Beyond the Financials: What’s a Quality of Earnings Report?

Financial statements provide insights into a company’s historical performance. But the parties to a merger or acquisition are also interested in assessing the acquisition target’s potential to generate cash flow in the future. That’s where an independent quality of earnings (QOE) report comes into play.

Looking to the future

QOE reports look beyond the quantitative information provided in the financial statements. While these reports may be customized to meet the needs of the party requesting them, they typically analyze the individual components of earnings (that is, revenue and expenses) on a monthly basis.

The goals are twofold. First, QOE reports help buyers and sellers assess whether earnings are sustainable. Second, they may identify potential risks and opportunities, both internal and external, that could affect the ability of the company to operate as a going concern. Examples of issues that a QOE report might uncover include:

Inadequate accounting policies and procedures,
Customer and supplier concentration risks,
Transactions with undisclosed related parties,
Inaccurate period-end adjustments,
Unusual revenue or expense items,
Insufficient loss reserves, and
Overly optimistic prospective financial statements.

QOE analyses can be performed on financial statements that have been prepared in-house, as well as those that have been compiled, reviewed or audited by a CPA firm.

Adjusting EBITDA

The starting point for assessing earnings quality is usually earnings before interest, taxes, depreciation and amortization (EBITDA) for the trailing 12 months. However, EBITDA may need to be adjusted for elements such as:

Nonrecurring items, including a loss from a natural disaster or a gain from an asset sale,
Above- or below-market owners’ compensation,
Discretionary expenses, and
Differences in accounting methods used by the company compared to industry peers.

Benchmarking results

QOE reports typically include detailed ratio and trend analysis to identify unusual activity. Additional procedures can help determine whether changes are positive or negative.

For example, an increase in accounts receivable could result from revenue growth (a positive indicator) or a buildup of uncollectible accounts (a negative indicator). If it’s the former, the gross margin on incremental revenue may be analyzed to determine whether the new business is profitable or whether the revenue growth results from aggressive price cuts.

We can help

Consider obtaining a QOE report from an objective financial professional. It can help the parties focus on financial matters during M&A discussions and add credibility to management’s historical and prospective financial statements. Contact us for more information.

To help you meet important 2025 deadlines, we’re providing this summary of due dates for various tax-related forms, payments and other actions. Please review the calendar and let us know if you have any questions about the deadlines or would like assistance meeting them.

January 31

Businesses: Provide Form 1098, Form 1099-MISC (except for those with a February 18 deadline), Form 1099-NEC and Form W-2G to recipients.

Employers: Provide 2024 Form W-2 to employees.

Employers: Report Social Security and Medicare taxes and income tax withholding for fourth quarter 2024 (Form 941) if all associated taxes due weren’t deposited on time and in full.

Employers: File a 2024 return for federal unemployment taxes (Form 940) and pay tax due if all associated taxes due weren’t deposited on time and in full.

Employers: File 2024 Form W-2 (Copy A) and transmittal Form W-3 with the Social Security Administration.

Individuals: File a 2024 income tax return (Form 1040 or Form 1040-SR) and pay any tax due to avoid penalties for underpaying the January 15 installment of estimated taxes.

February 10

Employers: Report Social Security and Medicare taxes and income tax withholding for fourth quarter 2024 (Form 941) if all associated taxes due were deposited on time and in full.

Employers: File a 2024 return for federal unemployment taxes (Form 940) if all associated taxes due were deposited on time and in full.

Individuals: Report January tip income of $20 or more to employers (Form 4070).

February 18

Businesses: Provide Form 1099-B, 1099-S and certain Forms 1099-MISC (those in which payments in Box 8 or Box 10 are being reported) to recipients.

Employers: Deposit Social Security, Medicare and withheld income taxes for January if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for January if the monthly deposit rule applies.

Individuals: File a new Form W-4 to continue exemption for another year if you claimed exemption from federal income tax withholding in 2024.

February 28

Businesses: File Form 1098, Form 1099 (other than those with a January 31 deadline), Form W-2G and transmittal Form 1096 for interest, dividends and miscellaneous payments made during 2024. (Electronic filers can defer filing to April 1.)

March 10

Individuals: Report February tip income of $20 or more to employers (Form 4070).

March 17

Calendar-year partnerships: File a 2024 income tax return (Form 1065 or Form 1065-B) and provide each partner with a copy of Schedule K-1 (Form 1065) or a substitute Schedule K-1 — or request an automatic six-month extension (Form 7004).

Calendar-year S corporations: File a 2024 income tax return (Form 1120-S) and provide each shareholder with a copy of Schedule K-1 (Form 1120-S) or a substitute Schedule K-1 — or file for an automatic six-month extension (Form 7004). Pay any tax due.

Employers: Deposit Social Security, Medicare and withheld income taxes for February if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for February if the monthly deposit rule applies.

April 1

Employers: Electronically file 2024 Form 1097, Form 1098, Form 1099 (other than those with an earlier deadline) and Form W-2G.

April 10

Individuals: Report March tip income of $20 or more to employers (Form 4070).

April 15

Calendar-year corporations: File a 2024 income tax return (Form 1120) or file for an automatic six-month extension (Form 7004). Pay any tax due.

Calendar-year corporations: Pay the first installment of 2025 estimated income taxes and complete Form 1120-W for the corporation’s records.

Calendar-year trusts and estates: File a 2024 income tax return (Form 1041) or file for an automatic five-and-a-half-month extension (six-month extension for bankruptcy estates) (Form 7004). Pay any tax due.

Employers: Deposit Social Security, Medicare and withheld income taxes for March if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for March if the monthly deposit rule applies.

Household employers: File Schedule H, if wages paid equal $2,700 or more in 2024 and Form 1040 isn’t required to be filed. For those filing Form 1040, Schedule H is to be submitted with the return and is thus extended to the due date of the return.

Individuals: File a 2024 income tax return (Form 1040 or Form 1040-SR) or file for an automatic six-month extension (Form 4868). (Taxpayers who live outside the United States and Puerto Rico or serve in the military outside these two locations are allowed an automatic two-month extension without requesting one.) Pay any tax due.

Individuals: Pay the first installment of 2025 estimated taxes (Form 1040-ES) if not paying income tax through withholding or not paying sufficient income tax through withholding.

Individuals: Make 2024 contributions to a traditional IRA or Roth IRA (even if a 2024 income tax return extension is filed).

Individuals: Make 2024 contributions to a SEP or certain other retirement plans (unless a 2024 income tax return extension is filed).

Individuals: File a 2024 gift tax return (Form 709), if applicable, or file for an automatic six-month extension (Form 8892). Pay any gift tax due. File for an automatic six-month extension (Form 4868) to extend both Form 1040 and Form 709 if no gift tax is due.

April 30

Employers: Report Social Security and Medicare taxes and income tax withholding for first quarter 2025 (Form 941) and pay any tax due if all associated taxes due weren’t deposited on time and in full.

May 12

Employers: Report Social Security and Medicare taxes and income tax withholding for first quarter 2025 (Form 941) if all associated taxes due were deposited on time and in full.

Individuals: Report April tip income of $20 or more to employers (Form 4070).

May 15

Calendar-year exempt organizations: File a 2024 information return (Form 990, Form 990-EZ or Form 990-PF) or file for an automatic six-month extension (Form 8868). Pay any tax due.

Calendar-year small exempt organizations (with gross receipts normally of $50,000 or less): File a 2024 e-Postcard (Form 990-N) if not filing Form 990 or Form 990-EZ.

Employers: Deposit Social Security, Medicare and withheld income taxes for April if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for April if the monthly deposit rule applies.

June 10

Individuals: Report May tip income of $20 or more to employers (Form 4070).

June 16

Calendar-year corporations: Pay the second installment of 2025 estimated income taxes and complete Form 1120-W for the corporation’s records.

Employers: Deposit Social Security, Medicare and withheld income taxes for May if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for May if the monthly deposit rule applies.

Individuals: File a 2024 individual income tax return (Form 1040 or Form 1040-SR) or file for a four-month extension (Form 4868) if you live outside the United States and Puerto Rico or you serve in the military outside those two locations. Pay any tax, interest and penalties due.

Individuals: Pay the second installment of 2025 estimated taxes (Form 1040-ES) if not paying income tax through withholding or not paying sufficient income tax through withholding.

July 10

Individuals: Report June tip income of $20 or more to employers (Form 4070).

July 15

Employers: Deposit Social Security, Medicare and withheld income taxes for June if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for June if the monthly deposit rule applies.

July 31

Employers: Report Social Security and Medicare taxes and income tax withholding for second quarter 2025 (Form 941) and pay any tax due if all associated taxes due weren’t deposited on time and in full.

Employers: File a 2024 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 11

Employers: Report Social Security and Medicare taxes and income tax withholding for second quarter 2025 (Form 941) if all associated taxes due were deposited on time and in full.

Individuals: Report July tip income of $20 or more to employers (Form 4070).

August 15

Employers: Deposit Social Security, Medicare and withheld income taxes for July if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for July if the monthly deposit rule applies.

September 10

Individuals: Report August tip income of $20 or more to employers (Form 4070).

September 15

Calendar-year corporations: Pay the third installment of 2025 estimated income taxes and complete Form 1120-W for the corporation’s records.

Calendar-year partnerships: File a 2024 income tax return (Form 1065 or Form 1065-B) and provide each partner with a copy of Schedule K-1 (Form 1065) or a substitute Schedule K-1 if an automatic six-month extension was filed.

Calendar-year S corporations: File a 2024 income tax return (Form 1120-S) and provide each shareholder with a copy of Schedule K-1 (Form 1120-S) or a substitute Schedule K-1 if an automatic six-month extension was filed. Pay any tax, interest and penalties due.

Calendar-year S corporations: Make contributions for 2024 to certain employer-sponsored retirement plans if an automatic six-month extension was filed.

Employers: Deposit Social Security, Medicare and withheld income taxes for August if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for August if the monthly deposit rule applies.

Individuals: Pay the third installment of 2025 estimated taxes (Form 1040-ES), if not paying income tax through withholding or not paying sufficient income tax through withholding.

September 30

Calendar-year trusts and estates: File a 2024 income tax return (Form 1041) if an automatic five-and-a-half-month extension was filed. Pay any tax, interest and penalties due.

October 10

Individuals: Report September tip income of $20 or more to employers (Form 4070).

October 15

Calendar-year bankruptcy estates: File a 2024 income tax return (Form 1041) if an automatic six-month extension was filed. Pay any tax, interest and penalties due.

Calendar-year C corporations: File a 2024 income tax return (Form 1120) if an automatic six-month extension was filed and pay any tax, interest and penalties due.

Calendar-year C corporations: Make contributions for 2024 to certain employer-sponsored retirement plans if an automatic six-month extension was filed.

Employers: Deposit Social Security, Medicare and withheld income taxes for September if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for September if the monthly deposit rule applies.

Individuals: File a 2024 income tax return (Form 1040 or Form 1040-SR) if an automatic six-month extension was filed (or if an automatic four-month extension was filed by a taxpayer living outside the United States and Puerto Rico). Pay any tax, interest and penalties due.

Individuals: Make contributions for 2024 to certain existing retirement plans or establish and contribute to a SEP for 2024 if an automatic six-month extension was filed.

Individuals: File a 2024 gift tax return (Form 709), if applicable, and pay any tax, interest and penalties due if an automatic six-month extension was filed.

October 31

Employers: Report Social Security and Medicare taxes and income tax withholding for third quarter 2025 (Form 941) and pay any tax due if all associated taxes due weren’t deposited on time and in full.

November 10

Employers: Report Social Security and Medicare taxes and income tax withholding for third quarter 2025 (Form 941) if all associated taxes due were deposited on time and in full.

Individuals: Report October tip income of $20 or more to employers (Form 4070).

November 17

Calendar-year exempt organizations: File a 2024 information return (Form 990, Form 990-EZ or Form 990-PF) if a six-month extension was filed. Pay any tax, interest and penalties due.

Employers: Deposit Social Security, Medicare and withheld income taxes for October if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for October if the monthly deposit rule applies.

December 10

Individuals: Report November tip income of $20 or more to employers (Form 4070).

December 15

Calendar-year corporations: Pay the fourth installment of 2025 estimated income taxes and complete Form 1120-W for the corporation’s records.

Employers: Deposit Social Security, Medicare and withheld income taxes for November if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for November if the monthly deposit rule applies.

Yeo & Yeo is pleased to welcome Nicole Demand, CPA, to the firm as a Manager. She is an experienced auditor who will specialize in serving nonprofit organizations as a member of the firm’s Assurance Service Line.

“We are excited to welcome Nicole to the firm,” says Jamie Rivette, Principal and Assurance Service Line Leader. “We are confident that she will bring valuable insights and leadership to our engagements, and we look forward to the positive impact she will have on our clients and the firm.”

Demand brings more than five years of experience in public accounting, serving construction, manufacturing, nonprofit, and higher education clients. She holds a Bachelor of Professional Accountancy from Saginaw Valley State University, and is a member of the American Institute of Certified Public Accountants and the Michigan Association of Certified Public Accountants. In the community, she serves on the Investment Committee for the Saginaw Community Foundation and is a member of the Saginaw County Young Professionals Network. Demand is based in the firm’s Saginaw office.

“Joining Yeo & Yeo is an exciting opportunity to work with a team that values excellence and client relationships as much as I do. I’m proud to be part of such a respected firm,” Demand said.

Yeo & Yeo is pleased to welcome Matt Black to the firm as a Senior Business Valuation Manager. Black will join the firm’s Valuation, Forensics, and Litigation Support Services Group, which helps clients face complex transactions with knowledge, experience, and confidence.

“Matt has a proven track record of helping businesses navigate valuations, mergers, and acquisitions,” says Principal and Tax & Consulting Service Line Leader David Jewell. “His insights will undoubtedly enhance the support we provide to our clients.”

Black brings more than 15 years of experience in financial forecasting, capital allocation, and corporate development. His previous roles include serving as a Senior Manager at KPMG, one of the four largest accounting firms in the nation. As a member of the Tax & Consulting Service Line, Black will specialize in business valuation, litigation support services, consulting, and mergers and acquisitions for privately owned businesses.

Black is a member of the American Society of Appraisers and holds a Bachelor of Arts in Finance from Michigan State University. In the community, he volunteers for Special Olympics Michigan and previously served on the organization’s board. He is also actively involved in Make-a-Wish Michigan.

“I am excited to join Yeo & Yeo and collaborate with such a talented team,” said Black. “I look forward to helping clients uncover opportunities and navigate the complexities of growth and change.”

It’s not uncommon for people who live in states with high income taxes to relocate to states with more favorable tax climates. Did you know that you can use a similar strategy for certain trusts? Indeed, if a trust is subject to high state income tax, you may be able to change its residence — or “situs” — to a state with low or no income taxes.

How different trust types are taxed

The taxation of a trust depends on the trust type. Revocable trusts and irrevocable “grantor” trusts — those over which the grantor retains enough control to be considered the owner for tax purposes — aren’t taxed at the trust level. Instead, trust income is included on the grantor’s tax return and taxed at the grantor’s personal income tax rate.

Irrevocable, nongrantor trusts generally are subject to federal and state tax at the trust level on any undistributed ordinary income or capital gains, often at higher rates than personal income taxes. Income distributed to beneficiaries is deductible by the trust and taxable to beneficiaries.

Therefore, relocating a trust may offer a tax advantage if the trust:

Is an irrevocable, nongrantor trust,
Accumulates (rather than distributes) substantial amounts of ordinary income or capital gains, and
Can be moved to a state with low or no taxes on accumulated trust income.

There may be other advantages to moving a trust. For example, the laws in some states allow you or the trustee to obtain greater protection against creditor claims, reduce the trust’s administrative expenses, or create a “dynasty” trust that lasts for decades or even centuries.

Determining if the trust is movable

For an irrevocable trust, the ability to change its situs depends on several factors, including the language of the trust document (does it authorize a change in situs?) and the laws of the current and destination states. In determining a trust’s state of “residence” for tax purposes, states generally consider one or more of the following factors:

The trust creator’s state of residence or domicile,
The state in which the trust is administered (for example, the state where the trustees reside or where the trust’s records are maintained), and
The state or states in which the trust’s beneficiaries reside.

Some states apply a formula based on these factors to tax a portion of the trust’s income. Also, some states tax all income derived from sources within their borders — such as businesses, real estate or other assets located in the state — even if a trust in another state owns those assets.

Depending on state law and the language of the trust document, moving a trust may involve appointing a replacement trustee in the new state and moving the trust’s assets and records to that state. In some cases, it may be necessary to amend the trust document or to transfer the trust’s assets to a new trust in the destination state. A situs change may also require the consent of the trust’s beneficiaries or court approval.

For tax purposes, a final return should be filed in the current jurisdiction. The return should explain the reasons why the trust is no longer taxable in that state. Before taking action, discuss with us the pros and cons of moving your trust. We can help you determine whether it’s worth your while.

The Cannabis Regulatory Agency (CRA) has released important information regarding Annual Financial Statement (AFS) requirements for medical facilities and adult-use establishments in Michigan for Fiscal Year 2025 (FY25). This update outlines key points that cannabis business owners and operators should know to ensure compliance with state regulations.

AFS Report Details

The AFS report for FY25 must cover all medical facility licenses and adult-use establishment licenses held by the licensee during the reporting period. Key aspects of the report include:

An agreed-upon procedures engagement conducted by an independent Certified Public Accountant (CPA)
The CPA must be licensed or authorized to practice in Michigan
The report must be performed in accordance with statements on standards for attestation engagements
Findings must be communicated using the official AFS report form provided by the CRA
The report must be submitted as an Excel document

CPA Requirements and Submission Process

CPA Qualifications:

The CPA and CPA firm must be actively licensed and registered in Peer Review before completing the AFS Report
Licensees should verify CPA qualifications before engagement

Submission Process:

The completed AFS report and AFS Contact Authorization Form must be submitted online through the Accela Citizens Access Portal (ACA)
Reports should be submitted well in advance of the due date to allow time for corrections if needed
Incomplete reports will be returned and may not be considered as filed by the due date

Important Dates and Notifications

Licensees can verify their next AFS due date online through ACA. The CRA will send email reminders from CRA-AFS@michigan.gov six months before the required AFS report is due. These notices will specify the following:

The due date
Reporting period
Licenses to be included in the AFS report

Exemptions and Additional Information

Certain licenses are exempt from FY25 reporting requirements, including:

Marijuana event organizer licenses
Designated consumption establishment licenses
Marijuana educational research licenses

For more information on AFS requirements, refer to MCL 333.27701 and Michigan Admin Code, R 420.20. Questions can be directed to CRA-AFS@michigan.gov or by calling 517-284-8599.

By staying informed and compliant with these AFS requirements, cannabis businesses in Michigan can ensure they meet their financial reporting obligations and maintain good standing with the Cannabis Regulatory Agency.

Assistance for Your AFS Reporting Needs

Yeo & Yeo is proud to meet all the requirements set by the CRA for performing AFS reports. Our firm possesses extensive industry knowledge and specialized expertise in CRA requirements, making us an ideal partner for your cannabis business’s financial reporting needs. If you have received a notice announcing your required AFS, we encourage you to contact us. Our experienced cannabis CPAs and advisors are ready to assist you in navigating the complexities of AFS reporting and ensuring full compliance with CRA regulations.

New and used “heavy” SUVs, pickups and vans placed in service in 2025 are potentially eligible for big first-year depreciation write-offs. One requirement is you must use the vehicle more than 50% for business. If your business usage is between 51% and 99%, you may be able to deduct that percentage of the cost in the first year. The write-off will reduce your federal income tax bill and your self-employment tax bill, if applicable. You might get a state tax income deduction too.

Setting up a business office in your home for this year can also help you collect tax savings. Here’s what you need to know about the benefits of combining these two tax breaks.

First, buy a suitably heavy vehicle

The generous first-year depreciation deal is only available for an SUV, pickup, or van with a manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds that’s purchased (not leased). First-year depreciation deductions for lighter vehicles are subject to smaller depreciation limits of up to $20,400 in 2024. (The 2025 amount hasn’t come out yet.)

It’s not hard to find attractive vehicles with GVWRs above the 6,000-pound threshold. Examples include the Cadillac Escalade, Jeep Grand Cherokee, Chevy Tahoe, Ford Explorer, Lincoln Navigator, and many full-size pickups. You can usually find the GVWR on a label on the inside edge of the driver’s side door.

Take advantage of generous depreciation deductions

Favorable depreciation rules apply to heavy SUVs, pickups and vans that are used over 50% for business because they’re classified as transportation equipment for federal income tax purposes. Three factors to keep in mind:

First-year Section 179 deductions. Many businesses can write off most or all of the business-use portion of a heavy vehicle’s cost in year 1 under the Section 179 deduction privilege. The maximum Sec. 179 deduction for tax years beginning in 2024 is $1.25 million.
Limited Sec. 179 deductions for heavy SUVs. There’s a limit on Sec. 179 deductions for heavy SUVs with GVWRs between 6,001 and 14,000 pounds. For tax years beginning in 2025, the limit is $31,300.
First-year bonus depreciation. For heavy vehicles placed in service in 2025, the first-year bonus depreciation percentage is currently 40%, but future legislation may allow a bigger write-off. There are several limitations on Sec. 179 deductions but no limits on 40% bonus depreciation. So, bonus depreciation can help offset the impact of Sec. 179 limitations, if applicable.

Then, qualify for home office deductions

Again, the favorable first-year depreciation rules are only allowed if you use your heavy SUV, pickup, or van over 50% for business.

You’re much more likely to pass the over-50% test if you have an office in your home that qualifies as your principal place of business. Then, all the commuting mileage from your home office to temporary work locations, such as client sites, is considered business mileage. The same is true for mileage between your home office and any other regular place of business, such as another office you keep. This is also the case for mileage between your other regular place of business and temporary work locations.

Bottom line: When your home office qualifies as a principal place of business, you can easily rack up plenty of business miles. That makes passing the over-50%-business-use test for your heavy vehicle much easier.

How do you make your home office your principal place of business? The first way is to conduct most of your income-earning activities there. The second way is to conduct administrative and management chores there. But don’t make substantial use of any other fixed location (like another office) for these chores.

Key points: You must use the home office space regularly and exclusively for business throughout the year. Also, if you’re employed by your own corporation (as opposed to being self-employed), you can’t deduct home office expenses under the current federal income tax rules.

Double tax break

You can potentially claim generous first-year depreciation deductions for heavy business vehicles and also claim home office deductions. The combination can result in major tax savings. Contact us if you have questions or want more information about this strategy.

Whether you’re an entrepreneur seeking start-up funds or the owner of an established business that needs capital to make an acquisition or develop new product lines, be careful when looking for a lender. To avoid fraudsters and potentially dire consequences, you need to take your time and carefully screen anyone eager to lend you money. After all, there must be something in it for them. Ensure that those motivations are honest.

Signs signifying trouble

Predatory lenders often offer loans with punitive terms and conditions and nonrefundable upfront fees. They especially target businesses with a checkered history or inadequate collateral because they know such borrowers have fewer options and may be more willing to compromise. To tempt borrowers, bad actors might advertise a quick closing or a willingness to skip due diligence.

Another red flag is when a lender demands an upfront loan application fee. Some false lenders don’t actually make money from issuing loans, but by charging fees for loans they never intend to make. These “lenders” may claim they’ll refund your application fee and then disappear. And don’t assume you can use a credit card and simply contest an application fee charge if the lender proves to be illegitimate. That approach may work in certain situations. However, sophisticated fraudsters can dissolve their business once the volume of disputes becomes significant and they start attracting attention. At that point, you may be out of luck.

Best practices

Even if your business is small or has a history of financial distress, don’t act out of desperation. The wrong loan can be fatal to your company. Instead, contact a range of reputable lenders — national names, midsized institutions and community banks — to assess their interest. Even if a bank turns you down, the loan officer may be willing to explain why you didn’t qualify and provide tips for strengthening your application.

In addition, your professional advisors or fellow business owners may be able to make referrals and introductions. And if you haven’t already done so, ask about a loan from the bank where your business holds deposit accounts. Every bank has its own underwriting guidelines, but you’re more likely to hear “yes” and get a decent rate and terms if you’re a long-time customer with a good track record.

On the other hand, skeptically view unsolicited loan offers via phone, email or text. Many people behind these messages aren’t lenders but identity thieves hoping to trick you into giving them personal and financial information. And if you vet lenders online, be wary. Some business rating sites allow companies to pay for endorsements or request the removal of negative reviews. Reviewing multiple rating sites to get a broader view of a lender’s business practices is more likely to provide you with accurate information.

Before choosing equity

Broadcasting your intention to borrow might attract lenders — as well as potential investors. But before you change course and agree to equity financing, talk to us about the possible financial ramifications for your company. You’ll also need to conduct background checks on the principals and meet face-to-face to discuss their motivations, management approach and industry experience. Your attorney should review any legal paperwork before you sign it. Contact us for more information and financial advice.

Auditing standards require auditors to identify and assess the risks of material misstatement due to fraud and to determine overall and specific responses to those risks. Here are some answers to questions about what auditors assess when interviewing company personnel to evaluate potential fraud risks.

What’s on your auditor’s radar?

When planning audit fieldwork, your audit team meets to brainstorm potential company- and industry-specific risks and outline specific areas of inquiry and high-risk accounts. This sets the stage for inquiries during audit fieldwork. Entities being audited sometimes feel fraud-related questions are probing and invasive, but interviews must be conducted for every audit. Auditors can’t just assume that fraud risks are the same as those that existed in the previous accounting period.

Specific areas of inquiry under Clarified Statement on Auditing Standards Section 240, Consideration of Fraud in a Financial Statement Audit, include:

Whether management has knowledge of any actual, suspected or alleged fraud,
Management’s process for identifying, responding to and monitoring the fraud risks in the entity,
The nature, extent and frequency of management’s assessment of fraud risks and the results of those assessments,
Any specific fraud risks that management has identified or that have been brought to its attention,
The classes of transactions, account balances or disclosures for which a fraud risk is likely to exist, and
Management’s communications, if any, to those charged with governance about its process for identifying and responding to fraud risks, and to employees on its views on appropriate business practices and ethical behavior.

Fraud-related inquiries may also be made of those charged with governance, internal auditors and others within the entity. Examples of other people that an auditor might ask about fraud risks include the chief ethics officer, in-house legal counsel, and employees involved in processing complex or unusual transactions.

Why are face-to-face meetings essential?

Whenever possible, auditors meet in person with managers and others to discuss fraud risks. That’s because a large part of uncovering fraud involves picking up on nonverbal clues.

Nuances such as an interviewee’s tone and inflection, speed of response, and body language provide important context to the spoken words. An auditor is also trained to notice signs of stress when an interviewee responds to questions, including long pauses before answering or starting answers over.

In addition, in-person interviews provide an opportunity for immediate follow-up questions. When a face-to-face interview isn’t possible, a videoconference or phone call is the next best option because it provides many of the same advantages as meeting in person.

How can you help the process?

While an external audit doesn’t provide an absolute guarantee against fraud, it’s a popular — and effective — antifraud control. You can facilitate the fraud risk assessment by anticipating the types of questions we’ll ask and the types of audit evidence we’ll need. Forthcoming, prompt responses help keep your audit on schedule and minimize unnecessary delays. Contact us for more information before audit fieldwork begins.

It’s often said that a paycheck isn’t the only reason an employee stays at a job, and there’s certainly evidence to support this. However, let’s be honest: People generally go to work to earn money, and compensation is undoubtedly a significant factor in maintaining their loyalty.

With that in mind, you might think that employers have gotten pretty good at designing, implementing and administering compensation programs that keep employees in the fold. Yet a recent survey indicates otherwise.

Reviewing the survey

In October of last year, global advisor, brokerage and solutions provider WTW released its 2024 Pay Effectiveness and Design Survey. The report’s results were based on the responses of nearly 1,900 companies worldwide, including 332 in the United States.

Of those respondents, only about half stated that they’re effectively fulfilling their compensation programs based on six core objectives:

Driving employee attraction,
2. Driving employee attention,
3. Promoting fair compensation among employees,
4. Promoting competitive compensation compared with other organizations,
5. Aligning pay with their business strategies, and
6. Rewarding employees for current-year performance.

To reinforce the importance of getting a compensation program right, WTW cited its 2024 Global Benefits Attitude Survey in the report, which found that:

48% of respondents said pay was one of the main drivers of retention, and
56% stated they’d consider another job offer for better pay.

The benefits survey results were based on responses from 10,000 U.S. employees of midsize and large private-sector employers.

Reevaluating compensation philosophy

If you’re concerned that your organization’s compensation program may be inadequately supporting employee retention, there are steps you can take. Begin by reevaluating your compensation philosophy.

This is the mindset or framework your organization used to, whether consciously or not, design its compensation program. Ideally, your philosophy should be a carefully considered and formally documented approach that accounts for factors such as:

Aligning compensation with strategic goals,
Staying competitive in your industry’s current job market, and
Promoting pay equity and transparency to the degree your organization deems appropriate.

As you know, the employment landscape has undergone seismic changes over the last five years or so. The pandemic, rising inflation, generational workforce shifts and skilled labor shortages have substantially affected the relationship between employers and employees. You may need to adjust your organization’s compensation philosophy to suit the changed expectations and developing needs of today’s workers.

Adjusting program design

If you decide to make some changes to your compensation philosophy, or even if you don’t, carefully review your compensation program’s design. Look for adjustments you might make that will likely improve employee retention.

Remember that a compensation program is far more than just where you set starting salaries or wages and how you increase them over time. A well-designed program addresses a wide array of elements, including:

Base pay,
Variable pay (such as bonuses and commissions),
Equity compensation (such as stock options),
Fringe benefits,
Position-based pay structures, and
Communication strategies and actions related to compensation.

Be sure your organization has a clear and reasonable rationale for where each element of its compensation program currently stands. You may need to conduct market research and do some external benchmarking to determine just how competitive your program is. And the communications element is huge. In some cases, improving retention could just be a matter of better explaining the total value of compensation for each position.

Rising to the challenge

Precisely how to go about paying employees is one of the most challenging aspects of being an employer. And the complexity of compensation tends to increase as organizations grow. Contact us for help evaluating and improving your compensation philosophy and program.

As 2025 begins and the transition to the new administration in D.C. commences, change is inevitable. This year, new employee benefit plan provisions are taking effect driven by existing laws such as the Employee Retirement Income Security Act of 1974 (ERISA) and the Setting Every Community Up for Retirement Enhancement Act of 2022 (SECURE 2.0). Here, we will review those changes and offer additional insight.

Mandatory automatic enrollment for new plans

SECURE 2.0 established new requirements for new 401(k) and 403(b) plans adopted after December 29, 2022. As of January 1, 2025, employers must automatically enroll eligible employees into these plans with an initial deferral percentage that is between 3% and 10% of compensation. Automatic contributions escalate by at least 1% per year up to a deferral rate of at least 10% but not more than 15% (10% until January 1, 2025). Participants can opt out of automatic enrollment or automatic escalation at any time.

The following may be exempt from the new requirements:

Plans in effect on or before December 29, 2022.
Organizations in existence for less than three years.
Businesses with fewer than 10 employees.
Church and governmental plans.

Catch-up contribution increases

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) first introduced catch-up contribution provisions as a way to help older workers increase retirement savings. Under EGTRRA, plan sponsors could voluntarily amend their plans to allow participants aged 50 and older to contribute additional amounts to their 401(k), 403(b), and 457(b) plans. Prior to December 31, 2024, catch-up contributions to these plans were limited to $7,500, as indexed.

For taxable years beginning after December 31, 2024, those contribution limits change. Participants aged 60 to 63 may make additional contributions of either (i) $11,250 or (ii) 150% of their 2024 contribution limit, as indexed for inflation after 2025.

For SIMPLE IRA plans, before December 31, 2024, participants in SIMPLE IRA plans that allow catch-ups could contribute up to $3,500, as indexed. In 2025, such contributions rely on the participant’s age (50 to 59, or age 64 or older on December 31, 2025) and the company’s number of employees. Depending on these factors, a participant’s contributions above regular deferrals can total between $3,850 and $5,250.

Coverage of long-term part-time employees

The original SECURE Act required employers to include certain part-time employees in their 401(k) plans. To be eligible, the employee must have worked at least 500 hours per year for at least three consecutive years and must be at least 21 years old as of the end of that three-year period. The employee also would earn vesting credits for all years with at least 500 hours of service.

SECURE 2.0 reduces the three-year period to two years for plan years beginning after December 31, 2024. However, service performed before January 1, 2021, is disregarded for both eligibility and vesting purposes.

Although SECURE 2.0 extends this rule to apply to 403(b) plans that are subject to ERISA, the rule does not apply to union plans or defined benefit plans.

Distributions for certain long-term care premiums

Plan participants may receive distributions of up to $2,500 per year to pay for quality long-term care insurance without triggering the 10% early withdrawal penalty that might otherwise apply. This optional change for plan sponsors becomes effective for distributions made after December 29, 2025.

The lost and found database

Retrieval or management of retirement funds can be complicated when workers move from job to job. To help reunite participants and their missing retirement plans, SECURE 2.0 required the Employee Benefits Security Administration to provide a search tool or database of benefits by December 29, 2024. At this time, participation is voluntary, with some groups expressing concern about the breadth of information initially requested by the Department of Labor to populate the database.

Is your plan ready for 2025?

By staying informed and prepared, plan sponsors can navigate these changes effectively. Plan sponsors should proactively review and adjust their plans accordingly to ensure compliance with these new mandates.

If you have questions about the compliance of your plan or would like more detailed guidance, contact our Employee Benefit Plan Audit team for assistance.

When selling business assets, understanding the tax implications is crucial. One area to focus on is Section 1231 of the Internal Revenue Code, which governs the treatment of gains and losses from the sale or exchange of certain business property.

Business gain and loss tax basics

The federal income tax character of gains and losses from selling business assets can fall into three categories:

Capital gains and losses. These result from selling capital assets which are generally defined as property other than 1) inventory and property primarily held for sale to customers, 2) business receivables, 3) real and depreciable business property including rental real estate, and 4) certain intangible assets such as copyrights, musical works and art works created by the taxpayer. Operating businesses typically don’t own capital assets, but they might from time to time.
Sec. 1231 gains and losses. These result from selling Sec. 1231 assets which generally include 1) business real property (including land) that’s held for more than one year, 2) other depreciable business property that’s held for more than one year, 3) intangible assets that are amortizable and held for more than one year, and 4) certain livestock, timber, coal, domestic iron ore and unharvested crops.
Ordinary gains and losses. These result from selling all assets other than capital assets and Sec. 1231 assets. Other assets include 1) inventory, 2) receivables, and 3) real and depreciable business assets that would be Sec. 1231 assets if held for over one year. Ordinary gains can also result from various recapture provisions, the most common of which is depreciation recapture.

Favorable tax treatment

Gains and losses from selling Sec. 1231 assets receive favorable federal income tax treatment.

Net Sec. 1231 gains. If a taxpayer’s Sec. 1231 gains for the year exceed the Sec. 1231 losses for that year, all the gains and losses are treated as long-term capital gains and losses — assuming the nonrecaptured Sec. 1231 loss rule explained later doesn’t apply.

An individual taxpayer’s net Sec. 1231 gain — including gains passed through from a partnership, LLC, or S corporation — qualifies for the lower long-term capital gain tax rates.

Net Sec. 1231 losses. If a taxpayer’s Sec. 1231 losses for the year exceed the Sec. 1231 gains for that year, all the gains and losses are treated as ordinary gains and losses. That means the net Sec. 1231 loss for the year is fully deductible as an ordinary loss, which is the optimal tax outcome.

Unfavorable nonrecaptured Sec. 1231 loss rule

Now for a warning: Taxpayers must watch out for the nonrecaptured Sec. 1231 loss rule. This provision is intended to prevent taxpayers from manipulating the timing of Sec. 1231 gains and losses in order to receive favorable ordinary loss treatment for a net Sec. 1231 loss, followed by receiving favorable long-term capital gain treatment for a net Sec. 1231 gain recognized in a later year.

The nonrecaptured Sec. 1231 loss for the current tax year equals the total net Sec. 1231 losses that were deducted in the preceding five tax years, reduced by any amounts that have already been recaptured. A nonrecaptured Sec. 1231 loss is recaptured by treating an equal amount of current-year net Sec. 1231 gain as higher-taxed ordinary gain rather than lower-taxed long-term capital gain.

For losses passed through to an individual taxpayer from a partnership, LLC, or S corporation, the nonrecaptured Sec. 1231 loss rule is enforced at the owner level rather than at the entity level.

Tax-smart timing considerations

Because the unfavorable nonrecaptured Sec. 1231 loss rule cannot affect years before the year when a net Sec. 1231 gain is recognized, the tax-smart strategy is to try to recognize net Sec. 1231 gains in years before the years when net Sec. 1231 losses are recognized.

Conclusion

Achieving the best tax treatment for Sec. 1231 gains and losses can be a challenge. We can help you plan the timing of gains and losses for optimal tax results.

Health Savings Accounts (HSAs) have become popular employer-sponsored fringe benefits. How popular? According to the most recent data from the U.S. Bureau of Labor Statistics, 51% of private industry workers in 2023 had access to the high-deductible health plans (HDHPs) that must be sponsored in conjunction with HSAs.

The funny thing about HSAs is, though widely offered, they’re often suboptimally used. If your organization sponsors an HDHP with HSAs, you can help participants get more from their accounts. And if it doesn’t, read on for some insights into this potentially valuable fringe benefit.

More than meets the eye

HSAs are participant-owned, tax-advantaged accounts used to accumulate funds for eligible medical expenses. As mentioned, an HSA must be offered along with an HDHP, which is defined in 2025 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 and $8,550 for family coverage.

Account holders generally fail at “optimal utilization” in a couple of ways. First, some simply don’t contribute enough funds to fully cover medical expenses throughout the year. This may be because of financial constraints, unexpectedly high health care costs or a lack of understanding of how HSAs work.

Second, many participants overlook the fact that HSAs are not only medical savings accounts, but also retirement savings accounts. That’s right; employers can set up accounts to include investment options that can generate interest on designated account funds. And because participants own their accounts, they can keep building their balances no matter where or whether they work.

Under traditional qualified retirement plans, such as 401(k)s and IRAs, contributions and accumulated investment returns are taxable upon withdrawal. HSA distributions, however, are nontaxable so long as funds are used for qualified expenses, which are surprisingly broad. Plus, as is also the case with employer-sponsored traditional 401(k)s and IRAs, HSA contributions occur pretax via paycheck deferrals.

When HSA distributions are used for ineligible expenses, they’re subject to a 20% tax penalty plus federal income taxes at the account holder’s ordinary rate. That 20% penalty, however, disappears when account holders turn 65, though nonmedical expenses from age 65 onward remain subject to regular federal income tax.

Even when compared with Roth 401(k)s or Roth IRAs, HSAs land in a favorable light. Although Roth distributions are tax-free at the federal level, Roth contributions aren’t tax-deductible. Direct HSA contributions are deductible and, again, paycheck deferrals happen pretax — lowering participants’ taxable income.

3 ways to help

Employers may use various approaches to help HSA participants get more from their accounts. These include:

1. Providing basic education and reminders. Be sure your benefits materials and communications are accurate, thorough and clearly written. Employees should have access to a reader-friendly description of what an HSA is and how it works. Throughout the year, issue regular reminders about using the accounts and recognizing their value as savings vehicles.

2. Considering matching strategies. Just as employers can match 401(k) contributions, they may match HSA contributions. And there are some creative ways to do so. For example, you could amend your 401(k) plan so participants get a 50% match on their combined 401(k)-HSA deferrals. However, consult a qualified benefits advisor before making any plan design changes.

3. Adding or updating investment options. If your current HSAs don’t have investment options, explore adding them. Examples include money market funds, stocks and mutual funds, and bonds or bond funds. You may need to update your investment options periodically. Again, work with a qualified advisor when undertaking these steps.

Costs, risks and upsides

The HDHP plus HSAs model is popular because it offers advantages for both employers and participants. However, that doesn’t mean it’s right for every organization. Contact us for help identifying and assessing the costs, risks and potential upsides of any fringe benefits you’re administering or considering.

Yeo & Yeo, a leading accounting, technology, medical billing, wealth management, and advisory firm, has acquired Amy Cell Talent (ACT). Effective January 1, 2025, ACT will be rebranded as Yeo & Yeo HR Advisory Solutions (YYHR), with Amy Cell assuming the role of President.

“We are excited to welcome Amy Cell Talent’s professionals to the Yeo & Yeo team,” said David Youngstrom, Yeo & Yeo’s President & CEO. “This partnership enhances our ability to meet our clients’ HR needs, helping them succeed in new and exciting ways.”

Amy Cell brings a wealth of experience to her role as President of Yeo & Yeo HR Advisory Solutions. She began her career as a CPA with Plante Moran before transitioning into HR, where she held pivotal roles, including Vice President of Talent Enhancement and Entrepreneurial Education at Ann Arbor SPARK and Senior Vice President of Talent Enhancement at the Michigan Economic Development Corporation. Nearly ten years ago, she founded Amy Cell Talent, successfully building a team of over 25 HR professionals and earning an outstanding reputation throughout Southeast Michigan and beyond. ACT is a Gold Resource Partner with the Michigan Council of the Society for Human Resource Management, has been recognized as an Ann Arbor SPARK FastTrack Award winner, and one of Michigan’s Small Business 50 Companies to Watch.

“Joining Yeo & Yeo marks an exciting new chapter for our company,” said Cell. “From the start, it was clear that we share the same core values—putting people first, fostering trust, and striving for excellence in everything we do. What excites me most is the opportunities it creates for our clients. With Yeo & Yeo’s breadth of expertise and resources, we can offer more comprehensive, innovative solutions than ever.”

Since 2015, Amy Cell Talent has specialized in delivering tailored HR solutions to businesses, nonprofits, municipalities, and job seekers across Michigan. Based in Ypsilanti at the SPARK East Innovation Center, the firm is known for its expertise in workforce development and personalized HR services. As part of Yeo & Yeo’s ongoing growth, more than 20 of Amy Cell Talent’s HR professionals will join the firm under its newly formed fifth entity, Yeo & Yeo HR Advisory Solutions. This expansion allows Yeo & Yeo to offer a comprehensive suite of HR and recruiting services, including compensation planning, employee training and coaching, policy development, payroll management, employee engagement and retention strategies, and recruiting. With the addition of these specialized services, Yeo & Yeo continues to strengthen its commitment to meeting the diverse needs of its clients.

“A lot is happening in the HR landscape right now, including changes to Michigan minimum wage laws and earned sick time,” said Cell. “Yeo & Yeo HR Advisory Solutions is here to help our clients navigate these complexities and solve their HR challenges with confidence.”

Learn more about Yeo & Yeo HR Advisory Solution’s services at yeoandyeo.com/hr-advisory-solutions.

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In a surprising turn of events, a federal appeals court has issued another ruling that suspends a requirement for businesses to file reports about their beneficial ownership information (BOI). This came just days after the same court issued a ruling that resulted in the federal government announcing that millions of small businesses did have to file BOI reports by January 13, 2025.

The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) immediately announced: “In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

Bottom line: If your business was concerned about the deadline, or rushing to meet it, you can relax for now. Business groups, including the National Federation of Independent Business (NFIB) applauded the latest decision. In a press release, the NFIB stated that since small businesses were told that they needed to “urgently submit” BOI reports, they “have experienced enormous chaos and confusion.”

What the requirements are intended to accomplish

The BOI requirements were imposed under the Corporate Transparency Act (CTA). They’re intended to help prevent criminals from using businesses for illicit activities, such as money laundering and fraud. The CTA mandated many small businesses to provide information about their “beneficial owners” (the individuals who ultimately own or control the businesses) to FinCEN. Failure to submit a BOI report by the applicable deadline would have resulted in civil or criminal penalties, or both.

FinCEN estimated that approximately 32.6 million companies would be affected by the reporting rules in the first year.

Timeline of the requirements

To help explain the head-spinning situation, here’s a timeline of some significant events.

January 1, 2021: The Corporate Transparency Act is enacted.

January 1, 2024: BOI reporting requirements begin to take effect. Initial BOI reports for companies formed or registered prior to 2024 have one year to file reports. Those that register on or after January 1, 2024, have 90 days to file upon receipt of their creation or registration documents and those that register on or after January 1, 2025, have 30 days to file upon receipt of their creation or registration documents.

December 3, 2024: The U.S. District Court for the Eastern District of Texas enters an order suspending nationwide enforcement of the CTA and its BOI reporting requirements. The court challenges the constitutionality of the CTA. (However, in other cases, district courts have upheld the CTA and its requirements.)

December 5, 2024: The government appeals the December 3 district court ruling.

December 6, 2024: FinCEN announces in an alert: “In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

FinCEN states that it believes the CTA is constitutional.

December 23, 2024: The U.S. Court of Appeals for the Fifth Circuit again allows the nationwide enforcement of the CTA and the BOI reporting requirements. FinCEN announces in another “alert” that reporting companies formed or registered prior to 2025 have until January 13, 2025, to file a BOI report (rather than the original January 1, 2025, deadline).

December 26, 2024: The Fifth Circuit vacates the stay and reinstates a nationwide preliminary injunction enjoining (or prohibiting) the government from enforcing the CTA.

December 27, 2024: FinCEN announces in another “alert” that reporting companies aren’t currently required to file BOI reports in January. The Fifth Circuit announces a schedule to address the “weighty substantive arguments” again, beginning in February 2025.

What the future could hold

As you can see by the latest announcement from the appeals court, the ongoing saga of the BOI reporting requirements isn’t necessarily finished. In addition to the court potentially changing the rules again, there could be legislation repealing the reporting requirements when Republicans take control of Congress in the new year. Contact us if you have questions or want to file a BOI report voluntarily.

Yeo & Yeo, a leading Michigan-based accounting and advisory firm, announces the relocation of its Southeast Michigan offices to a new location in Troy, Michigan. The professionals in Yeo & Yeo’s Auburn Hills office and Bloomfield Hills office, formerly the practice of Berger, Ghersi & LaDuke, who joined Yeo & Yeo in July 2024, have relocated to the new Troy office, effective January 2, 2025.

“Merging the two offices brings together a talented team of over 30 professionals in one unified space, which has become the firm’s second-largest office,” said Dave Youngstrom, President & CEO of Yeo & Yeo. “With this move, we can deliver even greater value to our clients as our people work to help them achieve their goals.”

The Troy office, located on the fourth floor of the Troy Corporate Center II at 880 W. Long Lake Road, Suite 400, spans 14,000 square feet. Employees will have access to modern amenities such as a gym, micro market, and conference center within the Troy Corporate Center.

“Our new office reflects our commitment to growth in Southeast Michigan,” said Principal and Yeo & Yeo board member Tammy Moncrief. “Last year, Yeo & Yeo welcomed 50 new hires firm-wide. This space positions us for future expansion while creating opportunities for collaboration and connection among colleagues.”

Troy Cafe

Yeo & Yeo has nine offices throughout Michigan and solves clients’ challenges through its four interconnected companies: Yeo & Yeo CPAs & Advisors, Yeo & Yeo Medical Billing & Consulting, Yeo & Yeo Technology, and Yeo & Yeo Wealth Management. Most recently, Yeo & Yeo expanded its service offerings, establishing a new human resource and talent acquisition entity, Yeo & Yeo HR Advisory Solutions.

“Yeo & Yeo has grown considerably, expanding our team of professionals and our services,” said Principal Alan LaDuke. “While our location has changed, our commitment to our clients and the community remains. We’re proud of the relationships we’ve built over the years and look forward to continuing to provide support and make a meaningful impact on those we serve.”

Yeo & Yeo’s professionals are excited to welcome clients to the new space, and the firm plans to host its annual Summer Leadership Program, a two-day public accounting firm experience for undergraduate accounting students, at the Troy office in May.

On December 23, 2024, a federal Court of Appeals lifted a preliminary injunction on the Beneficial Ownership Information (BOI) filing requirements, allowing FinCEN to enforce BOI reporting.

Reporting companies must file beneficial ownership information with FinCEN. However, because the Department of the Treasury recognizes that reporting companies may need additional time to comply given the period when the preliminary injunction had been in effect, it has extended the reporting deadline as follows:

For companies created or registered before 2024, the filing deadline was extended from December 31, 2024, to January 13, 2025.
For companies created or registered on or after September 4, 2024, the filing deadline was extended from December 3, 2024, to January 13, 2025.
For companies created or registered on or after December 3, 2024, and on or before December 23, 2024, the filing deadlines were extended an additional 21 days from the regular filing deadlines.
Companies that qualify for disaster relief may have deadlines extended beyond January 13, 2025. These companies should follow whichever deadline is later.
Companies created or registered in the United States on or after January 1, 2025, have 30 days to file their initial reports after receiving notice that their creation or registration is effective.

Companies should work with their legal counsel to determine their filing obligations under the new BOI reporting rules. The Corporate Transparency Act is a separate federal law that is not part of the tax code. Assessing the reporting requirements and identifying beneficial ownership interests may necessitate legal advice. As such, Yeo & Yeo will not assist with determining filing obligations or filing the BOI report.

Where can you learn more?

Refer to the following resources to learn more about BOI reporting:

Visit fincen.gov/boi and sign up for FinCEN updates to receive immediate email updates on BOI reporting.
FinCEN’s five-minute video, How to File a BOI Report
Contact your attorney or legal counsel with expertise in this area for additional guidance.

Yeo & Yeo, a leading Michigan-based accounting and advisory firm, is pleased to announce the promotion of Zaher Basha, CPA, CM&AA, to Principal effective January 1, 2025.

Basha joined Yeo & Yeo in 2014, distinguishing himself through his knowledge of tax planning and preparation, business advisory services, business valuation, and mergers and acquisitions. His commitment to delivering five-star client service has solidified his reputation as a trusted advisor across a range of industries, especially healthcare and mid-size businesses. In addition, Zaher holds the Certified Merger & Acquisition Advisor (CM&AA) credential and his knowledge benefits the firm’s clients through all aspects of the merger and acquisition process, from due diligence and financial modeling to business valuation, negotiations, and transaction closing.

Zaher has been recognized throughout his tenure for his professional achievements and dedication to the firm’s values. Notably, he received Yeo & Yeo’s Spirit of Yeo award in 2019, underscoring his commitment to helping his clients, team, and community thrive. His passion for mentorship and leadership has fostered growth within the firm, inspiring colleagues and contributing to a culture of collaboration and innovation.

“Zaher’s promotion to Principal is a testament to his exceptional work ethic, unwavering commitment to his clients, and the positive impact he has made on our team,” said Dave Youngstrom, President & CEO of Yeo & Yeo. “We look forward to his continued leadership and the contributions he will bring to the firm and the Principal group.”

Basha holds a Master of Business Administration from Walsh College and is based in Yeo & Yeo’s Troy office. He is active in various professional organizations, including the Michigan Association of Certified Public Accountants’ Healthcare Task Force and the Alliance of Merger & Acquisition Advisors. He contributes significantly to the firm’s strategic initiatives, helping implement new technology to improve internal staff efficiency and the client experience. In the community, he serves as treasurer of the Syrian American Rescue Network. He also volunteers for the Syria Institute and participates in various Auburn Hills and Troy Chambers of Commerce events.

Yeo & Yeo congratulates Zaher Basha on his promotion to Principal and looks forward to his continued success.

Owners’ equity is the difference between the assets and liabilities reported on your company’s balance sheet. It’s generally composed of two pieces: capital contributions and retained earnings. The former represents the amounts owners have paid into the business and stock repurchases, but the latter may be less familiar. Here’s an overview of what’s recorded in this account.

Statement of retained earnings

Each accounting period, the revenue and expenses reported on the income statement are “closed out” to retained earnings. This allows your business to start recording income statement transactions anew for each period.

Retained earnings represent the cumulative sum of your company’s net income from all previous periods, less all dividends (or distributions) paid to shareholders. The basic formula is:

Retained earnings = Beginning retained earnings + net income − dividends

Typically, financial statements include a statement of retained earnings that sums up how this account has changed in the current period. Net income (when revenue exceeds expenses) increases retained earnings. Conversely, dividends and net losses (when expenses exceed revenue) reduce retained earnings.

Significance of retained earnings

Lenders, investors and other stakeholders monitor retained earnings over time. They’re an indicator of a company’s profitability and overall financial health. Moreover, retained earnings are part of owners’ equity, which is used to compute certain financial metrics. Examples include:

Return on equity (net income / owners’ equity),
Debt-to-equity ratio (total liabilities / owners’ equity), and
Retention ratio (retained earnings / net income).

A business borrower may be subject to loan covenants based on these ratios. Care must be taken to stay in compliance with these agreements. Unless a lender waives a ratio-based covenant violation, it can result in penalties, higher interest rates or even default.

Retained earnings management

Profitable businesses face tough choices about allocating retained earnings. For example, management might decide to build up a cash reserve, repay debt, fund strategic investment projects or pay dividends to shareholders. A company with consistently mounting retained earnings signals that it’s profitable and reinvesting in the business. Conversely, consistent decreases in retained earnings may indicate mounting losses or excessive payouts to owners.

Managing retained earnings depends on many factors, including management’s plans for the business, shareholder expectations, the business stage and expectations about future market conditions. For example, a strong retained earnings track record can attract investment capital or potential buyers if you intend to sell your business.

Warning: Excessive accumulated earnings can lead to tax issues, particularly for C corporations. Federal tax law contains provisions to prevent corporations from accumulating retained earnings beyond what’s reasonable for business needs. We can prepare detailed business plans to justify an accumulated balance and provide guidance on reasonable dividends to avoid IRS scrutiny.

For more information

Many companies consider dividend payouts and plan investment strategies at year end. We can help determine what’s appropriate for your situation and answer any lingering questions you might have about your business’s statement of retained earnings.

Intangible assets, such as patents, trademarks, copyrights and goodwill, play a crucial role in today’s businesses. The tax treatment of these assets can be complex, but businesses need to understand the issues involved. Here are some answers to frequently asked questions.

What are intangible assets?

The term “intangibles” covers many items. Determining whether an acquired or created asset or benefit is intangible isn’t always easy. Intangibles include debt instruments, prepaid expenses, non-functional currencies, financial derivatives (including, but not limited to, options, forward or futures contracts, and foreign currency contracts), leases, licenses, memberships, patents, copyrights, franchises, trademarks, trade names, goodwill, annuity contracts, insurance contracts, endowment contracts, customer lists, ownership interests in any business entities (for example, corporations, partnerships, LLCs, trusts and estates) and other rights, assets, instruments and agreements.

What are the expenses?

Some examples of expenses you might incur to acquire or create intangibles that are subject to the capitalization rules include amounts paid to:

Obtain, renew, renegotiate or upgrade business or professional licenses,
Modify certain contract rights (such as a lease agreement),
Defend or perfect title to intangible property (such as a patent), and
Terminate certain agreements, including, but not limited to, leases of tangible property, exclusive licenses to acquire or use your property, and certain non-competition agreements.

IRS regulations generally characterize an amount as paid to “facilitate” the acquisition or creation of an intangible if it’s paid in the process of investigating or pursuing a transaction. The facilitation rules can affect any business and many ordinary business transactions. Examples of costs that facilitate the acquisition or creation of an intangible include payments to:

Outside counsel to draft and negotiate a lease agreement,
Attorneys, accountants and appraisers to establish the value of a corporation’s stock in a buyout of a minority shareholder,
Outside consultants to investigate competitors in preparing a contract bid, and
Outside counsel for preparing and filing trademark, copyright and license applications.

Why are intangibles so complex?

IRS regulations require the capitalization of costs to:

Acquire or create an intangible asset,
Create or enhance a separate, distinct intangible asset,
Create or enhance a “future benefit” identified in IRS guidance as capitalizable, or
“Facilitate” the acquisition or creation of an intangible asset.

Capitalized costs can’t be deducted in the year paid or incurred. If they’re deductible, they must be ratably deducted over the life of the asset (or, for some assets, over periods specified by the tax code or under regulations). However, capitalization generally isn’t required for costs not exceeding $5,000 and for amounts paid to create or facilitate the creation of any right or benefit that doesn’t extend beyond the earlier of 1) 12 months after the first date on which the taxpayer realizes the right or benefit or 2) the end of the tax year following the tax year in which the payment is made.

Are there any exceptions to the rules?

Like most tax rules, these capitalization rules have exceptions. Taxpayers can also make certain elections to capitalize items that aren’t ordinarily required to be capitalized. The examples described above aren’t all-inclusive. Given the length and complexity of the regulations, transactions involving intangibles and related costs should be analyzed to determine the tax implications.

For assistance and more information

Properly managing the tax treatment of intangible assets is vital for businesses to maximize tax benefits and ensure compliance with tax regulations. Contact us to discuss the capitalization rules and determine whether any costs you’ve paid or incurred must be capitalized, or whether your business has entered into transactions that may trigger these rules. You can also contact us if you have any questions.