Planning Ahead for 2018’s New Tax Law— what to expect

Renner Tax News, September 4, 2018

Planning Ahead for 2018’s New Tax Law— what to expect

John J. Renner, II, CPA, CFF, CGMA, Managing Shareholder, Renner and Company, CPA, P.C.

By now, you’ve heard a lot about the new tax law.  Will your 2018 taxes be lower, or will you owe more on April 15th?  As we approach the end of the year, it’s time to find out.

Here are some of the changes:

  • Tax rates have generally gone down. For example, Taxable income of $200,000 that used to be taxed at the rate of 28% will now be taxed at 24%.
  • No personal exemptions. No more questions about who qualifies to be your dependent, it doesn’t matter anymore.
  • The deduction for taxes is capped. Your deduction for state income taxes (or sales tax, if you choose that option) and real estate taxes can only total $10,000.  There’s no more deduction for car tax.
  • Charitable contributions are still deductible. The amount of charitable contributions that you can deduct is now limited to 60% of your adjusted gross income, for contributions to most types of charities.  This is an increase from the old charitable contribution limit of 50% of your adjusted gross income.
  • No more miscellaneous itemized deductions. These have been eliminated by the new law.  You can no longer deduct miscellaneous itemized deductions, including investment management fees, tax preparation fees, safety deposit box fees and employee business expenses.
  • No income-based reduction of itemized deductions. Under the old law, as your income went up, your total itemized deductions went down.  The new law does away with that.

How might the new law affect your 2018 return?

Itemizing vs. taking the standard deduction.  While itemized deductions may be going down, the new law increases the standard deduction to $12,000 for single taxpayers and $24,000 for married with adjustments for taxpayers over age 65.  As in the past, you can still deduct the greater of your allowable itemized deductions or the standard deduction.  If many of your old deductions are now limited or eliminated, you may be taking the standard deduction on your 2018 return.

Note that if you itemize deductions on your federal return, you must also itemize for Virginia.  The Virginia standard deduction is only $3,000 for single taxpayers and $6,000 for married.  If you use the standard deduction on your federal return, your Virginia taxes might come out higher.

How will Virginia handle the taxes deduction?  State income taxes are not deductible on your Virginia return, but they are part of your $10,000 taxes deduction on your federal return.  Virginia has not determined how real estate taxes and state income taxes will be allocated on the Virginia return.

It will really be necessary to calculate both the federal and the Virginia tax liability to determine whether itemizing your deductions or taking the standard deduction produces a lower tax liability overall.

You may be saying good bye to alternative minimum tax.  Some of the deductions that used to put you in an alternative minimum tax position are no longer deductible.  Now, your regular tax may not dip down below the alternative minimum amount any more.  In this area, the elimination of personal exemptions and miscellaneous itemized deductions and the capping of the deduction for taxes paid may not be all that bad.  If you were subject to alternative minimum tax in the past, you weren’t getting the benefit of these deductions anyway.

Kiddie tax rate will change.  The 2018 tax rate on the unearned income of children is no longer the parents’ tax rate.  Now it is the same as the tax rate used for trusts.  This may be higher or lower than the parents’ tax rate.

To find out how this all will affect your tax return, you have to run the numbers. 

With all these moving parts, there is no simple answer.  The only way to determine how these changes will affect your tax return is to project your 2018 taxable income using the new tax rules and new tax rates, and see if your withholding will be enough.  With this information, you’ll still have time to adjust your withholding and estimated payments and avoid a surprise cash crunch on April 15th.

Contact us to discuss your information in greater detail.

Read more tax news

©2018 Renner and Company, CPA, P.C.  All Rights Reserved.

Nonprofits Providing Parking and Metro Benefits

Renner Nonprofit News, April 10, 2018—

Nonprofits Providing Parking and Metro Benefits— Prepare to Pay UBIT.

If you provide your nonprofit’s employees with a parking space, parking reimbursement or metro pass in 2018, you’ll be filing a 990-T and paying tax on those payments at the rate of 21%.

Why is this happening?

Starting in 2018, for-profit employers can no longer deduct parking and metro benefits they provide to their employees.  The Tax Cuts and Jobs Act eliminated the deduction for qualified transportation benefits.  The IRS recently clarified that this means all transportation benefits, whether provided to employees directly by the employer, through a bono fide reimbursement arrangement or through a compensation reduction agreement.

To put nonprofit employers on equal footing with for profits, nonprofit employers must treat payments of transportation fringe benefits to employees as unrelated business income and pay unrelated business income tax (UBIT).

The IRS recently clarified this issue in the newly updated Publication 15-B, “Employer’s Tax Guide to Fringe Benefits”.  Although transportation benefits paid through a qualified plan remain tax free to the employees, providing metro and parking benefits to employees on a pre-tax basis through a Qualified Transportation Fringe Benefit Plan will not prevent the payments from creating UBIT to the nonprofit employer.

What nonprofits should do:

  • Plan to file Form 990-T after year end. The due date is the same as your 990.  States tax UBIT too, so plan to file a state counterpart.
  • Calculate your projected UBIT now. The federal tax rate is 21%.  Your tax will be 21% of the total parking and metro benefits you pay to your employees during 2018.  Include the value of employer-provided parking spaces.
  • Pay in your tax quarterly. The 990-W worksheet will help you calculate your tax, which you must pay in electronically using EFTPS.  Payments are due on the 15th day of the 4th, 6th, 9th and 12th months of your fiscal year.  For calendar year nonprofits, the first payment is due April 15, 2018.

We’re providing this information to give you a general idea of the new provision.  There’s more to know about transportation benefits and UBIT, so consult your tax advisor for details on how this new provision will apply to you and your specific facts and circumstances.

Read more nonprofit news

Find out more about nonprofit accounting and tax in our financial leadership training seminar for emerging nonprofit professionals, 501(c)(fit!)

Find out more about Renner and Company’s nonprofit services.

 

© 2018 Renner and Company, CPA, P.C. All Rights Reserved.

Tax News to Share – with your donors

Renner Nonprofit News, April 4, 2018— Tax News to Share— with your donors

Donors make the charity world go around, supporting important mission-related impact with their time, talent and treasures.  Your donors don’t expect reward, but you can thank them by passing along this valuable tax information.  In the right situation, a donor’s tax savings can be a charity’s benefit.

If you have donors who are age 70 ½ and give regularly, they may be able to save by donating directly from their IRA.  Individuals age 70 ½ who have savings in IRA accounts, must withdraw a certain amount of money from their IRA accounts every year, and pay tax on it.  If your donors have to take these required minimum distributions (RMD), they already know about it.

What they might not know is that they can use their RMD to make contributions directly to your charity and avoid tax by making a qualified charitable distribution.

You may want to share this with your donors:

A qualified charitable distribution (QCD) from your IRA is a great way to help others and reduce your tax bill.  Generally, a QCD is an otherwise taxable distribution from a qualified IRA owned by an individual who is at least age 70½, that is paid directly from the IRA to a qualified charity.

The IRS has declared that charitable donations made from one of your IRA tax-deferred accounts will be exempt from taxation for any amount up to $100,000 as long as the distribution comes from a qualified account, and is donated to a charity that meets the IRS stipulations.  A married couple may contribute $100,000 each, up to a maximum of $200,000.  In addition, a QCD will also count towards a taxpayer’s annual required minimum distribution (RMD).

How is this different from just taking an IRA distribution, paying tax on it and deducting a regular charitable contribution?

Some taxpayers may not itemize their deductions.

When most taxpayers receive the benefits from the new Tax Cuts and Jobs Act, fewer and fewer people will be itemizing deductions on their tax return.  The new standard deduction amounts for taxpayers over 65, are $26,600 for married filers, and $13,600 for single filers, and several of the deductions allowed in the past are now limited.

If you are required to take a RMD, and are over 70½, a QCD will provide a tax break even if you don’t itemize, and you will still be giving to your favorite qualified charity.  You will not receive a charitable deduction, but if you now fall in the standard deduction category, this really doesn’t matter.  You’re already getting your full standard deduction, and your IRA RMD is tax free.

Donors have income limits.

Starting in 2018, a donor’s charitable deduction can’t be more than 60% of the donor’s taxable income for the year.  Let’s say a donor has little taxable income, but wants to make a major gift from savings.  The donor takes a taxable IRA distribution of $100,000 and gives it to charity.  With taxable income of $100,000, the donor’s deduction is limited to 60% or $60,000.  The rest will be carried forward, but the donor is still left paying tax.

Change that to a $100,000 qualified charitable distribution directly from the IRA to the charity, and voila!  No income.  No deduction.  No tax.  The QCD bypasses the income limit.

More important information:

A QCD can be any portion of the annual distribution, as long as it is paid directly to the charity.

Remember:  you can’t take the cash out of your IRA and put in your bank, and then write a check to your charity.  That won’t work.  If you do that, your IRA distribution would be taxable.  It has to be transferred directly from your IRA to the charity through the trustee of the IRA.

The qualified charitable distribution rules used to be temporary, but they’re now permanent and can be a helpful tool for your overall wealth management strategy.  Contact your tax advisor to discuss how making a qualified charitable distribution will help minimize your tax bill and benefit your qualified charity of choice.

Read more nonprofit news. 

Find out more about nonprofit accounting and tax in our financial leadership training seminar for emerging nonprofit professionals, 501(c)(fit!).  

Find out more about Renner and Company’s nonprofit services.

Read some news from the tax department.

We are providing this information for educational purposes only.  Discuss your specific facts and circumstances with your tax advisor to find out how this information will affect you.

©2018 Renner and Company, CPA, P.C.  All Rights Reserved.

Renner Business News, April 3, 2018—Taking an RMD?  Giving to charity?  Here’s some good tax news.

Your charitable donations make good things happen in the world.  Although you’re not expecting a reward, a tax deduction makes it easier to give.  Individual taxpayers who have reached age 70 ½ and give regularly to charity, may be able to save, by donating directly from their IRA accounts.

If you have IRA accounts, and you’re at least age 70 ½, you know about the required minimum distribution (RMD).  You must withdraw a certain amount of money each year, and pay tax on it. What you may not know is that you can use your RMD to make contributions directly to your favorite charity and avoid tax by making a qualified charitable distribution.

A qualified charitable distribution (QCD) from your IRA is a great way to help others and reduce your tax bill.  Generally, a QCD is an otherwise taxable distribution from a qualified IRA owned by an individual who is at least age 70½, that is paid directly from the IRA to a qualified charity.

The IRS has declared that charitable donations made from one of your IRA tax-deferred accounts will be exempt from taxation for any amount up to $100,000 as long as the distribution comes from a qualified account, and is donated to a charity that meets the IRS stipulations.  A married couple may contribute $100,000 each, up to a maximum of $200,000.  In addition, a QCD will also count towards a taxpayer’s annual required minimum distribution (RMD).

How is this different from just taking an IRA distribution, paying tax on it and deducting a regular charitable contribution?

Some taxpayers may not itemize their deductions.

When most taxpayers receive the benefits from the new Tax Cuts and Jobs Act, fewer and fewer people will be itemizing deductions on their tax return.  The new standard deduction amounts for taxpayers over 65, are $26,600 for married filers, and $13,600 for single filers, and several of the deductions allowed in the past are now limited.

If you are required to take a RMD, and are over 70½, a QCD will provide a tax break even if you don’t itemize, and you will still be giving to your favorite qualified charity.  You will not receive a charitable deduction, but if you now fall in the standard deduction category, this really doesn’t matter.  You’re already getting your full standard deduction, and your IRA RMD is tax free.

Donors have income limits.

Starting in 2018, a donor’s charitable deduction can’t be more than 60% of the donor’s taxable income for the year.  Let’s say a donor has little taxable income, but wants to make a major gift from savings.  The donor takes a taxable IRA distribution of $100,000 and gives it to charity.  With taxable income of $100,000, the donor’s deduction is limited to 60% or $60,000.  The rest will be carried forward, but the donor is still left paying tax.

Change that to a $100,000 qualified charitable distribution directly from the IRA to the charity, and voila!  No income.  No deduction.  No tax.  The QCD bypasses the income limit.

More important information:

A QCD can be any portion of the annual distribution, as long as it is paid directly to the charity.

Remember:  you can’t take the cash out of your IRA and put in your bank, and then write a check to your charity.  That won’t work.  If you do that, your IRA distribution would be taxable.  It has to be transferred directly from your IRA to the charity through the trustee of the IRA.

The qualified charitable distribution rules used to be temporary, but they’re now permanent and can be a helpful tool for your overall wealth management strategy.  Contact your tax advisor to discuss how making a qualified charitable distribution will help minimize your tax bill and benefit your qualified charity of choice.

Read some more good tax news.

Read nonprofit news.  

Find out more about nonprofit accounting and tax in our financial leadership training seminar for emerging nonprofit professionals, 501(c)(fit!).  

Find out more about Renner and Company’s nonprofit services.

We are providing this information for educational purposes only.  Discuss your specific facts and circumstances with your tax advisor to find out how this information will affect you.

©2018 Renner and Company, CPA, P.C.  All Rights Reserved.

Are medical deductions worth my time?

Renner Business News, February 15, 2018

Tax Prep Tip:  are medical deductions worth my time?

It’s too late for the Big Game, and too early for March Madness.  Yet there’s a universal event taking place in dining rooms and home offices all across America.  You’re probably about to join in yourself.  This is the time when taxpayers sit down and pull together their tax reporting statements and deductions, to get their tax information ready for the preparer.

When it comes to medical expenses, summarizing them can be tedious.  No one wants to spend any more time on this than necessary, so we’re sharing some of the most frequently asked questions about medical deductions, to help you keep the ball rolling.

Is it worth my time to pull together all my medical expenses?

Thanks to the Tax Cuts and Jobs Act, the 2017 medical deduction threshold is 7½% of adjusted gross income *.  For example, if your total gross income is $200,000, only your medical expenses in excess of $15,000 are going to be deductible.  Does that help you decide?  Many taxpayers with two wage earners and good insurance, don’t even get close to deducting medical expenses.

What medical expenses are deductible?

Deductible medical expenses include the costs of diagnosis, cure, mitigation, treatment or prevention of disease, and the costs of treatments affecting any part or function of the body, for yourself and your dependents.  Some common medical expenses include amounts you pay for:

  • Doctors,
  • Hospitals,
  • Dentists,
  • Other medical practitioners,
  • Equipment,
  • Supplies,
  • Diagnostic devices,
  • Prescription drugs,
  • Mileage at 17 cents per mile,
  • Health insurance premiums, and
  • Long-term care insurance premiums within limits.

What about nursing care?

The cost of care is deductible for individuals unable to perform at least two activities of daily living for at least 90 days, or those requiring substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.  Costs include medical and nursing treatment as well as maintenance and personal care such as cooking and cleaning.

What if my insurance paid the bill?

Medical expenses are NOT deductible if they were paid or reimbursed by your health insurance or paid from your Health Savings Account or Flexible Spending Account.

What if I’m self-employed?

Your health insurance premiums are generally deductible on the front page of your individual return as a reduction of adjusted gross income.  This is better than taking them as an itemized deduction, so don’t include self-employed health insurance premiums in the amount of medical deductions needed to get you over the 7½% threshold.

My employer deducts insurance from my pay pretax…

You’re already getting a deduction for these health insurance premiums because they’re excluded from your taxable wages on your W-2.  You can’t deduct health insurance premiums again if your employer deducts them from your pay pretax.

OK, my medical deductions will probably exceed 7½ % of my income.  Should I start gathering receipts?

First make sure you benefit from itemizing your deductions at all.  Married taxpayers already get a standard deduction of $12,700 ($6,350 for single taxpayers) without even trying.  If all your deductions from medical, interest, taxes and charitable contributions total less than that, you’re better off taking the standard deduction.

*Adjusted Gross Income includes all your taxable income on the front page of your tax return reduced by certain adjustments like deductible IRA contributions and self-employed health insurance.

NOTE:  there are many more details related to the deductibility of medical expenses.  This is just a general summary of basic concepts.  To find out how this information applies to your facts and circumstances, consult your tax advisor.

Learn more about Renner individual tax services.

Read more Renner Business News

©2018 Renner and Company, CPA, P.C. All Rights Reserved.

 

Renner Nonprofit News, February 14, 2018

Website Costs Won’t Weigh You Down

Joan M. Renner, CPA, CGMA, Shareholder, Renner and Company, CPA, P.C.

Like many nonprofit leaders, you’re probably putting the finishing touches on your year-end close.  You may need to make adjustments to record accrual items, or to apply complex areas of GAAP, and these entries can have a big effect on your bottom line.  There’s one year-end adjustment, though, that can help boost your bottom line, and that’s properly capitalizing your website development.

During the year, most nonprofits expense web development costs.  That’s where they’ve been budgeted.  But to comply with GAAP, you may need to review your website expenses and reclassify certain costs to the balance sheet.  The good news is, that if you’ve expensed significant website improvements during the year, this entry will lighten up your bottom line.

What website costs should be capitalized?

If you spent money creating a new site or adding new functionality to your existing site, you should capitalize these costs as intangible assets and amortize them over their useful life.  This includes front-end and back-end elements such as:

  • registering your domain name,
  • the navigation structure,
  • page layout,
  • graphic design,
  • your content management system,
  • database integration,
  • e-commerce functions,
  • search function,
  • online registration,
  • the donate now button,
  • a blog,
  • a multi-media feature,
  • additional security functions, and
  • many other functional applications.

Don’t capitalize these costs:

Expense the regular costs of operating your site, like web hosting, content updates, training, backups and minor adjustments.  Expense the cost to input content into a website and the cost of data conversion.  Also, when you’re dreaming up big ideas about what to do next and planning how to make them happen, that’s also an expense.

There’s GAAP for this.  You can find all the details in the Financial Accounting Standards Board Codification section that addresses website development costs, ASC 350-50.

Now is a good time to:

Review your website maintenance expense account for items that should be capitalized.

Reclassify capital website costs to intangible assets.

Amortize intangibles over the applicable useful life.

Consider the functional classification of your amortization expense.  It may represent program expense, fundraising expense or maybe even cost of sales.  Oops—that’s another can of worms for another nonprofit news day.

Need some help with audit prep?  Find out more about Renner and Company’s nonprofit services. (https://www.rennercpa.com/accounting-services-for-non-profits-associations/)

Read more nonprofit news

Find out more about nonprofit accounting in our financial leadership training seminar for emerging nonprofit professionals, 501(c)(fit!).  

 

©2018 Renner and Company, CPA, P.C.  All Rights Reserved.

2018 Tax Due Dates

Renner Business News, February 8, 2018—Mark Your Calendar—2018 Tax Due Dates

Tax is all about deadlines.  We may have a blizzard, a flu epidemic or a government shutdown, but the IRS deadlines will stand.  Last year there were some major changes to the deadlines for filing certain tax returns, so you may want to check your calendar.  Here’s a list of some of the more basic due dates.  Let us know your questions, and how we can help.

2018 Tax Due Dates

DATEDEADLINE FOR:
March 15, 2018Calendar-year 2017 S corporation income tax returns (Form 1120S) or automatic six-month extension (Form 7004) and paying any tax due.
March 15, 2018Calendar-year 2017 partnership returns (Form 1065) or requesting an automatic six-month extension (Form 7004).
April 17, 20182017 individual income tax returns (Form 1040) or automatic six-month extension (Form 4868 and paying any tax due.
April 17, 20182018 individual quarterly estimated tax payment (Form 1040-ES).
April 17, 2018Payment of 2017 individual IRA contribution, traditional IRA or Roth IRA (even if return is on extension).
April 17, 2018Payment of 2017 individual SEP contribution (unless 2017 tax return is on extension).
April 17, 20182017 individual gift tax return (Form 709) or automatic six-month extension (Form 8892) and paying any gift tax due; or
if no gift tax is due, filing automatic six-month extension (Form 4868 to extend both Form 1040 and Form 709).
April 17, 20182017 individual schedule H (Part of Form 1040) for reporting of wages paid to a domestic employee.
April 17, 2018Calendar-year 2017 trust and estate income tax returns (Form 1041) or automatic five-and-a-half month extension to October 1 (Form 7004) and paying any income tax due.
April 17, 2018Calendar-year 2017 C corporation income tax returns (Form 1120) or automatic six-month extension (Form 7004) and paying any tax due.
April 17, 20182018 corporate quarterly estimated tax payment for calendar-year corporations.
April 30, 2018First quarter payroll tax returns (Form 941).
June 15, 20182018 individual quarterly estimated tax payment (Form 1040-ES).
June 15, 20182018 corporate quarterly estimated tax payment for calendar-year corporations.
July 31, 2018Second quarter payroll tax returns (Form 941).
July 31, 2018Calendar-year 2017 retirement plan report (Form 5500) or extension request.
September 17, 20182018 individual quarterly estimated tax payment (Form 1040-ES).
September 17, 20182018 corporate quarterly estimated tax payment for calendar-year corporations.
September 17, 2018Calendar-year 2017 S corporation returns extended due date (Form 1120S).
September 17, 2018Calendar-year 2017 partnership returns extended due date (Form 1065).
October 1, 2018October 1, 2018
Calendar-year trust and estate income tax returns extended due date (Form 1041).
October 15, 20182017 individual income tax return extended due date (Form 1040).
October 15, 20182017 individual gift tax return extended due date (Form 709).
October 15, 20182017 calendar-year C corporation income tax return extended due date (Form 1120).
October 31, 2018Third quarter payroll tax returns (Form 941).
December 17, 20182018 corporate quarterly estimated tax payment for calendar-year corporations.

NOTE: There are many more filing requirements and deadlines including state and local returns and other returns. This list is just a few. To find out what deadlines apply to you, consult your tax advisor.

©2018 Renner and Company, CPA, P.C. All Rights Reserved.

Lobbying Basics for Your 501(c)(3)

Renner Nonprofit News, January 24, 2018

Joan M. Renner, CPA, CGMA, Shareholder, Renner and Company, CPA, P.C.

As a nonprofit leader, you want to make your voice heard to advance your mission.  It might be as simple as going in front of City Council during budget hearings to encourage continued funding for your cause.  You may urge your supporters to contact their State Delegate and voice their opinion about an upcoming bill.  You may even have been one of the many individuals who weighed in on the new tax bill to preserve the charitable deduction.

As important as this kind of advocacy is, charities need to be careful about their actions in this area.  If your charity’s actions amount to lobbying, you could incur big penalties or even endanger your tax exempt status.  In today’s politically charged climate, it’s a good time to review some lobbying basics.

Don’t forget that the tax rules about lobbying are different for 501(c)(6) organizations.  We’ll cover that in another article.  Today we’re talking about 501(c)(3) lobbying.

What is lobbying?  True lobbying has three elements.  You’re lobbying if you:

  • contact members of a legislative body, to
  • propose, support or oppose
  • a specific piece of legislation.

You’re also lobbying if you urge members of the general public to contact their legislators to do the same.  Budget bills and funding bills are legislation.  Activities at the federal, state and even the local level can all be considered lobbying.

How much lobbying can we do?  Lobbying is perfectly legal and supported by IRS regulations, but there are limits in the law for 501(c)(3)s.  Too much lobbying can lead to penalties and even loss of exempt status.  To measure how much is too much, charities can choose between two sets of rules:  either the “no substantial part test” or the “501(h) expenditure test”.

The no substantial part test applies to you if you haven’t made any special lobbying election.  The tax code says that, to keep your exempt status, lobbying must be “no substantial part” of your overall activities.  The trouble is that the tax code doesn’t define how much lobbying is too much.  This test includes not only lobbying dollars for time and expenses, but also the efforts of volunteers.  Court cases indicate that 5% may be ok but 20% may be too much.  You’re really dealing with uncertainty if you are subject to this test.

The 501(h) expenditure test may be a good option if your activities will continue to involve some degree of lobbying.  Once you file a one-time election using IRS form 5768, you use a formula to calculate an objective dollar limit that identifies how much lobbying is allowed.  Only expenditures count, not volunteer efforts or in-kind donations.

What’s considered lobbying?  There are two types of lobbying, direct lobbying and grassroots lobbying.  Direct lobbying is where you go directly to the legislator or staff.  Grassroots lobbying is where you communicate your view to the general public about specific legislation with a call to action, like “call your congressman” or “see the contact information of the key legislators below” or “go to our website for a draft message to your delegate” or even “your delegate is Jane Smith and she plans to vote no”.  If you’re using the 501(h) expenditures test, only 25% of your calculated lobbying limit can be used for grassroots lobbying.

What if we lobby too much?  The IRS can revoke your exempt status if they judge your lobbying to be a substantial part of your organization’s activities.  If this happens, you will owe corporate income tax.  Officers and directors who knowingly approved lobbying expenditures may also owe a 5% excise tax.  If you filed the 501(h) election and exceeded the calculated limit, you must pay a 25% excise tax on the excess.  You won’t lose your exemption though, as long as you didn’t go way over the limit for four years.

What’s not lobbying?  You’re not lobbying if you’re:  discussing broad policy issues, discussing pending legislation without taking sides, defending your organization to save its existence, answering legislators’ requests for information, communicating with regulatory bodies or communicating with your own members without a call to action.

There are a lot of details involved.  This article is meant to introduce you to the basics.  As always, consult your tax advisor to find out how the lobbying rules apply to your specific situation.

Find out more about nonprofit tax basics at our 501(c)(fit!) financial leadership training seminar for emerging nonprofit leaders.

Find out more about Renner and Company’s nonprofit services.

©2018 Renner and Company, CPA, P.C.  All Rights Reserved.

 

Renner Nonprofit News January 17, 2018

New disclosures about your liquidity

Joan M. Renner, CPA, CGMA, Shareholder, Renner and Company, CPA, P.C.

Nonprofit execs know that it’s all about cash.  After years of running an organization, experienced managers know their cash flow cycle, and know how much cash to keep on hand to stay afloat.  Up to this point, it’s been an internal process.  But now, under the new nonprofit GAAP, you’ll be writing a more formal financial statement disclosure—your liquidity policy.  Donors, grantors, members and other financial statement users want to know how financially prepared you are to stay afloat, and how you plan to stay that way.

Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements for Not-for-Profit Entities, is changing the way nonprofits report items like restricted funds, board-designated funds, endowments, functional expenses, cash flows, investment income, investment expenses, liquid assets and your liquidity policy.

If you’re saying “what liquidity policy” you’re not alone.  It hasn’t been required disclosure before, so you may not have specifically defined it or named it as your liquidity policy, but you do know what it is, it’s your cash management policy.  Whether your policy is to keep one year’s worth of cash on hand or one month’s worth, whether you have access to designated reserves or a line of credit, you’ll need to disclose how you manage your cash and investments to address current needs, as well as how you preserve board designations and donor restrictions.

There’s another dimension to the new liquidity disclosures.  You will need a footnote that lists all your financial assets available within the next year to pay general obligations due within the next year.  Basically, it’s your cash, investments and receivables balances, that are current and not subject to restrictions and board designations.

The real challenge with this footnote is not writing it, it’s talking about it, to your finance committee, to your Board and to your financial statement users.

What if this footnote discloses that all of an organization’s assets are earmarked by restrictions and board designations?  What if it discloses that some of the restricted net assets have already been spent?  Finance committees and Boards may have some healthy discussions about what this footnote says about the organization’s financial preparedness, and what impression the organization makes.  Good thing you’re starting early.

What can we learn?

Now is a good time to start thinking about how you’ll describe your liquidity policy.  Discuss it with your accountant, your finance committee and your Board so you’re ready to make the required disclosure.

Now is a good time to preview your assets available disclosure using current numbers.  Ask your accountant to draft the note for you and discuss it with your finance committee and your Board so you’re ready to make the required disclosure.

Now is a good time to revisit your designated funds, their purpose and documentation.

Now is a good time to consider your options to access a line of credit.

With the right effort in these areas, you’ll arrive at liquidity disclosures that meet the new standard and give the right presentation of your financial preparedness.

If you’re the accountant charged with implementing the new standard, consider joining us for an in-depth look at our live one-day seminar on May 18, 2018 in Alexandria, VA, Financial Intensive Training on the New Financial Reporting GAAP—Remodel Your Financials—an in-depth look.

Find out more about Renner and Company’s services to nonprofits.

©2018 Renner and Company, CPA, P.C. All Rights Reserved.

 

 

Renner Nonprofit News, Wednesday, January 10, 2018

The New Tax Law—how will it affect your donors?

Joan M. Renner, CPA, CGMA, Shareholder, Renner and Company, CPA, P.C.

We’re starting 2018 with sweeping tax changes that bring nonprofits some good news and some news that’s not-so-good, about how the new tax law affects donors.

How it will affect your nonprofit will depend on your donors, and maybe how well you know them.  Here’s a summary of some of the changes related to charitable contributions.  Now is a great time to review and renew.

Deducting Contributions–Good News

Individuals who itemize, will still get a tax deduction for their charitable contributions.

Deducting Contributions–Not-So-Good News

Fewer individuals will itemize their deductions in 2018 when the standard deduction increases to $24,400 on a joint return ($12,200 for single).  Donors in high-priced real estate markets who pay a lot for mortgage interest and real estate taxes will still be itemizing.  So will donors living in retirement communities whose fees include medical expenses.  These individuals will still have a tax incentive to give.

Donors who don’t have high mortgage interest, real estate taxes and medical expenses will no longer need to itemize their deductions.  They’ll get a $24,400 standard deduction (or $12,200 for single) no matter what they give to charity.  How well do you know your donors?

Strategy–Tell your story.

Donors of smaller contributions may not be tax-driven in the future.  These donors will need to hear more about your unique mission-related impact.  Review and renew how you’re telling your story.

Younger donors may be more cause-driven anyway.  Attendees at our 501(c)(fit!) financial leadership training seminar for emerging nonprofit leaders reported that millennials are more motivated to give in response to your story than their tax deduction.

Planned Gifts–Good News

Planned giving donations will still generate tax deductions for those who itemize.  Under the old law, donors could only deduct contributions of up to 50% of their income.  The rest carries forward to future years, but this limit made deducting planned gifts difficult for people whose income consisted mainly of tax-exempt bonds.  The new tax law increases the limit to allow donors to deduct contributions of up to 60% of their income to certain charities.

Planned Gifts–Not-So-Good News

Not every charity qualifies for the 60% limit.  Qualifying charities do include churches, tax-exempt schools, hospitals, governments and public charities.  Capital gain property does not qualify for the 60% limit.  A lower 30% limit is available.  There’s more to know about this, so consult your tax advisor if you’d like to know more.

Strategy— Bypass the above limit altogether.  Help your donors use the Qualified Charitable Distribution!  Read more below.

Gifts from an IRA–Good News

Donors who are age 70 ½ can still make a tax free Qualified Charitable Distribution directly from their IRA for up to $100,000, completely bypassing the above income limitation, and still taking the full standard deduction.  Of course the contribution isn’t eligible to be included in itemized deductions but it’s excluded from income so it’s even.  Even better, the distribution counts toward the donor’s RMD.  (Required Minimum Distribution from an IRA for people age 70 ½).

Gifts from an IRA–Not-So-Good News

A lot of people don’t know about the Qualified Charitable Distribution.  Consult your tax advisor if you’d like to know more.

Strategy–Help donors give from their IRA.  If your donors are age 70 ½, chances are they are taking taxable IRA distributions and then taking a limited itemized deduction for their donation to your organization.  Get your tax advisor to write up a statement your donors can use to authorize a Qualified Charitable Distribution, directly from their IRA to your charity.  Everyone wins.

Corporate Donations—Not-So-Good News

Corporate tax rates are going down, reducing the tax incentive for corporate donations.

Corporate Donations—Good News

Corporate charitable contributions have always been limited to 10% of corporate net income.  Many of your corporate donors have already handled their tax planning through their charitable foundations.  They’re more interested in corporate responsibility and community service.  The lower corporate tax rate may not affect their primary motivation for giving to your organization.

Strategy–Maximize visibility for your corporate donors.  They’re not giving for the tax deduction anyway.

There are a lot of details that go along with these basic points.  As always, check with your tax advisor about your specific facts and circumstances.

Find out more about Renner and Company’s nonprofit services.

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