If you have employees age 50 or older who make “catch-up” 401(k) contributions, 2026 brings an important change. High earners can no longer make those contributions on a pre-tax basis. They must be designated as after-tax Roth contributions instead.

The tricky part isn’t just knowing the rule, it’s that neither QuickBooks Online (QBO) Payroll nor QuickBooks Desktop (QBD) Payroll fully automates this transition. As the employer or bookkeeper managing payroll, you’ll need to make some manual adjustments to stay compliant. Here’s what you need to know and how to handle it on both platforms.

2026 Contribution Limits at a Glance

Contribution Type	2026 Limit
General elective deferral (all employees)	$24,500
Standard catch-up (age 50+)	+$8,000 (total) $32,500)
Enhanced “Super” catch-up (ages 60-63)	+$11,250 (total $35,750)

The Mandatory Roth Catch-Up Rule

Under SECURE 2.0, catch-up contributions for higher earning employees are now restricted:

• The $150,000 threshold: If an employee’s prior-year (2025) FICA wages from your company exceed $150,000, any catch-up contributions they make in 2026 must be designated as after-tax Roth. Wages sitting at $150,00, not above it, don’t trigger the mandate.
• No more pre-tax catch-up for high earners: Once an employee crosses the threshold, they aren’t permitted to make pre-tax catch-up contributions anymore.
• No Roth option, no catch-up: If your company’s 410 (k) plan does not offer a Roth contribution feature, employers are barred from offering catch-up contributions at all.

For employees below the $150,000 threshold, nothing changes. They can still choose pre-tax or Roth catch-up contributions as before.

Why This Creates Work in QuickBooks

Both QBO and QBD Payroll are built around a single 401(k) deduction item that can either be pre-tax or Roth, not both and not a switch midyear. Neither platform will automatically:

• Split an employee’s base deferral from their catch-up deferral or
• Convert a deduction from pre-tax to Roth once an income threshold is crossed.

That means for any employee subject to the mandatory Roth rule, you’ll need to set up a second, separate deduction item specifically for their catch-up contributions and manage the two items so they don’t exceed their individual limits.

Setting This Up in QuickBooks Desktop (QBD) Payroll

QBD manages limits at the global Payroll Item List level rather than purely in individual profiles, so setup is slightly different:

1. Create the two payroll items globally, if you haven’t already:

• Lists > Payroll Item List > Payroll Item > New > Custom Setup > Deduction

• Pre-tax item: Tax Tracking Type = 401(k) Pre-Tax, annual limit $24,500

• Roth catch-up item: Tax Tracking Type = Roth 401(k), annual limit $8,000 (or $11,250 for ages 60–63)
  
  
  

2. Assign both items to the employee’s profile:

• Open the Employee Center, double-click the employee’s name, go to Payroll Info.
  
  
  

3. Unlike QBO, QBD lets you run both items concurrently on the same paycheck without a workaround. Each item stops automatically once it hits its own annual limit.

Correcting Contributions Already Withheld as Pre-Tax

If you’ve already run January 2026 payroll and mistakenly withheld a high earner’s catch-up contribution as pre-tax, you’ll need to correct it manually in both systems since QuickBooks cannot reclassify a finalized paycheck automatically.

In QBO: Run an adjustment/bonus-only check for the employee, entering a negative amount against the pre-tax 401(k) item and an equal positive amount against the Roth catch-up item, so the check nets to $0. This corrects your tax tracking and adds the amount back into taxable wages for W-2 reporting.

In QBD: Use Employees > Enter Payroll Adjustments, select the employee, and make the same offsetting negative/positive entry between the pre-tax and Roth items.

Important: this fixes your internal payroll records only. You still need to contact your third-party 401(k) recordkeeper (e.g., Fidelity, Empower, Guideline) directly and ask them to formally recharacterize the funds inside the employee’s actual investment account because QuickBooks has no connection to that.

Have Questions?

Navigating SECURE 2.0’s new Roth catch-up rule alongside your existing payroll setup can get complicated, especially when corrections and multiple deduction items are involved. If you have questions about how this applies to your business, contact the CAAS team at CK. Reach out to our team today to make sure your 2026 payroll stays accurate and compliant.

This post is intended as general guidance on payroll administration, not tax or legal advice. Contribution limits, thresholds, and QuickBooks workflows can change. Confirm current details with your 401(k) plan administrator, tax advisor, or QuickBooks support before making changes to payroll.

Why Cash Flow Management Matters

Running a successful small business involves more than generating revenue. You can have a thriving business and still find yourself scrambling to cover payroll in a slow month. That’s not a sign of failure; it’s the nature of running a business. Busy seasons give way to slow ones. Meanwhile, your rent, your staff and your operating expenses show up every month whether your business is busy or quiet.

Strong cash flow management helps a business remain stable during slower periods, capitalize on growth opportunities, and reduce financial strain across the organization.

Here’s what businesses that manage cash flow more effectively and operate more profitably actually do.

Revenue Forecasting and Timing

One of the most important things you can do is stop being surprised by slow months. Most business owners know when their busy season is, but few have it mapped out month-by-month or client-by-client organized by dollar value. Note which customers or contracts pay in which months, which revenue sources are recurring and which one or two accounts are large enough that losing one would noticeably change your cash picture.

Then look 90 days out. A 90-day rolling forecast isn’t perfect, but it gives you enough time to adjust before a dip hits rather than reacting after the fact.

A few other moves that help with revenue forecasting:

• Track recurring and one-time payments separately. They are different and shouldn’t be lumped together in your projections.
• Build a calendar that notes when you actually get paid after delivering a product or service. There’s often a lag between completing work and receiving payment. That gap matters.
• Negotiate faster payment terms or deposits up front on larger jobs with key clients. It doesn’t hurt to ask and many will work with you.

Revenue Stabilization

A single revenue stream is great, until it isn’t. One big client doesn’t renew or a slow season stretches longer than expected and a business is suddenly watching expenses pile up without being able to absorb the hit. Resilient businesses have added at least one or two revenue streams that don’t depend on peak-seasons. Some examples:

• Service or consulting fees for things you are already doing for a client as part of your expertise.
• Retainer arrangements for clients who want ongoing access to your work.
• Bundled service packages or memberships that spread smaller payments throughout the year rather than arriving all at once.

Compensation and Collections

Many small businesses are too relaxed about collections. If you’re delivering work and then waiting 60 days to get paid because you haven’t enforced the terms you have for a client, you can create a cash flow problem for yourself. Tightening this up can make a real difference.

On the client side:

• Enforce clear payment terms and communicate them up front.
• Require deposits on larger projects before beginning to work on them.
• Push towards ACH or other electronic payments to speed up collections. Checks take time, electronic payments don’t.
• Review aging reports regularly and follow up promptly on overdue balances.

If you have employees or contractors, consider whether our compensation timing is creating unnecessary pressure. Whenever possible, align when you pay out with when you’ve actually been paid.

Reserves and Expense Management

There’s one habit that prepares a business for difficult stretches, they save aggressively during good months. A target of three to six months of operating expenses in reserve is ideal. The best way to build it is to automate it. During your peak months, automatically transfer a set percentage into a separate account. Keep it separate from money you’ll spend. The key is to not have it set in your operating account where it could disappear during day-to-day spending.

Besides having a reserve account, a few other habits worth building are:

• Aligning expenses with revenue cycles. Plan your budget around your slower months, not your best ones. If you can sustain operations during a slow period, you’ll be fine the rest of the year.
• Time discretionary spending. Bonuses, equipment upgrades, new hires and other variable spending should coincide with stronger revenue periods.
• Use subcontractors or temporary support for variable workloads when practical rather than adding fixed payroll you’ll struggle to support in a slower season.

Track the Right Metrics Every Week

You don’t need a complicated financial system to stay on top of cash flow. You need a short list of numbers you look at regularly:

• Cash balances across all accounts
• Accounts receivable aging (what’s owed to you and how long it’s been outstanding)
• Weighted value of work in progress (what’s likely to close or come in and when)
• Customer or client retention percentage (are you keeping the business you have?)
• Average time from sale or delivery to cash receipt (how long does your typical payment lag?)

Planning and Credit

• Budget monthly over a 12- to 18-month horizon
  • Map peak revenue months, fixed costs such as rent and payroll, and the periods where cash is most likely to dip.
  • Stress-test the budget with a worst-case scenario, such as peak revenue coming in 20% to 30% below plan.
• Use a line of credit proactively
  • Evaluate multiple lenders and credit options before you need them.
  • Set up the line of credit in advance, use it for short-term timing gaps rather than ongoing losses, and pay it down during stronger months.

The Truth About Cash Flow

In almost any business, seasonality can create real pressure on cash flow and liquidity. Businesses that manage seasonality well typically do three things consistently: they save aggressively during peak periods, keep fixed costs under control year-round, and forecast cash flow, not just profit.

With consistent planning, regular review, and timely adjustments, cash flow management becomes a practical advantage that supports long-term stability and profitability. If you’re not sure where to begin the CK CAAS team is here to help. Reach out to us on the website or call us at (630) 953-4900.

How you pay your team shapes growth, retention, and long-term client value. For any business, getting compensation right is one of the most consequential decisions you’ll make. Pure commission can encourage short-term thinking, higher turnover and income volatility, while salary alone can weaken performance incentives. In many businesses, the strongest approach is a well-structured hybrid model that rewards production while reinforcing retention and cash flow. Here are the three main compensation approaches and possible ways to combine them.

Compensation Models at a Glance

Salary

A straight salary works best for new producers, account managers, service roles, and complex commercial lines with longer sales cycles that are difficult to measure on a transaction-by-transaction basis. It provides income stability and supports a stronger focus on relationship building rather than constant pressure to sell.

Advantages

• Improves retention by giving employees a predictable income
• Encourages long-term client relationships, rather than a constant push to close the next deal
• Creates more stability for clients and team culture

Drawbacks

• Can reduce urgency if the base salary is set too high
• Increases the business’ fixed costs

Best use

Use a higher salary early in an employee’s career, supported by a clear plan to transition gradually toward performance-based compensation.

Commission

Commission pay is most effective for roles centered on new business production and top-line growth. It creates a direct link between pay and revenue, making it a strong motivator for business development.

Advantages

• Connects compensation directly to revenue generation
• Supports growth without adding fixed overhead costs
• Encourages strong production activity

Drawbacks

• Can encourage short-term, transactional selling at the expense of long-term relationships
• May weaken the long-term client experience
• Income volatility can increase turnover risk

Best use

Using commission-heavy structures for growth-focused roles where generating new revenue is the primary objective. It works less well when it is the only form of pay for roles that require ongoing client care.

Bonus

Bonuses are especially useful for reinforcing behaviors that support long-term employee performance, such as retention, cross-selling, profitability, and team collaboration.

Advantages

• Aligns incentives with long-term business goals
• Can be adjusted as your business priorities shift
• Encourages balanced performance beyond just hitting a sales number

Drawbacks

• Requires clear metrics to be effective
• Employees may distrust them if the structure is not transparent

Best use

Tie bonuses to measurable KPIs such as retention rate, cross-sell ratio, account growth, profitability, and client satisfaction. The clearer the target, the more motivating the bonus.

Hybrid Approach (Recommended)

A hybrid model is often the most effective option for growth-oriented teams because it balances income stability with performance incentives. This approach supports retention, encourages sustainable growth, and rewards top performers without applying the same pay structure to every role.

Advantages

• Balances stability with motivation
• Improves client retention and revenue consistency
• Rewards high performance without overcompensating across the board

Drawbacks

• Requires thoughtful design and ongoing management

A starting framework to consider:

• Base salary: 30–60% of total compensation
• New business or production incentive: 25–40%
• Retention or renewal commission: 10–25%
• Bonus: 10–30% tied to specific measurable goals

These percentages aren’t universal rules; you can adjust them based on role, experience level and what matters most in your business right now. A higher salary is often appropriate early on, with a defined transition toward more performance-based pay overtime.

What It Really Comes Down To

No single compensation model is right for every business or every role. For most small and family-owned businesses, the most effective approach is a hybrid structure that combines a reasonable base salary, meaningful performance incentives, and clearly defined bonuses. It creates a stronger balance between growth, retention, and long-term profitability than any single pay method on its own.

If you’d like help deciding on the right compensation structure for your business, the trusted advisors at CK are here to help. You can reach out to the CAAS team on the website or call us at (630) 953-4900.

Each year, millions of people have their identities stolen in different ways, including theft of their tax information. Taxpayer identity theft is becoming more prevalent, but there are simple steps you can take to protect yourself.

What is Taxpayer Identity Theft?

Taxpayer identity theft happens when someone steals your personal information, like your social security number and uses it to file a fake tax return in your name so they can claim your refund. This is often done early in the filing season before you have even started your return. Most people are unaware until they try to file a return and discover that IRS has already received a return under their name and their return is either rejected or the IRS asks for additional information to sort out the mix-up.

How to prevent identity theft?

While it is impossible to eliminate identity theft, there are ways to minimize the risks. Some steps for you to consider:

• Do not carry your social security number card with you; keep it in a secure spot at home, like a locked drawer or safe.
• Don’t give out your full social security number. Most financial institutions will only ask for the last four digits to confirm who you are.
• Keep any financial information secure, including at your office or workplace, not just at home.
• Check your credit report once a year for unusual activity. Consider “freezing” your credit (which blocks anyone from opening new accounts in your name) and only unfreezing it when you actually need it, for example, when applying for a loan.
• Shred any documents containing personal or financial information before throwing them away.
• Send sensitive documents through secure methods, encrypted email, password-protected files, or a secure online portal. Most banks and financial companies offer secure portals to communicate and process documents.
• Do not answer phone calls, texts, social media messages or emails from numbers or people you do not recognize.
• Use a phrase (a short sentence rather than a single word) for your passwords and enable two-factor authentication for your devices and for all your online accounts.
• Be cautious of using public Wi-Fi networks and use a Virtual Private Network (VPN) on your computers and phones.

If you believe you’re a victim of identity theft

• If you receive an IRS notice about possible fraudulent activity, follow the instructions and use the contact information shown on the notice right away.
• If you haven’t received an IRS letter or notice but think someone may have filed a tax return in your name, file an IRS Identity Theft Affidavit (Form 14039) to report it.
• If you are worried your personal information was exposed (even if no fraud has happened yet), you can request an IRS Identity Protection PIN (IP PIN). This is a six-digit number that is used to identify you when you file a return so a thief can’t file a return without it. You can apply for an IP PIN for free through your IRS Individual Online Account. If you cannot get an IP PIN online, you can request one by mail using IRS Form 15227. Finally, never share your IP PIN with anyone other than your trusted tax advisor.

If you need assistance with a tax-related identity theft issue, an IRS identity theft notice, or an IP PIN issue, call the IRS identity theft hotline.

• If your identity is stolen, outside of taxpayer identity theft, here’s what to do:
  • Report it to the Federal Trade Commission at IdentityTheft.gov or call the FTC Identity Theft Hotline.
  • Contact the three major credit bureaus (Equifax, Experian, and TransUnion) to place a fraud alert on your credit file.
  • If your Social Security number is misused, report it to the Social Security Administration.

Be vigilant! Requesting an IP PIN ahead of time is one of the best ways to prevent a fraudulent return from being filed. Remember, the IRS and state government will never contact you by email, telephone, text message, or social media to ask for personal, financial, or IP PIN information. Also, the IRS and state governments will not accept payments using gift cards.

We hope this information is helpful. If you’d like to discuss this information or feel you have been a victim of identity theft and would like our assistance in working with the IRS, please contact us at (630) 953-4900.

We are proud to share that Cray Kaiser has once again been ranked among the top accounting firms in the country, coming in at #423 on INSIDE Public Accounting’s 2026 IPA 500.

This annual ranking recognizes the 500 largest accounting firms in the United States based on net revenue, using data submitted through the IPA Practice Management Survey. For us, this recognition reflects the relationships we’ve built along the way. Every client who has trusted us with their business, every challenge we’ve worked through together, and every bit of confidence you’ve placed in our team has helped get us here.

To our clients, thank you for continuing to choose Cray Kaiser. We don’t take that trust lightly and we’re grateful for the chance to keep showing up for you and your business, year after year.

To learn more about the IPA 500 and this year’s rankings, visit here.

In Cray Kaiser’s Employee Spotlight series, we highlight a member of the CK team. We couldn’t be prouder of the team we’ve grown and we’re excited for you to get to know them. This month, we’re shining our spotlight on Colt Adams.

Getting to Know Colt

Colt Adams is a Staff Accountant at Cray Kaiser, handling a broad caseload that spans individual, S-Corp, C-Corp, and partnership returns. He’s recently expanded into payroll and sales tax return preparation, adding another layer to his skill set. As for an area of expertise, Colt is enjoying his time learning across a broad mix of tasks, and he’s in no rush to narrow his focus. He’d rather build a wide foundation now and let his specialty reveal itself along the way.

Colt’s path into accounting started at Sauk Valley Community College, close to his hometown. He wasn’t sure what career direction to take, but a couple of accounting classes changed that. He carried that interest to Aurora University, where he earned his bachelor’s degree in accounting.

Why CK?

Colt joined CK as an intern in January of 2026. What stood out right away was the team around him.

“Everyone genuinely wanted to see me learn, grow, and succeed, and they were always willing to help in a supportive and encouraging way,” Colt shares. “I immediately felt welcomed and like I was part of the team.”

That welcome made the decision to stay after his internship ended an easy one. Colt saw firsthand how CK’s diverse client base translates into a diverse range of work, and he knew that kind of variety would push him to grow into a well-rounded accountant. He made the move official on June 1, 2026, joining the team full-time as a Staff Accountant.

Since coming on board, Colt has noticed a strong sense of unity across the team, with people genuinely invested in helping each other succeed rather than competing for the spotlight. “It feels like one big family,” he says, “and I think that’s a hard thing to find.”

Of CK’s core values, Care is the one that resonates most with Colt. “Knowing the work we do here at CK matters and helps people and businesses is an awesome feeling,” he says. “They come to us and trust us with very important matters, and that is not something to take for granted.”

Colt’s advice for anyone new to the field comes from experience: don’t be afraid to ask questions, and don’t be afraid to get something wrong. “You will not know everything and that’s okay. Also, be open to making mistakes, but when you make them, learn from them.”

More About Colt

What motto do you live by?

A motto that I try to live by is that it is completely free to be kind. You never know what someone else is going through so being kind could really impact their day in a positive way.

Do you have a special/hidden talent or hobby?

Golf. I started playing during COVID when there weren’t many other things to do, and I’ve gotten pretty good at it since. It can be a very humbling game, but I really enjoy it.

What’s your favorite vacation spot or what’s on your list?

Rather than one specific trip, I’d love to spend time traveling to different National Parks. I enjoy hiking and being outdoors, so it would be a fun way to see parts of the country I haven’t experienced yet.

What’s your favorite movie or TV show?

My favorite movie is Forrest Gump, and my favorite show is Peaky Blinders.

What’s on your music playlist?

I let the Spotify DJ play a wide variety of songs from different genres throughout the day. My favorite type of music is country, and when I want a specific artist, I go with Tyler Childers.

Governor J.B. Pritzker recently signed a new state budget bill into law for the state of Illinois. There are numerous changes that could impact you and your business. Some of the most notable changes include limiting the Net Operating Loss (NOL) deduction, a change in the entity level tax election (PTET), disallowance of the federal Qualified Small Business Stock gain exclusion, and a reduced sales tax holiday for roughly a week in August 2026.

What Is a Net Operating Loss (NOL) and How Is the Limit Changing?

If your business loses money in one year, you can normally use that loss to reduce your taxes in future years. Illinois limits how much of that loss you can use each year and is changing that limit.  

What’s changing:

• For tax years ending after December 31, 2024 and before December 31, 2027, corporate NOL carryforward deductions remain capped at $500,000 per year.
• For later tax years, the cap phases into a percentage-of-income limitation, with the deduction limited to the greater of the applicable percentage or $500,000. The percentage-of-income limitation increases year after year starting at 15% for tax years on or after December 31, 2027 and before December 31, 2028 and increases to 80% for tax years ending on or after December 31, 2031.

Bottom line: Corporations with large prior-year losses will continue to face restrictions on how quickly they can use those losses to offset current taxes, though the cap gradually loosens over time.

Pass-Through Entity Tax Election (PTET): New Options for Partnerships

PTET lets partnerships pay Illinois state tax at the business level instead of passing that tax burden on to individual partners. This helps partners get around the federal limits on deducting state taxes personally. Illinois is now giving partnerships two ways to calculate this tax. For tax years ending on or after December 31, 2026, partnerships making the Illinois entity-level tax election may choose between two annual tax-base methods: the full distributive share method or the Illinois-sourced income method. The elected method is irrevocable for that taxable year. Current guidance applies this new method to partnerships and does not clearly extend to S corporations:

1. Full distributive share method – This method allows the partnership to compute and pay tax on the full distributive share of net income allocable to each partner who is an Illinois resident. The apportioned income will be used to determine tax due from nonresident partners.
2. Illinois-sourced income method – This method allows the partnership to compute and pay tax only on each partner’s share of income derived from Illinois.

Bottom line: Partnerships with a mix of resident and nonresident partners should evaluate both methods before making the election, since the right choice can meaningfully change the amount of taxes paid.

Qualified Small Business Stock (QSBS): Illinois Is Removing a Tax Break

Under Federal tax law (Section 1202) certain gains on the sale of qualified small business stock can be excluded from taxable income. Illinois is joining California and decoupling from this code section.

What’s changing:

• Starting with tax years ending on or after December 31, 2026, Illinois requires you to add back any QSBS gain exclusion you claimed federally when calculating your Illinois taxable income.

Illinois Sales Tax Holiday Returns for Back-to-School Shopping

To end with some good news, for the first time since 2022, Illinois is providing a reduced sales tax rate in August for back-to-school season for certain tangible goods. The Illinois sales tax holiday runs from August 7, 2026, through August 16, 2026, applies to eligible clothing items under $125 and school supplies. Taxes on those items will be 1.25% instead of the general rate. City and local taxes will still apply.

What Should Your Business Do Next?

These changes affect different businesses in different ways depending on your entity type, income and whether you’re carrying forward prior losses. If you have questions about how any of these changes apply to your or your business, please contact the trusted advisors at CK. You can call us at (630) 953-4900 or fill out this form.

Beginning August 1, 2026, local sales tax rates in some Illinois counties will increase by 0.25%. Retailers and servicepersons making taxable sales in Cook, DuPage, Kane, Lake, McHenry, or Will counties must increase their local sales tax rate by 0.25%. The increase is to the Northern Illinois Transit Authority (NITA) portion of sales tax collected in these counties.

How Will I Know My Updated Rate?

The new rate will appear on your Illinois sales/use tax Form ST-1 when your business electronically files on MyTax Illinois. You may also find your updated rate using the MyTax Illinois Tax Rate Finder. Select “August 2026” rates to look up the exact rate for your business address.

What to Do Before August 1, 2026

To stay compliant and avoid under-collecting sales tax, businesses in the affected counties should complete these steps before the effective date:

• Verify your new tax rate using the MyTax Illinois Tax Rate Finder
• Update your systems to reflect the new rate where applicable

How to Report Sales Made Before August 1, 2026

If a sale was made prior to August 1, 2026, and was properly taxed at the prior (lower) rate, report it on Line 8a of Form ST-1 or ST-2. Note – line 8a may only be used for sales properly subject to a different rate.

Need Help Preparing for This Change?

Getting ahead of this update now ensures your business collects the correct sales tax from day one. The new tax will be in effect August 1, regardless of whether your business makes the change in your system. Cray Kaiser is here to help if you have any questions about how this change affects your business or need assistance updating your systems.

Choosing the right business structure can make or break your bottom line as an entrepreneur. The decision to become an LLC or an S corporation can be confusing. In this episode of CK Small Business Focus, CK Tax Manager Eric Challenger breaks down how these two popular structures differ when it comes to taxes, liability protection and administrative complexity. Whether you’re just starting out or your business has grown past the point where self-employment taxes are eating into your profits, this episode will help you understand the pros, cons and key considerations of each option. Then you can decide which structure fits your business today and when it might be time to make a change.

Transcript:

Welcome everyone to another edition of the CK Small Business Focus. My name is Eric Challenger and I’m a Tax Manager at Cray Kaiser. Today we are going to be analyzing which structure, LLC or S corp, is best suited for your business.

Starting a new business comes with a long list of important decisions and one of the most crucial is selecting the right entity type. The two most common structures for small businesses are the limited liability company and the S corporation. Each offering unique benefits and drawbacks, understanding how these entities differ in terms of taxes, legal treatment, and administrative complexity can help you make the right decision as your business grows.

Let’s start with the LLC, the flexible starting point. An LLC is often the go-to legal structure for new entrepreneurs. It offers limited liability protection, meaning your personal assets are typically shielded from business debts and lawsuits. and allows for flexibility in ownership and income allocation. For tax purposes, the IRS doesn’t recognize an LLC as a distinct tax entity. Instead, a single-member LLC is treated as a disregarded entity with all activity reported on the owner’s individual tax return on Form Schedule C. A multi-member LLC is taxed as a partnership unless it elects to be treated as a corporation.

Pros of an LLC

Simple tax filings for SM LLCs. Just report on your individual return. Flexible ownership and income allocations make it easy for you to allocate income to specific members.

Low administrative burden. Ideal for startups and low-profit operations. However, active owners of an LLC must pay self-employment taxes on the entire net income, which can be costly as the business grows.

Now let’s talk about S corporations. An S corporation isn’t a legal entity. It’s a tax election that an LLC or a C corporation can make with the IRS. Once elected, it changes how the business is taxed and allows owners to reduce their SE tax burden by splitting income into salary and distributions.

Key benefits

Payroll tax savings. Unlike the LLC, S corp owners can pay themselves a quote-unquote reasonable salary and take the rest of their income as distributions exempt from SE tax. Maximize qualified business income deduction. If structured correctly, you can take full advantage of the 20% QBI deduction introduced by the Tax Cuts and Jobs Act.

Lower audit risk. S-corporations file separate business tax returns reducing audit visibility compared to Schedule C filers.

Important Considerations

Increased compliance. You’ll need to file payroll, issue W-2s, and submit a separate business return.

Reasonable compensation. Reasonable compensation is required, and the IRS scrutinizes this closely. State recognition varies. Some states may not recognize S corporation election and may impose additional tax filings, or you may have to file as a C corporation.

So when should you elect S corporation status?

Electing S corp status makes the most sense when your business is generating net income significantly above your reasonable salary. While “reasonable” is subjective, many practitioners suggest considering an S corporation once your annual income exceeds $150,000. The tax savings from reduced SE taxes can often outweigh the added compliance costs from becoming an S corporation. But not every business is ready for that transition. If your income is modest or irregular, or if you value operational flexibility and minimal paperwork, the LLC structure may still be a better fit.

So the bottom line, your choice of business entity will shape your tax obligations, personal liability, even your ability to raise funds. While most businesses start as LLCs for simplicity, making the S corporation election can be a smart strategic move once you’re generating higher profits. Still unsure which path is right for you? The entity that suits your business today may not be the best option tomorrow. If you’re a single member LLC or a partnership looking to explore the tax benefits of electing S corporation status, reach out to the tax experts at CK for tailored advice at www.craykaiser.com or call us at 630-953-4900.

For more information, download our white paper.

Have you ever heard the term “WIP” and wondered what it means? WIP stands for “work in progress” and for construction businesses, it’s a report that shows how a job is doing financially and whether the project is on track. The question is: how much of that work is your accounting software doing and how much is falling on your team’s shoulders? Let’s see why that matters.

What does your monthly WIP reporting look like today?

Let’s take a step back and consider how your monthly close process actually works. As an outside advisor, I often hear clients say things like, “We want our consultants to consult,” or “Is there anything we could be doing better?”
That’s prompted me to approach these conversations a bit differently.

Instead of jumping straight to recommendations, it begins with asking better questions.

For example: does your accounting system generate and keep your WIP up to date on its own? Or does your accounting team still rely on exporting data into Excel—manually updating schedules, recalculating balances, and recording entries after the fact?

If Excel is still where most of this work happens, what does that tell you about the role your system is playing? It might mean your software isn’t being used to its full potential and that your team is doing the work your system could be doing instead.

Which leads to an important question:

Why does updating WIP each month take so much time? Is it simply “the way it’s always been done,” or is something more going on?

Is the system simply unable to handle WIP tracking and calculations?
Or is it capable, but it’s just not set up that way? Somewhere between those answers lies an opportunity. Because every hour spent fixing and double-checking spreadsheets raises a fundamental question:

Should people be doing the work that the software was designed to handle?

From my experience working with contractors, most accounting systems are good at two things: tracking job costs and handling progress billings. As projects change, however, updates to contract values and cost budgets don’t always happen in real time. Instead, they often get handled after data is exported and reworked in Excel.

What would the process look like if those changes were maintained within the system as part of its natural workflow?

Imagine this: instead of exporting data and fixing it in a spreadsheet, your team updates contract values and cost budgets right inside your core accounting system, as part of the natural flow of how information is captured, updated, and maintained over the life of a job.

From there, it’s worth asking:
What processes would need to change to make that possible?
What data would need to be entered differently, or more consistently, to make the system work the way it’s supposed to?

This naturally brings up the role of project managers. They are often the closest to the work and closest to the day-to-day changes like cost updates, job progress, and expectations. Does it make sense to involve them more directly in keeping the job data accurate and current?

What might that look like in practice?
And where is the balance between giving operations more ownership and keeping the right financial checks in place?

Rethinking the process

All of this comes back to one bigger question:
How is your monthly WIP process built today and how could it look different?

What would it look like to rely less on large, complex spreadsheets and allow the accounting system to carry more of the load?

And if accounting teams weren’t spending hours updating spreadsheets and fixing errors, what could they be doing instead? Probably things like:

• Analyzing the numbers
• Spotting trends
• Helping leadership make forward-looking decisions

And then there’s also the matter of risk.

Spreadsheets are flexible and familiar, which is exactly why so many teams rely on them.
But that flexibility comes with a downside. They depend on formulas, on version control, and on someone entering the right numbers. One small mistake can throw off an entire report.

So the real question is:
Are you actively managing that risk or just quietly accepting it?

A Final Thought

At its core, this isn’t just about WIP reporting. It’s about how work gets done, where data lives, and how much your organization relies on people versus systems to keep things accurate and efficient.

The goal isn’t necessarily to eliminate Excel or overhaul everything overnight.

The goal is to start asking better questions:

• Where are we spending time?
• Why are we spending it there?
• And what would it look like if we didn’t have to?

Just like Steph Curry’s step-back creates an open look, sometimes you have to take a step back before you can take the shot that changes the game.

If this sounds familiar and you aren’t sure where to begin, you don’t have to figure it out alone. The trusted advisors at CK work with contractors to help them make sense of these types of questions and to find practical ways to get more out of the systems they already have. Reach out to us to discuss what your WIP process could look like.