Attest services can only be performed by a CPA who works within a CPA firm. The hallmark of an attest service is that the CPA must be independent to provide the service. Attest services include audits, examinations, reviews, agreed-upon-procedures, and, in most states, compilation engagements.

For an assurance service, the CPA expresses an opinion or a conclusion on the subject matter so the user can make informed decisions. Assurance services include audits, examinations, and review engagements.

An audit of a nonpublic company is performed in accordance with the AICPA Statements on Auditing Standards, also referred to as generally accepted auditing standards, aka GAAS. Those standards are applied to historical financial statements to obtain reasonable assurance that the financial statements are free from material misstatement. Reasonable assurance is a high level of assurance under GAAS. The nature, timing, and extent of procedures performed are based on the auditor’s judgment. Such procedures may include confirmations of balances and other information with outside sources, attorney representations regarding litigation and unasserted claims, an inspection of documents, inquiries with the Company’s personnel, recalculations, analytics, and written representations from the Company’s management documenting specific responses made to the auditor during the engagement. Reasonable assurance is the highest level of assurance that a CPA can provide. Under reasonable assurance, however, the auditor does not guarantee that the financial statements are 100% correct. Instead, the auditor opines that the financial statements present fairly, in all material respects, the Company’s financial position, results of operations, and cash flows. Audited financial statements give the end-users, such as banks, sureties, and parties involved in business acquisitions, high assurance that the financial statements used to make decisions are fairly presented.

Examinations are performed in accordance with the AICPA Statements on Standards for Attestation Engagements. An examination is an audit-level engagement applied to information other than historical financial statements. There is very little difference in approach between an audit and an examination; the most significant difference is the subject matter being examined. An examination, like an audit, is designed to provide a high level of assurance (i.e., reasonable assurance). An example of an examination engagement would include an examination of prospective financial information.

In a review of financial statements, the CPA seeks to obtain limited assurance whether any material modifications should be made to the financial statements for them to be presented in accordance with generally accepted accounting principles, i.e., GAAP or, in some engagements, other applicable financial reporting framework. A review engagement is substantially less in scope than an audit. A review consists primarily of two procedures borrowed from the audit toolbox: inquiries and analytical procedures. The CPA may occasionally apply other procedures when necessary to obtain limited assurance. Reviews of historical financial statements or other historical financial information are conducted in accordance with the AICPA Statements on Standards for Accounting and Review Services. However, reviews of certain interim financial information are conducted in accordance with the AICPA Statements on Auditing Standards. Review engagements of information other than historical financial statements, including pro forma financial information, are performed in accordance with AICPA Statements on Standards for Attestation Engagements.

Agreed-upon-procedure engagement is one of the three types of engagements performed in accordance with the AICPA Statements on Standards for Attestation Engagements. (The other two types described above are the examination engagement and certain review engagements.) An agreed-upon-procedures engagement is an attest service. Accordingly, the CPA must be independent. However, it is not an assurance engagement because the CPA does not express an opinion or conclusion on the subject matter. Instead, the client engages the CPA to issue a report of findings based on procedures agreed to between the CPA and the engaging party. The subject matter may be financial or nonfinancial information. An example of an agreed-upon-procedures scenario is when a CPA is engaged to recalculate employee bonuses based on the terms of employment agreements.

A compilation engagement is conducted in accordance with the AICPA Statements on Standards for Accounting and Review Services. In most states, a compilation engagement is a non-assurance attest engagement. Accordingly, only CPAs can perform a compilation engagement in those states. A CPA may be engaged to compile financial statements, prospective financial information, pro forma financial information, or other historical financial information. Unlike an audit or review, a compilation does not include performing any procedures to verify the accuracy or completeness of the information provided by management. Instead, the CPA applies accounting and financial reporting expertise to assist management in presenting financial statements without undertaking to obtain or provide any assurance that there are no material misstatements in the financial statements. As a result, a compilation may be more cost-beneficial in some cases. However, it is rare for some end-users, such as a bonding company, to accept a compilation at year-end. However, sometimes smaller bonding programs can and do accept compiled financial statements.

A preparation engagement is conducted in accordance with the AICPA Statements on Standards for Accounting and Review Services and is a nonattest service. Therefore, the CPA is not required to be independent. In a preparation service, the CPA uses their knowledge of the Company’s financial reporting framework (generally GAAP) and business knowledge to prepare financial statements or prospective financial information. The CPA is not required to verify the accuracy or completeness of the information provided by management. Therefore, the CPA does not provide any assurance regarding the financial statements or the financial information and, accordingly, does not express an opinion or conclusion. However, the CPA adds value in a preparation engagement by assisting management with significant judgments regarding amounts or disclosures to be reflected in the financial statements.

Yes. CPAs can provide certain nonattest services for a company’s management and still maintain their independence to perform attest services, such as audit, examination, review, agreed-upon-procedures, and compilation engagements, as long as they comply with specific stringent ethical requirements. For example, at Cooper, Travis & Company, we often assist our clients with nonattest services, such as drafting their financial statements, preparing tax returns, depreciation schedules, job schedules, and assisting with year-end close.

There are significant differences between an audit and a review regarding the amount of test work required and the cost of the engagement. An audit provides greater assurance to the end user than the limited assurance provided by a review engagement. Because of this, considerably more test work must be performed during an audit to achieve this higher level of assurance. Auditors will avail themselves of all the tools in the audit toolbox. This includes vouching, tracing, scanning, observation, inspection, confirmation, inquiry, recalculations, reperformance, testing of details, and analytical procedures.

Additionally, the standards require the auditor to perform a more robust risk assessment and gain a deeper understanding of the Company’s system of internal controls than is necessary for a review engagement. Because a review engagement is substantially less in scope than an audit and therefore provides less assurance to the end-user than an audit, it requires fewer procedures and less time to perform. Generally, a review engagement only borrows two tools from the audit toolbox: inquiries and analytical procedures. In some cases, other procedures are performed to obtain the limited assurance required in a review engagement.

The end users of the financial statements customarily drive the level of service. Most private companies choose compiled or reviewed financial statements; however, creditors, investors, and bonding companies may require an audit.  We will typically talk a contractor out of an audit and instead perform a review if their bonding company, bank, or licensing board does not require an audit.  Sureties often require an audit rather than a review engagement when the aggregate bonding program exceeds $30 million.  Certain regulatory agencies, such as the Tennessee Board of Contractors, also have requirements for the level of service (see below for the Tennessee Board for Licensing Contractors requirements).

An audit requires substantially more procedures and documentation than a review engagement and is, therefore, more costly. Fees are set at our standard hourly rates for the professionals involved. Our initial audit or review engagement proposal will provide an estimated fee range based on the Company’s size and complexity.

We offer various services as described above, with a concentration geared toward the construction/ real estate industry. Additionally, we are familiar with numerous state contractor licensing boards and contractor pre-qualification requirements and offer services in those areas. We provide related services to the owners of our business clients, such as personal financial statements.

The question of whether the financial statement submitted to the Tennessee Board for Contractors for licensing be audited, reviewed, or compiled depends primarily on two broad considerations: 1) Whether the request is for an original application for a license, a renewal, or a monetary limit increase request 2) the monetary limit of the license. Nevertheless, the financial statements presented to the Board must be less than 12 months old.

When you initially apply for a contractor’s license:

• A review is required for a monetary limit request of $3,000,000 or less.
• An audit is required for limits over $3,000,000 to unlimited.

You must renew your Tennessee Contractor’s license every two years. Due to a recent statute change, the rules have changed:

• A compiled financial statement prepared by a public accountant or a certified public accountant is required to renew licenses with a monetary limit of over $1,500,000, including unlimited. A compilation of the balance sheet only is acceptable. No statute or rule requires financial statement disclosure, but it is preferred.
• Any license renewed with a limit of $1,500,000 or less will only require a notarized statement from the contractor attesting that the financial statement is true and correct.

If you request an increase of the monetary limit on your existing contractor’s license, you must submit with the limit increase request a reviewed or audited financial statement for requests of $3,000,000 or less and an audited financial statement for any request over $3,000,000, including unlimited

Reviewed financial statements MUST include the following:

• CPA signed report letter
• Balance sheet based on GAAP
• Notes to the financial statements

Audited financial statements MUST include the following:

• CPA signed opinion letter
• Balance sheet, income statement, and statement of cash flows based on GAAP
• Notes to the financial statements

An attorney letter is a letter of inquiry from the Company’s management to the Company’s external legal counsel. The letter requests that the attorney reply directly to the auditor regarding litigation and unasserted claims. The letter is mailed (or emailed) by the auditor. The attorney generally bills the Company for responding to this letter. Under auditing standards, the auditor must obtain an attorney letter (assuming an attorney has been consulted) if there is evidence that the Company has actual or potential litigation, claims, or assessments that may give rise to a risk of material misstatement. Additionally, many auditors find it prudent to send an attorney letter to the Company’s general counsel, even if there is no evidence of litigation.

As odd as it may sound, the management representation letter is a letter on the Company’s letterhead, addressed to the auditor, that the auditor writes on behalf of the Company’s management. Even though written by the auditor, the letter is styled as a letter from management to the auditor. Once the letter’s contents are agreed to and signed by management, it becomes just that, a letter from the Company’s management to the auditor that confirms meaningful representations to the auditor. Those representations include management’s acknowledgment of their responsibilities regarding the preparation and fair presentation of the financial statements, the quality of the information provided to the auditors and the completeness of transactions, and many other representations critical to the fair presentation of the financial statements. The management representation letter provides the auditor with corroborating support for audit evidence obtained during audit fieldwork. Auditors are required under auditing standards to get this signed letter from management on every audit.

The auditing standards require the auditor to obtain an understanding of the Company’s internal controls over financial reporting that is sufficient to enable the auditor to design appropriate audit procedures. This requirement is not for the purpose of expressing an opinion on the effectiveness of internal control but is a tool to assist the auditor in assessing the risk of a material misstatement in the financial statements. During the risk assessment process, the auditor may identify deficiencies in internal control that are of sufficient magnitude that they should be communicated to the Company’s management. That is done with a SAS 115 letter. (SAS 115 is the AICPA’s original standard that requires the auditor to communicate to management certain deficiencies in internal control identified during an audit.) Under the standard, two categories of internal control deficiencies merit reporting to management: 1) material weakness and 2) significant deficiencies. A material weakness is the most problematic. A material weakness means that the auditor identified a weakness in internal control whereby it is reasonably possible that a material misstatement of the financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency in the Company’s internal control is less severe than a material weakness yet important enough to merit the Company’s attention. This written communication aims to bring to management’s awareness the internal control weaknesses and the significance of those weaknesses so that management can remedy them.

What is its Purpose

The purpose of the Statement of Cash Flows is to provide a detailed picture of a company’s cash inflows and outflows during a specific period. It demonstrates the organization’s ability to generate cash from its operations, investments, and financing activities and its capacity to meet short-term and long-term obligations. Presenting cash movements that may not be apparent in other financial statements offers valuable insights into a company’s financial health, operational efficiency, and potential issues. This statement complements accrual-based documents like the income statement and balance sheet, helping investors, analysts, and management make informed decisions about the company’s financial position and prospects.

What Are Some Common Pitfalls in Preparing the Statement of Cash Flows?

• Misclassifying cash flows among operating, investing, and financing activities
• Incorrectly including non-cash transactions in the main body of the statement
• Improperly netting cash flows that should be reported at gross
• Misreporting interest and taxes paid when using the indirect method
• Improper handling of restricted cash.

How Should Non-cash Transactions be treated?

Non-cash transactions should not be included in the main body of the Statement of Cash Flows. Instead, they should be disclosed separately, either in a narrative at the bottom of the statement or in a separate footnote.

Can Similar Transaction Types be Netted?

Generally, reporting on a gross basis is preferred. However, netting is acceptable in certain circumstances:

• Items with fast turnover rates, large amounts, and short maturities
• Assets or liabilities with original maturities of three months or less.

Examples where netting is appropriate include:

• Short-term treasury bills with less than three months maturity
• Short-term loans due within three months
• Short-term debt with original maturities of three months or less.

How Are They Defined?

Loss contingencies are defined as existing conditions, situations, or circumstances involving uncertainty about possible losses that will be resolved when future events occur or fail to occur.

When Must They Be Recognized as a Loss?

• The loss must be probable (75% or greater chance of occurring, and
• The amount must be reasonably estimable.

What if They Do Not Meet the Above Criteria?

• If the loss is only reasonably possible (more than remote but less than probable), loss recognition is not required, but the potential loss must be disclosure,
• If the chance of loss is remote (10% or less), no recognition or disclosure is typically required.

Risk assessment is critical for auditors because it lays the foundation for the entire audit by identifying and evaluating risks that could lead to material misstatements in financial statements. Here’s why it’s done:

• Identifying Risks of Material Misstatement (RMM): Auditors aim to find areas in financial statements where there is a “reasonable possibility” of a material misstatement occurring. By identifying these risks, auditors can focus their efforts on the greatest potential for error or fraud.
• Tailoring the Audit Approach: Risk assessment allows auditors to design audit programs and procedures that address identified risks. This ensures the audit is efficient and effective rather than generic and potentially inadequate.
• Complying with Standards: Under SAS 145, auditors must gain an understanding of the entity, its environment, and its internal controls to comply with professional auditing standards. This process ensures that auditors perform their duties systematically and thoroughly.
• Mitigating Audit Risk: By identifying risks, auditors can plan and perform procedures that reduce the risk of issuing an incorrect audit opinion. Proper risk assessment supports the overall objective of providing reasonable assurance that the financial statements are free of material misstatement.
• Assessing IT and Environmental Risks: Modern audits emphasize understanding risks from IT systems and external factors. Evaluating IT risks, such as data loss or unauthorized access, ensures financial data integrity is maintained.

Risk assessment is the process auditors use to identify, evaluate, and respond to risks of material misstatement within financial statements. It involves:

• Understanding the Entity and Its Environment: This includes assessing the entity’s operations, industry, regulatory environment, and IT systems to identify potential risk areas.
• Evaluating Inherent Risk (IR): This is the susceptibility of an assertion to material misstatement due to the nature of the account or transaction without considering internal controls.
• Evaluating Control Risk: This is the risk that internal controls fail to prevent or detect material misstatements in a timely manner. Together with IR, it contributes to the combined RMM.
• Identifying Relevant Assertions: Assertions are representations by management about financial statement elements. Auditors determine which assertions are relevant (i.e., where risks of material misstatements exist).
• Addressing Specific Risks: SAS 145 emphasizes specific risks, such as IT-related and fraud risks, at both the financial statement and assertion levels.
• Designing Further Procedures: Based on assessed risks, auditors design substantive and control testing procedures to address identified RMMs.

By systematically understanding and addressing risks, auditors enhance the reliability of their opinion on the financial statements.

Forensic accounting, also called investigative accounting, is a detailed examination and analysis of documents for use as evidence in a court of law. The term forensic accounting can include the following areas:

• Fraud detection, documentation, and presentation of the report.
• Calculation of economic damages.
• Tracing income and assets, usually to find hidden assets or income (customarily performed for divorce and bankruptcy cases).
• Reconstruction of financial statements that may have been destroyed or manipulated.

Forensic accountants are retained by law firms, corporations, banks, government agencies, insurance companies, and other organizations to analyze, interpret, summarize, and present complex financial and business-related issues clearly and concisely.

The difference between the public expectation of the purposes and objectives of an audit and the CPA’s responsibilities under Generally Accepted Auditing Standards, aka GAAS, is referred to as the expectation gap. Financial statement audits are not explicitly designed to detect fraud but to express an opinion on the financial statements as a whole. However, should fraud be discovered during a financial statement audit, the CPA will notify the company’s management of the findings. The client engagement letter and audit opinion state that the object of the audit is to obtain reasonable assurance that the financial statements are free of material misstatement, not the detection of fraud.

In many cases, the business owner or management may have suspicions that fraud or accounting irregularities are happening. Some of the more frequent observations that lead to these hunches are:

• There is no clear separation of accounting duties.
• Employees with control or access to cash and accounting records do not take vacations or time off
• There are significant transactions with related parties, suppliers, or subcontractors who are unknown or unfamiliar.
• There is a distinct difference between an employee’s income and lifestyle.
• Significant and frequent adjustments are made to the accounting records using journal entries.

Our firm can provide a review of your company’s internal controls to make changes that would lessen the opportunities for fraud to occur.

Our fees are typically based on hourly rates. The fees ultimately charged will depend on the case’s complexity, the timing of the required analysis, and the purpose of the engagement. In non-litigated engagements, we can offer fixed-fee arrangements under certain circumstances. Don’t hesitate to contact us for specific information regarding our fee structure or to receive a proposal for a particular engagement.

Year-end is a good time to explore strategies to unlock potential tax-saving opportunities. This is especially true in 2024 when high interest rates and the upcoming expiration of certain tax benefits make some strategies particularly beneficial.

Learn what tax strategies businesses should consider before year-end 2024, including changing your accounting method, the timing of fixed asset purchases, and business succession planning.

Weigh accounting method changes considering high-interest rates

There are pros and cons to changing accounting methods, which can sometimes help your organization save money. When the cost of capital was low, there were fewer benefits, but now that interest rates have risen significantly, considering a new method may be worth revisiting.

Another consideration to factor in is the upcoming tax rate and deduction changes. The lower individual tax rates from the Tax Cuts and Jobs Act and the Section 199A deduction are scheduled to sunset on December 31, 2025. Barring congressional action, the top tax rates on pass-through income from a non-specified service business will increase from 29.6% to 39.6%. Depending on your cost of capital, a deduction against 39.6% income in 2026 may be more valuable than a deduction in 2024 against 29.6% income. Businesses with a relatively low cost of capital anticipating future tax rate increases may prefer a wait-and-see approach.

Explore some of the following standard accounting method changes worth considering before year-end:

Overall cash method of accounting

Tax reform expanded the availability of the cash method of accounting, yet some eligible businesses have remained on the accrual method. The cash method of accounting generally defers recognition of income relative to the accrual method because most taxpayers have more receivables than payables.

Advance payments for goods

Accrual-method taxpayers can either account for certain advance payments and include them in taxable income in the year received (the full-inclusion method) or include the payments in taxable income in the year of receipt to the extent included in revenue for financial statement purposes and include the remaining amount in income in the next tax year (the deferral method). The deferral method requires businesses to determine the portion of deferred revenue earned in the year after receipt, so the administrative burden should be considered.

Prepaid expenses

Accrual-method taxpayers can generally deduct certain prepaid expenses, such as insurance, taxes, and warranty or maintenance service contracts if the term covered by the prepayment does not extend beyond the earlier of 12 months after the first date on which the taxpayer realizes the right or the end of the tax year following the year of payment.

Fixed asset methods

Taxpayers who own real estate may be able to accelerate deductions by performing a cost-segregation analysis to determine the appropriate tax life of various real estate assets or a repair analysis to identify costs that can be expensed rather than capitalized. Likewise, they may be able to accelerate deductions related to an energy-efficient building by performing a Section 179D analysis.

Inventory methods

There are generally two acceptable inventory valuation methods: cost or lower-of-cost-or-market. The lower-of-cost-or-market inventory method takes more time but may reduce the value of the taxpayer’s inventory and thus accelerate deductions.

A business may be able to deduct obsolete or damaged inventory if it can no longer sell the inventory in a usual manner or at its normal price. The deduction for obsolete inventory is available only if the inventory is disposed of or the taxpayer establishes the reduction in value by offering the inventory for sale to the public at a reduced price within 30 days after the inventory date. Taxpayers may want to evaluate their inventory for potential valuation-related adjustments.

The uniform capitalization rules are complex; however, taxpayers can accelerate tax deductions by analyzing their capitalization methodologies. As just one example, many taxpayers have not fully explored the tax benefits of the new modified simplified production method uniform capitalization (UNICAP) calculation included as an option in final regulations issued in November 2018.

Retirement Plan Selection

Many businesses use the same retirement plan year after year, such as a SEP IRA or 401(k) plan. Your business may have outgrown its existing plan, or your tax objectives may have changed. Consider whether another retirement plan is a better option (e.g., 401(k), profit sharing, SIMPLE IRA, SEP IRA, ESOP, cash balance plan, non-qualified deferred compensation, personal traditional or Roth IRA).

Timing of fixed asset purchases

Bonus depreciation for equipment and other assets is set to drop to 40% in 2025 from its current 60%. If you use immediate expensing under Section 179 and not bonus depreciation, this isn’t a major concern, but it’s something to be aware of for the future.

For 2024, the Section 179 limit is $1.22 million, with a phaseout beginning when purchases exceed $3.05 million. The additional bonus depreciation in 2024 provides an extra incentive for taxpayers subject to a Section 179 limit to place assets in service before year-end. Anticipated tax rates in 2024 and future years should be considered as well.

Business and wealth succession planning

Year-end is a key time for future planning. For business owners, that may mean looking at what’s next for your business. There are significant tax consequences associated with selling or transitioning a business.

If you’re considering a business transition in the next few years, be aware that the lifetime gift tax exemption will be cut in half starting in 2026 (from $12.92 million per person in 2023 to $6.46 million in 2026, adjusted for inflation). Gifts made prior to 2026 will be eligible for the higher exemption — even if the law subsequently changes — so there may be an incentive for taxpayers to make gifts before the rules change. Though tax rules are hard to predict — Congress has extended the enhanced exemption in the past and may do so again.

Considering the current high-interest rates, there are some wealth transfer strategies worth considering. Here’s an example:

• A qualified personal residence trust (QPRT) is a trust that holds the taxpayer’s principal residence.
• The taxpayer retains the right to use the residence for a fixed period, after which the residence transfers to the trust’s beneficiaries. The taxpayer can continue to live in the property after the trust ends but must pay a fair market value rent to the beneficiaries.
• The trust reduces the taxable amount of the gift in two ways: the value is discounted for the grantor’s retained interest, and the value of the gift is frozen based on the value of the property at the time the QPRT is established.
• Higher interest rates increase the discount for the grantor’s retained interest, thereby reducing the amount of the taxable gift.

How We Can Help

These are just a few of the tax strategies that could help your business situation. At CTC, we believe proactive, personalized planning is vital to helping you navigate tax liabilities and identify new opportunities for savings. Contact us to explore whether these suggestions could help your business.

• Max out pre-tax retirement savings. The deadline to contribute to a 401(k) plan to get a 2024 taxable income reduction is December 31st. So, if your employer’s plan allows it, consider making a last-minute lump sum contribution. For 2024, you can contribute up to $23,000 to a 401(k), plus another $7,500 if you’re age 50 or older. Even better, you have until April 15, 2025, to contribute up to $7,000 into a traditional IRA. And if your income does not exceed phaseout limits, you can reduce your taxable income on your 2024 tax return.
• Convert to a Roth IRA. Consider converting some or all of your traditional IRA, SEP IRA, or SIMPLE IRA into a Roth IRA. Although you pay income tax on the amount of the Roth conversion the year it is made, subsequent growth is tax-free in a Roth IRA, and withdrawals from the account are 100% tax-free after five years from the date of the conversion.
• Tax loss harvesting. If you own stock outside a tax-deferred retirement plan, you can sell your under-performing stocks by December 31st and use these losses to reduce any taxable capital gains. If your net capital losses exceed your gains, you can net up to $3,000 against other income, such as wages. Losses over $3,000 can be used in future years.
• Selling appreciated assets. Consider selling appreciated assets in the tax year that helps you the most. While this strategy may be complicated to accomplish this late in the year, it is still worth consideration. To do this, estimate your current year’s taxable income and compare it to next year’s projected income. Then sell the appreciated asset in the year that will yield the lowest tax. Remember to account for the 3.8% net investment income tax in your estimates.
• Review health spending accounts. If you participate in a Health Savings Account (HSA), maximize your annual contribution to reduce your taxable income. Remember, these funds allow you to pay for qualified health expenses with pre-tax dollars. More importantly, unlike Flexible Spending Accounts (FSA), you can carry over all unused funds into future years. If you do have an FSA, you can carry forward a maximum of $640 from 2024 into 2025 if your plan allows this. The deadline for contributing to your Health Savings Account (HSA) and still getting a deduction for the 2024 tax year is April 15, 2025. The maximum contribution for 2024 is $4,150 if single and $8,300 for married couples. If you’re age 55 or older, you can add $1,000 to your HSA contribution.

While the year is quickly coming to an end, there is still time to reduce your 2024 tax liability, but only if you act now.

The deadline for individual tax returns (Forms 1040 and 1040SR) is April 15, 2025. You may request a six-month extension and extend the filing deadline to October 15, 2025. Extensions apply only to filing deadlines. Amounts owed to the IRS are due no later than April 15, 2025, despite the extension.

Trust and Estate income tax return (Form 1041) is due April 15, 2025. However, trusts and estates can request a five-and-a-half-month filing extension. The extended deadline is September 30, 2025.

S Corporation (Form 1120S) has an initial filing deadline of March 17, 2025. The corporation may request to extend the deadline to September 15, 2025. S Corporations with a fiscal year-end other than a calendar year must file by the 15th day of the third month following the end of the corporation’s fiscal year and are permitted to extend for another six months.

Partnership return (Form 1065) is due March 17, 2025. However, you may file a six-month extension request and extend the filing deadline to September 15, 2025.

The calendar year C Corporation (Form 1120) tax return is due April 15, 2025. The corporation may request a six-month extension and extend the filing deadline to October 15, 2025. As noted for the individual extensions, tax payments cannot be extended and must be paid no later than April 15, 2025.

C Corporations with a fiscal year-end other than a calendar year must file by the 15th day of the fourth month following the end of the corporation’s fiscal year. A six-month extension may be requested. ***

See our tax calendar in the Client Area of this Website for a more comprehensive list of 2024 income tax return deadlines.

** Some states and counties may be affected as a federally declared disaster and are permitted an extended deadline. Contact your Cooper, Travis & Company, PLC advisor for more details.

*** C Corporations with a fiscal tax year ending on June 30 and beginning before January 1, 2026, must file its tax return on or before September 15 and may extend seven months until April 15.

Generally, tax records related to federal income taxes should be kept for three years from the date you filed your tax return. The IRS requirements for record keeping are listed below:

1. Keep records for three years if situations (4), (5), and (6) below do not apply to you.
2. Keep records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later if you file a claim for credit or refund after you file your return.
3. Keep records for seven years if you file a claim for a loss from worthless securities or bad debt deduction.
4. Keep records for six years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
5. Keep records indefinitely if you do not file a return.
6. Keep records indefinitely if you file a fraudulent return.
7. Keep employment tax records for at least four years after the date that the tax becomes due or is paid, whichever is later.

If the records relate to property (land, building, equipment, etc.), then you generally should keep those records until the period of limitations expires for the year you dispose of the property. Additional limitation rules apply to property you receive in a nontaxable exchange.

The IRS identifies two types of dependents, each subject to its own rules. The first is a qualifying child, and the second is a qualifying relative. See below for the general requirements and the rules for each dependent type.

General requirements for both qualifying child and qualifying relative:

• TIN. Must include the dependent’s taxpayer identification number on the return of the taxpayer claiming the dependent. This is generally their social security number.
• Citizenship / Residency. The dependent must be a citizen or national of the U.S. or a resident of the U.S., Canada, or Mexico for part of the year.
• No Dependents. The dependent cannot claim any dependents on his return.
• Married Dependent. A married individual who files a joint return with their spouse cannot be claimed as a dependent. Certain exceptions apply.

The following additional rules apply to each type of dependent:

Qualifying Child:

Are they related to you? The child must be your son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister (or descendant of such relatives). The relationship test also includes foster and adopted children if certain restrictions are met.

Do they meet the age requirement? Your child must be under age 19 at the end of the year or, if a full-time student, under age 24 at the end of the year. There is no age limit if your child is permanently and totally disabled.

Do they live with you? Your child must live with you for more than half the year, but several exceptions apply.

Do you financially support them? Your child may have a job, but that job cannot provide more than half of their support.

Joint Return? The child cannot file a joint return with their spouse except as a claim for a refund.

Are you the only person claiming them? This requirement commonly applies to children of divorced parents.

Qualifying Relative:

Do they live with you? The individual must have the same principal place of abode as you and be a member of your household all year or be on the list of “relatives who do not live with you” in Publication 501. About 30 types of relatives are on this list.

Do they make less than $4,700? The individual cannot have a gross income of more than $4,700 for the tax year 2024 and be claimed by you as a dependent.

Do you financially support them? You must provide more than half of the individual’s total support for the year.

Are you the only person claiming them? This means you can’t claim the same person twice, once as a qualifying relative and again as a qualifying child. It also means you can’t claim a relative—say a cousin—if someone else, such as his parents, also claims him.

This is the fifth year under the Tax Cuts and Jobs Act (“TCJA”) – which made extensive changes to the tax code at the beginning of 2018. Due to some of those changes, many individual taxpayers found it more advantageous (and easier) to take the standard deduction than itemizing their deductions for the first time.

For 2024, the standard deduction increases to $29,200 for married filing jointly, $21,900 for head of household, and $14,600 for single taxpayers and married individuals filing separately.

A taxpayer who files married filing jointly, married filing separately, or surviving spouse age 65 or older, blind, or both at the end of the tax year may add $1,550 ($3,100 if both 65 or older and blind) to the basic standard deduction.

A taxpayer who files single, unmarried, or head of household and is age 65 or older, blind, or both at the end of the tax year may add $1,950 ($3,900 if both 65 or older and blind) to the standard deduction.

As a result, many taxpayers who previously reported itemized deductions can receive a higher deduction and save time gathering documents by taking the standard deduction.

In addition to increasing the standard deduction, the TCJA limited several itemized deductions. For example, under TCJA, taxpayers can only deduct up to $10,000 for state and local taxes ($5,000 if married filing separately). Previously, there were no limits.

The TCJA also reduced the amount of interest deductible on acquisition debt for a primary and secondary residence to interest paid on debt of up to $750,000 ($375,000 of debt for married filing separately taxpayers). Before TCJA, interest expense on debt of up to $1 million was deductible. The reduced limit only applies to acquisition debt for a primary or secondary residence incurred after December 15, 2017, and before January 1, 2026.

For some taxpayers, the decision to take the standard deduction is easy. However, for those taxpayers whose itemized deductions may exceed the standard deduction, providing your tax preparer with all the information will be beneficial. The decision will be based on which deduction offers the greatest benefit for you.

The annual contribution limit for 2024 is $7,000, or $8,000 if you’re 50 or older. Your Roth IRA contributions may also be limited based on your filing status and income.

Traditional IRA contributions may be deductible on your tax return. If neither you nor your spouse is covered by a retirement plan at work, your deduction is allowed in full. ROTH IRA contributions are not deductible.

Self-employment tax is a social security and medicare tax primarily for self-employed individuals. Self-employed individuals who earn over $400 during the year are subject to self-employment tax. For 2024, income up to $168,600 ($176,100 for 2025) is taxed at a rate of 15.3% (12.4% Social Security tax and 2.9% Medicare tax). For 2024, income over $168,600 ($176,100 for 2025) is taxed at the 2.9% Medicare tax rate. (A 0.9% additional Medicare tax may also apply. See the next question below.) One-half of your self-employment taxes are deductible from your adjusted gross income on your tax return.

Your self-employment tax payments contribute to your coverage under the Social Security system. Social Security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.

You are liable for Additional Medicare Tax if your wages, compensation, or self-employment income (together with that of your spouse if filing a joint return) exceeds the threshold amount for your filing status. For those with a filing status of married filing jointly, the threshold amount is $250,000 (married filing separately is $125,000). The threshold is $200,000 for those filing as single, head-of-household, or qualifying widow(er) with a dependent child.

If total wages, compensation, or self-employment income paid to you (including your spouse’s income if filing a joint return) exceeds the applicable threshold amount, then you are subject to the Additional Medicare Tax on that excess. The Additional Medicare Tax rate is 0.9%.

For individual taxpayers, the net investment income tax is 3.8% on the lesser of:

• Your net investment income, or
• The excess of your modified adjusted gross income over the following threshold amounts:
  • $250,000 for married filing jointly or qualifying widow(er)
  • $125,000 for married filing separately
  • $200,000 for those filing as single or head of household

Generally, investment income includes interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and income from businesses involved in trading financial instruments or commodities and businesses that are passive activities to the taxpayer.

The Qualified Business Income Deduction (“QBID”; also known as Section 199A) was enacted with the Tax Cuts and Jobs Act of 2017 and created a deduction for qualified pass-through entities. The QBID was a congressional attempt to mirror the reduced tax rate of 21% afforded C-Corporation under the TCJA to pass-through entities.

The Qualified Business Income Deduction (QBID) is a 20% deduction for qualified business income. Certain income limitations apply and are discussed later.

The deduction is taken at the individual level. It is available for taxpayers with ownership in a pass-through entity such as a sole proprietorship, partnership, or S Corporation.

Partnerships and S Corporations will include the necessary information for the deduction on the taxpayer’s Schedule K-1. Your business must be a qualified trade or business to be eligible for the deduction.

Exceptions under the Act include specified service trades or businesses, which include any trade or business whose principal asset is the reputation or skill of one or more of its owners, such as accounting, law, investment management, financial services, athletics, trading, or dealing in certain assets. Under TCJA, these businesses do not qualify for the deduction if the taxpayer’s income exceeds the income limitations described below.

As mentioned above, the QBID is a 20% deduction on qualified business income. The 20% deduction is taken on the lesser of the qualified business income or the taxpayer’s taxable income.

Income limitations on the QBID apply to taxpayers whose taxable income is above certain thresholds. For 2024, the threshold amounts are:

• $383,900 for married filing jointly;
• $191,950 for all other returns

If the taxpayer’s taxable income is above the threshold amounts, the QBID is subject to limitations. Limitations include a reduction in the amount available for the 20% deduction based on W2 wages paid and qualified assets owned.

The QBID is complicated. For further questions on the QBI deduction, please consult one of our tax professionals.

Section 179 Deduction. The Section 179 deduction is an election to recover all or part of the cost of certain qualifying property (new or used, as long as the previously used equipment is new to you). You can elect the Section 179 deduction instead of recovering the cost by taking annual depreciation deductions.

In 2024, the maximum Section 179 deduction for property placed into service was $1,220,000. However, businesses exceeding $3,050,000 of purchases in qualifying equipment are subject to the Section 179 deduction dollar-for-dollar phase-out. Accordingly, the election is eliminated if qualifying purchases exceed $4,050,000.

In 2025, the maximum Section 179 deduction is $1,250,000. The dollar-for-dollar phase-out begins at $3,125,000, and the deduction is eliminated if total purchases exceed $4,050,000.

Bonus Depreciation. Bonus depreciation allows you to elect to expense up to 100% of the cost of certain vehicles and equipment purchased and placed into service in the 2021 tax year. TCJA increased bonus depreciation from 50% to 100% and eliminated the rule that the asset be new. Therefore, bonus depreciation can be taken on new or used purchases (as long as it is new to you and not purchased from a related party, along with other limitations) with a useful life of 20 years or less. The ability to expense 100% of asset purchases goes through December 31, 2022. After that, the deduction decreases to 80% for the 2023 tax year, 60% for 2024, 40% for 2025, and 20% thereafter.

In prior years, businesses could deduct 50% of business meals and entertainment costs on their tax return. However, the TCJA changed this deduction, eliminating the deduction for entertainment expenses, such as tickets to a sporting event, concert, or golf game with a client or customer.

General Rule: The cost of business meals is still deductible at 50%. The cost of entertainment that includes food and drink must have an invoice showing the amount related to food and drink to take the 50% deduction for that portion of the cost. Meals and entertainment expenses provided to the general public as a way of advertising are deductible in full as advertising costs.

The short answer is yes. The credits are taxable for federal income tax purposes. Under section 2301(e) of the CARES Act, the qualifying payroll and health plan expenses are reduced by the amount of the credit obtained.

The taxability of the ERC funding stands in contrast to the Paycheck Protection Act grant funding received by many businesses. It took a congressional act, but PPP was finally clarified as nontaxable for federal income tax purposes.

Under the Act, the age when minimum distributions (RMD) are required increased to 73 in 2023 and increases to 75 in 2033. Previously, RMD had to begin at 72.

Additionally, the penalty for failing to take an RMD decreased from 50% to 25% of the RMD amount in 2023. The penalty can further be reduced to 10% for IRA account distributions if the RMDs are corrected promptly.

Several situations that may require a business valuation, including:

• Sale or purchase of a business
• Debt financing support
• Mergers and acquisitions
• ESOPs
• Estate and gift taxes
• Liquidations
• Buy-sell agreements
• Property settlements in divorce
• Stockholder or partner buyouts
• Goodwill impairment
• Litigation related to bankruptcy, contractual disputes, and a variety of other issues

Yes. CPAs perform business valuations under professional standards issued by the AICPA. CPAs are required to adhere to those stringent standards when performing business valuations. Additionally, CPAs can bring their broad perspective of business operations and understanding of financial statements and the underlying value drivers to the table in business valuations.

The AICPA valuation standards permit two types of valuations:

• Valuation Engagement.  The highest level of service is the valuation engagement. The valuation engagement requires more procedures than the second type described below and results in a conclusion of value (or a range of values). The valuation engagement permits the valuation analyst freedom to choose the valuation approaches and methods they consider appropriate in the circumstances to issue a conclusion of value.
• Calculation Engagement. A calculation engagement does not include all the procedures required for a valuation engagement. For a calculation engagement, the valuation analyst and the client agree on the approaches and methods and the extent of the valuation analyst’s procedures. Then, based on the limited procedures performed, the analyst will arrive at a calculated value (or range of calculated values). Often, an engagement that begins as a calculation engagement will be restructured to a valuation engagement if it appears advisable.

It depends primarily on the subject matter of the valuation and the reason for the valuation. In most cases, a valuation engagement better serves the client’s needs. However, we will work with you to assess the situation and scope our work to fit your needs and budget.

A valuation requires considerable fact-finding related to the entity, industry, and the local, regional, and national economies, including:

• Personnel interviews and site visits
• Review of the entity’s history and entity records
• Analysis of the entity’s financial performance over several years
• Analysis and comparison to similar companies
• Forecast of future earnings
• Analysis of the economic environment in which the entity operates and other factors.

A valuation report is typically valid for a maximum of one year. After that, updating the report to reflect subsequent company performance and current economic/industry conditions may be necessary. However, there could be some extreme subsequent events, such as a natural disaster or a plant fire, which, while not invalidating the valuation as of the valuation date, could make it less valuable to the end-users.

No. Our valuation work is directed to ownership interests and intangible assets. However, if your engagement requires an appraisal of real or tangible property, we will work with independent property appraisal professionals to develop our conclusion of value or calculated value.

Yes. Our firm adheres to the professional standards of the American Institute of Certified Public Accountants (AICPA) and the Tennessee State Board of Accountancy. Our valuation services comply with the Statement of Standards for Valuation Services (SSVS) as promulgated by the AICPA.