Author: Jamie Hall

Mergers and acquisitions (M&A) rightfully focus on the promise of growth, access to new markets, talent acquisition, competitive advantage, and many other upsides. However, ignoring the target’s information technology (IT) systems or cybersecurity maturity during due diligence will often lead to regret and could limit growth opportunities. Risks can be costly, and IT risks are more prevalent than ever. With proper due diligence, IT risks can be identified and remediated or integrated into the value of the transaction.

Importance of IT due diligence

IT due diligence involves a comprehensive assessment of a target company’s IT infrastructure, systems, and cybersecurity measures to help avoid costly surprises such as security risks, compliance issues, data integrity problems, and integration challenges. It is a crucial step enabling the acquiring company to make informed decisions about the target company’s IT assets.

Keys to effective IT due diligence

Thoroughly evaluating a target company’s IT assets and processes and understanding risk includes:

• Evaluate IT infrastructure: Assess the hardware, software, and network infrastructure to understand their current state and future needs.
• Analyze contracts: Review existing IT contracts to identify potential liabilities or obligations.
• Assess data management practices: Ensure data is managed securely and complies with relevant regulations.
• Evaluate cybersecurity measures: Examine a target company’s cybersecurity protocols to identify vulnerabilities.
• Determine IT strategy alignment: Ensure a target company’s IT strategy aligns with your own.
• Consider legacy systems and technical debt: Identify outdated systems and potential technical debt that could impact integration.
• Identify key systems: Determine which systems are critical to a target company’s operations.
• Assess IT staffing and skills: Evaluate the skills and capabilities of a target company’s IT staff.

Collaborating with IT experts and advisors

Collaborating with IT experts and advisors during the due diligence process is crucial for a smooth and successful transition. Experienced IT auditors and advisors can quickly identify issues or gaps and provide insight into the associated impact recommendations for correction. These experts can assist with comprehensive risk assessments, compliance audits, vulnerability assessments, and strategic guidance to uncover hidden pitfalls, assess the scalability of current IT infrastructure, and develop a roadmap for secure and efficient integration.

Selecting the right IT advisor

Engaging a qualified advisor, such as KraftCPAs, to conduct thorough IT due diligence allows acquirers to gain insight into a target company’s technology landscape, assess potential risks and opportunities, and develop a strategic IT integration plan that supports overall success.

Summer is approaching, and you might consider hiring young people at your small business. If your children are looking to earn extra money, why not add them to the payroll? It could produce tax credits on your personal income and business payroll taxes.

Here are the three biggest benefits.

1. You can transfer business earnings

Turn some of your high-taxed income into tax-free or low-taxed income by shifting business earnings to a child as wages for services performed. For your business to deduct the wages as a business expense, the work done by the child must be legitimate. In addition, the child’s salary must be reasonable. Keep detailed records to substantiate the hours worked and the duties performed.

For example, suppose you’re a sole proprietor in the 37% tax bracket. You hire your 17-year-old daughter to help with office work full-time in the summer and part-time in the fall. She earns $10,000 during the year and doesn’t have other earnings. You can save $3,700 (37% of $10,000) in income taxes at no tax cost to your daughter, who can use her $15,000 standard deduction for 2025 (for single filers) to shelter her earnings.

Family taxes are cut even if your daughter’s earnings exceed her standard deduction. That’s because the unsheltered earnings will be taxed to her beginning at a 10% rate, instead of being taxed at your higher rate.

2. You may be able to save Social Security tax

If your business isn’t incorporated, you can also save on Social Security tax by shifting some of your earnings to your child. That’s because services performed by a child under age 18 while employed by a parent aren’t considered employment for FICA tax purposes.

A similar but more liberal exemption applies for FUTA (unemployment) tax, which exempts earnings paid to a child under age 21 employed by a parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting only of his or her parents.

There is no FICA or FUTA exemption for employing a child if your business is incorporated or is a partnership that includes non-parent partners. However, there’s no extra cost to your business if you’re paying a child for work that you’d pay someone else to do.

3. Your child can save in a retirement account

Your business also may be able to provide your child with retirement savings, depending on your plan and how it defines qualifying employees. For example, if you have a SEP plan, a contribution can be made for up to 25% of your child’s earnings (not to exceed $70,000 for 2025).

Your child can also contribute some or all of his or her wages to a traditional or Roth IRA. For the 2025 tax year, your child can contribute the lesser of his or her earned income or $7,000.

Keep in mind that traditional IRA withdrawals taken before age 59½ may be hit with a 10% early withdrawal penalty tax unless an exception applies. Several exceptions exist, including to pay for qualified higher-education expenses and up to $10,000 in qualified first-time homebuyer costs.

Tax benefits and more

In addition to the tax breaks from hiring your child, there are nontax benefits. Your son or daughter will better understand your business, earn extra spending money, and learn responsibility. Keep in mind that some of the rules about employing children may change from year to year and may require your income-shifting strategies to change, too.

© 2025 KraftCPAs PLLC

Some tax sins are worse than others. An example is failing to pay federal income and employment taxes that have been withheld from employees’ paychecks. In this situation, the IRS can assess the trust fund recovery penalty, also called the 100% penalty, against any responsible person.

It’s called the 100% penalty because the entire unpaid federal income and payroll tax amounts can be assessed personally as a penalty against a responsible person, or several responsible persons.

Determining responsible person status

Since the 100% penalty can only be assessed against a so-called responsible person, who does that include? It could be a shareholder, director, officer, or employee of a corporation; a partner or employee of a partnership; or a member (owner) or employee of an LLC. To be hit with the penalty, the individual must:

• Be responsible for collecting, accounting for, and paying over withheld federal income and payroll taxes, and
• Willfully fail to pay those taxes

Willful means intentional, deliberate, voluntary, and knowing. The mere authority to sign checks when directed to do so by a person who is higher-up in a company doesn’t by itself establish responsible person status. There must also be knowledge of and control over the finances of the business. However, responsible person status can’t be deflected simply by assigning signature authority over bank accounts to another person to avoid exposure to the 100% penalty. As a practical matter, the IRS will look first and hard at individuals who have check-signing authority.

What courts examine

The courts have examined several factors beyond check-signing authority to determine responsible person status. These factors include whether the individual:

1. Is an officer or director
2. Owns shares or possesses an entrepreneurial stake in the company
3. Is active in the management of day-to-day affairs of the company
4. Can hire and fire employees
5. Makes decisions regarding which, when and in what order outstanding debts or taxes will be paid
6. Exercises daily control over bank accounts and disbursement records

Real-life cases

The individuals who have been targets of the 100% penalty are sometimes surprising. Here are three real-life situations:

Case 1: The operators of an inn failed to pay over withheld taxes. The inn was an asset of an estate. The executor of the estate was found to be a responsible person.

Case 2: A volunteer member of a charitable organization’s board of trustees had knowledge of the organization’s tax delinquency. The individual also had authority to decide whether to pay the taxes. The IRS determined that the volunteer was a responsible person.

Case 3: A corporation’s newly hired CFO became aware that the company was several years behind in paying withheld federal income and payroll taxes. The CFO notified the company’s CEO of the situation. Then, the new CFO and the CEO informed the company’s board of directors of the problem. Although the company apparently had sufficient funds to pay the taxes in question, no payments were made. After the CFO and CEO were both fired, the IRS assessed the 100% penalty against both for withheld but unpaid taxes that accrued during their tenures. A federal appeals court upheld an earlier district court ruling that the two officers were responsible persons who acted willfully by paying other expenses instead of the withheld federal taxes. Therefore, they were both personally liable for the 100% penalty.

Don’t be tagged

If you participate in running a business or any entity that hasn’t paid federal taxes that were withheld from employee paychecks, you run the risk of the IRS tagging you as a responsible person and assessing the 100% penalty. If this happens, you may ultimately be able to prove that you weren’t a responsible person. But that can be an expensive process.

© 2025 KraftCPAs PLLC

Customers may be the lifeblood of your business, but they wouldn’t exist without the products and services you sell. It doesn’t matter whether you’re a mineral specimen dealer who does one-off sales, a reseller who sells items you make or buy wholesale in large lots, or a provider of services. You must always know what you have available to offer buyers – goods, designing websites, or offering lawn care services in your community, for example.

QuickBooks Online can keep you in the know about what you have available to sell, and it can manage the forms and transactions you need to do business with your buying audience. If you were doing your accounting and customer management manually, you might be using index cards and large wall calendars and file folders stuffed with product lists and schedules.

You’d spend a lot of time digging through item drawers and closets, counting your inventory by hand, and shuffling paper invoices and sales receipts and payment documentation. Instead, what if all of that is automated, saving time, reducing errors, and increasing your chances of success? Here’s a quick look at some of the basics.

Are you ready?

We’ve written about product and service management a lot. So you should know that to get ready to sell, you have to have made sure QuickBooks Online is set up to handle any inventory you might have. Click the gear icon in the upper right corner and then click Account and settings under Your Company. Click Sales in the toolbar and scroll down to Products and services. Make sure the first, fourth, and fifth options are turned on (the other two are optional). If they’re not, click the pencil icon in the upper right corner and change them. Be sure to click Save when you’re finished, then Done in the lower right corner.

Have you created your product and service records? You can do this on the fly as you’re entering transactions, but it’s much better to do it ahead of time. That way, too, you’re not as likely to skip the details, which will be important later on when you’re running reports, for example. We’ve gone over the steps before. Click New in the upper left corner, then Add product/service under Other. A vertical panel slides out from the right, and you simply select from options and enter data. Be very precise when you’re dealing with inventory information. If you haven’t gone through this process before, it might be worth scheduling a session with us to go over this important step.

Using your records in transactions

Let’s go through the process of entering a sales receipt. Click New in the upper left corner, and then Sales receipt under Customers. Choose a Customer from the drop-down list and complete any other fields necessary in the upper section of the form. Select the Service Date in the first column by clicking the calendar, then select the Product/Service in the next column (or click+ Add new). The Description should fill in automatically.

The QTY (quantity) defaults to 1. If you mouse over or click in that field, a small window will pop up containing numbers for Qty. on hand and Reorder point, as pictured above. If you know that you have more in stock that is showing, you can cancel out of the transaction, find the item record in the list on the Products & services page, and click Edit at the end of the row. You’ll be able to adjust the quantity or the starting value.

Enter any additional items and/or services needed and save the transaction.

The products and services page

QuickBooks Online offers numerous reports related to products and services and inventory tracking (you’ll find them under Reports | Sales and customers), but you can learn a lot from the Product and Service page (Sales | Products and Services). At the top of the screen (where you can’t miss them) are two colored circles containing the number of items that are Low Stock or Out of Stock.

Click on either of these, and the list below will change to only display these items. You can get a lot of information about your products and services on this page, including Sales Price and Cost, Qty On Hand, and Reorder Point. You can also create new records or import databases of records in CSV, Excel, and Google Sheet format.

© 2025 KraftCPAs PLLC