Financial Literacy Month: Essential Strategies for Building a Stronger Financial Future for Individuals and Business Owners

April is Financial Literacy Month—a time to assess financial habits, set goals, and expand money management skills. From budgeting and investing to managing debt and planning ahead, strong financial knowledge empowers you to navigate challenges and seize opportunities.

No matter where you start, here are 10 strategies that can help you grow and secure your financial future:

Set Clear Financial Goals – Define short-term and long-term financial objectives, whether it’s buying a home, retiring early, or starting a business.
Create and Stick to a Budget – Track your income and expenses to ensure you’re saving and investing strategically.
Build an Emergency Fund – Having three to six months’ worth of expenses in savings can help you handle unexpected financial setbacks.
Invest Wisely – Diversify your investments to grow wealth over time while managing risk.
Minimize and Manage Debt – Focus on paying down high-interest debt first and avoid unnecessary borrowing.
Maximize Retirement Savings – Take advantage of employer-sponsored retirement plans or IRAs to build long-term financial security.
Develop Multiple Income Streams – Supplement your earnings through side businesses, investments, or passive income sources.
Prioritize Tax Planning – Work with a tax professional to maximize deductions and optimize your tax strategy.
Continuously Improve Financial Knowledge – Stay informed about market trends, investment opportunities, and personal finance strategies.
Seek Professional Guidance – Financial advisors, CPAs, and business consultants can provide insights tailored to your specific situation.

Take Charge of Your Financial Future

Financial literacy is a lifelong journey that requires continuous learning and smart decision-making. Whether you’re an individual looking to strengthen your personal finances or a business owner seeking sustainable growth, taking proactive steps toward financial well-being can lead to long-term success.

At Yeo & Yeo, we are committed to empowering individuals and businesses with the financial knowledge and strategies needed to build a stronger future. This Financial Literacy Month, take the time to evaluate your financial health and implement changes that will set you on the path to success.

For federal income tax purposes, the general rule is that rental real estate losses are passive activity losses (PALs). An individual taxpayer can generally deduct PALs only to the extent of passive income from other sources, if any. For example, if you have positive taxable income from other rental properties, that generally counts as passive income. You can use PALs to offset passive income from other sources, which amounts to being able to currently deduct them.

Unfortunately, many rental property owners have little or no passive income in most years. Excess rental real estate PALs for the year (PALs that you cannot currently deduct because you don’t have enough passive income) are suspended and carried forward to future years. You can deduct suspended PALs when you finally have enough passive income or when you sell the properties that generated the PALs.

Exception for professionals

Thankfully, there’s a big exception to the general rule that you must have positive passive income to currently deduct rental losses. If you qualify for the exception, a rental real estate loss can be classified as a non-passive loss that can usually be deducted currently.

This exception allows qualifying individual taxpayers to currently deduct rental losses even if they have no passive income. To be eligible for the real estate professional exception:

You must spend more than 750 hours during the year delivering personal services in real estate activities in which you materially participate, and
Those hours must be more than half the time you spend delivering personal services (in other words, working) during the year.

If you can clear these hurdles, you qualify as a real estate professional. The next step is determining if you have one or more rental properties in which you materially participate. If you do, losses from those properties are treated as non-passive losses that you can generally deduct in the current year. Here’s how to pass the three easiest material participation tests for a rental real estate activity:

Spend more than 500 hours on the activity during the year.
Spend more than 100 hours on the activity during the year and make sure no other individual spends more time than you.
Make sure the time you spend on the activity during the year constitutes substantially all the time spent by all individuals.

If you don’t qualify

Obviously, not everyone can pass the tests to be a real estate professional. Thankfully, some other exceptions may potentially allow you to treat rental real estate losses as currently deductible non-passive losses. These include the:

Small landlord exception. If you qualify for this exception, you can treat up to $25,000 of rental real estate loses as non-passive. You must own at least 10% of the property generating the loss and actively participate with respect to that property. Properties owned via limited partnerships don’t qualify for this exception. To pass the active participation test, you don’t need to do anything more than exercise management control over the property in question. This could include approving tenants and leases or authorizing maintenance and repairs. Be aware that this exception is phased out between adjusted gross incomes (AGIs) of $100,000 and $150,000.

Seven-day average rental period exception. When the average rental period for a property is seven days or less, the activity is treated as a business activity. If you can pass one of the material participation tests, losses from the activity are non-passive.

30-day average rental period exception. The activity is treated as a business activity when the average rental period for a property is 30 days or less and significant personal services are provided to customers by or on behalf of you as the property owner. If you can pass one of the material participation tests, losses from the activity are non-passive.

Utilize all tax breaks

As you can see, various taxpayer-friendly rules apply to owners of rental real estate, including the exceptions to the PAL rules covered here. We can help you take advantage of all available rental real estate tax breaks.

Financial statements tell a powerful story about your business. However, they can seem like an overwhelming collection of figures without proper analysis. Financial benchmarking studies can help you identify historical trends, pinpoint areas for improvement and forecast future performance with greater confidence.

Gauging profitability

Profitability ratios help evaluate how effectively a company generates profits from its revenue. These metrics are crucial in assessing operating performance and the effects of economic or industry forces. Examples of key profitability ratios are:

Gross margin. This ratio is the percentage of revenue remaining after deducting the cost of goods sold; it reflects how effectively a company controls direct costs, such as materials and labor.

Net profit margin. This shows how much of each dollar in revenue turns into net income after all expenses, including taxes and interest.

Earnings per share. Investors often use this metric, which assesses profitability on a per-share basis, to gauge a company’s operating performance.

Beyond these top-level indicators, a deeper dive into individual income statement line items can provide additional insights into financial performance and cost control. Key operating expenses to evaluate include rent, payroll, commissions, owners’ compensation, utilities and interest.

Optimizing resources

Liquidity refers to a company’s ability to meet short-term obligations. Commonly used liquidity ratios include:

Current ratio, or the ratio of current assets to current liabilities,
Quick ratio, which only considers cash and other assets that you can readily liquidate, such as accounts receivable,
Days in receivables outstanding, which estimates the average collection period for credit sales, and
Days in inventory, which estimates the average time it takes to sell a unit of inventory.

It’s also important to consider long-term assets, such as equipment, with the total asset turnover. This ratio tells how many dollars in revenue a company generates from each dollar invested in assets. It’s particularly relevant for capital-intensive businesses that invest heavily in equipment, property and other long-term assets. Striking the right balance between lean operations and maintaining enough working capital to meet customer demand and supplier expectations is critical to long-term success.

Balancing financial leverage

Debt can be a powerful tool for growth, but excessive amounts can expose a company to financial distress. Debt management ratios help businesses assess their ability to handle existing obligations and determine whether they can responsibly borrow more money. Some short-term leverage metrics include:

Times interest earned. This ratio evaluates a company’s ability to cover its interest payments with earnings before interest and taxes.

Debt service coverage. This metric compares available cash flow to total debt obligations, providing a broader picture of a company’s repayment capacity than the times interest earned ratio.

For long-term stability, companies must also monitor the debt-to-equity ratio, which reflects how much of their assets are financed through long-term debt versus shareholder equity. Businesses seeking financing must carefully analyze these metrics to understand how lenders might perceive their financial health.

Putting ratios in context

Comparing current results to historical performance can reveal whether a company is improving or facing new financial challenges. Benchmarking against industry averages provides a broader perspective, helping business owners understand how they measure up to competitors. Similarly, comparing financial ratios to peer businesses of similar size and structure can highlight potential inefficiencies and competitive advantages.

To make the most of financial benchmarks, consider creating a financial scorecard based on year-end financials and updating it regularly using preliminary numbers. This approach provides a proactive way to track financial performance throughout the year, make informed decisions and address minor issues before they become major problems.

Maximizing your business’s potential

Many business owners and managers struggle to extract meaningful insights from their balance sheets, income statements and cash flow reports. However, interpreting financial data doesn’t have to be overwhelming. Contact us to explore the right metrics for your business and discover how you can transform raw data into a strategic roadmap for success.

Financial statements can fascinate accountants, investors and lenders. However, for business owners, they may not be real page-turners.

The truth is each of the three parts of your financial statements is a valuable tool that can guide you toward reasonable, beneficial business decisions. For this reason, it’s important to get comfortable with their respective purposes.

The balance sheet

The primary purpose of the balance sheet is to tally your assets, liabilities and net worth, thereby creating a snapshot of your business’s financial health during the statement period.

Net worth (or owners’ equity) is particularly critical. It’s defined as the extent to which assets exceed liabilities. Because the balance sheet must balance, assets need to equal liabilities plus net worth. If the value of your company’s liabilities exceeds the value of its assets, net worth will be negative.

In terms of operations, just a couple of balance sheet ratios worth monitoring, among many, are:

Growth in accounts receivable compared with growth in sales. If outstanding receivables grow faster than the rate at which sales increase, customers may be taking longer to pay. They may be facing financial trouble or growing dissatisfied with your products or services.

Inventory growth vs. sales growth. If your business maintains inventory, watch it closely. When inventory levels increase faster than sales, the company produces or stocks products faster than they’re being sold. This can tie up cash. Moreover, the longer inventory remains unsold, the greater the likelihood it will become obsolete.

Growing companies often must invest in inventory and allow for increases in accounts receivable, so upswings in these areas don’t always signal problems. However, jumps in inventory or receivables should typically correlate with rising sales.

Income statement

The purpose of the income statement is to assess profitability, revenue generation and operational efficiency. It shows sales, expenses, and the income or profits earned after expenses during the statement period.

One term that’s commonly associated with the income statement is “gross profit,” or the income earned after subtracting cost of goods sold (COGS) from revenue. COGS includes the cost of labor and materials required to make a product or provide a service. Another important term is “net income,” which is the income remaining after all expenses — including taxes — have been paid.

The income statement can also reveal potential problems. It may show a decline in gross profits, which, among other things, could mean production expenses are rising more quickly than sales. It may also indicate excessive interest expenses, which could mean the business is carrying too much debt.

Statement of cash flows

The purpose of the statement of cash flows is to track all the sources (inflows) and recipients (outflows) of your company’s cash. For example, along with inflows from selling its products or services, your business may have inflows from borrowing money or selling stock. Meanwhile, it undoubtedly has outflows from paying expenses, and perhaps from repaying debt or investing in capital equipment.

Although the statement of cash flows may seem similar to the income statement, its focus is solely on cash. For instance, a product sale might appear on the income statement even though the customer won’t pay for it for another month. But the money from the sale won’t appear as a cash inflow until it’s collected.

By analyzing your statement of cash flows, you can assess your company’s ability to meet its short-term obligations and manage its liquidity. Perhaps most importantly, you can differentiate profit from cash flow. A business can be profitable on paper but still encounter cash flow issues that leave it unable to pay its bills or even continue operating.

Critical insights

You can probably find more exciting things to read than your financial statements. However, you won’t likely find anything more insightful regarding how your company is performing financially. We can help you not only generate best-in-class financial statements, but also glean the most valuable information from them.

With the federal gift and estate tax exemption amount set at $13.99 million for 2025, most people won’t be liable for these taxes. However, capital gains tax on inherited assets may cause an unwelcome tax bite.

The good news is that the stepped-up basis rules can significantly reduce capital gains tax for family members who inherit your assets. Under these rules, when your loved one inherits an asset, the asset’s tax basis is adjusted to the fair market value at the time of your death. If the heir later sells the asset, he or she will owe capital gains tax only on the appreciation after the date of death rather than on the entire gain from when you acquired it.

Primer on capital gains tax

When assets such as securities are sold, any resulting gain generally is a taxable capital gain. The gain is taxed at favorable rates if the assets have been owned for longer than one year. The maximum tax rate on a long-term capital gain is 15% but increases to 20% for certain high-income individuals.

Conversely, a short-term capital gain is taxed at ordinary income tax rates as high as 37%. Gains and losses are accounted for when filing a tax return, so high-taxed gains may be offset wholly or partially by losses.

The amount of a taxable gain is equal to the difference between the basis of the asset and the sale price. For example, if you acquire stock for $10,000 and then sell it for $50,000, your taxable capital gain is $40,000.

These basic rules apply to capital assets owned by an individual and sold during his or her lifetime. However, a different set of rules applies to inherited assets.

How stepped-up basis works

When assets are passed on through inheritance, there’s no income tax liability until the assets are sold. For these purposes, the basis for calculating gain is “stepped up” to the value of the assets on the date of your death. Thus, only the appreciation in value since your death is subject to tax because the individual inherited the assets. The appreciation during your lifetime goes untaxed.

Securities, artwork, bank accounts, business interests, investment accounts, real estate and personal property are among the assets affected by the stepped-up basis rules. However, these rules don’t apply to retirement assets such as 401(k) plans or IRAs.

To illustrate the benefits, let’s look at a simplified example. Dan bought XYZ Corp. stock 10 years ago for $100,000. In his will, he leaves all the XYZ stock to his daughter, Alice. When Dan dies, the stock is worth $500,000. Alice’s basis is stepped up to $500,000.

When Alice sells the stock two years later, it’s worth $700,000. She must pay the maximum 20% rate on her long-term capital gain. On these facts, Alice has a $200,000 gain. With the 20% capital gains rate, she owes $40,000. Without the stepped-up basis, her tax on the $600,000 gain would be $120,000.

What happens if an asset declines in value after the deceased acquired it? The adjusted basis of the asset the individual inherits is still the value on the date of death. This could result in a taxable gain on a subsequent sale if the value rebounds after death, or a loss if the asset’s value continues to decline.

Turn to us for help

Without the stepped-up basis rules, your beneficiaries could face much higher capital gains taxes when they sell their inherited assets. If you have questions regarding these rules, please contact us.

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

The Best and Brightest program identifies and honors organizations that excel in their human resource practices and employee enrichment. An independent research firm assesses organizations in categories such as communication, work-life balance, employee education, recognition, retention, and more.

Yeo & Yeo has experienced significant growth in the past year, welcoming the professionals from Berger, Ghersi & LaDuke PLC, and Amy Cell Talent to the firm. These strategic additions have strengthened the firm’s capabilities and expanded its talent, bringing the team to more than 250 professionals across Michigan. Through this growth, Yeo & Yeo remains focused on ensuring its people have the tools and support they need to thrive.

Yeo & Yeo takes pride in creating an environment that challenges, supports, and rewards its people. The firm offers an award-winning CPA certification bonus program, an award-winning wellness program, gold-standard benefits, and hybrid and remote work capabilities.

“Receiving this recognition year after year is an incredible achievement and a reflection of the culture we’ve built together,” said David Jewell, Managing Principal of the firm’s Kalamazoo office. “As Yeo & Yeo continues to grow — welcoming new teams and expanding our capabilities — it’s more important than ever to stay focused on supporting our people at every stage of their careers. Whether through professional development opportunities, flexibility to support work-life balance, or fostering a collaborative environment where every voice is heard, we remain dedicated to putting our people first.”

The select companies will be honored on Wednesday, May 21, 2025, at The Pinnacle Center in Hudsonville, Michigan.

Yeo & Yeo is pleased to welcome Kevin Bouma, CPA, to the firm as a Nonprofit Consulting Manager. Bouma brings more than 25 years of experience in public and private accounting, with a strong background in nonprofit financial management, internal controls, and strategic consulting.

“Nonprofits need advisors who truly understand the complexities of their world, and Kevin brings that firsthand experience,” said David Jewell, CPA, Principal and Tax & Consulting Service Line Leader. “He has a proven ability to bridge financial strategy with mission-driven goals and will bring great insights to our team and clients.”

Bouma has held leadership roles in several nonprofit organizations, including serving as Chief Financial Officer and Director of Finance and Operations. His specialized experience includes conducting internal control studies, developing and analyzing budgets, reviewing policies and procedures, and providing strategic financial consulting. He also has extensive experience in nonprofit board and stakeholder reporting, ensuring organizations maintain financial transparency and accountability. With a passion for helping mission-driven organizations thrive, Bouma is dedicated to equipping nonprofit leaders with the financial insights and strategies they need to strengthen their operations and maximize their impact.

Bouma is a member of the American Institute of Certified Public Accountants and the Michigan Association of Certified Public Accountants. He holds a Master of Business Administration in Accounting from Indiana Wesleyan University. Based in the firm’s Kalamazoo office, Bouma serves clients throughout Michigan.

“After years of working inside nonprofit organizations, I’m excited to return to public accounting,” Bouma said. “I understand the financial and operational hurdles nonprofits navigate every day, and I look forward to working with organizations that are making a difference in their communities.”

Staying compliant with payroll tax laws is crucial for small businesses. Mistakes can lead to fines, strained employee relationships and even legal consequences. Below are six quick tips to help you stay on track.

1. Maintain organized records

Accurate recordkeeping is the backbone of payroll tax compliance. Track the hours worked, wages paid and all taxes withheld. Organizing your documentation makes it easier to verify that you’re withholding and remitting the correct amounts. If you ever face an IRS or state tax inquiry, having clear, detailed records will save time and reduce stress.

2. Understand federal withholding

Federal income tax. Employees complete Form W-4 so you can determine how much federal income tax to withhold. The amounts can be calculated using IRS tax tables.
FICA taxes (Social Security and Medicare). Your business is responsible for withholding a set percentage from each employee’s wages for Social Security and Medicare, and you must match that amount as an employer. The current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee (12.4% total). Taxpayers only pay Social Security tax up to a wage base limit. For 2025, the wage base limit is $176,100. The current rate for Medicare tax is 1.45% for the employer and 1.45% for the employee (2.9% total). There’s no wage base limit for Medicare tax. All wages are subject to it.

3. Don’t overlook employer contributions

Depending on your state and industry, you may need to contribute additional taxes beyond those withheld from employee paychecks.

Federal Unemployment Tax Act (FUTA) tax. Employers pay FUTA tax to fund unemployment benefits.
State unemployment insurance. Requirements vary by state, so consult your state’s labor department for details. You can also find more resources at the U.S. Department of Labor.

4. Adhere to filing and deposit deadlines

Deposit schedules. Your deposit frequency for federal taxes (monthly or semi-weekly) depends on the total amount of taxes withheld. Missing a deadline can lead to penalties and interest charges.
Quarterly and annual filings. You must submit forms like the 941 (filed quarterly) and the 940 (filed annually for FUTA tax) on time, with any tax due.

Under the Trust Fund Recovery Penalty, a “responsible person” who willfully fails to withhold or deposit employment taxes can be held personally liable for a steep penalty. The penalty is equal to the full amount of the unpaid trust fund tax, plus interest. For this purpose, a responsible person can be an owner, officer, partner or employee with authority over the funds of the business.

5. Stay current with regulatory changes

Tax laws are never static. The IRS and state agencies update requirements frequently, and new legislation can introduce additional obligations. A proactive approach helps you adjust payroll systems or processes in anticipation of changes, rather than scrambling at the last minute.

6. Seek professional advice

No matter how meticulous your business is, payroll taxes can be complex. We can provide guidance specific to your industry and location. We can help you select the right payroll system, calculate employee tax withholding, navigate multi-state filing requirements and more. In short, we can help ensure that every aspect of your payroll is set up correctly.

Most employers recognize the importance of regularly scheduled performance reviews. The challenge is how to administer them.

There are two general approaches: numerical and narrative. If you believe your organization’s performance review process has room for improvement, don’t hesitate to take a step back and reevaluate.

Going by the numbers

Numerical performance reviews are purely analytical. For each employee, supervisors assign a score or rating to various performance descriptors such as:

Demonstrates knowledgeability of position,
Meets productivity expectations,
Communicates effectively with colleagues, and
Adheres to deadlines.

Supervisors then calculate scores by averaging ratings across multiple criteria or weighting them statistically based on importance. Some employers develop standardized rubrics to ensure consistency.

The primary advantage of numerical reviews is they’re quantifiable. They allow the organization to easily and efficiently analyze employee performance, spot trends, and identify areas of improvement during the review period. Numerical reviews may make sense for sales positions, which are largely metrics-driven anyway, and for large teams where everyone does the same job.

The main disadvantage is that, for many positions, numbers alone don’t capture the full scope of what employees do. For instance, jobs centered on creativity and innovation may not always show pronounced signs of productivity. Also, the wording of criteria and how supervisors score workers may be subject to bias. Some employees resent numerical reviews for these reasons or others.

Using your words

True to their name, narrative performance reviews tell the story in writing of how employees performed during the review period — noting accomplishments, highlighting strengths and identifying areas of improvement. The objective is to provide a comprehensive assessment tailored to each worker’s distinctive background, experience and situation.

Narrative reviews have notable advantages. First, employees receive specific descriptive feedback on their performance rather than just a score or rating, which may be vague or easily misinterpreted. These reviews typically encourage professional development because they explicitly tell employees what they’re doing right and how to improve. Narrative reviews are also widely regarded for strengthening engagement because workers feel more valued when their contributions are put into words instead of reduced to numbers.

Of course, narrative reviews have potential downsides. They’re much more time consuming and labor intensive for supervisors. Whereas numerical reviews can be largely or wholly calculated by software, narrative reviews require human input and effort.

Also, narrative reviews make it difficult to compare employees’ performances from review period to review period and may hamper an employer’s ability to spot larger trends. And there’s the ever-present issue of subjectivity: Because narrative reviews rely on the supervisor’s perspective and skill at performance evaluation, they can be biased, confusing or inaccurate.

Devising a hybrid approach

One recent survey demonstrates the difficulty many employers face in choosing the optimal approach. In July 2024, the Academy of Management published a study entitled The Power of Words: Employee Responses to Numerical vs. Narrative Performance Feedback. It contained survey results of 1,600 U.S. workers that found “narrative-only feedback was generally perceived as the fairest” and often increased employees’ motivation to improve at their jobs.

“Great!” you might say. “Let’s go with narrative.” Not so fast — the survey also found that numerical reviews or a hybrid approach were viewed as fairer “when the feedback was extremely positive or when recipients were informed about associated monetary outcomes.”

Perhaps the only thing that’s clear is you and your leadership team must consciously address the right performance review approach to arrive at a reasonable strategy customized to your organization’s size, mission and demographics. Devising a hybrid approach may be best in many cases. Alternatively, you could opt for numerical or narrative, depending on the purpose of the department or team.

Reaping the rewards

A well-crafted and deftly executed review process appeals to job candidates, strengthens employee engagement and retention, and drives productivity. Please contact us for help identifying and analyzing all your organization’s costs associated with performance management.

Yeo & Yeo, a leading Michigan-based accounting and advisory firm, is proud to celebrate the 10th anniversary of its successful partnership with ProNexus, a non-attest professional services provider offering a suite of services within the accounting and finance arena. Over the past decade, working with ProNexus has expanded Yeo & Yeo’s ability to connect clients with alternative solutions in accounting and finance while driving the firm’s growth into additional services.

The partnership began in March 2015, when Yeo & Yeo identified a growing need among its clients for professional services support above and beyond what the firm was currently providing. By teaming up with ProNexus Michigan partners Donald Gavagan and Jeff Cyr—both seasoned professionals with more than 20 years of industry expertise—Yeo & Yeo strengthened its ability to assist clients within their finance and accounting functions via the ProNexus suite of services, which includes consulting, project support, and interim and loan staff services.

“What started as a way to provide alternative solutions for our clients has grown into something much more impactful,” said Yeo & Yeo President & CEO Dave Youngstrom. “The partnership with ProNexus has been instrumental in helping our clients navigate an increasingly challenging business environment, ensuring they have access to a suite of solutions when they need them most.”

Yeo & Yeo continues to evolve to meet the changing needs of its clients. In January 2025, the firm expanded its services by acquiring Amy Cell Talent and launching Yeo & Yeo HR Advisory Solutions (YYHR), its fifth entity.

With the addition of YYHR, Yeo & Yeo now provides a comprehensive range of HR and recruiting services, including compensation planning, employee training and coaching, policy development, payroll management, employee engagement and retention strategies, and talent acquisition.

“Through our partnership with ProNexus and the recent addition of YYHR, we’re able to offer a diverse suite of client-focused solutions tailored to the evolving challenges businesses face today,” Youngstrom said. “Looking ahead, we’re excited to continue growing our capabilities and ensuring our clients have access to the best possible solutions for their HR and resourcing needs.”

Will your company be ready to add a health insurance plan for next year, or change its current one? If so, now might be a good time to consider your options. These things take time.

A popular benefits model for many small to midsize businesses is sponsoring a high-deductible health plan (HDHP) accompanied by employee Health Savings Accounts (HSAs). Like any such strategy, however, this one has its pluses and minuses.

Ground rules

HSAs are participant-owned, tax-advantaged accounts that accumulate funds for eligible medical expenses. To own an HSA, participants must be enrolled in an HDHP, have no other health insurance and not qualify for Medicare.

In 2025, an HDHP is defined as a plan with at least a $1,650 deductible for self-only coverage or $3,300 for family coverage. Also in 2025, participants can contribute pretax income of up to $4,300 for self-only coverage or $8,550 for family coverage. (These amounts are inflation-adjusted annually, so they’ll likely change for 2026.) Those age 55 or older can make additional catch-up contributions of $1,000.

Companies may choose to make tax-deductible contributions to employees’ HSAs. However, the aforementioned limits still apply to combined participant and employer contributions.

Participants can make tax-free HSA withdrawals to cover qualified out-of-pocket medical expenses, such as physician and dentist visits. They may also use their account funds for copays and deductibles, though not to pay many types of insurance premiums.

Pluses to ponder

For businesses, the “HDHP + HSAs” model offers several pluses. First, HDHPs generally have lower premiums than other health insurance plans — making them more cost-effective. Plus, as mentioned, your contributions to participants’ HSAs are tax deductible if you choose to make them. And, overall, sponsoring health insurance can strengthen your fringe benefits package.

HSAs also have pluses for participants that can help you “sell” the model when rolling it out. These include:

Participants can lower their taxable income by making pretax contributions through payroll deductions,
HSAs can include an investment component that may include mutual funds, stocks and bonds,
Account earnings accumulate tax-free,
Withdrawals for qualified medical expenses aren’t subject to tax, and the list of eligible expenses is extensive,
HSA funds roll over from year to year (unlike Flexible Spending Account funds), and
HSAs are portable; participants maintain ownership and control of their accounts if they change jobs or even during retirement.

In fact, HSAs are sometimes referred to as “medical IRAs” because these potentially valuable accounts are helpful for retirement planning and have estate planning implications as well.

Minuses to mind

The HDHP + HSAs model has its minuses, too. Some employees may strongly object to the “high deductible” aspect of HDHPs.

Also, if not trained thoroughly, participants can misuse their accounts. Funds used for nonqualified expenses are subject to income taxes. Moreover, the IRS will add a 20% penalty if an account holder is younger than 65. After age 65, participants can withdraw funds for any reason without penalty, though withdrawals for nonqualified expenses will be taxed as ordinary income.

Expenses are another potential concern. HSA providers (typically banks and investment firms) may charge monthly maintenance fees, transaction fees and investment fees (for accounts with an investment component). Many companies cover these fees under their benefits package to enhance the appeal of HSAs to employees.

Finally, HSAs can have unexpected tax consequences for account beneficiaries. Generally, if a participant dies, account funds pass tax-free to a spouse beneficiary. However, for other types of beneficiaries, account funds will be considered income and immediately subject to taxation.

Powerful savings vehicle

The HDHP + HSAs model helps businesses manage insurance costs, shifts more of medical expense management to participants, and creates a powerful savings vehicle that may attract job candidates and retain employees. But that doesn’t mean it’s right for every company. Please contact us for help assessing its feasibility, as well as identifying the cost and tax impact.

The twisty journey of the Corporate Transparency Act’s (CTA’s) beneficial ownership information (BOI) reporting requirements has taken yet another turn. Following a February 18, 2025, ruling by a federal district court (Smith v. U.S. Department of the Treasury), the requirements are technically back in effect for covered companies. But a short time later, the U.S. Department of the Treasury announced it would suspend enforcement of the CTA against domestic reporting companies and U.S. citizens. Here are the latest developments and what they may mean for you.

Latest announcement

On March 2, the Treasury Department stated the following in a press release: “The Treasury Department is announcing today that, with respect to the Corporate Transparency Act, not only will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either. The Treasury Department will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only. Treasury takes this step in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest.”

The reinstatement

On January 23, 2025, the U.S. Supreme Court granted the government’s motion to stay, or halt, a nationwide injunction issued by a federal court in Texas (Texas Top Cop Shop, Inc. v. Bondi). But a separate nationwide order from the Smith court was still in place until February 18, 2025, so the reporting requirements remained on hold. With that order now stayed, the new deadline to file a BOI report with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is technically March 21, 2025.

Reporting companies that were previously given a reporting deadline later than this deadline are required to file their initial BOI report by the later deadline. For example, if a company’s reporting deadline is in April 2025 because it qualifies for certain disaster relief extensions, it’s allowed to follow the April deadline rather than the March deadline.

Important: Due to ongoing litigation in another federal district court (National Small Business United v. Yellen), members of the National Small Business Association as of March 1, 2024, aren’t currently required to report their BOI to FinCEN.

BOI requirements in a nutshell

The BOI requirements are intended to help prevent criminals from using businesses for illicit activities, such as money laundering and fraud hidden through shell companies or other opaque ownership structures. Companies covered by the requirements are referred to as “reporting companies.”

Such businesses have been reporting certain identifying information on their beneficial owners. FinCEN estimated that approximately 32.6 million companies would be affected by the reporting rules in the first year.

Beneficial owners are defined as natural persons who either directly or indirectly 1) exercise substantial control over a reporting company, or 2) own or control at least 25% of a reporting company’s ownership interests. Individuals who exercise substantial control include senior officers, important decision makers, and those with authority to appoint or remove certain officers or a majority of the company’s governing body.

For each beneficial owner, under the requirements, a reporting company must provide the individual’s:

Name,
Date of birth,
Residential address, and
Identifying number from an acceptable identification document, such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of the identification document.

A reporting company also must submit an image of the identification document.

BOI reporting isn’t an annual obligation. However, companies must report any changes to the required information previously reported about their businesses or beneficial owners. Updated reports are due no later than 30 days after the date of the change.

Stay tuned

The temporary stay of the injunction in the Smith case applies only until the U.S. Court of Appeals for the Fifth Circuit rules on FinCEN’s appeal of the lower court’s original injunction order in that case. The appeal was filed on February 5, 2025. Additional challenges are also proceeding in other courts. It’s also possible that Congress will pass legislation to repeal the BOI requirements.

Meanwhile, the March 2 Treasury announcement appears to ease compliance concerns for domestic companies. However, FinCEN will continue to enforce requirements for foreign reporting companies. Contact us if you have questions about your situation.

Victims of presidentially declared disasters in recent years who couldn’t previously claim a casualty loss deduction may now be able to claim a refund. Additional tax relief also might be available. Read on to learn more about the potential opportunities for victims of certain disasters.

Loosened restrictions for casualty losses

The tax relief comes via the Federal Disaster Tax Relief Act (FDTRA), which was signed into law by former President Biden in December 2024. Among other things, the law makes it easier to claim a deduction for qualified disaster-related personal casualty losses during a specific time period.

Previously, you could claim such a deduction only if you itemized your deductions. It was further limited by a $100 reduction per loss, and you were allowed to deduct only the amount of the loss that exceeded 10% of your adjusted gross income. The so-called 10% rule was applied after the $100 reduction.

Under the FDTRA, those restrictions no longer apply if you suffered a casualty loss attributable to a presidentially declared disaster (referred to as a “qualified disaster loss”) that began on or after December 28, 2019, and on or before December 12, 2024, and ended no later than January 11, 2025. (Note that this relief doesn’t apply to the 2025 California wildfires. See “Wildfire relief” below for information on other relief available to the victims of those and other more recent fires.)

In addition, the president must have made the disaster declaration between January 1, 2020, and February 10, 2025. The limit for such losses is that each separate casualty loss is deductible only after it exceeds $500.

Be aware that casualty losses are generally deductible in the year the loss is incurred. For example, if a qualified disaster occurred in 2022, but your insurance company didn’t deny your related claim until 2024, you’d deduct the loss for 2024. But you now have the option to deduct any loss attributable to a presidentially declared disaster in the tax year prior to the occurrence.

Wildfire relief

The FDTRA provides that “qualified wildfire relief payments” — including those made to Los Angeles County taxpayers affected by the 2025 California wildfires — can be excluded from gross income for tax purposes. It’s been estimated that this provision will return $512 million in taxes to wildfire victims. And it’ll protect payment recipients from losing certain income-based benefits, such as health insurance premium subsidies, Veterans Administration co-pay assistance and federal student aid.

The exclusion applies to any amount received by, or on behalf of, an individual as compensation for losses, expenses or damages, including for:

Additional living expenses,
Lost wages, other than compensation for lost wages paid by the employer which otherwise would have paid those wages,
Personal injury,
Death, and
Emotional distress.

The compensation must have been granted for a federally declared disaster that was declared after December 31, 2014, as the result of a forest or range fire. The payments must be received during tax years beginning after December 31, 2019, and before January 1, 2026. Compensation from insurance and other reimbursements doesn’t qualify for the exclusion.

The law prohibits double-dipping. You can’t claim a deduction or credit for any expense excluded from income under the provision. And, if you use excluded qualified payments to purchase or improve property, you may not increase your basis or adjusted basis in the property by the excluded amount.

The IRS is also providing some relief related to filing deadlines for individuals and households that reside or have a business in Los Angeles County and were affected by wildfires and straight-line winds that began on January 7, 2025. These taxpayers have until October 15, 2025, to file various federal individual and business tax returns and make tax payments.

The new deadline applies to individual income tax returns and payments normally due on April 15, 2025. This relief also applies to the 2024 estimated tax payment that was due on January 15, 2025, and estimated tax payments normally due on April 15, June 16, and September 15, 2025.

It also applies to:

Quarterly payroll and excise tax returns normally due on January 31, April 30, and July 31, 2025,
Calendar-year partnership and S corporation returns normally due on March 17, 2025,
Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2025, and
Calendar-year tax-exempt organization returns normally due on May 15, 2025.

East Palestine train derailment relief

The FDTRA also extends relief to victims of the train derailment on February 3, 2023, in East Palestine, Ohio. “East Palestine Train Derailment Payments” can be excluded from gross income.

The payments include any amount received by, or on behalf of, an individual as derailment-related compensation for:

Loss,
Damages,
Expenses,
Loss in real property value,
Closing costs related to real property (including realtor commissions), and
Inconvenience (including access to real property).

The compensation must have come from a federal, state or local government agency, Norfolk Southern Railway, or any subsidiary, insurer or agent of Norfolk Southern Railway.

Next steps for taxpayers

If you’re claiming any of the benefits under the FDTRA for a tax year for which you’ve already filed a tax return without claiming the benefits, you’ll need to file an amended return. We can file your amended return electronically if you’re amending a return for the current or prior two tax periods.

You must file Form 1040-X, Amended U.S. Individual Income Tax Return, on paper to amend your return if 1) the amended return is for earlier years, or 2) your prior year return was originally filed on paper during the current processing year. If you file your amended return electronically, you can elect to have any refund directly deposited into a U.S. financial institution account. Contact us with any questions and to prepare an amended return for you.

Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), employers with 20 or more employees that sponsor a group health insurance plan must offer “continuation coverage.” That means if employees leave their jobs for certain reasons, the organization must generally offer them ongoing health coverage for 18 months, though extensions sometimes apply.

If your organization meets the criteria and has been operating for a while, you’ve probably had to offer and administer COBRA coverage. Doing so can be challenging, so staying sharp on your responsibilities is important. Let’s look at a couple issues that many employers grapple with: providing notices and requesting “COBRA releases.”

Providing notice

With COBRA coverage such a routine part of the employment landscape, it’s easy for employers’ processes for issuing and tracking COBRA notices to grow lax.

Under the law, you must notify your plan administrator of a departing employee’s eligibility for COBRA within 30 days of the individual’s last day of work. The administrator then has 14 days to notify the employee of their right to elect COBRA coverage.

Thus, if your organization both sponsors and administers its health insurance plan, you have up to 44 days to give participants (or, in the case of death, their beneficiaries) notice of their COBRA coverage rights following a “qualifying event.” These include (but aren’t limited to):

Voluntary or involuntary termination for reasons other than gross misconduct,
A reduction in hours,
Death of the covered employee, and
Divorce.

If a plan administrator fails to provide the required COBRA notice, it may be personally liable to such participant or beneficiary for up to $110 per day from the day of such failure.

Beyond the statutory penalty, lawsuits are another major risk for employers. If a former employee claims to have never received a COBRA notice, you’ve got to be able to prove otherwise. Be sure to keep careful records of when you mail COBRA notices and evidence that you did so. You may send COBRA notices electronically, but special rules apply — including obtaining each recipient’s consent.

Requesting a release

Lawsuits are a particularly acute risk when employees are terminated, laid off or have their hours reduced. To mitigate this risk, some employers may consider asking departing employees to sign a release of employment-related claims against the organization as part of the process.

First things first, you can’t require affected employees to sign such a release to obtain COBRA coverage. You can, however, incentivize them to do so.

For example, your organization could offer to pay all or a portion of the COBRA premium for some or all of the coverage period in exchange for a release of claims. Or your organization could offer other non-COBRA coverage to induce a departing employee not to elect COBRA. For instance, you could offer a choice between:

Receiving COBRA coverage with full responsibility for the COBRA premium, or
Waiving COBRA coverage in exchange for four months of alternative coverage fully paid by your organization but expressly conditioned on the employee signing a release of employment claims.

Even if employees accept the offer of alternative coverage, they’ll retain the right to elect COBRA until the 60-day COBRA election period expires. So, the arrangement can’t be considered final until then.

In addition, employees must still receive full information about their COBRA rights through the notice. If they don’t, the waiver of COBRA coverage at the end of the election period may be treated as invalid. When the alternative coverage terminates at the end of the specified period, you don’t have to offer the employee another COBRA election.

If you’re intrigued by the concept of a COBRA release, discuss it with your attorney. Additional rules and details may apply.

Being responsible

A robust and competitive group health insurance plan has become a fundamental fringe benefit for employers of all types and sizes. For better or worse, COBRA coverage and all its associated responsibilities often come with it. Contact us for help identifying and analyzing all the costs associated with your organization’s benefits.

Many industries have undergone monumental changes over the last decade or so. Broadly, there are two ways to adapt to the associated challenges: slowly or quickly.

Although there’s much to be said about small, measured responses to economic change, some companies might want to undertake a more urgent, large-scale revision of their operations. This is called a “business transformation” and, under the right circumstances, it can be a prudent move.

Defining the concept

A business transformation is a strategically planned modification of how all or part of a company operates. In its broadest form, a transformation might change the very mission of the business. For example, a financial consulting firm might become a software provider. However, there are other more subtle variations, including:

Digital transformation (implementing new technologies to digitalize every business function),
Operational transformation (streamlining workflows or revising processes to change operations fundamentally), and
Structural transformation (altering the leadership structure or reorganizing departments/units).

The overarching goal of any transformation is to boost the company’s financial performance by increasing efficiencies, improving customer service, seizing greater market share or entering a new market.

Making the call

Choosing to undertake a business transformation of any kind is a major decision. Before making the call, you and your leadership team must evaluate your company’s market position and identify what’s inhibiting growth and possibly even leading toward a downturn. Common indicators that a transformation may be needed include:

Declining revenues with little to no projections of upswings,
Outdated processes that are creating errors and upsetting customers,
Intensifying competition that will be difficult or impossible to counter, and
Shifts in customer expectations or demand that call for substantive changes.

To decide whether a business transformation is appropriate, you must conduct due diligence through measures such as analyzing financial data and market trends, gathering customer feedback, and obtaining the counsel of professional advisors.

5 general steps to follow

So, let’s say you do your due diligence and decide to move forward with a business transformation. Generally, companies follow five steps:

Set a clearly worded objective. The more specific you are in describing how you intend to transform your business, the more likely you are to accomplish that objective. Set aside the time and exercise the patience needed to find specificity and consensus with your leadership team, key employees and professional advisors.
Forecast the financial, legal and operational impacts. You must paint a realistic picture of how the big change will likely affect the business during and after the transformation. This is another step in which your professional advisors are critical. With their help, generate financial forecasts related to expenses and revenue changes, identify potential compliance risks and so forth.
Map out the road ahead. With a clear vision in mind and a wealth of information in hand, create a detailed roadmap to the transformation. A phased approach is typically best. Define milestones and align performance metrics to each phase. In addition, develop contingency plans in case you wander off course.
Communicate with stakeholders. Devise a communication strategy that addresses all key stakeholders — including employees, independent contractors, customers, vendors, suppliers, investors and lenders. Tailor the strategy to each audience, promoting transparency and encouraging buy-in.
Monitor progress and adapt as necessary. To increase your odds of success, you and your leadership team need to “stay on it.” Track metrics, allocate time to discussing progress, and be ready to overcome internal and external challenges.

Bold move

Business transformations are difficult to achieve. Insufficient planning, lack of financial oversight and employee resistance can derail efforts. Meanwhile, the necessary investments may strain cash flow. Worst of all, if you fail, you’ll have squandered all those resources.

On a more positive note, a successful business transformation can be a bold and powerful move toward achieving substantial growth and resilience. If you’re considering one, we can help you evaluate the concept and undertake the appropriate financial analyses.

Statistics on fraud rates in family-run businesses are scant. This is probably because most family enterprises keep incidents of financial malfeasance under wraps and don’t involve law enforcement or the courts. Because punishing offenders is critical to preventing future fraud, such secrecy can encourage schemes and raise the risk of large financial losses. So although your family business may be different from those run by unrelated individuals, it needs just as many internal controls to prevent bad behavior.

Antifraud policies are critical

Fraud prevention efforts in family businesses often are hampered by loyalty and affection. One of the biggest potential obstacles is failing to acknowledge that someone in the family could be capable of initiating or overlooking illegal activities. If there’s a black sheep in your flock, that person may be all too willing to exploit such family goodwill.

However awkward it might feel to enforce rules and exercise authority over your own family members, fraud policies are critical to your company’s well-being. If you don’t already have a robust list of internal controls that’s followed faithfully, act to implement antifraud policies as soon as possible. Which controls are mandatory depends on the size, industry and other characteristics of your business. But in general, all businesses should segregate accounting duties, limit access to sensitive files, train workers to spot fraud and provide them with a confidential mechanism to report suspicions.

Role of outside input

Independent auditors and legal advisors are also essential. Your family business should look outside its immediate circles of relatives and friends to retain professional advisors who can be objective when assessing your company. Audited financial statements from independent accountants, in particular, protect your business and its stakeholders.

If your company is big enough to have a board of directors, the board should include at least one outsider who’s willing to tell you things you might not want to hear. In some extreme cases, members of all-family boards have been known to work together to bilk their companies. But with outside input, this type of scheme becomes much more difficult to perpetrate.

Dealing with perpetrators

What if you uncover fraud in progress? Regardless of whether the suspect is a family member, engage a fraud investigator to look into the matter. If this outside expert finds evidence of wrongdoing, strongly consider reporting the crime and taking legal action.

If the perpetrator is a family member and you’re reluctant to expose the person, ask a trusted attorney or CPA to explain the illegality and possible consequences of any fraudulent activity. Just keep in mind that such interventions don’t always work. At the very least, terminate the family member’s involvement in your business.

Key word is “business”

The term “family business” contains the word “family.” But as an owner, you need to emphasize the second word, “business,” and ensure that everyone in your organization is working for its success. If you haven’t already, draw up a code of ethics and require all employees, including family members, to sign it. Then, model the code so your team knows where you stand. Contact us for help with internal controls or to investigate potential fraud.

Are you starting a business with partners and deciding on the right entity? An S corporation might be the best choice for your new venture.

One benefit of an S corporation

One major advantage of an S corporation over a partnership is that shareholders aren’t personally liable for corporate debts. To ensure this protection, it’s crucial to:

Adequately finance the corporation,
Maintain the corporation as a separate entity, and
Follow state-required formalities (for example, by filing articles of incorporation, adopting bylaws, electing a board of directors and holding organizational meetings).

Handling losses

If you anticipate early losses, an S corporation is more favorable than a C corporation from a tax perspective. Shareholders in a C corporation generally don’t benefit from such losses. However, as an S corporation shareholder, you can deduct your share of losses on your personal tax return, up to your basis in the stock and any loans you made to the entity. Losses exceeding your basis can be carried forward and deducted in the future when there’s sufficient basis.

Profits and taxes

Once the S corporation starts earning profits, the income is taxed directly to you, whether or not it’s distributed. It will be reported on your individual tax return and combined with income from other sources. Your share of the S corporation’s income isn’t subject to self-employment tax, but your wages will be subject to Social Security taxes. If the income qualifies as qualified business income (QBI), you can take the 20% pass-through deduction, subject to various limitations.

Note: The QBI deduction is set to expire after 2025 unless extended by Congress. However, the deduction will likely be extended and maybe even made permanent under the Tax Cuts and Jobs Act extension being negotiated in Congress.

Fringe benefits

If you plan to offer fringe benefits like health and life insurance, be aware that the costs for a more than 2% shareholder are deductible by the entity but taxable to the recipient.

Protecting S status

Be cautious about transferring stock to ineligible shareholders (for example, another corporation, a partnership or a nonresident alien), as this could terminate the S election, making the corporation a taxable entity. To avoid this risk, have each shareholder sign an agreement not to make transfers that would jeopardize the S election. Also, be aware that an S corporation can’t have more than 100 shareholders.

Final steps

Before making your final decision on the entity type, consult with us. We can answer your questions and help you launch your new venture successfully.

Change is an unavoidable part of every business journey — not just from external forces like market shifts or economic conditions, but from within the business itself. Whether you’re expanding your operations, streamlining internal processes, bringing on new leadership, or preparing for eventual succession, change happens at every stage of your business’s lifecycle.

The businesses that thrive aren’t the ones that avoid change—they embrace it to improve profitability and build long-term resilience. Here are five essential strategies to help your business embrace change at every stage — positioning you for success today and securing your legacy for tomorrow.

1. Know Your Numbers

Smart business decisions start with data-driven insights. Yet, many business owners either track the wrong metrics or fail to monitor key financial indicators altogether. Tracking the right numbers provides clarity and control, helping you steer your business toward long-term success. Common KPIs include gross revenue, net profit margin, customer acquisition costs, and operational efficiency metrics.

2. Make Tax-Smart Decisions

Many business owners see taxes as a necessary evil—something to be dealt with at the end of the year. But smart tax planning can actually be a competitive advantage. You can reduce liabilities and improve cash flow by leveraging tax-saving strategies, optimizing deductions, and ensuring your business is structured efficiently.

3. Scale Effectively

As your business grows, so do your operational demands. A critical decision every business owner faces is whether to handle tasks in-house or outsource them. Outsourcing certain tasks—such as IT management, payroll processing, or marketing—can cut costs, increase efficiency, and allow your team to focus on what they do best.

4. Know Your Wealth

For most business owners, their company represents a significant portion of their net worth—yet many fail to look at the bigger picture. Understanding how your business and personal finances are connected is key to long-term security. Knowing your total wealth allows you to make better retirement, investment, and succession planning decisions. Taking time to evaluate your wealth annually can prevent surprises and ensure financial stability for you and your family.

5. Plan for the Future

What’s next for your business? Whether you’re planning for expansion, a leadership transition, or an eventual sale, having a clear long-term strategy is crucial. The best time to plan for the future is now. Proactive business planning keeps you in control and ensures your company continues to thrive—even through change.

Embrace Change as a Growth Opportunity

Change isn’t something to fear — it’s an opportunity to strengthen your business, increase profitability, and build long-term wealth. By focusing on these five strategies, you can turn today’s challenges into tomorrow’s successes.

Want to learn more? Read our eBook “5 Steps for Thriving Through Change,” which explains each step in detail with practical tips and action steps for you and your business.

Download our eBook

Yeo & Yeo is pleased to announce that Carrie Lapka, CPA, CPPM, will lead the firm’s Healthcare Services Group.

Yeo & Yeo’s Healthcare Services Group is a strategic team of accountants, practice consultants, medical billers, and HR/payroll professionals with a deep understanding of the unique challenges healthcare providers face. This dedicated group provides comprehensive accounting, audit, tax planning, medical billing, and practice consulting solutions tailored for healthcare entities across Michigan.

Lapka succeeds Yeo & Yeo Medical Billing & Consulting President Kati Krueger, CMPE, and Yeo & Yeo CPAs & Advisors Principal Suzanne Lozano, CPA, who have co-led the group for more than five years. Krueger and Lozano remain integral members of the group and expressed their enthusiasm in providing Lapka with this leadership opportunity, bringing a new and innovative perspective to the team.

“Carrie is the perfect fit to lead the Healthcare Services Group,” Lozano said. “Her deep understanding of the healthcare industry and her proactive approach to problem-solving will undoubtedly continue to drive the success of our team and clients.”

Lapka is a Senior Manager with more than 20 years of experience in accounting and physician practice management. She started her career with Yeo & Yeo in 2004. After nearly ten years in public accounting with a specialization in the healthcare industry, Lapka went on to work in private practice as a Practice Manager before rejoining Yeo & Yeo in 2024. She is a Certified Physician Practice Manager, possessing extensive knowledge in revenue cycle management, human resources, healthcare billing and compliance, and general business processes. Beyond her experience in practice management, Lapka has an extensive background in business consulting, preparation and analysis of financial statements, and tax planning and preparation. She holds a Bachelor of Professional Accountancy from Saginaw Valley State University.

In the community, she is involved with Caseville Public Schools, serving as a board member and treasurer, and as chair of both the Finance and Sports Committees. She is also a middle school volleyball coach. Lapka is based in Yeo & Yeo’s Saginaw office.

“Returning to Yeo & Yeo and stepping into this leadership role is truly an honor,” Lapka said. “I’m eager to build upon the foundation set by Kati and Suzanne, and to lead a team that is passionate about helping our clients thrive in a complex and ever-changing industry.”

Prior to the enactment of the Tax Cuts and Jobs Act (TCJA), businesses were able to claim a tax deduction for most business-related interest expense. The TCJA created Section 163(j), which generally limits deductions of business interest, with certain exceptions.

If your business has significant interest expense, it’s important to understand the impact of the deduction limit on your tax bill. The good news is there may be ways to soften the tax bite in 2025.

The nuts and bolts

Unless your company is exempt from Sec. 163(j), your maximum business interest deduction for the tax year equals the sum of:

30% of your company’s adjusted taxable income (ATI),
Your company’s business interest income, if any, and
Your company’s floor plan financing interest, if any.

Assuming your company doesn’t have significant business interest income or floor plan financing interest expense, the deduction limitation is roughly equal to 30% of ATI.

Your company’s ATI is its taxable income, excluding:

Nonbusiness income, gain, deduction or loss,
Business interest income or expense,
Net operating loss deductions, and
The 20% qualified business income deduction for pass-through entities.

When Sec. 163(j) first became law, ATI was computed without regard to depreciation, amortization or depletion. But for tax years beginning after 2021, those items are subtracted in calculating ATI, shrinking business interest deductions for companies with significant depreciable assets.

Deductions disallowed under Sec. 163(j) may be carried forward indefinitely and treated as business interest expense paid or accrued in future tax years. In subsequent tax years, the carryforward amount is applied as if it were incurred in that year, and the limitation for that year will determine how much of the disallowed interest can be deducted. There are special rules for applying the deduction limit to pass-through entities, such as partnerships, S corporations and limited liability companies that are treated as partnerships for tax purposes.

Small businesses are exempt from the business interest deduction limit. These are businesses whose average annual gross receipts for the preceding three tax years don’t exceed a certain threshold. (There’s an exception if the business is treated as a “tax shelter.”) To prevent larger businesses from splitting themselves into small entities to qualify for the exemption, certain related businesses must aggregate their gross receipts for purposes of the threshold.

Ways to avoid the limit

Some real estate and farming businesses can opt out of the business interest deduction limit and therefore avoid it or at least reduce its impact. Real estate businesses include those that engage in real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage.

Remember that opting out of the interest deduction limit comes at a cost. If you do so, you must reduce depreciation deductions for certain business property by using longer recovery periods. To determine whether opting out will benefit your business, you’ll need to weigh the tax benefit of unlimited interest deductions against the tax cost of lower depreciation deductions.

Another tax-reduction strategy is capitalizing interest expense. Capitalized interest isn’t treated as interest for purposes of the Sec. 163(j) deduction limit. The tax code allows businesses to capitalize certain overhead costs, including interest, related to the acquisition or production of property.

Interest capitalized to equipment or other fixed assets can be recovered over time through depreciation, while interest capitalized to inventory can be deducted as part of the cost of goods sold. We can crunch the numbers to determine which strategy would provide a better tax advantage for your business.

You also may be able to mitigate the impact of the deduction limit by reducing your interest expense. For example, you might rely more on equity than debt to finance your business or pay down debts when possible. Or you could generate interest income (for example, by extending credit to customers) to offset some interest expense.

Weigh your options

Unfortunately, the business interest deduction limitation isn’t one of the many provisions of the Tax Cuts and Jobs Act scheduled to expire at the end of 2025. But it’s possible Congress could act to repeal the limitation or alleviate its impact. If your company is affected by the business interest deduction limitation, contact us to discuss the impact on your tax bill. We can help assess what’s right for your situation.

Financial Literacy Month: Essential Strategies for Building a Stronger Financial Future for Individuals and Business Owners

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