BEC Fraud: How to Protect Your Business From a Growing Threat

Business email compromise (BEC) has emerged as one of the most financially damaging online crimes. According to the FBI’s Internet Crime Complaint Center (IC3), organizations lost nearly $56 billion across approximately 305,000 incidents between October 2013 and December 2023. Increasingly, gift cards are playing a key role in BEC scams.

Understanding how these schemes work can help prevent them from harming your business.

Role of gift cards

To steal from companies, BEC perpetrators use social engineering and computer intrusion techniques. Their goal is to trick email users into transferring funds to them. Although several BEC variations are active, cybercriminals usually impersonate senior executives and target lower-level employees by asking workers to fulfill what might seem like routine requests. These include sending money via wire or writing a check.

In recent years, gift cards have assumed a prominent role in these scams. Unlike wire transfers, for which most companies and financial institutions have extensive security protocols, gift card transactions generally encounter little scrutiny. Gift cards, after all, are designed to be easy to buy and use.

Common schemes

In a typical BEC scheme, an employee might receive an email from the company’s “CEO” instructing the worker to purchase gift cards for a vendor and to mail them the same day. The fraud perpetrator typically promises to reimburse the employee who buys the gift cards. To ensure a scheme isn’t detected quickly enough, con artists may ask employees to expedite shipment of gift cards via a delivery service.

Fraudsters, posing as executives, perpetrate a similar scheme by asking employees to email them information for each gift card purchased — including security codes if they’re printed on the cards — or to send photographs of the front and back of each card. The thief promises to personally email the vendor or other intended recipient with the card information.

Of course, digital gift cards can be redeemed by crooks even faster than physical cards. So a perpetrator might tell a worker to buy cards online and email card numbers, personal identification numbers and security codes. Then the perpetrator quickly accesses and drains the funds.

Use of AI

Unfortunately, artificial intelligence (AI) has increased the sophistication of some BEC attacks. AI tools may allow fraudsters to effectively impersonate executives by:

Accessing their actual communications, such as emails, blog posts, letters to employees and interviews,
Analyzing their speech patterns, and
Replicating their behavior and business practices.

An employee in a BEC scam might receive AI-generated emails that imitate a CEO’s writing style and are difficult to detect as fake. Add the pressure to respond quickly and the often relatively small dollar amounts involved, and it’s easy to see why gift card scams often succeed.

Simple steps worth taking

You can fight back against even sophisticated schemes with fraud prevention training. Employees should be aware of BEC red flags, such as emails that suggest urgency, call for secrecy, request unusual payment methods, and feature altered email addresses and misspellings. Any time employees receive financial requests via email, they should be required to verify them with the sender by phone or in person. And they should know when and who to notify if they think they’ve received a fraudulent email.

Your business also should use technical tools to verify the authenticity of incoming emails. Engage an experienced security professional to assess your IT environment and recommend solutions for filtering out illegitimate emails. And keep cybersecurity software current. Installing updates as soon as they become available helps ensure your defenses include the latest tools and intelligence.

Both risks

BEC schemes exploit both technological weaknesses and human foibles. Make sure you’re addressing both risks. Contact us for help evaluating your internal controls.

Yeo & Yeo is proud to recognize 30 professionals across the firm’s companies for milestone anniversaries this year.

The longevity of our employees is a testament to the supportive and values-driven culture we strive to uphold. Our honorees exemplify what it means to build trust, navigate challenges, and serve our clients and community with care and expertise. We celebrate not only their years of service but also their contributions to the firm.

Honored for 30 years of service:

Fred Miller, Vice President, Yeo & Yeo Technology – Saginaw
Rebecca Millsap, Managing Principal, Yeo & Yeo CPAs & Advisors – Flint

Honored for 25 years of service:

Traci Cook, Medical Biller, Yeo & Yeo Medical Billing & Consulting – Saginaw

Honored for 20 years of service:

Eric Sowatsky, Principal, Yeo & Yeo CPAs & Advisors – Saginaw
Chloe Eggleston, Receptionist, Yeo & Yeo CPAs & Advisors – Saginaw
Jacob Sopczynski, Principal, Yeo & Yeo CPAs & Advisors – Flint
Gus Hendrickson, Senior Account Executive, Yeo & Yeo Technology – Saginaw
Matt Dubay, Senior Systems Engineer, Yeo & Yeo Technology – Saginaw

Honored for 15 years of service:

Dan Featherston, Senior Sales Support Specialist, Yeo & Yeo Technology – Saginaw
Michael Evrard, Principal, Yeo & Yeo CPAs & Advisors – Kalamazoo

Honored for 10 years of service:

Kelly Soper, Sales Support Specialist, Yeo & Yeo Technology – Saginaw
Megan LaPointe, Payroll Manager, Yeo & Yeo CPAs & Advisors – Saginaw
Mark Kunitzer, Systems Manager, Yeo & Yeo Technology – Saginaw
Jacob Walter, Senior Accountant, Yeo & Yeo CPAs & Advisors – Lansing

Additionally, 16 Yeo & Yeo professionals are celebrating five years with the firm. Congratulations to you all, and thank you for your contributions to Yeo & Yeo!

In April of this year, the U.S. Department of Labor (DOL) announced it was rolling out a new final rule on eligibility for overtime pay. The move prompted mixed reactions from observers, much concern among employers and, inevitably, legal challenges from its staunchest detractors.

In November, those legal challenges likely became insurmountable when a federal district court struck down the final rule. The DOL has filed an appeal but with a new presidential administration set to take the reins in January, the rule appears doomed.

Recap of the rule

Under the Fair Labor Standards Act (FLSA), many salaried employees are exempt from overtime pay. However, they’re not all exempt. To qualify as such, an employee must primarily perform certain executive, administrative or professional duties and be paid an annual salary that’s above a federally mandated threshold.

A major feature of the DOL’s final rule is that it would raise the FLSA minimum annual salary threshold in two stages:

On July 1, 2024, the threshold would (and did) increase from an annual salary of at least $35,568 to at least $43,888, and
On January 1, 2025, the threshold would increase from $43,888 to $58,656.

Note: A separate overtime exemption was to apply to some highly compensated employees. The threshold for these employees increased to $132,964 on July 1, and was scheduled to rise to $151,164 on January 1.

The final rule also stipulated that the FLSA minimum annual salary threshold would be updated every three years beginning on July 1, 2027, by applying updated wage data to the new methodology.

The court’s decision

The final rule was struck down on November 15 by the U.S. District Court for the Eastern District of Texas. In the court’s view, the DOL exceeded its authority in creating the rule because an employee’s exempt vs. nonexempt status must be based primarily on duties, not salary. The rule, according to the court, impermissibly flips that formula and makes salary the dominant factor. The agency also exceeded its authority, said the court, when it came up with the aforementioned three-year updating methodology.

The ruling was partly driven by the U.S. Supreme Court’s recent overturning of a legal doctrine known as “Chevron deference.” Under this long-standing doctrine, courts deferred to the interpretations of “permissible” federal agencies, such as the DOL, regarding the actual administration of laws. The Supreme Court’s ruling has cleared a path for courts to more readily reject agency rules, as demonstrated in this case.

Your next move

Because of the district court’s action, the FLSA minimum annual salary threshold has returned to its previous amount of at least $35,568 annually for regular salaried employees and $107,432 for highly compensated employees. This may be good news for employers that took no action to prepare for the final rule’s two-stage threshold increase. However, many organizations did take action by:

Reclassifying some employees as nonexempt,
Increasing salaries to retain exempt status, or
Reducing salaries to offset new overtime pay.

If your organization undertook such measures, you must plot your next move carefully in consultation with an attorney. You could reverse your status changes or even roll back salary increases. However, particularly in the latter case, affected employees won’t be happy. Trying to undo your actions may even prompt them to challenge — with the help of their attorneys — whether their duties warrant an exemption.

Slim to none

As mentioned, the chances of survival for the DOL’s final rule are slim at this point. What will likely occur is that, when the new presidential administration comes into power, its leadership in the DOL will withdraw the appeal currently filed. Work closely with your attorney to review and, if necessary, update your overtime policies. Contact us for help identifying and managing your employment costs.

New beneficial ownership information (BOI) reporting requirements that many small businesses were required to comply with by January 1, 2025, have been suspended nationwide under a new court ruling. However, businesses can still voluntarily submit BOI reports, according to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

How we got here

Under the Corporate Transparency Act (CTA), the BOI reporting requirements went into effect on January 1, 2024. The requirements are intended to help prevent criminals from using businesses for illicit activities, such as money laundering and fraud. The CTA requires 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 may result in civil or criminal penalties or both.

Under the CTA, the exact deadline for BOI compliance depends on the entity’s date of formation. Reporting companies created or registered before January 1, 2024, have one year to comply by filing initial reports, which means their deadline would be January 1, 2025. Those created or registered on or after January 1, 2024, but before January 1, 2025, have 90 days to file their initial reports upon receipt of their creation or registration documents. Entities created or registered on or after January 1, 2025, would have 30 days upon receipt of their creation or registration documents to file initial reports.

New court ruling

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued an order granting a nationwide preliminary injunction that:

Enjoins the CTA, including enforcement of the statute and regulations implementing its BOI reporting requirements, and,
Stays all deadlines to comply with the CTA’s reporting requirements.

The U.S. Department of Justice, on behalf of the Treasury Department, filed an appeal in the case on December 5, 2024.

FinCEN states on its website that it “continues to believe … that the CTA is constitutional,” but while the litigation is ongoing, it will comply with the order as long as it remains in effect.

“Therefore,” it adds, “reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect.”

This is the latest litigation related to the CTA. In two earlier cases, U.S. District Courts upheld the BOI reporting requirements. In another case, the CTA was ruled unconstitutional, but only the named plaintiffs and their members were allowed to ignore the BOI requirements while an appeal is pending. More than 30 million other businesses still needed to meet the January 1, 2025, deadline — until now.

The future is unclear

Be aware that the ruling is preliminary, so it could be overturned or modified by future court decisions or legislation. FinCEN stated that businesses can continue to submit BOI reports voluntarily. Contact us if you have questions about how to proceed.

Yeo & Yeo, a leading Michigan CPA and advisory firm, announces the reelection of Jamie Rivette, CPA, CGFM, and David Jewell, CPA, to Yeo & Yeo’s board of directors, effective January 1, 2025.

Jamie Rivette, CPA, CGFM, is a Principal in the Saginaw office and leads Yeo & Yeo’s Assurance Service Line. Holding the Certified Government Financial Manager credential, Jamie is recognized for her knowledge of governmental accounting, auditing, financial reporting, internal controls, and budgeting. As the Assurance Service Line leader, she oversees the quality and growth of Yeo & Yeo’s audit and assurance practice firm-wide. Jamie’s influence extends beyond the firm as she serves on the Michigan Government Finance Officers Association’s Accounting and Auditing Standards Committee and the Mentoring and Membership Committee. She is committed to the community, serving as treasurer of the Hemlock School Board of Education and as a Junior League Community Advisory Board member. Jamie has been celebrated for her leadership, receiving the Michigan Association of Certified Public Accountants’ Women to Watch Experienced Leader Award in 2019. Within Yeo & Yeo, she has been a champion of initiatives that foster growth and mentorship, including career maps and peer-to-peer mentoring.

Dave Jewell, CPA, is the Managing Principal of Yeo & Yeo’s Kalamazoo office and leader of the firm’s Tax & Consulting Service Line and Tax Advisory Group. In this role, he develops strategy and manages the growth of the firm’s tax and consulting practice, workforce, and capabilities. Dave is dedicated to making Yeo & Yeo a place where our people can find purpose, growth opportunities, and a sense of belonging and camaraderie. With more than 22 years of public accounting experience and a dedication to impactful client service, Dave’s expertise includes tax planning, business succession planning, and business consulting. He shares his knowledge through internal training and has hosted several episodes of Yeo & Yeo’s Everyday Business podcast. Beyond his professional contributions, Dave serves as Treasurer and Finance Committee Chair of the Portage Community Center, demonstrating his commitment to community involvement.

“Having both of the firm’s service line leaders on the board strengthens our collaborative approach, ensuring we can best serve and support our people and clients,” says Dave Youngstrom, President & CEO. “Jamie and Dave bring unique insights that will guide us toward continued success.”

Jamie and Dave are joined on the board by Jacob Sopczynski, CPA, Principal in Yeo & Yeo’s Flint office, and Tammy Moncrief, CPA, Principal in Yeo & Yeo’s Troy office, who will serve the second year of their two-year terms.

In one way or another, most small to midsize businesses have addressed employees using personal devices for work. In 2022, online career platform Zippia reported that 83% of companies surveyed had a bring your own device (BYOD) policy “of some kind.” That percentage has likely increased as even more businesses have recognized the inherent risks involved.

Does your company have a formal BYOD policy? If not, it probably should. And even if it does, don’t assume the current version will last forever. As technology and its usage evolve, so must your policy.

Anticipate broadly

A formal BYOD policy lays out detailed ground rules for how employees may use their personal devices for work and what role the company will have in supporting, securing and accessing those devices.

Most policies begin with a list of approved devices with acceptable security capabilities that the business can readily support. From there, be sure yours stipulates what happens to your business’s proprietary data on a device if the employee who owns it quits or is terminated. In addition, a policy should anticipate your response if a device winds up in various predicaments, such as it’s:

Lost, shared or recycled,
Synced on an employee’s personal cloud,
Used on unprotected public Wi-Fi networks, and
Hacked or otherwise attacked by a virus or malware.

Other issues to address or review include:

Payment or reimbursement. Some companies pay for a predetermined number of voice minutes and provide an unlimited data plan for employees’ phones, either directly or through reimbursements. Any charges above the stated amount of voice minutes are the employee’s responsibility.

Phone numbers. Who owns a mobile phone number is a big deal for some types of employees. Take salespeople, for example. If they leave to work for a competitor, customers may continue to call them — which could lead to lost sales for your business.

Access control. Your policy should require employees to set up their mobile devices to lock when left idle for a few minutes and require a passcode (or facial recognition) to unlock them. Where feasible, ask employees to use multifactor authentication to access certain software or data on your company’s network. This is where users’ personal devices come in handy: They can use their phones, for instance, to verify their identities along with entering a password.

Occasional security checks. Some businesses ask employees to periodically submit their personal devices to the information technology department for security checks that may involve reconfigurations or updates. Alternatively, you could ask only those who handle highly sensitive data to do so.

Address privacy thoroughly

Many employees worry that using personal devices for work gives their employers access to sensitive personal data. Your BYOD policy should state that the company will never view protected information such as:

Privileged communications with attorneys,
Protected health information, or
Complaints against the business that are permitted under the National Labor Relations Act.

Your policy needs to also clarify how data stored on employees’ devices may be gathered if your company becomes involved in a lawsuit. Keep in mind that federal rules governing the production of documents during litigation, including electronically stored information, cover all devices — including personal devices that access a company’s network.

Remain vigilant

The negative financial impact of an outdated, incomplete or nonexistent BYOD policy can be severe. After all, the personal devices of your staff members represent multiple avenues through which hackers, employees or other bad actors could compromise your business’s data or network. Work with your attorney to review your current policy or create one if you haven’t already. Our firm can help you identify and analyze all your technology costs.

Understanding how to deduct transportation costs could significantly reduce the tax burden on your small business. You and your employees likely incur various local transportation expenses each year, and they have tax implications.

Let’s start by defining “local transportation.” It refers to travel when you aren’t away from your tax home long enough to require sleep or rest. Your tax home is the city or general area in which your main place of business is located. Different rules apply if you’re away from your tax home for significantly more than an ordinary workday and you need sleep or rest to do your work.

Your work location

The most important feature of the local transportation rules is that your commuting costs aren’t deductible. In other words, the fare you pay or the miles you drive to get to work and home again are personal and not for business purposes. Therefore, no deduction is available. This is the case even if you work during the commute (for example, via a cell phone or laptop, performing business-related tasks on the subway).

An exception applies for commuting to a temporary work location outside of the metropolitan area where you live and normally work. “Temporary,” for this purpose, means a location where your work is realistically expected to last (and does, in fact, last) for no more than a year.

Work location to other sites

On the other hand, once you get to your work location, the cost of any local trips you take for business purposes is a deductible business expense. So, for example, the cost of travel from your office to visit a customer or pick up supplies is deductible. Similarly, if you have two business locations, the cost of traveling between them is deductible.

Recordkeeping

If your deductible trip is by taxi or public transportation, save a receipt or note the expense in a logbook. Record the date, amount spent, destination and business purpose. If you use your own car, note the miles driven instead of the amount spent. Also, note any tolls paid or parking fees, and keep receipts.

You must allocate your automobile expenses between business and personal use based on miles driven during the year. Proper recordkeeping is crucial in the event the IRS challenges you.

Your deduction can be computed using:

The standard mileage rate (for 2024, 67 cents per business mile) plus tolls and parking, or
Actual expenses (including depreciation, subject to limitations) for the portion of car use allocable to the business. For this method, you’ll need to keep track of all costs for gas, repairs and maintenance, insurance, interest on a car loan, and any other car-related costs.

Employees vs. self-employed

From 2018–2025, under the Tax Cuts and Jobs Act, employees can’t deduct unreimbursed local transportation costs. That’s because “miscellaneous itemized deductions” — including employee business expenses — are suspended (not allowed) for these years. (Self-employed taxpayers can deduct the expenses discussed in this article.) But beginning in 2026, business expenses (including unreimbursed employee auto expenses) of employees are scheduled to be deductible again, as long as the employee’s total miscellaneous itemized deductions exceed 2% of adjusted gross income. However, with Republican control in Washington, this unfavorable provision may be extended by Congress, and miscellaneous itemized deductions won’t be allowed.

Goodwill impairment is often a negative indicator. It potentially signals that a business combination failed to meet management’s expectations due to internal or external factors. In recent years, uncertain markets, lingering inflation and high interest rates have caused goodwill impairments to spike.

Evaluating impairment trends

In 2022, 400 U.S. public companies reported $136.2 billion of pretax goodwill impairments. In 2023, 353 U.S. public companies reported an estimated $82.9 billion of pretax goodwill impairments. While the estimated impairment losses fell by 39% from 2022 to 2023, the total is well above the historical average dating back to 2006.

The trend appears to be ongoing. In the first quarter of 2024, Walgreens reported a $12.4 billion pretax impairment loss related in part to its acquisition of VillageMD, a health care company. As market volatility continues, other companies may follow suit in fiscal year 2024.

This historical data excludes write-downs reported by private companies whose results aren’t publicly available. Plus, there’s often a lag in the effects of financial reporting on private businesses compared to their public counterparts.

Accounting for goodwill

Goodwill is reported on a company’s financial statements if it’s acquired through a merger or acquisition. The purchase price of a business is first allocated to the following items based on their fair values:

Tangible assets,
Identifiable intangible assets, and
Liabilities obtained in the purchase.

What’s left over is reported as acquired goodwill (an indefinite-lived intangible asset). Goodwill must be monitored for impairment in accounting periods after the acquisition date. That happens when the fair value of goodwill falls below its cost. Impairment losses reduce the carrying value of goodwill on the balance sheet. They also lower profits reported on the income statement. Tracking the value of goodwill helps management and external stakeholders evaluate a business combination over the long run.

Estimating impairment losses

Under U.S. Generally Accepted Accounting Principles (GAAP), public companies that report goodwill on their balance sheets can’t amortize it. Instead, they must test goodwill at least annually for impairment. When impairment occurs, the company must write down the reported value of goodwill. Testing should also happen for all entities whenever a “triggering event” occurs that could lower the value of goodwill.

Private companies can elect certain practical expedients to simplify the subsequent accounting of goodwill and other intangibles. Specifically, Accounting Standards Update No. 2014-02, Intangibles — Goodwill and Other (Topic 350): Accounting for Goodwill, allows private companies that follow GAAP the option to amortize acquired goodwill over a useful life of up to 10 years. The test that private businesses must perform to determine goodwill impairment was also simplified in 2014. Instead of automatically testing every year, private companies must test for impairment only when there’s a triggering event.

However, not all private companies choose to adopt these expedients. For instance, large private companies that are considering a public offering may follow the rules for public companies. The decision depends on specific business circumstances.

Close-up on triggering events

All companies — whether publicly traded or closely held — must evaluate impairment when a triggering event happens. The source of these events may be internal or external. Examples include:

An economic downturn,
Unanticipated competition,
A major cyberattack or lawsuit,
Disruptive industry regulations,
The loss of a key customer,
Leadership changes, and
Negative operating cash flows.

Goodwill impairment may also occur if, after an acquisition, an economic downturn causes the parent company to lose value.

Goodwill gone bad

Public companies must report financial results quarterly, so they’re continually monitoring for impairment. However, private businesses often postpone evaluating the effects of triggering events until the end of the accounting period. If your company reports goodwill on its balance sheet, contact us to evaluate your company’s current situation and ensure transparent reporting.

Additionally, if you’re contemplating a merger or acquisition, it’s important to determine whether the price is fair based on the target’s financial health, market position and potential for future growth. We can help you conduct comprehensive due diligence to reduce the risk of overpaying.

Annually, the IRS makes inflation-based cost-of-living adjustments (COLAs) to dollar limits applicable to many employer-sponsored fringe benefits for the upcoming year. Sure enough, in November, the tax agency published its COLAs in IRS Notice 2024-80. Here are some key figures to be aware of heading into 2025:

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). The maximum payments and reimbursements under a QSEHRA will be $6,350 for self-only coverage and $12,800 for family coverage (up from $6,150 and $12,450, respectively, in 2024).

Health Flexible Spending Accounts (FSAs). For 2025, the dollar limit on employee salary reduction contributions to health FSAs will be $3,300 (up from $3,200 in 2024). In cases where a cafeteria plan allows carryovers of health FSA balances, the maximum amount from 2025 that can be carried over to the 2026 plan year will be $660 (up from the $640 that can be carried over to the 2025 plan year).

Pension-Linked Emergency Savings Accounts (PLESAs). The Secure 2.0 Act of 2022 authorized the addition of PLESAs to eligible employer-sponsored defined contribution plans, such as 401(k)s. These accounts allow participants to save for financial emergencies, so they don’t have to draw from their retirement plans following a crisis. For 2025, the contribution limit to PLESAs will remain unchanged at $2,500.

Benefits under a dependent care assistance program (DCAP). The DCAP limit isn’t adjusted for inflation so, for 2025, it will remain at $5,000 for single taxpayers and married couples filing jointly, or $2,500 for married people filing separately. These dollar amounts will apply in future years, too, unless they’re changed by Congress.

That said, some adjustments to certain general tax limits are relevant to calculating one’s federal income tax savings under a DCAP. These include the 2025 tax rate tables, earned income credit amounts and the standard deduction.

Adoption assistance exclusion and adoption credit. Under an employer-provided adoption assistance program, the maximum amount that may be excluded from a participant’s gross income for adopting a child will be $17,280 (up from $16,810 in 2024). The maximum adoption credit a participant may claim will also be $17,280.

The adoption exclusion and credit are subject to an income-based phaseout. The phaseout begins to kick in when a participant’s modified adjusted gross income exceeds $259,190 (up from $252,150 in 2024). The exclusion and credit are entirely phased out for individuals with modified adjusted gross incomes of $299,190 or more (up from $292,150 in 2024).

Qualified transportation fringe benefits. The monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will be $325 (up from $315 in 2024). The combined monthly limit for transit passes and vanpooling expenses will also be $325.

Employers have two primary jobs related to these and other COLAs: 1) Be aware of how they’ll impact your fringe benefits, and 2) Communicate the changes to your employees. The latter point is particularly important if you’re revising whether and how you’ll offer certain fringe benefits in 2025. We can help you identify and evaluate all the COLAs affecting your organization’s benefits menu.

When a person considers an “estate plan,” he or she typically thinks of a will. And there’s a good reason: A well-crafted, up-to-date will is the cornerstone of an estate plan. Importantly, a will can help ease the burdens on your family during a difficult time. Let’s take a closer look at what to include in a will.

Start with the basics

Typically, a will begins with an introductory clause identifying yourself and where you reside (city, state, county, etc.). It should also state that this is your official will and replaces any previous wills.

After the introductory clause, a will generally explains how your debts are to be paid. The provisions for repaying debt typically reflect applicable state laws.

You may also use a will to name a guardian for minor children. To be on the safe side, name a backup in case your initial choice is unable or unwilling to serve as guardian or predeceases you.

Make bequests

One of the major sections of your will — and the one that usually requires the most introspection — divides up your remaining assets. Outside your residuary estate, you’ll likely want to make specific bequests of tangible personal property to designated beneficiaries. For example, you might leave a family heirloom to a favorite niece or nephew.

When making bequests, be as specific as possible. Don’t simply refer to jewelry or other items without describing them in detail. This can avoid potential conflicts after your death.

If you’re using a trust to transfer property, identify the property that remains outside the trust, such as furniture and electronic devices. Typically, these items won’t be suitable for inclusion in a trust.

Appoint an executor

Name your executor — usually a relative or professional — who’s responsible for administering your will. Of course, this should be a reputable person whom you trust.

Also, include a successor executor if the first choice can’t perform these duties. If you’re inclined, you may use a professional as the primary executor or as a backup.

Follow federal and state laws

Be sure to meet all the legal obligations for a valid will in the applicable state and keep it current. Sign the will, putting your initials on each page, with your signature attested to by witnesses. Include the addresses of the witnesses in case they ever need to be located. Don’t use beneficiaries as witnesses. This could lead to potential conflicts of interest.

Keep in mind that a valid will in one state is valid in others. So if you move, you won’t necessarily need a new will. However, there may be other reasons to update it at that time. Contact us with any questions regarding your will.

Devising and executing the right succession plan is challenging for most business owners. In worst-case scenarios, succession planning is left to chance until the last minute. Chaos, or at least much confusion and uncertainty, often follows.

The most foolproof way to make succession planning easier is to give yourself plenty of time to develop a plan that suits the intricacies of your situation and then gradually implement it. One vehicle that can help “slow your roll” into retirement or whatever your next stage of life may be is an employee stock ownership plan (ESOP).

Little by little

An ESOP is a type of qualified retirement plan that invests solely or mainly in your company’s stock. Because it’s qualified, an ESOP comes with tax advantages as long as you follow the federally enforced rules. These include requirements related to minimum coverage and contribution limits.

Generally, the company sets up an ESOP trust and funds the plan by contributing shares or cash to buy existing shares. Distributions to eligible participants are made in stock or cash. For closely held companies, employees who receive stock have the right to sell it back to the company — exercising “put options” or an “option to sell” — at fair market value during certain time windows.

Although an ESOP involves transferring ownership to employees, it’s different from a management or employee buyout. Unlike a buyout, an ESOP allows owners to cash out and transfer control little by little. During the transfer period, owners’ shares are held in the ESOP trust and voting rights on most issues other than mergers, dissolutions and other major transactions are exercised by the trustees, who may be officers or other company insiders.

Appraisals required

One big difference between ESOPs and other qualified retirement plans, such as 401(k)s, is mandated valuations. The Employee Retirement Income Security Act requires trustees to obtain appraisals by independent valuation professionals to support ESOP transactions. Specifically, an appraisal is needed when the ESOP initially acquires shares from the company’s owners and every year thereafter that the business contributes to the plan.

The fair market value of the sponsoring company’s stock is important because the U.S. Department of Labor specifically prohibits ESOPs from paying more than “adequate consideration” when investing in employer securities. In addition, because employees who receive ESOP shares typically have the right to sell them back to the company at fair market value, the ESOP provides a limited market for its shares.

Drawbacks to consider

An ESOP can play a helpful role in a well-designed succession plan with an appropriately long timeline. However, there are potential drawbacks to consider. You’ll incur costs and considerable responsibilities related to plan administration and compliance. Costs are also associated with annual stock valuations and the need to repurchase stock from employees who exercise put options.

Another potential disadvantage is that ESOPs are available only to corporations of either the C or S variety. Limited liability companies, partnerships and sole proprietorships must convert to one of these two entity types to establish an ESOP. Doing so will raise a variety of tax and financial issues.

In addition, it’s important to explore the potential negative impact of ESOP debt and other expenses on your financial statements and ability to qualify for loans.

Not a no-brainer

ESOPs have become fairly popular among small to midsize businesses. However, the decision to create, launch and administer one is far from a no-brainer. You’ll need to do a deep dive into all the details involved, discuss the concept with your leadership team and get professional advice. Contact us for help evaluating whether an ESOP would be a good fit for your business and succession plan.

If your business is particularly busy during the holidays, you may temporarily outsource some of its work to third-party contractors. Hiring contractors can be a cost-effective way to manage seasonal — or even ordinary — customer demands without hiring new employees or making other long-term investments. However, third parties can introduce some financial, legal and reputational risks. So it’s important to recognize potential threats and take steps to head them off before engaging contractors.

2 scenarios

Consider the following example: A company employs an overseas trucking company to transport goods from a port to a customer’s warehouse. The driver, unfortunately, isn’t very honest and he pays a kickback to customs personnel to release the shipments quickly. This action subjects the company that hired the contractor to bribery and corruption charges locally — and in the United States.

Here’s another scenario: A remote contract worker hired to perform data-entry tasks lacks a robust cybersecurity program on her home network. Her computer is hacked, cybercriminals find their way into the company’s network and they steal confidential employee and customer information.

Neither of these scenarios is far-fetched — foreign bribes and inadequate cybersecurity put companies at risk every day. Due diligence is a cornerstone of reducing such risk.

Containing threats

Before hiring a third-party contractor, be sure to identify all applicable laws and regulations. Your company’s operating footprint will determine which ones govern third parties. Anti-bribery and corruption laws often cover third parties and hold companies that engage them liable for their actions. It’s especially important to understand the laws in foreign countries where your business has a presence.

Mitigating risk requires a detailed understanding of third-party contractors. So collect all relevant information, such as incorporation and registration documents, explanations of ownership structure, insurance coverage proof and cybersecurity reports. Also classify third parties based on their inherent risk. Risk usually corresponds to the scope of services a third party provides. In general, the more access a third party has to your company’s IT environment, the greater the threat.

Increase due diligence efforts for third parties with higher risk profiles. For example, scrutinize a cloud computing provider or physical security system service more rigorously than a landscaping company. Some companies outsource their due diligence investigations. Such professional services range from researching publicly available information to performing onsite inspections of potential business partners.

But regardless of the risk level third-party vendors represent, you should review them at least once a year. After all, software, processes, personnel and even a company’s ownership can change over time. For the riskiest contractors, an executive in your organization with authority to approve or reject contracts should conduct the review.

Rigorous defense

Contractor risk is only one of many threats companies routinely encounter. Contact us to review your internal controls and risk-management efforts and to help ensure they’re providing you with a rigorous defense.

As a small business owner, managing health care costs for yourself and your employees can be challenging. One effective tool to consider adding is a Health Savings Account (HSA). HSAs offer a range of benefits that can help you save on health care expenses while providing valuable tax advantages. You may already have an HSA. It’s a good time to review how these accounts work because the IRS has announced the relevant inflation-adjusted amounts for 2025.

HSA basics

For eligible individuals, HSAs offer a tax-advantaged way to set aside funds (or have their employers do so) to meet future medical needs. Employees can’t be enrolled in Medicare or claimed on someone else’s tax return.

Here are the key tax benefits:

Contributions that participants make to an HSA are deductible, within limits.
Contributions that employers make aren’t taxed to participants.
Earnings on the funds within an HSA aren’t taxed so the money can accumulate tax-free year after year.
HSA distributions to cover qualified medical expenses aren’t taxed.
Employers don’t have to pay payroll taxes on HSA contributions made by employees through payroll deductions.

Key 2024 and 2025 amounts

To be eligible for an HSA, an individual must be covered by a “high-deductible health plan.” For 2024, a high-deductible health plan has an annual deductible of at least $1,600 for self-only coverage or at least $3,200 for family coverage. For 2025, these amounts are $1,650 and $3,300, respectively.

For self-only coverage, the 2024 limit on deductible contributions is $4,150. For family coverage, the 2024 limit on deductible contributions is $8,300. For 2025, these amounts are increasing to $4,300 and $8,550, respectively. Additionally, for 2024, annual out-of-pocket expenses for covered benefits can’t exceed $8,050 for self-only coverage or $16,100 for family coverage. For 2025, these amounts are increasing to $8,300 and $16,600.

An individual (and the individual’s covered spouse, as well) who has reached age 55 before the close of the tax year (and is an eligible HSA contributor) may make additional “catch-up” contributions for 2024 and 2025 of up to $1,000.

Making contributions for your employees

If an employer contributes to the HSA of an eligible individual, the employer’s contribution is treated as employer-provided coverage for medical expenses under an accident or health plan. It is excludable from an employee’s gross income up to the deduction limitation. There’s no “use-it-or-lose-it” provision, so funds can build for years. An employer that decides to make contributions on its employees’ behalf must generally make similar contributions to the HSAs of all comparable participating employees for that calendar year. If the employer doesn’t make similar contributions, the employer is subject to a 35% tax on the aggregate amount contributed by the employer to HSAs for that period.

Using funds to pay medical expenses

Your employees can take HSA distributions to pay for qualified medical expenses. This generally means expenses that would qualify for the medical expense itemized deduction. They include costs for doctors’ visits, prescriptions, chiropractic care and premiums for long-term care insurance.

The withdrawal is taxable if funds are withdrawn from the HSA for any other reason. Additionally, an extra 20% tax will apply to the withdrawal unless it’s made after age 65 or in the case of death or disability.

As you can see, HSAs offer a flexible option for providing health care coverage, but the rules are somewhat complex. Contact us with questions or if you’d like to discuss offering this benefit to your employees.

Under provisions of the Inflation Reduction Act (IRA), entities traditionally not able to utilize federal income tax credits now have a path to receiving Investment Tax Credit (ITC) benefits similar to their taxpaying counterparts.

Overview of the Tax Credit

Section 48 of the Internal Revenue Code (IRC) provides an investment tax credit for a percentage of the basis of energy property a taxpayer places in service during a tax year. The percentage is generally 6%, increased to 30% if prevailing wage and apprenticeship requirements are met. The percentage may be increased by bonuses related to domestic content, location in an energy community, and location in a low-income community.

Property qualifies as “energy property” if it is of a certain type; if the taxpayer completes the property’s construction, reconstruction, or erection or acquires it as the original user; and if it complies with performance and quality standards in effect at the time of acquisition that have been issued by Treasury after consulting with the Department of Energy. Depreciation or amortization of the energy property is allowable.

Types of property qualifying as energy property include the following:

solar energy equipment used to generate electricity, heat or cool (or provide hot water for use in) a structure, provide solar process heat, or (for property that begins construction before 2025) provide lighting using fiber-optic distributed sunlight and electrochromic glass used to heat or cool
equipment that produces, distributes, or uses energy derived from a geothermal deposit
qualified fuel cell property
microturbine property
combined heat and power system property
qualified small wind energy property
equipment using the ground or groundwater as a thermal energy source
waste energy recovery property
energy storage technology
qualified biogas property
microgrid controllers

Direct Pay Incentives

Tax-exempt entities are eligible to receive payment – referred to commonly as either direct pay or elective pay – equal to the full value of the ITC and its bonus credits after a clean energy project has been placed in service and the requisite filings completed. This new provision from the IRA will allow nonprofit organizations, states, local governments, and Tribal Nations, among others, to receive payment equal to the full value of tax credits for building clean energy projects.

The project must be placed in service before the entity can apply for direct pay reimbursement. Only projects placed in service after the start of the 2023 tax year are eligible.

The eligible entity must also make a pre-filing submission with the IRS through the IRS electronic portal. The IRS will provide a pre-filing registration number, which must be included on the entity’s tax filing. An entity without a registration number is ineligible to receive tax credits. Expect the IRS to take up to 120 days to process the pre-filing registration and to provide a registration number.

To make the elective payment election on the entity’s tax return, the entity must fill out Form 3800 (citing the registration number received through pre-filing) and provide any additional required documentation and underlying source credit forms.

Interaction with Other Available Incentives

Tax-exempt entities may still benefit from the direct pay provisions of the IRA even if a tax-exempt amount is received to partially finance the clean energy projects.

Amounts exempt from taxation under subtitle A of the IRC or otherwise excluded from taxation (such as income from certain grants and forgivable loans) are included in the basis for purposes of computing the credit amount for the property. This inclusion applies when these amounts are used to purchase, construct, reconstruct, erect, or acquire an investment-related credit property. This rule holds true regardless of whether the basis must be reduced (in whole or in part) by such amounts under general tax principles.

However, if an entity receives a grant, forgivable loan, or other income exempt from taxation under subtitle A of the IRC or otherwise excluded from taxation to acquire an investment-related credit property (restricted tax-exempt amount), and the sum of any restricted tax exempt amounts plus the credit determined for that property exceeds the cost of the property, then the amount of the credit is reduced so that the credit plus any restricted tax exempt amounts equals the cost of the investment-related credit property.

For assistance with navigating the qualification for and direct pay of an ITC, please contact us.

As year-end approaches, now is a good time to think about planning moves that may help lower your tax bill for this year and possibly next.

This year’s planning is extremely important as 2025 is almost certain to bring significant tax changes with it.

Yeo & Yeo’s 2024 Year-end Tax Planning Guide provides action items that may help you save tax dollars if you act before year-end. These are just some of the steps that can be taken to save taxes. Not all actions may apply in your particular situation, but you or a family member can likely benefit from many of them.

Next steps

After reviewing the Year-end Tax Guide, reach out to your Yeo & Yeo tax advisor, who can help narrow down the specific actions you can take and tailor a tax plan unique to your current personal and business situation.

Together we can:

Identify tax strategies and advise you on which tax-saving moves to make.
Evaluate tax planning scenarios.
Determine how we can help.

We will continue to monitor tax changes and share information as it becomes available. Visit our Tax Resource Center for the latest tax insights, useful links, and access to our Online Tax Guide.

A federal district court judge has struck down the Biden administration’s new rule regarding the salary threshold for determining whether certain employees are exempt from federal overtime pay requirements. The first phase of the rule took effect for most employers in July 2024 and affects executive, administrative and professional (EAP) employees.

With a Republican administration poised to take control of the U.S. Department of Labor (DOL), the court’s ruling may sound the death knell for the rule. Here’s what the ruling means for employers.

The rejected rule

Under the Fair Labor Standards Act (FLSA), nonexempt workers are entitled to overtime pay at 1.5 times their regular pay rate for hours worked per week that exceed 40. EAP employees are exempt from the overtime requirement if they satisfy three tests:

Salary basis test. An employee is paid a predetermined and fixed salary that isn’t subject to reduction due to variations in the quality or quantity of his or her work.

Salary level test. The salary isn’t less than a specific amount or threshold.

Duties test. An employee primarily performs executive, administrative or professional duties.

The new rule focused on the salary level test and increased the threshold in two steps. The first step occurred on July 1, 2024, when most salaried workers earning less than $844 per week or $43,888 per year became eligible for overtime (up from $684 per week or $35,568 per year). The second step was scheduled to kick in on January 1, 2025, when the salary threshold would have increased to $1,128 per week or $58,656 per year.

In addition, the rule raised the total compensation requirement for highly compensated employees (HCEs), who are subject to a more relaxed duties test than employees earning less. HCEs need only “customarily and regularly” perform at least one of the duties of an exempt EAP employee instead of primarily performing such duties.

As of July 1, 2024, this less restrictive test applied to HCEs who perform office or nonmanual work and earn total compensation (including bonuses, commissions and certain benefits) of at least $132,964 per year (up from $107,432). It would have risen to $151,164 on January 1, 2025.

The rule also established a mechanism to update the salary thresholds every three years, based on current earnings data from the most recent available four quarters of data from the U.S. Bureau of Labor Statistics. However, the DOL could temporarily delay a scheduled update when warranted by unforeseen economic or other conditions.

The court’s ruling

In June 2024, the U.S. District Court for the Eastern District of Texas temporarily blocked the rule as far as its application to the State of Texas as an employer — so on an extremely limited basis — while it considered the state’s underlying legal challenge to the rules (State of Texas v. U.S. Dep’t of Labor). Multiple business groups joined Texas and asked the court to vacate the rule entirely.

On November 15, 2024, the court did just that. It found that the new rule exceeded the DOL’s authority to define terms because the EAP exemption requires that an employee’s status turn on duties, not salary — and the new rule impermissibly made salary predominate over duties. The court also found the automatic updating mechanism exceeded the DOL’s authority.

Notably, the court cited the U.S. Supreme Court’s recent decision overturning the doctrine known as “Chevron deference.” Under the doctrine, which had been in effect for decades, courts deferred to “permissible” agency interpretations of the laws they administer. The high court’s ruling empowers courts to reject agency rules more easily.

Employer response

As a result of the court’s ruling, the salary thresholds for EAP employees and HCEs return to their earlier levels: $684 per week or $35,568 per year for the former and $107,432 for the latter. On its face, that’s good news for employers. However, many businesses have started making moves in response to the new rule. For example, employers may have reclassified some employees as nonexempt, increased salaries to retain exempt status for others or reduced salaries to offset new overtime pay. Now what?

Of course, the DOL could appeal the ruling, which could make employers reluctant to institute any immediate changes. An appeal would be heard by the conservative Fifth Circuit Court of Appeals, which has repeatedly ruled against the Biden administration.

The best predictor of what’s to come may be the treatment of a similar DOL rule issued by President Obama’s administration. A court invalidated the rule in November 2016 in a ruling that was appealed while Obama was still in office. The DOL under President Trump’s first administration withdrew the appeal and issued the revised and less expansive rule that took effect in 2019.

Regardless, bear in mind that exempt employees also must satisfy the applicable duties test, whatever the salary threshold. An employee whose salary exceeds the threshold but doesn’t primarily engage in the applicable duties isn’t exempt from the overtime requirements.

Proceed with caution

Employers that roll back changes in status or salary increases that were implemented in anticipation of the new rule may find that employees — or their attorneys — begin to question whether their duties warrant an exemption. Even if employees don’t pursue litigation, rollbacks must be weighed against the impact on employee morale in a competitive job market. The best course will vary by employer, and legal advice is strongly encouraged. We’ll keep you updated on the latest news regarding the ruling.

How much can you and your employees contribute to your 401(k)s or other retirement plans next year? In Notice 2024-80, the IRS recently announced cost-of-living adjustments that apply to the dollar limitations for retirement plans, as well as other qualified plans, for 2025. With inflation easing, the amounts aren’t increasing as much as in recent years.

401(k) plans

The 2025 contribution limit for employees who participate in 401(k) plans will increase to $23,500 (up from $23,000 in 2024). This contribution amount also applies to 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan.

The catch-up contribution limit for employees age 50 or over who participate in 401(k) plans and the other plans mentioned above will remain $7,500 (the same as in 2024). However, under the SECURE 2.0 law, specific individuals can save more with catch-up contributions beginning in 2025. The new catch-up contribution amount for taxpayers who are age 60, 61, 62 or 63 will be $11,250.

Therefore, participants in 401(k) plans who are 50 or older can contribute up to $31,000 in 2025. Those who are age 60, 61, 62 or 63 can contribute up to $34,750.

SEP plans and defined contribution plans

The limitation for defined contribution plans, including a Simplified Employee Pension (SEP) plan, will increase from $69,000 to $70,000 in 2025. To participate in a SEP, an eligible employee must receive at least a certain amount of compensation for the year. That amount will remain $750 in 2025.

SIMPLE plans

The deferral limit to a SIMPLE plan will increase to $16,500 in 2025 (up from $16,000 in 2024). The catch-up contribution limit for employees who are age 50 or over and participate in SIMPLE plans will remain $3,500. However, SIMPLE catch-up contributions for employees who are age 60, 61, 62 or 63 will be higher under a change made by SECURE 2.0. Beginning in 2025, they will be $5,250.

Therefore, participants in SIMPLE plans who are 50 or older can contribute $20,000 in 2025. Those who are age 60, 61, 62 or 63 can contribute up to $21,750.

Other plan limits

The IRS also announced that in 2025:

The limitation on the annual benefit under a defined benefit plan will increase from $275,000 to $280,000.
The dollar limitation concerning the definition of “key employee” in a top-heavy plan will increase from $220,000 to $230,000.
The limitation used in the definition of “highly compensated employee” will increase from $155,000 to $160,000.

IRA contributions

The 2025 limit on annual contributions to an individual IRA will remain $7,000 (the same as 2024). The IRA catch-up contribution limit for individuals age 50 or older isn’t subject to an annual cost-of-living adjustment and will remain $1,000.

Plan ahead

The contribution amounts will make it easier for you and your employees to save a significant amount in your retirement plans in 2025. Contact us if you have questions about your tax-advantaged retirement plan or want to explore other retirement plan options.

You’re not alone if you’re confused about the federal tax treatment of business-related meal and entertainment expenses. The rules have changed in recent years. Let’s take a look at what you can deduct in 2024.

Current law

The Tax Cuts and Jobs Act eliminated deductions for most business-related entertainment expenses. That means, for example, that you can’t deduct any part of the cost of taking clients out for a round of golf or to a football game.

You can still generally deduct 50% of the cost of food and beverages when they’re business-related or consumed during business-related entertainment.

Allowable food and beverage costs

IRS regulations clarify that food and beverages are all related items whether they’re characterized as meals, snacks, etc. Food and beverage costs include sales tax, delivery fees and tips.

To be 50% deductible, food and beverages consumed in conjunction with an entertainment activity must: be purchased separately from the entertainment or be separately stated on a bill, invoice, or receipt that reflects the usual selling price for the food and beverages. You can deduct 50% of the approximate reasonable value if they aren’t purchased separately.

Other rules

Per IRS regulations, no 50% deduction for the cost of business meals is allowed unless:

The meal isn’t lavish or extravagant under the circumstances.
You (as the taxpayer) or an employee is present at the meal.
The meal is provided to you or a business associate.

Who are business associates? They’re people with whom you reasonably expect to conduct business — such as established or prospective customers, clients, suppliers, employees or partners.

IRS regulations make it clear that you can deduct 50% of the cost of a business-related meal for yourself — for example, because you’re working late at night.

Traveling on business

Per IRS regulations, the general rule is that you can still deduct 50% of the cost of meals while traveling on business. The longstanding rules for substantiating meal expenses still apply. Message: keep receipts.

IRS regulations also reiterate the longstanding general rule that no deductions are allowed for meal expenses incurred for spouses, dependents, or other individuals accompanying you on business travel. (This is also true for spouses and dependents accompanying an officer or employee on a business trip.)

The exception is when the expenses would otherwise be deductible. For example, meal expenses for your spouse are deductible if he or she works at your company and accompanies you on a business trip for legitimate business reasons.

100% deductions in certain situations

IRS regulations confirm that some longstanding favorable exceptions for meal and entertainment expenses still apply. For example, your business can deduct 100% of the cost of:

Food, beverage, and entertainment incurred for recreational, social, or similar activities that are primarily for the benefit of all employees (for example, at a company holiday party);
Food, beverages, and entertainment available to the general public (for example, free food and music you provide at a promotional event open to the public);
Food, beverages and entertainment sold to customers for full value;
Amounts that are reported as taxable compensation to recipient employees; and
Meals and entertainment that are reported as taxable income to a non-employee recipient on a Form 1099 (for example, a customer wins a dinner cruise for ten valued at $750 at a sales presentation).

In addition, a restaurant or catering business can deduct 100% of the cost of food and beverages purchased to provide meals to paying customers and consumed at the worksite by employees who work in the restaurant or catering business.

Bottom line

Business-related meal deductions can be valuable, but the rules can be complex. Contact us if you have questions or want more information.

A chart of accounts is the foundation of accurate financial reporting, so it needs to be set up correctly. A disorganized chart or one that lumps transactions into broad, undefined “buckets” of data can make it difficult for management to evaluate financial performance and identify unmet customer needs — or open the door to accounting errors and fraud. Here’s some guidance on how to create a robust chart that’s right for your situation.

Why it matters

A chart of accounts is a structured list of general ledger accounts that are used to record and organize financial transactions. An organized chart simplifies the preparation of tax returns and financial statements that comply with formal accounting standards, such as U.S. Generally Accepted Accounting Principles.

Additionally, a detailed chart provides insight into profitability and asset management. It can help you identify financial and operational areas in need of improvement and make better-informed strategic decisions.

In turn, these insights can help you communicate with stakeholders, such as lenders and potential investors, about your business’s financial performance. This can be useful, for example, when applying for new loans, seeking additional capital contributions or selling your business.

Numbering and naming conventions

Essentially, the chart of accounts mirrors the financial statements; it includes major balance sheet and income statement accounts. Each account is assigned a unique identification number and an account name.

The following sequence is customarily used for account numbering:

1000-1999 for assets, such as cash on hand, undeposited funds, accounts receivable, equipment, machinery, vehicles, real estate and inventory,
2000-2999 for liabilities, including accounts payable, accrued expenses and outstanding loans,
3000-3999 for equity, for example, retained earnings and capital accounts,
4000-4999 for revenue, such as contract revenue, change order revenue, reimbursements and retainage, and
5000-5999 for expenses, for instance, materials, labor, payroll and benefits, rent, utilities, equipment leasing, marketing, insurance, depreciation, and administrative costs.

Subcategories are generally created for key accounts within each main category. For example, current assets could start at 1100, fixed assets at 1200 and other assets at 1300. As your business grows or its reporting needs change, you might add more accounts within a range.

Following best practices

There’s no one-size-fits-all format for the chart of accounts. The appropriate structure will depend on the number, nature and complexity of your company’s financial transactions. Most companies start with industry-specific templates provided by their accounting software packages. Then, they customize those templates to fit the company’s needs.

When setting up your chart, consider these best practices:

Leave space between account numbers to accommodate business growth,
Use simple, easy-to-understand naming conventions,
Add a description for each account to help accounting personnel enter transactions into the correct general ledger account,
Select the correct account type (asset, liability, etc.) to facilitate financial statement and tax return preparation, and
Review the chart at year end and make any necessary adjustments.

A simple chart of accounts might work initially, but more complexity may be needed as your company evolves. For example, management might want to track results by department, project or region. This may require additional account segments or layers to allow for segmentation in reporting. A new business line might also require changes to an existing chart. More complex charts are common in certain industries, such as health care or construction.

For more information

Setting up a chart of accounts isn’t a one-off task that produces a template you can use forever. Contact us for help setting up a new chart of accounts or reviewing an existing one. Our experienced accounting and bookkeeping professionals can help you capture the relevant information your business needs to succeed.

As 2024 winds to a close, employers need to strategize about various issues for the next calendar year. One of them is compensation — specifically, how to handle pay raises.

In its 2024-2025 Salary Budget Survey, compensation management platform provider Payscale analyzed 1,550 submissions from employees at various organizational levels in the United States and Canada. The survey found that U.S. employers plan to increase their salary budgets by 3.5% in 2025 (slightly down from 3.6% in 2024).

If your organization, like many, now prioritizes pay equity and transparency, make sure you’ve thoroughly considered all the factors that go into finding the right approach to raises.

Standardized criteria

How employers determine and communicate raises and other compensation adjustments can affect employee morale and performance. For this reason alone, consider developing and communicating standardized sets of criteria to determine pay raises for specific positions or job groupings within your organization. (If you already do this, be sure to regularly review and revise the criteria as necessary.)

By standardizing criteria, you’re less likely to wind up with significant variations in compensation among employees who perform identical or similar jobs. You’ll also help ensure that, as much as possible, pay fairly reflects performance.

In addition, standardized criteria can reduce the perception of, and opportunity for, bias. Even if untrue, the mere perception of pay inequity can dampen morale, increase turnover and damage your employer brand with job candidates.

Goals, longevity or both

Even with established standardized criteria for raises, many employers still grapple with whether to also base pay increases on annual performance goals or longevity.

The latter is the more traditional approach. The idea is that, generally, employees’ experience with the organization reflects dedication, consistency and high-quality contributions. In addition, using raises to reward loyalty may help reduce turnover.

However, in developing their compensation philosophies, many employers have decided that longevity doesn’t automatically correlate with high-value employees. In addition, relying on tenure alone to determine raises can lead to paying bloated salaries to staff members who don’t always develop their skill sets to match their organizations’ changing needs.

For these reasons, and perhaps others, many employers now tie employees’ raises to mutually agreed-on performance goals. If you decide to take this route or are already doing so, be sure goals are clearly communicated, measurable and challenging yet attainable.

Of course, many organizations look at both longevity and performance when determining raises. Whatever approach you choose, ensure your compensation philosophy and policies comply with all applicable laws and regulations. Consult a qualified attorney as necessary.

Schedule of increases

Although many employers issue raises during or immediately after annual performance reviews, other schedules can make sense. For example, if a position typically experiences high turnover, you might boost retention by offering new hires a modest increase after only several months. No matter what the schedule is, let new employees know when they can expect their first review and opportunity for a raise.

You also should have an established policy for interacting with staff members who ask for raises outside the regular schedule. Some employers assess these requests on a case-by-case basis, while others flatly prohibit them. If a raise isn’t feasible and you want to retain the worker, look for nonfinancial incentives that might resolve the situation, such as a change in job title or more flexible working hours.

Compensation complexity

There’s no doubt about it; compensation has gotten complex. Every employer needs to find a competitive, equitable and transparent approach to paying their employees. Contact us for help capturing and analyzing your organization’s compensation costs, including the impact of annual or more regular raises.