Weighing the Pluses and Minuses of HDHPs + HSAs for Businesses

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

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

Ground rules

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

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

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

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

Pluses to ponder

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

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

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

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

Minuses to mind

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

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

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

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

Powerful savings vehicle

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

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

Latest announcement

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

The reinstatement

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

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

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

BOI requirements in a nutshell

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

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

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

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

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

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

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

Stay tuned

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

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

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

Loosened restrictions for casualty losses

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

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

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

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

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

Wildfire relief

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

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

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

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

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

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

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

It also applies to:

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

East Palestine train derailment relief

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

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

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

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

Next steps for taxpayers

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

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

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

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

Providing notice

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

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

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

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

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

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

Requesting a release

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

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

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

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

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

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

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

Being responsible

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

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

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

Defining the concept

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

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

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

Making the call

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

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

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

5 general steps to follow

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

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

Bold move

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

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

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

Antifraud policies are critical

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

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

Role of outside input

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

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

Dealing with perpetrators

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

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

Key word is “business”

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

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

One benefit of an S corporation

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

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

Handling losses

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

Profits and taxes

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

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

Fringe benefits

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

Protecting S status

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

Final steps

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

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

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

1. Know Your Numbers

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

2. Make Tax-Smart Decisions

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

3. Scale Effectively

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

4. Know Your Wealth

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

5. Plan for the Future

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

Embrace Change as a Growth Opportunity

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

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

Download our eBook

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

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

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

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

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

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

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

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

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

The nuts and bolts

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

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

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

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

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

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

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

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

Ways to avoid the limit

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

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

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

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

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

Weigh your options

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

Even if you’re single and have no children, having an estate plan helps ensure your final wishes are clearly documented and respected. Estate planning isn’t solely about passing assets on to direct descendants; it’s about taking control of your future.

Without a formal estate plan, state laws will determine how your assets are distributed, and those default decisions might not align with your values or desires. Whether they’re your financial investments or personal assets, a comprehensive estate plan allows you to specify exactly who should receive what, be they close friends, extended family or even charitable organizations.

Without a will, who’ll receive your assets?

It’s critical for single people to execute a will that specifies how and to whom their assets should be distributed when they die. Although certain types of assets can pass to your intended recipient(s) through beneficiary designations, absent a will, many types of assets will pass through the laws of intestate succession.

Those laws vary from state to state but generally provide for assets to go to the deceased person’s spouse or children. For example, the law might provide that if someone dies intestate, half of the estate goes to his or her spouse and half goes to the children. However, if you’re single with no children, these laws set out rules for distributing your assets to your closest relatives, such as your parents or siblings. Or, if you have no living relatives, your assets may go to the state.

By preparing a will, you can ensure your assets are distributed according to your wishes, whether that’s to family, friends or charitable organizations.

Who’ll handle your finances if you become incapacitated?

Consider signing a durable power of attorney that appoints someone you trust to manage your investments, pay bills, file tax returns and otherwise make financial decisions should you become incapacitated. Although the law varies from state to state, typically, without a power of attorney, a court will appoint someone to make those decisions on your behalf. Not only will you have no say in who the court appoints, but the process can be costly and time consuming.

Who’ll make medical decisions on your behalf?

You should prepare a living will, a health care directive (also known as a medical power of attorney) or both. This will ensure your wishes regarding medical care — particularly resuscitation and other lifesaving measures — will be carried out in the event you’re incapacitated. These documents can also appoint someone you trust to make medical decisions that aren’t expressly addressed.

Without such instructions, the laws in some states allow a spouse, children or other “surrogates” to make those decisions. In the absence of a suitable surrogate, or in states without such a law, medical decisions are generally left to the judgment of health care professionals or court-appointed guardians.

What strategies should you use to reduce gift and estate taxes?

When it comes to taxes, married couples have some big advantages. For example, they can use both of their federal gift and estate tax exemptions (currently, $13.99 million per person) to transfer assets to their loved ones tax-free. Also, the marital deduction allows spouses to transfer an unlimited amount of property to each other — either during life or at death — without triggering immediate gift or estate tax liabilities.

For single people with substantial estates, it’s important to consider employing trusts and other estate planning techniques to avoid, or at least defer, gift and estate taxes.

Form your plan

Finally, planning ahead can help avoid potential complications in the future. Unexpected events can lead to family disputes if there’s no clear guidance on how your affairs should be handled.

With an estate plan, your personal wishes are followed precisely, ensuring that your legacy — whether it includes contributions to a cause you believe in or support for a family member — is preserved exactly as you intend. Contact us if you’re single, without children and have no estate plan. We can help draft one that’s best suited for you.

The IRS has issued proposed regulations under the SECURE 2.0 Act that, if finalized, would significantly impact how catch-up contributions are handled for higher-income employees. While these changes are not yet final, they could require plan administrators to update plan documents, payroll systems, and participant communications before the effective date of January 1, 2026.

This article explores the key provisions of the proposed regulations and important administrative considerations for plan sponsors. Staying informed and preparing early will help ensure a smooth transition—should the proposed regulations pass.

Q1: What is the main change proposed for catch-up contributions?

The IRS has proposed that, effective January 1, 2026, catch-up contributions for higher-income employees (those earning over $145,000 in the prior year) must be made as Roth contributions. This applies to 401(k), 403(b), and governmental 457(b) plans.

Q2: Who is affected by this change?

This change affects participants who:

Are age 50 or older, and
Earned more than $145,000 in the prior year (indexed for inflation), and
Wish to make catch-up contributions

Q3: What happens if a plan doesn’t offer Roth contributions?

If a plan doesn’t offer Roth contributions, it will not be able to accept catch-up contributions from higher-income employees starting in 2026. Plans may need to add a Roth option to continue allowing catch-up contributions for these employees.

Q4: How is the $145,000 threshold determined?

The $145,000 threshold is based on the participant’s prior-year compensation from the employer sponsoring the plan. In future years, this amount will be indexed for inflation.

Q5: What are the compliance requirements for plan administrators?

Plan administrators will need to:

Identify participants eligible for catch-up contributions
Determine which participants exceed the $145,000 threshold
Ensure catch-up contributions for higher-income employees are made as Roth contributions
Update plan documents, processes, and communications

Q6: What is the timeline for implementing these changes?

The proposed effective date is January 1, 2026. However, plan administrators should start preparing well in advance to ensure compliance and smooth implementation.

Q7: How should plan administrators communicate these changes to participants?

Plan administrators should:

Develop clear communication materials explaining the changes
Provide guidance on how the new rules affect different income groups
Offer education on the differences between pre-tax and Roth contributions
Update enrollment materials and plan summaries

Q8: What are the potential challenges in implementing these changes?

Challenges may include:

Updating payroll and recordkeeping systems
Ensuring accurate tracking of participant income
Modifying plan documents and administrative procedures
Educating participants about the impact on their retirement savings

Q9: Are these regulations final?

No, these are proposed regulations. The IRS is seeking comments from the public, and final rules may differ. Plan administrators should stay informed about any updates or changes to the proposed regulations.

Staying ahead of these changes is critical. Review plan documents, engage with payroll providers, and consult legal or benefits professionals to ensure your plan remains compliant. Acting early can minimize disruptions and support participants in making informed retirement decisions.

As a business owner, you may be eligible to claim home office tax deductions that will reduce your taxable income. However, it’s crucial to understand the IRS rules to ensure compliance and avoid potential IRS audit risks. There are two methods for claiming this tax break: the actual expense method and the simplified method. Here are answers to frequently asked questions about the tax break.

Who qualifies?

In general, you qualify for home office deductions if part of your home is used “regularly and exclusively” as your principal place of business.

If your home isn’t your principal place of business, you may still be able to deduct home office expenses if:

You physically meet with patients, clients or customers on your premises, or
You use a storage area in your home (or a separate free-standing structure, such as a garage) exclusively and regularly for business.

What expenses can you deduct?

Many eligible taxpayers deduct actual expenses when they claim home office deductions. Deductible home office expenses may include:

Direct expenses, such as the cost of painting and carpeting a room used exclusively for business,
A proportionate share of indirect expenses, including mortgage interest, rent, property taxes, utilities, repairs, maintenance and insurance,
Security system if applicable to your business, and
Depreciation.

But keeping track of actual expenses can take time and requires organized recordkeeping.

How does the simplified method work?

Fortunately, there’s a simplified method: You can deduct $5 for each square foot of home office space, up to a maximum of $1,500.

The cap can make the simplified method less valuable for larger home office spaces. Even for small spaces, taxpayers may qualify for larger deductions using the actual expense method. So, tracking your actual expenses can be worth it.

Can you change methods?

You’re not stuck with a particular method when claiming home office deductions. For instance, you might choose the actual expense method on your 2024 return, use the simplified method when you file your 2025 return next year and then switch back to the actual expense method for 2026. The choice is yours.

What if you sell your home?

If you sell — at a profit — a home on which you claimed home office deductions, there may be tax implications. We can explain them to you.

Also, be aware that the amount of your home office deductions is subject to limitations based on the income attributable to your use of the office. Other rules and limits may apply. However, any home office expenses that you can’t deduct because of these limitations can be carried over and deducted in later years.

Do employees qualify?

The Tax Cuts and Jobs Act suspended the business use of home office deductions through the end of 2025 for employees. Those who receive paychecks or Form W-2s aren’t eligible for deductions, even if they’re currently working from home because their employers require them to and don’t provide office space.

Home office tax deductions can provide valuable tax savings for business owners, but they must be claimed correctly. We can help you determine if you’re eligible and how to proceed.

Life insurance plays a vital role in your estate plan because its proceeds can provide for your family in the event of your untimely death. And for wealthier families, life insurance proceeds can cover any estate tax liability not covered by the current $13.99 million federal gift and estate tax exemption.

But when was the last time you reviewed your policy? The amount of life insurance that’s right for you depends on your circumstances, so it’s critical to regularly review your life insurance policy.

Reevaluating your policy

Life insurance isn’t a one-size-fits-all solution. Milestones such as marriage, having children, buying a home or starting a business bring new financial responsibilities. A policy purchased years ago may no longer protect your loved ones adequately.

Conversely, you may be over-insured, paying for coverage you no longer need. For example, if your children are financially independent or you’ve paid off significant debts, your coverage requirements might decrease.

The right amount of insurance depends on your family’s current and expected future income and expenses, as well as the amount of income your family would lose in the event of your untimely death.

On the other hand, health care expenses for you and your spouse may increase. When you retire, you’ll no longer have a salary, but you may have new sources of income, such as retirement plans and Social Security. You may or may not have paid off your mortgage, student loans or other debts. And you may or may not have accumulated sufficient wealth to provide for your family.

When you sit down to reevaluate your life insurance policy, consider the:

Coverage amount. Is your policy sufficient to cover current expenses, future obligations and debts?

Policy type. Term life insurance can be cost-effective for temporary needs, while whole life or universal policies may offer long-term benefits such as cash value accumulation.

Beneficiaries. Ensure your policy lists the correct beneficiaries, especially after a major life event such as marriage, divorce or the birth of a child.

Premiums. Are you paying a competitive rate? Shopping around or converting an old policy could save money.

While reviewing your policy, keep in mind your broader financial plan. How does your policy currently fit within your overall strategy, including tax implications, estate planning and business succession planning?

Turn to us for help

Taking the time to reassess your life insurance needs is an investment in your family’s financial security. Contact us to ensure your coverage aligns with your current and future estate planning goals.

Yeo & Yeo Principals Marisa Ahrens, CPA, Ali Barnes, CPA, CGFM, and Alan Panter, CPA, CGFM, present an informative webinar on how to navigate your employee benefit plan audit with confidence.

In this webinar, we discuss:

Preparing for your audit
An overview of Form 5500
Common audit deficiencies and how to prevent them
Secure Act 2.0 updates taking effect in 2025 and their impact
Reviewing audit findings and implementing changes

Take advantage of this opportunity to gain insights from experienced audit professionals and ensure compliance with evolving regulations.

Marisa Ahrens, CPA, leads the firm’s Employee Benefit Plan Services Group and holds the American Institute of Certified Public Accountants Advanced Defined Contribution Plans Audit Certificate.
Ali Barnes, CPA, CGFM, leads the firm’s Assurance Technical Team and is a member of the firm’s Quality Assurance Committee, Government Services Group, and Employee Benefit Plan Services Group.
Alan Panter, CPA, CGFM, is a member of the firm’s Government Services Group and Employee Benefit Plan Services Group. Alan has more than 28 years of experience providing audit and consulting services.

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.