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Summer Hiring? How to Manage Seasonal Workers, Interns, and Payroll Compliance Without the Stress

Planning to hire seasonal staff this summer? It’s an exciting time for your business—but the complexities of payroll and compliance can quickly turn that excitement into headaches. Whether you’re onboarding interns or part-time employees, summer hires are one of the most frequent sources of payroll classification errors for small businesses.Even a single mistake—like treating …

Planning to hire seasonal staff this summer? It’s an exciting time for your business—but the complexities of payroll and compliance can quickly turn that excitement into headaches. Whether you’re onboarding interns or part-time employees, summer hires are one of the most frequent sources of payroll classification errors for small businesses.

Even a single mistake—like treating a W-2 employee as an independent contractor just because it’s temporary—can lead to costly penalties.

Employee or Contractor? The IRS Wants Clarity

Many employers assume that paying a flat fee or hiring someone for a short summer stint means they can classify the worker as a contractor. You might have thought:

  • “It’s easier to pay them a fixed amount.”

  • “They’re only here for a few weeks.”

  • “They’re students, so it’s not really a ‘job.’”

The reality? If you control the when, where, and how of their work, the IRS will likely consider them an employee—and require you to handle payroll taxes accordingly.

IRS guidelines on worker classification make no exceptions based on hours worked, seasonality, or whether the work is freelance. If the worker looks like an employee, that’s how they’ll be treated.

Interns Usually Count as Employees, Too

Some employers believe unpaid internships fall outside payroll rules. However, unless the internship is part of a formal educational program and does not expect compensation, the Department of Labor often views interns as employees. This means:

  • Minimum wage laws apply

  • Payroll taxes may be due

  • Workers’ compensation coverage could be necessary

If an intern contributes meaningful work to your business, chances are they should be on your payroll.

Take Advantage of the Work Opportunity Tax Credit (WOTC)

Here’s some good news: hiring from specific groups—such as veterans, long-term unemployed individuals, or summer youth workers—may make your business eligible for the Work Opportunity Tax Credit. This credit can reduce your federal income tax by up to $2,400 for each qualifying hire.

Keep in mind:

  • You must apply before hiring

  • Paperwork must be submitted to your state agency

  • Many businesses overlook this valuable credit

For more details, visit the official WOTC program website.

Other Must-Dos Before Your First Payroll

To stay compliant when bringing on seasonal or intern help, make sure to:

  • Set up proper federal and state tax withholdings

  • Use an active payroll system—manual payments often miss required filings

  • Collect and securely store Forms I-9 and W-4

  • Verify any local labor laws that apply, such as mandatory sick leave or special reporting for part-time workers

  • Know your overtime pay obligations—even if the work is temporary or seasonal

Why Proper Payroll Matters

Your priority is running and growing your business—not wrestling with payroll complications. But ignoring payroll compliance, even briefly, can lead to:

  • Costly penalties for worker misclassification

  • Missing out on tax credits like the WOTC

  • Risk of state audits

  • Potential claims from former workers

Need Help? Talk to the Payroll Experts Before You Hire

We’ve guided countless small businesses through summer hiring—helping them set up payroll correctly and avoid compliance pitfalls. If you’re bringing on seasonal, part-time, or intern workers soon, contact DeBoer, Baumann & Company.

We’ll assist you in navigating payroll rules, reducing tax risk, and maximizing potential credits—so you can focus on what matters most: your business.

Reach out today before your first paycheck runs, and let us help you get it right from the start.

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Unlocking Business Tax Credits: A Comprehensive Guide 

Tax credits offer businesses significant opportunities to reduce their tax liabilities while simultaneously incentivizing certain beneficial activities. By understanding and utilizing these credits, businesses can not only save money but also contribute positively to community well-being and innovation. Here’s an in-depth look at several key business tax credits. The Work Opportunity Credit The Work Opportunity Tax …

Tax credits offer businesses significant opportunities to reduce their tax liabilities while simultaneously incentivizing certain beneficial activities. By understanding and utilizing these credits, businesses can not only save money but also contribute positively to community well-being and innovation. Here’s an in-depth look at several key business tax credits. 

The Work Opportunity Credit 

The Work Opportunity Tax Credit (WOTC) serves as a powerful incentive for business owners to hire individuals from specific targeted groups who face significant barriers to employment. By leveraging this federal tax credit, employers not only contribute to the economic empowerment of disadvantaged communities but can also enhance their workforce diversity and talent pool. This article explores the intricacies of the WOTC program, including the eligible targeted groups, certification process, qualifications, and its relationship to the general business credit. 

The Work Opportunity Credit targets several distinct groups that include Veterans, Recipients of Temporary Assistance for Needy Families (TANF), Long-Term Family Assistance (TANF) Recipients, Long-term unemployed individuals, Vocational rehabilitation referrals, Supplemental Nutrition Assistance Program (SNAP) recipients, Summer Youth Employees, SSI recipients, and certain residents of a Designated Community (empowerment zones and specified rural renewal counties). 

  • Certification Process - The certification process for the Work Opportunity Tax Credit is critical to ensure compliance and determine eligibility. Here’s how the system operates: 
     
    1.    Pre-Screening Notice: Employers must complete IRS Form 8850, the Pre-Screening Notice, and Certification Request for the Work Opportunity Credit. It must be filled out on or before the day the job offer is made. 
     
    2.    Submission: This form must be submitted to the respective State Workforce Agency (SWA) within 28 days of the employee’s start date. 
     
    3.    Certification by SWA: The SWA reviews the application to determine if the employee belongs to a targeted group and meets the necessary qualifications. 
     
    4.    Receiving Certification: Once certified, the employer may claim the tax credit in their tax return by completing IRS Form 5884. 
     
  • Qualifications and Credit Determination –To qualify for the WOTC, the following general criteria must be met: 
      
    o    Employment Duration and Hours Worked: The employee must work at least 120 hours to qualify for the credit. If they work over 400 hours, the potential credit increases. For instance, if the employee works a minimum of 120 hours but fewer than 400, the credit equals 25% of the first $6,000 in wages ($1,500). For over 400 hours, it equals 40% ($2,400). 
     
    o    Percentage of Wages: The employee must receive at least 50% of their wages from the employer for work performed in the employer’s business. 
     
    o    Relation Restrictions: The employee cannot be a relative of the employer or have previously worked for the employer. 
     
    o    Specific Qualification Criteria: Each targeted group has particular qualifications specified in IRS Form 8850’s instructions. 
     
  • Integration with the General Business Credit - The WOTC is part of the general business credit. 
     
  • Cannabis Businesses Excluded - The credit is unavailable for wages paid in carrying on a cannabis business. 

Employer-Provided Childcare Credit 

In today’s complex economic landscape, where dual-income households are increasingly the norm, access to affordable childcare remains a cornerstone issue for many working parents. Recognizing this pressing need, the Employer-Provided Childcare Credit, delineated under IRC Section 45F, emerges as a vital economic incentive designed to encourage businesses to offer childcare services to their employees. This tax provision aims not only to support the workforce but also to provide significant tax savings to participating employers. As of recently, Congress has been contemplating legislation to potentially expand this credit, signifying its growing importance in public policy discussions. 

The Employer-Provided Childcare Credit allows businesses that furnish childcare facilities and services to reclaim a portion of their expenses through tax credits. Specifically, businesses can claim a credit worth 25% of qualified childcare expenses and an additional 10% of childcare resource and referral expenditures. The aggregate limit for any given tax year is capped at $150,000, making it an attractive, albeit capped, option for firms looking to invest in their workforce. 

Eligibility for the credit encompasses a wide range of expenses. Qualifying businesses include corporations, partnerships, and sole proprietorships that incur costs in providing childcare services. Expenses associated with the acquisition, construction, rehabilitation, or expansion of property used as part of a qualified childcare facility qualify under this credit. Moreover, operational costs, such as employee training, scholarship programs, and enhanced compensation for staff with advanced childcare training, also are eligible expenses. Critically, qualified childcare facilities must primarily provide childcare assistance, comply with relevant state and local regulations, and not be provided in the principal residence of the operator. Non-discriminatory policies regarding employee eligibility also apply. 

The advantages of this credit extend beyond mere financial reimbursements for employers. By offering employer-subsidized childcare services, firms can significantly alleviate the childcare burden on their employees, fostering a more productive, loyal, and satisfied workforce. Employees with access to these facilities benefit from reduced stress and greater work-life balance, enhancing job performance and retention rates. Moreover, these benefits can frequently translate into tax savings for employees, assuming the benefits align with IRC Section 129’s guidelines for a Qualified Dependent Care Assistance Program (DCAP). 

Nevertheless, the credit involves intricate compliance conditions. Employers must navigate the nuances of IRS Form 8882 (for calculating the credit) and Form 3800 (to report the credit under the general business credit). Notably, if a qualified childcare facility ceases operation or changes ownership, firms may face recapture issues, increasing their tax liability. Thus, businesses must ensure that all childcare benefits are structured to meet the exclusion requirements, maintaining vigilance over licensing and operational standards to avoid potential recapture events. 

As legislative discussions about expanding the Employer-Provided Childcare Credit gain traction, businesses of all sizes may soon find greater incentives to offer childcare solutions. Whether through on-site facilities, partnerships with local childcare providers, or resource referral services, the expanded credit holds promise for transforming workplace dynamics, ultimately supporting working families while enabling businesses to thrive. The broader economic implications of such a shift, encompassing increased workforce participation and economic productivity, underline the Employer-Provided Childcare Credit as not just a financial instrument, but a pivotal socio-economic catalyst in modern times. 

Research Credit 

The research credit is a tax incentive designed to encourage businesses to invest in research and development (R&D) in the United States. It provides a credit for increasing research activities, allowing qualifying businesses to reduce their tax liability based on expenditures related to R&D. 

  • Qualified Research: Qualified research refers to activities that meet specific criteria defined by the Internal Revenue Code. Generally, it must involve a process of experimentation aimed at improving a product or process, and it must encompass elements of technological uncertainty and be intended for discovering information that is technological in nature. 
     
  • Regular and Simplified Methods: 
     
    o    Regular Method: This calculates the credit as a percentage of the qualified research expenses above a base amount. 
     
    o    Simplified Method: 14% of the qualified research expenses over 50% of the average annual qualified research expenses in the three immediately preceding tax years. If no such expenses were incurred in the prior years, it may be 6% of the current year’s qualified research expenses. This method is often preferred by taxpayers with incomplete records or complications from mergers and acquisitions. 
     
  • Qualified Small Business Payroll Election: A qualified small business (QSB) may elect to apply a portion of its research credit against its payroll tax liability, specifically the employer’s share of FICA withholding. To qualify, the business must be a corporation whose stock is not publicly traded, partnership, or sole proprietorship with gross receipts of less than $5 million for the credit year and must not have gross receipts before the fourth preceding year. 

Disabled Access Credit 

The disabled access credit, under Section 44 of the Internal Revenue Code, aims to assist small businesses in accommodating individuals with disabilities. This credit allows eligible small businesses to claim up to 50% of the expenditures incurred for compliant accessibility improvements, up to a maximum credit of $5,000 annually. The expenditures can include physical changes to the business premises or interpreting services, making facilities more accessible to employees and customers with disabilities. 

Eligible expenses for this credit include: 

  1. Removing barriers that hinder access for individuals with disabilities. 
  1. Providing interpreters or audio materials for hearing-impaired individuals. 
  1. Offering readers or taped texts for visually impaired individuals. 
  1. Acquiring or modifying equipment for individuals with disabilities. 

Importantly, expenses claimed for this credit cannot be used for other deductions or credits. 

Pension Startup Credit 

The Pension Start-Up Credit is a benefit for small employers starting new retirement plans. It allows eligible employers to claim a credit for costs related to establishing and administering a new pension plan. The credit is part of the general business credit and includes a one-year carryback and a 20-year carryforward for any unused credits. In addition, there is a specific credit for companies incorporating automatic enrollment in their plans, providing up to $500 per year for the first three years. The credit is designed to support small businesses in setting up retirement plans for their employees and applies to entities with 100 or fewer employees who earn more than $5,000 annually. 

Business Energy Credit 

To promote the use of renewable energy, the business energy investment credit encourages investing in energy-efficient technologies and sustainable practices. Activities such as solar, wind, and geothermal installations can qualify for this credit under Section 46. The business energy investment credit is significant because it reflects the broader intent to move towards sustainable energy sources. The credit varies depending on the technology and can greatly reduce the overall costs of energy projects. 

General Business Credit 

The general business credit is a comprehensive tax credit that combines several specific individual credits. This includes the credits mentioned above and others such as the Indian employment credit, the small employer health insurance premiums credit, and the clean vehicle credit. The general business credit allows business taxpayers to utilize tax credits against not only their regular income taxes but sometimes their alternative minimum tax as well. Limitation rules apply to ensure these credits do not exceed the taxpayer’s net income tax liabilities. 

Educational Assistance Programs 

Although not a tax credit, educational assistance programs offered by employers can be advantageous for both employers and employees when it comes to taxes. Under Section 127 of the Internal Revenue Code, businesses can provide employees with up to $5,250 annually for educational assistance without the amount being taxable to the employee. This tax-exempt status encourages employers to invest in their workforce’s education and skills development, fostering a learning culture and competitive edge in the industry. 

A program must not favor highly compensated employees and no more than 5% of the benefits during the year can be provided to shareholders or owners (or their spouses or dependents). 

In conclusion, understanding and effectively utilizing these various business tax credits can serve as a vital part of a company’s financial strategy. From supporting employment of diverse groups and providing employee benefits to fostering sustainable and innovative practices, these credits offer significant opportunities for financial savings and positive societal impacts. 

Contact our office to efficiently navigate and apply these credits for optimal benefit. 

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Foreign Reporting Requirements: Navigating Harsh Penalties and Complex Compliance Rules

In today’s increasingly global financial environment, it’s common for U.S. taxpayers to hold accounts or receive income from foreign sources—whether that’s through overseas investments, inherited accounts, or rental income deposited in a foreign bank. But with this global reach comes a critical responsibility: complying with foreign reporting rules.Two key reporting obligations include the Foreign …

In today’s increasingly global financial environment, it’s common for U.S. taxpayers to hold accounts or receive income from foreign sources—whether that’s through overseas investments, inherited accounts, or rental income deposited in a foreign bank. But with this global reach comes a critical responsibility: complying with foreign reporting rules.

Two key reporting obligations include the Foreign Bank Account Report (FBAR) and IRS Form 8938, part of the Foreign Account Tax Compliance Act (FATCA). Understanding when these forms apply—and the steep penalties for getting it wrong—is essential for taxpayers with international financial ties.

What Is the FBAR (FinCEN Form 114)?

U.S. persons—including individuals, corporations, partnerships, trusts, and estates—must file an FBAR if they have a financial interest in or signature authority over one or more foreign financial accounts and the total value exceeds $10,000 at any point during the calendar year.

Accounts that may require FBAR reporting include:

  • Checking, savings, or brokerage accounts held outside the U.S.

  • Accounts associated with foreign rental income

  • Online gambling accounts maintained by foreign platforms

  • Accounts inherited from a non-U.S. resident

  • Joint accounts held with relatives abroad

Importantly, FBAR filings are submitted directly to FinCEN, not included with the taxpayer’s income tax return.

Who Must File?

FBAR filing isn’t limited to those who own accounts directly. You may also have a filing obligation if:

  • You own or benefit from a foreign account

  • You have signature or other authority over a foreign account, even if not in your name

  • You are listed on a foreign relative’s account, even without contributing funds

  • You inherited a foreign account with a balance over the threshold

  • You maintain a foreign rental property and deposit income into a local bank

The $10,000 threshold applies to the total value of all foreign accounts combined—not individually. If the combined value exceeds $10,000 for even a single day during the year, you’re required to file.

Common FBAR Exceptions

While FBAR requirements are extensive, a few exceptions exist:

  • Accounts at foreign branches of U.S. banks located in the U.S.

  • Accounts held on U.S. military banking facilities abroad

  • Jointly held spousal accounts, if reported by one spouse with proper documentation (Form 114a)

Even with these exceptions, it’s important to evaluate all accounts carefully to avoid underreporting.

FBAR Penalties: What’s at Stake?

Penalties for noncompliance can be severe:

  • Non-willful violations may result in civil penalties up to $10,000 per violation
    (Adjusted to $16,536 as of January 17, 2025)

  • Willful violations carry a penalty of the greater of $100,000 or 50% of the account balance
    (Adjusted to $165,353 as of January 17, 2025)

In cases of willful neglect, criminal charges and imprisonment are also possible. The statute of limitations for FBAR enforcement extends for several years, making it possible for past violations to surface during audits or investigations.

How Does Form 8938 Differ from the FBAR?

In addition to the FBAR, certain taxpayers may also need to file Form 8938, the IRS’s Statement of Specified Foreign Financial Assets under FATCA. While both forms address foreign holdings, they differ in how they are filed, what they include, and their thresholds.

Unlike the FBAR, Form 8938 is filed as part of your federal income tax return.

Thresholds for Filing Form 8938

The value of your foreign financial assets must exceed the following thresholds to trigger filing:

Filing StatusLiving in the U.S.Living Abroad
Married Filing Jointly$100,000 (end of year) / $150,000 (any time)$400,000 / $600,000
All Others$50,000 / $75,000$200,000 / $300,000

To qualify as living abroad, a U.S. person must either be a bona fide resident of a foreign country for the entire year, or be physically present abroad for at least 330 full days in any 12-month period ending in the reporting year.

What Assets Are Reported on Form 8938?

Form 8938 captures a broad range of foreign assets, including:

  • Foreign checking, savings, and brokerage accounts

  • Investments in foreign stocks, bonds, or securities

  • Interests in foreign partnerships or mutual funds

  • Foreign retirement accounts or annuities

  • Other financial instruments with exposure to foreign markets

Although many of these assets may also appear on the FBAR, the definitions and thresholds differ—which is why both forms may be required.

Penalties for Failing to File Form 8938

The IRS can impose significant penalties for failing to file Form 8938:

  • $10,000 for failure to file when required

  • Up to an additional $50,000 for continued noncompliance (if not filed within 90 days of IRS notification)

These are in addition to any FBAR-related penalties and are not adjusted for inflation.

Where Do FBAR and Form 8938 Overlap?

Many taxpayers are surprised to learn they must file both the FBAR and Form 8938 for the same accounts or assets. For example:

  • A foreign bank account may need to be reported on both forms if the combined balance exceeds $10,000 (FBAR threshold) and also surpasses the FATCA threshold for Form 8938.

  • Foreign stocks, securities, or investment funds held in a foreign account may also fall under both reporting rules.

Because the definitions and thresholds are not identical, it’s important to review both sets of requirements closely.

Best Practices for Compliance

Given the complexity of foreign reporting, taxpayers should take a proactive approach:

Conduct a Full Review of All Foreign Assets

Evaluate all bank accounts, investments, and other assets held abroad—including those inherited or jointly held.

Understand the Different Thresholds

Keep in mind that FBAR uses a flat $10,000 threshold, while Form 8938’s limits depend on filing status and residency.

Monitor Foreign Currency Fluctuations

Because valuations are based on U.S. dollar equivalents, shifts in exchange rates can impact whether a filing is required.

Maintain Complete Documentation

Both FinCEN and the IRS recommend keeping supporting records for at least five years—including statements, ownership documents, and balances.

Seek Professional Guidance

Due to the penalties involved, working with a tax advisor who understands international reporting is often the best way to ensure accuracy and peace of mind.

Final Thoughts

For U.S. taxpayers with overseas financial interests, compliance with FBAR and FATCA (Form 8938) reporting is critical. These rules apply in a variety of scenarios—from receiving rental income abroad, to holding signature authority over a family member’s account, to participating in online gambling platforms hosted overseas.

Given the significant risks—including steep civil penalties and potential criminal exposure—taxpayers should take foreign reporting obligations seriously. If you’re unsure about your filing responsibilities, the team at DeBoer, Baumann & Company is here to help you navigate the complexities and stay in compliance.

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Unpredictable Weather Leaves Northern Michigan Apple Growers in Limbo

Apple growers across Northern Michigan are facing a season filled with uncertainty as they monitor how their orchards respond to lingering winter conditions and a slow start to spring. While some signs are encouraging, cooler temperatures are raising concerns about pollination, fruit development, and ultimately, the fall harvest.Emma Grant of Cherry Bay Orchards in …

Apple growers across Northern Michigan are facing a season filled with uncertainty as they monitor how their orchards respond to lingering winter conditions and a slow start to spring. While some signs are encouraging, cooler temperatures are raising concerns about pollination, fruit development, and ultimately, the fall harvest.

Emma Grant of Cherry Bay Orchards in Leelanau County summed up the current mood among growers: “I wish the unpredictability is what is predictable, that every year is going to be different, every spring is going to be different, every growing season and harvest is going to be different.”

Growers began to see apple trees bloom roughly two weeks ago, but lower-than-average temperatures have stalled further development. According to Grant, “It’s just been kind of a drawn-out bloom as these cooler temperatures came in, things aren’t really moving along.”

While the extended winter helped replenish ground moisture—a benefit for the growing season—it also brought challenges. One of the biggest concerns is the reduced bee activity, which plays a vital role in pollination. Without adequate pollination, fruit set could be limited.

Describing the uneven bloom patterns, Grant noted, “I’ve got trees where, clusters are open, some are starting to go into petal fall, and then there’s other clusters that are still at pink and haven’t even begun to open flowers yet. So it’s going to be interesting to see what the fruit set does.”

Nikki Rothwell of the Northwest Michigan Horticulture Research Center also emphasized the uncertainty surrounding the season. “I feel like we’re kind of still playing a waiting game which seems unbelievable considering it’s gonna be June soon,” she said.

Rothwell encourages growers to take a hands-on approach when evaluating their trees. “We’ve been recommending getting out of the truck and actually walking, looking at the tree, look high in the tree which usually has more fruit than the bottom part of the tree and then start to make those thinning decisions.”

As temperatures begin to rise, growers are hopeful that more clarity will come in the days ahead. Grant explained, “In a week or so, we should start to see that fruitlet development to start getting into like four millimeter, six millimeter, the size of the fruit, where you start to look at your thinning numbers. So we should be able, by the end of next week to know a little better what we have out there, and then take that into account as we look at thinning.”

It’s not just apples that are affected. Cherry growers throughout the region are also navigating a critical period, with some orchards reporting weather-related damage while others remain largely unaffected.

For now, many growers remain in a holding pattern, closely watching their crops and hoping the weather cooperates as the season progresses.

To read the full article by Marc Schollett, visit this link: https://upnorthlive.com/news/local/northern-michigan-apple-growers-face-uncertain-season-amid-weather-challenges

At De Boer, Baumann & Company, we’re proud to serve the agricultural community. If you need help navigating seasonal challenges or planning for long-term farm sustainability, our team is here to support your goals.

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Why It Pays to Start Your Retirement Plan Early

When it comes to retirement, timing is everything—especially for farmers who often prioritize reinvesting in their operations over setting money aside for the future. But the earlier you begin saving, the greater the payoff thanks to the power of compound interest. Starting your retirement plan early not only helps secure your financial future but …

When it comes to retirement, timing is everything—especially for farmers who often prioritize reinvesting in their operations over setting money aside for the future. But the earlier you begin saving, the greater the payoff thanks to the power of compound interest. Starting your retirement plan early not only helps secure your financial future but can also ease the eventual transition of your farm to the next generation.

 

The Power of Compound Growth

Compound interest is a powerful tool that rewards consistency and time. One way to think about compounding is the “Rule of 72”—if you divide 72 by your expected annual return, the result is the number of years it will take your investment to double. For instance, with a 3% return, your money doubles in 24 years; at 8%, it doubles in just 9.

This difference becomes even more meaningful the earlier you start. Let’s compare two farmers who each invest $10,000 into a retirement plan—one at age 20, the other at 40—and assume they let the funds grow until age 70:

  • At a 3% return:

    • Investment at age 20 grows to $469,016

    • Investment at age 40 grows to $100,627

  • At a 10% return:

    • Investment at age 20 grows to $1,173,909

    • Investment at age 40 grows to $174,494

That’s a significant difference—and it all comes down to starting earlier, even with the same initial amount.

 

Low Costs, High Value

One reason many farmers shy away from retirement plans is the perception that they’re expensive or complicated. But maintaining a solo 401(k) or contributing to an IRA is typically low-cost and straightforward. For married couples, contributing up to $14,000 annually across two IRAs is often an easy first step.

It’s also wise to invest in low-cost exchange-traded funds (ETFs) or mutual funds. These options typically have lower fees, which means more of your money stays invested and working for you over time.

 

Most Growth Happens Later—So Start Now

Interestingly, the majority of earnings in a retirement account often occur in the final decade before retirement. That’s why it’s so important to start early—even small contributions made in your 20s or 30s can grow significantly by the time you reach retirement age.

 

Protection from Risk

Aside from long-term savings, retirement accounts offer protection against financial risk. For farmers—whose livelihoods often come with market volatility and external pressures—this added layer of security is especially valuable.

Retirement funds held in employer-sponsored plans like a 401(k) are fully protected in the event of bankruptcy. While IRAs aren’t entirely exempt, the protected limit is substantial. As of April 1, 2025, the exemption amount increased to $1,711,975, effective through March 31, 2028.

This means most farmers with IRA balances under that threshold will retain access to their retirement savings—even in the worst-case scenario. In many states, IRAs are either fully or partially protected as well. These accounts don’t just help you save—they provide peace of mind.

 

Build a Better Financial Future

Starting a retirement plan may feel like a big step, but it’s one of the smartest financial decisions a farmer can make. With time on your side, even modest contributions can grow into a reliable source of income and protection. Planning for retirement also makes future succession planning easier by reducing financial dependence on the farm.

To read the full article by Paul Neiffer, visit: https://www.agweb.com/news/business/succession-planning/best-time-start-your-retirement-plan

Need help determining how retirement planning fits into your overall financial strategy? At De Boer, Baumann & Company, we can help you explore tax-advantaged savings options, assess long-term needs, and make the most of your future investments.

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Planning Ahead: A Practical Guide to Farm Succession

Preparing to Pass Down the Farm? Here’s What to KnowYour farm is more than a business—it’s a legacy built through years of dedication, sacrifice, and hard work. Whether you envision passing it down to the next generation or transitioning ownership to someone outside the family, having a succession plan is essential. It not only …

Preparing to Pass Down the Farm? Here’s What to Know

Your farm is more than a business—it’s a legacy built through years of dedication, sacrifice, and hard work. Whether you envision passing it down to the next generation or transitioning ownership to someone outside the family, having a succession plan is essential. It not only protects the future of your operation but also helps avoid disruption and financial uncertainty.

Farm succession planning goes beyond simply handing over the reins. It’s about setting up the next chapter with purpose and clarity. Here’s what to consider as you begin the process.

 

Start with Your Long-Term Vision

Before any formal planning begins, take time to reflect on your long-term goals. What do you want your legacy to look like? Do you hope to keep the farm in the family, or are you open to selling it? Will you remain involved in day-to-day operations, or are you ready to step back completely?

These types of questions can help shape the direction of your succession strategy:

  • Do you want to pass the farm to a family member or someone outside the family?

  • What income will you need in retirement?

  • How do you envision the farm evolving under future leadership?

Once you’ve outlined your vision, it’s time to start the conversation with those who will be impacted.

 

Communicate Early and Openly with Family

If the plan involves family, communication is key. Having open discussions with your loved ones now can help reduce misunderstandings and emotional strain later. Some family members may be eager to take over, while others might not want to be involved at all.

During these conversations, try to address:

  • Who is interested in managing or operating the farm?

  • How will responsibilities and decision-making be shared?

  • What role will non-involved family members play, if any?

If no one within the family is interested in taking over, consider exploring alternatives like selling to a trusted partner or another successor outside the family.

 

Assess Financial and Legal Considerations

A solid farm succession plan must also account for the financial health of the business. Reviewing your finances now will help ensure the farm remains viable and that your own financial needs—such as retirement income—are met.

Here are a few key items to evaluate:

  • Financial Status: Take stock of current assets, debts, and cash flow.

  • Legal Readiness: Review land titles, business structures, and any existing agreements to ensure they support your goals.

Addressing these items early can help prevent legal or financial issues down the road and give you peace of mind about your future.

 

Document Your Succession Plan

Once your vision is clear and you’ve had conversations with those involved, it’s time to put the plan on paper. A written plan ensures everyone is on the same page and helps eliminate confusion or conflict during the transition.

Your written succession plan should address:

  • Leadership Transition: Who will take on day-to-day management, and when?

  • Ownership Transfer: Will the farm be gifted, sold, or transitioned gradually?

  • Training and Mentorship: What steps will prepare the next generation for success?

Having a clear plan in place not only guides the process but also builds confidence among everyone involved.

 

Get Guidance from Professionals

Farm succession planning can be complex. Seeking guidance from qualified professionals can help you navigate the many tax and financial implications.

Consider working with:

  • Agricultural Lenders: For financing options that support your transition.

  • Financial Advisors: To help you plan for retirement and maintain farm cash flow.

  • Estate Planners: To ensure your succession plan aligns with your overall goals.

Professional insight can be the difference between a smooth handoff and a stressful one.

 

Explore All Succession Strategies

Not every farm follows the same path. If a traditional family transfer isn’t the best fit, there are several other approaches that can keep your operation running successfully.

Some options include:

  • Gradual Transfer: Transitioning ownership over time while remaining involved.

  • Shared Management: Having multiple generations manage together during the transition period.

  • Lease-to-Own: Letting a successor lease land or equipment with the option to purchase later.

  • Non-Family Successors: Transitioning the farm to a partner or trusted outside party.

Exploring these alternatives now gives you more flexibility and helps secure your farm’s future.

 

Secure Your Farm’s Future Today

Creating a farm succession plan doesn’t happen overnight—but starting early will make the process easier for everyone involved. Having honest conversations, getting your finances in order, and putting your plan in writing are all steps that help safeguard your legacy.

Remember, your farm’s future deserves just as much care and intention as the years of work that built it.

To read the full article by Conterra Ag, visit this link: https://www.conterraag.com/planning-for-the-future-a-practical-guide-to-farm-succession

Need help navigating your farm’s succession strategy? At De Boer, Baumann & Company, we’re here to support you every step of the way—from financial planning to transition support and more.

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Donor Receipt Letters: A Guide for Not-for-Profit Organizations

When a donor contributes to your not-for-profit organization, they’re making an investment in your mission. A well-crafted donation receipt not only ensures that your donors can claim their tax deduction but also serves as an opportunity to express gratitude and reinforce their commitment to your cause. In this blog, we’ll walk through the essential …

When a donor contributes to your not-for-profit organization, they’re making an investment in your mission. A well-crafted donation receipt not only ensures that your donors can claim their tax deduction but also serves as an opportunity to express gratitude and reinforce their commitment to your cause.

In this blog, we’ll walk through the essential elements of a proper donation receipt and how you can make the most of this important communication tool.

Why Are Donation Receipts Important?

A donation receipt is more than just a formality, it’s a requirement for donors who wish to claim a tax deduction for their charitable contribution. The IRS has specific guidelines on what must be included in a valid donation receipt, and failing to comply can create challenges for both your organization and your donors.

To ensure compliance and strengthen donor relationships, every receipt should include the following elements:

The 4 Key Requirements for a Donation Receipt

1. Name of the Organization

This one is straightforward- your organization’s name must be clearly stated on the receipt. The easiest way to do this is by printing the receipt on your not-for-profit organization’s official letterhead. If you don’t have letterhead, simply including the organization’s name in the body of the letter will suffice.

2. Date the Donation Was Received

The donation receipt must include the date the contribution was made. This is critical because receipts need to be contemporaneous, meaning they should be issued around the same time as the donation. This ensures donors can use the receipt when filing their taxes for the corresponding year. The date can be included in the letterhead or within the body of the letter.

3. Type of Contribution

Not-for-profit organizations receive both cash and non-cash contributions, and the donation receipt must specify which type was received.

· For cash contributions: The letter should state the exact amount donated.

· For non-cash contributions: The receipt should include a description of the item(s) donated but should not assign a dollar value. It is up to the donor to determine the fair market value of their donation for tax purposes.

4. Statement Regarding Goods or Services Provided

This is an essential part of the receipt, as it clarifies how much of the contribution is tax-deductible. There are three possible statements to include:

· Option 1: No goods or services were provided. Used when a donor gives purely out of generosity without receiving anything in return.

· Option 2: A description and estimate of goods or services received. This is common for fundraising events where donors receive something of value in exchange for their donation. Example: If a fundraising dinner ticket costs $100 and the meal is valued at $25, the receipt should state that the value of goods provided was $25, making the tax-deductible portion $75.

· Option 3: Intangible religious benefits were provided. Used primarily by religious organizations to indicate that any benefits received were spiritual in nature rather than material goods or services.

Don’t Forget the Thank You!

While a donation receipt serves a practical purpose, it’s also a chance to reinforce the impact of your donor’s generosity. A simple thank you can go a long way in building lasting donor relationships. Acknowledge their contribution and express gratitude for their support. It makes a difference!

Summary: What to Include in a Donation Receipt

· Name of the Organization

· Date the Donation Was Received

· Type of Contribution

· Statement on Goods or Services Provided

· A Thank You

By ensuring your donation receipts include these elements, your not-for-profit organization will remain compliant with IRS guidelines while also maintaining positive and professional donor communications.

Looking for more not-for-profit organization financial guidance? Stay tuned for future blog posts, where we’ll share more examples and best practices to help your organization succeed!

At De Boer, Baumann & Company, we specialize in not-for-profit organization financial services and compliance. If you need assistance with donor receipts, tax regulations, or nonprofit accounting, we’re here to help!

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The Retirement Tax Surprise: What Boomers Need to Know Before It’s Too Late

You did it. You worked hard, saved consistently, and now you’re either enjoying retirement—or it’s just around the corner.  You’ve been told for years to put money into retirement accounts, defer taxes, and wait for the golden years. But wait… no one told you?  Retirement might be your highest-taxed phase yet.  Seriously. Between Social Security income, …

You did it. 
You worked hard, saved consistently, and now you’re either enjoying retirement—or it’s just around the corner. 

You’ve been told for years to put money into retirement accounts, defer taxes, and wait for the golden years. But wait… no one told you? 

Retirement might be your highest-taxed phase yet. 

Seriously. 
Between Social Security income, Required Minimum Distributions (RMDs), capital gains, Medicare premium adjustments, and even state taxes… it can feel like a financial ambush. 

Let’s break down why this happens—and what you can do now to soften the blow. 

  1. RMDs: The Tax Bomb That Starts at Age 73

If you’ve saved in a traditional IRA or 401(k), you’ve been enjoying tax deferral for years. But the IRS eventually wants their cut. 

That’s where RMDs come in. 
Once you hit age 73, you’re forced to take money out of your retirement accounts—and those withdrawals are taxed as ordinary income. 

Why it matters: 

    • Your RMD could bump you into a higher tax bracket. 
    • It could trigger higher Medicare premiums (thanks, IRMAA). 
    • It might even impact how much of your Social Security is taxed. 

What to do now: 
Consider Roth conversions in your 60s to reduce your future RMDs. Yes, you’ll pay tax now, but it could save you significantly down the road. 

  1. Social Security Isn’t Always Tax-Free

Up to 85% of your Social Security benefits could be taxable depending on your total income—including investment income, part-time work, and yes, those RMDs. 

Here’s the trap: 
You think you’re getting $3,000/month from Social Security. 
But add in just a few thousand from another source, and suddenly, a big chunk of that is taxable. 

Solution: 
Work with an advisor who can map out income sources before you trigger your benefits. Sometimes, waiting a year or two—or rebalancing your withdrawal strategy—can dramatically reduce taxes. 

  1. IRMAA: The Medicare Surcharge You Didn’t See Coming

This one stings. 
You file your taxes, enjoy a good year, and then boom—two years later, your Medicare premiums go up. 

That’s IRMAA (Income-Related Monthly Adjustment Amount). 
If your income exceeds certain thresholds, you’ll pay more for Medicare Part B and D—even if the bump was from a one-time event like a Roth conversion or asset sale. 

Proactive planning = lower premiums. 
A well-timed income strategy can keep you just under IRMAA thresholds. And in some cases, you can file an appeal based on a “life-changing event” like retirement or loss of income. 

  1. Capital Gains & Selling Assets in Retirement

Selling your long-held investments? Downsizing your home? 
These capital gains could push your income higher than expected—and cause a domino effect with taxes, Medicare, and Social Security. 

Even if you’re “living off savings,” your tax return may tell a different story. 

Pro tip: 
There’s a 0% capital gains bracket for certain income ranges. With the right strategy, you can sell appreciated assets without triggering taxes—but timing is everything. 

  1. State Taxes Still Matter—Even in Retirement

Not all states treat retirees the same. 
Some tax Social Security, some don’t. Some offer pension exemptions, others tax everything. 

If you’re thinking about relocating in retirement, don’t just compare housing costs. Compare tax policies. And if you’re staying put? Learn how your current state impacts your bottom line. 

  1. Your Filing Status Can Change Your Tax Life

A tough but important truth: Losing a spouse in retirement often means going from “Married Filing Jointly” to “Single.” 

Which means: 

    • Lower standard deductions 
    • Tighter income thresholds 
    • Bigger tax bills on the same income 

If you’re newly widowed or preparing for that reality, it’s worth building a multi-year tax strategy now—not later. 

    1. You Don’t Have to Navigate This Alone

The retirement tax landscape is not DIY-friendly. 
Rules change. Thresholds shift. And one wrong move (or missed opportunity) can cost you thousands. 

But with the right guide, you can: 

    • Smooth out income across years 
    • Reduce your lifetime tax bill 
    • Maximize your Social Security and Medicare benefits 
    • And keep more of the money you worked so hard to earn 

Let’s Build a Tax-Smart Retirement Plan—Together 

You planned for retirement. 
Now it’s time to plan for retirement taxes. 

We’re here to help you make smart, proactive decisions that reduce surprises, minimize your tax burden, and give you the peace of mind to enjoy the years ahead. 

Contact us today to schedule a retirement tax check-up. 
You’ve done the saving—now let’s make sure you keep more of it. 

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Spring Clean Your Business Finances: 7 Tips to Improve Cash Flow and Cut Costs 

Spring isn’t just for closets. It’s for your business finances too.  And just like you wouldn’t leave last year’s mismatched socks sitting in your drawer, you shouldn’t let old subscriptions, bloated expenses, or outdated processes keep piling up in your books.  Because here’s the truth: Small financial leaks turn into big problems over time. But the good …

Spring isn’t just for closets. 
It’s for your business finances too. 

And just like you wouldn’t leave last year’s mismatched socks sitting in your drawer, you shouldn’t let old subscriptions, bloated expenses, or outdated processes keep piling up in your books. 

Because here’s the truth: 
Small financial leaks turn into big problems over time. 
But the good news? You can plug those leaks with a bit of spring cleaning. And it doesn’t require a full financial overhaul—just a few focused tweaks that can free up cash and sharpen your operations fast. 

Let’s walk through it together. 

  1. Audit Your Subscriptions (Yes, All of Them)

That software you signed up for during COVID? The design tool you thought you’d use? The double-billed Zoom accounts? 
They’re all eating into your margins. 

Go line-by-line through your credit card statements and flag: 

    • Duplicate tools 
    • Trials that never got canceled 
    • Apps your team hasn’t touched in 3+ months 

Then cut them loose. It’s one of the fastest ways to reclaim hidden cash. 

  1. Renegotiate Vendor Contracts

Prices have gone up, but that doesn’t mean you have to just accept it. 
Call your vendors. Ask about loyalty pricing. Bundle services. Request bulk discounts. 
You’d be surprised how often you can shave off 5–15% just by asking the right questions. 

Pro tip: If you’ve been a reliable client, you have leverage. Use it. 

  1. Update Your Financial Systems

If you’re still using spreadsheets to manage cash flow or entering receipts manually… 
It’s time to upgrade. 

Modern cloud-based systems can: 

    • Track expenses in real time 
    • Forecast cash flow with clarity 
    • Sync with your bank and payroll in seconds 

Investing in the right tools now saves you hours later—and gives you better insight into where your money is going. 

  1. Revisit Your Pricing Strategy

When was the last time you raised your rates? 
If it’s been over a year, your profit margin might be quietly shrinking behind the scenes. 

Run the numbers: 

    • Are you still profitable after cost increases? 
    • Are your competitors charging more? 
    • Could you offer value-based packages instead of hourly rates? 

A small adjustment here could unlock a big bump in revenue—with no added workload. 

  1. Review Your Staffing Costs

Whether you have employees or contractors, spring is a great time to check: 

    • Are the roles and tasks still aligned with your goals? 
    • Are you paying for work that no longer needs to be done? 
    • Could automation or smarter processes reduce time spent? 

Sometimes, trimming costs doesn’t mean letting go of people—it means redefining what needs to get done and how. 

  1. Collect on Outstanding Invoices

Unpaid invoices? That’s your money sitting in someone else’s account. 

    • Set up clear payment reminders. 
    • Add late fees. 
    • Offer early payment discounts. 
    • And if clients are chronically late, consider a retainer or an upfront model. 

Don’t be afraid to chase what you’re owed—it’s part of doing business. 

  1. Work with a Financial Advisor Who Gets It

Yes, you could do all of this yourself. 
But should you? 

The fastest way to spot inefficiencies, uncover savings, and set yourself up for stronger cash flow is to have a second set of (expert) eyes on your numbers. 

That’s where we come in. 

Let’s Tidy Up Those Finances—Together 

Spring is the season of renewal—and your business finances deserve a refresh too. 

Whether you’re drowning in subscriptions, stuck with outdated systems, or just want someone to walk you through a smart, streamlined plan for the months ahead, we’re here for that. 

Contact us today to schedule your spring financial check-up. 
We’ll help you clean house, cut waste, and build a more profitable path forward. 

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How to Choose the Perfect Business Entity for Your Venture 

Choosing the right business entity is a critical decision for entrepreneurs and business owners. The type of entity you select can have significant implications for liability, taxation, and the overall management of your business. In this article, we will explore the pros and cons of various business entities, including sole proprietorships, partnerships, limited partnerships, …

Choosing the right business entity is a critical decision for entrepreneurs and business owners. The type of entity you select can have significant implications for liability, taxation, and the overall management of your business. In this article, we will explore the pros and cons of various business entities, including sole proprietorships, partnerships, limited partnerships, limited liability companies (LLCs), C corporations, and S corporations which are the most common business structures. We will also discuss liability issues, self-employment taxes, owner limitations, taxation, formation, and dissolution for each entity type. 

The business structure one chooses influences everything from day-to-day operations to taxes and how much of their personal assets are at risk. One should choose a business structure that provides the right balance of legal protections and benefits. 

 

GENERAL OVERVIEW OF COMMON BUSINESS STRUCTURES 

Business structure 

Ownership 

Liability 

Taxes 

Sole proprietorship 

One person 

Unlimited personal liability 

Self-employment tax Personal tax 

Partnerships 

Two or more people 

Unlimited personal liability unless structured as a limited partnership 

Self-employment tax (except for limited partners)  

Personal tax 

Limited liability company (LLC) 

One or more people 

Owners are not personally liable 

Self-employment tax Personal tax or corporate tax 

Corporation – C corp. 

One or more people 

Owners are not personally liable 

Corporate tax 

Corporation – S corp. 

100 people or fewer can include certain trusts and estates. But no partnerships, corporations, or non-resident aliens 

Owners are not personally liable 

Personal tax 

Corporation – B corp.* 

One or more people 

Owners are not personally liable 

Corporate tax 

Corporation – Nonprofit* 

One or more people 

Owners are not personally liable 

Tax-exempt, but corporate profits can’t be distributed 

* Further information about B corporations and B- corporations not included in this material. 

Compare general traits of these business structures, but remember that ownership rules, liability, taxes and filing requirements for each business structure can vary by state. The following material is a general overview of these business structures and it is best practice to consult with your legal counsel and this office before making a final decision.  

 

Sole Proprietorship – A business is automatically considered to be a sole proprietorship if it is not registered as any other kind of business. Thus, the sole proprietor’s business assets and liabilities are not separate from personal assets and liabilities. As a result, sole proprietors can be held personally liable for the debts and obligations of the business. A sole proprietor may also find it difficult to raise money since banks are hesitant to lend to sole proprietorships. 

NOTE: If the business owner is the sole member of a domestic limited liability company (LLC) and elects to treat the LLC as a corporation, then it is not a sole proprietorship. 

  • Pros: 
    • Simplicity and Cost-Effectiveness: Sole proprietorships are the simplest and least expensive business entities to establish. They require minimal paperwork and are easy to manage. 
    • Complete Control: A sole proprietor has full control over all business decisions and operations. 
    • Tax Benefits: Income and expenses are reported on the individual’s personal tax return, simplifying the tax process. The sole proprietor may also qualify for certain tax deductions available to small businesses. 
  • Cons: 
    • Unlimited Liability: Sole proprietors are personally liable for all business debts and obligations, which means personal assets are at risk if the business incurs debt or is sued. 
    • Limited Growth Potential: Raising capital can be challenging, as a sole proprietorship cannot sell stock or bring in partners. 
    • Self-Employment Taxes: Sole proprietors are responsible for paying self-employment taxes, which cover Social Security and Medicare contributions. 
  • Formation and Dissolution: 
    • Formation: Establishing a sole proprietorship is straightforward, often requiring only a business license or permit. 
    • Dissolution: Dissolving a sole proprietorship is equally simple, involving the cessation of business activities and settling any outstanding debts. 

 

Partnership – A partnership is the relationship between two or more people in a trade or business together. Each person contributes money, property, labor or skill, and shares in the profits and losses of the business.  Partnerships represent the simplest structure for two or more people to be in business together.  Two of the most common types of partnerships include:  

  • Limited Partnerships (LP): Which have one general partner with unlimited liability. The other partners have limited liability and generally have limited control over the business.   

Partnerships are pass-though entities, meaning the partnership does not pay taxes. Instead, income, losses, credits and other tax issues are passed through to the partners in proportion to their partnership ownership and reported on their individual returns.   

  • Limited Liability Partnerships (LLP): A limited liability partnership is also a pass-through entity.  The only difference is all the partners have limited liability from debts of the partnership, and the actions of other partners.  
  • Pros: 
    • Shared Responsibility: Partnerships allow for shared management and financial responsibility, which can ease the burden on individual partners. 
    • Flexibility: Partnerships can be structured to suit the needs of the partners, with varying levels of involvement and profit-sharing. 
    • Tax Advantages: Partnerships are pass-through entities, meaning profits and losses are reported on the partners’ personal tax returns, avoiding double taxation. 
  • Cons: 
    • Joint Liability: In a general partnership, each partner is personally liable for the debts and obligations of the business, including those incurred by other partners. 
    • Potential for Conflict: Disagreements between partners can arise, potentially leading to business disruption. 
    • Self-Employment Taxes: Partners who aren’t limited partners must pay self-employment taxes on their share of the profits. 
  • Formation and Dissolution: 
    • Formation: Partnerships are formed through a partnership agreement, which outlines the terms of the partnership, including profit-sharing and management responsibilities. 
    • Dissolution: Dissolving a partnership requires settling debts, distributing assets, and notifying relevant authorities. 

 

Limited Liability Company (LLC) – A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations, and those considering an LLC should check with the state before starting a Limited Liability Company. A business must register with the state and pay LLC fees to become an LLC. 

Owners of an LLC are called members. Most states do not restrict ownership, so members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner. Generally, banks and insurance companies cannot be an LLC, and generally there are special rules for foreign LLCs. 

  • Pros: 
    • Limited Liability: LLC owners, known as members, are protected from personal liability for business debts and obligations. 
    • Flexible Taxation: LLCs can choose to be taxed as a sole proprietorship, partnership, or corporation, providing flexibility in tax planning. 
    • Operational Flexibility: LLCs have fewer formalities and regulations compared to corporations, allowing for flexible management structures. 
  • Cons:     
    • Regulations: LLCs are subject to varying state laws, which can complicate operations if the business operates in multiple states. 
    • Self-Employment Taxes: Members may be subject to self-employment taxes on their share of the profits. 
    • Cost: Forming and maintaining an LLC can be more expensive than a sole proprietorship or partnership due to state filing fees and annual reports. 
  • Formation and Dissolution: 
    • Formation: LLCs are formed by filing articles of organization with the state and creating an operating agreement. 
    • Dissolution: Dissolving an LLC involves filing dissolution documents with the state and settling any outstanding obligations. 

 

C Corporation – A corporation is a legal entity that’s separate from its owners. Corporations can make a profit, be taxed, and held legally liable. 

Corporations provide strong protection to its owners from personal liability, but the cost to form a corporation is higher than other structures.  

Unlike sole proprietors, partnerships, and LLCs that are pass-through entities, corporations pay income tax on their profits. In some cases, corporate profits are taxed twice. This happens when the corporation distributes profits to its shareholders in the form of dividends which are taxable to shareholders on their personal tax returns. 

Corporations have a separate life from its shareholders. Corporate ownership is in the form corporate stock which can be purchased and sold without disturbing the corporation.  

Ownership in the form of stock gives corporations the advantage of being able to raise capital through the sale of stock, and employee stock options can be a benefit in attracting employees. 

  • Pros: 
    • Limited Liability: Shareholders are protected from personal liability for corporate debts and obligations. 
    • Unlimited Growth Potential: C corporations can raise capital by issuing stock, making them attractive to investors. 
    • Tax Advantages: Corporations can benefit from various tax deductions and credits not available to other entities. 
  • Cons: 
    • Double Taxation: C corporations face double taxation, where profits are taxed at the corporate level and again as dividends to shareholders. 
    • Complexity and Cost: Corporations require more formalities, including a board of directors, bylaws, and regular meetings, which can be costly and time-consuming. 
    • Regulatory Requirements: Corporations are subject to stringent regulatory requirements and reporting obligations. 
  • Formation and Dissolution: 
    • Formation: C corporations are formed by filing articles of incorporation with the state and creating corporate bylaws. 
    • Dissolution: Dissolving a corporation involves a formal process of liquidating assets, settling debts, and filing dissolution documents with the state. 

 

S Corporation – S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level. 

To qualify for S corporation status, the corporation must meet the following requirements: 

  • Be a domestic corporation 
  • Have only allowable shareholders 
  • May be individuals, certain trusts, and estates and 
  • May not be partnerships, corporations or non-resident alien shareholders 
  • Have no more than 100 shareholders 
  • Have only one class of stock 
  • Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations) 

To become an S corporation, the corporation must submit Form 2553, Election by a Small Business Corporation signed by all the shareholders.   

  • Pros: 
    • Limited Liability: Like C corporations, S corporation shareholders are protected from personal liability. 
    • Pass-Through Taxation: S corporations avoid double taxation by allowing income, deductions, and credits to pass through to shareholders’ personal tax returns. 
    • Tax Savings on Self-Employment: Shareholders can receive a salary and dividends, potentially reducing self-employment taxes. 
  • Cons: 
    • Ownership Restrictions: S corporations are limited to 100 shareholders, and all must be U.S. citizens or residents. 
    • Complex Formation and Maintenance: S corporations require adherence to strict IRS requirements and ongoing compliance with corporate formalities. 
    • Limited Flexibility in Profit Sharing: Profits and losses must be distributed according to share ownership, limiting flexibility in profit-sharing arrangements. 
  • Formation and Dissolution: 
    • Formation: S corporations are formed by filing articles of incorporation and electing S corporation status with the IRS. 
    • Dissolution: Dissolving an S corporation involves liquidating assets, settling debts, and filing dissolution documents with the state and IRS. 

 

Choosing the right business entity is a crucial decision that can impact your business’s success and your personal financial security. Each entity type offers distinct advantages and disadvantages, and the best choice depends on your specific business goals, risk tolerance, and financial situation. It’s essential to consult with legal and financial professionals to ensure you select the entity that aligns with your long-term objectives and provides the most benefits for your business. Consult with us to go over relevant issues before making a choice.  

About us

De Boer, Baumann & Company provides professional accounting, tax, and business advisory services to individuals and businesses in West Michigan and the surrounding areas. With expertise in a variety of industries, DBC specializes in comprehensive and innovative solutions to help clients achieve their financial goals.