David Jewell Elected and Tammy Moncrief Reelected to Yeo & Yeo Board of Directors

David Jewell, CPA, has been elected to the Yeo & Yeo CPAs & Business Consultants board of directors, and Tammy Moncrief, CPA, has been reelected to the firm’s board of directors effective January 1, 2021, announced Thomas E. Hollerback, president & CEO. Jewell replaces Peter Bender, CPA, CFP^®, who served on the board for six years. Jewell and Moncrief will serve two-year terms.

David Jewell, CPA, principal, is the firm’s Tax Service Line and Tax Advisory Group leader. His areas of expertise include tax planning and preparation, business succession planning and business consulting services. He conducts seminars and webinars related to tax reform and planning strategies and hosts Yeo & Yeo’s Everyday Business podcast. He has more than 18 years of public accounting experience.

In the community, Jewell is a member of the board of directors of the Boys & Girls Club of Greater Kalamazoo and serves as the organization’s treasurer and finance committee chair. He is also the past president of the Portage Rotary Club. He is based in the firm’s Kalamazoo office.

Reelected board member Tammy Moncrief, CPA, principal, will serve her third two-year term. She is a member of the firm’s Tax Advisory Group and the Estate & Trust Services Group. Her areas of expertise include tax planning and consulting for closely held businesses, high net worth individual tax services, trust and estate planning, charitable gift planning, multi-state taxation and succession planning. She has practiced public accounting since 1987.

In the community, Moncrief is an active volunteer at the University of Detroit Jesuit High School. She also served as president of the MSU Detroit Area Development Council. She is based in the firm’s Auburn Hills office.

David Youngstrom, CPA, principal, and Michael Georges, CPA, principal, will continue to serve their two-year term on the board. Youngstrom is the firm’s Assurance Service Line leader, responsible for all audits performed in Michigan. Georges is a member of the firm’s Nonprofit Services Group.

When it comes to taxes, December 31 is more than just New Year’s Eve. That date will affect the filing status box that will be checked on your 2020 tax return. When filing a return, you do so with one of five tax filing statuses. In part, they depend on whether you’re married or unmarried on December 31.

More than one filing status may apply, and you can use the one that saves the most tax. It’s also possible that your status could change during the year.

Here are the filing statuses and who can claim them:

Single. This is generally used if you’re unmarried, divorced or legally separated under a divorce or separate maintenance decree governed by state law.
Married filing jointly. If you’re married, you can file a joint tax return with your spouse. If your spouse passes away, you can generally file a joint return for that year.
Married filing separately. As an alternative to filing jointly, married couples can choose to file separate tax returns. In some cases, this may result in less tax owed.
Head of household. Certain unmarried taxpayers may qualify to use this status and potentially pay less tax. Special requirements are described below.
Qualifying widow(er) with a dependent child. This may be used if your spouse died during one of the previous two years and you have a dependent child. Other conditions also apply.

How to qualify as “head of household”

In general, head of household status is more favorable than filing as a single taxpayer. To qualify, you must “maintain a household” that, for more than half the year, is the principal home of a “qualifying child” or other relative that you can claim as your dependent.

A “qualifying child” is defined as one who:

Lives in your home for more than half the year,
Is your child, stepchild, foster child, sibling, stepsibling or a descendant of any of these,
Is under 19 years old or under age 24 if enrolled as a student, and
Doesn’t provide over half of his or her own support for the year.

If a child’s parents are divorced, different rules may apply. Also, a child isn’t eligible to be a “qualifying child” if he or she is married and files a joint tax return or isn’t a U.S. citizen or resident.

There are other head of household requirements. You’re considered to maintain a household if you live in it for the tax year and pay more than half the cost. This includes property taxes, mortgage interest, rent, utilities, property insurance, repairs, upkeep, and food consumed in the home. Don’t include medical care, clothing, education, life insurance or transportation.

Under a special rule, you can qualify as head of household if you maintain a home for a parent even if you don’t live with him or her. To qualify, you must claim the parent as your dependent.

Determining marital status

You must generally be unmarried to claim head of household status. If you’re married, you must generally file as either married filing jointly or married filing separately — not as head of household. However, if you’ve lived apart from your spouse for the last six months of the year, a qualifying child lives with you and you “maintain” the household, you’re treated as unmarried. In this case, you may qualify as head of household.

The best choice of entity can affect your business in several ways, including the amount of your tax bill. In some cases, businesses decide to switch from one entity type to another. Although S corporations can provide substantial tax benefits over C corporations in some circumstances, there are potentially costly tax issues that you should assess before making the decision to convert from a C corporation to an S corporation.

Here are four issues to consider:

1. LIFO inventories. C corporations that use last-in, first-out (LIFO) inventories must pay tax on the benefits they derived by using LIFO if they convert to S corporations. The tax can be spread over four years. This cost must be weighed against the potential tax gains from converting to S status.

2. Built-in gains tax. Although S corporations generally aren’t subject to tax, those that were formerly C corporations are taxed on built-in gains (such as appreciated property) that the C corporation has when the S election becomes effective, if those gains are recognized within five years after the conversion. This is generally unfavorable, although there are situations where the S election still can produce a better tax result despite the built-in gains tax.

3. Passive income. S corporations that were formerly C corporations are subject to a special tax. It kicks in if their passive investment income (including dividends, interest, rents, royalties, and stock sale gains) exceeds 25% of their gross receipts, and the S corporation has accumulated earnings and profits carried over from its C corporation years. If that tax is owed for three consecutive years, the corporation’s election to be an S corporation terminates. You can avoid the tax by distributing the accumulated earnings and profits, which would be taxable to shareholders. Or you might want to avoid the tax by limiting the amount of passive income.

4. Unused losses. If your C corporation has unused net operating losses, they can’t be used to offset its income as an S corporation and can’t be passed through to shareholders. If the losses can’t be carried back to an earlier C corporation year, it will be necessary to weigh the cost of giving up the losses against the tax savings expected to be generated by the switch to S status.

Other considerations

When a business switches from C to S status, these are only some of the factors to consider. For example, shareholder-employees of S corporations can’t get all of the tax-free fringe benefits that are available with a C corporation. And there may be issues for shareholders who have outstanding loans from their qualified plans. These factors have to be taken into account in order to understand the implications of converting from C to S status.

If you’re interested in an entity conversion, contact us. We can explain what your options are, how they’ll affect your tax bill and some possible strategies you can use to minimize taxes.

Unfortunately, many businesses have experienced problems with collections during the COVID-19 pandemic. Accounts receivable are a major item on most companies’ balance sheets. Slow-paying — or even nonpaying — customers or clients adversely affect cash flow. Proactive measures can help identify collections issues early and remedy them before they spiral out of control.

Recognize the warning signs

To stay on top of collections, be aware of the following red flags:

Anonymous clients. Some prospective customers don’t seem to exist anywhere other than, say, a vague email address. This is a sign to move cautiously. It’s not too much to expect that even start-up businesses have some sort of online presence, a physical address, and a working email address and phone number.

Empty assurances. One warning sign is clients who ask that work on their product or service start immediately, but without providing assurances that payment will be forthcoming. In some industries, it might be common practice for suppliers to provide goods or services, and follow up with invoices later. When that’s not the case, however, consider the lack of credible assurances to be a warning sign. That’s especially true if a prospective customer is vague on the budget for a project.

Future earnings as payment. Customers who promise some portion of future earnings as payment may be legitimate. But, before you begin work, nail down the terms and decide if the potential reward compensates for the risk.

Perpetual nitpicking. A client who regularly finds fault with minor details of a project may keep it from ever getting off the ground. While clients have a right to expect the level of quality promised at the outset of a project, those who seem to continually search for reasons to criticize products or services may be using their purported dissatisfaction to avoid paying for their purchase.

Take precautionary measures

If you’re skeptical you’ll be able to collect from a customer, it’s wise to ask for a retainer or deposit up front before starting a project. You can also request progress payments while the project is in process. Additional steps that can help expedite collections include:

Following up with a firm, but tactful, email when an invoice is overdue.
Moving to a phone call if follow-up emails aren’t generating a response.
Trying to contact the customer’s accounts payable staff or business manager, if previous follow-up efforts aren’t working.

If you have clients that continue to withhold payment after these steps, it may be time to take legal action. When it’s necessary to pursue missing payments, persistence pays off.

Need help?

Delinquent payments and write-offs can damage your company’s operations and profitability. Contact us if your business is experiencing collections issues. We can help you sort out your options.

In the early 1990s, the Balanced Scorecard approach to strategic planning was developed to enable business owners to better organize and visualize their objectives. With 2021 shaping up to be a year of both daunting challenges and potentially remarkable recovery, your company should have a strategic plan that’s both comprehensive and flexible. Giving this methodology a try may prove beneficial.

Areas of focus

The Balanced Scorecard approach segments strategic planning into four critical areas:

1. Customers. Every business owner knows the importance of customer satisfaction but, to truly know and fulfill customers’ needs, you must identify the right metrics that measure it. Also identify the types of customers you want and, more important, can best serve.

Key question to ask: To fulfill our strategic objectives, how can we attract and retain the customers that build our bottom line?

2. Finance. Companies generally know how to measure their financial performance. However, they too often rely on finances as the only barometer of overall operational stability and success. Financial details are often lagging indicators because they reveal past events — not future performance. So, along with continuing to properly generate financial statements, also track data such as employee productivity and sales growth.

Key question to ask: To achieve our vision, how will our leadership and employees drive our company’s financial success?

3. Internal processes. To operate more productively and efficiently, identify problems and change the related processes. Simply paying closer attention to a shortcoming isn’t an adequate solution. For example, measuring productivity won’t automatically increase it. Your business must analyze the internal components of production — from design to delivery to billing and receipt of revenue — and implement process improvements.

Key question to ask: To meet our goals, in which business processes do we need to excel?

4. Learning and professional growth. Continuing education often calls for more time and effort than businesses are willing or able to devote. Learning must go beyond simply training new hires to include, for instance, mentoring and knowledge sharing through performance management programs. Many companies’ success depends largely on the development and preservation of intellectual capital.

Key question to ask: To accomplish our strategic plan, how can we better preserve and pass along knowledge, as well as encourage learning?

A multipronged effort

Compiling data under the Balanced Scorecard approach requires a multipronged effort. You might use a survey to gather customer info. Your financial statements and industry benchmarks should provide insights into finances. Employee surveys and open forums can illuminate internal operations. And a performance management consultant could help you target learning opportunities and methods.

We can assist you in identifying pertinent financial metrics and incorporating accurate analysis into your strategic plan to help you achieve your profitability goals in the coming year.

If you’re self-employed and don’t have withholding from paychecks, you probably have to make estimated tax payments. These payments must be sent to the IRS on a quarterly basis. The fourth 2020 estimated tax payment deadline for individuals is Friday, January 15, 2021. Even if you do have some withholding from paychecks or payments you receive, you may still have to make estimated payments if you receive other types of income such as Social Security, prizes, rent, interest, and dividends.

Pay-as-you-go system

You must make sufficient federal income tax payments long before the April filing deadline through withholding, estimated tax payments, or a combination of the two. If you fail to make the required payments, you may be subject to an underpayment penalty, as well as interest.

In general, you must make estimated tax payments for 2020 if both of these statements apply:

You expect to owe at least $1,000 in tax after subtracting tax withholding and credits, and
You expect withholding and credits to be less than the smaller of 90% of your tax for 2020 or 100% of the tax on your 2019 return — 110% if your 2019 adjusted gross income was more than $150,000 ($75,000 for married couples filing separately).

If you’re a sole proprietor, partner or S corporation shareholder, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.

Quarterly due dates

Estimated tax payments are spread out through the year. The due dates are April 15, June 15, September 15 and January 15 of the following year. However, if the date falls on a weekend or holiday, the deadline is the next business day.

Estimated tax is calculated by factoring in expected gross income, taxable income, deductions and credits for the year. The easiest way to pay estimated tax is electronically through the Electronic Federal Tax Payment System. You can also pay estimated tax by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.

Seasonal businesses

Most individuals make estimated tax payments in four installments. In other words, you can determine the required annual payment, divide the number by four and make four equal payments by the due dates. But you may be able to make smaller payments under an “annualized income method.” This can be useful to people whose income isn’t uniform over the year, perhaps because of a seasonal business. You may also want to use the annualized income method if a large portion of your income comes from capital gains on the sale of securities that you sell at various times during the year.

Determining the correct amount

Contact us if you think you may be eligible to determine your estimated tax payments under the annualized income method, or you have any other questions about how the estimated tax rules apply to you.

Late Monday night, the House and Senate passed a COVID Relief Bill, resulting in over $900 billion of much-needed Coronavirus aid to struggling American individuals and businesses. The bill now goes to President Trump, who is expected to sign it quickly.

While the bill is packed with nearly 5,600 pages of relief provisions, this article provides a summary of the key issues that will impact individual and business taxpayers to the greatest extent.

Key Individual Provisions:

$600 direct payments to individuals ($1,200 for a married couple), plus $600 per dependent child under age 17. Once again, payments phase out once adjusted gross income (AGI) exceeds $75,000 for single taxpayers and $150,000 for married filing joint taxpayers. The payment is an advance of a credit that will be available on the 2020 tax return.
Additional $300 per week for all workers receiving unemployment benefits through March 14, 2021.
Expands CARES Act provision for non-itemizing married filing joint couples to deduct $600 of charitable contributions in arriving at AGI, instead of the previously allowed $300 for a joint tax return.
“Look-back” provision for lower-income earners, allowing certain taxpayers to utilize 2019 earned income for purposes of the earned income tax credit and child tax credit to maximize these refundable credits.
Makes unreimbursed medical expenses over 7.5% of a taxpayer’s adjusted gross income a permanent level. The threshold was set to increase to 10% in 2021.

Key Business Provisions:

Deductibility of expenses paid with forgiven PPP funds – this bill overrules the IRS position, which would have made business expenses paid with forgiven PPP funds nondeductible. Taxpayers receiving Economic Injury Disaster Loan (EIDL) grants will not have to reduce PPP forgiveness by the amount of the grant.
Streamlined forgiveness of PPP loans for borrowers with loans under $150,000. These borrowers will only have to submit a one-page form and only be subject to audit if fraud was committed or if borrowers misused funds.
New PPP program – the bill reopens the PPP program, with $35 billion allocated to businesses that have not yet borrowed. Additionally, taxpayers who previously borrowed will be eligible to participate again, with certain additional restrictions, including the requirement that the business has fewer than 300 employees and can prove that revenues for a quarter in 2020 were more than 25% less than the same quarter in the previous year. Full details and definitions are not yet available but should be released within 10 days of the bill being signed.
Expanded uses of PPP dollars for first-time borrowers include the ability to spend funds on covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection costs. New covered periods are also included in the new bill and range from 8-24 weeks or any period in between.
Extension of FFCRA credits from December 31, 2020, until March 31, 2021. These credits helped employers who were required to pay for family leave time when adults couldn’t work because a child was without school or care, and up to two weeks of sick pay for various COVID-related reasons.
Full deduction for business meals in 2021 and 2022. The deduction for these expenses was previously limited to 50% of the meal cost.
Extension of the employee retention credit through July 1, 2021 with the ability to now claim the credit and take a PPP loan. These two benefits were previously mutually exclusive of each other.

Yeo & Yeo will keep you informed as more information about the second round of PPP loans becomes available. If you have questions, please contact your Yeo & Yeo professional or local Yeo & Yeo office.

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2021. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

February 1 (The usual deadline of January 31 is a Sunday)

File 2020 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
Provide copies of 2020 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
File 2020 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS.
File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2020. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2020. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”)
File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2020 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

March 1 (The usual deadline of February 28 is a Sunday)

File 2020 Forms 1099-MISC with the IRS if: 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is March 31.)

March 16

If a calendar-year partnership or S corporation, file or extend your 2020 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2020 contributions to pension and profit-sharing plans.

Each year, public companies must assess the effectiveness of their internal controls over financial reporting (ICFR) under Section 404(a) of the Sarbanes-Oxley Act (SOX). In some cases, private companies should follow suit.

In addition, a public company’s independent auditors are generally required to provide an attestation report on management’s assessment of ICFR under Sec. 404(b). But some smaller entities may be exempt.

Assessment guidance

Adherence to Sec. 404(a) is required only of public companies. However, it may be recommended for some larger private companies — particularly if management is planning to go public or sell the business to a public company.

SOX adherence can make a private business more attractive to public companies, which can result in a higher sale price. Compliance with SOX can also improve the company’s reputation with investors, lenders and the public by demonstrating that its financial reporting is transparent.

Attestation exemptions

Proponents of Sec. 404(b) argue that the auditor attestation requirement has led to improvements in the quality of financial reporting and have fought efforts to provide exemptions. But two exemptions are available:

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 instructed the Securities and Exchange Commission (SEC) to permanently exempt nonaccelerated filers from Sec. 404(b). Nonaccelerated filers are defined as companies with a public float of less than $75 million on the last business day of their most recent second fiscal quarter.
The JOBS Act of 2012 gave emerging growth companies (EGCs) a five-year reprieve from compliance with Section 404(b) following an initial public offering (IPO). But if a company surpasses $1 billion in annual revenue, it will lose its EGC status sooner, after the end of the fiscal year in which it reached that milestone. EGC status also will be lost if it issues more than $1 billion in nonconvertible debt over a three-year period or reaches a public float of $700 million.

SRC vs. accelerated filers

In 2018, the SEC expanded its definition of smaller reporting companies (SRCs) from companies with a public float of less than $75 million to those with a public float of less than $250 million. This change allowed nearly 1,000 more companies to qualify for the lighter set of disclosure rules available to SRCs.

But, the SEC’s expanded definition of SRCs did not raise the public float thresholds for when a company qualifies as an accelerated filer. This means the $75 million threshold still applies in relation to the Sec. 404(b) exemption. Some members of the SEC favored raising the accelerated filer threshold to $250 million to expand the number of companies that would be exempt from Sec. 404(b). But, based on feedback from auditors and investor advocate groups, the SEC decided to keep the threshold at $75 million.

Got questions?

Some smaller public companies — and large private companies considering an IPO or sale — may be unclear about the ICFR assessment and attestation requirements under SOX. Contact us for questions about the rules or for information regarding best practices in internal controls.

In September 2020, the Families First Coronavirus Response Act (FFCRA) was revised to implement the paid sick leave and expanded family and medical leave provisions. Under FFCRA, school districts must provide their employees sick pay for specified reasons related to COVID-19.

Our recent articles and eAlerts provide additional information regarding the requirements:

Join us for a webinar

We invite you to attend a Yeo & Yeo webinar that will provide guidance that is more in-depth for administering sick pay and family leave, and managing COVID-19 revenue sources, including ESSER funds, CRF and FEMA funds. A Q&A period will follow.

Q&A: COVID-19 Sick Pay and Family Leave for School Districts

Friday, January 8, 2021

11:00 a.m. – 12:00 p.m.

The presenters will be Kristi Krafft-Bellsky, Director of Quality Control; Christine Porras, Payroll Supervisor; and Jennifer Watkins, Education Services Group. Please register for the free webinar.

We are pleased to provide resources to help your school district navigate these complex issues. Contact Yeo & Yeo if you need assistance.

Welcome to Everyday Business, Yeo & Yeo’s podcast. We’ve had the privilege of advising Michigan businesses for more than 95 years, and we want to share our knowledge with you.

Covering tax, accounting, technology, financial and advisory topics relevant to you and your business, Yeo & Yeo’s podcast is hosted by industry and subject matter professionals, where we go beyond the beans.

On episode nine of Everyday Business, host Rebecca Millsap, managing principal of the Flint office, is joined by Andrew Matuzak, manager in Saginaw.

Listen in as Rebecca and Andrew discuss personal and business inheritances and the tax impact of receiving an inheritance.

Ways someone can receive an inheritance (1:15)
Breaking down different types of inheritance (3:38)
Passing down real estate and personal property (7:47)
Inheriting a business and knowing the value (10:19)

Thank you for tuning in to Yeo & Yeo’s Everyday Business Podcast. Yeo & Yeo’s podcast can be heard on Apple Podcasts, PodBean and, of course, our website. Please subscribe, rate and review.

For more business insights, visit our Resource Center and subscribe to our eNewsletters.

DISCLAIMER
The information provided in this podcast is believed to be valid and accurate on the date it was first published. The views, information, or opinions expressed during the podcast reflect the views of the speakers. This podcast does not constitute tax, accounting, legal or other business advice, or an advisor-client relationship. Before making any decision or taking action, consult with a professional regarding your specific circumstances.

With a difficult year almost over, and another one on the horizon, now may be a good time to assess the size of your sales force. Maybe the economic changes triggered by the COVID-19 pandemic led you to downsize earlier in the year. Or perhaps you’ve added to your sales team to seize opportunities. In either case, every business owner should know whether his or her sales team is the right size.

Various KPIs

To determine your optimal sales staffing level, there are several steps you can take. A good place to start is with various key performance indicators (KPIs) that enable you to quantify performance in dollars and cents.

The KPIs you choose to calculate and evaluate need to be specific to your industry and appropriate to the size of your company and the state of the market in which you operate. If you’re comparing your sales numbers to those of other businesses, make sure it’s an apples-to-apples comparison.

In addition, you’ll need to pick KPIs that are appropriate to whether you’re assessing the performance of a sales manager or that of a sales representative. For a sales manager, you could look at average annual sales volume to determine whether his or her team is contributing adequately to your target revenue goals. Ideal KPIs for sales reps are generally more granular; examples include sales by rep and lead-to-sale percentage.

More than math

Rightsizing your sales staff, however, isn’t only a mathematical equation. To customize your approach, think about the specific needs of your company.

Consider, for example, how you handle staffing when sales employees take vacations or call in sick. If you frequently find yourself coming up short on revenue projections because of a lack of boots on the ground, you may want to expand your sales staff to cover territories and serve customers more consistently.

Then again, financial problems that arise from carrying too many sales employees can creep up on you. Be careful not to hire at a rate faster than your sales and gross profits are increasing. If you’re looking to make aggressive moves in your market, be sure you’ve done the due diligence to ensure that the hiring and training costs will likely pay off.

Last, but not least, think about your customers. Are they largely satisfied? If so, the size of your sales force might be just fine. However, salespeople saying that they’re overworked or customers complaining about a lack of responsiveness could mean your staff is too small. Conversely, if you have market segments that just aren’t yielding revenue or salespeople who are continually underperforming, it might be time to downsize.

Reasonable objectives

By regularly monitoring the headcount of your sales staff with an eye on fulfilling reasonable revenue goals, you’ll stand a better chance of maximizing profitability during good times and maintaining it during more challenging periods. Contact us for help choosing the right KPIs and cost-effectively managing your business.

Those who pay estimated taxes are on a slightly different schedule from others. People who pay quarterly estimated taxes include workers who are self-employed, earn money from tips, or any similar entrepreneurial or independent contractor jobs. If your paycheck doesn’t have taxes taken out before the money gets to you, you should pay estimated taxes quarterly.

Estimated taxes are due quarterly with Form 1040-ES, and there are two sets of dates. If you’re self-employed or a farmer or fisherman:

First quarter payments are due April 15
Second quarter payments are due June 15
Third quarter payments are due September 15
Fourth quarter payments are due January 15

If you’re an employee who earns tips, you’ll be paying monthly instead of quarterly:

January 11
February 10
March 10
April 12
May 10
June 10
July 12
August 10
September 10
October 12
November 10
December 10

This is the standard schedule to follow, provided nothing interferes (such as a pandemic). As long as these deadlines aren’t changed, your next estimated taxes payment will be due January 15, 2021, if you’re currently earning self-employment income or January 11 if you earn tips.

If you don’t pay estimated taxes by the deadline, you risk being charged a penalty. The caveat is that if you don’t pay the estimated tax by January 15 but file your 2020 income tax early, you won’t be charged. If you’re self-employed, that date is January 31; for farmers and fishermen, it’s March 1.

If you have questions, contact Yeo & Yeo or visit the Estimated Taxes page on the IRS’s website, www.irs.gov.

Yeo & Yeo proudly recognized 14 professionals across the firm’s companies for milestone anniversaries at the firm’s annual Christmas celebration held virtually this year.

“I am proud to recognize so many employees for their long-standing commitment to the firm,” said President & CEO Thomas Hollerback. “To all our longevity honorees, thank you for everything you do for Yeo & Yeo. Your dedication to supporting your peers, serving our clients and giving back to our communities is inspiring. Congratulations for many successful years, and best wishes to you for many more to come.”

Honored for 25 years of service:

David Youngstrom, CPA, Principal, Yeo & Yeo CPAs – Saginaw. Youngstrom serves on the firm’s board of directors and is the firm’s Assurance Service Line Leader.

Honored for 20 years of service:

Adele Hetzner, Marketing Coordinator, Yeo & Yeo Firm Administration – Saginaw
Jamie Rivette, CPA, CGFM, Principal, Yeo & Yeo CPAs – Saginaw
Rob Schmidt, Senior Technician, Yeo & Yeo Firm Administration – Saginaw
Terrie Chronowski, E.A., Tax Supervisor, Yeo & Yeo CPAs – Saginaw

Honored for 15 years of service:

Brad DeVries, CPA, CAE, Principal, Yeo & Yeo CPAs – Lansing
Jennifer Watkins, CPA, Principal, Yeo & Yeo CPAs – Flint
Julie Surprenant, Administrative Assistant, Yeo & Yeo CPAs – Saginaw
Mary Kreider, CPA, CPPM, Senior Manager, Yeo & Yeo CPAs – Saginaw
Tanya Harrison, Medical Biller, Yeo & Yeo Medical Billing & Consulting
Thomas O’Sullivan, CPA, CFE, Managing Principal, Yeo & Yeo CPAs – Ann Arbor

Honored for ten years of service:

Andrew Licht, CPA, Senior Manager, Yeo & Yeo CPAs – Saginaw
Cathy Hammis, Executive Assistant and Facilities Manager – Yeo & Yeo Firm Administration
Terra Lewis, FPQP^TM, Administrative Assistant – Yeo & Yeo Wealth Management

Also recognized during the virtual program were 11 professionals celebrating their five-year anniversary with Yeo & Yeo.

You may be able to deduct some of your medical expenses, including prescription drugs, on your federal tax return. However, the rules make it hard for many people to qualify. But with proper planning, you may be able to time discretionary medical expenses to your advantage for tax purposes.

Itemizers must meet a threshold

For 2020, the medical expense deduction can only be claimed to the extent your unreimbursed costs exceed 7.5% of your adjusted gross income (AGI). This threshold amount is scheduled to increase to 10% of AGI for 2021. You also must itemize deductions on your return in order to claim a deduction.

If your total itemized deductions for 2020 will exceed your standard deduction, moving or “bunching” nonurgent medical procedures and other controllable expenses into 2020 may allow you to exceed the 7.5% floor and benefit from the medical expense deduction. Controllable expenses include refilling prescription drugs, buying eyeglasses and contact lenses, going to the dentist and getting elective surgery.

In addition to hospital and doctor expenses, here are some items to take into account when determining your allowable costs:

Health insurance premiums. This item can total thousands of dollars a year. Even if your employer provides health coverage, you can deduct the portion of the premiums that you pay. Long-term care insurance premiums are also included as medical expenses, subject to limits based on age.
Transportation. The cost of getting to and from medical treatments counts as a medical expense. This includes taxi fares, public transportation, or using your own car. Car costs can be calculated at 17¢ a mile for miles driven in 2020, plus tolls and parking. Alternatively, you can deduct certain actual costs, such as for gas and oil.
Eyeglasses, hearing aids, dental work, prescription drugs and more. Deductible expenses include the cost of glasses, hearing aids, dental work, psychiatric counseling and other ongoing expenses in connection with medical needs. Purely cosmetic expenses don’t qualify. Prescription drugs (including insulin) qualify, but over-the-counter aspirin and vitamins don’t. Neither do amounts paid for treatments that are illegal under federal law (such as medical marijuana), even if state law permits them. The services of therapists and nurses can qualify as long as they relate to a medical condition and aren’t for general health. Amounts paid for certain long-term care services required by a chronically ill individual also qualify.
Smoking-cessation and weight-loss programs. Amounts paid for participating in smoking-cessation programs and for prescribed drugs designed to alleviate nicotine withdrawal are deductible. However, nonprescription nicotine gum and patches aren’t. A weight-loss program is deductible if undertaken as treatment for a disease diagnosed by a physician. Deductible expenses include fees paid to join a program and attend periodic meetings. However, the cost of food isn’t deductible.

Costs for dependents

You can deduct the medical costs that you pay for dependents, such as your children. Additionally, you may be able to deduct medical costs you pay for other individuals, such as an elderly parent. Contact us if you have questions about medical expense deductions.

The Michigan Bureau of Employment Relations, Wage and Hour Division announced that the state’s scheduled minimum wage increase is not expected to go into effect on January 1, 2021.

The Improved Workforce Opportunity Wage Act of 2018 prohibits minimum wage increases when the state’s annual unemployment rate for the preceding year is above 8.5%. As a result of the coronavirus pandemic, the state’s unemployment average from January to October was more than 10%.

While Michigan’s October unemployment rate continued its downward trend, the annual average from January through October is 10.2% and is highly unlikely to dip below the 8.5% threshold by year-end.

If, as expected, the annual unemployment rate does not fall below 8.5%, then effective January 1, 2021:

Michigan’s minimum wage will remain at $9.65 an hour.
The 85% rate for minors age 16 and 17 remains $8.20 an hour.
Tipped employees pay remains $3.67 an hour.
The training wage of $4.25 an hour for newly hired employees age 16 to 19 for their first 90 days of employment remains unchanged.

The state’s minimum wage rate will next increase to $9.87 in January 2022 provided the 2021 annual unemployment rate is less than 8.5%.

For more information, visit the Department of Labor and Economic Opportunity’s website.

Yeo & Yeo CPAs & Business Consultants is pleased to announce that Melissa (Dean) Lindsey, PCM^®, was recently honored with the most prestigious award bestowed by the firm, the Spirit of Yeo award. The Spirit of Yeo award recognizes an individual within the firm who exemplifies the organization’s mission and core values.

“We have experienced growth in many of our practice areas. Melissa played a vital part in continuing our success by providing our professionals with the strategic direction and resources they need to align Yeo & Yeo’s solutions with their clients’ goals,” says Thomas Hollerback, President & CEO.

Melissa has more than 11 years of marketing, business development, client service and consulting experience. She is the firm’s Practice Growth Manager, helping to drive Yeo & Yeo’s growth strategy, provide executive coaching for the firm’s senior employees, and manage lead generation marketing initiatives. She is based in the firm’s Saginaw office.

Melissa and Tom Melissa received multiple nominations for the Spirit of Yeo award. One of her nominators said, “Melissa genuinely cares about Yeo & Yeo employees and will do everything in her power to help them succeed. She is passionate about what she does and is our employees’ biggest cheerleader. Her encouragement is inspiring and motivates us to be even better. She is creative and does an amazing job of tailoring goals to each person to capitalize on their strengths.”

Another nominator said, “Melissa constantly pushes us to be better while encouraging us at the same time. She helps us put our thoughts into well‐defined goals and highlights our strengths when looking for ways to bring success to the firm. She loves what she does and gives 100% to every person she works with. She helps employees feel more valued and is crucial to firm morale.”

Another nominator continues, “Melissa helps me and others view things through a different lens and find opportunities that might have been overlooked. She takes the time to look at where my strengths are, and instead of expecting me to approach business development the way that someone with a “rainmaker” personality would, she finds where my skill set can benefit the firm and our clients and helps me create goals around that. The professionals at Yeo & Yeo are fortunate to work with such a positive and upbeat person whose focus is to help others in the organization succeed.”

Another nominator concludes, “Melissa is someone I can count on. She is reliable, timely, efficient, and kind.”

Melissa holds the Professional Certified Marketer (PCM^®) designation from the American Marketing Association. She is a member of Thomson Reuters’ Checkpoint Marketing for Firms Advisory Board, the Association for Accounting Marketing, and the LinkedIn Advisors Community. She is active in the Marketing & Business Development special interest group of PrimeGlobal, a global association of independent accounting firms.

In the community, Melissa volunteers for the Saginaw Community Foundation annual scholarship program and Yeo & Yeo’s charitable endeavors. She has also been involved in the Rotary Youth Leadership Awards (RYLA) for Rotary District 6310.

2020 marked the seventh year of the award, with Yeo & Yeo employees submitting 25 nominations.

Are you considering replacing a car that you’re using in your business? There are several tax implications to keep in mind.

A cap on deductions

Cars are subject to more restrictive tax depreciation rules than those that apply to other depreciable assets. Under so-called “luxury auto” rules, depreciation deductions are artificially “capped.” So is the alternative Section 179 deduction that you can claim if you elect to expense (write-off in the year placed in service) all or part of the cost of a business car under the tax provision that for some assets allows expensing instead of depreciation. For example, for most cars that are subject to the caps and that are first placed in service in calendar year 2020 (including smaller trucks or vans built on a truck chassis that are treated as cars), the maximum depreciation and/or expensing deductions are:

$18,100 for the first tax year in its recovery period (2020 for calendar year taxpayers);
$16,100 for the second tax year;
$9,700 for the third tax year; and
$5,760 for each succeeding tax year.

The effect is generally to extend the number of years it takes to fully depreciate the vehicle.

The heavy SUV strategy

Because of the restrictions for cars, you might be better off from a tax standpoint if you replace your business car with a heavy sport utility vehicle (SUV), pickup or van. That’s because the caps on annual depreciation and expensing deductions for passenger automobiles don’t apply to trucks or vans (and that includes SUVs). What type of SUVs qualify? Those that are rated at more than 6,000 pounds gross (loaded) vehicle weight.

This means that in most cases you’ll be able to write off the entire cost of a new heavy SUV used entirely for business purposes as 100% bonus depreciation in the year you place it into service. And even if you elect out of bonus depreciation for the heavy SUV (which generally would apply to the entire depreciation class the SUV belongs in), you can elect to expense under Section 179 (subject to an aggregate dollar limit for all expensed assets), the cost of an SUV up to an inflation-adjusted limit ($25,900 for an SUV placed in service in tax years beginning in 2020). You’d then depreciate the remainder of the cost under the usual rules without regard to the annual caps.

Potential caveats

The tax benefits described above are all subject to adjustment for non-business use. Also, if business use of an SUV doesn’t exceed 50% of total use, the SUV won’t be eligible for the expensing election, and would have to be depreciated on a straight-line method over a six-tax-year period.

It’s almost time for calendar-year businesses to prepare their year-end financial statements. If used correctly, these reports can be a valuable management tool. Use them in benchmarking and forecasting to be proactive, not reactive, to market changes.

1. Benchmarking

Historical financial statements can be used to evaluate the company’s current performance vs. past performance or industry norms. A comprehensive benchmarking study includes the following elements:

Size. This is usually in terms of annual revenue, total assets or market share.

Growth. This shows how much the company’s size has changed from previous periods.

Liquidity. Working capital ratios help assess how easily assets can be converted into cash and whether current assets are sufficient to cover current liabilities.

Profitability. This section evaluates whether the business is making money from operations — before considering changes in working capital accounts, investments in capital expenditures and financing activities.

Turnover. Such ratios as total asset turnover (revenue divided by total assets) or inventory turnover (cost of sales divided by inventory) show how effectively the company manages its assets.

Leverage. This refers to how the company finances its operations — through debt or equity. Each has pros and cons.

No universal benchmarks apply to all types of businesses. So, it’s important to seek data sorted by industry, size and geographic location, if possible. To understand what’s normal for businesses like yours, consider such sources as trade journals, conventions or local roundtable meetings. Your accountant can also provide access to benchmarking studies they use during audits, reviews and consulting engagements.

2. Forecasting

Historical financial statements also may serve as the starting point for forecasting, which is a critical part of strategic planning. Comprehensive business plans include forecasted balance sheets, income statements and statements of cash flows.

Many items in your forecasts will be derived from revenue. For example, variable expenses and working capital accounts are often assumed to grow in tandem with revenue. Other items, such as rent and management salaries, are fixed over the short run. These items may need to increase in steps over the long run. For example, if a company is currently at (or near) full capacity, it may eventually need to expand its factory or purchase equipment to grow.

By tracking sources and uses of cash on the forecasted statement of cash flows, management can identify when cash shortfalls might happen and plan how to make up the difference. For example, the company might need to draw on its line of credit, lay off workers, reduce inventory levels or improve its collections. In turn, these changes will flow through to the company’s forecasted balance sheet.

For more information

Let’s take your financial statements to the next level! We can help you benchmark your company’s performance and create forecasts from your year-end financial statements.

This article contains information that has since changed. Please check our blog regularly for recent updates.

On September 11, 2020, the Families First Coronavirus Response Act (FFCRA) was revised to implement the paid sick leave and expanded family and medical leave provisions. The revised rule clarifies workers’ rights and employers’ responsibilities regarding FFCRA paid leave. The Department issued its initial temporary rule implementing provisions under the FFCRA on April 1, 2020. FFCRA includes both the Emergency Paid Sick Leave Act (EPSLA) and Emergency Family and Medical Leave Expansion Act (EMLA).

Under the FFCRA, private employers with fewer than 500 employees, and most public sector employers, must provide their employees sick pay for specified reasons related to COVID-19. Public sector employers (i.e., governments, school districts, etc.) must comply with the FFCRA; however, they are not eligible for the credits that private employers are eligible for.

In general, FFCRA requires that employees be provided the following:

Two weeks (up to 80 hours) of paid sick leave at the employee’s regular rate of pay where the employee is unable to work because the employee is quarantined (under federal, state, or local government order or advice of a health care provider), and/or experiencing COVID-19 symptoms and seeking a medical diagnosis; or
Two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s regular rate of pay because the employee is unable to work because of a need to care for an individual subject to quarantine (under federal, state, or local government order or advice of a health care provider), or care for a child (under 18 years of age) whose school or child care provider is closed or unavailable for reasons related to COVID-19, and/or the employee is experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of the Treasury and Labor.

Also, employers must provide to employees that have been with the organization for at least 30 days:

Up to an additional ten weeks of paid expanded family and medical leave at two-thirds the employee’s regular rate of pay where an employee is unable to work due to a need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.

The duration of leave and calculation of pay is dependent on the individual employee’s qualifying factor(s). Additional information can be found on the Department of Labor’s website and should be consulted frequently. Also, refer to the Department of Labor’s FFCRA: Questions and Answers.

If wages are being provided to employees under FFCRA, they must be properly recorded on the fourth quarter Form 941 and employees’ W-2 forms for 2020. Even though public sector employers are not eligible to receive the reimbursement through tax credits, taxable wages for Form 941 are still impacted. Follow the instructions for Form 941 carefully.

As the regulations regarding COVID-19 are continually evolving, specific employee questions and human resource matters should be directed to your local health department.