Thursday, March 23rd, 2017
Your not-for-profit can’t generally reimburse employees for business expenses tax-free just because staffers submit expense records. However, you can if you have a properly executed accountable plan. Under such a plan, reimbursement payments will be free from federal income and employment taxes for recipient employees and not subject to withholding from their paychecks. Additionally, your organization benefits because the reimbursements aren’t subject to the employer’s portion of federal employment taxes.
Follow the rules
Of course, rules and conditions apply. The IRS stipulates that all expenses covered in an accountable plan have a business connection and be “reasonable.” Additionally, an employer can’t reimburse an employee more than what he or she paid for any business expense. And the employee must account to you for his or her expenses and, if an expense allowance was provided, return any excess allowance within a reasonable time period.
An expense generally can qualify as a tax-free reimbursement if it could otherwise qualify as a business deduction for the employee. For meals and entertainment, the plan may reimburse expenses at 100% that would be deductible by the employee at only 50%.
It’s your organization’s responsibility to identify the reimbursement or expense payment and keep these amounts separate from other amounts, such as wages. The accountable plan must reimburse expenses in addition to an employee’s regular compensation. No matter how informal your nonprofit, you can’t substitute tax-free reimbursements for compensation employees otherwise would have received.
Keep good records
The IRS requires employers with accountable plans to keep good records for expenses that are reimbursed. This includes documentation of the:
- Amount of the expense and the date,
- Place of the travel, meal or transportation,
- Business purpose of the expense, and
- Business relationship of the people entertained or fed.
You also should require employees to submit receipts for any expenses of $75 or more and for all lodging, unless your nonprofit uses a per diem plan.
Put it in writing
While an accountable plan isn’t required to be in writing, formally establishing one makes it easier for your nonprofit to prove its validity to the IRS if ever challenged. Contact us for more information and help setting up an accountable plan.
Tuesday, March 21st, 2017
If you have a child in college, you may be eligible to claim the American Opportunity credit on your 2016 income tax return. If, however, your income is too high, you won’t qualify for the credit — but your child might. There’s one potential downside: If your dependent child claims the credit, you must forgo your dependency exemption for him or her. And the child can’t take the exemption.
The maximum American Opportunity credit, per student, is $2,500 per year for the first four years of postsecondary education. It equals 100% of the first $2,000 of qualified expenses, plus 25% of the next $2,000 of such expenses.
The ability to claim the American Opportunity credit begins to phase out when modified adjusted gross income (MAGI) enters the applicable phaseout range ($160,000–$180,000 for joint filers, $80,000–$90,000 for other filers). It’s completely eliminated when MAGI exceeds the top of the range.
Running the numbers
If your American Opportunity credit is partially or fully phased out, it’s a good idea to assess whether there’d be a tax benefit for the family overall if your child claimed the credit. As noted, this would come at the price of your having to forgo your dependency exemption for the child. So it’s important to run the numbers.
Dependency exemptions are also subject to a phaseout, so you might lose the benefit of your exemption regardless of whether your child claims the credit. The 2016 adjusted gross income (AGI) thresholds for the exemption phaseout are $259,400 (singles), $285,350 (heads of households), $311,300 (married filing jointly) and $155,650 (married filing separately).
If your exemption is fully phased out, there likely is no downside to your child taking the credit. If your exemption isn’t fully phased out, compare the tax savings your child would receive from the credit with the savings you’d receive from the exemption to determine which break will provide the greater overall savings for your family.
We can help you run the numbers and can provide more information about qualifying for the American Opportunity credit.
Wednesday, March 15th, 2017
Most not-for-profits are intensely focused on present needs — not the possibility that disaster will strike sometime in the distant future. Yet it’s critical that all organizations have a formal continuity plan to guide them should a natural or manmade disaster disrupt operations.
You likely already have many of the necessary processes in place — such as safely evacuating your office or backing up data. A continuity plan can help you organize and document existing processes and address any other issues you might have overlooked.
If your nonprofit provides basic human services (such as medical care and food) or disaster-related services, you generally need a more detailed and extensive plan so that you’ll be able to serve constituents — even without a full staff and other resources.
No organization can anticipate or eliminate all possible risks, but you can limit the damage of potential risks specific to your nonprofit. These vary by organization type, location and technology. So, the first step in creating a continuity plan is to identify the threats you face when it comes to your people, processes and technology.
Also assess what the damages would be if your operations were interrupted. For example, if you had an office fire, what are the possible outcomes regarding personal injury, property damage and financial losses?
Designate a lead person to oversee the creation and implementation of your continuity plan. Then assemble teams to handle different duties, such as a communications team responsible for contacting and updating staff, volunteers and other stakeholders. Other teams might focus on IT issues, decide how to preserve and retrieve critical inventory or devise evacuation procedures.
It only takes one
Keep in mind that the disaster doesn’t have to be a cataclysmic event such as a major fire or hurricane. Something as seemingly mundane as an extended power outage or virulent flu season could prevent your organization from carrying out its mission. Contact us for help assessing and addressing threats to your nonprofit’s operations.
Tuesday, March 14th, 2017
Yes, there’s still time to make 2016 contributions to your IRA. The deadline for such contributions is April 18, 2017. If the contribution is deductible, it will lower your 2016 tax bill. But even if it isn’t, making a 2016 contribution is likely a good idea.
Benefits beyond a deduction
Tax-advantaged retirement plans like IRAs allow your money to grow tax-deferred — or, in the case of Roth accounts, tax-free. But annual contributions are limited by tax law, and any unused limit can’t be carried forward to make larger contributions in future years.
This means that, once the contribution deadline has passed, the tax-advantaged savings opportunity is lost forever. So it’s a good idea to use up as much of your annual limit as possible.
The 2016 limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on December 31, 2016). If you haven’t already maxed out your 2016 limit, consider making one of these types of contributions by April 18:
1. Deductible traditional. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — the contribution is fully deductible on your 2016 tax return. Account growth is tax-deferred; distributions are subject to income tax.
2. Roth. The contribution isn’t deductible, but qualified distributions — including growth — are tax-free. Income-based limits, however, may reduce or eliminate your ability to contribute.
3. Nondeductible traditional. If your income is too high for you to fully benefit from a deductible traditional or a Roth contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take qualified distributions you’ll be taxed only on the growth. Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.
Want to know which option best fits your situation? Contact us.
Thursday, March 9th, 2017
If your not-for-profit solicits funds online — or uses other fundraising methods that cross state boundaries — it may need to register in multiple jurisdictions. We’ve answered some commonly asked questions.
My charity receives occasional contributions from out-of-state donors. Do I need to register with those states? Yes, but only if you’re actually asking for donations in those states. The critical activity is soliciting, not accepting, funds. Remember, email and text blasts and social media appeals are likely to be considered multistate solicitations.
That said, some nonprofits are generally exempt from registering or may need to register but aren’t required to file annually. For example, many states exempt houses of worship as well as nonprofits with total annual income under certain thresholds.
So registration rules vary by state? That’s right. A handful of states don’t require charities to register at all. The remaining ones have varying rules, income thresholds, exceptions, registration fees and fines for violations. Even the agencies that regulate charities differ by state.
How much does it cost to register? Again, this varies by state — generally ranging from $0 to $2,000.
Is there a simple way to register with every state? Unfortunately not. Most states require you to complete a general information form and submit it with your last financial statement, a list of officers and directors, a copy of your originating document and your IRS-issued tax-exempt determination letter.
First-time registrants can use a Unified Registration Statement in most states. However, even those states mandate that annual renewals and reports be submitted using individual state forms.
What are the consequences of not registering in states where my nonprofit raises funds? Your organization, officers and board members could face civil and criminal penalties. Your charity might lose its ability to solicit funds in certain states or lose its tax-exempt status with the IRS.
Do I need to tell the IRS where my nonprofit is registered? Yes; Form 990 asks you to list the states where you’re required to file a copy of your return.
Given the resources involved, you may wonder if out-of-state donations are worth the trouble. For some nonprofits, it may make sense to focus exclusively on local fundraising. Contact us and we’ll help you weigh the pros and cons.
Wednesday, March 8th, 2017
We would like to congratulate those who have sacrificed their social lives and endured sleep deprivation for the past few months, and can now say they have conquered the CPA exams!!
Tuesday, March 7th, 2017
It’s not uncommon for adult children to help support their aging parents. If you’re in this position, you might qualify for the adult-dependent exemption. It allows eligible taxpayers to deduct up to $4,050 for each adult dependent claimed on their 2016 tax return.
For you to qualify for the adult-dependent exemption, in most cases your parent must have less gross income for the tax year than the exemption amount. (Exceptions may apply if your parent is permanently and totally disabled.) Generally Social Security is excluded, but payments from dividends, interest and retirement plans are included.
In addition, you must have contributed more than 50% of your parent’s financial support. If you shared caregiving duties with a sibling and your combined support exceeded 50%, the exemption can be claimed even though no one individually provided more than 50%. However, only one of you can claim the exemption.
Factors to consider
Even though Social Security payments can usually be excluded from the adult dependent’s income, they can still affect your ability to qualify. Why? If your parent is using Social Security money to pay for medicine or other expenses, you may find that you aren’t meeting the 50% test.
Don’t forget about your home. If your parent lives with you, the amount of support you claim under the 50% test can include the fair market rental value of part of your residence. If the parent lives elsewhere — in his or her own residence or in an assisted-living facility or nursing home — any amount of financial support you contribute to that housing expense counts toward the 50% test.
Easing the financial burden
Sometimes caregivers fall just short of qualifying for the exemption. Should this happen, you may still be able to claim an itemized deduction for the medical expenses that you pay for the parent. To receive a tax benefit, the combined medical expenses paid for you, your dependents and your parent must exceed 10% of your adjusted gross income.
The adult-dependent exemption is just one tax break that you may be able to employ to ease the financial burden of caring for an elderly parent. Contact us for more information on qualifying for this break or others.
Tuesday, March 7th, 2017
Congratulations to Jessica Traster! She was the recipient of Mauldin & Jenkins’ $1,000 scholarship at the 43rd Annual University of Central Florida Dixon School of Accounting Spring Banquet, held last Friday, March 3rd. Holly Bryant and Bethany Schmitt represented M&J at the event.
Monday, March 6th, 2017
The Bradenton office recently hosted a blood drive, the perfect community service activity to coincide with busy season. Donating blood is a quick way to give back to your local community. Each donor received a complimentary wellness check, t-shirt and some re-energizing snacks.
Take a look at our selfless donors, and thank you for giving the gift of life. Every drop counts!
Monday, March 6th, 2017
M&J was honored to attend and sponsor the UNG 5th Annual Scholarship Gala this past Friday night. Thank you to our friends at The University of North Georgia for a great evening!