Is a QTIP Trust Right for Your Blended Family?

A qualified terminable interest property (QTIP) trust can be a valuable estate planning tool if you have a blended family. In such families — where one or both spouses have children from prior relationships — there’s often a delicate balance between providing for a current spouse and preserving assets for children from a previous marriage. A QTIP trust helps achieve this by allowing you, the grantor, to ensure that your surviving spouse is financially supported during his or her lifetime while your remaining assets ultimately go to the beneficiaries you’ve designated.   

QTIP trust in action

Generally, a QTIP trust is created by the wealthier spouse, though sometimes both spouses will establish such trusts. After the QTIP trust grantor’s death, the surviving spouse receives income from the trust for life, and in some cases, may also have access to principal if the trust terms allow it.

Basically, the surviving spouse assumes a “life estate” in the trust’s assets. A life estate provides the surviving spouse with the right to receive income from the trust but not ownership rights. This means that the surviving spouse can’t sell or transfer the assets.

Estate tax considerations

From an estate tax perspective, a QTIP trust also offers advantages. Assets transferred into the trust generally qualify for the marital deduction, meaning no estate tax is due at the first spouse’s death. The estate tax is deferred until the death of the surviving spouse, potentially allowing for more efficient tax planning.

This combination of financial security for the surviving spouse and inheritance protection for children makes a QTIP trust particularly well-suited for blended families seeking fairness, clarity and peace of mind in their estate plans.

Estate planning flexibility

A QTIP trust can also make your estate plan more flexible. For example, at the time of your death, your family’s situation or the estate tax laws may have changed. The executor of your will can choose to not implement a QTIP trust if that makes the most sense. Otherwise, the executor makes a QTIP trust election on a federal estate tax return. (It’s also possible to make a partial QTIP election — that is, a QTIP election on just a portion of the estate.)

To be effective, the election must be made on a timely filed estate tax return. After the election is made, it’s irrevocable.

Right for you?

If you’ve remarried and have children from your first marriage, consider the estate planning benefits of a QTIP trust. Questions? Contact FMD for additional information.

Expense or Capitalize? How to Maximize Deductions with the De Minimis Safe Harbor Rule

By: Katie Peabody and Reed Freiburger

When a business buys equipment, furniture, or software, the question often arises: capitalize or expense it immediately?  The answer can have a big impact on a business’ bottom line – especially with recent changes to federal and state depreciation rules.  Fortunately, the IRS’s ‘de minimis safe harbor election” offers a straightforward way to simplify compliance and maximize deductions.  This complexity at the Federal and State level provides opportunities for taxpayers. 

Back in 2013 the IRS introduced the Tangible Property Regulations. These regulations provided guidance on capitalization of assets as well as insight on repairs versus capitalizable assets. Within these regulations, the de minimis safe harbor rules were also introduced. Taxpayers can use these rules to confidently maximize current deductions while also getting the best outcomes for state income taxes as well. 

De Minimis Safe Harbor Expensing

One often-overlooked opportunity in the world of fixed assets is the de minimis safe harbor election. This rule allows taxpayers to immediately expense smaller asset purchases instead of capitalizing and depreciating them over time.

• Businesses without an audited financial statement can expense up to $2,500 per invoice or item.

• Businesses with an audited financial statement can expense up to $5,000 per invoice or item.

For non-audited taxpayers, to use this rule, a business must:

1. Have a written capitalization policy in place as of the start of the tax year, and

2. Expense purchases under $2,500 for both book and tax reporting purposes.

For audited taxpayers, to use this rule, a business must:

1. Have a written policy setting a $5,000 capitalization threshold, and

2. Expense purchases under the limit for tax reporting purposes; book treatment may differ.

Expensing Per Invoice vs Per Item

The safe harbor expensing limits can be applied on a per invoice or per item basis.

 If the total amount on an invoice does not exceed the capitalization threshold, it can be expensed in full, even if the invoice includes multiple items for a single project. This means if the contractor bills for wiring installed at $1,600, and separately bills $2,100 for painting, both of those separate invoices could be expensed. An anti-abuse rule prevents taxpayers from proactively splitting invoices for a single asset (i.e. a truck cannot be billed for various parts, so each invoice is under the capitalization threshold), so keep that in mind.  

Alternatively, if multiple items are purchased on one invoice, each item under the limit can also be expensed individually. The per unit price does not need to be listed on the invoice, but the number of units and the total cost does need to be shown. This means if 15 refrigerators are purchased for a multi-unit residential rental, for $15,000, all of those refrigerators could be expensed, even though the total invoice exceeds the safe harbor capitalization threshold, since each unit’s cost was only $1,000, the entire invoice can be expensed immediately.

Additional Benefits and Practical Examples

This per-item treatment can be particularly valuable for owners of residential rental property, since building improvements on residential real property typically do not qualify for bonus depreciation. For example, a 40-unit apartment building that replaces every door could expense the entire cost immediately, provided the cost of each door does not exceed $2,500 (or $5,000 if the entity has an audited financial statement). Conversely, this building improvement would not be bonus eligible since bonus can only be taken on Qualified Improvement Property (QIP) which excludes improvements to residential real property. 

Additionally, amounts expensed under the de minimis rule are not subject to Michigan’s newly enacted tax depreciation decoupling adjustment which became effective on January 1, 2025. Assets 100% expensed via bonus depreciation for Federal income tax will be required to be added back to the Michigan income tax base and depreciated with the old phase out bonus depreciation rules. Assets directly expensed under the de minimis safe harbor would not be subject to any add-back to Michigan taxable income which avoids the potential increase to the income tax on a Michigan return.

Go Forth and Expense (Wisely)!

Nearly every business invests in fixed assets, and the de minimis safe harbor offers a simple, powerful way to accelerate deductions while staying compliant. If you’d like help drafting a written de minimis expensing policy or evaluating fixed asset purchases for maximum benefit, the FMD team can help apply these rules with confidence. 

This post is part of a continuing series-check back for future insights. 

Productivity Metrics Can Help Business Owners See Reality

As a business owner, your eyes may tell you that your employees are working hard. But discerning whether their efforts are truly contributing to the bottom line might be a bit hazy. The solution: Track productivity metrics. When calculated correctly and consistently, quantitative measures can help you see business reality much more clearly.

Why the numbers matter

No matter how big or small, every company has three primary resources: time, talent and capital. Productivity metrics help you understand how effectively you’re using them.

Rather than relying on assumptions or gut feelings, running the numbers sheds light on whether productivity is booming, adequate or falling short. In turn, you’ll be able to more confidently improve workflows and align employee performance with strategic objectives.

Examples to consider

The right productivity metrics for any company vary depending on factors such as industry, mission and size. Nonetheless, here are some examples to consider:

Revenue per employee. This foundational metric equals total revenue divided by the average number of employees over a given period. It offers a quick snapshot of how efficiently the company converts labor into goods or services. A rising number signals increasing productivity, while a declining figure may indicate inefficiencies, such as operational bottlenecks, overstaffing or stagnant sales.

Output per hour worked. This metric goes a step further by dividing total output (in dollars or units) by total labor hours worked. It can highlight whether productivity issues are tied to work habits, staffing levels or operational processes.

Utilization rate. Many companies — particularly professional services firms — track this metric. It’s calculated by dividing billable or productive work hours by total available hours and multiplying by 100. Utilization rate contrasts with output per hour worked by measuring activity rather than results. Low rates may signal overstaffing or excessive administrative tasks.

Customer satisfaction scores. Sometimes considered a “soft” measure, these scores provide essential context. They’re typically derived from structured feedback and converted into quantifiable insights. While a team may produce high volumes of work, consistently low satisfaction scores can reveal underlying issues in service quality or communication. On the other hand, strong scores reflect a team that’s attentive, responsive and aligned with customer expectations — key traits of sustainable productivity.

Data in action

Choosing your productivity metrics is only the first step. The second is tracking them over time. The right interval depends on the metric. For example, revenue per employee and output per hour worked, which reflect broader operational efficiency, are typically best reviewed monthly or quarterly. Utilization rate may be worth tracking weekly because even small inefficiencies can add up quickly. And customer satisfaction scores often benefit from continuous tracking, which is then summarized monthly or quarterly for trend analysis.

The third and trickiest step is interpreting and acting on the data. For instance, suppose revenue per employee is flat while sales are growing. This might indicate the need to downsize or provide better onboarding and training to new hires. If you notice a decline in output per hour worked or utilization rate, you may want to reallocate workloads, streamline administrative duties or use artificial intelligence for repetitive tasks.

Now let’s say customer satisfaction scores drop — never a good thing. In this case, you could formally review communication processes and response times. And if you haven’t already, consider implementing customer relationship management software to better track interactions.

Consistency, technology and culture

Consistency is key. Track the same productivity metrics over carefully chosen periods to spot trends and measure operational impact. If you determine that any metric isn’t adequately insightful, you can make a change. But gather an adequate sample size.

Furthermore, leverage technology. For small businesses, simple spreadsheets may be adequate. However, don’t hesitate to explore more sophisticated solutions, such as digital dashboards and project management platforms.

Finally, productivity metrics are most effective when they’re part of a culture of accountability and high performance. Inform employees of what’s being measured and why. Stress that it’s not about surveillance; it’s about meeting strategic objectives. Integrate metrics into job reviews and team meetings.

Optimal approach

The optimal approach to productivity metrics combines strong quantitative data with objective observations and qualitative insight. To that end, contact FMD. We’d be happy to help you identify and calculate relevant metrics, analyze them in the context of your financial statements, and use the knowledge gained to make better business decisions.

5 Ways to Streamline Your Billing Process

When your business is growing, billing can easily fade into the background. After all, once invoices go out and payments come in, it may seem like everything’s running smoothly. But small inefficiencies and overlooked errors can quietly chip away at cash flow.

Regularly reviewing and improving your billing systems can help you collect faster, reduce errors and strengthen customer relationships. Here are five tips to help make your billing process more efficient and effective.

1. Identify and fix issues promptly

Billing errors delay payments and erode customer trust. Invoices with incorrect amounts, missed discounts or incomplete details can lead to disputes and slow down collections. The following steps can help reduce billing issues:

• Review invoices for accuracy before sending them,

• Confirm that customer contact and account information is current, and

• Track billing errors and complaints to identify recurring issues.

It’s equally important to address service or product issues quickly. Late deliveries, incomplete work or miscommunication can give customers an excuse not to pay on time. Encourage your team to resolve any billing or service concerns promptly — and request payment for any undisputed balances while settling disputed items.

2. Invoice faster and more consistently

Delays in billing lead directly to delays in cash inflows. If you’re waiting until the end of the month to send invoices, you’re giving up valuable days of cash flow. Consider tightening your invoicing cycle by:

• Sending invoices as soon as work is completed or products are shipped,

• Establishing clear payment terms that reflect industry standards and shortening them if appropriate, and

• Leveraging technology to automate recurring invoices, reminders and follow-ups.

If you haven’t already, move to electronic invoicing and online payment options. Digital systems make it easier for customers to pay and for you to track payments in real time.

3. Use automation to your advantage

Modern accounting and billing software can do more than send invoices — it can alert you to overdue accounts and apply late fees. Your software can also generate cash flow reports to help you identify trends and trouble spots.

Make sure your billing system integrates smoothly with your accounting platform. Schedule periodic reviews to ensure your software is still meeting your organization’s needs and is compliant with current tax and reporting requirements. Also, confirm that your systems maintain proper data security, user permissions and backup procedures, especially when storing customers’ financial information.

4. Establish clear policies and communication

Strong billing practices start with clear communication. Provide customers with written documentation about your pricing, payment terms, late-fee policies and credit arrangements. Internally, train your finance and accounting team to consistently enforce these policies.

When billing disputes arise, handle them quickly and professionally. Maintaining goodwill while enforcing your terms is a balancing act — but it’s essential for predictable cash flow. Consistent enforcement also supports audit readiness and strengthens your internal controls.

5. Focus on what you can control

Economic shifts, customer demand and market disruptions are beyond your control. But your billing process isn’t. By proactively monitoring how invoices are issued, tracked and collected, you can protect your cash flow and reduce stress on your operations.

We can help you review your current billing systems, identify inefficiencies and implement stronger accounting practices that support steady cash flow. Contact FMD to schedule a review and discover practical ways to simplify and accelerate your billing process.

4 Year-end Planning Steps to Trim Your 2025 Taxes

Now is the time of year when taxpayers search for last-minute moves to reduce their federal income tax liability. Adding to the complexity this year is the One Big Beautiful Bill Act (OBBBA), which significantly changes various tax laws. Here are some of the measures you can take now to reduce your 2025 taxes in light of the OBBBA.

1. Reevaluate the standard deduction

Taxpayers can choose to itemize certain deductions or take the standard deduction based on their filing status. Itemizing deductions saves tax if the total exceeds the standard deduction. The number of taxpayers who itemize dropped dramatically after the Tax Cuts and Jobs Act (TCJA) nearly doubled the standard deduction. The OBBBA increases it further. The standard deduction for 2025 is:

• $15,750 for single filers and married individuals filing separately,

• $23,625 for heads of households, and

• $31,500 for married couples filing jointly.

Taxpayers age 65 or older or blind are eligible for an additional standard deduction of $2,000 or, for joint filers, $1,600 per spouse age 65 or older or blind. (For taxpayers both 65 or older and blind, the additional deduction is doubled.)

But other OBBBA changes could make itemizing more beneficial. For example, if you’ve been claiming the standard deduction recently, the expanded state and local tax (SALT) deduction might cause your total itemized deductions to exceed your standard deduction for 2025. (See No. 2 below.) If it does, you might benefit from accelerating other itemized deductions into 2025. In addition to SALT, potential itemized deductions include:

• Qualified medical and dental expenses (to the extent that they exceed 7.5% of your adjusted gross income),

• Home mortgage interest (generally on up to $750,000 of home mortgage debt on a principal residence and a second residence),

• Casualty losses (from a federally declared disaster), and

• Charitable contributions (see No. 3 below).

Note, too, that higher earners will face a limit on their itemized deductions in 2026. The OBBBA effectively caps the value of itemized deductions for taxpayers in the highest tax bracket (37%) at 35 cents per dollar, compared with 37 cents per dollar this year. If you’re among that group, you may want to accelerate itemized deductions into 2025 to leverage the full value.

2. Maximize your SALT deduction

The OBBBA temporarily quadruples the so-called “SALT cap.” For 2025 through 2029, taxpayers who itemize can deduct up to $40,000 ($20,000 for separate filers), with 1% increases each subsequent year, meaning $40,400 in 2026 and so on. Deductible SALT expenses include property taxes (for homes, vehicles and boats) and either income tax or sales tax, but not both. The SALT cap is scheduled to return to the TCJA’s $10,000 cap ($5,000 for separate filers) beginning in 2030.

In the meantime, the temporary limit increase could substantially boost your tax savings, depending on your SALT expenses and your modified adjusted gross income (MAGI). The allowable deduction drops by 30% of the amount by which your MAGI exceeds a threshold of $500,000 ($250,000 for separate filers). When MAGI reaches $600,000 ($300,000 for separate filers), the $10,000 (or $5,000) cap applies.

If your 2025 SALT deductions exceed the old $10,000 cap but your total itemized deductions would still be under the standard deduction, “bunching” could help you make the most of the higher SALT cap. For example, if you receive your 2026 property tax bill before year end, you can pay it this year and deduct both your 2025 and 2026 property taxes in 2025. You might increase the deduction further by accelerating estimated state or local income tax payments into this year, if applicable. You could bunch other itemized deductions into 2025 as well. (See No. 1 above.)

In 2026, you’d go back to claiming the standard deduction. And then you’d repeat the bunching for the 2027 tax year and itemize that year.

3. Prepare for changes to charitable giving rules

Donating to charity is a valuable and flexible year-end tax planning tool. You can give as much or as little as you like. As long as the recipient is a qualified charity, you can properly substantiate the donation and you itemize, you’ll likely be able to claim a tax deduction. But beginning in 2026, the OBBBA imposes a 0.5% of adjusted gross income (AGI) “floor” on charitable contribution deductions.

The floor generally means that only charitable donations in excess of 0.5% of your AGI can be claimed as an itemized deduction. In other words, if your AGI for a tax year is $100,000, you can’t deduct the first $500 ($100,000 × 0.5%) of donations made that year.

So if you can afford it, you might want to bunch donations you’d normally make in 2026 into 2025 instead, so that you can avoid the new floor. (Bear in mind that a charitable deduction might nonetheless be more valuable next year if you’ll be in a higher tax bracket.)

One way to save even more taxes with your charitable donations is to give appreciated stock instead of cash. You can avoid the long-term capital gains tax you’d owe if you sold the stock and also claim a charitable deduction for the fair market value (FMV) of the shares.

On the other hand, if you don’t itemize, you may want to delay your 2025 charitable contributions until next year. Beginning in 2026, the OBBBA creates a permanent deduction for nonitemizers’ cash contributions, up to $1,000 for individuals and $2,000 for married couples filing jointly. Donations must be made to public charities, not foundations or donor-advised funds.

4. Manage your MAGI

MAGI is the trigger for certain additional taxes and the phaseouts of many tax breaks, including some of the newest deductions. For example, the OBBBA establishes a temporary “senior” deduction of $6,000 for taxpayers age 65 or older. This can be claimed in addition to either the standard deduction or itemized deductions. But the senior deduction begins to phase out when MAGI exceeds $75,000 ($150,000 for joint filers).

As discussed in No. 2, the enhanced SALT deduction is also subject to MAGI phaseouts. So, too, are the Child Tax Credit and the new temporary deductions for qualified tips, overtime pay and car loan interest. In terms of being a tax trigger, your MAGI plays a role in determining your liability for the 3.8% net investment income tax.

It can pay, therefore, to take steps to reduce your MAGI. For example, you might spread a Roth conversion over multiple years, rather than completing it in a single year. You can also max out your contributions to traditional retirement accounts and Health Savings Accounts.

If you’re age 70½ or older, qualified charitable distributions (QCDs) from your traditional IRA are another avenue for reducing your MAGI. While a charitable deduction can’t be claimed for QCDs, the amounts aren’t included in your MAGI and can be used to satisfy an IRA owner’s required minimum distribution (RMD), if applicable. This can be beneficial because charitable donation deductions (and other itemized deductions) don’t reduce MAGI and RMDs typically are included in MAGI.

Begin planning now

Don’t miss out on both new and traditional planning opportunities to reduce your 2025 taxes. The best strategies for you depend on your specific situation. FMD would be pleased to help you with your year-end tax planning.

Your Family Needs to know How to Access your Estate Planning Documents

Making sure your family will be able to locate your estate planning documents when needed is one of the most important parts of the estate planning process. Your carefully prepared will, trust or power of attorney will be useless if no one knows where to find it.

When loved ones are grieving or faced with urgent financial and medical decisions, not being able to locate key documents can create unnecessary stress, confusion and even legal complications. Here are some tips on how and where to store your estate planning documents.

Your signed, original will

There’s a common misconception that a photocopy of your signed last will and testament is sufficient. In fact, when it comes time to implement your plan, your family and representatives will need your signed original will. Typically, upon a person’s death, the original document must be filed with the county clerk and, if probate is required, with the probate court as well.

What happens if your original will isn’t found? It doesn’t necessarily mean that it won’t be given effect, but it can be a major — and costly — obstacle.

In many states, if your original will can’t be produced, there’s a presumption that you destroyed it with the intent to revoke it. Your family may be able to obtain a court order admitting a signed photocopy, especially if all interested parties agree that it reflects your wishes. But this can be a costly, time-consuming process. And if the copy isn’t accepted, the probate court will administer your estate as if you died without a will.

To avoid these issues, store your original will in a safe place and tell your family how to access it.

Storage options include:

• Leaving your original will with your accountant or attorney, or

• Storing your original will at home (or at the home of a family member) in a waterproof, fire-resistant safe, lockbox or file cabinet.

What about safe deposit boxes? Although this can be an option, you should check state law and bank policy to be sure that your family will be able to gain access without a court order. In many states, it can be difficult for loved ones to open your safe deposit box, even with a valid power of attorney. It may be preferable, therefore, to keep your original will at home or with a trusted advisor or family member.

If you do opt for a safe deposit box, it may be a good idea to open one jointly with your spouse or another family member. That way, the joint owner can immediately access the box in the event of your death or incapacity.

Other documents

Original trust documents should be kept in the same place as your original will. It’s also a good idea to make several copies. Unlike a will, it’s possible to use a photocopy of a trust. Plus, it’s useful to provide a copy to the person who’ll become trustee and to keep a copy to consult periodically to ensure that the trust continues to meet your needs.

For powers of attorney, living wills or health care directives, originals should be stored safely. But it’s also critical for these documents to be readily accessible in the event you become incapacitated.

Consider giving copies or duplicate originals to the people authorized to make decisions on your behalf. Also consider providing copies or duplicate originals of health care documents to your physicians to keep with your medical records.

Clear communication is key

Clearly communicating the location of your estate planning documents can help ensure your wishes are carried out promptly and accurately. Let your family, executor or trustee know where originals are stored and how to access them. Contact FMD for help ensuring your estate plan will achieve your goals.

Businesses should Review their Key Payroll Tax Responsibilities

As a business owner, you know that running payroll involves much more than just compensating employees. Every paycheck represents a complex web of tax obligations that your company must handle accurately and consistently.

Indeed, staying compliant with payroll tax rules is essential to maintaining your business’s reputation and avoiding costly penalties. That’s why it’s essential to regularly review your key payroll tax responsibilities to ensure nothing falls through the cracks.

Federal, state and local

Let’s start with the big ones. As you’re well aware, employers must withhold federal income tax from employees’ paychecks. The amount withheld from each person’s pay depends on two factors: 1) the wage amount, and 2) information provided on the employee’s Form W-4, “Employee’s Withholding Certificate.” Additional withholding rules may apply to commissions and other forms of compensation.

Be sure to stay apprised of your non-federal payroll tax obligations. State income tax withholding rules, for example, apply to many employers. However, nine states have no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

Certain localities also impose income taxes. And in some places, withholding is required to cover short-term disability, paid family leave or unemployment benefits.

FICA and FUTA

Many an accounting or HR staffer has had to repeatedly explain what these two abbreviations mean. The first one stands for the Federal Insurance Contributions Act (FICA). Under this law, payroll taxes consist of two individual taxes.

First is Social Security tax, which is 6.2% of wages up to an annually inflation-adjusted wage base limit. For 2025, that limit is $176,100 (up from $168,600 in 2024). Both the employee and employer pay 6.2% up to that amount, meaning the business withholds the employee’s share and contributes a matching amount for a total of 12.4%. The second is Medicare tax, which is 1.45% of all wages, with no wage base cap. Again, both the employee and employer pay the percentage for a total of 2.9%.

The other abbreviation stands for the Federal Unemployment Tax Act (FUTA). Under it, employers must pay 6% on the first $7,000 of each employee’s annual wages, before any credit. In many cases, if state unemployment taxes are paid fully and on time, the business can receive a credit of up to 5.4%, yielding an effective rate of 0.6%.

Be aware that certain states with outstanding federal unemployment-trust-fund loans may not qualify for the full credit, so employers could face higher effective FUTA rates in those jurisdictions. FUTA taxes are paid only by the employer, so you shouldn’t withhold them from employees’ wages.

Additional Medicare tax

This payroll tax often flies under the radar. Under a provision of the Affordable Care Act, an additional Medicare tax of 0.9% applies to employee wages above:

• $200,000 for single filers,

• $250,000 for married couples filing jointly, and

• $125,000 for married couples filing separately.

Only employees pay this tax. However, employers are responsible for withholding it once an employee’s wages exceed $200,000 — even if the employee ultimately may not owe it (for example, for joint filers).

State unemployment insurance

Every state also runs its own unemployment insurance program to provide benefits to eligible workers who are involuntarily terminated. State unemployment obligations vary widely in terms of wage base, rate and employer vs. employee contributions.

Generally, the rate employers must pay is based on their experience rating. The more claims made by former employees, the higher the tax rate. States update these rates annually.

Get stronger

Managing payroll taxes can be complex — especially as rates and rules may change from year to year. But you can confidently meet your compliance requirements with the right system, procedures, employees and professional guidance in place. We’d be happy to review your current approach, flag potential risks and recommend ways to strengthen your payroll tax processes. Contact FMD for more information.

Business Owners: You Don’t Need a Crystal Ball to see the Future, just Your CPA

Financial statements report historical financial performance. But sometimes management or external stakeholders want to evaluate how a business will perform in the future. Forward-looking estimates are critical when evaluating strategic decisions, such as debt and equity financing, capital improvement projects, shareholder buyouts, mergers, and reorganization plans. While company insiders may see the business through rose-colored glasses, external accountants can prepare prospective financial reports that are grounded in realistic, market-based assumptions.

3 reporting options

There are three types of reports to choose from when predicting future performance:

1. Forecasts. These prospective statements present an entity’s expected financial position, results of operations and cash flows. They’re based on assumptions about expected conditions and courses of action.

2. Projections. These statements are based on assumptions about conditions expected to exist and the course of action expected to be taken, given one or more hypothetical assumptions. Financial projections may test investment proposals or demonstrate a best-case scenario.

3. Budgets. Operating budgets are prepared in-house for internal purposes. They allocate money — usually revenue and expenses — for particular purposes over specified periods.

Although the terms “forecast” and “projection” are sometimes used interchangeably, there are important distinctions under the attestation standards set forth by the American Institute of Certified Public Accountants (AICPA).

Leverage your financials

Historical financial statements are often used to generate forecasts, projections and budgets. But accurate predictions usually require more work than simply multiplying last year’s operating results by a projected growth rate — especially over the long term.

For example, a start-up business may be growing 30% annually, but that rate is likely unsustainable over time. Plus, the business’s facilities and fixed assets may lack sufficient capacity to handle growth expectations. If so, management may need to add assets or fixed expenses to take the company to the next level.

Similarly, it may not make sense to assume that annual depreciation expense will reasonably approximate the need for future capital expenditures. Consider a tax-basis entity that has taken advantage of the expanded Section 179 and bonus depreciation deductions, which permit immediate expensing in the year qualifying fixed assets are purchased and placed in service. Because depreciation is so boosted by these tax incentives, this assumption may overstate depreciation and capital expenditures going forward.

Various external factors, such as changes in competition, product obsolescence and economic conditions, can affect future operations. So can events within a company. For example, new or divested product lines, recent asset purchases, in-process research and development, and outstanding litigation could all materially affect future financial results.

We can help

When preparing prospective financial statements, the underlying assumptions must be realistic and well thought out. Contact FMD for objective insights based on industry and market trends, rather than simplistic formulas, gut instinct and wishful thinking.

Don’t Forget to Include a Residuary Clause in Your Will

When creating a will, most people focus on the big-ticket items — including who gets the house, the car and specific family heirlooms. But one element that’s often overlooked is the residuary clause. This clause determines what happens to the remainder of your estate — the assets not specifically mentioned in your will. Without one, even a carefully planned estate can end up in legal limbo, causing unnecessary stress, expense and conflict for your loved ones.

Defining a residuary clause

A residuary clause is the part of your will that distributes the “residue” of your estate. This residue includes any assets left after specific bequests, debts, taxes and administrative costs have been paid. It might include forgotten bank accounts, newly acquired property or investments you didn’t specifically name in your will.

For example, if your will leaves your car to your son and your jewelry to your daughter but doesn’t mention your savings account, the funds in that account would fall into your estate’s residue. The residuary clause ensures those funds are distributed according to your wishes — often to a named individual, group of heirs or charitable organization.

Omitting a residuary clause

Failing to include a residuary clause can create serious problems. When assets aren’t covered by specific instructions in a will, they’re considered “intestate property.” This means those assets will be distributed according to state intestacy laws rather than your personal wishes. In some cases, this could result in distant relatives inheriting part of your estate or assets going to individuals you never intended to benefit.

Without a residuary clause, your executor or family members may also need to seek court intervention to determine how to handle the leftover property. This adds time, legal costs and emotional strain to an already difficult process.

Moreover, the absence of a residuary clause can lead to family disputes. When the law, rather than your will, determines who gets what, heirs may disagree over how to interpret your intentions. A simple clause could prevent these misunderstandings and preserve family harmony.

Adding flexibility to your plan

A key advantage of a residuary clause is added flexibility. Life circumstances change — new assets are acquired, accounts are opened or closed, and property values fluctuate.

If your will doesn’t specifically list every asset (and most don’t), a residuary clause acts as a safety net to ensure nothing is left out. It can even account for unexpected windfalls or proceeds from insurance or lawsuits that arise after your passing.

Providing extra peace of mind

Including a residuary clause in your will is one of the simplest ways to make sure your entire estate is handled according to your wishes. It helps avoid gaps in your estate plan, minimizes legal complications and ensures your executor can distribute your assets smoothly. Contact FMD for additional details. Ask your estate planning attorney to add a residuary clause to your will.

Writing an AI Governance Policy for Your Business

Artificial intelligence (AI) is changing the way businesses operate. Its capacity to gather and process data, as well as to mimic human interactions, offers remarkable potential to streamline operations and boost productivity.

But AI presents considerable challenges and concerns, too. With so many tools available, employees may inadvertently or purposely misuse the technology in ways that are unethical or even illegal. Compounding the problem is that many companies lack a formal AI governance policy.

Few in place

In August 2025, software platform provider Genesys released the results of an independent survey of 4,000 consumers and 1,600 enterprise customer experience and information technology (IT) leaders in more than 10 countries. It found that over a third (35%) of tech-leader respondents said their organizations have “little to no formal [AI] governance policies in place.”

This is a pointed problem, the survey notes, because many businesses are gearing up to deploy agentic AI. This is the latest iteration of the technology that can make decisions autonomously and act independently to achieve specific goals without depending on user commands or predefined inputs. The survey found that while 81% of tech leaders trust agentic AI with sensitive customer data, only 36% of consumers do.

7 steps to consider

Whether or not you’re eyeing agentic AI, its growing popularity is creating a trust-building imperative for today’s businesses. That’s why you should consider writing and implementing an AI governance policy.

Formally defined, an AI governance policy is a written framework that establishes how a company may use AI responsibly, transparently, ethically and legally. It outlines the decision-making processes, accountability measures, ethical standards and legal requirements that must guide the development, purchase and deployment of AI tools.

Creating an AI governance policy should be a collaborative effort involving your company’s leadership team, knowledgeable employees (such as IT staff) and professional advisors (such as a technology consultant and attorney). Here are seven steps your team should consider:

1. Audit usage. Identify where and how your business is using AI. For instance, do you use automated tools in marketing or when screening job applicants, auto-generated financial reports, or customer service chatbots? Inventory everything and note who’s using it, what data it relies on and which decisions it influences.

2. Assign ownership for AI oversight. This may mean appointing a small internal team or naming (or hiring) an AI compliance manager or executive. Your oversight team or compliance leader will be responsible for maintaining the policy, reviewing new tools and handling concerns that arise.

3. Establish core principles. Ground your policy in ethical and legal principles — such as fairness, transparency, accountability, privacy and safety. The policy should reflect your company’s mission, vision and values.

4. Set standards for data and vendor use. Include guidelines on how data used by AI tools is collected, stored and shared. Pay particular attention to intellectual property issues. If you use third-party vendors, define review and approval steps to verify that their systems meet your privacy and compliance standards.

5. Require human oversight. Clearly state that employees must remain in control of AI-assisted work. Human judgment should always be part of the process, including approving AI-generated content and reviewing automated financial reports.

6. Include a mandatory review-and-update clause. Schedule regular reviews — at least annually — to assess whether your policy remains relevant. This is especially important as innovations, such as agentic AI, come online and new regulations emerge.

7. Communicate with and train staff. Incorporate AI governance into onboarding for new employees and follow up with regular training and reminder sessions thereafter. Ask staff members to sign an acknowledgment that they’ve read the policy and perhaps another to confirm they’ve completed the required training. Encourage everyone to ask questions and report potential issues.

Financial impact

Writing an AI governance policy is just one part of preparing your business for the future. Understanding its financial impact is another. Let FMD help you analyze the costs, tax implications and return on investment of AI tools so you can make informed decisions that balance innovation with sound financial management and robust compliance practices.

What’s the Right Inventory Accounting Method for your Business?

Inventory is one of the most significant assets on a balance sheet for many businesses. If your business owns inventory, you have some flexibility in how it’s tracked and expensed under U.S. Generally Accepted Accounting Principles (GAAP). The method you use to report inventory can have a dramatic impact on your bottom line, tax obligations and financial ratios. Let’s review the rules and explore your options.

The basics

Inventory varies depending on a business’s operations. Retailers may have merchandise available for sale, while manufacturers and contractors may have materials, work in progress and finished goods.

Under Accounting Standards Codification Topic 330, you must generally record inventory when it’s received and the title (or the risks and rewards of ownership) transfers to your company. Then, it moves to cost of goods sold when the product ships and the title (or the risks and rewards of ownership) transfers to the customer.

4 key methods

While inventory is in your possession, you can apply different accounting methods that will affect its value on your company’s balance sheet. When inventory is sold, your reporting method also impacts the costs of goods sold reported on your income statement. Four common methods for reporting inventory under GAAP are:

1. First-in, first-out (FIFO). Under this method, the first items entered into inventory are the first ones presumed sold. In an inflationary environment, units purchased earlier are generally less expensive than items purchased later. As a result, applying the FIFO method will generally cause a company to report lower expenses for items sold, leaving higher-cost items on the balance sheet. In short, this method enhances pretax profits and balance sheet values, but it can have adverse tax consequences (because you report higher taxable income).

2. Last-in, first-out method (LIFO). Here, the last items entered are the first presumed sold. In an inflationary environment, units purchased later are generally more expensive than items purchased earlier. As a result, applying the LIFO method will generally cause a company to report higher expenses for items sold, leaving lower-cost items on the balance sheet. In short, this method may defer tax obligations, but its effects on pretax profits and balance sheet values may raise a red flag to lenders and investors.

Under the LIFO conformity rule, if you use this method for tax purposes, you must also use it for financial reporting. It’s also important to note that the tax benefits of using this method may diminish if the company reduces its inventory levels. When that happens, the company may start expensing older, less expensive cost layers.

3. Weighted-average cost. Some companies use this method to smooth cost fluctuations associated with LIFO and FIFO. It assigns a weighted-average cost to all units available for sale during a period, producing a consistent per-unit cost. It’s common not only for commodities but also for manufacturers, distributors and retailers that handle large volumes of similar or interchangeable products.

4. Specific identification. When a company’s inventory is one of a kind, such as artwork, luxury automobiles or custom homes, it may be appropriate to use the specific identification method. Here, each item is reported at historic cost, and that amount is generally carried on the books until the specific item is sold. However, a write-off may be required if an item’s market value falls below its carrying value. And once inventory has been written down, GAAP prohibits reversal of the adjustment.

Under GAAP, inventory is valued at the lower of 1) cost, or 2) net realizable value or market value, depending on the method you choose.

Choosing a method for your business

Each inventory reporting method has pros and cons. Factors to consider include the type of inventory you carry, cost volatility, industry accounting conventions, and the sophistication of your bookkeeping personnel and software.

Also evaluate how each method will affect your financial ratios. Lenders and investors often monitor performance based on profitability, liquidity and asset management ratios. For instance, if you’re comparing LIFO to FIFO, the latter will boost your pretax profits and make your balance sheet appear stronger — but you’ll lose out on the tax benefits, which could strain your cash flow. The weighted-average cost method might smooth out your profitability, but it might not be appropriate for the types of products you sell. The specific identification method may provide the most accurate insight into a company’s profitability, but it’s reserved primarily for easily identifiable inventory.

Whatever inventory accounting method you select must be applied consistently and disclosed in your financial statements. A change in method is treated as a change in accounting principle under GAAP, requiring justification, disclosure and, if material, retrospective application.

We can help

Choosing the optimal inventory accounting method affects more than bookkeeping — it influences tax obligations, cash flow and stakeholders’ perception of your business. Contact FMD for help evaluating your options strategically and ensuring your methods are clearly disclosed.

What do the 2026 Cost-of-Living Adjustment Numbers Mean for You?

The IRS recently issued its 2026 cost-of-living adjustments for more than 60 tax provisions. The One Big Beautiful Bill Act (OBBBA) makes permanent or amends many provisions of the Tax Cuts and Jobs Act (TCJA). It also makes permanent most TCJA changes to various deductions and makes new changes to some deductions. OBBBA-affected changes have been noted throughout.

As you implement 2025 year-end tax planning strategies, be sure to take these 2026 numbers into account.

Individual income tax rates

Tax-bracket thresholds increase for each filing status, but because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket will increase by $475–$950, depending on filing status, but the top of the 35% bracket will increase by $8,550–$17,100, depending on filing status.

2026 ordinary-income tax brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
10%	$0 – $12,400	$0 – $17,700	$0 – $24,800	$0 – $12,400
12%	$12,401 –   $50,400	$17,701 – $67,450	$24,801 – $100,800	$12,401 – $50,400
22%	$50,401 – $105,700	$67,451 – $105,700	$100,801 – $211,400	$50,401 – $105,700
24%	$105,701 – $201,775	$105,701 – $201,750	$211,401 – $403,550	$105,701 – $201,775
32%	$201,776 – $256,225	$201,751 – $256,200	$403,551 – $512,450	$201,776 – $256,225
35%	$256,226 – $640,600	$256,201 – $640,600	$512,451 – $768,700	$256,226 – $384,350
37%	Over $640,600	Over $640,600	Over $768,700	Over $384,350

Note that the OBBBA makes the rates and brackets permanent. The income tax brackets will continue to be annually indexed for inflation.

Standard deduction

The OBBBA makes permanent and slightly increases the TCJA’s nearly doubled standard deduction for each filing status. The amounts will continue to be annually adjusted for inflation.

In 2026, the standard deduction will be $32,200 for married couples filing jointly, $24,150 for heads of households, and $16,100 for singles and married couples filing separately.

Long-term capital gains rate

The long-term gains rate applies to realized gains on investments held for more than 12 months. For most types of assets, the rate is 0%, 15% or 20%, depending on your income. While the 0% rate applies to most income that would be taxed at 12% or less based on the taxpayer’s ordinary-income rate, the top long-term gains rate of 20% kicks in before the top ordinary-income rate does.

2026 long-term capital gains brackets*
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
0%	$0 – $49,450	$0 – $66,200	$0 – $98,900	$0 – $49,450
15%	$49,451 – $545,500	$66,201 – $579,600	$98,901 – $613,700	$49,451 – $306,850
20%	Over $545,500	Over $579,600	Over $613,700	Over $306,850

* Higher rates apply to certain types of assets.

AMT

The alternative minimum tax (AMT) is a separate tax system that limits some deductions, doesn’t permit others and treats certain income items differently. If your AMT liability exceeds your regular tax liability, you must pay the AMT.

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. In 2026, the threshold for the 28% bracket will increase by $5,400 for all filing statuses except married filing separately, which will increase by half that amount.

2026 AMT brackets
Tax rate	Single	Head of household	Married filing jointly or surviving spouse	Married filing separately
26%	$0 – $244,500	$0 – $244,500	$0 – $244,500	$0 – $122,250
28%	Over $244,500	Over $244,500	Over $244,500	Over $122,250

The AMT exemption amounts were significantly increased under the TCJA. The OBBBA makes the higher exemptions permanent, continuing to index them for inflation. The exemption amounts in 2026 will be $90,100 for singles and heads of households, and $140,200 for joint filers, increasing by $2,000 and $3,200, respectively, over 2025 amounts.

The AMT exemption phases out over certain income ranges. It’s completely phased out if AMT income exceeds the top of the applicable range.

Under the OBBBA, the income thresholds for the phaseout revert to their 2018 levels for 2026 (i.e., removing the inflation adjustments that had been made for 2019–2025) and then will be annually adjusted for inflation again in subsequent years. Also, the OBBBA phases out the exemption twice as quickly beginning in 2026.

So, the exemption phaseout ranges in 2026 will be $500,000–$680,200 for singles and $1,000,000–$1,280,400 for joint filers. These are significantly lower than the 2025 ranges of $626,350–$978,750 and $1,252,700–$1,800,700, respectively.

Amounts for married couples filing separately are half of those for joint filers.

Child-related breaks

Certain child-related breaks are annually adjusted for inflation but don’t necessarily go up every year. In addition, these breaks are limited based on a taxpayer’s modified adjusted gross income (MAGI). Taxpayers whose MAGIs are within an applicable phaseout range are eligible for a partial break — and breaks are eliminated for those whose MAGIs exceed the top of the range.

Here are the 2026 figures for two important child-related breaks:

The Child Tax Credit. The OBBBA makes permanent the TCJA’s $2,000 per qualifying child credit amount, plus it increases it to $2,200 for 2025. The OBBBA also adjusts the credit annually for inflation starting in 2026. However, because inflation is relatively low and the dollar amount of the credit is relatively small, the credit will remain at $2,200 for 2026. The OBBBA also makes permanent the annual inflation adjustment to the limit on the refundable portion of the credit, but, again, there’s no increase for 2026. The refundable portion will remain at $1,700.

Beware that the Child Tax Credit phases out for higher-income taxpayers, and the phaseout thresholds aren’t inflation-indexed. Under the OBBBA, they’re permanently $200,000 for singles and heads of households, and $400,000 for married couples filing jointly.

The adoption credit. The MAGI phaseout range for eligible taxpayers adopting a child will increase in 2026 — by $5,890. It will be $265,080–$305,080 for joint, head of household and single filers. The maximum credit will increase by $390, to $17,670 in 2026. Under the OBBBA, a portion of the credit is refundable, and that portion is annually indexed. For 2026, the refundable portion is $5,120 (up from $5,000 for 2025).

Gift and estate taxes

The unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption had been scheduled to return to an inflation-adjusted $5 million in 2026. But the OBBBA permanently increases both exemption amounts to $15 million for 2026 and annually indexes the amount for inflation after that.

The annual gift tax exclusion in 2026 remains the same as the 2025 amount: $19,000 per giver per recipient.

2026 cost-of-living adjustments and tax planning

With many of the 2026 cost-of-living adjustment amounts trending higher, you may have an opportunity to realize some tax relief next year. However, beware that some taxpayers might be at greater AMT risk because of the reductions to the exemption phaseout ranges. If you have questions on the best tax-saving strategies to implement based on the 2026 numbers, please contact FMD.

Beware the Pitfalls of DIY Estate Planning

A do-it-yourself (DIY) estate plan may seem appealing to those who feel confident managing their own affairs and want to save money. With the abundance of online templates and legal software, it’s easier than ever to draft a will, establish powers of attorney or create a trust without professional help. However, there are significant drawbacks to consider.

Online tools vs. professional guidance

Estate planning is a legal matter, and small mistakes can result in major unintended consequences. Errors in wording, missing signatures or failure to meet state-specific requirements can render documents invalid or lead to disputes among heirs.

DIY tools often provide limited customization, which can be problematic for blended families, business owners or those with special needs beneficiaries. Additionally, these online platforms can’t provide personalized advice or foresee complex tax implications the way experienced estate planning attorneys and tax professionals can.

Although online tools can help you create individual documents — the good ones can even help you comply with applicable laws, such as ensuring the right number of witnesses to your will — they can’t help you create an estate plan. Putting together a plan means determining your objectives and coordinating a collection of carefully drafted documents designed to achieve those objectives. And in most cases, that requires professional guidance.

For example, let’s suppose Anna’s estate consists of a home valued at $1 million and an investment account with a $1 million balance. She uses a DIY tool to create a will that leaves the home to her son and the investment account to her daughter. On the surface, this seems like a fair arrangement. But suppose that by the time Anna dies, she’s sold the home and invested the proceeds in her investment account. Unless she amended her will, she’ll have inadvertently disinherited her son.

An experienced estate planning advisor would have anticipated such contingencies and ensured that Anna’s plan treated both children fairly, regardless of the specific assets in her estate.

DIY tools also fall short when a decision demands a professional’s experience rather than mere technical expertise. Online tools make it easy to name a guardian for your minor children, for example, but they can’t help you evaluate the many characteristics and factors that go into selecting the best candidate.

Don’t try this at home

Ultimately, while a DIY estate plan may be better than having no plan at all, it carries considerable risks. Professional guidance ensures your wishes are properly documented and legally sound, reducing the likelihood of costly mistakes or family conflicts. For most people, consulting a qualified estate planning advisor, including an attorney and a CPA who understands estate tax law, is a worthwhile investment in protecting one’s legacy and loved ones’ peace of mind.

Fundamental Building Blocks of an Employee Wellness Program

In a business context, a wellness program is an employer-sponsored initiative designed to promote employees’ physical, mental and emotional well-being. These programs can take many forms, but their underlying goal is generally the same: to foster a healthier, more productive workplace.

A well-structured wellness program can also help companies manage health care benefits costs, reduce absenteeism, improve employee retention and enhance company culture. Whether your business has a program in place or is considering rolling one out, here are some fundamental building blocks to help ensure your approach is effective, practical and sustainable.

Straightforward design

Imagine a company introducing its new employee wellness program with an email that reads, “Welcome aboard! Attached is a 200-page guide, featuring a complex point system that will determine whether you qualify for incentives and a lengthy glossary of medical terminology.”

See the problem? The quickest way to derail participation is by overcomplicating the rollout. Granted, any type of wellness program will inevitably have a learning curve. But the simpler the design, the easier it will be to explain and implement. Remember that you can update and increase a program’s complexity as it becomes more ingrained in your business’s culture.

Clear communication

Strong program communication is also paramount. Write, format and organize materials clearly and concisely. Be creative with the design and language to capture employees’ interest. Just keep in mind that the content must be sensitive to the fact that the program addresses inherently personal issues of health and well-being.

If you don’t have anyone in-house who can handle these criteria, consider engaging a consultant. In addition, ask your attorney to review all program materials for compliance purposes.

Well-vetted vendors

For most companies, outside vendors provide the bulk of wellness program services and activities. These may include:

• Seminars on healthy life and work habits,

• Smoking cessation workshops,

• Fitness coaching,

• Healthful food options in the break room and cafeteria, and

• Runs, walks or other friendly competitive or charitable events.

It’s critical to thoroughly vet providers and engage only those that are skilled and qualified. Neglecting to do so could mean that, even if you create and communicate a solid program, it will likely fail once employees show up to participate and are disappointed by the experience. Quality partnerships build credibility — and lasting engagement.

A strategic investment

Developing a wellness program may be a wise decision for both your employees and business. If you’re just getting started, build it on the fundamentals mentioned. And if you already have a program up and running, closely monitor participation and outcomes so you can make informed adjustments that enhance its long-term value. FMD would be happy to help you establish a realistic budget, identify potential tax advantages and measure the financial return on your investment.

3 Tips to Streamline your Accounting Processes

Whether you operate a for-profit business or a not-for-profit organization, strong accounting practices are essential for maintaining financial health and making informed decisions. These include creating budgets, monitoring results, preparing accurate financial statements, and complying with tax and payroll requirements. Over time, even efficient systems can become outdated or inconsistent. Here are three simple ways to enhance your accounting function and keep operations running smoothly.

1. Review and reconcile

Management oversight is a critical component of internal controls over financial reporting. Start by ensuring that whoever oversees your finances — such as your CFO, controller or bookkeeper — regularly reviews monthly bank statements and financial reports for errors and unusual activity. Quick reviews can prevent minor discrepancies from turning into major issues later.

It’s also smart to establish clear policies for month-end cutoffs. Require all vendor invoices and expense reports to be submitted within a set period (for example, one week after month end). Delayed submissions and repeated adjustments can waste time and postpone financial reporting.

Don’t wait to reconcile balance sheet accounts until year end. Doing it monthly can save time and reduce stress. It’s much easier to fix mistakes when you catch them early. Be sure to reconcile accounts payable and accounts receivable subsidiary ledgers to your balance sheet to maintain accuracy and visibility.

2. Standardize workflows

Designing a standardized invoice coding sheet or digital approval process can improve accuracy and speed. Accounting staff often need key details, such as general ledger codes, cost centers and approval signatures, to process payments efficiently. A simple cover sheet, approval stamp or electronic workflow helps capture all this information in one place.

Include a section for the appropriate manager’s approval and multiple-choice boxes for expense allocation to departments, projects or programs. Always document payment details for reference and audit purposes.

Another tip: Batch your work. Instead of entering or paying each invoice as it comes in, set aside dedicated blocks to process multiple items at once. This saves time and reduces task-switching inefficiency.

3. Leverage accounting software

Many organizations underuse their accounting software because they haven’t explored its full capabilities. Consider bringing in a trainer or consultant to help your team unlock automation features, shortcuts and reporting tools that can save time and reduce errors.

Standardize the financial reports generated by your system so they meet your needs without manual modification. This improves data consistency and provides real-time insight, not just end-of-month visibility.

Also, automate recurring journal entries and payroll allocations when possible. Most accounting systems allow you to set up automatic postings for regular expenses, payroll distributions and accruals. Just remember to review estimates against actual figures periodically and make any necessary adjustments before closing your books.

Small improvements can make a big difference

Accounting practices are continuously changing due to advances in automation, cloud-based systems and AI-driven analytics. Review your workflows regularly to identify steps that could be automated or eliminated if they don’t add real value. Not sure where to start? Contact FMD to review your systems and brainstorm practical ideas to modernize your accounting function, enhance efficiency and improve financial oversight.

Does your Estate Plan Include a Financial Power of Attorney?

Your estate planning goals likely revolve around your family, including both current and future generations. But don’t forget to take yourself into consideration. What if you become incapacitated and are unable to make financial decisions? A crucial component to include in your estate plan is a financial power of attorney (POA).

What’s a financial POA?

Without a POA, if you become incapacitated because of an accident or illness, your loved ones won’t be able to manage your finances without going through the lengthy and expensive process of petitioning the court for guardianship or conservatorship. Executing a financial POA, also known as a POA for property, protects your family from having to go through this process and helps ensure financial decisions and tasks won’t fall through the cracks.

This document appoints a trusted representative (often called an “agent”) to make financial decisions on your behalf. It authorizes your agent to manage your investments, pay your bills, file tax returns and otherwise handle your finances, within the limits you set.

Differences between springing and durable POAs

One important decision you’ll need to make is whether your POA should be “springing” — effective when certain conditions are met — or nonspringing (also known as “durable”), which is effective immediately.

A springing POA activates under certain conditions, typically when you become incapacitated and can no longer act for yourself. In most cases, to act on your behalf, your agent must present a financial institution or other third party with the POA as well as a written certification from a licensed physician stating that you’re unable to manage your financial affairs.

While a springing POA lets you retain full control over your finances while you’re able, a durable POA offers some distinct advantages:

• It takes effect immediately, allowing your agent to act on your behalf for your convenience, not just when you’re incapacitated.

• If you do become incapacitated, it allows your agent to act quickly on your behalf to handle urgent financial matters without the need for a physician to certify that you’ve become incapacitated. With a springing POA, the physician certification requirement can lead to delays, disputes or even litigation at a time when quick, decisive action is critical.

• It may also be advantageous for elderly individuals who are mentally capable of handling their affairs but prefer to have assistance.

Durable POAs have one potential disadvantage that must be considered: You might be uncomfortable with a POA that takes effect immediately because you’re concerned that your agent may be tempted to abuse his or her authority. However, if you can’t fully trust someone with an immediate POA, it’s even riskier to rely on that person when you’re incapacitated and unable to protect yourself.

In light of the advantages of durable POAs and the potential delays caused by springing POAs, consider granting a durable POA to someone you trust completely, such as your spouse or one of your children. If you’d like added security, you could ask your attorney or another trusted advisor to hold the durable POA and deliver it to the designated agent only when you instruct them to do so or you become incapacitated.

Revisit and update your POAs

A critical estate planning companion to a financial POA is a health care POA (also known as a health care proxy). It gives a trusted person the power to make health care decisions for you. To ensure that your financial and health care wishes are carried out, consider preparing and signing both types of POA as soon as possible.

Also, don’t forget to let your family know how to gain access to the POAs in case of an emergency. Finally, financial institutions and health care providers may be reluctant to honor a POA that was executed years or decades earlier. So, it’s a good idea to sign new POAs periodically. Contact FMD with any questions regarding POAs.

2025 State of Michigan Income Tax Law Changes

By Christine LaTour, fmd@fmdcpas.com

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On October 7, 2025, Governor Gretchen Whitmer signed the State of Michigan Budget for the 2025 – 2026 fiscal year.  As part of the Budget agreement with the legislature, the State of Michigan issued 2025-PA24.  The Act officially decouples Michigan Income Tax Law from the  Internal Revenue Code, effective December 31, 2024.  This is the first time since the 1967 Michigan Tax Code was established that the State of Michigan will not follow the current federal income tax law. 

Under the new tax law, various deductions allowed under the One Big Beautiful Bill Act (OBBBA) that was signed on July 4, 2025, will not be allowed in calculating Michigan income taxes.  Other deductions defined in the OBBBA will also be allowed for State of Michigan Income Tax purposes.  The deductions affected include:

Bonus Depreciation

100 % Bonus depreciation, allowed under the OBBBA, will not be allowed for State of Michigan Income Tax purposes for assets purchased on or after January 20, 2025.  Instead, Michigan will only allow 40% Bonus depreciation for all 2025 asset purchases. Michigan's allowable bonus depreciation will continue to phase out over the following two years, meaning only 20% bonus depreciation is available for 2026 asset purchases, and 0% bonus depreciation for 2027 asset purchases.  

Section 179 Expense

For 2025, the OBBBA allows businesses to deduct up to $2.5 million in asset purchases for federal income tax purposes.  For State of Michigan Income Tax purposes, the expense deduction limitation will remain at the 2024 limit of $1,220,000. The spending limitation for 2024 of $3,050,000 will also remain in effect. Both of these limits will continue to be indexed for inflation per the Federal tax code in effect as of December 31, 2024.

Research and Development Expenses

Under the OBBBA, businesses will be eligible to immediately expense Research and Development Expenses for federal income tax purposes.  Businesses will NOT be allowed to immediately expense these costs for State of Michigan income tax purposes.  Instead, all Research and Development Expenses must continue to be capitalized and amortized over a 5-year period per the Federal tax code in effect as of December 31, 2024.

Interest Expense Limitation

Interest expense limitations required under the 2024 federal rules will continue to be applied for State of Michigan income tax purposes in 2025.  These rules were amended by OBBBA to again allow an addback to taxable income for depreciation, amortization, and depletion as previously allowed in 2021. Michigan will not allow these addbacks, and therefore, 163j limitations will have to be calculated independently for both Federal and Michigan income tax. 

Qualified TIPS

For 2025 through 2029, the State of Michigan will allow a deduction for Qualified TIPS deducted for federal income tax purposes as created under the OBBBA.

Qualified Over-time Wages

For 2025 through 2029, the State of Michigan will allow a deduction for Qualified Overtime wages deducted for federal income tax purposes as created under the OBBBA.

MI Flow Through Entity Tax

Taxpayers who have elected into the MI Flow Through Entity Tax regime should review their tax estimates for 2025, and potentially increase their Q4 estimate if they were planning on deducting the additional expenses listed above under the OBBBA for federal income tax purposes.  These deductions must be added back before calculating the tax due under the MI Flow Through Entity Tax Regime, and could substantially increase the tax due for 2025.

Time to reassess

Corporations, sole proprietors, and owners of pass-through businesses will be affected by the above rule changes.  Given all of these and other federal tax law changes, now is a good time to review your tax situation and update your tax planning strategies. Turn to us to help you take full advantage of the new — or reduced— tax breaks.

Why Start-ups should Consider Launching as S corporations

Launching a new business brings tough decisions. And that holds true whether you’re a fledgling entrepreneur starting your first company or an experienced businessperson expanding into a second or third enterprise.

Among the most important calls you’ll need to make is how to structure the start-up for tax purposes. For many business owners, electing S corporation status is a savvy move. But it’s not right for everyone. Here are some important points to consider before you decide.

What’s it all about?

An S corporation is a tax election available only to certain U.S. companies. To make the election, you’ll need to file IRS Form 2553, “Election by a Small Business Corporation,” typically within 75 days of forming the business or the start of the tax year to which you want the election to apply.

If you elect S corporation status, the IRS will treat your start-up as a “pass-through” entity. This means the business generally won’t pay federal income taxes. Instead, profits and losses will pass through to your individual tax return and those of other shareholders.

As a result, you’ll avoid the “double taxation” faced by shareholders of C corporations — whereby the company pays taxes on the business’s income and then shareholders pay tax on any dividends received. In addition, S corporation shareholders may be eligible for the Section 199A qualified business income deduction for pass-through entity owners. It was recently made permanent under the One Big Beautiful Bill Act.

Which businesses qualify?

IRS rules limit which companies can elect S corporation status. To qualify, your start-up must:

• Be an eligible domestic corporation or limited liability company (LLC),

• Have no more than 100 shareholders who must be U.S. citizens or residents (certain trusts and estates may also be eligible), and

• Offer only one class of stock.

Insurance companies, financial institutions using the reserve method of accounting and domestic international sales corporations are generally ineligible.

Why do it?

As mentioned above, the main advantage of electing S corporation vs. C corporation status is avoiding double taxation. But there are other reasons to do it.

For example, many start-ups incur losses in their first few years. S corporation status allows owners to offset other income with those losses, a tax benefit that’s unavailable to C corporation shareholders.

S corporations also have advantages over other types of pass-through entities. Generally, all trade or business income that flows through to sole proprietors and partners in partnerships is subject to self-employment taxes — even if the income isn’t actually distributed to the owners. S corporations can divide their income into shareholder-employee salaries and distributions. The salary portion is subject to payroll taxes, but distributions aren’t. So, by drawing a smaller salary (but one that’s reasonable in the eyes of the IRS) and taking the remainder as distributions, S corporation shareholder-employees can reduce their overall tax burden.

Liability protection is another advantage S corporations have over sole proprietorships and partnerships. S corporation status shields shareholders’ personal assets from business debts and legal claims, provided applicable rules are followed. Operating as an S corporation can also make your new business appear more credible to lenders, investors and customers because of its formalized, protective framework.

What are the drawbacks?

Electing to be treated as an S corporation has its drawbacks. Your start-up will have to follow strict IRS rules, which include keeping up with filing requirements and maintaining accurate financial records. Failure to comply could lead to back taxes, interest and penalties. It could even mean losing your S corporation status in a worst-case scenario.

Indeed, S corporations tend to incur higher administrative expenses than other pass-through entities. You’ll need to file corporate tax returns and meet state-level requirements. The extra complexity may outweigh the tax advantages — especially for newly launched companies with little to no profits.

Finally, it bears repeating: Although the salary/distributions income-splitting strategy mentioned above is advantageous, it can draw IRS scrutiny. Paying shareholder-employees an unreasonably low salary to avoid payroll taxes could trigger an audit with negative consequences.

Who can help?

Congratulations and best wishes on your forthcoming start-up! Electing S corporation status may be the right way to go. However, you’ll need to assess a wide variety of factors, including projected profits, the number of shareholders and your comfort level with the administrative requirements.

Before you do anything, contact us. FMD can help you evaluate whether operating as an S corporation aligns with your strategic and financial goals. If it does, we’d be happy to assist you with the filing process and compliance going forward.

Feeling Charitable? Be Sure you can Substantiate Your Gifts

As the end of the year approaches, many people give more thought to supporting their favorite charities. If you’re charitably inclined and you itemize deductions, you may be entitled to deduct your charitable donations. Note that the key word here is “may” because there are certain limitations and requirements your donations must meet.

To be eligible to claim valuable charitable deductions, you must substantiate your gifts with specific documentation. Here’s a breakdown of the rules.

Cash donations

Cash donations of any amount must be supported by one of two types of documents that display the charity’s name, the contribution date and the amount:

1. Bank records. These can include bank statements, electronic fund transfer receipts, canceled checks (including scanned images of both sides of a check from the bank’s website) or credit card statements.

2. Written communication. This can be in the form of a letter or email from the charity. A blank pledge card furnished by the charity isn’t sufficient.

In addition to the above, cash donations of $250 or more require a contemporaneous written acknowledgement (CWA) from the charity that details the following:

• The contribution amount, and

• A description and good faith estimate of the value of any goods or services provided in consideration (in whole or in part) for the donation.

A single document can meet both the written communication and CWA requirements. For the CWA to be “contemporaneous,” you must obtain it by the earlier of 1) the extended due date of your tax return for the year the donation is made, or 2) the date you file your return.

If you make charitable donations via payroll deductions, you can substantiate them with a combination of an employer-provided document — such as Form W-2 or a pay stub — that shows the amount withheld and paid to the charity, and a pledge card or similar document prepared by or at the direction of the charity showing the charity’s name.

For a donation of $250 or more by payroll deduction, the pledge card or other document must also state that the charity doesn’t provide any goods or services in consideration for the donation.

Noncash donations

If your noncash donation is less than $250, you can substantiate it with a receipt from the charity showing the charity’s name and address, the date of the contribution, and a detailed description of the property. For noncash donations of $250 or more, there are additional substantiation requirements, depending on the size of the donation:

• Donations of $250 to $500 require a CWA.

• Donations over $500, but not more than $5,000, require a CWA and you must complete Section A of Form 8283 and file it with your tax return. Section A includes a description of the property, its fair market value and the method of determining that value.

• Donations over $5,000 require all the above, plus you must obtain a qualified appraisal of the property and file Section B of Form 8283 (signed by the appraiser and the charity). There may be additional requirements in certain situations. For instance, if you donate art of $20,000 or more, or if any donation is valued over $500,000, you must attach a copy of the appraisal to your return. Note: No appraisal is required for donations of publicly traded securities.

Additional rules may apply for certain types of property, such as vehicles, clothing and household items, and privately held securities.

Charitable giving in 2026

Generally, charitable donations to qualified organizations are fully deductible up to certain adjusted gross income (AGI)-based limits if you itemize deductions. The One Big Beautiful Bill Act (OBBBA) creates a nonitemizer charitable deduction of up to $1,000, or $2,000 for joint filers, which goes into effect in 2026. Only cash donations qualify.

Also beginning in 2026, a 0.5% floor will apply to itemized charitable deductions. This generally means that only charitable donations in excess of 0.5% of your AGI will be deductible if you itemize deductions. So, if your AGI is $100,000, your first $500 of charitable donations for the year won’t be deductible. Contact us for help developing a charitable giving strategy that aligns with the new rules under the OBBBA and times your gifts for maximum impact.

Make charitable gifts for the right reasons

For most people, saving taxes isn’t the primary motivator for making charitable donations. However, it may affect the amount you can afford to give. Substantiate your donations to ensure you can claim the deductions you deserve. If you’re unsure whether you’ve properly substantiated your charitable donation, contact FMD.

Year-end Budgeting: Where to Look for Cost-Saving Opportunities

As 2025 winds down, business owners and managers are ramping up their planning efforts for the new year. Part of the annual budgeting process is identifying ways to lower expenses and strengthen cash flow. When cutting costs, think beyond the obvious, such as wages, benefits and employee headcount. These cutbacks can make it harder to attract and retain skilled workers in today’s challenging labor market, potentially compromising work quality and productivity. Here are three creative ideas to help boost your company’s bottom line — without sacrificing its top line.

1. Analyze your vendors

Many companies find that just a few suppliers account for most of their spending. Identify your key vendors and consolidate spending with them. Doing so can strengthen your position to negotiate volume discounts. Consolidating your supplier base also helps streamline the administrative work associated with purchasing.

Early payment discounts can be another cost-saving opportunity. Some vendors may offer a discount (typically, 2% to 5%) to customers who pay invoices before they’re due. These discounts can provide significant savings over the long run. But you’ll need to have enough cash on hand to take advantage.

On a related note, how well do you know your suppliers? Consider conducting a supplier audit. This is a formal process for collecting key data points regarding a supplier’s performance. It can help you manage quality control and ensure you’re getting an acceptable return on investment.

2. Cut energy consumption

Going green isn’t just good for the environment. Under the right circumstances, it can save you money, too. For instance, research energy-efficient HVAC and lighting systems, equipment, and vehicles. Naturally, investing in such upgrades will cost money initially. But you may be able to lower energy costs over the long term.

What’s more, you might qualify for tax credits for installing certain items. However, pay attention to when green tax breaks are scheduled to expire. The One Big Beautiful Bill Act, enacted in July, accelerates the expiration of several clean energy tax incentives available under the Inflation Reduction Act.

3. Consider outsourcing

Businesses might try to cut costs by doing everything in-house — from accounting to payroll to HR. However, without adequate staffing and expertise, these companies often suffer losses because of mistakes and mismanagement.

External providers typically have specialized expertise and tools that are costly to replicate internally. For example, many organizations outsource payroll management, which requires an in-depth understanding of evolving labor laws and payroll tax rates. Outsourcing payroll can help reduce errors, save software costs and relieve headaches for your staff. Other services to consider outsourcing include administrative work, billing and collections, IT, and bookkeeping.

Outsourcing is often less expensive than performing these tasks in-house, especially when you factor in employee benefits costs. But you shouldn’t sacrifice quality or convenience. Vet external providers carefully to ensure you’ll receive the expertise, attention to detail and accuracy your situation requires.

Every dollar counts

As you finalize next year’s budget, treat cost control as a strategic exercise — not a blunt cut. Let’s discuss ways to prioritize cost-cutting measures with the biggest payback. We can help you model cash-flow impacts, verify tax treatment and incentives, and evaluate outsourcing options. Contact FMD to learn more.