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Approximately 1.3 million Americans live in nursing homes, according to the National Center for Health Statistics. If you have a parent moving into one, taxes are probably not on your mind. But there may be tax implications. Here are five possible tax breaks. 1. Long-term medical care The costs of qualified long-term care, including nursing home care, are deductible as medical expenses to the extent they, along with other medical expenses, exceed 7.5% of adjusted gross income (AGI). Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating and rehabilitative services, and maintenance or personal-care services required by a chronically ill individual that are provided by a licensed healthcare practitioner. To qualify as chronically ill, a physician or other licensed healthcare practitioner must certify an individual as unable to perform at least two activities of daily living (eating, toileting, transferring, bathing, dressing and continence) for at least 90 days due to a loss of functional capacity or severe cognitive impairment. 2. Nursing home payments Amounts paid to a nursing home are deductible as medical expenses if a person is staying at the facility principally for medical, rather than custodial care. If a person isn’t in the nursing home principally to receive medical care, only the portion of the fee that’s allocable to actual medical care qualifies as a deductible expense. But if the individual is chronically ill, all qualified long-term care services, including maintenance or personal care services, are deductible. If your parent qualifies as your dependent, you can include any medical expenses you incur for your parent along with your own when determining your medical deduction. 3. Long-term care insurance Premiums paid for a qualified long-term care insurance contract are deductible as medical expenses (subject to limitations explained below) to the extent they, along with other medical expenses, exceed the percentage-of-AGI threshold. A qualified long-term care insurance contract covers only qualified long-term care services, doesn’t pay costs covered by Medicare, is guaranteed renewable and doesn’t have a cash surrender value. Qualified long-term care premiums are includible as medical expenses up to certain amounts. For individuals over 60 but not over 70 years old, the 2025 limit on deductible long-term care insurance premiums is $4,810, and for those over 70, the 2025 limit is $6,020. 4. The sale of your parent’s home If your parent sells his or her home, up to $250,000 of the gain from the sale may be tax-free. To qualify for the $250,000 exclusion ($500,000 if married), the seller must generally have owned and used the home for at least two years out of the five years before the sale. However, there’s an exception to the two-out-of-five-year use test if the seller becomes physically or mentally unable to care for him- or herself during the five-year period. 5. Head-of-household filing status If you aren’t married and your parent meets certain dependency tests, you may qualify for head-of-household filing status, which has a higher standard deduction and, in some cases, lower tax rates than single filing status. You might be eligible to file as head of household even if the parent for whom you claim an exemption doesn’t live with you. These are only some of the tax issues you may have to contend with when your parent moves into a nursing home. Contact us if you need more information or assistance. © 2025 

If you’re considering guaranteeing, or are asked to guarantee, a loan to your closely held corporation, it’s important to understand the potential tax consequences. Acting as a guarantor, endorser or indemnitor means that if the corporation defaults, you could be responsible for repaying the loan. Without planning ahead, you may face unexpected tax implications. A business bad debt If you’re compelled to make good on the obligation, the payment of principal or interest in discharge of the obligation generally results in a bad debt deduction. This may be either a business or a nonbusiness bad debt deduction. If it’s a business bad debt, it’s deductible against ordinary income. A business bad debt can be either totally or partly worthless. If it’s a nonbusiness bad debt, it’s deductible as a short-term capital loss, which is subject to certain limitations. A nonbusiness bad debt is deductible only if it’s totally worthless. To be treated as a business bad debt, the guarantee must be closely related to your trade or business. If the reason for guaranteeing the corporation loan is to protect your job, the guarantee is considered closely related to your trade or business as an employee. But employment must be the dominant motive. If your annual salary exceeds your investment in the corporation, this generally shows that the dominant motive for the guarantee is to protect your job. On the other hand, if your investment in the corporation substantially exceeds your annual salary, that’s evidence that the guarantee is primarily to protect your investment rather than your job. Proving the relationship Except in the case of job guarantees, it may be difficult to show the guarantee is closely related to your trade or business. You have to show that the guarantee is related to your business as a promoter, or that the guarantee is related to some other trade or business separately carried on by you. If the reason for guaranteeing your corporation’s loan isn’t closely related to your trade or business and you’re required to pay off the loan, you can take a nonbusiness bad debt deduction if you show that your reason for the guarantee was to protect your investment, or you entered the guarantee transaction with a profit motive. Note: The IRS and courts will scrutinize the dominant motive carefully. Reasonable compensation doesn’t always mean money. It can include protecting employment or business interests. Additional requirements In addition to satisfying the above requirements, a business or nonbusiness bad debt is deductible only if you meet these three conditions: You have a legal duty to make the guaranty payment (although there’s no requirement that a legal action be brought against you). The guaranty agreement is entered into before the debt becomes worthless. You receive reasonable consideration (not necessarily cash or property) for entering into the guaranty agreement. Any payment you make on a loan you guaranteed is deductible as a bad debt in the year you make it, unless the agreement (or local law) provides for a right of subrogation against the corporation. If you have this right, or some other right to demand payment from the corporation, you can’t take a bad debt deduction until the rights become partly or totally worthless. These are only some of the possible tax consequences of guaranteeing a loan to your closely held corporation. Consult with us to learn all the implications and to help ensure the best tax results. © 2025 

Life insurance is often a cornerstone of estate planning, providing liquidity to cover estate taxes, debts or other obligations. However, life insurance proceeds generally will be included in your taxable estate if you own the policy outright. So if your estate is (or in the future might be) large enough that estate taxes are a concern, you’ll want to consider strategies for shielding insurance proceeds. An irrevocable life insurance trust (ILIT) is one option. It removes the policy from your estate, ensuring that the death benefit passes to your beneficiaries free of estate tax. How it works To establish an ILIT, you create an irrevocable trust, transfer ownership of an existing life insurance policy to it and designate beneficiaries. Alternatively, you can set up an ILIT as the owner of a new policy you purchase. In addition, the ILIT must be funded so that it’s able to pay the premiums on the policy. The transfer of an existing policy to an ILIT is, however, considered a taxable gift. Further, subsequent transfers to the trust to fund premiums would also be treated as gifts. But the gifts can be sheltered from tax by your available gift and estate tax exemption. (You may even be able to add “Crummey” provisions to your ILIT that allow you to apply your gift tax annual exclusion to the transfers to the trust for funding premiums.) Gifts up to the annual exclusion amount — $19,000 for 2025 — are tax-free and thus don’t use up any of your lifetime exemption. Because the trust is irrevocable, you can’t change its terms once established. For example, you can’t change the beneficiaries. But this “loss of control” is what keeps the proceeds outside your taxable estate. You can, however, name another family member or a knowledgeable professional as the trustee. Typically, you’ll designate the ILIT as the primary beneficiary of the life insurance policy. On your death, the proceeds are deposited into the ILIT and held for distribution to the trust’s beneficiaries. In most cases, these will be your spouse, children, grandchildren or other family members. Potential pitfalls There are some pitfalls to watch for when transferring an insurance policy to an ILIT. For example, if you transfer an existing policy to the ILIT and die within three years of the transfer, the proceeds will be included in your taxable estate. But the three-year rule doesn’t apply if the ILIT purchased a new policy on your life. Another pitfall is naming your surviving spouse as the sole beneficiary. It may merely delay estate tax liability until your spouse dies (assuming he or she outlives you). Consider all your options An ILIT isn’t a one-size-fits-all solution. It’s generally most beneficial for high-net-worth individuals who anticipate significant estate tax exposure. The trust can provide heirs with tax-free liquidity precisely when it’s needed most, without forcing the sale of family assets or business interests to cover tax bills. But if estate tax liability isn’t a significant risk for you, the tax benefits of an ILIT may not outweigh the downsides of giving up control of the policy. We can help you determine whether an ILIT is appropriate for achieving your goals. © 2025 

When you read the word “hygiene,” you may immediately think about the importance of washing your hands or brushing your teeth. But there’s another use of the term that every business owner should know: data hygiene. This refers to the ongoing process of ensuring that the information your company relies on is accurate, complete, consistent and up to date. Whether customer contact info, financial records or vendor agreements, data that isn’t wholly clean puts your business at risk of making poor decisions and costly mistakes. Specific harms How can dirty data harm your company? For starters, inaccurate or outdated information can lead to billing mistakes and delays, ineffective marketing campaigns, missed or mishandled sales opportunities, and compliance troubles. When employees must constantly question the validity of data and fix errors, productivity falls and costs rise. Over time, lack of reliable information can erode trust with customers, vendors, lenders and investors — all while lowering staff morale. And now that many businesses widely use artificial intelligence (AI), there’s a cybersecurity angle. Among the many threats currently evolving is “data poisoning.” It occurs when bad actors, either internal or external, intentionally corrupt the information that an AI model relies on to operate. The objective is to manipulate the model’s behavior by introducing malicious, biased or inaccurate data during the “training phase.” Without strong data hygiene safeguards in place, these cyberattacks can compromise an AI system and ruin the reputation of the company using it. Best practices The good news is your business can significantly improve its data hygiene by adhering to certain best practices. Begin by setting clear standards for data entry. Employees should input information the same way every time, according to a well-defined process. Train staff members on the definition and importance of data hygiene. Ask them to routinely verify critical details related to financial transactions, such as customer contact info and vendor payment instructions. From a broader perspective, set up regular audits of your databases to remove duplicate items, catch and correct inaccuracies, and archive outdated information. Consider investing in software tools that flag inconsistencies and prompt updates to key systems. Above all, assign the responsibility to promote and oversee data hygiene to someone within your company. If you run a small business, you may have to do it. But many companies assign this job duty to the chief data officer or data quality manager. Financial performance benefits Robust data hygiene can translate directly to stronger financial performance. As the accuracy and reliability of information are continuously improved, your company will be able to generate more dependable financial records and reports. In turn, you’ll have the tools to make better-informed decisions about budgeting, cash flow management and strategic planning. Clean data benefits sales and marketing as well. For example, it helps you target the right audience, reducing wasted efforts and improving return on investment. Of course, there are costs associated with data hygiene. You’ll likely have to spend money on software, training, and potentially engaging consultants to audit your systems and upgrade your technological infrastructure. However, handled carefully, such costs will probably be far less than those associated with lost sales, compliance penalties and reputational damage. More important than ever Data hygiene may not be top of mind for business owners dealing with hectic schedules and complex operational challenges. However, the quality and quantity of information are critical to running a competitive company in today’s fast-paced, data-driven economy. We can help you and your leadership team understand the cost implications of data hygiene and budget for it appropriately. © 2025 

Among its numerous tax provisions, the One Big Beautiful Bill Act (OBBBA) reinstated immediate deductions for research and experimental (R&E) expenditures under Internal Revenue Code Section 174, beginning in 2025. The IRS has recently issued transitional guidance (Revenue Procedure 2025-28) on how this change will be implemented. The guidance addresses several critical issues. Here’s what businesses of all sizes need to know. The reinstatement R&E expenditures generally refer to research and development costs in the experimental or laboratory sense. They include costs related to activities intended to discover information that would eliminate uncertainty about the development or improvement of a product. Since 2022, the Tax Cuts and Jobs Act (TCJA) has required businesses to amortize domestic R&E costs over five years, with foreign costs amortized over 15 years. The OBBBA permanently reinstates the pre-TCJA treatment of domestic R&E costs, allowing their deduction for expenses incurred or paid in tax years beginning after 2024. The OBBBA also permits small businesses that satisfy a gross receipts test to claim the R&E deduction retroactively to 2022. (For 2025, average annual gross receipts for the previous three years must be $31 million or less.) And any business that incurred domestic R&E expenses in 2022 through 2024 may elect to accelerate the remaining deductions for those expenditures over either a one- or two-year period. The immediate deduction of qualified R&E expenses isn’t mandatory. Depending on a variety of factors, in some situations, claiming it may not be advisable. Taxpayers generally can instead elect to capitalize and amortize such expenses paid in a tax year after 2024 over at least 60 months. The election must be made by the due date, with extensions, of the original tax return for the first tax year to which the election applies. For 2025, a taxpayer that makes an accounting method change to capitalize and amortize R&E expenses will be deemed to have made the election. Retroactive deductions for small businesses As noted, eligible small businesses can elect to treat the changes to Sec. 174 as if they took effect for tax years beginning after 2021, rather than after 2024. How to do this depends in part on whether the taxpayer has already filed a 2024 tax return. If the taxpayer filed a 2024 return before August 28, 2025, an automatic extension to supersede that return to include the new guidance is available. However, the taxpayer must file that replacement return by the extended deadline (typically September 15 or October 15). Alternatively, the taxpayer can file an amended 2024 return, following one of the two options discussed below. If the taxpayer didn’t file a 2024 return by August 28, the taxpayer can file by the applicable extended deadline and either: Elect to expense eligible R&E expenses under the new guidance, which would also require filing amended returns for 2022 and 2023, or Do an automatic method of accounting change and a “true-up” adjustment on the 2024 return for the 2022 and 2023 R&E expenses.  Elections must be made by the earlier of July 6, 2026, or the applicable deadline for filing a claim for a credit or refund for the tax year (generally, three years from filing the return). Accelerated deductions for all businesses Businesses with unamortized domestic R&E expenses under the TCJA can elect to fully recover those remaining expenses on their 2025 income tax returns or over their 2025 and 2026 returns. Notably, the IRS guidance states that taxpayers “may elect to amortize any remaining unamortized amount” of such expenses. This language suggests that the deduction will be considered an amortization expense. This is significant in light of changes the OBBBA made to the business interest expense deduction. The business interest deduction generally is limited to 30% of the taxpayer’s adjusted taxable income (ATI). (Taxpayers that meet the same annual gross receipts test discussed earlier are exempt from the limitation.) Under the OBBBA, beginning in 2025, ATI for purposes of the interest deduction is calculated without deductions for depreciation, amortization or depletion. So amortization deductions are “added back,” potentially increasing the ATI and the allowable business interest deduction. If R&E expenses aren’t treated as an amortization deduction, they could reduce the allowable business interest deduction. The interplay with the research credit The Sec. 41 research tax credit is also available for certain research-related expenses, and you can’t claim both the credit and the deduction for the same expense. A tax deduction reduces the amount of income that’s taxed, while a tax credit reduces the actual tax you owe dollar-for-dollar, providing much more tax savings than a deduction of an equal amount. But the types of expenses that qualify for the credit are narrower than those that qualify for the deduction. The OBBBA changes a TCJA provision so that the amount deducted or charged to a capital account for research expenses is reduced by the full amount of the research credit, as opposed to being subject to a more complex calculation that had been in effect under the TCJA. The amount that’s capitalized is reduced by the amount of the credit claimed. For example, suppose the allowed credit is $20,000. The capitalized amount for the year would be reduced by $20,000. The OBBBA continues, however, to allow taxpayers to elect to take a reduced research credit, rather than reducing their R&E deduction. The OBBBA also allows certain small businesses (generally determined by the gross receipts test mentioned above) to make late elections to reduce their research credit — or to revoke prior elections to reduce the credit. The late elections generally are available for tax years for which the original return was filed before September 15, 2025, and must be made by the earlier of July 6, 2026, or the deadline for filing a claim for a credit or refund for the tax year, on an amended return or an administrative adjustment request (AAR). Reduced uncertainty The IRS guidance also provides automatic IRS consent to applications to change accounting methods for domestic R&E expenses under the TCJA, the OBBBA, the small business retroactive method and the recovery of unamortized method — reducing uncertainty. We can help address any questions you have about the tax treatment of R&E expenses. © 2025

For many taxpayers, receiving a letter from the IRS can feel intimidating. The envelope arrives with the IRS seal, and immediately, worry sets in: Did I make a mistake? Am I in trouble? The truth is, IRS notices aren’t uncommon, and most of them can be resolved fairly easily once you understand what they mean. This article walks through the most common types of IRS notices, explains why taxpayers receive them, and provides guidance on how to respond. Why the IRS sends notices The IRS communicates primarily by mail — not phone or email. Notices are typically sent for reasons such as: Clarifying information on a tax return, Notifying you of a balance due, Confirming changes made to your return, Requesting additional documentation, and Alerting you to a possible error. Each notice is numbered in the upper right-hand corner (for example, CP2000 or Notice CP12). That code is your key to understanding the purpose of the letter. In all cases, contact us if you have questions about how to proceed. Five common notices and what they mean 1. CP2000, proposed changes to your tax return. This notice is issued when the IRS finds a mismatch between the information you reported and what third parties (like employers or banks) reported. For example, if your W-2 shows more wages than what you entered, the IRS will propose a correction. How to respond: Review the notice carefully. If the IRS is correct, you can agree and pay any additional tax owed. If you disagree, you have the right to dispute it by providing supporting documentation. 2. CP12, refund adjustment. If the IRS corrects a math error or other mistake on your return, you may receive this notice. Sometimes, it will result in a smaller or larger refund than you expected. How to respond: If you agree with the correction, no action is needed. If not, you can request a reversal by contacting the IRS within 60 days of the date of the notice. 3. CP14, balance due. This is the most common notice. It informs a taxpayer that he or she owes additional tax. It will list the amount due, including penalties and interest. How to respond: Don’t ignore it. Pay the balance in full, set up a payment plan or contact the IRS if you believe the notice is incorrect. 4. Letter 4883C, identity verification. When the IRS suspects identity theft, it sends this letter asking you to verify your identity before processing your return. How to respond: Follow the instructions immediately — usually by calling the IRS or verifying online. Delaying could stall your refund. 5. CP49, refund applied to a debt. A taxpayer will receive this notice if he or she was expecting a refund, but instead had it applied to past-due federal taxes or other debts (like child support or student loans). How to respond: The notice will explain how the refund was applied. If you disagree, you may need to contact the agency that received the payment, not the IRS. Steps to take In addition to the response steps listed above, here are six more tips: Don’t panic. Notices are often routine and resolvable. Read carefully. The notice will explain the issue, next steps and deadlines. Check the notice number. This will help you look up details online or discuss the matter with us. Verify accuracy. Compare the notice to your tax return and records. Respond promptly. Many notices have deadlines for disputing or appealing. Avoid scams. The IRS will never email, text or call demanding payment. Legitimate notices always come by mail. Ways we can help Interpreting an IRS notice may be tricky, especially if it involves complex calculations or disputed information. We can review the notice for accuracy and explain what it means in plain language. In addition, we can communicate with the IRS on your behalf, help you gather documentation, file corrections and guide you through payment plans or appeals if needed. With professional guidance, most IRS issues can be resolved without stress or confusion. © 2025 

Running a successful business requires more than delivering great products or services. Behind the scenes, meticulous recordkeeping plays a crucial role in financial health, compliance and tax savings. Good records can mean the difference between successfully defending a deduction and losing valuable tax breaks. A recent U.S. Tax Court decision underscores just how important this is. Why it matters The IRS requires all businesses — no matter how small — to maintain records that accurately reflect income, expenses, assets and liabilities. Without these records, it’s nearly impossible to: Substantiate tax deductions and credits, Track cash flow and profitability, Prepare accurate financial statements, Monitor the progress of your business, Support decisions for financing, and Demonstrate compliance during an IRS audit. In short, strong recordkeeping protects your business, both for operational and tax law purposes. Taxpayer loses deductions due to insufficient records In one case, a union power‐line worker also had business interests in a storm response partnership, a salon and a rental property. He claimed significant losses and business expenses on his return for the year in question. Among his claimed deductions were partnership losses and expenses for tools, clothing and travel. In Tax Court Memo 2025-12, the court disallowed substantial deductions because the taxpayer couldn’t properly substantiate them. Some invoices or receipts were missing or didn’t tie clearly to the business purpose. For example, with vehicle or travel expenses, the court noted the lack of contemporaneous logs and details that distinguished business vs. personal use. For partnership losses, the taxpayer needed to show his basis in the partnership, but couldn’t provide clear documentation of all his capital contributions. In addition to denying many of the taxpayer’s deductions, the court upheld an accuracy‐related penalty. This is an extra charge (typically 20% of the underpayment) that can be assessed when a taxpayer makes substantial mistakes on a tax return. This case isn’t unique. Year after year, businesses lose valuable deductions for the same reason: poor recordkeeping. Six key practices to protect tax breaks To avoid costly mistakes, businesses should implement a recordkeeping system that’s both practical and compliant. Here are six best practices to consider: 1. Separate business and personal finances. Open a dedicated business checking account and credit card. Mixing personal and business expenses is one of the fastest ways to create confusion — and attract IRS scrutiny. 2. Maintain contemporaneous records. Document expenses when they occur, not months later. For example, keep mileage logs for business driving and note the purpose of each trip. 3. Use accounting software. Modern accounting platforms (like QuickBooks® or industry-specific tools) streamline recordkeeping. They allow you to categorize expenses, generate reports and integrate with bank accounts to minimize errors. 4. Keep source documents. For example, retain purchase and sale invoices, receipts, bank statements, canceled checks, and credit card bills. Scanning or photographing receipts ensures they won’t fade or get lost. Also, keep copies of Forms 1099-MISC and 1099-NEC. There are also specific employment tax records you must keep. 5. Retain records for the right amount of time. Generally, the IRS recommends keeping records for at least three years. That’s the amount of time that the tax agency can audit a tax return. However, some records (such as payroll tax or property records) should be kept longer. The length of time can be extended to six years if the income is underreported by more than 25%. And if no return is filed or fraud is involved, the IRS can conduct an audit for an indefinite amount of time. 6. Establish internal controls. For businesses with employees, internal checks help ensure the accuracy and integrity of records. Examples of these controls include requiring dual signatures for large expenses and segregating duties so that different employees handle authorization, custody of assets and recordkeeping. Reliable records are vital The lesson from the Tax Court case described above is clear: Without reliable records, even legitimate deductions can vanish. Don’t let poor documentation cost your business money. We can help your business: Set up a recordkeeping system tailored to your business, Learn which expenses are deductible (and how to document them), Review its books to catch issues before the IRS does, and Manage any IRS challenges to tax deductions. Contact us to discuss how we can help you establish sound recordkeeping practices and safeguard valuable tax breaks. © 2025

Is one of your top estate planning goals to provide your family with financial security at the lowest tax cost? Strategies to consider include making gifts during your lifetime or bequests at death, or creating trusts and naming your loved ones as beneficiaries. You could also make an intrafamily loan. This type of loan — where one family member lends money to another — can be an effective way to transfer wealth, provide financial support or assist with major purchases, such as a first home or a business startup. However, this strategy isn’t without drawbacks. Why choose one? A key benefit is flexibility. Families can often offer better loan terms than banks, such as lower interest rates, more forgiving repayment schedules and fewer fees. Intrafamily loans also keep money within the family rather than paying interest to outside lenders, which can help preserve family wealth. In addition, when properly structured, these loans can serve as a tax-efficient way to transfer money while still requiring accountability from the borrower. From a tax perspective, intrafamily loans allow you to transfer wealth tax-free. Here’s how it works: When you make a loan to a family member, charge interest at the applicable federal rate (AFR). (Charging no interest or interest below the AFR can lead to unwelcome tax surprises.) To the extent that the borrower earns returns on the funds in excess of the interest payments on the loan (by investing them in a business opportunity, for example), the borrower pockets those earnings free of gift and estate tax. Note that an intrafamily loan doesn’t enable the lender to avoid gift and estate tax on the loan principal itself. The outstanding balance is included in the lender’s taxable estate, even if the lender dies before the loan is paid off. In that case, either the borrower will be obligated to repay the loan to the estate, or, if the loan terms call for it to be forgiven on the lender’s death, that forgiveness will be treated as a taxable transfer. Will the IRS treat it as a gift or loan? To enjoy the benefits of an intrafamily loan, it’s critical to treat the transaction as a legitimate loan. Otherwise, the IRS may determine that it’s a disguised gift, which can trigger negative tax consequences (assuming you’re subject to gift and estate taxes). Generally, the IRS presumes intrafamily transactions are gifts. So, to ensure that a loan is treated as a loan, you must take steps to demonstrate that you and the borrower have a bona fide creditor-debtor relationship. To decide whether a transfer of funds is a loan or a gift, the IRS and courts consider the “Miller” factors. A transfer is more likely to be treated as a loan if: There was a promissory note or other evidence of indebtedness, Interest was charged, There was security or collateral, There was a fixed maturity date, A demand for repayment was made, Actual repayment was made, The transferee had the ability to repay, The parties maintained records treating the transaction as a loan, and The parties treated the transaction as a loan for federal tax purposes. These factors aren’t exclusive. Additionally, the courts generally consider an actual expectation of repayment and intent to enforce the debt as crucial to determining whether a transfer constitutes a loan. What are the drawbacks? Although an intrafamily loan can be a helpful tool, families should carefully weigh the financial and emotional risks before proceeding. A significant risk is personal — mixing money with family relationships can create tension. If a borrower struggles to repay, the lender may feel taken advantage of, while the borrower may feel pressure or resentment. If you’re considering making intrafamily loans, it’s important to observe the formalities associated with bona fide loans to ensure the desired tax treatment. Contact us for additional details. © 2025 

The more things change, the more they stay the same. This age-old saying applies to many things, and one of them is fraud perpetrated against businesses by their employees. In fact, occupational fraud cost organizations about 5% of their revenue on average last year, according to the Association of Certified Fraud Examiners’ Occupational Fraud 2024: A Report to the Nations. Let’s review its three basic categories. Misappropriating assets The first category is asset misappropriation. It comprises theft or misuse of any business asset, but related schemes often involve cash. These types of scams are the most common type of occupational fraud, though they’re typically less costly than crimes committed under the other two categories. One classic example is the “ghost” employee ploy, where a staff member with payroll access channels funds to a nonexistent worker. Naturally, those funds end up in the real employee’s pocket. There are plenty of others. Asset misappropriation has long involved check tampering, whereby an employee steals, forges or alters company checks to reap ill-gotten financial rewards. Now that midsize and larger businesses rely more on electronic transactions, these companies are relatively less susceptible to check schemes. However, many small companies are still at risk. If you run a cash-intensive business, be on the lookout for dishonest workers skimming funds before they’re recorded. And if your company maintains inventory or supplies, safeguard these carefully to avoid theft. Engaging in corrupt activities The second category of occupational fraud is corruption. Dishonest employees in positions of influence may commit crimes for personal gain and the company’s loss. These types of schemes are rarely simple and may go on for months — or even years — without anyone noticing. For instance, a corrupt staffer may work with a vendor rep to inflate prices on the vendor’s goods and services. The two then split the difference when the business pays the bill. Collusion like this can hurt your company’s financial performance and business reputation. Leadership teams that fail to prevent such schemes risk losing the confidence and support of lenders and investors. Don’t ignore the possibility of kickback schemes either. Here, a person of influence in the company uses a vendor or other provider, not because they’re the best choice, but because the employee involved gets a personal benefit. Examples might include cash, a valuable gift or free services. Falsifying financial statements The third category is financial statement fraud. In these schemes, perpetrators falsify financial statements to either hide poor performance or commit outright theft. On the upside, this category is generally the least prevalent of the three. The downside? It’s often the costliest — with such crimes costing companies many hundreds of thousands of dollars on average. One example to watch out for is inflated revenue. A manager, perhaps angling for a promotion or fearful of termination, records sales that never actually occurred to make the business appear more profitable. On a similar tack, a dishonest employee may hide or delay recording legitimate expenses or debts to make financial results look stronger. Fraudulent manipulation of financial statements can be particularly dangerous. These crimes are often sophisticated, hard to detect and damaging to a company’s reputation at the highest levels. Common thread As you can see, occupational fraud can take many forms. But the common thread is the financial and reputational damage to affected businesses. And the threat level is often higher for smaller companies because they may have fewer resources to fight back. Let us help you spot vulnerabilities in your operations, strengthen internal controls, and devise tailored fraud prevention and detection strategies. © 2025