Do You Have an Excess Business Loss?

If an individual taxpayer has substantial business losses, unfavorable federal income tax rules can potentially come into play. Here’s what you need to know as you assess your 2024 tax situation.

Disallowance rule

The tax rules can get complicated if your business or rental activity throws off a tax loss — and many do during the early years. First, the passive activity loss (PAL) rules may apply if you aren’t very involved in the business or if it’s a rental activity. The PAL rules generally only allow you to deduct passive losses to the extent you have passive income from other sources. However, you can deduct passive losses that have been disallowed in previous years (called suspended PALs) when you sell the activity or property that produced the suspended losses.

If you successfully clear the hurdles imposed by the PAL rules, you face another hurdle: You can’t deduct an excess business loss in the current year. For 2024, an excess business loss is the excess of your aggregate business losses over $305,000 ($610,000 for married joint filers). For 2025, the thresholds are $313,000 and $626,000, respectively. An excess business loss is carried over to the following tax year and can be deducted under the rules for net operating loss (NOL) carryforwards explained below.

Deducting NOLs

You generally can’t use an NOL carryover, including one from an excess business loss, to shelter more than 80% of your taxable income in the carryover year. Also, NOLs generally can’t be carried back to an earlier tax year. They can only be carried forward and can be carried forward indefinitely. The requirement that an excess business loss must be carried forward as an NOL forces you to wait at least one year to get any tax-saving benefit from it.

Example 1: Taxpayer has a partial deductible business loss

David is unmarried. In 2024, he has an allowable loss of $400,000 from his start-up AI venture that he operates as a sole proprietorship.

Although David has no other income or losses from business activities, he has $500,000 of income from other sources (salary, interest, dividends, capital gains and so forth).

David has an excess business loss for the year of $95,000 (the excess of his $400,000 AI venture loss over the $305,000 excess business loss disallowance threshold for 2024 for an unmarried taxpayer). David can deduct the first $305,000 of his loss against his income from other sources. The $95,000 excess business loss is carried forward to his 2025 tax year and treated as part of an NOL carryover to that year.

Variation: If David’s 2024 business loss is $305,000 or less, he can deduct the entire loss against his income from other sources because he doesn’t have an excess business loss.

Example 2: Taxpayers aren’t affected by the disallowance rule

Nora and Ned are married and file tax returns jointly. In 2024, Nora has an allowable loss of $350,000 from rental real estate properties (after considering the PAL rules).

Ned runs a small business that’s still in the early phase of operations. He runs the business as a single-member LLC that’s treated as a sole proprietorship for tax purposes. For 2024, the business incurs a $150,000 tax loss.

Nora and Ned have no income or losses from other business or rental activities, but they have $600,000 of income from other sources.

They don’t have an excess business loss because their combined losses are $500,000. That amount is below the $610,000 excess business loss disallowance threshold for 2024 for married joint filers. So, they’re unaffected by the disallowance rule. They can use their $500,000 business loss to shelter income from other sources.

Partnerships, LLCs and S corporations

The excess business loss disallowance rule is applied at the owner level for business losses from partnerships, S corporations and LLCs treated as partnerships for tax purposes. Each owner’s allocable share of business income, gain, deduction, or loss from these pass-through entities is taken into account on the owner’s Form 1040 for the tax year that includes the end of the entity’s tax year.

The best way forward

As you can see, business losses can be complex. Contact us if you have questions or want more information about the best strategies for your situation.

Payroll is one of the biggest costs for most small to midsize employers. Here are six ways to address payroll costs.

1. Conduct a payroll audit. If your organization has been operational for a while, you may have a relatively complex compensation structure and payroll system. By meticulously evaluating the related expenditures under a formal audit, you may be able to identify flexible or nonessential costs. These costs represent potential money-saving opportunities to be seized upon without drastically altering your existing structure and system.

2. Optimize how you use and classify workers. A long-standing risk for many employers is misclassifying employees as independent contractors. If anything, this risk has only grown as “gig workers” remain popular in various industries. So, first and foremost, review employee classification throughout your organization to verify that you’re not at risk for compliance penalties. From there, look at every position and consider whether it could or should be converted to a part-time role or contractual arrangement without adversely affecting productivity and efficiency.

3. Ensure you’re not overlooking payroll-related tax breaks. Your organization may be eligible for tax credits or incentives now, or you could shift your employment strategy to qualify for them. For example, if you need to expand your workforce later this year, the Work Opportunity Tax Credit potentially offers a dollar-for-dollar reduction in your tax liability for hiring individuals from certain target groups. There may also be state and local tax relief programs available. Identifying and claiming every tax break you’re eligible for can reduce payroll costs and improve cash flow.

4. Explore strategic compensation adjustments. When payroll costs become problematic, many employers want to immediately jump to drastic steps such as layoffs or cuts to salaries or wages. However, these may devastate employee morale and hamper hiring in the future. Explore the feasibility of more measured adjustments, such as:

Reducing work hours for some employees,
Suspending employer matches for your qualified retirement plan,
Transitioning from fixed bonuses to performance-based incentives, and
Entering into deferred compensation agreements with highly compensated employees or other key staff.

These or other actions can reduce immediate payroll costs without radically changing your compensation philosophy and program.

5. Consider technological improvements. Another good reason to undertake the aforementioned payroll audit is it might reveal financial losses attributable to compliance penalties, overpayments, or unnecessary or redundant administrative costs. Although there’s no guarantee better technology will solve such problems, enhanced automation and functionality tend to reduce human errors, eliminate redundancies and facilitate real-time monitoring that can catch minor inaccuracies before they turn into major crises.

6. Work with your professional advisors. Employers generally need to take a nimbler approach to payroll management, hiring and other operational functions during times of economic uncertainty. Obviously, you and your leadership team should keep an eye on the news, but your professional advisors can provide invaluable insights into their various areas of expertise. Please contact us for tailored guidance on cost management, tax optimization and regulatory compliance to ensure your payroll decisions support long-term sustainability.

Last month, the U.S. Department of Labor (DOL) announced its annual inflation adjustments to the civil monetary penalties for a wide range of violations related to health and welfare plans. Legislation enacted in 2015 requires annual adjustments to certain penalty amounts by January 15 of each year. This year, the DOL beat that deadline by five days.

The adjustments are effective for penalties assessed after January 15, 2025. Here are some potential foibles to watch out for:

Failure to file Form 5500, “Annual Return/Report of Employee Benefit Plan.” Employers must file this form annually for most plans subject to the requirements of the Employee Retirement Income Security Act. It provides the IRS and DOL with information about a plan’s operation and compliance with government regulations. The maximum penalty for failing to file Form 5500 has increased to $2,739 per day that the filing is late (up from $2,670 per day in 2024).

Failure to provide a summary of benefits and coverage (SBC). Under the Affordable Care Act, employers must provide this disclosure to each eligible employee. Its purpose is to provide a clear and concise overview of a health or welfare plan’s coverage and costs. The maximum penalty for failing to provide an SBC has increased to $1,443 per failure (up from $1,406 per failure in 2024).

Failure to comply with the Genetic Information Nondiscrimination Act (GINA) and/or the Children’s Health Insurance Program (CHIP). Violations of GINA may include establishing eligibility rules based on genetic information or requesting genetic data for underwriting purposes. CHIP violations may include failure to disclose Medicaid or CHIP assistance availability. Any such violations may result in penalties of $145 per participant per day (up from $141 per participant per day in 2024).

Violations of reporting requirements for Multiple Employer Welfare Arrangements (MEWAs). A MEWA is generally defined as a single plan that covers the employees of two or more unrelated employers. MEWAs must, among other things, file Form M-1, “Report for Multiple Employer Welfare Arrangements (MEWAs) and Certain Entities Claiming Exception (ECEs).” Penalties for failure to meet applicable filing requirements for such arrangements, which include annually filing Form M-1 and filings upon origination, have increased to $1,992 per day (up from $1,942 per day in 2024).

Other penalties related to health and welfare plans, including those for failing to provide certain information requested by the DOL, as well as for certain defined benefit plan compliance failures, have also been adjusted. For example, the penalty for failing to provide DOL-requested documents has increased to $195 per day (up from $190 per day in 2024). This penalty amount, however, can’t exceed $1,956 per request.

As you might have noticed, every penalty amount we’ve mentioned has increased when adjusted for inflation — making each one more onerous for employers. The good news is that violations don’t always trigger the highest permitted penalty. In some instances, such as under programs designed to encourage Form 5500 filing, the DOL has the discretion to impose lower penalties.

Contact us for further information about all of this year’s penalties related to health and welfare plans, as well as for assistance in managing the costs of your benefits.

In a significant move to bolster Michigan’s innovation landscape, Governor Gretchen Whitmer signed into law a series of bipartisan bills on January 13, 2025, introducing the Michigan Innovation Fund and a Research and Development (R&D) Tax Credit. The most widely applicable of these bills are House Bills 5100 (Public Act 186 of 2024) and 5101 (Public Act 187 of 2024), re-establishing a Michigan R&D tax credit. This initiative is designed to foster innovation, stimulate job growth, help leverage Michigan universities, and reinforce Michigan’s position as a leader in technological advancement.

R&D Tax Credits: A New Incentive for Innovation

The newly introduced R&D tax credits are set to take effect for tax years beginning on or after January 1, 2025. These credits are structured to provide substantial financial incentives for corporate and flow through businesses engaging in research and development activities within the state.

Large Businesses (250+ Employees)

Large businesses are eligible for a tax credit calculated as 3% of their qualifying R&D expenses up to a predefined base amount. For expenses that exceed this base amount, the credit increases to 10%. However, the total credit a large business can claim is capped at $2,000,000 per tax year.

Small Businesses (<250 Employees)

Smaller businesses can claim a more generous credit of 15% of R&D expenses exceeding the base amount, while the rate remains 3% for expenses up to the base amount. The cap for small businesses is set at $250,000 per tax year.

Credit Limitations

The aggregate amount of credit available is capped at $100,000,000 per calendar year. If the aggregate amount of tentative claims exceed this limit, a proration system is applied.

Refundability

If the amount of the credits allowed under this section exceeds the taxpayer’s tax liability for the tax year, the portion of the credit that exceeds the taxpayer’s tax liability for the tax year must be refunded.

Additional Incentives for University Collaboration

Collaboration between businesses and research universities can lead to groundbreaking innovations. To promote such partnerships, an additional 5% tax credit is available for R&D expenses incurred through collaborations with state research universities and used to calculate the credit above. This credit is capped at $200,000 per year and requires a formal agreement between the business and the university. This provision not only supports businesses but also strengthens the ties between industry and academia, fostering an ecosystem of shared knowledge and resources.

Claim Submission and Deadlines

To benefit from these credits, businesses must adhere to strict submission guidelines. Regardless of a taxpayer’s year end, tentative claims must be filed by March 15 for the preceding calendar year activities, except for calendar 2025 (due date is April 1, 2026).

A Brief History of Michigan’s R&D Credit

Michigan’s journey with R&D tax credits has evolved significantly over the years, reflecting changes in the state’s broader tax landscape. Initially, the R&D credit was part of the Single Business Tax (SBT), which was Michigan’s primary business tax from 1976 until it was repealed effective December 31, 2007. The SBT included provisions for R&D credits to encourage innovation within the state.

The Michigan Business Tax (MBT) replaced the SBT effective January 1, 2008. The MBT, which also incorporated R&D credits, faced criticism for its complexity and was eventually replaced by the Michigan Corporate Income Tax (CIT) effective January 1, 2012. The CIT simplified the tax structure but eliminated most credits, including the R&D credit, leading to calls from the business community for incentives to support research and development.

The reintroduction of R&D tax credits under the current legislation marks a return to incentivizing innovation, aligning with Michigan’s historical commitment to foster technological advancement and economic growth.

A Bold Step Forward

The introduction of the Michigan Innovation Fund and R&D Tax Credit marks a bold step forward in Michigan’s economic strategy. By incentivizing research and development, the state aims to attract high-tech industries, create high-paying jobs, and solidify its reputation as a hub for innovation.

Whether you’re a small business looking to optimize your tax savings or a large corporation seeking to maximize your credit potential, our team can guide you through eligibility, claim submission, and strategic planning. Don’t leave valuable tax incentives on the table—contact Yeo & Yeo today to ensure your business takes full advantage of these new opportunities.

A revocable trust (sometimes referred to as a “living trust”) is a popular estate planning tool that allows you to manage your assets during your lifetime and ensure a smooth transfer of those assets to your family after your death. Plus, trust assets bypass the probate process, which can save time, reduce costs and maintain privacy. However, like any legal instrument, a revocable trust has certain disadvantages.

A revocable trust in action

A revocable trust’s premise is relatively simple. You establish the trust, transfer assets to it (essentially funding it) and name a trustee to handle administrative matters. You can name yourself as trustee or choose a professional to handle the job. Regardless of who you choose, name a successor trustee who can take over the reins if required.

If you designate yourself as the trust’s initial beneficiary, you’re entitled to receive income from the trust for your lifetime. You should also designate secondary beneficiaries, such as your spouse and children, who are entitled to receive the remaining assets after the trust terminates.

Added flexibility

One of the primary benefits of a revocable trust is its flexibility. As the grantor, you retain control over the trust and can change its terms, add or remove assets, or even dissolve it at any time during your life. This control makes it a flexible tool for adapting to changing life circumstances, such as new family members, changes in financial status or shifts in your estate planning goals.

For many people, the main reason for using a revocable trust — and sometimes the only one that really matters — is that the trust’s assets avoid probate. Probate is the process of settling an estate and passing the legal title of ownership of assets to heirs specified in a will. Depending on applicable state law, probate can be costly and time consuming. The process is also open to the public, which can be a major detriment if you treasure your privacy.

Assets passing through a revocable trust aren’t subject to probate. This gives you control to decide who in the family gets what without all the trappings of a will. Along with the flexibility, it keeps your personal arrangements away from prying eyes.

Potential drawbacks

One of the most notable drawbacks of a revocable trust is the upfront cost and effort involved in setting one up. Drafting a revocable trust requires the assistance of an attorney. You’ll also need to retitle your assets under the name of the trust, which can be time consuming and may incur fees.

Another limitation is that a revocable trust doesn’t provide asset protection from creditors or lawsuits during your lifetime. Because the trust is revocable, its assets are still considered your property and are thus subject to claims against you.

Finally, despite a common misconception, revocable living trusts don’t provide direct tax benefits. The assets are included in your taxable estate and dispositions of trust property can result in tax liability. You must report the income tax that’s due, including capital gains on sales of assets, on your personal tax return.

Right for you?

For many individuals, a revocable trust can be an invaluable part of their estate plans, offering flexibility, privacy and efficiency. However, it’s not a one-size-fits-all solution. Before deciding, weigh the benefits and drawbacks in the context of your unique financial situation and estate planning goals. Contact us with questions regarding a revocable trust. Be sure to consult with an estate planning attorney to draft your revocable trust.

Preventing financial losses from occupational fraud requires your company to remain vigilant. In a nutshell: Trust employees, but routinely verify they aren’t stealing. This includes salespeople who, if they’re unethical, could falsify sales commission records to illicitly line their own pockets. Because it’s sometimes impossible to spot crooks in your midst, be aware of potential sales commission fraud schemes and how best to detect and prevent them.

How some may cheat

Sales commission fraud can take several forms. For example, a retail employee bent on fraud may enter a nonexistent sale into a point of sale (POS) system to generate a commission. Or a dishonest sales associate might create a fraudulent contract that invents everything — including the customer.

Another risk is overstatement of sales. In such cases, workers alter internal sales reports or invoices or inflate sales captured via their company’s POS system. Or they might change their company’s commission records to reflect a higher pay rate. As for workers who don’t have access to such records, they might collude with someone who does (such as an accounting staffer) to alter rates.

Uncovering schemes in progress

Fortunately, you can use data from these types of fraud incidents to detect abuse. To uncover a scheme in progress:

Analyze commission expenses relative to company sales. After accounting for timing differences, the volume of commission payments should correlate to your business’s sales revenue.

Scrutinize individual commissions. Focus on outliers whose commission levels are significantly higher and ascertain the reasons for such differences. Consider setting benchmarks based on commission sales by employee type, location and seniority. This can enable you to detect fraud more easily.

Randomly sample sales. For sales associated with commissions, ensure you have documentation of the sales and commission payments. You might contact individual customers to verify sales transactions by framing your calls as customer satisfaction checks.

Monitor employee communications. Commission schemes sometimes involve collusion with other employees and customers, which usually leaves email, phone and text trails. But to prevent lawsuits, vet your intention to monitor worker communications with legal counsel.

Importance of internal controls

Detecting schemes already underway isn’t enough to prevent financial losses. You also need to adopt controls that discourage sales commission fraud. This starts with an ethical “tone at the top” and managers who set realistic sales goals that salespeople can meet without cheating.

Also, minimize opportunities to tamper with records by limiting access to files and scrutinizing unusual relationships between sales associates and accounting staffers. And if you don’t already have a confidential fraud reporting hotline open to employees, customers and vendors, put one in place.

We can help

Your business may not be equipped to routinely sift through sales data and spot potential fraud. Contact us for help. We can also assist you in implementing controls that make it harder for salespeople to falsify records.

Businesses in certain industries employ service workers who receive tips as a large part of their compensation. These businesses include restaurants, hotels and salons. Compliance with federal and state tax regulations is vital if your business has employees who receive tips.

Are tips becoming tax-free?

During the campaign, President Trump promised to end taxes on tips. While the proposal created buzz among employees and some business owners, no legislation eliminating taxes on tips has been passed. For now, employers should continue to follow the existing IRS rules until the law changes — if it does. Unless legal changes are enacted, the status quo remains in effect.

With that in mind, here are answers to questions about the current rules.

How are tips defined?

Tips are optional and can be cash or noncash. Cash tips are received directly from customers. They can also be electronically paid tips distributed to employees by employers and tips received from other employees in tip-sharing arrangements. Workers must generally report cash tips to their employers. Noncash tips are items of value other than cash. They can include tickets, passes or other items that employees receive from customers. Workers don’t have to report noncash tips to employers.

Four factors determine whether a payment qualifies as a tip for tax purposes:

The customer voluntarily makes a payment,
The customer has an unrestricted right to determine the amount,
The payment isn’t negotiated with, or dictated by, employer policy, and
The customer generally has a right to determine who receives the payment.

There are more relevant definitions. A direct tip occurs when an employee receives it directly from a customer (even as part of a tip pool). Directly tipped employees include wait staff, bartenders and hairstylists. An indirect tip occurs when an employee who normally doesn’t receive tips receives one. Indirectly tipped employees can include bussers, service bartenders, cooks and salon shampooers.

What records need to be kept?

Tipped workers must keep daily records of the cash tips they receive. To do so, they can use Form 4070A, Employee’s Daily Record of Tips. It’s found in IRS Publication 1244.

Workers should also keep records of the dates and values of noncash tips. The IRS doesn’t require workers to report noncash tips to employers, but they must report them on their tax returns.

How must employees report tips to employers?

Employees must report tips to employers by the 10th of the month after the month they were received. The IRS doesn’t require workers to use a particular form to report tips. However, a worker’s tip report generally should include the:

Employee’s name, address, Social Security number and signature,
Employer’s name and address,
Month or period covered, and
Total tips received during the period.

Note: If an employee’s monthly tips are less than $20, there’s no requirement to report them to his or her employer. However, they must be included as income on his or her tax return.

Are there other employer requirements?

Yes. Send each employee a Form W-2 that includes reported tips. In addition, employers must:

Keep employees’ tip reports.
Withhold taxes, including income taxes and the employee’s share of Social Security and Medicare taxes, based on employees’ wages and reported tip income.
Pay the employer share of Social Security and Medicare taxes based on the total wages paid to tipped employees as well as reported tip income.
Report this information to the IRS on Form 941, Employer’s Quarterly Federal Tax Return.
Deposit withheld taxes in accordance with federal tax deposit requirements.

In addition, “large” food or beverage establishments must file another annual report. Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, discloses receipts and tips.

What’s the tip tax credit?

Suppose you’re an employer with tipped workers providing food and beverages. In that case, you may qualify for a valuable federal tax credit involving the Social Security and Medicare taxes you pay on employees’ tip income.

How should employers proceed?

Running a business with tipped employees involves more than just providing good service. It requires careful adherence to wage and hour laws, thorough recordkeeping, accurate reporting and an awareness of changing requirements. While President Trump’s pledge to end taxes on tips hasn’t yet materialized into law, stay alert for potential changes. In the meantime, continue meeting all current requirements to ensure compliance. Contact us for guidance about your situation.

Financial forecasting provides a roadmap to guide your organization on the path to success. Forecasts support strategic planning by helping you allocate resources efficiently, manage risks effectively and optimize capital investments. However, today’s dynamic marketplace is uncharted territory, so you can’t rely solely on historical data. Reliable forecasts also consider external market trends and professional insights. Here are some tips to strengthen your forecasting models and help you avoid common pitfalls.

Determine the optimal approach

What’s the right forecasting method for your situation? The answer depends on several critical factors, including:

Forecast length. Short-term forecasts (that cover a year or less) often rely more heavily on historical data. These plans focus primarily on the organization’s immediate needs. Long-term forecasts require more qualitative inputs to account for uncertainties, such as market disruptions, economic shifts, and changing regulations and consumer behaviors. These plans are essential to support strategic decisions and attract funding from investors and lenders. The longer your forecast period is, the more likely internal and external conditions will change. So short-term forecasts tend to be more accurate than long-term plans. Long-term forecasts may need to be updated as market conditions evolve.

Stability of demand. Industries with consistent sales patterns may be able to use straightforward historical data analysis. However, those with seasonal and cyclical fluctuations might need to incorporate techniques like time-series decomposition to adjust for peaks and downturns. Companies experiencing unpredictable demand might consider using advanced forecasting software that integrates real-time sales data and external variables to enhance accuracy.

Availability of historical data. Techniques such as exponential smoothing require at least three years of data to generate reliable projections. For businesses launching new products or entering new markets, qualitative forecasting methods that incorporate expert opinions and market research may be more effective.

Business offerings. Companies with a wide range of products and services may prefer simplified forecasting models. Conversely, those with a focused product line can achieve greater accuracy with more complex statistical models.

Relying on just one forecasting model can be problematic. What happens if the forecast model gets things wrong? It may be more prudent to use a combination of approaches tailored to individual products and locations. Considering the results from multiple forecasting approaches can lead to better outcomes, especially when managing inventory levels.

Implement advanced forecasting techniques

Businesses seeking greater forecasting accuracy can implement advanced techniques, such as:

Time-series analysis, which breaks historical data into trend, seasonal and cyclical components to better understand patterns,
Regression models that identify relationships between financial variables to improve prediction accuracy,
Scenario planning that prepares best-case, worst-case and expected forecasts,
Sensitivity analysis that determines which forecasting assumptions have the greatest impact on expected financial outcomes, and
Rolling forecasts that are continuously updated based on current data to provide greater flexibility and adaptability.

Increasingly, businesses are leveraging artificial intelligence and machine learning to enhance forecasting precision. These technologies analyze large datasets quickly, identify trends and adjust predictions dynamically based on real-time changes. By integrating AI-driven forecasting tools, businesses can optimize their decision-making and gain a competitive edge.

Seek outside guidance

Financial statements are often the starting point for forecasts. Our accounting and auditing team can help ensure your historical data is accurate and then guide you through the process of developing reliable, market-driven forecasts based on your current needs. From developing realistic assumptions and reliable models to tracking forecast accuracy and updating for market shifts, we’ve got you covered. Contact us for more information.

Your estate plan is the perfect place to make charitable gifts if you’re a charitably inclined individual. One vehicle to consider using is a donor-advised fund (DAF).

What’s the main attraction? Among other benefits, a DAF allows you to set aside funds for charitable giving while you’re alive, and you (or your heirs) can direct donations over time. Plus, in your estate plan, you can designate your DAF as a beneficiary to receive assets upon your death, ensuring continued charitable giving in your name.

Setting up a DAF

A DAF generally requires an initial contribution of at least $5,000. It’s typically managed by a financial institution or an independent sponsoring organization, which, in return, charges an administrative fee based on a percentage of the account balance.

You have the option of funding a DAF through estate assets. And you can name a DAF as a beneficiary of IRA or 401(k) plan accounts, life insurance policies or through a bequest in your will or trust.

You instruct the DAF on how to distribute contributions to the charities of your choice. While deciding which charities to support, your contributions are invested and potentially grow within the account. Then, the charitable organizations you choose are vetted to ensure they’re qualified to accept DAF funds. Finally, the checks are cut and distributed to the charities.

DAF benefits

A DAF has several benefits. For starters, using a DAF is relatively easy. With all the administrative work and logistics handled for you, you simply make contributions to the fund. It may be possible to transfer securities directly from your bank account.

The contributions you make to the DAF generally are tax deductible. Therefore, if you itemize deductions on your tax return instead of taking the standard deduction, the gifts can offset your current income tax liability. Contributions can be deducted in the tax year you make them, rather than waiting until the fund distributes them.

For monetary contributions, you can write off the full amount, up to 60% of your adjusted gross income (AGI) in 2025. Any excess is carried over for five years. For a gift of appreciated property, the donation is equal to the property’s fair market value if you’ve owned the asset for longer than one year, up to 30% of AGI. Any excess is carried over for five years. Otherwise, the deduction for property is limited to your adjusted basis (often your initial cost).

If you prefer, distributions can be made to charities anonymously. Alternatively, you can name the fund after your family. In either event, the DAF may be created through your will, providing a lasting legacy.

DAF drawbacks

DAFs have their drawbacks as well. Despite some misconceptions, you don’t control how the charities use the money after it’s disbursed from the DAF.

Also, you can’t personally benefit from your DAF. For instance, you can’t direct that the money should be used to buy tickets to a local fundraiser you want to support if the cost of the tickets isn’t fully tax deductible. Lastly, detractors have complained about the administrative fees.

Leave a lasting legacy

Using a DAF in your estate plan can help maximize charitable giving, minimize taxes and create a lasting legacy aligned with your philanthropic goals. It provides flexibility and allows heirs to continue supporting charitable causes in your name. Contact us with questions regarding a DAF.

Yeo & Yeo is pleased to announce that Michael Rolka, CPA, CGFM, will lead the firm’s Government Services Group, which provides accounting, audit, and consulting solutions for governmental entities across Michigan.

Rolka succeeds Jamie Rivette, CPA, CGFM, who has led the group for ten years, establishing Yeo & Yeo as a leader in serving governmental entities. In her role as Assurance Service Line Leader, Rivette will continue to serve clients, provide mentorship, and drive growth for the firm.

“Mike is a trusted leader in the government sector and is constantly helping our clients and team stay ahead of changing regulations,” said Rivette. “He is committed to helping clients throughout the audit process and offering valuable insights along the way. With his leadership, our team will continue to be empowered to go above and beyond for our clients.”

Rolka is a Principal specializing in audits of governmental entities. He began his career in Yeo & Yeo’s Saginaw office and later transferred to the Troy office to support and help expand the firm’s audit and assurance services in Southeast Michigan. He holds a Bachelor of Professional Accountancy from Saginaw Valley State University and the Certified Government Financial Manager designation, demonstrating his depth of knowledge in governmental accounting, auditing, financial reporting, internal controls, and budgeting.

In addition to his professional qualifications, Rolka is a board member for the Michigan Government Finance Officers Association (MGFOA) and a member of its Accounting Standards Committee. He has presented at various government conferences, including the Michigan Association of Certified Public Accountants’ Governmental Winter Conference. He is also an active member of the American Institute of Certified Public Accountants and the Michigan Association of Certified Public Accountants. In the community, Rolka serves on the Clinton River Watershed Council Finance Committee.

“I take great pride in helping government clients navigate audits, ensure regulatory compliance, and strengthen trust with stakeholders and citizens,” Rolka said. “As leader, I look forward to expanding our team’s expertise and services while building on the strong foundation Jamie has established.”

Yeo & Yeo is pleased to announce the promotion of four professionals to manager. Congratulations to Daniel Gruzd II, Nicholas McFadden, Steve Soules, and Joey Winterstein on this significant achievement.

Daniel Gruzd II, CPA, works in the firm’s Tax & Consulting Service Line. With over a decade of accounting experience, he is a trusted advisor specializing in tax planning and business consulting, with a focus on the manufacturing, construction, and retail industries. Daniel graduated from the Dale Carnegie leadership course in 2024 and is dedicated to professional development. He holds a Master of Business Administration in Accounting from Northwood University. Based in the Saginaw office, Daniel continues to make a meaningful impact by helping businesses thrive.

Nicholas McFadden, CPA, brings a depth of knowledge to the Tax & Consulting Service Line, specializing in strategic tax planning, multi-state taxation, corporate restructuring, and tax compliance. His diverse experience spans the construction, retail, manufacturing, transportation, and professional services industries. Holding a Master of Science in Taxation from Eastern Michigan University, Nicholas’ proactive approach and technical knowledge are valued assets to the Ann Arbor office and his clients.

Steve Soules, CPA, E.A., serves nonprofit and for-profit organizations and specializes in tax preparation, compilations, and reviews. A member of the Tax & Consulting Service Line, Steve holds the Enrolled Agent credential, the highest designation awarded by the IRS to tax professionals. Outside the office, he gives back to the community as a volunteer for Barry County United Way, the Epilepsy Foundation of Michigan, and the IRS Volunteer Income Tax Assistance (VITA) program. He is a graduate of Davenport University, where he earned a Master of Business Administration in Accounting, and he recently completed the Dale Carnegie leadership course. He is based in the Kalamazoo office.

Joey Winterstein, CPA, has been a key contributor to the Assurance Service Line since joining Yeo & Yeo in 2019. He specializes in audits of school districts, nonprofit organizations, and healthcare organizations. Joey is a member of the firm’s Education Services Group and is passionate about sharing his knowledge with clients and the community. He is a member of the Michigan School Business Officials and has presented on auditing topics at the Michigan Association of Certified Public Accountants’ Governmental Accounting & Auditing Conference. In the community, he serves as Treasurer of the Saginaw Valley Zoological Society (Saginaw Children’s Zoo). He holds a Bachelor of Business Administration in Accounting from Northwood University and is based in the firm’s Saginaw office.

“As we continue to grow, we are excited to see many individuals step into leadership roles,” said Yeo & Yeo President & CEO Dave Youngstrom. “Daniel, Nicholas, Steve, and Joey have demonstrated dedication, hard work, and commitment to the core values that define our firm, and we look forward to their continued success.”

A variety of tax-related limits that affect businesses are indexed annually based on inflation. Many have increased for 2025, but with inflation cooling, the increases aren’t as great as they have been in the last few years. Here are some amounts that may affect you and your business.

2025 deductions as compared with 2024

Section 179 expensing:
- Limit: $1.25 million (up from $1.22 million)
- Phaseout: $3.13 million (up from $3.05 million)
- Sec. 179 expensing limit for certain heavy vehicles: $31,300 (up from $30,500)
Standard mileage rate for business driving: 70 cents per mile (up from 67 cents)
Income-based phaseouts for certain limits on the Sec. 199A qualified business income deduction begin at:
- Married filing jointly: $394,600 (up from $383,900)
- Other filers: $197,300 (up from $191,950)

Retirement plans in 2025 vs. 2024

Employee contributions to 401(k) plans: $23,500 (up from $23,000)
Catch-up contributions to 401(k) plans: $7,500 (unchanged)
Catch-up contributions to 401(k) plans for those age 60, 61, 62 or 63: $11,250 (not available in 2024)
Employee contributions to SIMPLEs: $16,500 (up from $16,000)
Catch-up contributions to SIMPLEs: $3,500 (unchanged)
Catch-up contributions to SIMPLE plans for those age 60, 61, 62 or 63: $5,250 (not available in 2024)
Combined employer/employee contributions to defined contribution plans (not including catch-ups): $70,000 (up from $69,000)
Maximum compensation used to determine contributions: $350,000 (up from $345,000)
Annual benefit for defined benefit plans: $280,000 (up from $275,000)
Compensation defining a highly compensated employee: $160,000 (up from $155,000)
Compensation defining a “key” employee: $230,000 (up from $220,000)

Social Security tax

Cap on amount of employees’ earnings subject to Social Security tax for 2025: $176,100 (up from $168,600 in 2024).

Other employee benefits this year vs. last year

Qualified transportation fringe-benefits employee income exclusion: $325 per month (up from $315)
Health Savings Account contribution limit:
- Individual coverage: $4,300 (up from $4,150)
- Family coverage: $8,550 (up from $8,300)
- Catch-up contribution: $1,000 (unchanged)
Flexible Spending Account contributions:
- Health care: $3,300 (up from $3,200)
- Health care FSA rollover limit (if plan permits): $660 (up from $640)
- Dependent care: $5,000 (unchanged)

Potential upcoming tax changes

These are only some of the tax limits and deductions that may affect your business, and additional rules may apply. But there’s more to keep in mind. With President Trump back in the White House and the Republicans controlling Congress, several tax policy changes have been proposed and could potentially be enacted in 2025. For example, Trump has proposed lowering the corporate tax rate (currently 21%) and eliminating taxes on overtime pay, tips, and Social Security benefits. These and other potential changes could have wide-ranging impacts on businesses and individuals. It’s important to stay informed. Consult with us if you have questions about your situation.

An inheritor’s trust is a specialized estate planning tool designed to protect and manage assets you pass to a beneficiary. One of its primary advantages is asset protection. It allows your beneficiary to receive his or her inheritance in trust rather than as an outright gift or bequest. Thus, the assets are kept out of his or her own taxable estate.

Creditor protection

Having assets pass directly to a trust not only protects the assets from being included the beneficiary’s taxable estate but also shields them from other creditor claims, such as those arising from a lawsuit or a divorce. The inheritance is protected because the trust, rather than your beneficiary, legally owns the inheritance, and because the beneficiary doesn’t fund the trust.

To ensure complete asset protection, the beneficiary must establish an inheritor’s trust before receiving the inheritance. The trust is drafted so that your beneficiary is the investment trustee, giving him or her power over the trust’s investments.

Your beneficiary then selects an unrelated person — someone he or she knows well and trusts — as the distribution trustee. The distribution trustee will have complete discretion over the distribution of principal and income, which ensures that the trust provides creditor protection.

The trust should be designed with the flexibility to remove and change the distribution trustee at any time and make other modifications when necessary, such as when tax laws change. Bear in mind that the unfettered power to remove and replace trustees may jeopardize the creditor protection aspect of the trust. That could result in the inclusion of the trust property in the beneficiary’s taxable estate.

Because it’s your beneficiary, and not you, who sets up the trust, he or she will incur the bulk of the fees, which will vary depending on the trust. In addition, he or she may have to pay annual trustee fees. Your cost, however, should be minimal — only the legal fees to amend your will or living trust to redirect your bequest to the inheritor’s trust.

Wealth preservation

Another benefit of an inheritor’s trust is that it can help ensure that inherited assets remain within the family lineage. By keeping assets in the trust rather than transferring them outright to beneficiaries, the trust can prevent the depletion of wealth due to mismanagement, overspending or other poor financial decisions.

The trust’s grantor can include specific provisions or restrictions. These may include setting limits on distributions or requiring certain milestones (like completing education) before beneficiaries can access funds.

Follow the law

Your beneficiary should consult an attorney to draft the trust in accordance with federal and state law. This will help avoid potential IRS audits or court challenges — and maximize the asset protection benefits of the trust. Contact us for more information regarding an inheritor’s trust.

Yeo & Yeo is pleased to announce the promotion of Daniel Beard, CPA, to Senior Manager. Beard is a member of the firm’s Assurance Service Line and specializes in audits of government entities, nonprofit organizations, and for-profit companies.

In speaking of his promotion, Beard said, “I am excited to take this next step in my career and embrace more leadership opportunities. I enjoy working with our clients and building collaborative relationships where I can understand their needs and create tailored solutions.”

Beard holds a Master of Science in Accounting and has been with Yeo & Yeo since 2014. As part of the Government Services Group, he helps state and local government entities navigate challenges and become more agile and efficient. He is an active member of the Michigan Government Finance Officers Association, the American Institute of Certified Public Accountants, and the Michigan Association of Certified Public Accountants. Beyond his professional commitments, Beard is a graduate of Leadership A2Y and proudly serves as a Certified Tourism Ambassador in Washtenaw County. He is based in the firm’s Ann Arbor office, where he continues to make a positive impact on both clients and the community.

“Daniel has consistently demonstrated exceptional skill and dedication,” said Jamie Rivette, Principal and Assurance Service Line Leader. “He consistently goes above and beyond for clients, helping them through every stage of the audit process and beyond. I look forward to seeing how he will continue to support our team, drive positive change, and build meaningful relationships with our clients.”

Deepfakes — digital forgeries produced by artificial intelligence (AI) — have blurred the line between reality and illusion. On the upside, AI-generated deepfakes have revolutionized special effects in motion pictures and made certain education and health care industry processes more effective. Yet there are also plenty of risks associated with deepfakes.

Current threats

Deepfakes purporting to represent public officials can disseminate disinformation and generate fake news stories. And if fraud perpetrators use deepfake images of a company’s owner or senior executives, they can more easily perpetrate phishing schemes and steal sensitive data.

The threat extends beyond visible manipulation to audio. Deepfakes can mimic a specific individual’s voice to commit theft. For example, a so-called “business partner” might leave a voicemail instructing someone in your accounting department to wire funds to an overseas account.

Detection challenges

AI-based detection technology solutions can help reveal deepfakes by identifying unusual facial movements, unnatural body postures and lighting inconsistencies. Yet this technology is still in its infancy and far from perfect.

Alternative solutions, such as watermarking, show promise. However, watermarking technology is relatively easy to bypass and has yet to gain widespread acceptance. A small but growing body of law regulates the use of deepfakes. But the laws do little to prevent their creation. They generally punish creators when (and if) they’re caught using deepfakes to commit illegal acts.

Key warning signs

Recognizing the red flags of deepfake content is vital. You and your employees should be wary of video or audio exhibiting:

Unnatural eye movements. Deepfake creators find it particularly challenging to replicate natural blinking patterns, eye movements and eye gazes. Inconsistencies in eye-related movements could be suspicious.

Unrealistic faces. Mismatched skin tones, questionable lighting and blurred edges are potential signs of a deepfake. So, too, are stiff or exaggerated facial expressions.

Lip-sync and audio issues. Lip movement lagging its soundtrack is a common problem that’s difficult for deepfake creators to overcome. A deepfake may not be able to capture an individual’s tone or emotion and its soundtrack may contain abrupt or unnatural pauses.

Corrupted backgrounds. Warped objects near the edges of a person’s face or inconsistent backgrounds that bleed into the foreground are possible signs of a deepfake.

Unbelievable content. Deepfake videos can be entertaining, but they’re also frequently sensational and out of character for the individuals supposedly being depicted.

Questionable sourcing. Many deepfakes are from non-credible sources and circulated via untrustworthy platforms. Any content that goes viral, meaning people share it with their social networks, should be treated with caution.

Corroborate files first

Until technology makes it easier to uncover deepfakes, exercising a healthy skepticism is the best way to avoid being conned. Before you treat a video or audio file as legitimate, corroborate it with multiple sources. And if employees receive an unusual request via voicemail or video from a supposed manager, they should verify it by phone or by talking to the individual in person.

With the 2025 tax filing season underway, be aware that the deadline is coming up fast for businesses to submit certain information returns to the federal government and furnish them to workers. By January 31, 2025, employers must file these forms and furnish them to recipients:

Form W-2, Wage and Tax Statement. Form W-2 shows the wages paid and taxes withheld for the year for each employee. It must be furnished to employees and filed with the Social Security Administration (SSA). The IRS notes that “because employees’ Social Security and Medicare benefits are computed based on information on Form W-2, it’s very important to prepare Form W-2 correctly and timely.”

Form W-3, Transmittal of Wage and Tax Statements. Anyone required to file Form W-2 must also file Form W-3 to transmit Copy A of Form W-2 to the SSA. The totals for amounts reported on related employment tax forms (Form 941, Form 943, Form 944 or Schedule H for the year) should agree with the amounts reported on Form W-3.

Failing to timely file or include the correct information on either the information return or statement may result in penalties.

Freelancers and independent contractors

The January 31 deadline also applies to Form 1099-NEC, Nonemployee Compensation. This form is furnished to recipients and filed with the IRS to report nonemployee compensation to independent contractors.

If the following four conditions are met, payers must generally complete Form 1099-NEC to report payments as nonemployee compensation:

You made a payment to someone who isn’t your employee,
You made a payment for services in the course of your trade or business,
You made a payment to an individual, partnership, estate, or, in some cases, a corporation, and
You made a payment of at least $600 to a recipient during the year.

Note: When the IRS requires you to “furnish” a statement to a recipient, it can be done in person, electronically or by first-class mail to the recipient’s last known address. If forms are mailed, they must be postmarked by January 31.

Your business may also have to furnish a Form 1099-MISC to each person to whom you made certain payments for rent, medical expenses, prizes and awards, attorney’s services, and more. The deadline for furnishing Forms 1099-MISC to recipients is January 31 but the deadline for submitting them to the IRS depends on the method of filing. If they’re being filed on paper, the deadline is February 28. If filing them electronically, the deadline is March 31.

Act fast

If you have questions about filing Form W-2, Form 1099-NEC or any tax forms, contact us. We can assist you in complying with all the rules.

Running a small business often requires periodic cash infusions, and knowing how to secure the right funding can determine whether your business succeeds or struggles. Let’s explore the three primary types of funding available to small businesses: debt, equity and hybrid financing.

Debt: Borrowing to grow

Debt financing involves borrowing money and repaying it with interest over time. This category includes traditional bank loans, such as term loans, lines of credit and Small Business Administration loans.

One key advantage of debt financing is that you maintain ownership of your business. However, loan payments can strain cash flow, and lenders often require collateral. If you fail to make payments, creditors can claim ownership of the collateral and, in some cases, sue your business or the owner(s) personally for repayment.

Debt financing works best for businesses with steady revenue streams to ensure timely payments. By retaining ownership, you preserve control over decision-making, but it’s critical to evaluate whether your cash flow can sustain regular loan payments.

Equity: Trading ownership for capital

Equity financing involves selling part of your business to investors in exchange for funding. Common sources include:

Angel investors,
Venture capital firms, and
Crowdfunding platforms.

Unlike debt, equity financing doesn’t require repayment. But you relinquish some ownership and possibly a portion of future profits.

This approach may benefit start-ups or high-growth companies that can’t qualify for traditional loans due to a lack of profitability or solid credit history. While equity investors can provide valuable expertise and connections, you’ll need to weigh the trade-off of shared decision-making and reduced control over your business.

Hybrid financing: Combining debt and equity

Hybrid financing blends elements of debt and equity. Examples include convertible notes (debt that can convert into equity under specific conditions) and revenue-based financing (where repayment is tied to a percentage of your future revenue). These options are often more flexible, aligning payment terms with business performance.

Hybrid financing is ideal for business owners seeking customized funding solutions. It allows you to leverage the benefits of debt and equity. However, the terms can be complex and require careful negotiation.

Financial statements matter

Accurate financial statements are essential to securing funding. Lenders and investors will require a detailed financial package that includes the following three reports:

Income statements to highlight revenue, costs and profits,
Balance sheets to summarize assets and liabilities, and
Statements of cash flows to show how money moves through your business.

In addition, lenders or investors may ask for supporting reports, such as accounts receivable aging, breakdowns of major expense categories, and information about owners and key employees. These documents provide insight into your business’s financial health and operations, helping potential funders assess the risks and potential rewards of their investment.

Most lenders and investors require at least two to three years of historical financial data and projections for the next two to three years. These reports should tell a clear, compelling story about your business’s financial stability and growth potential.

What’s right for your business?

Selecting the right financing option depends on your business model, growth stage, long-term goals and risk tolerance. As your business’s needs evolve, it may use a combination of debt, equity and hybrid financing. We can help you maintain accurate financial records and understand the pros and cons of each option. Contact us to help you make informed decisions to fund your business’s growth.

Qualified employer-sponsored retirement plans have become a fundamental fringe benefit for many employers today. However, if your organization sponsors one, you know how complex administration and compliance can be. It’s not uncommon for plan sponsors (such as employers) or administrators to make mistakes.

In 2002, the U.S. Department of Labor (DOL) introduced the Voluntary Fiduciary Correction Program (VFCP). It allows plan sponsors and administrators to voluntarily correct violations of the Employee Retirement Income Security Act (ERISA) and Internal Revenue Code committed under qualified plans, including 401(k)s and pensions. On January 14, the DOL’s Employee Benefits Security Administration (EBSA), which runs the VFCP, announced an important update.

Program mechanics

Historically, the VFCP has enabled plan sponsors and administrators to correct eligible transactions within 19 categories. Examples include:

Participant loans that fail to comply with plan provisions for amount, duration or level amortization,
Purchase or sale of assets from or to parties in interest,
Sale and leaseback of property to sponsoring employers,
Purchase or sale of assets from or to nonparties in interest at more or less than fair market value,
Payment of duplicate, excessive or unnecessary compensation, and
Improper payment of expenses by the plan.

To correct these violations, the program requires applicants to follow a series of steps. First, plan sponsors or administrators must identify ERISA violations and determine whether they fall within VFCP-covered transactions. Second, sponsors or administrators need to obtain a qualified valuation of plan assets.

Third, applicants must calculate and restore any losses or profits with interest, if applicable, and distribute any supplemental benefits to participants. They also need to pay all expenses incurred for correcting erroneous transactions, such as appraisal costs and fees for recalculating participants’ balances.

Finally, plan sponsors or administrators must file an application with the appropriate EBSA regional office that includes documentation showing evidence of the corrective action taken. If plan corrections satisfy the VFCP’s terms, the EBSA will issue a “no action” letter. This essentially means that the agency accepts the correction and won’t impose any further sanctions.

Self-correct tool

This year’s update to the VFCP introduces what the EBSA calls the “Self-Correction Component” (SCC). It’s essentially a tool that allows plan sponsors or administrators to fix certain transactions without going through the traditional VFCP application process. Instead, self-correctors can submit an SCC Notice through the EBSA’s web tool and provide the required information.

Only two types of transactions are currently eligible for the SCC. They are:

Delinquent participant contributions and loan repayments to pension plans, and
Qualifying inadvertent participant loan failures.

An EBSA fact sheet provides further details about each type of transaction. On the fact sheet, the agency also notes that it has made several other improvements to the VFCP. For example, additional correction options will soon be available for prohibited loan transactions and prohibited purchase and sale transactions involving plans. As of this writing, the effective date for all the EBSA’s 2025 VFCP revisions — including the SCC — is March 17, 2025.

Complexity and challenges

The forthcoming addition of the SCC represents an important, if incremental, improvement to the VFCP. It also highlights the complexity of offering a qualified retirement plan and the challenges of complying with ERISA and the Internal Revenue Code. Contact us for help identifying and assessing the costs, risks and potential upsides of any fringe benefits you’re administering or considering.

From the moment they launch their companies, business owners are urged to use key performance indicators (KPIs) to monitor performance. And for good reason: When you drive a car, you’ve got to keep an eye on the gauges to keep from going too fast and know when it’s time to service the vehicle. The same logic applies to running a business.

As you may have noticed, however, there are many KPIs to choose from. Perhaps you’ve tried tracking some for a while and others after that, only to become overwhelmed by too much information. Sometimes it helps to back up and review the general concept of KPIs so you can revisit which ones are likely best for your business.

Financial metrics

One way to make choosing KPIs easier is to separate them into two broad categories: financial and nonfinancial. Starting with the former, you can subdivide financial metrics into smaller buckets based on strategic objectives. Examples include:

Growth. Like most business owners, you’re probably looking to grow your company over time. However, if not carefully planned for and tightly controlled, growth can land a company in hot water or even put it out of business. So, to manage growth, you may want to monitor basic KPIs such as:

Debt to equity: total debt / shareholders’ equity, and
Debt to tangible net worth: total debt / net worth – intangible assets.

Cash flow management. Maintaining or, better yet, strengthening cash flow is certainly a good aspiration for any company. Poor cash flow — not slow sales or lagging profits — often leads businesses into crises. To help keep the dollars moving, you may want to keep a close eye on:

Current ratio: current assets / current liabilities, and
Days sales outstanding: accounts receivable / credit sales × number of days.

Inventory optimization. If your company maintains inventory, you’ll no doubt want to set annual, semiannual or quarterly objectives for how to best move items on and off your shelves. Many businesses waste money by allowing slow-moving inventory to sit idle for too long. To optimize inventory management, consider KPIs such as:

Inventory turnover: cost of goods sold / average inventory, and
Average days to sell inventory: average inventory / cost of goods sold × number of days in period.

Nonfinancial metrics

Not every KPI you track needs to relate to dollars and cents. Companies often use nonfinancial KPIs to set goals, track progress and determine incentives in areas such as customer service, sales, marketing and production. Here are two examples:

Let’s say you decide to set a goal to resolve customer complaints faster. To determine where you stand, you could calculate average resolution time. This KPI is usually expressed as total time to resolve all complaints divided by number of complaints resolved. In many industries, a common benchmark is 24 to 48 hours.
Perhaps you want to increase the number of sales leads you close. In this case, the KPI could be sales close rate, which is typically calculated by dividing number of closed deals by number of sales leads. Benchmarks for this metric vary by industry, but somewhere around 20% is generally considered good.

Nonfinancial KPIs enable you to do more than just say, “Let’s provide better customer service!” or “Let’s close more sales!” They allow you to assign specific data points to business activities, so you can objectively determine whether you’re getting better at them.

Scalable measurements

The sheer number of KPIs — both financial and nonfinancial — will probably only grow. The good news is, you’ve got time. Choose a handful that make the most sense for your company and track them over a substantial period. Then, make adjustments based on the level of insight they provide.

You can also scale up how many metrics you track as your business grows or scale them down if you’re pumping the brakes. Our firm can help you identify the optimal KPIs for your company right now and integrate new ones in the months or years ahead.

The nationwide price of gas is slightly higher than it was a year ago and the 2025 optional standard mileage rate used to calculate the deductible cost of operating an automobile for business has also gone up. The IRS recently announced that the 2025 cents-per-mile rate for the business use of a car, van, pickup or panel truck is 70 cents. In 2024, the business cents-per-mile rate was 67 cents per mile. This rate applies to gasoline and diesel-powered vehicles as well as electric and hybrid-electric vehicles.

The process of calculating rates

The 3-cent increase from the 2024 rate goes along with the recent price of gas. On January 17, 2025, the national average price of a gallon of regular gas was $3.11, compared with $3.08 a year earlier, according to AAA Fuel Prices. However, the standard mileage rate is calculated based on all the costs involved in driving a vehicle — not just the price of gas.

The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, including gas, maintenance, repairs and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the cents-per-mile rate midyear.

Standard rate or real expenses

Businesses can generally deduct the actual expenses attributable to business use of a vehicle. These include gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases, certain limits apply to depreciation write-offs on vehicles that don’t apply to other types of business assets.

The cents-per-mile rate is beneficial if you don’t want to keep track of actual vehicle-related expenses. With this method, you don’t have to account for all your actual expenses. However, you still must record certain information, such as the mileage for each business trip, the date and the destination.

Using the cents-per-mile rate is also popular with businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles a great deal for business purposes. Why? Under current law, employees can’t deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.

If you do use the cents-per-mile rate, keep in mind that you must comply with various rules. If you don’t comply, the reimbursements could be considered taxable wages to the employees.

When you can’t use the standard rate

There are some cases when you can’t use the cents-per-mile rate. It partly depends on how you’ve claimed deductions for the same vehicle in the past. In other situations, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.

As you can see, there are many factors to consider in deciding whether to use the standard mileage rate to deduct vehicle expenses. We can help if you have questions about tracking and claiming such expenses in 2025 — or claiming 2024 expenses on your 2024 income tax return.