2 Retirement Plans for Small Businesses with Lean Budgets

Most business owners would like to offer their employees a 401(k) retirement savings plan with all the bells and whistles. But for small businesses with lean budgets and small staffs, offering such benefits may be out of the question. Fortunately, SEP IRAs and SIMPLE IRAs are less expensive and easier to administer. Might one of these tax-advantaged options work for your workforce?

SEP: Flexible and zero setup fees

Simplified Employee Pension (SEP) IRAs are individual retirement accounts you establish on behalf of each participant. (Self-employed individuals can also establish SEP IRAs.) Participants own their accounts, so they’re immediately 100% vested. If participants decide to leave your company, their account balances go with them. Most people roll their accounts over into a new employer’s qualified plan or traditional IRA account.

SEP IRAs don’t require annual employer contributions. That means you can choose to contribute only when cash flow allows. In addition, there are typically no setup fees for SEP IRAs. But participants generally must pay trading commissions and fund expense ratios (a fee typically set as a percentage of the fund’s average net assets).

In 2026, the SEP IRA annual contribution limit is 25% of a participant’s compensation, up to $72,000. That amount is higher than the standard 401(k) account contribution limit of $24,500 (in 2026). What’s more, employer contributions are tax-deductible. Meanwhile, participants won’t pay taxes on their SEP IRA funds until they’re withdrawn.

However, there are a few downsides to consider. Although participants own their accounts, only employers can make SEP IRA contributions. And if you contribute sparsely or sporadically, participants may see little value in the accounts. Also, unlike many other qualified plans, SEP IRAs don’t permit participants age 50 or over to make additional “catch-up” contributions.

SIMPLE: Easy and participant-friendly

Another possibility is to offer a Savings Incentive Match Plan for Employees (SIMPLE) IRA. As with a SEP IRA, your business creates a SIMPLE IRA for each participant, who’s immediately 100% vested in the account. Unlike SEP IRAs, SIMPLE IRAs allow participants to contribute to their accounts if they choose.

Other advantages of SIMPLE IRAs include:

• They’re relatively easy for employers to set up and administer.

• They don’t require your business to file IRS Form 5500, “Annual Return/Report of Employee Benefit Plan.”

• You don’t need to submit the plan to nondiscrimination testing.

• Participants pay no setup fees and enjoy tax-deferred growth on their account funds.

• Participants can contribute up to $17,000 annually in 2026.

• Participants age 50 or over can make catch-up contributions of up to $4,000 in 2026 ($5,250 for those ages 60 to 63).

Participants can contribute more to a SIMPLE IRA than to a self-owned traditional or Roth IRA. But SIMPLE IRA contribution limits are lower than limits for 401(k)s. Also, because contributions are made with pretax dollars, participants can’t deduct them. They also can’t take out plan loans. Then again, making pretax contributions does lower their taxable income. Perhaps most important is that employer contributions to SIMPLE IRAs are mandatory, regardless of your cash-flow situation. However, in general, you can deduct contributions as a business expense.

SIMPLE Roth IRAs are available, too. Ask your financial and employee benefits advisors whether this might be a better option for your business.

Lower-cost options

If you’ve thought you can’t afford to offer workers a retirement plan, think again. In addition to SEP and SIMPLE IRAs, there are now some lower-cost 401(k) options available as well. FMD can review your budget, tax situation and benefit needs and suggest how best to proceed. Contact us.

Create a more Agile F&A Team with Cross-Training

The accounting profession continues to face a talent shortage. This trend — driven by retirements among experienced accountants and bookkeepers and a limited pipeline of new graduates with accounting degrees — is forcing many organizations to rethink how their finance and accounting (F&A) team operates. As businesses prioritize flexibility and continuity, cross-training is a practical, cost-effective way to strengthen your team.

Ample advantages

The most immediate benefit of cross-training is improved coverage. When an employee is out — whether due to illness, resignation, vacation or family leave — others can step in and keep essential processes running smoothly.

Cross-training also strengthens collaboration. When team members understand each other’s responsibilities, they gain a clearer view of how the department functions as a whole. This broader perspective often leads to better communication, fewer bottlenecks and errors, and improved overall efficiency. It can also support internal mobility, as employees are better prepared to step into new roles when opportunities arise.

Another important advantage is risk reduction. The accounting function remains particularly vulnerable to fraud schemes, such as payment tampering and billing irregularities. When multiple employees are familiar with key processes, it creates natural oversight and can facilitate the separation of duties. Combined with practices like mandatory vacations and management review procedures, cross-training can help strengthen internal controls.

Simple steps

Cross-training doesn’t have to be complicated. A basic starting point is to rotate responsibilities among team members on a temporary basis. The goal isn’t to create deep specialists in every function, but to ensure employees understand the core day-to-day tasks their colleagues perform.

Even short-term rotations — lasting a day, a week or during slower periods — can build valuable familiarity. Over time, this shared knowledge base can make a big difference when unexpected gaps arise.

It’s also wise to include leadership in the process. Encouraging CFOs, controllers and other senior staff to “reverse train” on routine functions helps ensure they can step in if needed and effectively guide others. This approach builds resilience at every level of the F&A department.

Turn cross-training into a strategic advantage

As talent challenges persist, cross-training can help your F&A department maintain continuity while building a more engaged and versatile team. By investing in your current staff, you not only prepare for unexpected disruptions but also support long-term growth and development. FMD can help you identify cross-training priorities and align your approach with strong internal controls and reporting needs — so your team gains flexibility without increasing risk. Contact us for guidance on developing a cross-training strategy tailored to your organization.

What’s the Meaning of that Estate Planning Term?

Estate planning can be overwhelming. One reason is that it has a language all its own. While you may be familiar with common terms such as “will” or “executor,” you may not be as certain about others. This uncertainty can make it difficult to make informed decisions about protecting your assets, providing for your family and ensuring your wishes are carried out.

For quick reference, here’s a glossary of key terms you may come across when planning your estate:

Administrator. An individual or fiduciary appointed by a court to manage an estate if no executor or personal representative has been appointed or the appointee is unable or unwilling to serve.

Ascertainable standard. The legal standard, typically relating to an individual’s health, education, maintenance and support, which is used to determine what distributions are permitted from a trust.

Attorney-in-fact. The individual named under a power of attorney (POA) as the agent to handle the financial and/or health affairs of another person.

Codicil. A legally binding document that makes minor modifications to an existing will without requiring a complete rewrite of the will.

Community property. A form of ownership in certain states in which property acquired during a marriage is presumed to be jointly owned regardless of who earned it or paid for it. (There are exceptions, such as inherited property, as long as it’s not commingled with community property.)

Credit shelter trust. A trust established to bypass the surviving spouse’s estate to take full advantage of each spouse’s federal estate tax exemption. It’s also known as a bypass trust or A-B trust.

Fiduciary. An individual or entity, such as an executor or trustee, designated to manage assets or funds for beneficiaries and legally required to exercise an established standard of care.

Grantor trust. A trust in which the grantor retains certain control so that it’s disregarded for income tax purposes and the trust’s assets are included in the grantor’s taxable estate.

Inter vivos. The legal phrase used to describe various actions (such as transfers to a trust) made by an individual during his or her lifetime.

Intestacy. This occurs when a person dies without a legally valid will and the deceased’s estate is distributed through a court-supervised probate process in accordance with the applicable state’s intestacy laws.

Joint tenancy. An ownership right in which two or more individuals (such as a married couple) own assets equally, often with rights of survivorship.

Living trust. A trust that’s established during an individual’s lifetime to hold and manage assets for the benefit of that individual and, ultimately, for his or her beneficiaries. Also commonly referred to as a “revocable trust” or “inter vivos” trust. The individual creating the trust often serves as the trustee, retaining control over the assets while alive. One of the primary advantages of a living trust is that it allows assets to pass to beneficiaries without going through probate, helping to save time, reduce costs and maintain privacy.

No-contest clause. A provision in a will or trust stating that an individual who pursues a legal challenge to assets will forfeit his or her inheritance or interest.

Pour-over will. A will used upon death to pass to a living trust the ownership of assets that weren’t transferred to the trust during life.

Power of appointment. The power granted to an individual under a trust that authorizes him or her to distribute assets on the termination of his or her interest in the trust or in certain other circumstances. 

Power of attorney. A legal document authorizing someone to act as attorney-in-fact for another person, relating to financial and/or health matters. A “durable” POA continues if the person is incapacitated.

Probate. The legal process of settling an estate in which the validity of the will is proven, the deceased’s assets and debts are identified, all debts and taxes are paid, and the remaining assets are distributed.

Qualified disclaimer. The formal refusal by a beneficiary to accept an inheritance or gift, which allows the inheritance or gift to pass to the successor beneficiary.

Spendthrift clause. A clause in a will or trust restricting the ability of a beneficiary (such as a child under a specified age) to transfer or distribute assets.

Tenancy by the entirety. An ownership right between two spouses in which property automatically passes to the surviving spouse on the death of the first spouse.

Tenancy in common. An ownership right in which each person possesses rights and ownership of an undivided interest in the property.

If you have questions about the meanings of these terms, contact FMD. We’d be pleased to provide context for any estate planning term you’re unfamiliar with.

If You’re Charitably Inclined, Your Estate Plan Can Benefit from a Donor-Advised Fund

Donor-advised funds (DAFs) have become increasingly popular among individuals and families who want to simplify their charitable giving while maximizing tax efficiency. According to the 2025 Annual DAF Report produced by the Donor Advised Fund Research Collaborative, in 2024, the total number of DAF accounts reached a record high of 3.56 million. Total assets in DAFs increased 27.5%, with total invested funds reaching $326.5 billion. Here’s how a DAF might fit into your charitable giving strategy and estate plan.

DAFs in action

A DAF is a charitable investment account that generally requires an initial contribution of at least $5,000. It’s typically managed by a financial institution or an independent sponsoring organization, which charges an administrative fee based on a percentage of the deposit.

From a tax perspective, DAFs offer significant benefits. Contributions are generally deductible in the year they’re made (assuming you itemize deductions), even if the funds are distributed to charities in future years. This is particularly valuable in high-income years when you may want to offset income with a sizable charitable deduction but don’t know exactly which charities you’d like to benefit.

Additionally, donating appreciated assets, such as publicly traded stock, allows you to avoid the capital gains tax liability you’d incur if you sold the assets. Yet you can still deduct their fair market value. (Be aware that some DAFs only allow contributions of cash or cash equivalents.)

Another DAF advantage is administrative simplicity. Unlike private foundations, DAFs don’t require the donor to manage compliance, file separate tax returns or oversee grant administration. The sponsoring organization handles recordkeeping, due diligence and distribution logistics, allowing you to focus on your charitable intent rather than administrative burdens.

DAFs can also enhance strategic giving. Funds within a DAF can be invested and potentially grow tax-free, increasing the amount ultimately available for charitable purposes. You can take time to thoughtfully select the charities, involve family members in philanthropic decisions and create a more intentional giving strategy rather than making rushed year-end donations.

Estate planning benefits

Integrating a DAF into an overall estate plan can amplify its benefits. It can serve as a centralized vehicle for a family’s charitable legacy, helping to align philanthropic goals across generations. You can name successor advisors — such as children or other heirs — who can recommend grants from your DAF after your lifetime, fostering continued family engagement in charitable giving.

From an estate tax standpoint, DAFs are also beneficial. Assets contributed to a DAF — whether during your life or at death — are removed from your taxable estate. This can be particularly advantageous for high-net-worth individuals seeking to reduce estate tax exposure while supporting causes they care about.

Additionally, you can designate a DAF as a beneficiary of retirement accounts, such as IRAs. Because these accounts are typically subject to income tax when an individual beneficiary takes distributions, leaving them to a charitable vehicle, such as a DAF, can be tax-efficient. (But think twice before naming a DAF as the beneficiary of a Roth account, because distributions would generally be tax-free to an individual beneficiary.)

Coordination is key

It’s important to coordinate a DAF with your other estate planning strategies. For example, ensure that your charitable intentions are clearly documented and aligned with your overall distribution strategy. FMD can help structure your DAF contributions and beneficiary designations to maximize both tax savings and philanthropic impact.

Strategic Alliances: Collaborate Now, Possibly Combine Later

Even if you aren’t currently preparing to sell your business, you might want to think strategically about your eventual buyer. Sophisticated buyers won’t only look at your financials, they’ll also evaluate how your company fits into their long-term business plan. One way to strengthen current profitability and future exit options is with a strategic alliance.

Current and long-term objectives

Strategic alliances are structured in several ways, including joint ventures, revenue-sharing arrangements and co-development agreements. In some relationships, the two companies simply agree to work together on a particular project. Others involve long-term agreements, with the end game being a merger. Alliances can have set expiration dates or be renewed at intervals after they pass performance reviews. Among the many reasons companies pursue alliances are to leverage core assets, expand sales capacities and reduce operating costs.

Your company doesn’t have to enter into a strategic alliance to make it easier to sell one day. It may, after all, be performing well on its own. Instead, look at a potential strategic alliance as a near-term growth and expense-cutting mechanism with long-term benefits.

If you agree to an alliance, focus on financial and operational objectives, including achieving economies of scale. For example, by combining orders for everything from raw materials to office supplies, both partners may qualify for supplier discounts and reduce overhead costs. What about jointly purchasing capital equipment or upgrading both companies’ IT networks? Or you may want to find a partner to improve transportation logistics by consolidating warehouses. Another idea: Sharing intellectual property, such as customized software.

Keys to success

Your strategic alliance may require time and effort to get up and running. But if you’ve thoroughly vetted your partner and have a well-structured agreement in place, you’re likely to realize benefits. If you don’t, and the relationship becomes a drain on resources, take immediate action.

Some problems can be fixed. For example, it’s easy for alliances to drift from their original purpose. A partnership forged mainly to upgrade an IT system could wind up focusing on improving employee productivity instead — with mixed results. In this case, the partners could refocus and reinforce their alliance objectives. But if problems seem intractable, it’s usually better to terminate the alliance.

Profitable arrangements

Not only can strategic alliances be mutually profitable, but they can help both partners envision a permanently combined company. Alliances often begin informally or as short-term agreements that eventually lead to mergers when the companies realize their synergistic potential.

A successful prior relationship can smooth the merger process. Before joining a strategic alliance, companies typically conduct due diligence on one another. Financial and other conditions can certainly change between the initiation of a strategic alliance and the beginning of merger negotiations. But a well-structured alliance allows partners to keep tabs on each other. If one of the companies experiences leadership challenges or has trouble getting financing, the other is likely to know about it. Such knowledge can speed up the merger transaction process and simplify integration.

Exercise in discipline

Regardless of whether your business eventually merges with a strategic partner, the discipline of building and managing your relationship can strengthen operations and expand your market reach. It can also enhance financial transparency and position your business more favorably to potential buyers. Contact FMD for help honing your financial objectives, vetting possible alliance partners and selling your business.

More Than Just 0s and 1s: Accounting for Digital Assets in Your Estate Plan

In today’s digital world, estate planning goes beyond physical property and financial accounts — it must also address your digital assets. From online banking and investment accounts to social media profiles, cloud storage and even cryptocurrency, these assets can hold both financial and sentimental value.

Without proper planning, your loved ones may face significant legal and logistical challenges in accessing or managing them. By taking steps now to inventory your digital assets and incorporate them into your estate plan, you can help ensure a smoother transition and protect your legacy in the digital age.

What digital assets do you possess?

The first step in planning for digital assets is to identify all online accounts and digital property you own. Financial accounts, such as online bank and brokerage accounts, should be listed alongside nonfinancial assets like email accounts, social media profiles, subscription services and cloud storage. Don’t forget emerging asset classes such as cryptocurrencies or monetized digital content.

For each asset, detail how to access it, including usernames, passwords and any multi-factor authentication methods. This sensitive information should be stored in a secure location, such as a password manager or encrypted document, rather than directly in your will.

How do you want the assets to be handled?

You may want certain accounts memorialized, deactivated or deleted altogether. Many platforms, including Facebook and Google, allow users to designate legacy contacts or set instructions for account management after death. Taking advantage of these tools can simplify the process for your loved ones.

Also consider designating a family member or friend to manage your digital assets. You can give this person, sometimes referred to as a “digital executor,” the authority through your will or a separate legal document, depending on your state’s laws. His or her role is to carry out your instructions, access accounts and ensure that digital property is handled appropriately. Be sure to discuss your wishes with this individual in advance so he or she understands the responsibilities.

Any legal considerations?

Laws governing access to digital assets vary by state, and service providers often have their own policies that limit what can be shared. Fortunately, there are laws that govern access to digital assets in the event of your death or incapacity. Most states have adopted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which provides a three-tier framework for accessing and managing your digital assets:

1. The act gives priority to providers’ online tools for managing the accounts of customers who die or become incapacitated. For example, Google offers an “inactive account manager,” which allows you to designate someone to access and manage your account. Similarly, Facebook allows users to determine whether their accounts will be deleted or memorialized when they die and to designate a “legacy contact” to maintain their memorial pages.

2. If the online provider doesn’t offer such tools, or if you don’t use them, access to digital assets is governed by provisions in your will, trust, power of attorney or other estate planning document.

3. If you don’t grant authority to your representatives in your estate plan, then access to digital assets is governed by the provider’s Terms of Service Agreement.

To ensure that your loved ones have access to your digital assets, use providers’ online tools or include explicit authority in your estate plan.

More questions?

By taking a proactive approach to digital asset planning, you can reduce uncertainty, avoid unnecessary complications and provide clear guidance for your loved ones. A well-structured plan can protect the financial value of your digital property and help ensure that your personal legacy is handled according to your wishes.

We can answer your questions on properly addressing digital assets in your estate plan. Contact FMD today to learn more.

IRS Issues Final Regulations on Tips Tax Break

Last year, a new income tax deduction for qualified cash tips went into effect under the One Big Beautiful Bill Act (OBBBA). The break is scheduled to expire after 2028. In September 2025, the IRS released proposed regulations to provide guidance for taxpayers. The IRS has now published final regs that largely mirror the proposed regs but also include some important clarifications and additions.

What does the deduction cover?

Under the OBBBA, individual taxpayers can claim a tax deduction, available to both itemizers and nonitemizers, for up to $25,000 in “qualified tips.” The deduction begins to phase out if your modified adjusted gross income (MAGI) exceeds $150,000, or $300,000 if you’re married filing jointly. The deduction is completely phased out if your MAGI reaches $400,000, or $550,000 if you’re a joint filer. (Married taxpayers filing separately can’t claim the tips deduction.)

Important: The $25,000 limit applies per tax return, so joint filers who both receive qualified tips can’t claim two separate deductions. In addition, tips remain subject to federal payroll taxes and, where applicable, state income and payroll taxes.

Qualified tips generally refers to tips paid in cash (or an equivalent medium, such as checks or credit and debit cards) to an individual in an occupation that customarily and regularly received tips on or before December 31, 2024. They must be paid voluntarily, without any consequence for nonpayment, in an amount determined by the payor and without negotiation. Tips received in the course of a specified service trade or business are excluded.

What’s in the final regs?

The final regs address several critical areas, including:

Eligible occupations. The proposed regs identified 68 eligible occupations in eight categories. The final regs expand the list to 71 occupations (adding visual artists, floral designers and gas pump attendants) and tweaked some of the categories, ending up with:

• Beverage and Food Service,

• Entertainment and Events,

• Hospitality and Guest Services,

• Home Services,

• Personal Services,

• Personal Appearance and Wellness,

• Recreation and Instruction, and

• Transportation and Delivery.

The final regs also expanded some of the proposed regs’ categories and clarified others. For example, they added “app/platform-based delivery person” to the illustrative list for the “Goods Delivery People” occupation in the “Transportation and Delivery” category.

The final regs also include two new examples dealing with payments to digital content creators. If customers’ payments give them access to the content, the payments are treated as compensation for services provided. But if customers make voluntary payments after gaining access to the content, the payments are tips.

Digital assets. The final regs state that digital assets aren’t considered cash tips — for now. Thus, they’re currently not eligible for the tips deduction. But the IRS has indicated it will consider the treatment of stablecoins in connection with the implementation of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act and any future legislation that modifies the characterization of digital assets.

Voluntariness. Under the proposed regs, service charges, automatic gratuities and any other mandatory amounts automatically added to a customer’s bill by the vendor or establishment generally weren’t considered voluntary, even if the amounts were subsequently distributed to employees. To be voluntary, the customer must be expressly provided an option to disregard or modify amounts added to a bill.

The final regs retain this approach. However, they modify the language to make clear that a tip is voluntary if the customer has the option to reduce the tip amount to zero. So tips made on POS systems with a tip slider that goes to zero or an option for the customer to select “other” and enter zero are voluntary.

Note: Payments in excess of mandatory amounts are voluntary.

Managers/supervisors. Under the final regs, tips received by a manager or supervisor via a voluntary or mandatory tip-sharing arrangement, such as a tip pool, aren’t considered qualified tips. But tips received directly by supervisors or managers for services they provided in the course of duties performed in an eligible occupation (for example, performing the duties of wait staff while the restaurant is crowded) are qualified tips if all other requirements are satisfied.

Anti-abuse rules. To prevent the reclassification of income as qualified tips, under the proposed regs, a payment wasn’t a qualified tip if the recipient had an ownership interest in or was employed by the payor of the tip. The final regs relax this standard somewhat.

Under the final regs, an amount isn’t a qualified tip if, based on all relevant facts and circumstances, the amount is a recharacterization of wages or payment for goods or services for the purpose of claiming the deduction. Facts and circumstances that might indicate that wages, payment for services or other income have been recharacterized as tips in order to claim the deduction include when:

• The invoiced charge for services is less than the payment from the payor shown on a related receipt, and the amount of the cash tip reported on the receipt approximates the difference between the invoiced charge and the payment amount on the receipt, and

• A significant shift in historical tipping or payment practices between the payor and the tip recipient occurs.

Moreover, the final regs establish an irrebuttable presumption that a “tip” reflects a recharacterization of wages, payment for services or other income when the employer is the payor of a cash tip received by the employee. The presumption also is triggered if the tip recipient has a direct ownership interest in the tip payor.

Questions?

If you receive tips for work you perform, check the list of occupations eligible for the deduction and plan accordingly. If you have any questions about this tax break, contact FMD. We can help you determine if the tips you receive qualify for the deduction.

What Sets Internal and External Audits Apart — and Why It Matters

Both internal and external audits play vital roles in safeguarding your organization’s financial integrity. They share the common goals of promoting reporting transparency and helping prevent errors and fraud, but they serve different functions and audiences. Here’s a closer look at some key distinctions to help your business develop a strategic audit approach.

Why they’re conducted

The purpose of an internal audit is to assess and improve a company’s internal controls, risk management and governance processes. Some companies have an internal audit department, but others outsource this function to external audit firms. Internal auditors — whether in-house or outsourced — work as an extension of the company’s management to ensure that internal processes align with organizational objectives and mitigate risk.

External audits must always be performed by an independent CPA firm. Under the auditing standards, an external audit aims to provide reasonable assurance about whether the company’s financial statements are free from material misstatement and to express an opinion on whether they’re presented fairly in accordance with U.S. Generally Accepted Accounting Principles (GAAP) or another relevant framework.

How far they reach

Internal audits can cover a broad range of topics. For example, auditors may evaluate operations, internal controls, company or industry-specific risks, and compliance with laws and regulations. You can tailor an internal audit’s scope to your company’s needs and modify it as new risks or business opportunities emerge. Outsourcing this function can be cost-effective for smaller organizations that don’t require a full-time internal audit department.

External audits are standardized, focusing solely on the financial statements and related disclosures. External auditors perform testing on account balances and transactions, evaluate financial reporting controls, and assess compliance with GAAP or other relevant frameworks. They also follow applicable regulatory guidelines, such as the U.S. Generally Accepted Auditing Standards issued by the American Institute of Certified Public Accountants and the Public Company Accounting Oversight Board standards.

Who stays independent

Internal auditors work under the direction of the company’s audit committee or management. Outsourced internal audit teams are also part of the organization’s internal audit function, so they may not be entirely independent. While internal auditors usually provide recommendations to the company, they can remain objective if they report directly to the audit committee or management.

On the other hand, external auditors must maintain independence, in fact and appearance, from the companies they audit to ensure objectivity and compliance with professional standards. This means they can’t have direct financial interests in the company or perform services that could create actual or perceived conflicts of interest. Independence is crucial for external auditors to provide an unbiased opinion that stakeholders can trust.

How the work gets done

Internal auditors use a risk-based, continuous-improvement approach, targeting specific areas of concern. They may also use internal control models — such as the Committee of Sponsoring Organizations of the Treadway Commission framework — to assess the company’s processes, identify potential risks, evaluate controls and make recommendations for improvement. Their role tends to be more consultative.

External auditors follow standardized methods to gather sufficient evidence to form an opinion on the fairness and compliance of the financial statements. After assessing the company’s risks, external auditors may perform substantive procedures, analytical reviews and sampling techniques to detect material misstatements. They verify the accuracy of accounts by conducting tests, reviewing source documents and confirming account balances with third parties.

What they produce

Internal auditors typically report directly to management or the audit committee. They provide detailed recommendations and action plans based on their findings, areas of risk and control weaknesses. Internal audit reports aren’t usually distributed to outside stakeholders; instead, they’re intended to guide internal improvements and decision-making.

External auditors issue an audit opinion on the organization’s financial statements. The audit opinion is a letter that serves as the front page of the company’s financials. Public companies file reports with the U.S. Securities and Exchange Commission, which are available to the general public. Many private companies share audited financial statements with lenders, franchisors, private equity investors and other stakeholders.

When they happen

Internal audit procedures are conducted throughout the year, typically in accordance with an annual audit plan approved by management or the audit committee. Internal auditors may evaluate different areas on a rotating or as-needed basis as risks evolve or emerge.

External audits are generally performed at year end. However, public companies and larger private organizations may also be required to issue audited financial statements quarterly. For an added measure of assurance, some companies have auditors conduct periodic “surprise” audits or agreed-upon procedures engagements that target high-risk accounts or areas of concern identified during year-end audits.

Choosing the right mix

When used together, internal and external audits provide a more complete picture of your organization’s risks, controls and financial reporting. As your business evolves, so should your audit approach. Periodically reassessing your needs can help ensure you’re getting the right balance of insight, assurance and strategic value. Contact FMD to learn more.

How to Ensure Your Business Really Owns Its Intellectual Property

Whether it’s a trademark, copyright, patent, trade secret or other piece of IP, its ultimate value to your business depends on you owning it. Without airtight agreements with employees and independent contractors, these workers may claim that the IP they research and develop belongs to them.

Some companies learn they don’t actually own IP assets only when they’ve engaged a business valuation professional in preparation for a sale, or when employees leave and take IP with them. To prevent unexpected ownership issues and costly disputes that could create risk and diminish your business’s value, take action now.

What the law says

Federal copyright law and the laws of most states mandate that employees and independent contractors who invent products, write materials and develop software may be the owners of the IP rights. In fact, in some states, employers may only have a limited license to inventions created by employees, even if they were invented “on the clock” or using company resources.

Fortunately, you can help prevent ownership disputes, including litigation. All states permit businesses to require workers to sign copyright, IP and invention assignment agreements, subject to applicable legal limitations.

Work with an attorney who specializes in IP to draft a standard agreement based on your state’s laws. It should require the employee or contractor to turn over or legally “assign” IP rights to your business. In addition, it should mandate that the employee or contractor assist your company’s legal counsel in securing and enforcing these rights. It’s also important to apply these agreements consistently and enforce them in practice, because inconsistent use can weaken your position in disputes and merger and acquisition due diligence.

Go a step further

When you hire workers (or when you require them to sign an agreement), make sure you ask them to identify all pre-existing inventions that are to be excluded from the agreement. For example, they may have patented inventions on their own or created trademarks for previous employers. Then request that they give up claims to any new inventions that are related to your business activities, even if the inventions are developed during their nonworking hours.

For example, let’s say your company develops 3D printing software. Your agreement should prohibit your code writers from creating related design tools at home and then selling them to your competitors. If, however, an employee working on her own time and with her own resources develops software that’s unrelated to your business, that IP likely belongs to her. Some states, such as California, prevent employers from claiming such IP or asking employees to sign away their rights to it.

Legal and financial advice

Ultimately, safeguarding IP isn’t a passive exercise but a deliberate business discipline that requires foresight, structure and legal precision. Although an attorney’s guidance is critical for this purpose, financial advisors also play an important role. FMD can help you address IP ownership issues before you sell your business or before workers leave your employment. We can also help identify financial and tax considerations of IP. Contact us for more information.

What if …? How Stress Testing Can Help Your Business Prepare for Economic Uncertainty

Even financially sound businesses can be vulnerable to market volatility and unexpected disruptions. Many companies discover too late that their financial position, internal controls or contingency plans aren’t built to withstand sudden shocks, potentially leading to cash shortfalls, debt covenant violations and reduced profitability. A “stress test” models how your cash flow, liquidity and overall financial structure would perform under adverse scenarios. Here’s how stress testing can help you proactively evaluate your business’s resilience and strengthen its ability to adapt to changing market conditions.

Identify your organization’s exposure points

Start by identifying your business’s exposure points. Risks are often classified in four categories:

1. Operational risks. These risks encompass the company’s internal operations. Examples include cybersecurity incidents, supply chain breakdowns or natural disasters.

2. Financial risks. How well does your company manage its finances? Key financial risks may include liquidity constraints, interest rate exposure and the threat of fraud.

3. Compliance risks. This category includes issues that might attract the attention of government regulators, such as evolving tax, reporting and industry-specific requirements.

4. Strategic risks. This term refers to the company’s market focus and its ability to respond to changes in customer demand, competition and technology.

Build a practical response framework

Once you’ve identified key business risks, meet with your management team to improve your collective understanding of their potential financial impacts and the organization’s capacity to absorb them. Encourage team members to share additional risks and model downside scenarios, such as revenue declines, delayed receivables or increased borrowing costs — along with their impact on cash flow and profitability.

In addition to evaluating downside risk, stress testing can help your team identify opportunities to reallocate resources to higher-performing products or services, adjust pricing strategies in response to shifting demand, or make targeted investments when competitors pull back. This approach allows you to respond proactively rather than defensively to emerging threats.

From there, your management team can develop a plan to mitigate risk. For example, if your company operates in an area prone to natural disasters, you should maintain and periodically test a disaster recovery and business continuity plan. If your company relies heavily on a key individual, consider implementing a succession plan and evaluating key person insurance. For financial risks, your plan may include maintaining adequate liquidity buffers, diversifying your revenue base, revisiting debt covenants and strengthening internal controls to reduce fraud risk.

Reassess and refine regularly

Effective risk management is an ongoing process. New risks emerge as markets, technology and regulations evolve, while previously significant risks may diminish over time. Meet with your management team at least annually — or more frequently in periods of change — to review and update your risk management plan. If your organization has recently faced a disruption, use that experience as a learning opportunity. Evaluate how well your plan performed, identify gaps and missed opportunities, and implement improvements to strengthen your response going forward.

Build resilience now

A well-executed stress test identifies blind spots that can affect financial performance and provides a roadmap for building resilience. In today’s environment, proactive risk assessment is a key component of sound financial management and governance. We can help you quantify potential cash flow gaps, evaluate tax and financial risks across multiple scenarios, and identify practical steps to fortify your financial position and uncover strategic opportunities. Contact FMD to design and perform a stress test tailored to your organization, so you can make timely, data-driven decisions.

Don’t Sleep On these After-tax-day Tips

With the April 15 tax filing deadline in the rearview mirror, you’re likely to turn your attention to other things. But before you do, it’s in your best interest to tie up a few tax-related loose ends.

IRS statute of limitations

Generally, the IRS’s statute of limitations for auditing a tax return is three years from the return’s due date or the filing date, whichever is later. However, some tax issues are still subject to scrutiny after three years. For example, if the IRS suspects that income has been understated by 25% or more, the statute of limitations for an audit extends to six years. If no return was filed or fraud is suspected, there’s no limit on when the IRS can launch an inquiry.

It’s a good idea to keep copies of your tax returns indefinitely as proof of filing. Supporting records generally should be kept until the three-year statute of limitations expires. These documents may also be helpful if you need to amend a return.

So, which records can you throw away now? Based on the three-year rule, in late April 2026, you’ll generally be able to discard most records associated with your 2022 return if you filed it by the April 2023 due date. Extended 2022 returns could still be vulnerable to audit until October 2026. But if you want extra protection, keep supporting records for six years.

What records should you retain?

Documentation supporting your income, deductions and credits that you generally should retain following the three-year rule may include:

• Various series 1099 forms, such as Form 1099-NEC, “Nonemployee Compensation,” Form 1099-MISC, “Miscellaneous Income,” and Form 1099-G, “Certain Government Payments,”

• Form 1098, “Mortgage Interest Statement,”

• Property tax payment documentation,

• Charitable donation substantiation,

• Records related to contributions to and withdrawals from Section 529 plans and Health Savings Accounts, and

• Records related to deductible retirement plan contributions.

You’ll also want to hang on to some tax-related records beyond the statute of limitations. For example:

• Retain Forms W-2, “Wage and Tax Statement,” until you begin receiving Social Security benefits. That may seem long, but if questions arise regarding your work record or earnings for a particular year, you’ll need your W-2 forms as part of the required documentation.

• Keep records related to investments and real estate for as long as you own the assets, plus at least three years after you sell them and report the sales on your tax return (or six years if you want extra protection).

• Hang on to records associated with retirement accounts until you’ve depleted the accounts and reported the last withdrawal on your tax return, plus three (or six) years.

• Retain records that support figures affecting multiple years, such as carryovers of charitable deductions or casualty losses, until they have no effect, plus seven years.

• Keep records that support deductions for bad debts or worthless securities that could result in refunds for seven years because you have up to seven years to claim them.

Other tax-related chores

As you can see, keeping tax-related records is critical. So put yourself in a good position for filing your 2026 return next year by carefully tracking expenses potentially eligible for deductions or credits on an ongoing basis.

For example, if you’re self-employed and use your personal vehicle for business purposes, maintain a mileage log recording the date, mileage, purpose and destination of each trip. Or if you regularly donate to charity, keep the receipts or written acknowledgments you receive. (Additional substantiation may be required depending on the size and type of donation.)

In addition, this is a good time to reassess your current tax withholding to determine if you need to update your Form W-4, “Employee’s Withholding Certificate.” You may want to increase withholding if you owed taxes this year. Conversely, you might want to reduce it if you received a hefty refund. Changes also might be in order if you experience certain major life events, such as marriage, divorce, birth of a child or adoption, this year.

If you make estimated tax payments throughout the year, consider reevaluating the amounts you pay. You might want to increase or reduce the payments due to changes in self-employment income, investment income, Social Security benefits and other types of nonwage income.

To preempt the risk of a penalty for underpayment of tax, consider paying at least 100% of the tax shown on your 2025 tax return (110% if your 2025 adjusted gross income was over $150,000 — or over $75,000 if you’re married and filed separately) through withholding and/or four equal estimated tax payments.

What’s this? A letter from the IRS?

After filing your tax return, you may receive a letter in the mail from the IRS. While such letters can be alarming, don’t assume the worst. The letter might simply inform you of a refund adjustment (up or down) based on a math or similar error on your return. If you agree with the change, generally no response is needed. If you disagree, contact the IRS by the date indicated.

Or the letter might propose a change to your return based on information reported by third parties, such as employers or financial institutions. In this case, follow the instructions to respond, include any required documentation, and note whether you agree or disagree with the proposed change.

Of course, an IRS letter could inform you that your return is being audited. It’s important to remember that being selected for an audit doesn’t always mean there’s a significant error on your return. For example, your return could have been flagged based on a statistical formula that compares similar returns for deviations from “norms.”

Further, if selected, you’re most likely going to undergo a correspondence audit. These account for a majority of IRS audits. They’re conducted by mail for a single tax year and involve only a few issues that the IRS anticipates it can resolve by reviewing relevant documents. According to the IRS, most audits involve returns filed within the last two years.

If you receive notification of a correspondence audit, you and your tax advisor should closely follow the instructions. You can request additional time if you can’t submit all the documentation requested by the specified deadline.

Don’t ignore the letter. Failure to respond can lead to the IRS disallowing some tax breaks you claimed and issuing a Notice of Deficiency (that is, a notice that a tax balance is due).

Be proactive

Organizing your past and current-year tax records now can facilitate a smoother tax filing next year or a less painful audit of a recent return. Similarly, adjusting your withholding or estimated tax payments can mean more money in your pocket now or no (or smaller) underpayment penalties next April.

If you have questions on what files to keep and for how long or how to adjust withholding or estimated tax payments, we can help. And if you receive an IRS letter, contact FMD as soon as possible. We can advise you on complying with any IRS requests.

Starting a Business? 5 Things You Need to Know

So you’ve decided to start your own business — congratulations! Many new owners open a business to be their own boss and chart their own course. However, along with those benefits come some complications compared to being someone else’s employee. Planning and budgeting are critical, and you’ll have plenty of new tax compliance responsibilities.

1. It starts with funding

Starting a business takes money. To help you gain access to bank loans and attract equity investors, write a formal business plan that tells your backstory, describes your products and services, and highlights your market research. The plan should explain how you intend to use any capital you raise to grow the business and, of course, why your business will be successful.

Because your new business won’t have a financial track record, you’ll need to create a projected balance sheet, income statement and statement of cash flows using market-based assumptions. Lay out multiple scenarios — including best, worst and most likely results — and identify which variables are critical.

2. Accounting matters

When you set up your business, separate its finances from your personal finances. Commingled financial records can cause tax and financial reporting headaches as your business grows.

Next, understand that lenders and investors will want to know whether your business is meeting performance targets. Establish an accounting system to record transactions and generate financial statements that can easily communicate results to stakeholders. We can recommend cost-effective software solutions.

Initially, you may elect to use the cash-basis or income-tax-basis method of accounting to simplify matters. Indeed, it’s often easier for start-ups to maintain one set of books for both tax and accounting purposes. However, if you have an accounting background, you may opt for accrual-basis accounting from the get-go.

3. Tax planning is a must-do

Many start-up ventures aren’t initially profitable. But it’s essential to start planning for taxes from the beginning. One factor that will affect your company’s tax situation is its entity structure. Depending on your tax, legal and other needs, you might choose a sole proprietorship, partnership, limited liability company (LLC), S corporation or C corporation.

Know that C corporations pay tax at the entity level, then the individual owners pay tax when they receive dividends. This results in double taxation. To avoid this, you may want to consider a “pass-through” entity. Pass-through income generally isn’t taxed at the entity level. Instead, it passes through to the individual owners (along with the business’s deductible expenses) and is taxed on their individual returns. However, the top rates for individual taxpayers are higher than the flat 21% rate for C corporations — though the qualified business income deduction for pass-through entity owners can help make up for that.

Another major tax issue to understand is the appropriate tax treatment for your start-up expenses. The timing and amount of expenses are key to determining what’s immediately deductible and what costs must be capitalized and amortized over time.

New businesses need to plan for other taxes, too. You may need systems in place to file and pay property, sales and employment taxes. Look into initially outsourcing these administrative tasks to third-party specialists so you’ll have time to focus on daily business operations.

4. Estate planning now can save tax later

Another smart consideration if you’re starting a business is estate planning. New entrepreneurs often solicit help from friends and family members. In exchange, founders may make gifts of ownership interests while the business’s fair market value is relatively low, removing potential future appreciation from their estates.

A business valuation professional can help determine the fair market value of your new business based on objective market data and financial projections. Proactive estate planning at this phase can save significant tax dollars over the long run as the company’s value grows.

5. Employees may want equity

Most start-ups operate lean, with only a few employees — each wearing multiple hats. Early employees may agree to forgo high salaries for equity-based compensation, which can help your start-up avoid a cash crisis while still attracting top talent. What’s in it for staffers? Business equity can grow into a valuable financial asset. Plus, employees who own equity may feel more invested and, thus, enjoy greater fulfillment.

There are several types of equity-based compensation to consider, including outright transfers of ownership interests in the business, profits interest awards (partnerships, LLCs and S corporations) and restricted stock or stock options (C corporations). We can help you determine the best form of compensation.

Thoughtful execution

Launching a successful business requires more than vision alone. It also calls for thoughtful execution, informed decision-making and ongoing attention to financial and operational details. Approach start-up matters with strategic foresight by consulting legal, financial and tax advisors. FMD can help you get off the ground.

Taking a Strategic Approach to Price Increases

Rising labor, materials and operating expenses continue to pressure margins across industries. To relieve that pressure, you might consider a price increase. The prices of your products and services should evolve with your business and market conditions while reflecting customer demand. Adjusting prices can protect profitability, but poorly timed or overly aggressive increases can erode customer trust and market share. A thoughtful approach balances cost recovery with customer expectations and competitive dynamics.

Core considerations

Timing plays a central role in how customers and competitors respond to price changes. Moving too early can isolate your business, while moving too late can compress margins. Consider these factors when evaluating a price increase:

Costs of production. If prices don’t exceed costs over the long run, your business will fail. More than just direct materials and labor should be factored into the equation. You should consider all the costs of producing, marketing and distributing your products. Some indirect costs, such as sales commissions and shipping, vary based on the number of units sold. But many are fixed in the current accounting period. Examples of fixed costs are rent, research and development, depreciation, insurance and administrative salaries.

Applying contribution margin analysis and cost allocation methods can help ensure pricing decisions are based on each product or service’s actual profitability and cost structure. This involves identifying which costs vary with sales, how fixed costs are distributed and how much each offering contributes to overall profit.

Customer loyalty. Some companies have built a base of loyal customers who are willing to pay a premium for their brands. Others have a customer base of bargain hunters who are willing to switch brands to save a few dollars. Furthermore, digital transparency has made price comparisons easier than ever, increasing the risk of customer churn following price changes. To gauge customer loyalty, you’ll need to evaluate customers’ purchasing patterns over the years and their responses to promotional events offered by you and your competitors. If there’s significant customer turnover and you increase prices, your business could be in a vulnerable position.

Commoditization. Another consideration is the nature of what you sell. If it’s a basic necessity and you dominate your market, your customers might have little choice but to accept a price increase. If you sell “luxury” products and services, you might also be in a good position to raise prices to the extent that your customers have an abundance of disposable income and aren’t price sensitive. However, even higher-income customers have shown increased price sensitivity in recent periods, particularly for discretionary purchases.

Informed decisions

Once you’ve laid the groundwork for assessing the likely impact of a price increase, you should answer the following questions:

• Which products or services should I raise prices on?

• How much should prices increase?

• When should the price increases take effect?

• Should I notify customers about increases and, if so, how do I explain the increases?

Evaluate these questions based on the extent to which you’re being squeezed in the current business environment. The more urgent the situation, of course, the less flexibility you have.

When deciding which items to raise prices on, consider the potential impact on cash flow. The most immediate effects will come from increasing prices on high-volume products. However, if you’re selling some high-volume, low-priced “loss leader” items to draw in customers who'll also buy more profitable items, and that strategy is working, you might want to go easy on raising prices on those bargain items.

Generally, gradual, selective price increases are less noticeable to customers than an across-the-board increase. But in some cases, a one-time “tear-off-the-Band-Aid-quickly” price hike, not to be repeated in the short term, can make sense if accompanied by an explanation that customers can accept. Alternatively, you can refresh your product or service offerings and then charge a premium for “new-and-improved” versions that cost you about the same as the old ones. Some companies are also using temporary surcharges or dynamic pricing models to respond more flexibly to cost fluctuations.

Aligned prices

Pricing strategies should consider what customers want and value, and how much they’re willing to spend. Start by analyzing internal financial data — segmented by customer and offering — to identify trends in purchasing patterns, sales volume and margins.

External research can further refine your pricing strategy. For example, you might consider the following steps:

• Conducting informal focus groups with top customers,

• Sending online surveys to prospective, existing and defecting customers,

• Monitoring social media reviews, and

• Sending free trials in exchange for customer feedback.

It’s also smart to investigate your competitors’ pricing strategies using ethical and publicly available methods. For example, the owner of a restaurant might eat at each of his or her local competitors to evaluate the menus, decor, service and prices. Or a manufacturer might visit competitors’ websites and purchase comparable products to evaluate quality, timeliness and customer service. Online price tracking tools and marketplace monitoring can also provide real-time competitive insights.

Ongoing geopolitical uncertainty, tariff policy changes and inflation trends may provide context for price adjustments, especially when industry-wide increases are occurring. By tying increases to market-based indicators, such as the consumer price index or average gas prices, you can help justify the change to your customers — and they’ll likely appreciate your transparency.

Choosing the right path

Pricing decisions carry both financial and strategic implications. Through pricing analysis, margin modeling, scenario planning and more, we can help you identify where adjustments will have the greatest impact and evaluate alternative ways to strengthen your margins while maintaining customer relationships in a changing economic environment. Contact FMD to learn more.

Considering Layoffs? Try these Alternatives First

It’s every business owner’s least-favorite task: laying off staff. But sometimes, layoffs are unavoidable. Labor costs are a significant line item on most companies’ income statements, and reducing your workforce can potentially help restore stability if your business hits choppy waters.

On the other hand, many costs are associated with staff reductions. These include severance payments, legal expenses, reduced productivity, reputational risk, and the future expense of hiring and training new workers when your company’s finances improve. In fact, you may first want to consider less risky alternatives that reduce or delay the need for layoffs.

Last-resort thinking

Think of layoffs as your company’s last resort. For example, is it possible to first trim some perks? Eliminating unnecessary travel, executive seminars, holiday parties and staff retreats may provide some budgetary breathing room. Provide managers with reasonable cost-cutting targets and completion dates. At that point, you can reassess your company’s situation.

Pruning employee benefits can also yield cost savings. Ask your HR staff to scrutinize benefit use and think about discontinuing the least popular offerings. Just be careful about removing benefit options. Your business may be subject to certain contract terms and other legal obligations, particularly when it comes to retirement and health care plans. Consult knowledgeable benefits experts and your attorney as needed.

You might also need more drastic cost-cutting measures, such as temporarily furloughing workers or implementing a four-day work week. Or you may be able to trim salaries. Would a 5% across-the-board wage reduction solve your business’s financial troubles? Could you offer stock options to compensate and incentivize affected employees? Just make sure that any sacrifices you mandate are shared. For instance, if you lower hourly wages and sales commission rates, your senior executives should also forgo any bonuses.

Beyond workers

Be sure to look beyond employees for solutions. You might be able to restructure your business to enhance performance or change your business form to improve tax efficiency. And if you haven’t already, sunset:

• Unprofitable products and services,

• Obsolete production lines, and

• Duplicative efforts.

You may be able to sell equipment you no longer use or nonstrategic assets such as real estate. Also consider divesting or spinning off any noncore business lines.

Act strategically

If, despite all your best efforts, staff reductions appear inevitable, act strategically. Take advantage of any attrition and look at employees who may be willing to take early retirement. To protect your company’s public face, try consolidating back-office operations before terminating customer-facing employees.

We know how heart-wrenching such decisions can be. So contact FMD to review your financial situation and suggest ways to enhance cash flow, manage budgets, deal with debt and restore your business to good health without taking any unnecessary actions.

Cash vs. Accrual: Choosing the Right Accounting Method

Many small business owners start with simple accounting processes. But as their companies grow, the choice of accounting method can significantly impact taxes, financial reporting and access to financing. Understanding the differences between the cash and accrual methods — and when each makes sense — can help you make more informed decisions as your business develops.

Cash-basis accounting: Simplicity and tax flexibility

Under the cash method, companies recognize revenue when payments are received and expenses when they’re paid. As a result, cash-basis entities may report fluctuations in profits from period to period, especially if they’re working on long-term projects. This can make it hard to benchmark a company’s performance from year to year — or against other entities that use the accrual method.

Small businesses with average annual gross receipts below an inflation-adjusted threshold may qualify to use the cash method for federal tax purposes. For the 2025 tax year, the inflation-adjusted gross receipts threshold was $31 million. For 2026, the threshold increases to $32 million. These tax thresholds apply to most small businesses, including sole proprietorships, partnerships and corporations.

Businesses that are eligible to use the cash method of accounting for tax purposes may have some ability to manage the timing of income and deductions within the boundaries of tax rules. This typically involves planning around when income is received and expenses are paid.

In some cases, businesses may benefit from deferring revenue and accelerating expenses near year end to reduce current-year taxable income. However, this approach should be evaluated carefully, as it may also make the business appear less profitable to lenders or investors. Conversely, if tax rates are expected to increase substantially in the coming year, it may be advantageous to accelerate revenue recognition and defer expenses at year end. This strategy may increase current-year tax liability but could result in overall tax savings if future rates change.

Accrual-basis accounting: Clearer financial picture for decision-making

The accrual method is more complex but provides a more complete view of a company’s financial performance. It conforms to the matching principle under Generally Accepted Accounting Principles (GAAP), meaning companies recognize revenue and expenses in the period they’re earned or incurred. This method reduces major fluctuations in profits from one period to the next, making performance easier to benchmark.

For example, a business that delivers services in December but isn’t paid until January would still report that revenue in December under the accrual method — providing a more accurate picture of when the work was performed.

In addition, accrual-basis businesses report several asset and liability accounts that are generally absent on a cash-basis balance sheet. Examples include prepaid expenses, accounts receivable, accounts payable, work-in-process inventory and accrued expenses.

The U.S. Securities and Exchange Commission requires public companies to issue financial statements that conform to GAAP, which prescribes the usage of the accrual method. Private companies that are large enough to consider going public, or that are contemplating mergers or acquisitions, may want to issue GAAP financial statements to facilitate these transactions. Likewise, many lenders prefer GAAP financials for underwriting and due diligence purposes.

Some states also require sales tax returns to be filed on an accrual basis. If you don’t track and plan carefully in these states, you might get hit with a sales tax bill on payments you haven’t yet collected. This can affect your cash flow.

Which method is right for you?

Many businesses begin with the cash method but revisit that choice as operations become more complex. Choosing the wrong accounting method — or failing to revisit your approach as your business grows — can affect everything from tax liability to financing opportunities. FMD can help you evaluate whether your current method remains appropriate and guide you through the transition if a change makes sense. Contact us to evaluate your financial reporting options and help you make an informed decision.

An ILIT has many Benefits, but Options are Available to Undo It

Life insurance can provide peace of mind. But if your estate is large enough that estate taxes are a concern, it’s important not to own the policy at death. Why? The policy’s proceeds will be included in your taxable estate. To avoid this result, a common estate planning strategy is to set up an irrevocable life insurance trust (ILIT) to hold the policy.

However, there may come a time when you no longer need the ILIT. Does its irrevocable nature mean you’re stuck with it forever? Maybe not. Depending on the ILIT’s terms and applicable state law, you might have the option of pulling a life insurance policy out of an ILIT or even unwinding the ILIT entirely.

How does an ILIT work?

An ILIT shields life insurance proceeds from estate tax because the trust, rather than the insured, owns the policy. (Note, however, that under the “three-year rule,” if you transfer an existing policy to an ILIT and then die within three years, the proceeds remain taxable. That’s why it’s preferable to have the ILIT purchase a new policy, if possible, rather than transferring an existing policy to the trust.)

The key to removing the policy from your taxable estate is to relinquish all “incidents of ownership.” This means, for example, that you can’t retain the power to change beneficiaries; assign, surrender or cancel the policy; borrow against the policy’s cash value; or pledge the policy as security for a loan (though the trustee may have the power to do these things).

What are the options for undoing an ILIT?

Generally, there are two reasons you might want to undo an ILIT:

1. You no longer need life insurance, or

2. You still need life insurance, but your estate isn’t large enough to trigger estate tax, and you’d like to eliminate the restrictions and expense associated with the ILIT structure.

Although your ability to undo an ILIT depends on the ILIT’s terms and applicable state law, potential options include:

Allowing the insurance to lapse. This may be a viable option if the ILIT holds a term life insurance policy that you no longer need (and no other assets). You simply stop making contributions to the trust to cover premium payments. Technically, the ILIT continues to exist. But once the policy lapses, the ILIT owns no assets. It’s also possible to allow a permanent life insurance policy to lapse, but other options may be preferable — especially if the policy has a significant cash value.

Swapping the policy for cash or other assets. Many ILITs permit the grantor to retrieve a policy from an ILIT by substituting cash or other assets of equivalent value. If you have illiquid assets but need cash, you may be able to gain access to a policy’s cash value by swapping the policy for illiquid assets of equivalent value.

Surrendering or selling the policy. If your ILIT holds a permanent insurance policy, the trust might surrender it, which will preserve its cash value but avoid the need to continue paying premiums. Alternatively, if you’re eligible, the trust could sell the policy in a life settlement transaction.

Distributing the trust assets. Some ILITs give the trustee the discretion to distribute trust funds (including the policy’s cash value, other trust assets or possibly the policy itself) to your beneficiaries, such as your spouse or children. Typically, these distributions are limited to funds needed for “health, education, maintenance and support.”

Going to court. If the ILIT’s terms don’t permit the trustee to unwind the trust, it may be possible to obtain a court order to terminate it. For example, state law may permit a court to modify or terminate an ILIT if unanticipated circumstances require changes to achieve the trust’s purposes or if the grantor and all beneficiaries consent.

We’re here to help

These are some, but by no means all, of the strategies that may be available to unwind an ILIT. Bear in mind that some of these solutions can have tax implications for you or your beneficiaries. Contact FMD to learn more about ILITs.

Benefits that Help You Care for Your Company’s Caregivers

With caregiving costs rising faster than inflation, it’s harder than ever to juggle parenting young children or caring for elderly relatives while also working nine to five. Your business can help support caregiving employees and boost productivity by offering dependent care flexible spending accounts (FSAs). This benefit provides a tax-advantaged method to pay for eligible caregiving expenses using pretax dollars.

Or maybe you want to make a bigger commitment but are concerned about the costs. If you provide child care directly to workers — for example, by setting up a day care facility in your building — your company may qualify for a significant tax credit.

When employees opt in

To sponsor dependent care FSAs, you’ll need to implement a dependent care assistance program (DCAP), which enables you to retain ownership of your workers’ FSAs. Participating employees must opt in, typically during your company’s open enrollment period or after experiencing a qualifying life event. Then they make pretax compensation deferrals to their accounts, up to $7,500 annually for married couples filing jointly, single filers and heads of households, $3,750 for those married and filing separately. These amounts aren’t indexed for inflation.

Workers can use their FSA balances to pay for eligible expenses, including day care, before- and after-school care, summer day camps, and care for dependent adults who can’t care for themselves. Qualifying expenses must enable participants (and, if applicable, their spouses) to work or seek employment. Using pretax dollars to fund accounts allows participants to pay for qualifying care while reducing their taxable incomes.

Employers win, too

For employers, sponsoring dependent care FSAs also offers potential advantages. First, these accounts can help attract strong job candidates and retain employees.

Second, because participants’ contributions occur pretax, they’re exempt from Social Security and Medicare taxes. That reduces your business’s (and your employees’) payroll tax burden. To increase dependent care FSA participation, you may make contributions to employees’ accounts. However, the $7,500/$3,750 annual contribution limits apply to combined employer-employee contributions. Note that you can’t deduct contributions as a business expense.

You’ll need to ensure that your DCAP complies with IRS regulations, including nondiscrimination rules. Proper recordkeeping, timely reimbursements and clear communication are also critical. Be sure to educate participants about the “use-it-or-lose-it” rule that says FSA balances generally must be spent by the end of the year. (Unused account funds generally revert to employers.) Be sure to train employees to estimate expenses and submit claims to minimize the risk of losing FSA funds. And let participants know their FSAs aren’t portable — meaning they can’t take their balances with them if they leave your company.

Tax help with costs

Another way to retain loyal, hardworking staff is to provide child care directly. For 2026, you may be able to claim an employer-provided child care tax credit equal to 40% of your qualified expenses for providing child care to employees, plus 10% of qualified resource and referral expenditures, up to $500,000. For eligible small businesses, these amounts are 50% and up to $600,000, respectively. The maximum dollar amount will be adjusted annually for inflation after 2026. (The additional 10% credit for resource and referral expenses will continue to be available.)

Qualified costs include those spent to acquire, construct, renovate and operate a child care facility. Or you can claim expenses for contracting with a licensed child care facility. If you provide on-site care, at least 30% of the enrolled children must be your employees’ dependents.

Competitive package

Dependent care FSAs and employer-offered child care can be competitive additions to your employee benefits package. But because of the resources involved, think carefully before designing a DCAP or establishing a child care facility. Your workforce may not want them. Consider distributing a survey to gauge interest before you commit to offering new fringe benefits.

And to help ensure you’re offering the most cost- and tax-effective benefits to your workforce, contact FMD. We can review your benefits lineup, potentially suggest changes and advise on program setup and administration.

How can an FLP Fit into Your Overall Estate Planning Strategy?

A family limited partnership (FLP) allows you to manage and protect your wealth while gradually transferring it to your children or other heirs. Additional benefits include potential tax savings and protection from creditors. And you don’t have to own a business to have an FLP.

FLPs in a nutshell

To take advantage of an FLP, you form a limited partnership to transfer a family business, real estate, investments or other assets. Initially, you receive a general partnership interest of 1% or 2% and limited partnership interests totaling 99% or 98%. You then sell or gift the limited partnership interests to your children or other family members.

As a general partner, you retain management control over the partnership assets, even after you’ve transferred most of the assets’ value to other family members. The significant benefit here is that an FLP removes wealth from your estate while the federal gift and estate tax exemption is at a record high without you immediately parting with control over that wealth. For 2026, the exemption amount is $15 million ($30 million on a combined basis for married couples). (Although there’s no longer an expiration date for the high exemption, lawmakers could still reduce the amount in the future.)

Limited partners, on the other hand, have minimal control over the partnership, and their ability to sell their interests to nonfamily members is generally highly restricted by terms of the partnership agreement. This allows the older generation to consolidate management of family assets and keep them in the family.

Reduce your taxable estate

Transferring FLP interests to family members removes the value of the underlying assets from your taxable estate. Although interests that are gifted rather than sold (or sold for less than fair market value) are taxable gifts, they can be shielded (in whole or in part) from federal gift tax by your gift and estate tax exemption.

In addition, because limited partnership interests possess little control over the partnership and are challenging to sell, their value for gift tax purposes is generally discounted substantially. This allows the older generation to give away even more wealth tax-free.

Shift income to a lower tax bracket

A properly structured and operated FLP allows you to shift income to your children or other family members who may be in lower tax brackets. An FLP is a pass-through entity for income tax purposes. In other words, there’s no entity-level federal tax. Instead, the FLP’s income (as well as its deductions, credits and other items) is passed through to the individual partner, who reports his or her share on a personal income tax return.

So, for example, if you’re in the 35% tax bracket and transfer FLP interests to family members in the 10% or 12% bracket, the tax savings can be substantial. However, your ability to shift income to children may be limited because of the “kiddie” tax, which can apply to children as old as 23, depending on the circumstances.

Increase asset protection

Transferring assets to an FLP can place them beyond the reach of certain creditors. Generally, an FLP’s assets are protected against claims by the limited partners’ personal creditors. In most cases, those creditors are limited to obtaining rights to distributions, if any, received by a limited partner. In addition, limited partners’ personal assets held outside the FLP are generally shielded against claims by the FLP’s creditors.

General partners don’t enjoy the same protections. Still, they may be able to limit their personal liability by forming a corporation or limited liability company to hold their general partnership interests.

Seek professional guidance

A potential downside to consider is that establishing and maintaining an FLP requires legal and tax expertise, ongoing administrative oversight and strict adherence to partnership formalities to withstand IRS scrutiny. Contact FMD for help determining whether an FLP would be beneficial for your family.

Cross-functional Teams can Boost Collaboration — and Sales

“Cross-functional” sales teams that collaborate with other departments often perform more effectively than siloed ones. By providing feedback and support, employees with varied skill sets and knowledge bases can help your sales team create more holistic sales strategies, better align product offerings with customer needs and efficiently adapt to market changes. Here’s how sales can leverage the expertise of marketing, product development, customer service, finance and other internal stakeholders.

Fighting silos

A cross-functional team is any group of employees from different departments brought together to solve a problem or pursue a goal. Your company might assemble such teams to develop new products or services, implement technology upgrades, and complete short-term projects. However, the cross-functional approach really shines when applied to sales and marketing. Even though these departments are closely connected, they often operate in separate spheres.

Silos can also exist within the sales team, where individuals work largely on their own and share limited information. Many salespeople spend their time interacting with prospective customers or clients. They might only “come up for air” to share information and experiences at sales meetings or in conversations with managers. This can result in missed opportunities to communicate insights on customers, prices and other issues.

Team members

By building a cross-functional sales team, you can eliminate such silos. You should aim to create an environment where employees feel comfortable sharing information and working together. Seek early buy-in from employees who communicate well and are open to collaboration. They can help you promote the concept and encourage broader employee buy-in.

Your team will obviously need to include members of both the sales and marketing departments. But don’t stop there. Someone from your IT department could help recommend tech solutions for sales department challenges. A customer service rep might be able to provide insights into how customers are likely to respond to changes in product features. A finance team member could weigh in on profitability by product or customer.

Cross-functional sales teams don’t require complex leadership structures. In fact, appointing a team leader from within the group can encourage open participation and accountability.

Other benefits

The advantages of forming a cross-functional sales team extend beyond improving sales results: Such teams can infuse fresh perspectives into all your departments, inspire greater communication companywide and support more consistent decision-making.

Over time, this approach can lead to clearer visibility into what’s driving revenue and profitability. If you’re looking to better align sales with your overall business strategy, contact FMD. We can help you identify where cross-functional collaboration will likely pay off.

Accounting for Intellectual Property in Your Estate Plan

When most people think about estate planning, they focus primarily on tangible assets, such as real estate, investments and personal property. However, in some cases, intellectual property (IP) can make up a substantial portion of an individual’s wealth. Proper planning can help ensure that these assets are preserved, accurately valued and transferred according to your wishes.

Defining IP

IP generally falls into four main categories: patents, copyrights, trademarks and trade secrets. We’ll focus here only on patents and copyrights. They’re protected by federal law to promote scientific and creative endeavors by providing inventors and artists exclusive rights to benefit economically from their work for a certain period.

Patents protect inventions, and the two most common are utility and design patents. Under federal law, utility patents protect an invention for 20 years from the patent application filing date. (It typically takes at least a year to a year and a half from the date of filing to the date of issue.) Design patents last 15 years from the patent issue date.

Copyrights protect the original expression of ideas that are fixed in a “tangible medium of expression,” typically in the form of written works, music, paintings, film and photographs. Unlike patents, which must be approved by the U.S. Patent and Trademark Office, copyright protection kicks in as soon as a work is fixed in a tangible medium. And copyrights last much longer than patents. The specific term depends on various factors.

Valuing and transferring IP

Valuing IP is a complex process. Unlike physical assets, the value of IP often depends on future income potential. Valuation may consider factors such as licensing agreements, royalty streams, market demand, brand recognition and comparable sales. Often, a professional appraiser is needed to determine fair market value. Accurate valuation is particularly important for estate tax reporting and equitable distribution among heirs.

After you know the IP’s value, it’s time to decide whether to transfer the IP to family members, colleagues, charities or others through lifetime gifts or bequests after your death. The gift and estate tax consequences will likely affect your decision. But you also should consider your income needs, as well as who’s in the best position to monitor your IP rights and take advantage of their benefits.

If you’ll continue to depend on the IP for your livelihood, hold on to it at least until you’re ready to retire or you no longer need the income. You also might want to retain ownership of the IP if you feel that your children or other beneficiaries lack the desire or wherewithal to take advantage of its economic potential and monitor and protect it against infringers.

Whichever strategy you choose, it’s important to plan the transaction carefully to ensure your objectives are achieved. There’s a common misconception that when you transfer ownership of the tangible medium on which IP is recorded, you also transfer the IP rights. But IP rights are separate from the work itself and are retained by the creator.

Working with us

If you hold intangible assets, such as a patent or copyright, contact FMD. We can help ensure that these potentially valuable assets are properly accounted for in your estate plan.