You can structure your family office in many ways. The trick is to structure it in a way that makes the most sense for your family unit, assets, and legacy goals—something a lot easier said than done.  

As families seek optimal structures for their financial command centers, the Limited Liability Company (LLC) has emerged as a smart choice. LLCs offer a blend of flexibility, protection, and tax advantages that resonate with the unique needs of affluent families.  

This structure allows for customized management and profit distribution, making it particularly appealing for families with diverse income streams or those juggling operational needs and investment income. 

Today, we’ll explore the intricacies of using LLCs to structure your family office.  

What is an LLC, and why is it an ideal family office structure? 

An LLC is a unique business entity that merges the advantages of both corporations and partnerships, offering a blend of liability protection and operational flexibility. At its core, an LLC provides liability protection for its members. 

If the LLC faces financial difficulties or legal challenges, only the assets owned by the LLC are at risk, safeguarding personal wealth. 

Another significant feature of an LLC is its flexibility in taxation. Unlike traditional corporations that often face double taxation on profits, LLCs typically benefit from pass-through taxation. This allows profits and losses to be reported directly on the members’ personal tax returns, simplifying tax obligations and potentially lowering overall tax burdens. Members can also choose to be taxed as a corporation if that proves more beneficial for their financial situation. 

LLCs also offer customization in management. Members can decide whether to manage the business themselves or appoint managers to handle operations. This flexibility allows families to tailor governance structures according to their preferences and needs, which can be particularly beneficial in multi-generational settings. 

LLC benefits to family offices  

The advantages of using an LLC as a family office structure extend beyond these core features. For one, LLCs provide asset protection, ensuring family wealth is shielded from creditors. This is especially important for families with significant business interests or investments, as it helps maintain control over their assets while minimizing exposure to risk. 

Additionally, LLCs facilitate simplified governance for families navigating complex dynamics across generations. By establishing clear operating agreements, families can outline decision-making processes and ownership rights, reducing potential conflicts and ensuring smooth operations over time. 

Finally, the ability to manage diverse income streams makes LLCs particularly appealing for family offices. Whether overseeing operational businesses, real estate investments, or financial portfolios, an LLC structure allows families to integrate various income sources into a cohesive management strategy. This adaptability supports long-term wealth preservation and growth. 

Why LLCs for family offices are so tax efficient 

Family offices structured as LLCs can leverage several tax advantages, making them an attractive option for managing and preserving wealth across generations. Let’s explore two key aspects of tax efficiency that LLCs offer to family offices: pass-through taxation and deductible business expenses. 

Pass-through taxation 

One of the most significant tax benefits of using an LLC structure for a family office is pass-through taxation. This feature allows the LLC to avoid double taxation, a common issue faced by traditional corporations.  

Here’s how it works: 

• The LLC itself doesn’t pay federal income tax on its earnings. 
• Instead, profits and losses “pass through” the business to the individual members similar to partnerships. 
• Members report their share of the LLC’s income on their personal tax returns. 
• The income is then taxed at the individual income tax rates. 

This approach can be particularly advantageous for family offices managing diverse investment portfolios. Capital gains, dividends, and other investment income retain their character as they flow through to the members’ tax returns. This means family members can benefit directly from preferential tax rates on long-term capital gains and qualified dividends. 

Several deductible business expenses 

Another key tax efficiency aspect for family offices using an LLC structure is the ability to deduct various business expenses. Section 162 of the U.S. Tax Code provides the framework for these deductions.  

Family offices can deduct ordinary and necessary expenses incurred in carrying on their trade or business. This may include: 

• Salaries for family office staff 
• Office rent and utilities 
• Investment management fees
• Professional services fees (legal, accounting, etc.) 

With an LLC structure, family offices may also be eligible for “trade or business” qualification deductions. To claim them, the family office must qualify as a trade or business under IRS rules. This requires: 

• Regularity and continuity of operations 
• A primary purpose of income or profit 
• Separation between family office ownership and family assets 

It’s crucial for family offices to maintain clear documentation and demonstrate that their activities go beyond mere personal investment management. The landmark Lender Management LLC case provides guidance on structuring family offices to meet these requirements. 

By leveraging these tax efficiency strategies, family offices using LLC structures can potentially reduce their overall tax burden while maintaining the flexibility to manage diverse assets and investments. 

Tax strategies (and considerations) for family offices using LLC legal structures  

By leveraging the unique features of LLCs, family offices can optimize their tax positions while ensuring flexibility in governance and investment decisions. Here’s a closer look at several key strategies particularly applicable to LLCs. 

Leverage multiple classes of interests  

One of the standout features of LLCs is their ability to create multiple classes of interests. This flexibility can be particularly advantageous for family offices, allowing them to tailor ownership structures to meet their unique needs.  

For example: 

• Carried interest for junior family members: LLCs can issue carried interests to junior family members, enabling them to participate in the profits without having to invest significant capital upfront. This incentivizes younger generations to engage actively in managing family wealth. 
• Preferred interests with frozen values for senior family members: Senior family members can hold preferred interests with a predetermined value. This arrangement protects their investments while allowing junior members to benefit from growth in the LLC’s assets. 

Different classes can also have distinct distribution rights and voting powers, allowing families to maintain control while providing flexibility in profit sharing. This structure enhances family members’ engagement and helps manage expectations regarding wealth distribution and governance. 

Take advantage of preferential capital gains tax treatment 

LLCs also enable family offices to benefit from preferential capital gains treatment. With pass-through taxation, investment gains retain their character as they flow through to individual members’ tax returns. This means members can directly benefit from long-term capital gains rates on qualifying investments, which are generally lower than ordinary income tax rates. 

In contrast, C corporations face double taxation where all distributable income is taxed as ordinary income. By operating as an LLC, family offices can avoid this pitfall and optimize their tax liabilities. 

This preferential treatment is particularly beneficial for families focused on long-term investment strategies, as it allows them to maximize after-tax returns on their investments. 

Consider multiple entity structures 

LLCs allow family offices to establish a multiple entity structure, creating separate entities for different asset classes. For instance: 

• An “Alternative Investments Pool LLC” could manage private equity or hedge fund investments. 
• A “Large Cap Equities Pool LLC” might focus on publicly traded stocks. 
• A “Real Estate Investments LLC” could handle real estate holdings. 

This structure enables family members to choose which investments they wish to participate in while centralizing management functions within the family office. It provides diversification opportunities while maintaining streamlined oversight. 

Look into Series LLCs 

Series LLCs allow for the creation of multiple “series” or sub-units within a single LLC structure, each with its own assets, liabilities, and members. This structure can provide tax advantages by potentially allowing each series to be treated as a separate entity for federal tax purposes.  

This flexibility enables different tax elections and accounting methods among the series, which could be beneficial for tax planning strategies. For instance, it may allow for isolating certain activities to avoid specific tax rules or maximize deductions.  

However, it’s important to note that state tax treatment can vary, with some states treating the entire Series LLC as a single entity and others recognizing each series separately. 

Avoid “phantom income” 

Unlike S corporations, which are required to distribute profits equally among shareholders, LLCs have more flexibility in profit distribution. This characteristic allows them to avoid situations where members owe taxes on income they haven’t received—often referred to as “phantom income.” 

By structuring distributions based on actual cash flow rather than equal shares, family offices can better align tax obligations with actual income received by members. This approach helps reduce tax burdens and enhances financial planning effectiveness. 

By focusing on these LLC-specific strategies, family offices can significantly optimize their tax efficiency while maintaining flexibility in management and investment decisions. It’s important for families to consult with tax professionals who understand both current laws and the specific circumstances of their family office to maximize these benefits effectively. 

Why an LLC can be beneficial for family office estate planning  

Estate planning strategies like valuation discounts and annual gifting are particularly well-suited to LLCs, making them an attractive option for family offices. 

Valuation discounts 

LLCs enable families to take advantage of two key valuation discounts: 

• Lack of control discount: Also known as a minority interest discount, this applies to LLC interests that don’t provide meaningful control over business operations. It typically ranges from 10% to 30% of the interest’s value. 
• Lack of marketability discount: This reflects the reduced liquidity of LLC interests, which are not easily sold or transferred outside the family. Discounts can range from 15% to 50%. 

These discounts can significantly reduce the taxable value of LLC interests for gift and estate tax purposes, potentially leading to substantial tax savings. 

Annual gifting strategies 

LLCs provide a convenient structure for implementing annual gifting strategies. For example, LLC interests can be easily divided into units or percentages, facilitating gradual transfers to family members. 

Additionally, families can gift LLC interests up to the annual gift tax exclusion amount ($18,000 per beneficiary in 2026) without incurring gift taxes. 

Combined with valuation discounts, this allows for transferring a greater economic value within the annual exclusion limits. By leveraging these strategies, family offices using LLC structures can potentially transfer significant wealth to the next generation while minimizing gift and estate taxes. 

Top regulatory considerations for LLC-based family offices  

Family offices structured as LLCs must navigate a complex regulatory landscape. Understanding and complying with these regulations is crucial for maintaining legal standing and optimizing tax benefits. 

Understand the Corporate Transparency Act (CTA) 

The Corporate Transparency Act (CTA), effective January 1, 2024, requires beneficial owners of U.S. companies to disclose certain information to the Financial Crimes Enforcement Network (FinCEN). Entities created before 2024 must file their initial report by January 1, 2025, while those created in 2024 must report within 90 days of formation. 

To ensure compliance, family offices should review their organizational structure, gather required information from beneficial owners, and develop a system for timely and accurate reporting. Failure to comply can result in significant fines and penalties. 

Get a trade or business classification 

Structuring the family office as a legitimate trade or business under IRS guidelines is crucial for expense deductibility. The Lender Management LLC case (T.C. Memo. 2017-246) established that family offices can qualify as a trade or business if they engage in activities “far beyond those of an investor.” 

To qualify, family offices should provide services beyond basic investment management, demonstrate regularity and continuity in operations, and maintain clear separation between family office ownership and family assets. This classification allows for the deduction of expenses under Section 162 of the Internal Revenue Code. 

Comply with SEC registration requirements 

Family offices may need to register as a Registered Investment Advisor (RIA) depending on their activities and assets under management. Generally, advisers with at least $100 million in assets under management must register with the SEC, while those with less typically register with state authorities. 

However, the SEC has defined exemptions for certain family offices. A family office is exempt from registration if it provides investment advice only to “family clients,” is wholly owned by family clients and exclusively controlled by family members or entities, and does not hold itself out to the public as an investment adviser. 

By understanding and adhering to these regulatory considerations, LLC-based family offices can operate effectively while minimizing legal and financial risks. It’s crucial to consult with legal and tax professionals to ensure full compliance with these complex regulations. 

Challenges of using an LLC for your family office structure  

While LLCs offer numerous benefits for family offices, they also present challenges that require careful consideration.  

Family conflicts may emerge over management decisions or profit distribution, potentially straining relationships and complicating operations. The initial setup process can also be costly, involving legal fees, state filing fees, and expenses related to transferring assets into the entity. 

One significant drawback is the limited liquidity of LLC interests, which are typically restricted to family members. This can make it difficult for individuals to sell their stake if needed.  

Ongoing compliance requirements, such as annual filings and meticulous record-keeping, can be time-consuming and expensive. The Hellmann case highlighted additional complexities, including potential SEC registration requirements and the need to balance tax benefits with practical operational considerations.  

Families must carefully evaluate these factors, weighing the drawbacks against the advantages when considering an LLC structure. Open discussions about potential challenges and establishing clear governance structures are crucial for mitigating risks and ensuring long-term success. 

Should your family office be an LLC? Let’s find out together 

LLCs have emerged as a powerful tool for structuring family offices, offering a unique blend of tax efficiency, flexibility, and asset protection. Their pass-through taxation structure allows for potential deductions of investment expenses and salaries, which would otherwise not be deductible for individual partners in a partnership structure.  

However, the effectiveness of an LLC structure depends on careful planning and meticulous compliance with regulations. As you consider your family’s strategy, explore whether an LLC structure aligns with your long-term goals. This decision should factor in your family’s unique dynamics, investment objectives, and legacy planning aspirations.  

“BPM has helped many families decide on the right structure when forming a family office.  We then take it a step further by providing a suite of services from tax planning to staffing to outsourced accounting providing further oversight. “ – Kris Marney, Director – Advisory 

By thoughtfully structuring your family office, you can create a robust foundation for preserving and growing your family’s wealth for generations to come. Schedule a call with the BPM Family Office Team to create a family office structure that works for your family.  

The biotech industry faces a shifting landscape of regulations and policies that are transforming how companies operate. From international trade barriers to complex tax changes, understanding the key effects and possible mitigation approaches is critical for business planning and sustainability.  Let’s examine how recent legislative shifts affect biotech organizations of all sizes and what strategies might help navigate these changes. 

New tariffs reshaping global supply chains 

The introduction of significant tariffs on imports from Canada and Mexico (25% each) and China (10%) is creating ripple effects throughout biotech supply chains. It’s worth noting that tariffs on Canadian and Mexican goods were postponed until March 4, 2025. While these changes affect all biotech companies, smaller organizations with limited cash reserves are particularly vulnerable despite potentially dealing with lower volumes. 

These tariffs create a dual challenge for biotech firms: 

• First, many biotech companies depend on materials and components from these countries—especially China, which has traditionally offered cost-effective pharmaceutical production supplies. 
• Second, reciprocal tariffs imposed by these nations will hamper U.S. companies’ ability to export products, even for those who source materials domestically. This creates a complex situation where both imports and exports are affected. 

Larger and more established biotech firms have been taking proactive measures by diversifying suppliers and revising contractual arrangements. Some have already shifted away from Chinese contract manufacturing organizations (CMOs) and updated their insurance provisions. However, smaller and emerging biotech companies typically lack the resources for such preemptive actions, leaving them more exposed to these trade pressures. Industry analysts anticipate these changes will contribute to broader price increases across biotech and pharmaceutical products. 

The effects go beyond direct production costs. Companies now need to consider restructuring their global operations, reassessing strategic partnerships, and potentially relocating certain activities to reduce tariff exposure. This reorganization demands significant investment in new supply chain infrastructure and relationship development with alternative suppliers—adding financial pressure to an industry already characterized by substantial development costs. 

Evolving corporate tax environment 

The corporate tax landscape is undergoing notable changes under the current administration. While there are proposals to lower corporate tax rates, particularly for companies that manufacture within the United States, these potential benefits come with increased compliance complexity and reporting requirements. The administration has signaled preferences for domestic manufacturing, potentially offering more advantageous deductions and accelerated depreciation calculations. 

Tax professionals have observed that international tax compliance has become considerably more complex recently, with forms such as Form 5471 growing substantially in scope and intricacy. This expanded reporting obligation has resulted in higher compliance costs and more complicated tax provision work for biotech organizations. 

Furthermore, the administration has proposed additional penalties—sometimes labeled as “tariffs” but functioning as penalty taxes—on U.S. companies that offshore certain operations. This could specifically affect biotech companies conducting R&D overseas to leverage foreign tax credits or cost efficiencies, with potential additional taxes of 5-10 percent beyond the standard corporate rate. These penalties specifically target companies conducting activities outside the U.S., creating additional considerations for biotech firms with global operations. 

Section 174 and the capitalization of R&D expenses 

Perhaps the most substantial tax change affecting the biotech sector is the Section 174 requirement to capitalize R&D expenses, which took effect in 2022. Despite widespread anticipation of legislative adjustments and bipartisan support for changes, the requirement remains active, with potential modifications not expected until 2026. This provision has created particular difficulties for research-intensive organizations in the biotech field. 

Under these rules, companies must capitalize and amortize R&D expenses over five years for domestic spending and fifteen years for foreign spending, rather than deducting them immediately. This creates an especially challenging situation for biotech startups, where R&D typically constitutes the majority of operating expenses. The impact is particularly severe for pre-revenue companies that rely on federal grants for R&D funding, as they may face tax liabilities without revenue streams to cover them. 

The effects have been substantial: companies showing losses on their financial statements may still face tax obligations due to the timing difference between financial and tax accounting for R&D expenses. This situation becomes especially pronounced when companies receive collaboration deals, as revenue recognition for tax purposes typically occurs earlier than for financial reporting. Many startup companies have been surprised to find themselves in taxable positions despite considering themselves pre-revenue organizations. 

Recent discussions suggest that potential future adjustments might only address domestic R&D spending, leaving the 15-year amortization requirement in place for foreign R&D activities. This would continue to affect many startups that rely on offshore third parties for clinical trials and other research activities. 

Strategic Considerations for Biotech Companies 

1. Supply chain restructuring: Companies should evaluate their supply networks and consider diversifying sources to mitigate tariff impacts, weighing the costs and benefits of domestic versus international suppliers. This includes assessing alternative providers, considering geographical diversification, and potentially restructuring existing supplier relationships to optimize costs and minimize tariff exposure. 

2. Proactive tax planning: Early involvement of tax advisors in collaboration agreements and business development deals can help structure revenue recognition more favorably for tax purposes. Companies should focus particularly on documentation and analysis to ensure accurate Section 174 calculations and avoid overstating capitalized amounts. 

3. R&D location strategy: Organizations should carefully evaluate the location and structure of their R&D activities, considering the differential treatment of domestic versus foreign research expenses. This may involve reassessing the balance between internal and external research activities and the geographical distribution of research operations. 

4. Enhanced compliance preparation: Companies need to prepare for increased complexity in tax reporting and potentially higher compliance costs. This includes developing robust systems for tracking and documenting R&D expenses, maintaining detailed records of international transactions, and ensuring adequate resources for enhanced reporting requirements. 

5. Integrated strategic planning: Organizations should consider these tax and tariff implications early in their business planning processes, particularly when structuring collaborative agreements, planning research activities, or expanding operations internationally. 

While tax considerations shouldn’t drive business decisions, they have become increasingly important factors in strategic planning. Companies that address these challenges proactively while maintaining focus on their core mission of innovation and development will be better positioned to thrive in this evolving regulatory landscape. 

How BPM can support your Biotech organization 

At BPM, we understand the unique challenges biotech companies face in navigating today’s complex regulatory and tax landscape. With experience supporting organizations across the life sciences sector, from early-stage startups to established pharmaceutical firms, we provide guidance that helps manage compliance requirements while pursuing innovation goals. 

Contact BPM today to discuss how we can support your organization’s strategic objectives. 

Technology companies are driving innovation across every sector of the modern economy, making substantial investments in research and development along the way. Many of these companies don’t realize they could recoup significant portions of their R&D spending through available tax credits.  

This article will explore how tech companies can leverage R&D tax credits, qualification criteria and the types of activities and expenses that qualify for these valuable incentives. 

Understanding R&D tax credits 

R&D tax credits provide dollar-for-dollar tax savings that directly reduce a company’s income tax liability. These credits hold particular value for startup tech companies because under certain circumstances they can offset payroll taxes.  

The qualification process follows a four-part test that evaluates: 

• The technical nature of the work performed 
• The permitted purpose of the research activities 
• The presence of technological uncertainty 
• A documented process of experimentation 

Qualifying activities in the tech sector 

Tech companies regularly engage in activities that qualify for R&D credits. Software development, artificial intelligence programming and platform engineering projects often meet the criteria. Companies can claim credits for: 

• Designing and testing new prototypes 
• Developing new software applications 
• Creating specialized technologies 
• Improving existing components 
• Engineering new manufacturing processes 

Hardware development and integration projects also frequently qualify, including: 

• Testing alternative materials for product enhancement 
• Improving manufacturing efficiency through automation
• Developing new hardware configurations 
• Creating innovative IoT solutions 
• Integrating emerging technologies with existing systems 

Calculating qualified expenses 

The amount companies can save through R&D credits typically ranges from 5 percent to 15 percent of qualifying expenses. These expenses include: 

• Employee wages: Compensation for staff directly conducting research, supervising research activities or providing direct support 
• Supply costs: Materials used in R&D processes 
• Contract research: Payments to third-party companies performing specialized development work 
• Computer rental: Payments made to cloud computing vendors for research activities.  

While calculating these expenses requires careful documentation, companies may include expenses related to failed projects or abandoned research paths. The IRS does not automatically recognize that uncertainty and experimentation are inherent parts of the R&D process.  

Special considerations for startups 

Pre-revenue tech companies can benefit significantly from R&D credits through the payroll tax election. Companies with less than $5 million in gross receipts can apply up to $500,000 of their R&D credit against payroll taxes, providing valuable cash flow during crucial growth phases. 

Documentation requirements for claiming R&D tax credits 
Starting in 2024, companies must provide more detailed information on Form 6765. This includes: 

• Disclosing the total number of business components (projects) 
• Separately listing the amount of officers’ wages  
• Business acquisitions/dispositions 
• Identifying new cost categories that were not previously claimed 

Changes on the horizon 

The R&D credit landscape continues to evolve, with new legislation under consideration at both federal and state levels. Companies must stay informed about these changes to maximize their benefits. 

Working with BPM  

Navigating R&D tax credits requires careful planning and thorough documentation. BPM combines deep technology sector knowledge with tax credit optimization experience to help companies identify qualifying activities, document expenses properly and maximize their R&D credit benefits. Our team works closely with tech companies of all sizes to develop comprehensive R&D credit strategies that align with their growth objectives while ensuring compliance with current regulations. 

To learn how we can help your technology company leverage R&D tax credits effectively while maintaining compliance with evolving requirements, contact us. 

The Employee Retention Credit (ERC) has provided significant financial relief to qualifying businesses affected by the COVID-19 pandemic. The Internal Revenue Service (IRS) clarified in a 2021 IRS Notice that a business must reduce its wage deduction by the amount of the ERC claimed, in the year in which the wage amounts were originally deducted. A recent update from the IRS now allows businesses to make these adjustments in the year the business receives the refund, rather than amending prior-year tax returns.

This guidance provides an alternative approach that simplifies compliance, reduces the administrative burden for many businesses and resolves taxpayer questions regarding the expiration of the Statute of Limitations (SOL) relative to the year for which the credit was claimed.

Understanding the wage deduction adjustment requirement 

The IRS considers the ERC as a refund of payroll taxes, which means a business cannot deduct as wages on its income tax returns, the amount of the credit. As stated above, traditionally, businesses were required to file an amended income tax return to reduce the wage deductions for the tax year in which it originally claimed the ERC. This presented problems for certain taxpayers which had filed ERC credit claims, but did not amend its income tax returns for the 2020 or 2021 tax years while waiting for the ERC credit refund. The IRS has provided that the requirement to amend the income tax returns is not contingent on the receipt of the ERC cash refund. Certain taxpayers that waited for the ERC refund to amend returns have begun to experience the expiration of the SOL of the income tax returns.

Example: Corporate taxpayer A filed for an ERC credit refund claim for the 2020 tax year. The refund claim was $50,000. The taxpayer did not amend its income tax return for the 2020 year to reduce its wages by $50,000. The taxpayer’s 2020 Form 1120 was filed on April 15, 2021 (the original due date of the tax return filing). The ERC refund was not paid until 6/30/2024. The regular SOL for this 2020 income tax return is 3 years from the date of filing, as no extension was requested and the tax return was filed on its original due date. That means the SOL closed for the 2020 tax year on April 15, 2024, and is not able to be amended by the taxpayer.

The new IRS guidance, issued as additional Frequently Asked Questions (FAQs) on March 20, 2025, addresses two common taxpayer situations to provide relief by allowing a business to adjust its wage deductions in a year different from the year for which the ERC refund claim was filed.

Taxpayer filed a claim for the ERC refund, but did not amend its income tax return to reduce its wage deduction. Taxpayer did receive the ERC refund.

The IRS FAQ provides that the taxpayer is not required to file an amended return (or an administrative adjustment request (AAR) in the case of a partnership) to address the overstated wage deductions. Instead, the taxpayer can include the overstated wage deduction amount as gross income on the income tax return for the tax year when the ERC refund is received.

Therefore, in the above example, Taxpayer A must include its ERC refund of $50,000 in income on its 2024 income tax return. There is no ability to amend the 2020 income tax return. However, if the SOL for the 2020 tax year was still open at the time of the receipt of the refund, the taxpayer has the option to include the income in the 2024 year or amend the prior year.

Taxpayer filed a claim for the ERC refund, which was denied by the IRS, but had already filed an amended its income tax return to reduce its wage deduction.

In this case, the FAQ provides that the taxpayer may increase its wage deduction on its income tax return by the same amount that wages were reduced when the amended return was filed. This increase can be done in the tax year in which the claim disallowance is final. This is, generally, the tax year the taxpayer determines it will agree to the disallowance or has exhausted all remedies to fight the disallowance. Alternatively, the taxpayer may file an amended return, AAR, or a protective claim for refund to deduct the wage amount for the year in which the ERC was claimed if the SOL has not yet closed.

Conclusion

The IRS’s new guidance provides much-needed flexibility for businesses adjusting their ERC-related wage deductions. By adjusting wages as described above in the two outlined situations, a business can streamline their tax filings while ensuring compliance with IRS rules. We recommend that you consult with your BPM tax professional to maximize the benefits while adhering to IRS guidance.

Cryptocurrency companies operate in uncharted territory, facing unique governance challenges that traditional financial controls weren’t designed to address. Establishing internal controls for crypto transactions has become essential for businesses seeking to manage digital assets safely and efficiently. 

As regulatory scrutiny increases and crypto operations become more complex, proper controls help prevent potential financial losses, reputational damage and compliance issues. This article explores key strategies for implementing effective internal controls for crypto transactions and how these measures can strengthen your organization’s financial governance. 

Understanding the need for crypto controls 

The decentralized nature of blockchain technology creates distinct risks that traditional financial controls weren’t designed to address. Without proper internal controls for crypto transactions, organizations expose themselves to significant vulnerabilities, such as: 

• Prolonged and costly audits that can damage credibility 
• Increased fraud risk through inadequate segregation of duties
• Financial reporting inaccuracies leading to poor decision-making
• Regulatory compliance challenges with AML and KYC requirements
• Inadequate asset safeguarding against security breaches 
• Inefficient processes causing operational bottlenecks 

“Crypto-specific internal controls are critical for organizations dealing with digital assets.  For example, robust internal controls, such as with respect to anti-money laundering (AML), know-your-customer (KYC), and tax-reporting requirements. ensure timely and accurate reporting, reducing regulatory scrutiny and potential penalties. Likewise, these internal controls contribute to helping ensure not only accurate financial reporting but also a more streamlined audit process considering the complex accounting and valuation issues raised with cryptocurrencies (e.g., impairment testing, fair market value determination, revenue recognition).” – Javier Salinas – Partner, International Tax and Blockchain and Digital Assets Leader 

Key components of effective crypto controls 

When establishing internal controls for crypto transactions, consider implementing these critical elements: 

Segregation of duties 

Distribute responsibilities for initiating, approving and recording crypto transactions among different team members. This fundamental control prevents any single person from having excessive authority over transactions. Create clear roles for wallet access, transaction approval and reconciliation processes. 

Access control protocols 

Implement strict access controls for wallets, private keys and transaction systems. Use multi-signature requirements for high-value transactions and establish formal authorization thresholds. Document who has access to what systems and review these permissions regularly. 

Transaction validation and verification 

Create procedures for validating transactions before execution. This includes checking recipient addresses, confirming transaction amounts and documenting the business purpose. Establish regular reconciliation processes to verify that recorded transactions match blockchain activity. 

Documentation and evidence collection 

Maintain comprehensive documentation of all crypto transactions and control activities. For each control, document its purpose, who performs it, how often it’s tested and evidence of its effectiveness. This documentation proves invaluable during audits and regulatory examinations. 

Leveraging technology for stronger controls 

Modern control systems can enhance your ability to manage crypto risks. Consider implementing: 

• Automated monitoring tools: Use solutions that automatically track blockchain activity across chains, exchanges and custodians. These tools can flag unusual transactions, reconciliation discrepancies and potential compliance issues in real-time. 
• Control dashboards: Centralize your control framework with dashboards that serve as action lists, highlighting controls that require testing or attention. These systems can assign preparers and reviewers, ensuring proper segregation of duties while tracking completion status. 
• Testing and evidence management: Implement systems that allow you to perform control tests and document results within a single platform. These solutions create comprehensive audit trails that demonstrate your control environment’s effectiveness to auditors and regulators. 

3 common challenges in crypto control implementation 

Organizations often encounter obstacles when establishing internal controls for crypto transactions, such as: 

1. Keeping pace with technological change 

Blockchain ecosystems evolve rapidly, requiring controls that can adapt to new protocols, token standards and transaction types. Build flexibility into your control framework and schedule regular reviews to assess emerging risks. 

2. Balance between security and efficiency 

Controls must be robust enough to protect assets but streamlined enough to enable business activities. Overly cumbersome controls lead to workarounds that create vulnerabilities. Find the right balance for your organization’s risk appetite and transaction volume. 

3. Training and awareness 

Many financial professionals lack deep understanding of blockchain technology. Invest in training programs that build crypto literacy across your finance, accounting and audit teams to strengthen your control environment. 

Preparing for audit success 

Well-designed internal controls for crypto transactions significantly improve audit outcomes. Focus on: 

• Control evidence: Document all control activities with time-stamped evidence showing who performed the control and who reviewed it. Maintain this documentation in a centralized system accessible to auditors. 
• Month-end processes: Establish clear month-end procedures that include balance reconciliations, transaction tie-outs and verification of price feeds and cost basis calculations. Document these activities thoroughly to streamline the audit process. 
• Risk-control mapping: Demonstrate how each control addresses specific crypto risks. This mapping shows auditors that you’ve thoughtfully designed your control environment to mitigate the unique challenges of cryptocurrency operations. 

Establishing internal controls with support from BPM 

Establishing internal controls for crypto transactions requires thoughtful planning and implementation, but the benefits far outweigh the investment. With proper controls, your organization can confidently navigate the complexity of blockchain technology while maintaining strong governance.  

For organizations seeking to enhance their crypto control frameworks, working with BPM provides access to advisors who understand both blockchain technology and financial controls. We can help design, implement and test the internal controls for crypto transactions that your organization needs to thrive in this evolving financial landscape. For more information, contact us.

As a nonprofit organization, your ability to fulfill your mission depends on many factors, but few are as crucial as effective financial management and reporting. Navigating financial reporting requirements can feel overwhelming, especially when you’re focused on advancing your cause and serving your community. 

Accurate financial reporting isn’t just about compliance—it’s about building trust with donors, making informed decisions, and ultimately maximizing your organization’s impact. 

In this guide, we’ll walk through the essential components of nonprofit financial reporting and how the right tools and partnerships can transform this critical function from a burden to a strategic advantage. 

Why financial reporting matters for nonprofits 

You’ve likely heard the phrase “garbage in, garbage out.” This holds especially true for nonprofit financial reporting. Your stakeholders—from board members to those who manage grants and donations – rely on your financial reports to make important decisions about and for your organization. If the information isn’t accurate, poor decisions are likely to follow. 

Beyond decision-making, proper financial reporting enables you to: 

• Apply for grants with confidence and credibility 
• Comply with funder reporting requirements and loan covenants 
• Evaluate your organization’s fiscal health accurately 
• Demonstrate accountability to supporters and the community 
• Make data-driven decisions for both short-term needs and long-term planning 

The 4 essential financial statements for nonprofits 

While there are numerous ways to organize your financial information, most nonprofit organizations compile four main types of reports. Each provides a unique lens into your financial health and activities: 

1. Statement of activities 

This report (the nonprofit equivalent of a for-profit income statement) provides detailed information about your organization’s transactions, showing how your revenue generation and expense allocation further your mission. It’s divided into: 

• Revenue: Broken down by funding sources (donations, grants, earned income, etc.) 
• Expenses: Categorized by function (program, administrative, and fundraising) 
• Net Assets: Your total revenue minus total expenses 

This statement should align with your operating budget, allowing you to evaluate planned versus actual expenses and revenue, which helps with future budget planning. 

2. Statement of financial position 

Also known as a balance sheet, this statement provides a snapshot of your organization’s financial health at a specific point in time. It includes: 

• Assets: Everything your nonprofit owns (cash, accounts receivable, property, etc.) 
• Liabilities: Everything your nonprofit owes (accounts payable, debt, lease obligations)
• Net Assets: Total assets minus total liabilities 

Comparing this statement year over year helps you track whether your financial health is improving and informs decisions about organizational growth and expansion. 

3. Statement of cash flows 

This monthly report shows how cash moves in and out of your organization, divided into: 

• Operating activities: Day-to-day revenue and expenses related to your mission 
• Investing activities: Transactions related to long-term assets 
• Financing activities: Transactions related to long-term liabilities 

Monitoring your cash flow regularly helps you stay on budget throughout the year and avoid unexpected shortfalls. 

4. Statement of functional expenses 

Unique to nonprofits, this matrix-style report reorganizes your costs based on their function in furthering your mission: 

• Program costs: Direct expenses related to your cause 
• Administrative costs: Expenses needed to keep your organization running 
• Fundraising costs: Expenses related to generating revenue 

This statement not only helps with tax filing but also allows you to identify opportunities to reduce overhead spending and direct more funding toward your programs. 

Warning signs to watch for in financial reports 

As you review your financial statements, be alert for potential red flags that could indicate financial instability: 

• Increasing rates of expenditures without corresponding revenue growth 
• Growing debt balances or defaulting on debt obligations 
• Continued declines in cash balances 
• Borrowing from reserves to pay current expenses 
• Consistent budget overruns 
• Declining investment returns that are disproportionate to market trends 
• Declines in volunteer hours or constituents served 

These warning signs should be taken seriously by management and your board, as they may point to deeper issues that need addressing. 

External reporting requirements 

Beyond internal management, your financial reporting serves critical external purposes: 

IRS Form 990 

The Form 990 is an opportunity to tell your organization’s story and demonstrate transparency. Remember that this report is used not just by the IRS but also by: 

• Watchdog agencies like Charity Navigator, which rate charities based on financial health and transparency
• Potential donors researching organizations to support 
• Grantmakers evaluating your organization’s financial stability 

Taking time to ensure the information in your Form 990 is accurate and complete can positively impact your organization’s image and funding opportunities. 

Stakeholder reporting 

At least annually, make your audited financial statements, program reports, and annual report available to external stakeholders. Your annual report is particularly valuable for: 

• Establishing trust with supporters 
• Highlighting major accomplishments
• Inspiring continued support 
• Demonstrating accountability and transparency 

In today’s competitive philanthropic environment, building trust through transparent financial reporting is essential for maintaining and growing your donor base. 

Streamlining financial reporting with Sage Intacct 

Managing these complex reporting requirements demands the right tools. As an AICPA-preferred software, Sage Intacct offers specialized solutions tailored to nonprofit organizations’ unique needs: 

• Fund accounting: Track multiple funding sources in real-time, ensuring compliance with donor restrictions and grant requirements 
• Management of grants and donations: Monitor the lifecycle of each grant and track individual donor contributions 
• Real-time reporting and dashboards: Create customizable dashboards displaying your key performance indicators and generate financial statements instantly
• Compliance and audit preparation: Maintain comprehensive audit trails and automate compliance reporting 

These features allow your organization to streamline operations, maintain financial integrity, and focus more resources on your mission rather than administrative tasks. 

How BPM can support your nonprofit 

Implementing an accounting system for a nonprofit requires specialized experienceto ensure compliance, efficiency, and ease of use. At BPM, our team of Sage Intacct specialists understands the unique challenges of nonprofit financial management and provides comprehensive support: 

• End-to-end implementation tailored to your specific needs 
• Configuration and customization of reports and dashboards
• Staff training to maximize your use of the system 
• Ongoing support and optimization 

We partner with you to transform your financial reporting from a necessary administrative task into a strategic asset that supports your mission and growth. 

The path forward 

Accurate and timely financial reporting is essential for your nonprofit to carry out its fiduciary responsibilities and effectively manage operations. With the right tools and support, you can streamline these processes while improving transparency and accountability. 

At BPM, we’re committed to helping your organization accomplish what matters most—your mission. To learn how Sage Intacct and our team can support your nonprofit’s financial management needs, contact BPM today. Let’s work together to build a financially sustainable foundation for your important work. 

Mergers and acquisitions (M&A) represent powerful tools for business growth, but selecting the right approach demands careful consideration and planning. When you’re looking to expand your business through M&A, understanding the various strategies available helps you make informed decisions that align with your company’s goals. 

This article will explore the most effective M&A strategies, their implementation challenges and how to navigate the complex landscape of business integration. 

“The M&A market remains somewhat choppy in 2025, but we’re seeing a notable increase in sell-side preparation activity. This indicates that buyers should prepare for an influx of quality acquisition targets in the coming months. Companies with growth aspirations would be wise to refine their M&A strategy now to capitalize on these emerging opportunities, even amid market fluctuations.” – Craig Hamm, Partner – Advisory 

Understanding your M&A options

The M&A landscape offers several distinct approaches, each serving different business objectives. When you consider an M&A strategy, start by evaluating these key options: 

• Vertical integration brings together companies operating at different stages of the supply chain. This strategy creates seamless operational flow and reduces costs across your production process. Consider how Amazon strengthened its position by acquiring Whole Foods, gaining direct access to retail distribution. 
• Horizontal mergers combine businesses operating in the same market space. This approach allows you to eliminate competition while expanding your market share. The Disney-Pixar merger demonstrates how two companies can join forces to dominate their industry while enhancing creative capabilities. 
• Market extension strategies open doors to new geographical territories without changing your core product offerings. This approach proves particularly valuable when you want to expand your footprint while maintaining your existing business model. 

Navigating M&A strategy challenges 

Successfully implementing an M&A strategy requires addressing several key challenges: 
 

1. Operational efficiency demands careful attention during the merger process. You’ll need to evaluate and streamline systems, processes and technologies to maintain productivity while managing the integration. 

2. Resource allocation becomes more complex as you combine operations. Creating clear protocols for sharing resources and managing combined budgets helps prevent confusion and inefficiency. 

3. Cultural integration often presents the most significant hurdle. When you bring together two distinct organizations, conflicting workplace cultures can create friction and reduce productivity. Building a unified culture requires deliberate planning and clear communication from day one. 

Keys to a successful M&A strategy 

Your M&A strategy’s success depends largely on thorough preparation and precise execution. Consider these critical factors: 

Start with comprehensive due diligence 

Analyze market conditions, regulatory requirements and potential synergies before making any commitments. This investigation helps you identify potential roadblocks and opportunities early in the process. 

Develop clear integration plans 

When developing integration plans, be sure that you outline specific milestones and responsibilities. When you establish precise timelines and accountability measures, you create a framework for successful implementation. 

Maintain transparent communication 

It’s important to maintain transparent communication with all stakeholders throughout the process. Regular updates help build trust and maintain momentum during the transition period. 

Moving forward with confidence 

As you consider your M&A strategy, working with the right advisory partner becomes crucial. BPM brings extensive M&A experience across various industries and transaction types. Our team understands the complexities of mergers and acquisitions and helps you navigate each stage of the process, from initial strategy development through post-merger integration. 

Whether you’re considering a vertical integration, horizontal merger or market extension strategy, BPM provides the guidance and support you need to achieve your business objectives. Our proven track record of successful M&A transactions demonstrates our ability to help you create value through strategic combinations. To discuss how we can help you develop and execute an M&A strategy that drives sustainable growth for your business, contact us. 

For new family offices, one of the most important decisions you’ll make is your family office structure. That’s because the family office structure you choose impacts every financial, operational, legal, risk, succession planning, and tax move that comes after.  

What options do you have? What considerations should you keep in mind? Which family office structure will yield the most fruitful outcome, enabling you to grow your family wealth and watch it blossom for future generations? Let’s find out.  

Why does your family office structure matter? 

Family office structures influence every aspect of a family’s financial and investment strategy, from the assets they manage to their legal liability, estate and tax planning opportunities, risk profile, and more.  

The family office structure acts as a metaphorical financial chessboard, determining the pieces you have, the moves you can make, and the oversight that governs them. It can affect how efficiently you achieve your goals, maintain privacy, and ensure governance. 

For instance, understanding the differences between a Lender-like structure—positioning your family office as a business, a precedent the Lender Management vs Commissioner established in 2017—and other models can provide valuable insights into how family offices can operate and the benefits and drawbacks accompanying each option. 

Four overarching types of family office structures  

As you and your family members start accumulating significant wealth—whether through a legacy structure, business venture, significant liquidity event, or a combination — establishing a dedicated family office to manage everything becomes more attractive.  

Let’s look at the four broad categories of family office structures, how they work, and how they set you up for the future.  

1. Virtual family office (VFO)  

A virtual family office is a flexible structure where a family manages the essential financial functions of the family office and outsources other specialized needs to external advisors, such as investment managers, legal counsel, and tax planning specialists. This setup allows families to access a wide range of expertise without maintaining an entire in-house team. 

How does this differ from a single-family office that leverages outside support? The family members themselves typically coordinate everything in a virtual family office.  

• Pros: Cost-effective, scalable, accessible globally, and offers customization. Families can select specific services and advisors based on their needs. They can also keep family office governance agile and “in-house.”  
• Cons: Requires significant coordination effort, limited personal interaction, “siloed” service providers, and a higher potential for resource turnover. Fortunately, quarterbacking all of the advisors and coordinating for the family is a core BPM service that addresses this challenge. 

A virtual family office is flexible and relatively straightforward to set up. However, the operational and coordination responsibilities can become cumbersome for family members, especially when passing wealth (and all the responsibility) onto the next generation.  

2. Embedded family office 

An embedded family office uses the existing resources of a family business to manage family wealth and administrative tasks. It is often informal and relies on employees who serve both the business and the family. 

An embedded family office is exactly as it sounds—the family office is integrated into the family business, leveraging its infrastructure to reduce costs. However, this setup can blur the lines between business and personal matters. 

• Pros: Cost-efficient, integrated services, and familiarity with family assets. 
• Cons: Lack of focus, poor privacy controls, lack of internal controls, risk management challenges, and potential governance issues. 

Embedded family offices often happen organically, but they open the family up to privacy, tax, business continuity concerns and even fraud risk. 

3. Single family office (SFO) 

A single-family office is an arrangement that serves the needs of a single family (or multiple generations of one family), providing bespoke financial, legal, tax, HR, cybersecurity, estate planning, philanthropy, and operational services.  

A large benefit of an SFO is that it offers complete control over decision-making and operations, both of which can be handled internally or through a network of outsourced family office specialists. That choice depends on the in-house expertise of the family, their goals, and skill gaps they need to fill to keep the single family office running smoothly.  

• Pros: Offers customization, control, and privacy. It’s independent of the family business, focusing instead on wealth accumulation and administration for the family’s goals.  
• Cons: High operational costs, complex ongoing financial management, and can be influenced by family dynamics. 

Established single family offices tend to have a robust executive team—Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Investment Officer (CIO), Chief Legal Officer, etc—and close outsourced specialists to help them manage everything effectively, making them best for ultra-high-net-worth families.  

4. Multi-family office (MFO) 

A multi-family office (MFO) is a company designed to serve multiple families, pooling resources to offer a broader range of services at a lower cost per family.  

MFOs and SFOs share a similar base structure, but a multi family office manages the wealth of two or more unrelated families. This arrangement provides access to diverse expertise and investment opportunities. 

Families share costs and resources, benefiting from economies of scale. However, services may be less tailored to individual family needs. 

• Pros: Cost-effective, offers diverse expertise, and access to a wide range of investment opportunities. 
• Cons: Services may be less customized, and families have less control over operations compared to a single family office. 

Multi-family offices often have diverse and varied origin stories. Some started as SFOs and grew into a commercial entity, offering their expertise to other families. Whereas others are managed by private banks and wealth management firms.  

Each structure has its advantages and disadvantages, and the choice depends on a family’s vision, needs, goals, and resources. 

Options for family office legal structures 

Choosing the right legal structure for a family office is crucial for efficient operation, regulatory compliance, and wealth protection. Here are some of the most common legal structures used by family offices. 

General partnership 

A partnership involves two or more individuals or entities sharing ownership and decision-making responsibilities. This family office structure is simple to establish and often less formal than corporations. 

Partnerships are flexible in terms of ownership and management, making them easy to set up and operate. They can also be less rigid than corporations, which can reduce administrative burdens. 

However, partners have unlimited personal liability, which can expose family assets to risk. Additionally, partnerships may struggle to attract external capital, which can limit business expansion opportunities. 

Family Limited Partnership (FLP) 

A Family Limited Partnership is a structure where family members create a partnership with both general and limited partners, typically with senior family members as general partners maintaining control. 

FLPs are effective vehicles for transferring wealth while allowing the senior generation to retain management authority over family assets. 

The benefits of an FLP include asset protection for limited partners and potential tax advantages through valuation discounts when transferring partnership interests. FLPs also provide centralized management of family investments and business holdings. 

Limited Liability Company (LLC) 

An LLC combines the liability protection of a corporation with the tax benefits of a partnership. It offers flexibility in ownership and management structures. 

The benefits of an LLC are that it provides personal liability protection for family members, allows for pass-through taxation, and offers operational flexibility through its management structure. LLCs can be taxed as sole proprietorships, partnerships, or corporations, providing additional tax flexibility. 

While LLCs require more formalities than partnerships, they are generally simpler to establish and maintain than corporations. But tax treatments of LLCs can vary by jurisdiction, so it’s important to consider local laws. 

C Corporation 

A C Corp is a traditional corporation that provides strong liability protection and can issue stock to raise capital. It is well-suited for large, complex operations. 

C Corps offer many advantages, like robust liability protection. They also offer the ability to attract investors and build large-scale operations. 

But the tax liabilities for C Corps are more complicated. C Corps are subject to double taxation (at both the corporate and shareholder levels), which can increase tax liabilities. They also require more stringent formalities and compliance measures. 

S Corporation 

An S Corp passes corporate income, losses, deductions, and credits through to shareholders for tax purposes, avoiding double taxation. S  corps offer liability protection, provide tax benefits through pass-through taxation, and are suitable for smaller family offices. 

But they can also be limiting. S Corps are limited to 100 shareholders, all of whom must be U.S. citizens or resident aliens. There are also restrictions on the types of shareholders and stock issuance. 

Trust 

A private trust is often used as a wealth-holding vehicle rather than the family office itself. It provides fiduciary services and can be part of a broader family office structure. Trusts are essential for estate planning and asset protection.  

Trusts are less commonly used as the primary structure for family offices, as they are typically more complex and may not offer the same operational flexibility as other structures. However, they can be valuable for specific asset management and philanthropic activities. 

The right legal structure for your family office depends on your specific needs, resources, and goals. It’s also important to consider factors like liability protection, tax implications, and operational flexibility.  

Factors to consider when selecting a family office structure 

Choosing the right family office structure involves carefully considering several key factors that align with your family’s legacy.  

Your family’s wealth and legacy goals 

The right family office structure isn’t one-size-fits-all. It’s vital to put your vision and values at the center of everything. Start by considering your long-term goals, wealth preservation, business succession, or philanthropy. Different structures may better support specific objectives. 

For instance, a family with a strong commitment to environmental conservation might prefer a single family office for its ability to tailor investment strategies and philanthropic initiatives to their values. Or, if your family has significant business interests or complex investment portfolios, a structure that provides robust management and oversight may take priority. 

It’s also important to consider how the structure will handle debt management and financial risk mitigation strategies. 

The amount of control you’re after  

Control over decisions, governance, and more is vital when selecting an appropriate family office structure. For example, families seeking maximum control over decision-making and operations often prefer a single family office, which allows for complete oversight and customization. 

Along with the level of control you want, be sure to carefully consider who the family office’s main decision-maker will be. Appoint different people to make key decisions and determine how centralized you’d like that control should be within the family office structure. 

The amount of privacy you want  

Some family office structures, like embedded family offices, leave your finances like an open book. But that can get quite complicated as your wealth grows. Wealthy families prioritizing privacy may prefer a single family office, as it typically offers more confidentiality compared to other options like a multi family office.  

Be sure that your chosen structure has robust security measures in place, especially when handling sensitive financial information. 

Jurisdiction considerations  

The jurisdiction where a family office is established can significantly impact legal and tax implications. Consider factors such as income taxes, liability protection, and asset protection when deciding where to set up the office.  

Ensure compliance with local regulations and consider how they might affect operations and governance. 

Governance structures  

How you structure your family office has so much to do with who will be operating it as well as their individual roles and responsibilities. A well-defined family office governing board helps navigate family dynamics and ensures alignment with family values and goals. 

Be sure to clarify those roles, responsibilities, and decision-making processes. These choices are crucial for the long-term success and sustainability of a family office. 

What family office services you’ll need to outsource 

Some roles in your family office you’ll likely want to keep within the family, and others will make sense to outsource. First, you’ll need to understand the types of essential tasks that come with running a family office, like investment management, legal, tax, estate planning, HR, philanthropy, insurance, technology, or governance support.  

As you consider how to manage your family office, it’s essential to decide which roles to keep in-house with family members and which to outsource to non-family members.  

If you have a family member who is a seasoned CFO, they may feel confident leading the strategic direction for the family’s finances, ensuring that the investment strategy and decisions align closely with your family’s values and goals. This hands-on approach can be particularly beneficial for core investment decisions, where maintaining control and personal oversight is crucial. 

On the other hand, specialized areas like legal and tax services often require expertise that may not be readily available within the family. In such cases, many family offices would outsource these tasks to professionals who can provide peace of mind, ensuring that your family office remains compliant with complex regulatory requirements and benefits from the latest legal and tax planning strategies.  

By carefully evaluating these factors, wealthy families can select a family office structure that aligns with their unique needs, goals, and values, ensuring long-term legacy preservation. 

Create the right family office structure with support from BPM 

As you navigate the complexities of establishing and managing a family office, it’s crucial to have a team that understands your unique needs and goals.  

BPM’s Family Office Services are designed to help families with significant resources create a tailored structure that simplifies complexity, ensures financial well-being, and supports their legacy. 

Unlike other firms, BPM offers integrated planning for family offices, including front-end relationship management by coordinating the family’s advisors, strategic wealth transfer planning, and back-end financial management, ensuring all aspects of your family office are optimized for success. Our team is committed to empowering your family office to achieve its goals while simplifying financial management.  

“We personalize our services to suit the family that the family office works for. We deliver timely, quality service to get a family where they want to go. Competence, knowledge and our professional skills matter. Absolutely, these matter. But it’s personalized work we enjoy. It’s working with people. That’s what matters most.” – Kris Marney, Director, Family Office Services 

Contact our Family Office Services team to explore how BPM can help you create a customized family office structure that supports your family’s wealth and financial well-being both now and for future generations. 

The complex world of winery operations demands precise financial tracking, yet many wineries struggle with their cost accounting practices. From small boutique operations to large-scale producers, these accounting missteps can significantly impact profitability and growth potential.  

“A common issue among winery owners is misunderstanding what costs should be going into making a case of wine, and what estimates are needed.  It is all too common where we see artificially high margins with growing inventory values on the balance sheet, which may indicate the business is heading towards a serious excess inventory position that will require heavy discounts to right-size the operations.  Having the right systems in place from a cost accounting perspective is vital to any company’s long-term success.”  – Jamie Emerson-Heery, Partner – Assurance and Advisory 

6 cost accounting mistakes wineries make (and practical solutions) 

This article explores the critical cost accounting mistakes wineries make and provides practical solutions for better financial management, focusing on inventory valuation, production costs and overhead allocation. 

Failing to separate vineyard and winery accounting

Many winery owners attempt to manage their entire operation under a single accounting system. This approach overlooks the fundamental difference between vineyard operations, which function as traditional agriculture, and winery production, which requires manufacturing-style accounting.    

• The vineyard side typically operates on a cash basis, tracking immediate expenses and income within a growing season. However, the winery requires accrual accounting to properly track long-term investments, aging inventory and delayed revenue recognition.  
• This dual-system requirement often creates confusion and leads to misrepresentation of actual costs and profits. 

Wineries must invest in robust accounting systems that can handle both cash and accrual methods.  Don’t rely just on spreadsheets, leverage technology as best as possible.   

Mishandling inventory valuation 

Wineries frequently underestimate the complexity of inventory valuation. The extended production cycle, from grape to bottle, creates multiple inventory stages that require different valuation methods.  

A significant challenge lies in tracking bulk wine inventory movements and proper valuation during the aging process, including the critical monitoring of volume loss during barrel aging and tank transfers. Additionally, bottled wine inventory adjustments, including samples, promotional items and wine club allocations, impact total inventory value but serve different business purposes. 

Many wineries fail to implement proper systems for tracking these various inventory stages, leading to inaccurate cost calculations and potentially flawed pricing decisions. The complexity increases when dealing with multiple vintages and varieties simultaneously aging in the cellar. 

Overlooking hidden production costs and misallocating overhead expenses  

The true cost of producing wine extends far beyond grape prices and barrel expenses.  

“It’s easy to forget about all the various components going into producing a case of wine.  Once you think you have it all under control, take a step back and think ‘what’s missing here?  Did I capture vineyard rent expense?  All labor costs from cellar and bottling?  Or did I have too much excess capacity this year?’  These questions will help ensure inventory is properly stated so you can manage the business as tight as possible.”  – Jamie Emerson-Heery 

Equipment depreciation and maintenance expenses should be allocated to specific wine programs rather than treated as general overhead. Furthermore, utilities, cleaning supplies, laboratory costs and quality control measures all contribute to the total production cost but frequently remain unaccounted for in specific wine programs. 

The distribution of overhead costs poses a significant challenge for wineries of all sizes. Many operations fail to properly allocate these expenses across different wine programs and sales channels, leading to incorrect pricing decisions and profitability assessments. 

Direct-to-consumer sales channels, particularly tasting rooms, often suffer from improper overhead allocation. Many wineries fail to account for the full cost of staffing, facilities and samples when evaluating tasting room profitability. The complexity increases when considering shared resources between different sales channels and production areas. 

Inadequate technology integration 

While many wineries invest in production software and point-of-sale systems, they often fail to integrate these tools with their accounting systems. This disconnection creates data silos and makes accurate cost tracking nearly impossible.  

Modern winery operations require seamless integration between production tracking, inventory management, sales systems and accounting software. Without this integration, staff must manually transfer data between systems, increasing the risk of errors and creating inefficiencies in the accounting process. 

Sales-related costs that impact pricing and business decisions  

Different sales channels demand different cost accounting approaches. Many wineries apply the same costing methodology across direct-to-consumer, wholesale and wine club channels, missing crucial variations in operational costs.  Several key cost factors vary significantly between channels: 

Channel-specific packaging and handling requirements 

• Marketing and promotional costs 
• Shipping and logistics expenses 
• Sales team compensation 

Understanding these differences becomes crucial for accurate profitability analysis and strategic decision-making. Wineries must develop systems that capture and allocate costs appropriately for each sales channel while maintaining consistency in overall financial reporting. 

Moving forward with better cost accounting 

Implementing proper cost accounting requires a systematic approach and ongoing commitment to accuracy. Regular staff training on cost tracking procedures ensures consistent application of accounting policies across all departments. Integrated technology solutions that connect all aspects of the operation provide real-time visibility into costs and profitability. 

Working with BPM  

Partnering with a firm that understands the wine industry’s unique characteristics can prove invaluable when it comes to navigating these challenging cost accounting waters.  

BPM brings extensive wine industry experience and helps wineries implement effective cost accounting systems that drive profitability. Our team works directly with winery owners and managers to develop customized solutions that address specific operational needs while ensuring compliance with accounting standards and regulatory requirements. 

By partnering with BPM, wineries gain access to industry-specific knowledge and proven methodologies that transform their cost accounting from a challenge into a strategic advantage. Their comprehensive approach helps wineries build sustainable financial management practices that support long-term growth and profitability. To find out more, contact us. 

A trust is a powerful legal arrangement that allows a third party (trustee) to hold and manage assets on behalf of beneficiaries.  

Whether you’re looking to minimize estate taxes, protect family wealth across generations, maintain privacy, or establish specific conditions for asset distribution, understanding what a trust is and how it functions is essential for preserving your legacy and ensuring your wishes are carried out precisely as intended. 

What is a trust, and how does it work?  

A trust is a legal arrangement where a person or entity (the trustee) holds and manages assets for the benefit of others (the beneficiaries).  

It creates a fiduciary relationship that allows for controlled asset transfer according to specific terms established by the trust creator (the grantor).  

Trusts can be tailored to meet various financial and family goals, from tax efficiency to asset protection. They provide a structured framework for wealth transfer that can operate during your lifetime and continue to fortify your legacy. 

Types of trusts  

Various trust structures serve different purposes in estate planning, each offering unique advantages depending on your specific goals and circumstances. In general, there are two umbrella distinctions:  

Revocable trusts 

Revocable trusts, also called living trusts, can be modified or terminated by the grantor during their lifetime. These trusts allow you to maintain control over your assets while establishing a framework for their management and distribution.  

The most common type is the revocable living trust, which holds your assets during life and distributes them according to your wishes after death.  

Consider a revocable trust when you want flexibility to adjust your estate plan as circumstances change, desire to avoid probate, or need a mechanism for managing assets should you become incapacitated. 

Irrevocable trusts 

Irrevocable trusts cannot be altered or terminated without beneficiary approval once established. When you place assets in an irrevocable trust, you legally remove them from your estate, relinquishing ownership and control.  

Common irrevocable trusts include life insurance trusts, charitable trusts, and special needs trusts. These structures are ideal when you want to minimize estate taxes, protect assets from creditors, provide for beneficiaries with special needs, or make significant charitable gifts while potentially receiving tax benefits. 

Why create a trust?  

A trust document can be a powerful tool for preserving wealth and ensuring your wishes (and wealth) are distributed in the way that truest to you and your goals. Let’s take a look at some of the key benefits of creating a trust.  

Secure efficient wealth transfer to future generations 

Trusts provide a structured way to transfer assets to children, grandchildren, and beyond while maintaining control over how and when those assets are distributed.  

You can establish specific conditions for inheritance, such as reaching certain ages or milestones, completing education, or demonstrating financial responsibility. This protection is particularly valuable when beneficiaries are minors, have special needs, or may require assistance managing their inheritance. 

Minimize the burden of estate taxes 

Trusts can play a crucial role in minimizing estate tax liability. By removing assets from your taxable estate through certain irrevocable trust structures, you may significantly reduce the tax burden that would otherwise fall on your heirs.  

This strategic approach allows more of your hard-earned wealth to benefit your loved ones rather than being diminished by taxation. 

Protect your assets 

A well-structured trust can shield your wealth from various threats, including creditors, lawsuits, and potential divorce settlements. Certain irrevocable trusts create a legal barrier between your personal assets and outside claims, providing peace of mind that your family’s financial security remains intact regardless of unforeseen circumstances. This protection becomes increasingly valuable as wealth grows and potential exposure to liability increases. 

Enhance your estate’s privacy 

Unlike wills that become public record through probate (more on that in a minute), trusts offer a level of privacy that many wealthy families value. The terms, assets, and beneficiaries of your trust remain confidential, shielding your family’s financial matters from public scrutiny.  

This privacy can be especially important for high-profile individuals or those concerned about potential conflicts arising from public knowledge of their estate plans. 

Avoid probate 

Assets held in trust bypass the often lengthy, costly, and public probate process. This means your beneficiaries receive their inheritances more quickly, with significantly reduced administrative costs and court fees.  

Probate avoidance is particularly beneficial for families with real estate in multiple states, as it eliminates the need for ancillary probate proceedings in each jurisdiction where property is owned. 

Plan for incapacitation 

Trusts provide seamless management of your affairs should you become unable to manage them yourself.  

Unlike powers of attorney, which may face challenges or delays, a properly funded trust allows your chosen successor trustee to step in immediately to handle your financial matters, pay bills, and manage investments without court intervention. This continuity helps to ensure your care needs are met and your financial affairs remain in order during vulnerable periods. 

Plan for beneficiaries with special needs 

For trust beneficiaries with disabilities, specialized trusts can provide financial support while preserving eligibility for essential government benefits like Medicaid and Supplemental Security Income (SSI).  

These carefully crafted arrangements help ensure your loved ones with special needs maintain access to necessary services while enjoying an enhanced quality of life through your trust’s supplemental support. 

Create a business succession plan 

Trusts can be instrumental in creating a smooth exit plan for family businesses. By establishing clear guidelines for ownership transfer, management succession, and operational continuity, a trust helps preserve the business you’ve built while minimizing disruption during ownership transitions.  

This structured approach can be crucial for maintaining business value and preventing conflicts among family members with varying levels of interest or involvement in the company. 

Minimize interpersonal conflict 

A well-structured trust can help prevent family disputes by clearly outlining your intentions and establishing a framework for asset distribution. By removing ambiguity and appointing a trusted fiduciary to oversee the process, you reduce the likelihood of misunderstandings or contested distributions that can damage family relationships during an already difficult time. 

Uphold your legacy 

Trusts allow you to extend your influence beyond your lifetime, supporting values and causes important to you. Whether establishing educational requirements for beneficiaries, supporting charitable organizations, or preserving family businesses, a trust can help ensure your legacy continues according to your vision for generations to come. 

How are trusts taxed? 

Understanding the tax implications of trusts is essential for individuals seeking to preserve wealth across generations.  

The taxation of trusts involves multiple layers of complexity, with different rules applying based on trust structure, income type, and beneficiary relationships. 

Types of tax affecting trusts 

Trusts may be subject to several types of taxation, each with distinct rules and rates.  

• Income tax applies to earnings generated by trust assets, including interest, dividends, and rental income.  
• Capital gains tax affects appreciation in trust assets when sold.  
• Estate taxes may apply to assets transferred into or out of certain trusts, while generation-skipping transfer tax specifically targets wealth transfers that skip a generation. 

Next, let’s review how different trusts are taxed.  

Taxation of revocable trusts 

Revocable trusts offer flexibility but limited tax advantages. Since the grantor maintains control, all income, deductions, and credits flow through to the grantor’s personal tax return.  

The trust essentially remains “invisible” for income tax purposes during the grantor’s lifetime. Upon death, assets in a revocable trust are included in the grantor’s taxable estate, though they avoid probate. 

Taxation of irrevocable trusts 

Irrevocable trusts can provide significant tax benefits by removing assets from the grantor’s estate. When properly structured, these trusts can reduce estate tax liability and provide asset protection from creditors and lawsuits.  

However, the tax treatment varies significantly based on whether the trust is classified as a grantor or non-grantor trust. 

Grantor vs. non-grantor trust taxation 

In grantor trusts, the person who created the trust is considered the owner for income tax purposes, meaning all income is taxed on their personal return regardless of who receives distributions. This arrangement can be advantageous as it allows trust assets to grow without being depleted by trust-level taxes. 

Non-grantor trusts are treated as separate tax entities with their own tax identification number. The trustee must file Form 1041, and the trust pays taxes on income it retains. Any income distributed to beneficiaries is taxed at their individual rates, with the trust receiving a corresponding deduction.  

Transactions between the grantor and a non-grantor trust are recognized for tax purposes, potentially triggering capital gains tax on appreciated assets. 

Specialized trust tax strategies  

We’ve talked about the fact that trusts can be tax-efficient wealth preservation vehicles, but what does this look like? 

Every person’s situation and goals is different but here are some general trust structures that can minimize taxes:  

• Generation-skipping trusts allow assets to pass to grandchildren without triggering estate taxes at the children’s generation 
• Dynasty trusts can potentially avoid estate taxes indefinitely across multiple generations 
• Grantor retained annuity trusts (GRATs) and qualified personal residence trusts (QPRTs) can transfer appreciation to beneficiaries with minimal gift tax impact 
• Charitable lead annuity trusts (CLATs) provide income to charities for a period before assets pass to family members, potentially reducing overall tax liability 

Strategic tax planning can help minimize tax burdens through techniques like: 

• Timing distributions to beneficiaries in lower tax brackets 
• Selecting tax-efficient investments within the trust 
• Utilizing deductions available to trusts 
• Implementing specialized trust structures designed for specific tax advantages 

And more. 

Remember, no two families are the same, making a custom estate planning strategy critical to maintaining your legacy and vision.  

Planning your trust with BPM 

Trusts are powerful tools for preserving wealth, protecting assets, and ensuring your legacy endures exactly as you envision. As we’ve explored, the right trust structure can help you avoid probate, minimize taxes, protect privacy, and provide for loved ones according to your specific wishes. 

With significant tax law changes on the horizon as exemptions are scheduled to sunset at the end of 2025, now is an ideal time to review your estate plan. BPM’s estates, gifts, and trusts team takes a proactive and strategic approach to help develop a plan that meets your expectations while demonstrating foresight in the face of changing laws. 

Ready to feel confident that your family and wishes are cared for? Contact BPM’s estate planning team today to build custom solutions that put your people first.