EV Buyers, Beware! House GOP Bill Ends Clean Vehicle Tax Credits After 2025

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.

As school districts work to navigate evolving financial standards and compliance requirements, staying on top of changes is more important than ever. At the 2025 Michigan School Business Officials conference, Yeo & Yeo’s professionals presented on essential accounting updates, federal funding trends, and frequently found audit issues in Michigan school districts. Here are the most important points education leaders and business officials should be aware of heading into the end of their fiscal year.

GASB Updates: What’s Changing and When

Several new Governmental Accounting Standards Board (GASB) pronouncements are impacting how school districts prepare and present their financial statements.

GASB 101, Compensated Absences, effective for June 30, 2025, year ends, changes how compensated absences are calculated and reported. The new standard differs from previous practice in that the focus is not on vested vs. nonvested benefits, but on accruing a benefit when it is earned and then determining if it is more likely to be used or paid out. This standard will not affect the governmental funds significantly, but will affect the district-wide (full accrual) statements.
GASB 102, Certain Risk Disclosures, effective for June 30, 2025, year ends, requires districts to consider if there could be substantial impact of either a concentration (a lack of diversity relating to significant inflow or outflow of resources) or a constraint (a limitation imposed on a district by an external party or by formal action of an authoritative organization of the district) within 12 months of the date the financial statements are issued.

Chart of Accounts & Budget Updates

The Michigan Department of Education has issued several updates to the Chart of Accounts:

New object/grant codes for tracking of new revenue sources.
Updated functions for technology and remote learning expenses.

On the budget side, make sure your district:

Adopts budgets before the start of the fiscal year.
Amends budgets promptly when changes arise.
Avoids overspending in any line item that requires board authorization.
Adopts and amends as necessary budgets for all required funds, including all special revenue funds (such as food service and student/school activity).

Budget violations continue to be one of the most common audit findings. Transparency of variances, data inputs, and assumptions ensures proper budgeting. Timely updates, ongoing monitoring, and detailed board communications should be made regularly to mitigate budgeting issues.

Single Audit Findings and Federal Compliance

Federal funding, particularly with the recent influx of Education Stabilization Fund (ESF) and COVID-related funding, has brought more districts under the threshold for single audits. Along with it comes increased scrutiny.

Common audit findings include:

Missing or incomplete documentation for federal expenditures.
Noncompliance with federal procurement rules.
Inadequate or missing time and effort documentation for employees paid with federal dollars.
A lack of timely cash requests.
Incomplete or outdated capital asset inventories.
Missing board-approved policies or documentation for significant transactions.

To mitigate risk, review federal program requirements regularly, maintain thorough documentation of all grant-related activities, implement strong internal controls, and train staff responsible for federal programs on updated guidelines.

Year-End Readiness

Districts sometimes fail to accurately record year-end items such as:

Lease liabilities
Bond refunding
Unpaid invoices related to construction in progress
Accrued UAAL liability
Deferred inflow of resources

These omissions can misstate your financial position and lead to audit findings. It’s crucial to ensure that those year-end adjustments are made.

A Stronger Financial Foundation

Proactive planning and consistent internal controls help school districts avoid audit findings and build public trust and operational stability. Use these insights to guide your year-end preparations, review internal policies, and ensure your staff is trained on the latest requirements. Consistency and accountability are key to complying with GASB updates, avoiding budget pitfalls, or documenting federal funds correctly.

Regardless of size, every district can take steps today to strengthen financial oversight and avoid surprises during audit season.

School districts regularly work with coaches, consultants, contractors, and temporary staff, but not every role is created equal when it comes to tax treatment. Misclassifying an employee as an independent contractor can lead to IRS penalties, Department of Labor inquiries, and issues for all involved.

W-2 or 1099? IRS Rules Explained

The IRS uses three categories to evaluate worker classification:

Behavioral Control – Does the district tell the person when and how to work? If so, the worker is likely an employee.
Financial Control – Who supplies tools and resources? Can the worker experience profit or loss?
Relationship of the Parties – Is there a contract? Are benefits offered? Does the role resemble a typical employee relationship?

If the district sets the schedule, provides materials, and supervises the day-to-day work, you’re likely dealing with an employee, not a contractor.

Common Examples in Schools

Coaches are almost always employees. They follow school schedules, use district facilities, and interact with students. Their wages should be reported on a W-2.
School Board Members, despite being elected officials, must also receive W-2s. These roles are not exempt from tax reporting.

How to Stay Compliant

Review job duties for each worker and compare them to IRS standards.
Use written contracts for all independent contractors and request W-9 forms.
Document your rationale for how each role is classified.

A Thoughtful Approach to Classification

When it comes to employee vs. contractor decisions, erring on the side of caution can save you time and money down the road. Misclassifications aren’t just paperwork mistakes—they can become compliance violations that create more work and confusion later.

Taking time to get it right from the start—by reviewing roles, documenting decisions, and seeking guidance—helps ensure you’re following the rules and building trust with your staff, team, and community.

Technological advances can as easily open the door to fraud as shut it. Case in point: Although significant improvements have been made to generative artificial intelligence’s (GenAI’s) document generation capabilities, such upgrades have generally made fraud easier to perpetrate. Here’s how your business can prevent and detect GenAI document fraud attempts by rogue employees.

Perennial problems

Expense reimbursement fraud is a perennial problem for most organizations. With GenAI technologies, dishonest workers can create flawless documentation to request reimbursement of expenses they never incurred or that didn’t include business activity.

Similarly, “ghost” employee schemers can use GenAI to create resumés and application data that appear legitimate for “employees” who don’t actually exist. This may enable them to perpetrate payroll fraud. In fact, any process that relies on documentation may be susceptible to GenAI document forgeries.

Spotting a fake

To find ersatz documents that may be circulating in your organization, deploy a multi-layered approach. Managers should review documents with a degree of professional skepticism and ask to see original receipts and other documentation when they feel it’s warranted. This process can be as simple as eyeballing a document. Look for suspiciously perfect presentation or, alternately, typos and inconsistent fonts, spacing and alignment.

They should also examine file metadata — for example, the document’s author and its date of creation or modification. Checking when a file was generated could reveal that it was created long before an employee supposedly incurred travel expenses.

Test and train

To prevent such schemes, examine your business’s processes and the types of documentation they rely on. You might test GenAI’s ability to create fake documents associated with each process. For example, use the software to create restaurant receipts, hotel invoices and car rental receipts. And conduct online research on the types of false documents others have successfully used to commit fraud. With this information, you’ll know which of your business processes may be the most susceptible.

You also need to provide thorough training to those tasked with reviewing documents for authenticity. Generate documents using GenAI and test their ability to identify them. Also, educate all workers about the potential consequences of using GenAI improperly and offer a fraud hotline that enables them to anonymously report rulebreakers.

If you or a manager are unsure about the authenticity of employee-furnished documents, meet with workers face-to-face to review the documents together and gauge their response. If you strongly suspect fraud, be sure to involve legal counsel and a forensic accountant. You may want to leave any employee interviews to these professionals.

Keep on top of it

As AI continues to evolve, fraud perpetrators are likely to invent increasingly sophisticated schemes. So your business needs to supercharge its detection and prevention capabilities and upgrade them when necessary. Contact us for more tips on avoiding fraud.

Many businesses turn to independent contractors to help manage costs, especially during times of staffing shortages and inflation. If you’re among them, ensuring these workers are properly classified for federal tax purposes is crucial. Misclassifying employees as independent contractors can result in expensive consequences if the IRS steps in and reclassifies them. It could lead to audits, back taxes, penalties and even lawsuits.

Understanding worker classification

Tax law requirements for businesses differ for employees and independent contractors. And determining whether a worker is an employee or an independent contractor for federal income and employment tax purposes isn’t always straightforward. If a worker is classified as an employee, your business must:

Withhold federal income and payroll taxes,
Pay the employer’s share of FICA taxes,
Pay federal unemployment (FUTA) tax,
Potentially offer fringe benefits available to other employees, and
Comply with additional state tax requirements.

In contrast, if a worker qualifies as an independent contractor, these obligations generally don’t apply. Instead, the business simply issues Form 1099-NEC at year end (for payments of $600 or more). Independent contractors are more likely to have more than one client, use their own tools, invoice customers and receive payment under contract terms, and have an opportunity to earn profits or suffer losses on jobs.

Defining an employee

What defines an “employee”? Unfortunately, there’s no single standard.

Generally, the IRS and courts look at the degree of control an organization has over a worker. If the business has the right to direct and control how the work is done, the individual is more likely to be an employee. Employees generally have tools and equipment provided to them and don’t incur unreimbursed business expenses.

Some businesses that misclassify workers may qualify for relief under Section 530 of the tax code, but only if specific conditions are met. The requirements include treating all similar workers consistently and filing all related tax documents accordingly. Keep in mind, this relief doesn’t apply to all types of workers.

Why you should proceed cautiously with Form SS-8

Businesses can file Form SS-8 to request an IRS determination on a worker’s status. However, this move can backfire. The IRS often leans toward classifying workers as employees, and submitting this form may draw attention to broader classification issues — potentially triggering an employment tax audit.

In many cases, it’s wiser to consult with us to help ensure your contractor relationships are properly structured from the outset, minimizing risk and ensuring compliance. For example, you can use written contracts that clearly define the nature of the relationships. You can maintain documentation that supports the classifications, apply consistent treatment to similar workers and take other steps.

When a worker files Form SS-8

Workers themselves can also submit Form SS-8 if they believe they’re misclassified — often in pursuit of employee benefits or to reduce self-employment tax. If this happens, the IRS will contact the business, provide a blank Form SS-8 and request it be completed. The IRS will then evaluate the situation and issue a classification decision.

Help avoid costly mistakes

Worker classification is a nuanced area of tax law. If you have questions or need guidance, reach out to us. We can help you accurately classify your workforce to avoid costly missteps.

One question the family of a deceased person often asks is: What happens to debt after a person dies? It’s important to realize that a person’s debt doesn’t simply vanish after his or her death.

An estate’s executor or beneficiaries generally aren’t personally liable for any debt. The estate itself is liable for the deceased’s debt. This is true regardless of whether the estate goes through probate or a revocable (or “living”) trust is used to avoid probate. Contrary to popular belief, assets held in a revocable trust aren’t shielded from creditors’ claims.

Assets and debts

Generally, an estate’s executor is responsible for managing the deceased’s assets and debts. A personal representative can also carry out this task.

With respect to debt, the executor should take inventory of the deceased’s debts, evaluate their validity and order of priority, and determine whether they should be paid in full or allowed to continue to accrue during the estate administration process. In some cases, debt that’s tied to a particular asset — a mortgage, for example — may be assumed by the beneficiary who inherits the asset.

Certain assets are exempt, however. These include most retirement plan accounts, life insurance proceeds received by a beneficiary and jointly held property with rights of survivorship that passes automatically to the joint owner.

Also, assets held in certain irrevocable trusts, such as domestic asset protection trusts, may be shielded from creditors’ claims. The extent of this protection depends on the type of trust and applicable law in the jurisdiction where the trust was created.

Assuming the deceased had a will, the estate’s assets generally are used to pay any debts in this order:

Assets that pass under the will’s residual clause — that is, assets remaining after all other bequests have been satisfied,
Assets that pass under general bequests, and
Assets that pass under specific bequests.

Note that some states have established homestead exemptions or family allowances that prohibit the sale of certain assets to pay debts. These provisions are designed to give a deceased’s loved ones a minimal level of financial security in the event the estate is insolvent.

When debts are greater than the estate’s value

If an estate’s debts exceed the value of its assets, certain debts have priority and the estate’s executor must pay those debts first. Although the rules vary from state to state, a typical order of priority is:

Estate administration expenses (such as legal and accounting fees),
Reasonable funeral expenses,
Certain federal taxes or obligations,
Unreimbursed medical expenses related to the deceased’s last illness,
Certain state taxes or obligations (including Medicaid reimbursement claims), and
Other debts.

Secured debts, such as mortgages, usually aren’t given high priority. This is because the recipient of the property often assumes responsibility for the debt and the creditor can take the collateral to satisfy its claim.

Seek professional guidance

Managing debt in an estate can be complex, especially if the estate is insolvent. If you’re the executor of an estate, consult with us. We can help guide you through the process.

Yeo & Yeo CPAs & Advisors is proud to announce that Zaher Basha, CPA, CM&AA, and Michael Rolka, CPA, CGFM, have received the Tomorrow’s 20 Award presented by the Auburn Hills Chamber of Commerce. This award recognizes emerging leaders who demonstrate influence in the community through excellence in business leadership, dedication to innovation, and community service.

Zaher Basha joined Yeo & Yeo in 2014 and has consistently been a top performer, earning recognition for his technical expertise and leadership. As a Certified Public Accountant and Certified Merger & Acquisition Advisor, Basha specializes in tax planning, business advisory services, mergers and acquisitions, and healthcare industry consulting. Recently promoted to Principal, Basha is known for his calm and patient leadership, making him a highly effective mentor and trainer. He has driven innovation by leading the implementation of software programs to create efficiency for the firm’s professionals and clients. He is an integral member of the Valuation, Forensics, and Litigation Support Group and the Technology & Innovation team, further showcasing his commitment to excellence and growth. In the community, Basha serves as Treasurer of the Syrian American Rescue Network and volunteers at the Syria Institute.

“Zaher has been a trusted advisor to many business owners, guiding them through change, growth, and succession planning,” said Tammy Moncrief, CPA, Managing Principal of Yeo & Yeo’s Troy office. “Beyond his professional expertise, Zaher is an extremely caring person who is always willing to help, no matter how busy he is. He is a great leader and mentor, and is well-deserving of this recognition.”

Get to know Zaher

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 Michigan Association of Certified Public Accountants (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.

“Mike has consistently demonstrated his commitment to the success of governmental entities, both through his leadership of our Government Services Group and his work with the MGFOA board,” said Jamie Rivette, CPA, CGFM, Principal and Assurance Service Line Leader. “This award reflects his hard work and ongoing contributions.”

Get to know Michael

The Tomorrow’s 20 award recipients were honored at a gala hosted by the Auburn Hills Chamber on May 8 in Pontiac, Michigan.

Even well-run companies experience down years. The federal tax code may allow a bright strategy to lighten the impact. Certain losses, within limits, may be used to reduce taxable income in later years.

Who qualifies?

The net operating loss (NOL) deduction levels the playing field between businesses with steady income and those with income that rises and falls. It lets businesses with fluctuating income to average their income and losses over the years and pay tax accordingly.

You may be eligible for the NOL deduction if your deductions for the tax year are greater than your income. The loss generally must be caused by deductions related to your:

Business (Schedules C and F losses, or Schedule K-1 losses from partnerships or S corporations),
Casualty and theft losses from a federally declared disaster, or
Rental property (Schedule E).

The following generally aren’t allowed when determining your NOL:

Capital losses that exceed capital gains,
The exclusion for gains from the sale or exchange of qualified small business stock,
Nonbusiness deductions that exceed nonbusiness income,
The NOL deduction itself, and
The Section 199A qualified business income deduction.

Individuals and C corporations are eligible to claim the NOL deduction. Partnerships and S corporations generally aren’t eligible, but partners and shareholders can use their separate shares of the business’s income and deductions to calculate individual NOLs.

What are the changes and limits?

Before the Tax Cuts and Jobs Act (TCJA), NOLs could be carried back two years, forward 20 years, and offset up to 100% of taxable income. The TCJA changed the landscape:

Carrybacks are eliminated (except certain farm losses).
Carryforwards are allowed indefinitely.
The deduction is capped at 80% of taxable income for the year.

If an NOL carryforward exceeds your taxable income of the target year, the unused balance may become an NOL carryover. Multiple NOLs must be applied in the order they were incurred.

What’s the excess business loss limitation?

The TCJA established an “excess business loss” limitation, which took effect in 2021. For partnerships and S corporations, this limitation is applied at the partner or shareholder level, after the outside basis, at-risk and passive activity loss limitations have been applied.

Under the rule, noncorporate taxpayers’ business losses can offset only business-related income or gain, plus an inflation-adjusted threshold. For 2025, that threshold is $313,000 ($626,000 if married filing jointly). Remaining losses are treated as an NOL carryforward to the next tax year. In other words, you can’t fully deduct them because they become subject to the 80% income limitation on NOLs, reducing their tax value.

Important: Under the Inflation Reduction Act, the excess business loss limitation applies to tax years through 2028. Under the TCJA, it had been scheduled to expire after December 31, 2026.

Plan proactively

Navigating NOLs and the related restrictions is complex, especially when coordinating with other deductions and credits. Thoughtful planning can maximize the benefit of past losses. Please consult with us about how to proceed in your situation.

For many businesses, accounts receivable (AR) are more than just a line item on the balance sheet. This account provides a key indicator of potential cash flow, customer relationships and overall financial health. So proactive AR management is critical. The AR aging report has long been a cornerstone of expediting collections and reducing credit risk, but it’s taken on greater significance with the implementation of new accounting rules for recognizing credit losses.

Digging deeper into receivables

The AR aging report provides a structured breakdown of all outstanding customer invoices. Rather than simply listing balances owed, it categorizes AR based on how long each invoice has remained unpaid. The following time-based “aging buckets” are typically used:

0 to 30 days (current),
31 to 60 days,
61 to 90 days, and
Over 90 days.

This breakdown helps management evaluate trends in customer payment behavior, identify chronic late payers and assess how credit policies are performing. The information can be used to prioritize collection efforts and determine when receivables should be written off. Management also might use it to modify overall credit practices (for instance, offering early-bird discounts or electronic payment methods to encourage faster payments) or tighten credit policies for certain slow-paying accounts.

Optimizing cash flows

By revealing how long invoices have been unpaid and identifying customer payment trends, the AR aging report helps businesses forecast future cash receipts. This can help management more accurately:

Budget operating expenses,
Determine the need for short-term borrowing or credit lines, and
Plan investments or capital expenditures.

For instance, if a business sees that 40% of its receivables are older than 60 days, management can anticipate cash shortages in the next cycle and act preemptively. They may decide to delay certain discretionary expenditures or reevaluate vendor payment terms to maintain liquidity.

Using aging buckets to estimate write-offs

Starting in 2023, private entities that follow U.S. Generally Accepted Accounting Principles (GAAP) are required to implement new accounting rules for reporting credit losses on financial assets, including trade receivables. (The rules went into effect for most public companies in 2021.) The updated guidance requires companies to estimate an allowance for credit losses based on current expected credit losses (CECL) at each reporting date. The net amount reported on the balance sheet equals the amount expected to be collected. The CECL model essentially requires companies to estimate write-offs sooner than in the past.

Under prior accounting rules, a credit loss wasn’t recognized until it was probable the loss had been incurred, regardless of whether an expectation of credit loss existed beforehand. Under the CECL model, a loss allowance must be estimated based on historical information, current conditions, and reasonable and supportable forecasts. This estimate is often derived using historical default rates from aging buckets and adjusted for current and forecasted economic conditions. AR aging reports provide the historical and current data necessary to project the probability of default for various customer segments and invoice-age groups.

Estimated credit losses are recorded on the income statement as bad debt expense, directly reducing net income. Financial statement footnotes may also include detailed aging data and descriptions of how the loss estimate was developed, particularly if receivables represent a significant portion of the company’s assets.

It’s important to note that the Financial Accounting Standards Board is currently working on proposed guidance that, if approved, would allow private entities to use simpler assumptions to estimate credit losses on short-term receivables. However, regardless of whether the proposed simplification measures are approved, the AR aging report remains an essential tool. It helps quantify expected losses with or without complex forecasting.

A strategic management tool

QuickBooks® and many other accounting software platforms can generate real-time, customizable AR aging reports that integrate with customer relationship management systems for seamless tracking and follow-up.

If you’re unsure whether your current processes are CECL-compliant or you need assistance leveraging aging data to strengthen collections, credit policies and budgeting decisions, we’re here to help. Contact us to maximize the potential of your receivables data.

For employers, overtime pay has long been a tricky issue. On the one hand, needing employees to put in extra hours may indicate a productive organization providing in-demand products or services. On the other hand, soaring amounts of overtime pay can make payroll harder to manage and be a major drag on cash flow. Let’s review some basics of how to keep your oversight strong.

Current rules

Under the Fair Labor Standards Act, nonexempt, hourly employees generally must earn overtime pay for the hours they work that exceed 40 hours within a workweek. A workweek doesn’t need to be a calendar week — it could be, for instance, from Wednesday to Tuesday.

As of this writing, to be exempt from overtime and minimum wage pay regulations, most employees need to be paid at least $684 per week or $35,568 annually. Contrary to popular belief, overtime eligibility isn’t determined by job title — even some salaried employees can qualify.

Currently, staff members paid a salary (or fee) of $107,432 or more annually are generally exempt from overtime if they receive at least $684 per week and perform at least one duty of an executive, administrative or professional employee as defined by the U.S. Department of Labor (DOL). However, workers paid a salary below that “highly compensated employee threshold” are generally eligible for overtime pay.

Calculation complications

Overtime wages need to be at least 1.5 times an employee’s regular rate of pay. Employers may apply nondiscretionary bonuses and incentive payments, such as those tied to sales metrics, to satisfy up to 10% of the standard salary threshold for exempt employees. These types of payments must be made at least quarterly.

Watch out for state regulations. When both federal and state rules are in play, employees are entitled to overtime compensation at whichever standard will compensate them at the highest pay rate.

Management strategies

Most organizations want to manage overtime for budgetary reasons. However, another important factor to consider is that employees who’ve been on the job for too many hours may be more error-prone and more likely to jeopardize their safety or that of others. In addition, though some employees appreciate the extra income from overtime work, others may prefer a better work-life balance. The latter group might eventually decide to quit if they’re pushed into overtime too often.

The good news is there are various overtime management strategies available. First, examine the factors driving overtime. Are employees stretched too thinly? If so, it may be time to consider adding staff. Similarly, if production or project timelines are overly optimistic, you may need to adjust fulfillment schedules.

Also, cross-train workers to the extent possible. Overtime is often necessary when only one employee knows how to do certain things. Instructing others on critical functions can mitigate the need to rely on key employees.

Leverage technology, too. Carefully chosen and implemented software can allow you to track overtime hours and pay by location or department to identify areas where such payroll costs appear outside the norm.

In addition, automating processes can cut down on manual or repetitive tasks, giving employees more time to perform their jobs during regular hours. Moreover, the right tech can support efficient scheduling and production processes, ensuring staff are on the job only when needed.

Changes always possible

As you may recall, the rules for overtime pay briefly changed last year under the Biden administration. However, a federal court vacated those rules in November.

Technically, the 2024 proposed rules are still under appeal by the DOL, but it’s unlikely they’ll be revived under the second Trump administration. That doesn’t mean the overtime rules can’t change in some other way, though. In fact, President Trump has proposed eliminating tax on overtime, which may be part of upcoming legislation. Contact us for help managing all your payroll costs, including overtime pay.

When it comes to estate planning, married couples often assume that simply naming each other in their wills or designating each other as beneficiaries is sufficient. However, unintended consequences can result if you and your spouse fail to properly coordinate your estate plans.

Examples include conflicting provisions, unexpected tax consequences or assets passing in ways that don’t align with your shared wishes. Coordinated estate planning can help ensure that both your and your spouse’s documents and strategies work together harmoniously, protecting your legacies and the financial well-being of your loved ones.

Boost tax efficiency

One of the primary benefits of coordinating estate plans is tax efficiency. By working together, you and your spouse can take full advantage of the marital deduction and applicable gift and estate tax exemptions. This can help minimize the overall tax burden on both estates.

Coordination becomes especially important if you have a blended family, where children from previous relationships are involved, or in situations with complex assets like business interests or multiple properties. Clear and consistent planning that factors in tax consequences can help ensure that all beneficiaries are treated fairly and that your intentions are honored.

Streamline administration

Another benefit of coordinated planning is it helps streamline the administration of the estate. If one spouse becomes incapacitated or passes away, a well-integrated plan can reduce the administrative burden on the surviving spouse, avoid disputes and accelerate the transfer of assets.

Coordinating plans also allow you and your spouse to make joint decisions about health care directives, powers of attorney and guardianship of minor children, ensuring that both of your wishes are respected and consistently documented.

Follow your state’s law

Keep in mind that state law generally governs estate matters. Therefore, state law determines if your property is community property, separate property or tenancy by the entirety.

For instance, California is a community property state. That generally means that half of what you own is your spouse’s property and vice versa, though there are some exceptions.

Be proactive

Married spouses who coordinate their estate plans can avoid pitfalls and maximize the benefits of thoughtful planning. Taking these steps proactively can strengthen your and your spouse’s financial security and shared legacy. We can help ensure that all elements of your plans are aligned and up to date.

The Tax Cuts and Jobs Act (TCJA) significantly limited the types of theft losses that are deductible on federal income taxes. But a recent “advice memo” (CCA 202511015) from the IRS’s Office of Chief Counsel suggests more victims of fraudulent scams may be able to claim a theft loss deduction than previously understood.

Casualty loss deduction basics

The federal tax code generally allows individuals to deduct the following types of losses, if they weren’t compensated for them by insurance or otherwise:

Losses incurred in a business,
Losses incurred in a transaction entered into for profit (but not connected to a business), or
Losses not connected to a business or a transaction entered into for profit, which arise from a casualty or theft loss (known as personal casualty or theft losses).

A variety of fraud schemes may fall under the third category.

To deduct a theft loss, the taxpayer/victim generally must establish that:

The loss resulted from conduct that’s deemed theft under applicable state law, and
The taxpayer has no reasonable prospect of recovery of the loss.

From 2018 through 2025, though, the TCJA allows the deduction of personal casualty or theft losses only to the extent of personal casualty gains (for example, an insurance payout for stolen property or a destroyed home) except for losses attributable to a federally declared disaster. As a result, taxpayers who are fraud victims generally qualify for the deduction only if the loss was incurred in a transaction entered into for profit. That would exclude the victims of scams where no profit motive exists. The loss of the deduction can compound the cost of scams for such victims.

The IRS analysis

The IRS Chief Counsel Advice memo considers several types of actual scams and whether the requisite profit motive was involved to entitle the victims to a deduction. In each scenario listed below, the scam was illegal theft with little or no prospect of recovery:

Compromised account scam. The scammer contacted the victim, claiming to be a fraud specialist at the victim’s financial institution. The victim was induced to authorize distributions from IRA and non-IRA accounts that were allegedly compromised and transfer all the funds to new investment accounts. The scammer immediately transferred the money to an overseas account.

The IRS Chief Counsel found that the distributions and transfers were made to safeguard and reinvest all the funds in new accounts in the same manner as before the distributions. The losses, therefore, were incurred in a transaction entered into for profit and were deductible.

“Pig butchering” investment scam. This crime is so named because it’s intended to get every last dollar by “fattening up” the victim with fake returns, thereby encouraging larger investments. The victim here was induced to invest in cryptocurrencies through a website. After some successful investments, the victim withdrew funds from IRA and non-IRA accounts and transferred them to the website. After the balance grew significantly, the victim decided to liquidate the investment but couldn’t withdraw funds from the website.

The Chief Counsel determined that the victim transferred the funds for investment purposes. So the transaction was entered into for profit and the losses were deductible.

Phishing scam. The victim received an email from the scammer claiming that his accounts had been compromised. The email, which contained an official-looking letterhead and was signed by a “fraud protection analyst,” directed the victim to call the analyst at a provided number.

When the victim called, the scammer directed the victim to click a link in the email, giving the scammer access to the victim’s computer. Then, the victim was instructed to log in to IRA and non-IRA accounts, which allowed the scammer to grab the username and password. The scammer used this information to distribute all the account funds to an overseas account.

Because the victim didn’t authorize the distributions, the IRS weighed whether the stolen property (securities held in investment accounts) was connected to the victim’s business, invested in for profit or held as general personal property. The Chief Counsel found that the theft of property while invested established that the victim’s loss was incurred in a transaction entered into for profit and was deductible.

Romance scam. The scammer developed a virtual romantic relationship with the victim. Shortly afterwards, the scammer persuaded the victim to send money to help with supposed medical bills. The victim authorized distributions from IRA and non-IRA accounts to a personal bank account and then transferred the money to the scammer’s overseas account. The scammer stopped responding to the victim’s messages.

The Chief Counsel concluded this loss wasn’t deductible. The victim didn’t intend to invest or reinvest any of the distributed funds so there was no profit motive. In this case, the losses were nondeductible.

Note: If the scammer had directed the victim to a fraudulent investment scheme, the results likely would’ve been different. The analysis, in that situation, would mirror that of the pig butchering scheme.

Kidnapping scam. The victim was convinced that his grandson had been kidnapped. He authorized distributions from IRA and non-IRA accounts and directed the funds to an overseas account provided by the scammer.

The victim’s motive wasn’t to invest the distributed funds but to transfer them to a kidnapper. Unfortunately, these losses were also nondeductible.

What’s next?

It’s uncertain whether the TCJA’s theft loss limit will be extended beyond 2025. In the meantime, though, some scam victims may qualify to amend their tax returns and claim the loss deduction. Contact us if you need assistance or have questions about your situation.

In recent years, interest rates have increased and credit has tightened. Under these conditions, which are expected to persist in the coming months, securing a commercial loan can be challenging for businesses of all sizes. Whether you want to expand, stabilize your cash flow or simply build a financial cushion, being loan-ready is more critical — and more complicated — than it’s been in the past.

Here are some steps to help increase the odds that a bank will approve your company’s loan application.

Provide GAAP financial statements

Banks aren’t just looking for strong numbers in today’s cautious lending environment. They also want transparency and consistency. That’s why financial statements prepared under U.S. Generally Accepted Accounting Principles (GAAP) are essential.

GAAP financials give lenders a clear, apples-to-apples view of your business’s performance. GAAP requires accrual-basis accounting. On the income statement, this means sales are recorded when they’re earned, and expenses are reported when they’re incurred — regardless of when cash actually changes hands. A GAAP balance sheet may include accounts receivable, accounts payable, prepaid assets and accrued expenses. These accounts paint a complete, reliable picture of your business’s financial position.

If your financials aren’t already prepared in accordance with GAAP, it’s worth investing the time (and potentially enlisting outside help) to get them there before you apply for financing. GAAP financials could make all the difference.

Understand how your financial results stack up

Lenders use your financial statements to calculate key ratios and compare your business against industry benchmarks and its historical performance. Some ratios underwriters may scrutinize include:

Profit margin (net income divided by sales),
Receivables turnover (annual sales divided by average receivables balance),
Inventory turnover (annual cost of goods sold divided by average inventory balance),
Payables turnover (annual cost of goods sold divided by average payables balance),
Current ratio (current assets divided by current liabilities),
Debt-to-equity ratio (total debt divided by total owners’ equity), and
Times interest earned ratio (earnings before interest expense and taxes divided by interest expense).

Your business will stand out if its financial performance reflects solid asset management, profitability and growth prospects. If there are red flags — such as low profits, aging receivables or high debt levels — have a detailed explanation and an improvement plan.

Prepare for comprehensive due diligence procedures

Today’s lenders want a complete picture of your business operations, leadership and future strategy. Be prepared for in-depth due diligence, including:

Facility tours to assess your operations firsthand,
Interviews with your leadership team,
Reviews of marketing materials, pricing strategies, and key customer or supplier contracts, and
Discussions about any discrepancies between your financial statements and tax returns.

Underwriters don’t just like to see that you’re currently profitable; they also want assurance that you’re building a resilient, well-run business that can repay the loans.

Additionally, you’ll need to explain how the loan funds will be used. Having a clear, realistic plan — whether it’s to expand your operations, invest in new equipment, increase headcount or manage seasonal cash flow — can significantly boost your credibility. Vague or overly ambitious plans can sink your application, even if your financials look strong.

Let’s get you loan-ready

Securing a loan requires more than filling out a few forms. You need a clear financial story, reliable financial records and a forward-looking business plan. We can help you apply for a business loan to position your business for success, even in tough times. Contact us to get the ball rolling.

On April 2, the Michigan Department of Treasury published guidance (Notice Regarding New Research and Development Credit) on the state’s new tax credit for eligible research and development (R&D) expenses and confirmed that it plans to issue a revenue administrative bulletin on the topic.

The guidance follows the January enactment of two bills (House Bills 5100 (Public Act 186 of 2024) and 5101 (Public Act 187 of 2024)) that together created the R&D credit (see our related Alert for high-level provisions and some history on Michigan R&D credits).

Application and Administration

The refundable credit applies to R&D activities beginning January 1, 2025, regardless of the taxpayer’s year-end.

The guidance specifies that for R&D expenses incurred during the 2025 calendar year, all claimants with tax years beginning in 2025, including calendar- and fiscal-year corporate income tax (CIT) payers and flow-through entities, must submit their tentative claims no later than April 1, 2026.
A tentative claim must be timely filed to claim the R&D credit, and Treasury will not accept tentative claims after the statutory deadline. Because tentative claims will be used in any required proration calculation, they should be made using actual — not estimated — expenses.

If the total amount of tentative claims exceeds the credit limit, Treasury must notify businesses of the adjustment. Neither HB 5100 nor HB 5101 specified when or how Treasury must provide that information.

The guidance states that Treasury will publish a general notice on its website notifying taxpayers whether adjustments to tentative claims are required for the calendar year and any amounts thereof. That notice will specify “whether proration is required for each type of claimant and will not contain taxpayer-specific information” [emphasis added]. According to the guidance, Treasury anticipates publishing the general notice before the annual return deadline for CIT filers (that is, April 30).

Once Treasury has published the notice, taxpayers will be eligible to claim the credit, adjusted as necessary, on their annual returns filed after the end of their tax years.

Qualifying R&D Expenses

Qualifying R&D expenses are those expenses defined in Internal Revenue Code Section 41(b) but incurred in Michigan.

The guidance confirms that the new credit looks only to IRC Section 41, noting that in determining their state credits, taxpayers should not apply any IRC provisions, federal regulations, or federal concepts other than those that may be applicable under the Michigan Income Tax Act.

Qualifying expenses are calculated per calendar year regardless of the taxpayer’s tax year-end.

The guidance clarifies that Treasury will develop an optional method for fiscal-year filers to convert their fiscal-year R&D expenses into calendar-year expenses for base-amount years before 2025. Additional information about that method will be published in future Treasury guidance.

Credit Amounts and Limits

The bills generally define an authorized business as a specified taxpayer that has incurred qualifying R&D expenses over the base amount during the calendar year ending with or during the tax year for which a credit is being claimed. Only authorized businesses with R&D expenses exceeding the base amount during a calendar year will be eligible for a credit in that year.

The base amount is defined as the average annual amount of qualifying R&D expenses incurred during the three calendar years immediately preceding the calendar year ending with or during the tax year for which a credit is being claimed. If an authorized business did not have previously qualifying R&D expenses, it has a base amount of zero. If an authorized business did not have qualifying R&D expenses in the three immediately preceding calendar years, the average annual amount is based on the number of calendar years during which the business incurred qualifying R&D expenses.

Qualifying taxpayers with at least 250 employees are eligible for a credit of 3% on expenses up to the base amount and 10% on excess expenses, with a maximum credit of $2 million per year. Qualifying taxpayers with fewer than 250 employees are eligible for a credit of 3% on expenses up to the base amount and 15% on excess expenses, with a maximum credit of $250,000 per year.

The guidance indicates that Treasury plans to explain how to count the number of employees for the unadjusted credit calculation. It notes that MCL Section 206.605(3) defines an employee as “an employee as defined in [IRC] Section 3401(c)…. A person from whom an employer is required to withhold for federal income tax purposes is prima facie considered an employee.”

The maximum amount of credit available across all authorized businesses per calendar year is $100 million. If total refund claims exceed that, the amount of credit allowed will be prorated across all taxpayers that applied for the credit using the applicable method provided in the bills.

Provisions for Corporations and Flow-Throughs

Corporate Entities

For corporate purposes, a taxpayer is a corporation or unitary business group (see MCL Section 206.611(5)).

The guidance confirms a CIT payer that is a unitary business group would make all calculations (e.g., number of employees, total expenses, base amount, maximum credit amount, and any applicable proration) at the group level.

Flow-Through Entities

To be an eligible flow-through entity, the entity must be subject to Michigan income tax withholding on employees and, for the tax year, must not be a disregarded entity, taxed as a C corporation for federal income tax purposes, or subject to the Michigan Business Tax (MBT) Act. An eligible flow-through entity will take the credit on its annual withholding return for the tax year in which its tentative claim was filed.

The guidance provides some favorable relief for flow-through entities related to periodic withholding payments, allowing for a reduction once the tentative claim adjustment notice is published.

To illustrate that point, the guidance provides an example using R&D expenses incurred in calendar year 2025. It says a flow-through entity filing a withholding tax return would claim the credit with its 2026 withholding tax return (due February 28, 2027) and could begin to reduce its 2026 periodic withholding payments as soon as Treasury issues its tentative claim adjustment notice for 2025 expenses.

The credit is allowable only for flow-through entities and may not be passed on to owners.

Insights

Unlike the federal credit (and credits in most states), the measure of qualifying R&D expenses is made on a calendar-year basis for all taxpayers, regardless of tax year-end. Thus, authorized businesses with fiscal year-ends will require some additional analysis.
The guidance says Treasury anticipates publishing any required proration, allowing taxpayers to claim the credit, by April 30. However, given the uncertainty, corporate taxpayers that have timely filed might want to extend their return due dates to avoid having to file amended returns to claim refunds.
The new credit includes unusual treatment of taxpayers that have little or no R&D expenses. If a taxpayer had no R&D expenses in the last three years, the legislation states that the base amount is zero. If, for example, a taxpayer had R&D expenses in only one year during the base period (e.g., $100,000 in 2024), then the legislation states that the expenses in the single year will be the taxpayer’s base amount (e.g., $100,000) instead of taking an average of the last three years (e.g., $0 + $0 + $100,000 / 3). That unusual approach seems to be a drafting error, with the drafter possibly imagining a situation in which a taxpayer was not in existence for the three years in the base period. If the taxpayer did not exist throughout the base period, then it would be appropriate to divide by the number of years of existence. If the taxpayer existed for the last three years, then it is counterintuitive that the taxpayer would not get to divide its R&D expenses for the last three years by three.
While the guidance confirms that taxpayer names and credit amounts will be included on a report to the legislature and governor, it also specifically mentions that the published adjusted credit notice will not contain taxpayer-specific information, providing some clarity on public release of details by taxpayer.
Because the credit is available only on a CIT return for corporations, and the statute for flow-through entities specifically excludes those filing under the MBT Act, no taxpayers filing the MBT because of a certificated credit election are eligible for the new R&D credit.
Even if a federal R&D credit has not previously been claimed, taxpayers should consider re-evaluating the potential benefit available related to their R&D activities in Michigan, especially given the credit’s refundable nature.
Additional Treasury guidance is expected in the form of a revenue administrative bulletin, as well as forms and instructions for administering the new credit.

It’s not uncommon for an estate plan to contain multiple trusts. They can enable you to hold assets for and transfer them to beneficiaries, avoid probate, and possibly reduce estate tax exposure. When drafting a trust, you must appoint a trustee. This can be an individual or a financial institution.

Before choosing a trustee, know that the job comes with many responsibilities — from keeping careful records and making smart investment choices to staying fair and keeping beneficiaries informed. A trustee must always put the beneficiaries’ interests first and handle everything with care, honesty and good judgment.

What are a trustee’s tasks?

Trustees have significant legal responsibilities, primarily related to administering the trust on behalf of beneficiaries according to the terms of the trust document. However, the role can require many different types of tasks. For example, even if a tax professional is engaged to prepare tax returns, the trustee is responsible for ensuring that they’re completed correctly and filed on time.

One of the more challenging trustee duties is to accurately account for investments and distributions. When funds are distributed to cover a beneficiary’s education expenses, for example, the trustee should record both the distribution and the expenses covered. Beneficiaries are allowed to request an accounting of the transactions at any time.

The trustee needs to invest assets within the trust reasonably, prudently and for the long-term sake of beneficiaries. And trustees must avoid conflicts of interest — that is, they can’t act for personal gain when managing the trust. For instance, trustees typically can’t purchase assets from the trust. The trustee probably would prefer a lower purchase price, which would run counter to the best interests of the trust’s beneficiaries.

Finally, trustees must be impartial. They may need to decide between competing interests while still acting within the terms of the trust document. An example of competing interests might be when a trust is designed to provide current income to a first beneficiary during his or her lifetime, after which the assets pass to a second beneficiary. Although the first beneficiary would probably prefer that the trust’s assets be invested in income-producing securities, the second would likely prefer growth investments.

What qualities should you look for?

Several qualities help make someone an effective trustee, including:

A solid understanding of tax and trust law,
Investment management experience,
Bookkeeping skills,
Integrity and honesty, and
The ability to work with all beneficiaries objectively and impartially.

And because some trusts continue for generations, trustees may need to be available for an extended period. For this reason, many people name a financial institution or professional advisor, rather than a friend or family member, as trustee.

Consider all your options

Naming a trustee is an important decision, as this person or institution will be responsible for carrying out the terms outlined in the trust documents. We can help you weigh the options available to you.

In the Spring 2025 issue of MICIA magazine, Michael Rolka, CPA, CGFM, Principal at Yeo & Yeo CPAs & Advisors, is featured in the “Ask the Professionals” section. His insights into Annual Financial Statement (AFS) preparation for cannabis businesses highlight the importance of compliance and strategic financial management. Below are key points from his interview:

5 Questions with Michael Rolka, CPA, CGFM

1. How do cannabis businesses determine if they must submit an AFS report?

Cannabis businesses can verify their next AFS due date through the Accela Citizens Access Portal (ACA). The Cannabis Regulatory Agency (CRA) sends email reminders from CRA-AFS@michigan.gov six months before the report is due, specifying the due date, reporting period, and licenses to be included. Generally, medical marijuana and adult-use licensees must file a financial statement every three years, or a shorter time-period as determined by the CRA.

2. What are the key requirements for preparing an AFS report, and how can Yeo & Yeo help?

The AFS report must be conducted by an independent CPA licensed in Michigan, performed according to attestation engagement standards, and submitted as an Excel document using the official CRA form. The CPA and CPA firm must be actively licensed and registered in Peer Review before completing the AFS Report. Yeo & Yeo meets all CRA requirements for performing AFS reports, making them an ideal partner for navigating the complexities of AFS reporting and ensuring full compliance.

3. What are the penalties for non-compliance with AFS reporting requirements?

The CRA Disciplinary Guidelines (updated August 2, 2024) outline a $10,000 penalty for violations under rules 20 and 27701 concerning the failure to transmit financial statements to the agency. However, the guidelines emphasize that the CRA makes each determination on a case-by-case basis and that the final resolution “may deviate from that referenced in the guidelines,” potentially involving measures beyond fines such as “the suspension, revocation, restriction, or refusal to renew a license; and/or other terms to address the violation.”

4. How can a well-prepared AFS report benefit my business beyond CRA compliance?

A well-prepared AFS offers benefits beyond compliance. It may give the company confidence that its recordkeeping and policies are appropriate. This information serves as a foundation for strategic planning, allowing you to identify areas for cost reduction, revenue growth opportunities, and operational efficiencies. Alternatively, the process of preparing for an AFS can also uncover operational inefficiencies, leading to better overall business management. This can help reduce the risk of fraud and identify potential financial irregularities early on.

5. How can I get additional value from my required AFS report by leveraging it for investor and lender relations?

A comprehensive AFS report, while required for compliance, can be a powerful tool for enhancing investor and lender relations. By sharing this detailed financial statement, you demonstrate transparency and professionalism, which are crucial when seeking investment or loans. The AFS provides potential investors or lenders with a clear, CRA-compliant picture of your business’s financial position, potentially improving your access to capital. You can use the AFS report to showcase your commitment to regulatory compliance and financial best practices, building trust with stakeholders. During negotiations with potential investors or lenders, you can reference specific data points from your AFS report to support your business case, growth projections, and financial stability. This can strengthen your position and potentially lead to more favorable terms or increased funding opportunities.

At Yeo & Yeo, we pride ourselves on being more than just accountants; we are our clients’ partners in success. We build customized, right-sized relationships that help our cannabis clients remain compliant, organized, and growing. Whether your goals involve vertical integration, preparing for mergers and acquisitions, adding licenses, or opening a new location, Yeo & Yeo ensures you have the information to make data-driven decisions.

If you need assistance with AFS reporting, strategic planning, or accessing capital, Yeo & Yeo’s team is dedicated to helping you succeed. Contact us to meet with one of our experienced cannabis advisors. Yeo & Yeo is here to support you every step of the way.

Yeo & Yeo CPAs & Advisors is proud to announce that Dave Youngstrom, CPA, President & CEO, and Ali Barnes, CPA, CGFM, Managing Principal of our Alma office, have been named to the 2025 Forbes list of Best-in-State CPAs. This list recognizes CPAs nationwide for their expertise, innovation, thought leadership, experience, and service to the community and profession.

As President & CEO, Dave Youngstrom leads Yeo & Yeo’s five companies with a strategic vision rooted in people-first values. He joined the firm in 1995, was named principal in 2007, and became President & CEO in January 2022. Dave has played a key role in shaping Yeo & Yeo’s culture and is committed to growing the firm in ways that create meaningful opportunities for our people while addressing the evolving needs of our clients. He has been recognized as a leader beyond the firm, receiving the Saginaw Valley State University Distinguished Alumni Award, the Martin P. Luthy Award for outstanding Jaycee Chapter President, and the Harry S. Lund Award for outstanding United Way Volunteer.

Ali Barnes is a trusted advisor to government entities, school districts, and for-profit companies across Michigan. She brings specialized expertise in assurance and consulting services, and is known for her client-focused approach and the care she brings to every engagement. She leads the firm’s Assurance Technical Team and is a member of the firm’s Quality Assurance Committee, Government Services Group, and Employee Benefit Plan Services Group. Beyond Yeo & Yeo, Ali gives back by serving as president and finance committee member of the Gratiot County Community Foundation and as board treasurer of the Alma Police Athletic League.

“It’s an honor to be recognized alongside Ali on Forbes’ Best-in-State CPAs list,” said Youngstrom. “This recognition reflects the trust we’ve earned and the incredible team that makes it all possible.”

At Yeo & Yeo, we believe our people, clients, and communities are the foundation of everything we do—and the reason we continue to be honored among the “best of the best” in our industry. We are proud to be named an Inside Public Accounting Best of the Best Firm, an Accounting Today Regional Leader and Firm to Watch, and a Best and Brightest Company to Work For in both West Michigan and Metro Detroit.

We congratulate Dave and Ali on this well-deserved recognition. View the full Forbes Best-in-State CPAs list here: https://www.forbes.com/lists/best-in-state-cpas.

Your business can set up an educational assistance plan that can give each eligible employee up to $5,250 in annual federal-income-tax-free and federal-payroll-tax-free benefits. These tax-favored plans are called Section 127 plans after the tax code section that allows them.

Plan basics

Sec. 127 plans can cover the cost of almost anything that constitutes education, including graduate coursework. It doesn’t matter if the education is job-related or not. However, you can choose to specify that your Sec. 127 plan will only cover job-related education. Your business can deduct payments made under the Sec. 127 plan as employee compensation expenses.

To qualify for this favorable tax treatment, the education must be for a participating employee — not the employee’s spouse or dependent. Also, the plan generally can’t cover courses involving sports, games or hobbies.

If the employee is a related party, such as an employee-child of the owner, some additional restrictions apply that are explained below.

Plan specifics

Your Sec. 127 plan:

Must be a written plan for the exclusive benefit of your employees.
Must benefit employees who qualify under a classification scheme set up by your business that doesn’t discriminate in favor of highly compensated employees or employees who are dependents of highly compensated employees.
Can’t offer employees the choice between tax-free educational assistance and other taxable compensation, like wages. That means the plan benefits can’t be included as an option in a cafeteria benefit program.
Doesn’t have to be prefunded. Your business can pay or reimburse qualifying expenses as they’re incurred by an employee.
Must give employees reasonable notification about the availability of the plan and its terms.
Can’t funnel over 5% of the annual benefits to more-than-5% owners or their spouses or dependents.

Payments to benefit your employee-child

You might think a Sec. 127 plan isn’t available to employees who happen to be children of business owners. Thankfully, there’s a loophole for any child who’s:

Age 21 or older and a legitimate employee of the business,
Not a dependent of the business owner, and
Not a more-than-5% direct or indirect owner.

Avoid the 5% ownership rule

To avoid having your employee-child become disqualified under the rules cited above, he or she can’t be a more-than-5% owner of your business. This includes actual ownership (via stock in your corporation that the child directly owns) plus any attributed (indirect) ownership in the business under the ownership attribution rules summarized below.

Ownership in your C or S corporation business is attributed to your employee-child if he or she: 1) owns options to acquire more than 5% of the stock in your corporation, 2) is a more-than-5% partner in a partnership that owns stock in your corporation, or 3) is a more-than-5% shareholder in another corporation that owns stock in your corporation. Also, a child under age 21 is considered to own any stock owned directly or indirectly by a parent. However, there’s no parental attribution if the child is age 21 or older.

Ownership attribution for an unincorporated business

What about an unincorporated business? You still have to worry about ownership being attributed to your employee-child under rules analogous to the rules for corporations. This includes businesses that operate as sole proprietorships, single-member LLCs treated as sole proprietorships for tax purposes, multi-member LLCs treated as partnerships for tax purposes or partnerships.

Payments for student loans

Through the end of 2025, a Sec. 127 plan can also make tax-free payments to cover principal and interest on any qualified education loan taken out by a participating employee. The payments are subject to the $5,250 annual limit, including any other payments in that year to cover eligible education expenses.

Talent retention

Establishing a Sec. 127 educational assistance plan can be a good way to attract and retain talented employees. As a bonus, the plan can potentially cover your employee-child. Contact us if you have questions or want more information.

Onboarding is more than just paperwork; it’s an opportunity to set the right tone for every new employee’s experience in your workplace. The process’s primary objectives are to welcome new hires, help them understand their roles, and provide them with the knowledge and tools to connect with the organization and succeed at their jobs.

Done right, onboarding increases employee engagement, improves retention and boosts productivity. Doing it wrong — or not at all — leaves many employers back at square one, having to hire all over again. Here are six best practices to consider:

1. Start before day one. An optimal onboarding process begins well before the first day of employment. As soon as candidates accept your job offers, express how happy you are to have them. Then, tell them about your onboarding process. For many new hires, just knowing onboarding will happen is reassuring.

Right before a new employee’s first day, send a welcome email with key details — such as where to park (if working on-site) and who’ll be the individual’s first contact. As appropriate and feasible, provide digital access to employment forms and training materials so new hires can get a head start. Ensure that all forms and documentation are current and relevant to the position.

2. Make day one count. The old cliché holds true: You never get a second chance to make a good first impression. A positive first-day experience should begin with a human touch. Appoint a specific person, often the supervisor, to warmly welcome the new employee and graciously guide the person through a structured agenda.

If the position is on-site, require the new hire’s workspace to be available and fully functional. For remote jobs, make sure new employees have the necessary technology and access. In either case, their onboarding first contact should introduce them to their teams and other key colleagues. Emphasize an organized and personalized approach.

3. Assign a peer mentor. The importance of the supervisor’s role can’t be overstated. However, many employers have found success in assigning an experienced peer-level employee to each new hire to serve as a mentor. Doing so can help new employees navigate the more informal or “unwritten” aspects of your workplace. This promotes enthusiastic learning and social integration. One risk to this strategy is that peer mentors may pass along bad habits or misinformation, so it’s important to vet them carefully.

4. Provide professionally developed training. For many positions, day one will be spent on welcoming and orientation. Training should begin thereafter. For best results, ensure that you’ve developed training programs mindfully and under rigorous professional standards. It might be tempting to “generalize” training or even assume that employees will figure things out on their own. However, failing to train new hires adequately can leave them feeling confused and unsupported.

5. Ask for feedback and act on it when appropriate. Many employers assume their onboarding processes are just fine — until someone speaks up. Often, it’s a former employee posting on an employer review website. Onboarding, like any important operational function, needs to improve continuously.

Train supervisors to check in with new hires throughout the process, which should generally take about one to two weeks. Teach supervisors to exercise active listening and ask insightful questions. If you use peer mentors, ask for their thoughts on how onboarding went for their mentees. Use all this feedback to refine your process and really customize it to your organization’s mission.

6. Prioritize it and invest strategically. Widening out the lens a bit, work with your leadership team to address your organization’s approach to onboarding. It’s critical to prioritize onboarding appropriately and invest in it strategically.

That doesn’t mean throwing money at the problem. Instead, target ways to improve onboarding. It can pay off in more loyal, productive employees and a high-performance workplace culture. Contact us for help analyzing the costs vs. benefits of upgrading your onboarding process and aligning it with your strategic goals.