a different lens into workplace behavior. Some focus on communication styles, others on motivations, strengths, or conflict management. In my experience, the specific tool matters less than how the conversation unfolds afterward.

Avoiding Common Pitfalls

One of the greatest dangers of team assessments is oversimplification. People are complex, and no assessment fully captures an individual’s capabilities or potential.

Organizations should avoid statements such as:

• “That’s just how they are.”
• “They’re not suited for leadership because of their profile.”
• “We already have enough people with that personality type.”

Instead, assessments should encourage curiosity, build understanding, and open the door to more productive conversations.

Leadership Development: Building Self-Aware Leaders

Perhaps the most powerful application of assessments is leadership development.

The best leaders aren’t defined solely by technical expertise. They’re distinguished by self-awareness—the ability to understand how their behavior affects others and adapt their approach to different situations.

Leadership assessments can provide insight into areas such as:

• Emotional intelligence
• Leadership style
• Influence strategies
• Decision-making tendencies
• Communication effectiveness
• Change readiness
• Strategic thinking
• Potential derailment risks

These insights help leaders recognize both their strengths and their growth opportunities.

I’ve never seen an assessment change a leader on its own. Growth happens when someone is willing to reflect on the results, have honest conversations, and intentionally practice new behaviors.

Making Assessments Meaningful

When paired with coaching, leadership development, and ongoing feedback, assessments become a catalyst for meaningful growth rather than just another report sitting in a drawer.

Next month, I’ll share the specific assessment tools I recommend, what each measures, and when each makes the most sense. In the meantime, I’d love to hear from you. Is there an assessment you prefer—or one you don’t? Let me know, and I’ll include it in the conversation.

Yeo & Yeo, a leading Michigan-based accounting and advisory firm, announces the relocation of its Lansing office to East Lansing, Michigan, effective July 1, 2026.

The office is located in building six of the Eyde Park Professional Office Complex at 2843 Eyde Parkway, Suite 230, East Lansing, Michigan.

Founded in 1923, Yeo & Yeo expanded into the Lansing market in 1980 and continues to support organizations and businesses throughout Michigan with accounting, audit, tax, and a full range of connected services, including wealth management, technology, medical billing, and HR solutions. The East Lansing professionals serve a diverse client base locally and throughout Michigan, with specialized expertise and a longstanding focus on the nonprofit and real estate sectors.

“Our team is excited about this next chapter in East Lansing,” said Brad DeVries, Managing Principal. “We’ve built meaningful relationships across the Lansing area over the years, and this move allows us to continue serving our clients from a location that is accessible, welcoming, and well-connected to the community.”

The East Lansing office is home to ten professionals and represents an investment in Yeo & Yeo’s future in the Lansing area. East Lansing offers access to emerging talent, strong community connections, and a dynamic business environment near Michigan State University. The office features approximately 4,300 square feet of newly renovated space, including updated workspaces, meeting areas, and amenities that support collaboration and connection. The team previously operated from its 3,800-square-foot office in the Capital Commerce Center on Centennial Way.

“At Yeo & Yeo, we are focused on building for the future, for our clients and our professionals,” said Dave Youngstrom, President & CEO of Yeo & Yeo. “This move represents another step forward as we continue strengthening our presence across Michigan and investing in the long-term success of our teams.”

The relocation reflects Yeo & Yeo’s broader commitment to thoughtful growth. Recent investments include expanding its Ann Arbor office to accommodate Yeo & Yeo HR Advisory Solutions earlier this year and expanding in Troy last year. Together, these moves strengthen Yeo & Yeo’s ability to serve clients and communities throughout the state.

Yeo & Yeo, a leading Michigan-based accounting and advisory firm, has been selected as the 2026 Employer of the Year by the Michigan Career Educator & Employer Alliance (MCEEA). The award recognizes an employer organization’s outstanding contributions to promoting and sustaining high-quality internship and cooperative education programs, as well as career opportunities for students and emerging professionals across the state of Michigan.

The recognition reflects Yeo & Yeo’s longstanding commitment to developing future talent through hands-on internship experiences and strong partnerships with colleges and universities. Each year, the firm welcomes nearly 30 interns across its offices and service lines, providing meaningful exposure to careers in accounting and business advisory services. Through client work, mentorship, and professional development opportunities, interns gain valuable experience that helps prepare them for full-time careers.

Yeo & Yeo also invests in early talent development through its annual two-day Summer Leadership Program, which brings together 25 students to explore career opportunities while experiencing the firm’s culture. The program connects participants with firm leaders and professionals through workshops, networking, and educational sessions that provide insight into public accounting and potential future career paths.

“We are intentional about creating meaningful experiences for students, whether through internships, leadership programs, or campus engagement,” said Bill Stec, Manager of Recruitment & Campus Relations at Yeo & Yeo. “Our goal is to help students see what a career in this profession can look like and give them the support and confidence to succeed.”

Beyond early talent development, Yeo & Yeo places strong emphasis on creating an environment where all employees can thrive. The firm supports continual professional growth through a dedicated Learning and Development department that provides year-round training opportunities, while also investing in programs that strengthen connection and well-being, including personalized coaching through Boon Health, firm-wide appreciation events, and summer half-day Fridays that promote work-life balance. Together, these initiatives reflect Yeo & Yeo’s commitment to creating a workplace where employees feel supported both personally and professionally.

“At Yeo & Yeo, we know our success starts with our people,” said Dave Youngstrom, President & CEO. “Creating opportunities for students to learn and grow, while building a workplace where our entire team feels supported and connected, is an important part of who we are and how we continue to invest in the future.”

Awards were presented at the MCEEA Annual Conference at Crystal Mountain in Thompsonville, Mich., on June 16.

Leadership can feel lonely at times. You’re navigating challenges your team may not see, making decisions that carry weight, and balancing expectations from all directions. So where do you turn when you need advice, perspective, or just a reminder that you’re not alone? 

For many leaders, the answer is simple: peer groups. A peer group gives you a trusted circle of people who “get it”—leaders who are walking a similar path and who are willing to share honestly about the ups and downs of leadership. Here’s why that matters, and how peer groups can help you grow. 

Shared Experiences, Real Perspective 
Sometimes the best learning happens through stories. When you hear how another leader handled a tough employee conversation, navigated a change initiative, or overcame resistance, it can spark ideas you hadn’t considered.  

It’s Not Just You 
One of the most powerful benefits of a peer group is realizing you’re not the only one struggling with a particular issue. Every leader has moments of doubt or frustration, but those don’t always show up on the surface. In a peer group, the curtain gets pulled back. Suddenly, the challenge you’ve been carrying feels lighter, simply because you know others are carrying something similar. 

Honest Feedback You Can Use 
Feedback is critical, but let’s be honest—it’s not always easy to get. Your team may not feel comfortable giving it, and your boss may not see the full picture. A peer group fills that gap. Because peers are on equal footing, they tend to be candid and practical. They’ll tell you what they see, what they’ve tried, and where you might want to adjust. That kind of feedback is gold when you’re trying to grow. 

Building Emotional Intelligence 
Leading well isn’t just about what you do—it’s about how you connect with people. In peer groups, you practice listening, empathy, and perspective-taking in a very real way. You learn how to support others, challenge respectfully, and communicate in ways that build trust. Those same skills translate directly into stronger relationships with your team back at work. 

A Network That Lasts 
The connections built in peer groups often outlast the program itself. Leaders go on to mentor each other, collaborate on projects, or simply pick up the phone when they need to talk something through. That ongoing network is one of the most valuable outcomes of being part of a group. 

Accountability That Keeps You Growing 
It’s easy to set leadership goals after a workshop or training—but sticking with them over time is harder. A peer group provides the accountability and encouragement that make growth stick. When others are checking in on your progress and celebrating your wins, you’re far more likely to follow through. 

Bringing Peer Groups Into Your Leadership Journey 
If you’ve never been part of a peer group, it might feel a little uncomfortable at first. But the payoff is worth it. Look for groups that value confidentiality, meet regularly, and bring together leaders with diverse experiences. Most importantly, be willing to share honestly. The more open you are, the more you—and everyone else—will gain. 

Final Thoughts 
Leadership isn’t meant to be a solo journey. Peer groups offer leaders a powerful combination of perspective, accountability, and support that fuels both personal and professional growth. 

That’s why the AMPLIFY leadership development program incorporates peer group learning as a core element. Participants learn together, challenge each other, and build lasting connections beyond the program. If you’re ready to strengthen your leadership skills and grow within a supportive community.

Learn more and register here

Yeo & Yeo HR Advisory Solutions supports leaders and organizations at every stage. Learn more about our solutions.