Run a More Agile Company with Cross-training

Agility is key in today’s economy, where uncertainty reigns and businesses must be ready for anything. Highly skilled employees play a huge role in your ability to run an agile company. One way to put them on optimal footing is cross-training.

Multiple advantages

Simply defined, cross-training is teaching employees to understand and perform responsibilities and tasks outside the scope of their primary job duties. It has many advantages, including:

Reducing the impact of absences. The potential reasons for any employee missing work are seemingly countless. A staff member may become sick or disabled, have a baby, take a vacation, get called to active military duty, receive a jury summons, retire, suddenly resign or be terminated. Having someone else on staff ready to jump in and handle key duties can keep your company operating relatively smoothly.

Boosting productivity. If the workload in one area of the business temporarily becomes especially heavy, you can shift staff to ease the situation. Let’s say that, pleasantly enough, your company sees a sudden upswing in sales. Cross-training could enable you to move someone in marketing to accounting to help review invoices.

Gaining fresh perspectives. Putting a new set of eyes on any business process or procedure never hurts. Employees who fill in for colleagues on a short-term basis may catch something wrong or develop an idea that improves operations.

Going back to our previous example, say that the marketing staff member temporarily working in accounting notices that your company’s invoices look outdated and contain confusing wording. As a result, you ask for that person’s input and undertake a wider initiative to redesign your invoices. Ultimately, collections improve because customers can more easily read their bills.

Strengthening internal controls. Cross-training is also an essential internal control. This is particularly true in your accounting department but may apply to information technology, production and other areas as well. Ensuring one person’s job is periodically performed by someone else can prevent fraud. In fact, when coupled with mandatory vacations, cross-training is a major deterrent because potential fraudsters know that co-workers will be doing their jobs and could catch their crimes.

Career development

When “selling” cross-training to your staff, emphasize how it’s good for them, too. Learning new things broadens employees’ skill sets and experience levels. Help them understand this by explaining whether each staff member’s cross-training is “vertical” or “horizontal.”

If the task learned is vertical, it requires more responsibility or skill than that employee’s normal duties. Thus, vertical cross-training encourages employees to feel more valuable to the business. (And you know what? They are!)

If the task calls for the same level of responsibility or skill as an employee’s routine duties, it’s considered horizontal. This type of cross-training widens employees’ understanding of their departments or the company. Plus, horizontal cross-training builds camaraderie and is often a welcome change of pace.

Risks to consider

Although generally a good business practice, cross-training has some risks you should consider. First, not everyone is a prime candidate for it. If possible, pick employees who show an interest in working outside their stated roles and are open to change.

Important: You may want to require cross-training as an internal control for some positions. This is usually a good idea for jobs involving financial management, sensitive data or high-value customers.

Second, be cognizant of employees’ workloads and stress levels. Relying too much on cross-training can lead to burnout and lower morale. Also, decide whether and how cross-training should affect compensation. Some companies use incentives or profit sharing to build buy-in.

Slowly and carefully

If your business has yet to try cross-training, starting slowly is typically best. Discuss the concept with your leadership team and identify which positions are well suited for it. Then design a formal strategy for picking the employees involved, carrying out the training and monitoring the results. We can help you identify all the costs associated with developing and managing staff performance.

The treatment of research and experimental (R&E) expenses is a high-stakes topic for U.S. businesses, especially small to midsize companies focused on innovation. As the tax code currently stands, the deductibility of these expenses is limited, leading to financial strain for companies that used to be able to expense them immediately. But proposed legislation dubbed The One, Big, Beautiful Bill could drastically change that. Here’s what you need to know.

R&E expenses must currently be capitalized

Before 2022, under Section 174 of the Internal Revenue Code, taxpayers could deduct R&E expenses in the year they were incurred. This treatment encouraged investment in innovation, as companies could realize a current tax benefit for eligible costs.

However, beginning in 2022, the Tax Cuts and Jobs Act (TCJA) changed the rules. Under the law, R&E expenses must be capitalized and amortized over five years for domestic activities and 15 years for foreign activities. This means businesses can’t take an immediate deduction for their research spending.

The practical impact on businesses

Startups, tech firms and manufacturers, in particular, have reported significant tax hikes, even in years when they operated at a loss. The shift from immediate expensing to amortization has created cash flow issues for innovation-heavy firms and complicated tax reporting and long-term forecasting.

Lobbying groups, tax professionals and industry associations have been pushing for a reversal of the TCJA’s Sec. 174 provisions since they took effect.

What’s in The One, Big, Beautiful Bill?

The One, Big, Beautiful Bill is a comprehensive tax and spending package that narrowly passed in the U.S. House in May. It contains a provision that would restore the immediate deductibility of R&E expenses, among other tax measures.

Specifically, it would allow taxpayers to immediately deduct domestic R&E expenditures paid or incurred in taxable years beginning after December 31, 2024, and before January 1, 2030. This provision would also make other changes to the deduction.

If enacted, the bill would provide a lifeline to many businesses burdened by the amortization requirement — especially those in high-growth, innovation-focused sectors.

Legislative outlook and next steps

Passage of the current version of The One, Big, Beautiful Bill remains uncertain. The bill is now being debated in the U.S. Senate and senators have indicated they’d like to make changes to some of the provisions. If the bill is revised, it will have to go back to the House for another vote before it can be signed into law by President Trump.

However, it offers hope that lawmakers recognize the challenges businesses face and may be willing to act. If enacted, the bill could restore financial flexibility to innovators across the country, encouraging a new wave of research, development and economic growth.

Stay tuned, and contact us if you have questions about how these potential changes may affect your business.

Turnover in finance and accounting (F&A) leadership is on the rise. In 2024, CFO turnover among Standard & Poor’s 500 companies hit 17.8%, tying a record high in 2021, according to the Russell Reynolds Global CFO Turnover Index. This trend isn’t limited to large corporations. Closely held businesses are also feeling the pinch, as competition for experienced finance professionals intensifies and the accounting profession faces a well-documented talent shortage.

The departure of a CFO, controller or senior accountant can disrupt daily business operations. It often leaves the remaining staff stretched thin, creates gaps in institutional knowledge, and increases the risk of errors or compliance lapses, especially during time-sensitive reporting cycles.

However, if handled wisely, this disruption can also be a turning point. It gives business owners and managers time to re-evaluate the department, modernize processes and make strategic upgrades. Here are four critical steps to consider after a leadership change in your F&A department.

Redefine the role

Your business has likely evolved since the previous F&A leader was hired. Perhaps you’ve taken on debt, expanded into new markets, or needed to meet investor or regulatory reporting requirements. Now’s the time to ask: Does our original job description reflect the company’s current financial reporting needs?

You might need to replace a former bookkeeper-turned-controller with a CPA who has experience managing teams, scaling finance systems and working with external stakeholders. A fresh job description that aligns with your current and future goals helps ensure you hire (or outsource to) someone with the appropriate talent level.

Evaluate past performance

Leadership transitions are a natural opportunity to assess whether your accounting reports are timely, accurate and relevant. Your reports should provide insights to help you feel confident during tax season and when speaking with lenders.

If not, now is the time to improve internal processes, provide additional training for your remaining staff, and explore outsourced accounting and CFO services. An external partner can bring consistency, technical expertise and forward-looking insights, often at a lower cost than a full-time hire.

Assess technology

Outdated or underutilized accounting software can leave your business overly dependent on one person to “make it work.” Modern solutions can automate account reconciliations, track real-time performance metrics and reduce manual entry. Cost-effective upgrades can reduce errors, lower fraud risks and free your F&A staff for higher-value work.

Take stock of your systems. Are you using them effectively? Is it time for an upgrade or additional training on your existing software? If you’re unsure, we can assess your tech stack and help you make the most of your current platform or recommend more suitable options.

Look to the future

As your business grows and evolves, your F&A department needs to keep pace. For instance, if you’re planning a merger, seeking capital or expanding geographically, your F&A team must be equipped to support these moves.

In-house teams often lack the time or capacity to prepare for growth — and they might have outdated or biased ways of approaching change that could benefit from fresh insights. Outsourced CFOs can help by providing strategic support and financial clarity without the cost of a full-time executive. Likewise, streamlining the department’s policies and procedures can help improve performance and position it for the future.

For more information

Losing an F&A team leader is never convenient, but it doesn’t have to be chaotic. Contact us today to keep your finances on track — no matter who’s in charge. We can help you find an F&A professional with the right skills to help your business emerge from the leadership transition stronger, more agile and better prepared for what’s next.

Slow cash flow is one of the leading causes of insomnia for business owners. Even if sales are strong, a lack of liquidity to pay bills and cover payroll can cause more than a few sleepless nights. The good news is that you can rest easier by exercising sound cash flow management.

Scrutinize your cycles

Broadly speaking, nearly every business — no matter what it does — has two cycles that determine how the dollars flow. These are:

1. The selling cycle. This is how long it takes your business to:

Develop a product or service,
Market it, and
Produce the product or service, close a sale, and collect the revenue.

Good accounts receivable processes — from clearly and accurately invoicing to implementing online payment methods for faster access to money — are a major aspect of cash flow management.

Less experienced business owners often underestimate the length of the selling cycle. Many a start-up has been launched with a budding entrepreneur believing the company could get its wares to market, close deals and earn revenue quickly. Grim reality usually followed.

However, even business owners who’ve been around for a while can miss changes to their selling cycles. Regular customers on whom the company depends may start taking longer to pay, or a key employee might jump ship and be hard to replace. Inefficiencies such as these are often exposed when economic conditions deteriorate.

2. The disbursements cycle. This is how your business manages regular payments to employees, vendors, creditors (including short- and long-term financing) and other parties. As payments go out, cash flow is obviously affected.

Track the timing

The selling and disbursements cycles aren’t separate functions; they overlap. But if they don’t do so evenly, delayed cash inflows can create a crisis. You want them to match as evenly as possible. Or better yet, you want to convert sales to cash more quickly than you’re paying expenses.

How can you keep tabs on it all? First, study your statement of cash flows whenever your company’s financial statements are generated. But do more than that. Regularly create cash flow statements. Despite their similar-sounding name, these reports are run more frequently — usually monthly or quarterly. You can also use financial software to set up a digital dashboard that displays weekly or even daily cash flow metrics.

Take control

If you see warning signs of an imminent cash crunch, consider these options to better control the potential crisis:

Slow down growth. Rapid growth can be both a blessing (you’re selling more) and a curse (you’re spending more on production). Cash shortages often result from a substantial mismatch between the selling and disbursement cycles, which can easily occur during high-growth periods. Out-of-control growth can also impair quality, which, in turn, sours relationships with customers and hurts your company’s reputation in the marketplace.

Review expenses. Sometimes, you can lower monthly cash outflows by converting costs from fixed to variable. Fixed expenses include mortgage or lease payments, payroll, and insurance. When an employee quits, consider using an independent contractor to fill the position. Or if a key piece of equipment breaks, explore leasing rather than purchasing. In addition, review your company’s tax planning strategies. A lower tax bill can make a big difference in cash flow.

Address asset management. How much money are you making for each dollar that’s invested in working capital, equipment and other assets? By monitoring turnover ratios, you may be able to identify and reduce weaknesses in asset management. For example, an increase in “days outstanding” in accounts receivable might improve with tighter credit policies, early-bird discounts or incentives for employees who handle collections.

Essential skills

Strong cash flow management skills are essential to running a successful business. We can review your sales and disbursement cycles, improve your financial reporting, and identify ways to manage your company’s cash better.

As a closely held business owner, a substantial amount of your wealth likely is tied to the business. Of course, you want to retain as much of that wealth as possible to pass on to your family after you exit the business. If your business is structured as a corporation, the answer may be an employee stock ownership plan (ESOP). It can enhance tax efficiency, support business succession goals and help preserve wealth for future generations.

An ESOP in action

An ESOP is a qualified retirement plan that invests primarily in your company’s stock. ESOPs must comply with the same rules and regulations as other qualified plans, and they’re subject to similar contribution limits and other requirements.

One requirement that’s unique to ESOPs is the need to have the stock valued annually by an independent appraiser. Also, by definition, ESOPs are available only to corporations. Both C corporations and S corporations are eligible.

In a typical ESOP arrangement, the company makes tax-deductible cash contributions to the plan, which uses those funds to acquire some or all of the current owners’ stock. Alternatively, with a “leveraged” ESOP, the plan borrows the money needed to buy the stock and the company makes tax-deductible contributions to cover the loan payments.

As with other qualified plans, ESOP participants enjoy tax-deferred earnings. They pay no tax until they receive benefits, in the form of cash or stock, when they retire or leave the company. Participants who receive closely held stock have a “put option” to sell it back to the company at fair market value during a limited time window.

ESOP benefits

ESOPs offer many benefits for owners, companies and employees alike. Benefits for owners include:

Liquidity and diversification. An ESOP creates a market for your stock. By selling some or all of your stock to the plan, you can achieve greater liquidity and diversification, enhancing your financial security and estate planning flexibility. Acquiring a wider variety of nonbusiness assets with the sale proceeds can make it easier to share your wealth with loved ones, especially those who aren’t interested in participating in the business.

Tax advantages. If your company is a C corporation and the ESOP acquires at least 30% of its stock, it’s possible to defer capital gains on the sale of your stock by reinvesting the proceeds in qualified replacement securities. You can even avoid capital gains tax permanently by holding the replacement securities for life.

Control. Unlike certain other exit strategies, an ESOP allows you to tap your equity in the company without immediately giving up management control. You can continue to act as a corporate officer and, if you serve as the ESOP’s trustee, you’ll retain the right to vote the trust’s shares on most corporate decisions.

The company can benefit because its contributions to the plan are tax deductible. With a leveraged ESOP, the company essentially deducts both interest and principal on the loan. And, of course, both the company and its employees gain from the creation of an attractive employee benefit, one that provides a powerful incentive for employees to stay with the company and contribute to its success.

Beware of an ESOP’s cost

An ESOP can be a powerful estate planning tool for closely held business owners, but it’s important to consider the costs. In addition to the usual costs associated with setting up and maintaining a qualified plan, there are also annual stock valuation costs. Contact us to learn more about pairing an ESOP with your estate plan.

Most employer-sponsored retirement and welfare benefit plans are subject to the federal Employee Retirement Income Security Act (ERISA). These include health insurance coverage and qualified retirement plans.

ERISA requires applicable plans to have a plan document and a summary plan description (SPD). Everyone involved in benefits administration must understand and respect the importance of both.

The plan document

ERISA-compliant plans must be “established and maintained pursuant to a written instrument” called the plan document. It comprehensively sets forth the rights of the plan’s participants and beneficiaries by describing:

What benefits are available,
How those benefits are funded,
Who’s eligible to participate,
Who’s the named fiduciary,
How the plan can be amended, and
The procedures for allocating plan responsibilities.

The plan document also guides the plan sponsor and administrator in making decisions and executing their responsibilities.

The SPD

As mentioned, ERISA-compliant plans must also have an SPD. A key function of this document is clearly communicating plan information to participants. The SPD must include many specified items, such as:

Plan-identifying and eligibility information,
A description of plan benefits and circumstances causing loss or denial of benefits,
Benefit claim procedures, and
A statement of participants’ ERISA rights.

The SPD must be written so the average plan participant can understand it.

Obligation to furnish

Sponsors of ERISA-compliant plans must furnish SPDs to participants at specific times. These include when new participants join a plan (within 90 days) and upon a participant’s written request (within 30 days).

Failure to furnish the documents within the stated period may expose the plan administrator — typically the employer — to penalties of up to $110 per day. It’s particularly important to respond to participant requests in a timely manner because you can still be hit by a penalty if you’ve already provided the SPD but ignore the request.

Choose your delivery method carefully. U.S. Department of Labor (DOL) regulations require you to furnish SPDs in a way that’s “reasonably calculated to ensure actual receipt” and “likely to result in full distribution” to everyone required to receive them. Because of the nature of these rules, whether a delivery method is satisfactory depends on the facts and circumstances regarding the employer’s workplace and workforce.

The regulations include several examples of acceptable SPD distribution methods. While hand-delivery of SPDs to employees at the worksite is a specifically approved method, the regulations caution that it’s unacceptable “merely to place copies of the [SPD] in a location frequented by participants.” In other words, the DOL envisions a system designed to put SPDs into the hands of required recipients — not a system that relies on those hands reaching out for the SPDs.

The DOL may view an approach that requires employees to take action to receive their SPDs as unlikely to result in “full distribution.” Participants may be unaware of the importance of receiving an SPD or might not pick it up within the applicable timeframes.

Bottom line

Be aware of other forms of required plan documentation, too. For example, you must distribute a summary of benefits and coverage upon initial enrollment and annually during open enrollment. If you make significant changes to a plan, you need to provide participants with a summary of material modifications within 210 days after the end of the plan year during which the changes were made.

The bottom line is that failure to comply with ERISA may lead to costly penalties that undermine your organization’s financial performance. We can help you and your staff better understand the rules, as well as manage the costs and tax impact of retirement and welfare benefit plans or any other fringe benefit.

If your company’s financial statements are audited, chances are your auditor will send out external confirmations. These information requests may be sent directly to your customers, vendors, banks, attorneys and benefit plan administrators.

For your internal finance and accounting team, the confirmation process may feel intrusive or confusing, especially when third parties don’t respond immediately. But confirmations are a critical source of audit evidence. Understanding how they work can help your team support a smoother, more efficient audit.

Purpose

External confirmations allow auditors to independently verify key balances and other information — such as cash, receivables, payables and legal contingencies — without relying solely on internal records. Under U.S. Generally Accepted Auditing Standards, an external confirmation is defined as a direct response from a third party, either by mail or electronically.

For example, a third party might confirm an account balance, the terms of a loan or the existence of pending litigation. The confirmation response helps validate what’s on your books and reduce the risk of material misstatements.

3 formats

The types of confirmations your auditor uses will vary depending on your situation and the nature of your organization’s operations. Confirmations may come in the following three general formats:

Positive. Third parties must respond whether they agree or disagree with the information provided. This type is commonly used for high-risk areas, including receivables and legal matters.
Negative. Third parties respond only if they disagree with the information on the confirmation. It’s less intrusive but also less persuasive as audit evidence.
Blank. The auditor requests the third party fill in specific details, such as the balance owed, rather than verifying a prefilled number. This method provides strong evidence but requires more effort from the third party.

Confirmed balances may need to be rolled forward (or backward) to reconcile with amounts reported on the balance sheet date.

From snail mail to secure portals

Traditionally, auditors mailed confirmations and waited for responses. Today, most confirmations are sent electronically, often through secure third-party platforms. This speeds up the process, reduces the risk of tampering and improves audit efficiency. In fact, many banks and financial institutions now require confirmations to be submitted electronically and won’t respond to paper forms.

The Public Company Accounting Oversight Board (PCAOB) approved updated guidance in 2023 that modernizes and strengthens the auditor’s confirmation process. The new standard — Auditing Standard (AS) No. 2310, The Auditor’s Use of Confirmation — is effective for public company audits for fiscal years ending on or after June 15, 2025. Specifically, the updated guidance:

Explicitly includes electronic confirmations and the use of third-party intermediaries,
Maintains the existing requirement for auditors to confirm accounts receivable,
Adds a new requirement for auditors to confirm cash and cash equivalents held by third parties (though most auditors already routinely do this),
Eliminates the negative confirmation format as appropriate audit evidence, and
Emphasizes the auditor’s control over selecting items to be confirmed, sending and receiving confirmations, and addressing incomplete responses and nonresponses.

When confirmation procedures aren’t feasible, the auditor must perform alternative procedures to obtain relevant and reliable evidence for the information in question. For instance, auditors can get direct, read-only access to transactions or balances.

Looking to the future

Technology has radically changed the confirmation process over the last 20 years. And more changes may be on the horizon. While PCAOB standards apply to public companies, the Auditing Standard Board (ASB) in February 2025 proposed changes to its confirmation standard based on the public company guidance, with potential adoption in 2027. Additionally, many auditors are exploring ways artificial intelligence (AI) might help them automate confirmation tracking and identify confirmation risk patterns.

External confirmations may seem like just an audit formality, but they’re evolving into faster, smarter and more secure tools for validating your financials. Contact us to learn how confirmations will be used in your next audit — and how updated auditing standards and AI could affect our procedures.

A bill in Congress — dubbed The One, Big, Beautiful Bill — could significantly reshape several federal business tax breaks. While the proposed legislation is still under debate, it’s already sparking attention across business communities.

Here’s a look at the current rules and proposed changes for five key tax provisions and what they could mean for your business.

1. Bonus depreciation

Current rules: Businesses can deduct 40% of the cost of eligible new and used equipment in the year it’s placed in service. (In 2026, this will drop to 20%, eventually phasing out entirely by 2027.)

Proposed change: The bill would restore 100% bonus depreciation retroactively for property acquired after January 19, 2025, and extend it through 2029. This would be a major win for businesses looking to invest in equipment, machinery and certain software.

Why it matters: A full deduction in the year of purchase would allow for faster depreciation, freeing up cash flow. This could be especially beneficial for capital-intensive industries.

2. Section 179 expensing

Current rules: Businesses can “expense” up to $1.25 million of qualified asset purchases in 2025, with a phaseout beginning at $3.13 million. Under Section 179, businesses can deduct the cost of qualifying equipment or software in the year it’s placed in service, rather than depreciating it over several years.

Proposed change: The bill would increase the expensing limit to $2.5 million and the phaseout threshold to $4 million for property placed into service after 2024. The amounts would be adjusted annually for inflation.

Why it matters: This provision could help smaller businesses deduct more of the cost (or the entire cost) of qualifying purchases without dealing with depreciation schedules. Larger thresholds would mean more flexibility for expanding operations.

3. Qualified business income (QBI) deduction

Current rules: Created by the Tax Cuts and Jobs Act (TCJA), the QBI deduction is currently available through 2025 to owners of pass-through entities. These include S corporations, partnerships, limited liability companies, sole proprietors and most self-employed individuals. QBI is defined as the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. The deduction generally equals 20% of QBI, not to exceed 20% of taxable income minus net capital gain. But it’s subject to additional limits that can reduce or eliminate the tax benefit.

Proposed change: Under the bill, the QBI tax break would be made permanent. Additionally, the deduction amount would increase to 23% for tax years beginning after 2025.

Why it matters: The increased deduction rate and permanent extension would lead to substantial tax savings for eligible pass-through entities. If the deduction is made permanent and adjusted for inflation, businesses could engage in more effective long-term tax planning.

4. Research and experimental (R&E) expensing

Current rules: Under the TCJA, businesses must capitalize and amortize domestic R&E costs over five years (15 years for foreign research).

Proposed change: The bill would reinstate a deduction available to businesses that conduct R&E. Specifically, the deduction would apply to R&E costs incurred after 2024 and before 2030. Providing added flexibility, the bill would allow taxpayers to elect whether to deduct or amortize the expenditures. (The requirement under current law to amortize such expenses would be suspended while the deduction is available.)

Why it matters: Many businesses — especially startups and tech firms — depend heavily on research investments. Restoring current expensing could ease tax burdens and encourage innovation.

5. Increase in information reporting amounts

Current rules: The annual reporting threshold for payments made by a business for services performed by an independent contractor is generally $600. That means businesses must send a Form 1099-NEC to contractors they pay more than $600 by January 31 of the following year.

Proposed change: The bill would generally increase the threshold to $2,000 in payments during the year and adjust it for inflation. This provision would apply to payments made after December 31, 2024. (The bill would also make changes to the rules for Form 1099-K issued by third-party settlement organizations.)

Why it matters: This proposal would reduce the administrative burdens on businesses. Fewer 1099-NECs would need to be prepared and filed, especially for small engagements. If the provision is enacted, contractors would receive fewer 1099-NECs. Income below $2,000 annually would still have to be reported to the IRS, so contractors may have to be more diligent in tracking income.

More to consider

These are just five of the significant changes being proposed. The One, Big, Beautiful Bill also proposes changes to the business interest expense deduction and some employee benefits. It would eliminate federal income tax on eligible tips and overtime — and make many more changes.

If enacted, the bill could deliver immediate and long-term tax relief to certain business owners. It narrowly passed in the U.S. House of Representatives and is currently being considered in the Senate. Changes are likely to be made there, at which point the new version would have to be passed again by the House before being sent to President Trump to be signed into law. The current uncertainty means business owners shouldn’t act prematurely.

While these changes may sound beneficial, their complexity — and the possibility of retroactive provisions — make professional guidance essential. Contact us to discuss how to proceed in your situation.

Annual Financial Statements (AFS) are critical to complying with state regulations, maintaining investor trust, and supporting long-term growth. Unfortunately, cannabis businesses often struggle with the related compliance requirements and timely submission.

Here are five of the most common mistakes we see in cannabis AFS reports—and how to avoid them:

1. Inaccurate or Incomplete Vendor Information

In cannabis accounting, maintaining precise vendor records is essential, not just for internal clarity but also to satisfy regulators, accountants, and auditors. Inaccurate vendor names, outdated addresses, and missing tax identification numbers can slow down your reporting process and trigger red flags during audits.

How to Avoid It:
Set up internal controls to verify vendor information upon onboarding and update information regularly. Designate a team member to manage the vendor master file and establish a consistent process for data validation. Integrate your accounting software with vendor databases when possible to minimize manual entry errors. It is imperative to use vendor legal names and ensure there are no duplicates.

2. Lack of Supporting Documentation

Missing receipts, purchase orders, or contracts can complicate your cost of goods sold (COGS) allocation—a key element in cannabis accounting due to Section 280E. Regulators expect complete and verifiable audit trails for all financial transactions.

How to Avoid It:
Implement a robust document management system to retain all necessary backup documentation. Encourage staff to upload documents immediately after a transaction occurs, and train your team on what qualifies as sufficient support. Cloud-based solutions with automatic tagging and secure access control can streamline this process.

3. Errors in Vendor Reclassification

Vendor misclassifications, such as labeling a consultant as a contractor instead of a professional service, can distort financial statements and lead to issues in calculating allowable deductions. The AFS requires vendors to be designated as “service vendors” or “other vendors,” and misclassifying vendors can create the need for rework, delayed filings, and additional fees from accountants and auditors.

How to Avoid It:
Develop a clear chart of accounts and set classification standards that align with your accountant’s expectations. During monthly closes, review vendor activity and reclassify items proactively, rather than leaving it for year-end cleanup. Collaborate closely with your accounting team to ensure accuracy throughout the year.

4. Improper Identification of Licenses

The Michigan Cannabis Regulatory Agency informs licensees when and which licenses are subject to the AFS. It is important to identify all licenses involved in their request and to provide all relevant data to your CPA for every license.

How to Avoid It:
Take extra care when discussing the need for an AFS with your CPA. Forward the email received from “noreply@accela.com” to your CPA directly. That email identifies all licenses subject to the AFS. Ensure accounting records accurately report information and can be disaggregated by license.

5. Inconsistent Application or Lack of Accounting Policies

Changing methods mid-year or applying inconsistent logic between periods (e.g., switching between cash and accrual without documentation) undermines the reliability of your financials. In the cannabis industry, consistency is particularly critical due to the scrutiny placed on financial operations. Standard operating procedures should be written and evaluated periodically.

How to Avoid It:
Establish written accounting policies and review them annually. Ensure the same methods are applied uniformly across locations and subsidiaries. When changes are necessary, document the rationale and discuss implications with your CPA before implementation.

Conclusion

Avoiding these common mistakes requires discipline, systems, and a team that understands the unique challenges of cannabis accounting. Whether you’re a cultivator, manufacturer, or retailer, staying ahead of these pitfalls will save you time, money, and headaches down the road. When in doubt, consult with a cannabis-specialized accountant who can help you navigate this complex landscape with confidence.

GASB Statement No. 101, Compensated Absences, is effective for fiscal years ending June 30, 2025, and will be subject to audit. This new standard introduces a single model for accounting for compensated absences and requires retroactive implementation, meaning all prior periods presented must be restated.

The standard involves significant estimation and varies by employee group depending on individual policies. Below are key questions to help guide your implementation:

Multiple Employee Groups: If there are multiple employee groups (such as collective bargaining agreements), has special consideration been given to each group’s compensated absence policies?
Salary-Related Payments: Have salary-related payments been included in the accrual? Consider whether these would be paid when time is used or paid out.
- Examples include the employer’s share of FICA and the employer’s share of the defined contribution pension, and whether these are applied only when used or paid out at termination, based on the policy.
Likelihood of Use or Payout: Has the appropriate effort been put into the estimation of whether the balance is more likely than not to be paid, used, or settled (more likely than not is defined as more than a 50% likelihood)?
- Consider that an employee’s accrual may be more than the amount paid upon retirement.
- Consider historical trends. Maintain the documentation and information used to determine the estimation for your auditors.
Year-End Pay Rates: Was the calculation performed using the pay rates in effect at the end of the year?
Current Portion of Liability: Was the appropriate consideration put into the estimated amount due within one year?
Restating Net Position: Has the restated beginning net position balance been calculated, considering all aspects above?
- The standard must be implemented retroactively by restating all prior periods presented.
Earned Sick Time Act: Does the calculation take the Michigan Earned Sick Time Act into consideration?
Flow Assumptions: Has consideration been given to which flow assumption is utilized in calculating the liability?
- Flow assumptions: FIFO (first-in, first-out) or LIFO (last-in, first-out).
- For example, if an employee has 100 hours banked as of the end of the year, earns 10 hours, and uses 15 hours in the first month of the new year, from which “bucket” of hours are those first 10 hours used, and assumed to come out of? If it is the 100 that were previously available, this would be a FIFO assumption; if the newly earned 10 hours were used first, this would be the LIFO assumption.

Yeo & Yeo suggests the following steps to get started on implementing GASB 101:

Consider whether the Michigan Earned Sick Time Act affects your calculation.
Begin with the prior year’s compensated absence schedule (see step #6) to restate the net position.
Accumulate trend history for payouts vs. usage (3-year averages, 5-year averages, or more, based on whatever makes sense) by employee group. Watch out for outliers such as months of excessive time off due to COVID-19.
Segregate employee groups based on the varying policies/contracts and consider what flow assumption is in place (first-in, first-out or last-in, first-out).
Set up formulas to calculate each employee group, using rates in effect at the end of the year, estimated payouts, estimated usage, and salary-related payments. Calculate what the liability would have been as of the end of the prior fiscal year.
A journal entry to restate the beginning net position will need to be posted. To do this, adjust the compensated absence balance to your newly calculated amount as of the beginning of the year, which could be either a debit or credit, and then the opposing debit or credit will be to the net position. Your auditor can assist with this; however, they will need the newly calculated beginning balance.
Now that you’ve formulated it for the prior fiscal period, apply the same procedures to the current year’s schedule and post the necessary adjustment.

If you need assistance or have questions, please contact your auditor or a member of Yeo & Yeo’s Education Services Group.

It’s the height of the construction season in most parts of the country and your business probably wants to make the most of it. But rising costs, worker shortages, international tariffs and other pressures may threaten the profitability of your enterprise. The last thing you need is fraud.

According to the Association of Certified Fraud Examiners’ Occupational Fraud 2024: A Report to the Nations, construction companies affected by fraud lose a median of $250,000 per scheme, compared with $145,000 per incident for businesses in all industries. Only the manufacturing, mining and wholesale trade sectors experience higher financial losses.

Industry prevalence

Some types of fraud are more prevalent in the construction industry, particularly corruption (52% of cases) and billing fraud (38%). Payroll scams are also common. Corruption schemes, such as bid-rigging, and billing fraud can lead to lawsuits and substantial legal fees. And paying under-the-table cash wages to avoid payroll taxes could result in criminal charges and significant IRS penalties. To prevent your managers and workers from acting illegally or unethically, tighten your internal controls.

Certain internal controls are essential for checking these threats. Every construction office should “segregate” duties, meaning multiple employees should handle financial and accounting tasks. The person who processes cash transactions shouldn’t also prepare your company’s bank deposits. If you don’t have enough accounting employees to segregate duties, consider outsourcing some or all accounting functions. Also, have monthly bank statements sent directly to you or a manager independent of your accounting department.

Other measures

Forms of corruption, such as kickbacks, bribery and big-rigging, can be kept to a minimum with scrutiny. If your company is suddenly winning bids that you haven’t in the past and that seem like a stretch, verify that your bid processes have been followed. Sometimes employees disguise illegal activities as change orders, so be sure to review each one carefully.

You can reduce the risk of procurement or purchasing fraud by naming someone other than your purchasing agent (you or an estimator, for instance) to check vendor invoices, purchase orders and other documents. Also, use prenumbered purchase orders and regularly inspect materials and supplies to ensure they correspond to what was ordered.

To minimize the risk of payroll fraud in your company, ask a person who’s independent of your accounting department to verify the names and pay rates on your payroll. And if you don’t already, pay employees using direct deposit, checks or cash. You may also want to make surprise jobsite visits to compare worker headcounts to time reports and wage payments.

Hands on

Even if you’re a very hands-on business owner, fraud perpetrated by workers, vendors, subcontractors, customers and others can slip through unnoticed and hurt your bottom line. We can assess your particular risks and help you strengthen internal controls.

If you or your employees are heading out of town for business this summer, it’s important to understand what travel expenses can be deducted under current tax law. To qualify, the travel must be necessary for your business and require an overnight stay within the United States.

Note: Under the Tax Cuts and Jobs Act, employees can’t deduct their unreimbursed travel expenses on their own tax returns through 2025. That’s because unreimbursed employee business expenses are “miscellaneous itemized deductions” that aren’t deductible through 2025. In the “One, Big, Beautiful Bill,” passed by the U.S. House and now being considered by the Senate, miscellaneous itemized deductions would be permanently eliminated. Keep in mind that pending legislation could still change.

However, self-employed individuals and businesses can continue to deduct business expenses, including expenses for away-from-home travel.

Deduction rules to know

Travel expenses like airfare, taxi rides and other transportation costs for out-of-town business trips are deductible. You can deduct the cost of meals and lodging, even if meals aren’t tied directly to a business discussion. However, meal deductions are limited to 50% in 2025.

Keep in mind that expenses must be reasonable based on the facts and circumstances. Extravagant or lavish meals and lodging aren’t deductible. However, this doesn’t mean you have to frequent inexpensive restaurants. According to IRS Publication 463, Travel, Gift and Car Expenses, “Meal expenses won’t be disallowed merely because they are more than a fixed dollar amount or because the meals take place at deluxe restaurants, hotels or resorts.”

What other expenses are deductible? Items such as dry cleaning, business calls and laptop rentals are deductible if they’re business-related. However, entertainment and personal costs (for example, sightseeing, movies and pet boarding) aren’t deductible.

Business vs. personal travel

If you combine business with leisure, you’ll need to divide the expenses. Here are the basic rules:

Business days only. Meals and lodging are deductible only for the days spent on business.
Travel costs. If the primary purpose of the trip is business, the full cost of getting there and back (for example, airfare) is deductible. If the trip is mainly personal, those travel costs aren’t deductible at all.
Time matters. In an audit, the IRS often considers the proportion of time spent on business versus personal activities when determining the primary purpose of the trip.

Note: The primary purpose rules are stricter for international travel.

Special considerations

If you’re attending a seminar or conference, be prepared to prove that it’s business-related and not just a vacation in disguise. Keep all relevant documentation that can help prove the professional or business nature of the travel.

What about bringing your spouse along? Travel expenses for a spouse generally aren’t deductible unless he or she is a bona fide employee and the travel serves a legitimate business purpose.

Maximize deductions

Tax rules can be tricky, especially when business and personal travel overlap. To protect your deductions, keep receipts and detailed records of dates, locations, business purposes and attendees (for meals). Reach out to us for guidance on what’s deductible in your specific situation.

In today’s volatile economic climate, organizations face mounting pressures that can increase the risk of fraudulent activities. Auditors play a pivotal role in identifying and mitigating these risks through comprehensive fraud risk assessments and tailored audit procedures.

Fraud triangle

Three elements are generally required for fraud to happen. First, perpetrators must experience some type of pressure that motivates fraud. Motives may be personal or come from within the organization. Second, perpetrators must mentally justify (or rationalize) fraudulent conduct. Third, perpetrators must perceive and exploit opportunities that they believe will allow them to go undetected.

The presence of these three elements doesn’t prove that fraud has been committed — or that an individual will commit fraud. Rather, the so-called “fraud triangle” is designed to help organizations identify risks and understand the importance of eliminating the perceived opportunity to commit fraud.

Economic uncertainty can alter workers’ motivations, opportunities and abilities to rationalize fraudulent behavior. For example, an unethical manager might conceal a company’s deteriorating performance with creative journal entries to avoid loan defaults, maximize a year-end bonus or stay employed.

Fraud vs. errors

Auditing standards require auditors to plan and conduct audits that provide reasonable assurance that the financial statements are free from material misstatement. There are two reasons an organization misstates financial results:

Fraud, and
Error.

The difference between the two is a matter of intent. The Association of Certified Fraud Examiners (ACFE) defines financial statement fraud as “a scheme in which an employee intentionally causes a misstatement or omission of material information in the organization’s financial reports.” By contrast, human errors are unintentional.

External audits: An effective antifraud control

While auditing standards require auditors to provide reasonable assurance against material misstatement, they don’t act as fraud investigators. An audit’s scope is limited due to sampling techniques, reliance on management-provided information and documentation, and concealed frauds, especially those involving collusion. However, auditors are still responsible for responding appropriately to fraud suspicions and designing audit procedures for fraud risks.

Professional skepticism is applied by auditors who serve as independent watchdogs, assessing whether financial reporting is transparent and compliant with accounting standards. Their oversight may deter management from engaging in fraudulent behavior and help promote a culture of accountability and transparency.

Auditors also perform a fraud risk assessment, which includes management interviews, analytical procedures and brainstorming sessions to identify fraud scenarios. Then, they tailor audit procedures to focus on high-risk areas, such as revenue recognition and accounting estimates, to help uncover inconsistencies and anomalies. Fraud risk assessments can affect the nature, timing and scope of audit procedures during fieldwork. Auditors must communicate identified fraud risks and any instances of fraud to those charged with governance, such as management and the audit committee.

Additionally, auditors examine and test internal controls over financial reporting. Weak controls are documented and reported, enabling management to strengthen defenses against fraud.

To catch a thief

External auditors serve as a critical line of defense against corporate fraud. If you suspect employee theft or financial misstatement, contact us to assess your company’s risk profile and determine whether fraud losses have been incurred. We can also help you implement strong controls to prevent fraud from happening in the future and minimize potential fraud losses.

Yeo & Yeo CPAs & Advisors is proud to announce that Michael Rolka, CPA, CGFM, and Christopher Sheridan, CPA, CVA, have graduated from the Emerging Leaders Academy (ELA).

The ELA is a nationally recognized two-year program by Upstream Academy designed for accounting firm professionals who are already making an impact in their firms and communities and are ready to take that impact to the next level. Participants engage in workshops, personal assessments, mentoring, and collaborative projects, all focused on building key leadership competencies like communication, change management, strategic thinking, and accountability.

Michael Rolka joined Yeo & Yeo in 2012 and has consistently demonstrated exceptional expertise and commitment. Rolka began his career in Yeo & Yeo’s Saginaw office and later transferred to the Auburn Hills office (now Yeo & Yeo’s Troy office) to support and help expand the firm’s audit and assurance services in Southeast Michigan. In 2024, Rolka was promoted to Principal, and he now leads the firm’s Government Services Group, helping drive the strategy and growth of the specialized team that provides critical audit and financial services to governmental entities. He serves on the Board of Directors and the Standards Committee for the Michigan Government Finance Officers Association (MGFOA), helping to promote excellence in government finance. He also shares his expertise through the MICPA, often speaking at its annual Governmental Accounting & Auditing Conference. In the community, Rolka serves on the Finance Committee for the Clinton River Watershed Council.

Christopher Sheridan is a Principal based in Yeo & Yeo’s Saginaw office who brings a thoughtful, relationship-driven approach to leadership. He leads the firm’s Valuation, Forensics, and Litigation Support Services Group and is a member of the Manufacturing Services Group. His specialized skills include business valuation and litigation support, serving as an expert witness, providing business consultancy, and fraud investigation and prevention. Sheridan’s impact extends beyond client work. He is actively involved in professional organizations like the Michigan Association of Certified Public Accountants’ (MICPA) Manufacturing Task Force and multiple regional manufacturing associations. In 2021, his leadership and expertise were recognized when he was named a “40 Under Forty” honoree by the National Association of Certified Valuators and Analysts. Just as committed to his community as he is to his profession, he serves on the boards of the Montessori Children’s House of Bay City, Bay Future, and the Great Lakes Bay Economic Development Corporation, and contributes as an executive council member of the Stevens Center for Family Business.

“Chris and Mike’s graduation from the Emerging Leaders Academy reflects their commitment to continuous growth and our firm’s dedication to empowering future leaders,” said President & CEO Dave Youngstrom. “Their journeys are a reminder that when we invest in our people, we invest in a stronger future for our clients, our firm, and our communities.”

The U.S. House of Representatives passed its sweeping tax and spending bill, dubbed the One Big Beautiful Bill Act (OBBBA), by a vote of 215 to 214. The bill includes extensions of many provisions of the Tax Cuts and Jobs Act (TCJA) that are set to expire on December 31. It also includes some new and enhanced tax breaks. For example, it contains President Trump’s pledge to exempt tips and overtime from income tax.

The bill has now moved to the U.S. Senate for debate, revisions and a vote. Several senators say they can’t support the bill as written and vow to make changes.

Here’s an overview of the major tax proposals included in the House OBBBA.

Business tax provisions

The bill includes several changes that could affect businesses’ tax bills. Among the most notable:

Bonus depreciation. Under the TCJA, first-year bonus depreciation has been phasing down 20 percentage points annually since 2023 and is set to drop to 0% in 2027. (It’s 40% for 2025.) Under the OBBBA, the depreciation deduction would reset to 100% for eligible property acquired and placed in service after January 19, 2025, and before January 1, 2030.

Section 199A qualified business income (QBI) deduction. Created by the TCJA, the QBI deduction is currently available through 2025 to owners of pass-through entities — such as S corporations, partnerships and limited liability companies (LLCs) — as well as to sole proprietors and self-employed individuals. QBI is defined as the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. The deduction generally equals 20% of QBI, not to exceed 20% of taxable income. But it’s subject to additional rules and limits that can reduce or eliminate the tax benefit. Under the OBBBA, the deduction would be made permanent. Additionally, the deduction amount would increase to 23% for tax years beginning after 2025.

Domestic research and experimental expenditures. The OBBBA would reinstate a deduction available to businesses that conduct research and experimentation. Specifically, the deduction would apply to research and development costs incurred after 2024 and before 2030. Providing added flexibility, the bill would allow taxpayers to elect whether to deduct or amortize the expenditures. (The requirement under current law to amortize such expenses would be suspended while the deduction is available.)

Section 179 expensing election. This tax break allows businesses to currently deduct (rather than depreciate over a number of years) the cost of purchasing eligible new or used assets, such as equipment, furniture, off-the-shelf computer software and qualified improvement property. An annual expensing limit applies, which begins to phase out dollar-for-dollar when asset acquisitions for the year exceed the Sec. 179 phase-out threshold. (Both amounts are adjusted annually for inflation.) The OBBBA would increase the expensing limit to $2.5 million and the phase-out threshold to $4 million for property placed into service after 2024. The amounts would continue to be adjusted annually for inflation. (Under current law, for 2025, the expensing limit is $1.25 million and the phase-out threshold is $3.13 million.)

Pass-through entity “excess” business losses. The Inflation Reduction Act, through 2028, limits deductions for current-year business losses incurred by noncorporate taxpayers. Such losses generally can offset a taxpayer’s income from other sources, such as salary, interest, dividends and capital gains, only up to an annual limit. “Excess” losses are carried forward to later tax years and can then be deducted under net operating loss rules. The OBBBA would make the excess business loss limitation permanent.

Individual tax provisions

The OBBBA would extend or make permanent many individual tax provisions of the TCJA. Among other things, the new bill would affect:

Individual income tax rates. The OBBBA would make permanent the TCJA income tax rates, including the 37% top individual income tax rate. If a new law isn’t enacted, the top rate would return to 39.6%.

Itemized deduction limitation. The bill would make permanent the repeal of the Pease limitation on itemized deductions. But it would impose a new limitation on itemized deductions for taxpayers in the 37% income tax bracket that would go into effect after 2025.

Standard deduction. The new bill would temporarily boost standard deduction amounts. For tax years 2025 through 2028, the amounts would increase $2,000 for married couples filing jointly, $1,500 for heads of households and $1,000 for single filers. For seniors age 65 or older who meet certain income limits, an additional standard deduction of $4,000 would be available for those years. (Currently, the inflation-adjusted standard deduction amounts for 2025 are $30,000 for joint filers, $22,500 for heads of households and $15,000 for singles.)

Child Tax Credit (CTC). Under current law, the $2,000 per child CTC is set to drop to $1,000 after 2025. The income phase-out thresholds will also be significantly lower. And the requirement to provide the child’s Social Security number (SSN) will be eliminated. The OBBBA would make the CTC permanent, raise it to $2,500 per child for tax years 2025 through 2028 and retain the higher income phase-out thresholds. It would also preserve the requirement to provide a child’s SSN and expand it to require an SSN for the taxpayer (generally the parent) claiming the credit. After 2028, the CTC would return to $2,000 and be adjusted annually for inflation.

State and local tax (SALT) deduction. The OBBBA would increase the TCJA’s SALT deduction cap (which is currently set to expire after 2025) from $10,000 to $40,000 for 2025. The limitation would phase out for taxpayers with incomes over $500,000. After 2025, the cap would increase by 1% annually through 2033.

Miscellaneous itemized deductions. Through 2025, the TCJA suspended deductions subject to the 2% of adjusted gross income (AGI) floor, such as certain professional fees and unreimbursed employee business expenses. This means, for example, that employees can’t deduct their home office expenses. The OBBBA would make the suspension permanent.

Federal gift and estate tax exemption. Beginning in 2026, the bill would increase the federal gift and estate tax exemption to $15 million. This amount would be permanent but annually adjusted for inflation. (For 2025, the exemption amount is $13.99 million.)

New tax provisions

On the campaign trail, President Trump proposed several tax-related ideas. The OBBBA would introduce a few of them into the U.S. tax code:

No tax on tips. The OBBBA would offer a deduction from income for amounts a taxpayer receives from tips. Tipped workers wouldn’t be required to itemize deductions to claim the deduction. However, they’d need a valid SSN to claim it. The deduction would expire after 2028. (Note: The Senate recently passed a separate no-income-tax-on-tips bill that has different rules. To be enacted, the bill would have to pass the House and be signed by President Trump.)

No tax on overtime. The OBBBA would allow workers to claim a deduction for overtime pay they receive. Like the deduction for tip income, taxpayers wouldn’t have to itemize deductions to claim the write-off but would be required to provide an SSN. Also, the deduction would expire after 2028.

Car loan interest deduction. The bill would allow taxpayers to deduct interest payments (up to $10,000) on car loans for 2025 through 2028. Final assembly of the vehicles must take place in the United States, and there would be income limits to claim the deduction. Both itemizers and nonitemizers would be able to benefit.

Charitable deduction for nonitemizers. Currently, taxpayers can claim a deduction for charitable contributions only if they itemize on their tax returns. The bill would create a charitable deduction of $150 for single filers and $300 for joint filers for nonitemizers.

What’s next?

These are only some of the provisions in the massive House bill. The proposed legislation is likely to change (perhaps significantly) as it moves through the Senate and possibly back to the House. In addition to disagreements about the tax provisions, there are Senators who don’t agree with some of the spending cuts. Regardless, tax changes are expected this year. Turn to us for the latest developments.

On May 12, 2025, the Financial Accounting Standards Board (FASB) finalized new guidance that clarifies how to identify the acquirer in mergers and acquisitions (M&As) involving variable interest entities (VIEs). The updated guidance brings much-needed consistency and comparability to complex deals where equity interests are exchanged.

Why the update matters

Determining the “accounting acquirer” is more than a technicality. It affects how assets and liabilities are measured and reported after closing. The acquiree’s assets and liabilities are generally remeasured at fair value, while those of the acquirer aren’t. This impacts net income, book value and financial ratios in the post-closing period. Misidentification can materially affect financial statements and mislead stakeholders about the financial health of the combined business.

A VIE is a business entity whose financial control isn’t exercised through traditional equity ownership and voting rights. Instead, it’s exercised through contractual or financial interests — such as guarantees, leases or other arrangements — that expose a party to the entity’s risks and rewards. Under prior guidance, if a legal acquiree was a VIE, the entity deemed the “primary beneficiary” was typically considered the accounting acquirer by default. This created a disconnect: Two economically similar transactions could result in different accounting treatments, just because one involved a VIE.

What’s changing

Accounting Standard Update (ASU) No. 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810), Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity, eliminates the presumption that the primary beneficiary of a VIE is automatically the accounting acquirer. Instead, it requires companies to apply the same evaluative framework used in other business combinations. This framework considers:

Which party directs significant activities of the combined entity,
Relative voting rights and the ownership structure,
The size and fair value of the combining entities, and
Post-deal governance and management.

The goal is to ensure consistent, substance-over-form reporting. The updated guidance doesn’t change the existing accounting rules for reverse acquisitions or combinations where the legal acquirer isn’t a business, such as asset acquisitions.

Next steps

The updated guidance goes into effect for all entities for annual and interim reporting periods beginning after December 15, 2026. It will be applied prospectively, affecting only M&As that happen after the effective date. So companies won’t need to restate past transactions. Early adoption is permitted as of the beginning of an interim or annual period if financial statements haven’t yet been issued.

We can help

ASU 2025-03 gives companies a clearer, more consistent framework for assessing complex deals and helps ensure that financial statements reflect the economic substance of transactions. If your business is planning a business combination involving equity interests, contact us to learn more about the revised assessment criteria to determine the appropriate accounting treatment for your deal.

The future often weighs heavier on the shoulders of family business owners. Their companies aren’t just “going concerns” with operating assets, human resources and financial statements. The business usually holds a strong sentimental value and represents years of hard work involving many family members.

If this is the case for your company, an important issue to address is how to integrate estate planning and succession planning. Whereas a nonfamily business can simply be sold to new ownership with its own management, you may want to keep the company in the family. And that creates some distinctive challenges.

Question of control

From an estate planning perspective, transferring ownership of assets to the younger generation as early as possible allows you to remove future appreciation from your estate, thereby minimizing estate taxes. Proactive planning may be especially relevant today, given the federal estate and gift tax regime under the Tax Cuts and Jobs Act.

For 2025, the unified federal estate and gift tax exemption is $13.99 million ($27.98 million for a married couple). Absent congressional action, this lifetime exemption is scheduled to drop by about half after this year. As of this writing, Congress is working on tax legislation that could potentially extend the current high exemption amount.

However, when it comes to transferring ownership of a family business, you may not be ready to hand over the reins — or you may feel that your children (or others) aren’t yet ready to take over. You may also have family members who aren’t involved in the company. Providing these heirs with equity interests that don’t confer control is feasible with proper planning.

Vehicles to consider

Various vehicles may allow you to transfer family business interests without immediately giving up control. For example, if your company is structured as a C or S corporation, you can issue nonvoting stock. Doing so allows current owners to retain control over business decisions while transferring economic benefits to other family members.

Alternatively, there are several trust types to consider. These include a revocable living trust, an irrevocable trust, a grantor retained annuity trust and a family trust. Each has its own technical requirements, so you must choose carefully.

Then again, you could form a family limited partnership. This is a legal structure under which family members pool their assets for business or investment purposes while retaining control of the company and benefiting from tax advantages.

Finally, many family businesses are drawn to employee stock ownership plans (ESOPs). Indeed, an ESOP may be an effective way to transfer stock to family members who work in the company and other employees, while allowing owners to cash out some of their equity in the business.

You and other owners can use this liquidity to fund your retirements, diversify your portfolios or provide for family members who aren’t involved in the business. If an ESOP is structured properly, you can maintain control over the business for an extended period — even if the ESOP acquires most of the company’s stock.

Not easy, but important

For family businesses, addressing estate and succession planning isn’t easy, but it’s important. One thing all the aforementioned vehicles have in common is that implementing any of them will call for professional guidance, including your attorney. Please keep us in mind as well. We can help you manage the tax and cash flow implications of planning a sound financial future for your company and family.

The IRS recently released the 2026 inflation-adjusted amounts for Health Savings Accounts (HSAs). Employees will be able to save a modest amount more in their HSAs next year.

HSA basics

An HSA is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.” An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high-deductible health plan” (HDHP). In addition, a participant can’t be enrolled in Medicare or have other health coverage (exceptions include dental, vision, long-term care, accident and specific disease insurance).

Within specified dollar limits, an above-the-line tax deduction is allowed for an individual’s contribution to an HSA. This annual contribution limitation and the annual deductible and out-of-pocket expenses under the tax code are adjusted annually for inflation.

Inflation adjustments for next year

In Revenue Procedure 2025-19, the IRS released the 2026 inflation-adjusted figures for contributions to HSAs. For calendar year 2026, the annual contribution limitation for an individual with self-only coverage under an HDHP will be $4,400. For an individual with family coverage, the amount will be $8,750. These are up from $4,300 and $8,550, respectively, in 2025.

There’s an additional $1,000 “catch-up” contribution amount for those age 55 or older in 2026 (and 2025).

An HDHP is generally a plan with an annual deductible that isn’t less than $1,700 for self-only coverage and $3,400 for family coverage in 2026 (up from $1,650 and $3,300, respectively, in 2025). In addition, in 2026, the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) can’t exceed $8,500 for self-only coverage and $17,000 for family coverage. In 2025, these amounts are $8,300 and $16,600, respectively.

Advantages of HSAs

There are a variety of benefits to HSAs. Contributions to the accounts are made on a pre-tax basis. The money can accumulate tax-free year after year and can be withdrawn tax-free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care and premiums for long-term care insurance. In addition, an HSA is “portable” — it stays with an account holder if he or she changes employers or leaves the workforce. Contact us if you have questions about HSAs at your business.

The U.S. House of Representatives has passed its budget reconciliation bill, dubbed The One, Big, Beautiful Bill. Among other things, the sweeping bill would eliminate clean vehicle credits by the end of 2025 in most cases.

If you’ve been pondering the purchase of a new or used electric vehicle (EV), you’ll want to buy sooner rather than later to take advantage of available tax credits. Here’s what you need to know.

The current credit

The Inflation Reduction Act (IRA) significantly expanded the Section 30D credit for qualifying clean vehicles placed in service after April 17, 2023. For eligible taxpayers, it extended the credit to any “clean vehicle,” including EVs, hydrogen fuel cell cars and plug-in hybrids, through 2032. It also created a new credit, Sec. 25E, for eligible taxpayers who buy used clean vehicles from dealers. That credit equals the lesser of $4,000 or 30% of the sale price.

The maximum credit for new vehicles is $7,500, based on meeting certain sourcing requirements for 1) critical minerals and 2) battery components. Clean vehicles that satisfy only one of the two requirements qualify for a $3,750 credit.

The Sec. 30D and Sec. 25E credits aren’t refundable, meaning you can’t receive a refund if you don’t have any tax liability. In addition, any excess credit can’t be carried forward if it’s claimed as an individual credit. A credit can be carried forward only if it’s claimed as a general business credit.

If you’re eligible for either credit (see below), you have two options for applying it. First, you can transfer the credit to the dealer to reduce the amount you pay for the vehicle (assuming you’re purchasing the vehicle for personal use). You’re limited to making two transfer elections in a tax year. Alternatively, you can claim the credit when you file your tax return for the year you take possession of the vehicle.

Buyer requirements

To qualify for the Sec. 30D credit, you must purchase the vehicle for your own use (not resale) and use it primarily in the United States. The credit is also subject to an income limitation. Your modified adjusted gross income (MAGI) can’t exceed:

$300,000 for married couples filing jointly or a surviving spouse,
$225,000 for heads of household, or
$150,000 for all other filers.

If your MAGI was less in the preceding tax year than in the year you take delivery of the vehicle, you can apply that amount for purposes of the income limit.

Note: As initially drafted, the GOP proposal would retain the Sec. 30D credit through 2026 for vehicles from manufacturers that have sold fewer than 200,000 clean vehicles.

For used vehicles, you similarly must buy the vehicle for your own use, primarily in the United States. You also must not:

Be the vehicle’s original owner,
Be claimed as a dependent on another person’s tax return, and
Have claimed another used clean vehicle credit in the preceding three years.

A MAGI limit applies for the Sec. 25E credit, but with different amounts than those for the Sec. 30D credit:

$150,000 for married couples filing jointly or a surviving spouse,
$112,500 for heads of household, or
$75,000 for all other filers.

You can choose to apply your MAGI from the previous tax year if it’s lower.

Vehicle requirements

You can take advantage of the Sec. 30D credit only if the vehicle you purchase:

Has a battery capacity of at least seven kilowatt hours,
Has a gross vehicle weight rating of less than 14,000 pounds,
Was made by a qualified manufacturer,
Underwent final assembly in North America, and
Meets critical mineral and battery component requirements.

In addition, the manufacturer suggested retail price (MSRP) can’t exceed $80,000 for vans, sport utility vehicles and pickup trucks, or $55,000 for other vehicles. The MSRP for this purpose isn’t necessarily the price you paid. It includes manufacturer-installed options, accessories and trim but excludes destination fees.

To qualify for the used car credit, the vehicle must:

Have a sale price of $25,000 or less, including all dealer-imposed costs or fees not required by law (legally required costs and fees, such as taxes, title or registration fees, don’t count toward the sale price),
Be a model year at least two years before the year of purchase,
Not have already been transferred after August 16, 2022, to a qualified buyer,
Have a gross vehicle weight rating of less than 14,000 pounds, and
Have a battery capacity of at least seven kilowatt hours.

The sale price for a used vehicle is determined after the application of any incentives — but before the application of any trade-in value.

Don’t forget the paperwork

Form 8936, “Clean Vehicle Credits,” must be filed with your tax return for the year you take delivery. The form is required regardless of whether you transferred the credit or chose to claim it on your tax return. Contact us if you have questions regarding the clean vehicle tax credits and their availability.

In the complex world of employee benefit plans, fidelity bonds serve as a crucial safeguard against losses caused by financial malfeasance. Given the costs and vagaries of litigation, plan sponsors and participants may have no recourse when plan assets are stolen except for fidelity bonds that cover first dollar losses with no deductible. In fact, the Employee Retirement Income Security Act (ERISA) requires most retirement plans to have such coverage regardless of the number of participants or the value of plan assets.

However, misconceptions and confusion surrounding these bonds can often lead to compliance pitfalls for plan sponsors. This article aims to provide clarity by “busting” common myths and misunderstandings about ERISA fidelity bonds and leading sponsors on a path to compliance.

Fidelity Bond Facts

Gaining a basic understanding of fidelity bonds can aid in uncovering the truth about them:

General:

Bonds are mandatory for most retirement plans, with exceptions for unfunded plans and those not subject to ERISA Title I, such as some government and church plans.
Form 5500, which is signed under penalty of perjury, asks whether the plan has a fidelity bond.
Bonds may be standalone or included in an insurance policy.
Plan sponsors must obtain bonds from a company approved by the Department of the Treasury’s Listing of Approved Sureties. The company name does not need to include the word “fidelity.”

Bond amounts:

As mandated by ERISA, generally, fidelity bonds must cover 10% of fund assets (determined as of the last day of the prior year) up to a certain dollar amount limit.
The minimum required amount is $1,000. The maximum required for most plans is $500,000, but the maximum required for plans that include employer securities (e.g., ESOPs and KSOPs) is $1,000,000.

Coverage:

Fidelity bonds must cover anyone who handles the funds or property of an employee benefit plan, including but not limited to fiduciaries and some third-party service providers.
The bond must cover the handling of all plan assets, regardless of type or location.
ERISA fidelity bonds must provide first dollar coverage with no deductible to the plan.

Armed with this basic knowledge, common myths can be tackled.

Myth #1: Fidelity Bonds vs. Fiduciary Insurance Coverage

“My company’s fiduciary insurance covers the plan’s ERISA fidelity bond requirement.”

Fiduciary insurance and fidelity bonds serve entirely different purposes.

A plan’s fiduciary liability insurance protects it against a fiduciary’s breach of duty. For example, an individual trusted to manage plan assets may breach their duties by engaging in risky transactions that reduce plan assets. This person’s breach of fiduciary duty potentially would be covered by the plan’s fiduciary liability insurance coverage.

In another scenario, though, someone with access to payroll deductions — not limited to fiduciaries — could divert funds to a phantom account. The plan’s fidelity bond could cover the loss, up to the maximum amount of the bond.

Myth #2: Obtaining Retroactive Coverage

“Retroactive fidelity bonds are easy to get.”

Plan audits often reveal that a plan has been operating without a fidelity bond. In such cases, the Department of Labor (DOL) will require the plan sponsor to obtain coverage and may ask that the coverage should be obtained for all years where a bond was not in place. However, retroactive fidelity bonds may be unavailable because insurers are typically prohibited by state law from issuing retroactive coverage. Instead, a plan sponsor can work with the DOL to document its attempts to comply with the fidelity bonding requirement and can maintain proper coverage going forward.

Myth #3: Fidelity Bond vs. Plan Audit Requirement

“We don’t need a fidelity bond because our plan doesn’t meet plan audit requirements.”

This myth is fairly easy to debunk. It’s true that ERISA does contain provisions about both fidelity bonds and plan audit requirements; the size of the company matters with plan audits but not with fidelity bonds. ERISA specifically requires fidelity bonds for most plans, regardless of the number of employees or the size of the plan. The plan audit requirements typically apply to plans with 100 or more participants. A plan can be exempt from the audit requirements yet still be required to have a fidelity bond.

Myth #4: Automatic Coverage

“Our D&O insurance coverage automatically covers fidelity bonds.”

A directors and officers (D&O) insurance policy may include a general fidelity bond, which may or may not satisfy the requirements for ERISA fidelity bonds. However, such inclusion is generally not mandatory. Because coverage varies from policy to policy, the person or group responsible for maintaining insurance coverage should review all policies to determine whether a separate fidelity bond is included and whether the bond meets all ERISA requirements. For example, like many other insurance policies, D&O coverage often includes a deductible; however, ERISA requires fidelity bonds that carry no deductible. Maintaining fidelity bonds and insurance policies requires a periodic review of both.

Myth #5: Fidelity Bonds and Cybersecurity Concerns

“Our ERISA fidelity bond covers theft through cyber means.”

While fidelity bonds might cover cybersecurity issues, it is best not to assume that such protection exists. As with D&O insurance, reviewing the terms of any fidelity bond can help clarify the bond’s stance toward cyber issues. Plan sponsors can voluntarily obtain combination policies that combine fidelity bond coverage with cybersecurity coverage, as long as the bond meets all other ERISA requirements.

Because of cyber risks to employee retirement plans, the DOL has issued guidance for plan sponsors that emphasizes the need for separate protection against cyber threats.

Does Your Plan Fully Comply with ERISA and Other Laws?

How well is your employee retirement plan protected from theft and fraud? Before falling victim to any myths mentioned in this article, consider asking our Employee Benefit Plan Audit team to review your plan.