Blog

Thursday, July 6th, 2017

Why your nonprofit must avoid excess benefit transactions

Not-for-profits that ignore the IRS’s private benefit and private inurement provisions do so at their own peril. These rules prohibit an individual inside or outside a nonprofit from reaping an excess benefit from the organization’s transactions. Violation of such rules can have devastating consequences.

Defining terms

A private benefit is any payment or transfer of assets made (directly or indirectly) by your nonprofit that’s beyond reasonable compensation for the services provided or the goods sold to your organization, or that’s for services or products that don’t further your tax-exempt purpose. If any of your nonprofit’s net earnings inure to the benefit of an individual, the IRS won’t view your nonprofit as operating primarily to further its tax-exempt purpose.

The private inurementrules extend the private benefit prohibition to your organization’s “insiders.” The term “insider” or “disqualified person” generally refers to any officer, director, individual or organization (as well as their family members and organizations they control) that’s in a position to exert significant influence over your nonprofit’s activities and finances. A violation occurs when a transaction that ultimately benefits the insider is approved.

Never too careful

Of course, the rules don’t prohibit all payments, such as salaries and wages, to an insider. They simply require that a payment be reasonable relative to the services or goods provided — and that it be made with your nonprofit’s tax-exempt purpose in mind.

To ensure you can later prove that any transaction was reasonable and made for a valid exempt purpose, formally document all payments made to insiders. Also, ensure that board members understand their duty of care. This refers to a board member’s responsibility to act in good faith, in your organization’s best interest, and with such care that proper inquiry, skill and diligence has been exercised in the performance of duties.

Protect your exempt status

Any amount of private benefit or inurement is enough to cause the loss of your organization’s tax-exempt status. And individuals involved may be subject to significant excise tax penalties. Contact us if you have questions about how to maintain your exempt status.

© 2017

 


Monday, July 3rd, 2017

July 1st Promotions

It’s that time of year again! Congratulations to all!

Macon:

Grant Davis to Manager

Justin Elliott to Manager

Sarah Higginbotham to Senior

Kellan Shuford to Senior

Tanner Smith to Staff II

David Shaver to Staff II

Albany:

Tiffany Galligan to Director

Atlanta:

Tim Lyons to Director

Tommy Forrestal to Senior

Birmingham:

Ashley Weigant to Staff II

Bradenton:

Trey Scott to Director

John Watts to Staff II


Friday, June 30th, 2017

“M&J’s Got Talent”

MJ’s ES Conference was held in Athens, GA this week, with staff across the six offices  ready to learn and have some fun too.  The “M&J’s Got Talent” show took place Tuesday, June 27th at Live Wire Athens.

Jon Schultz, aka “Elvis the King”, was the MC for the night. The judges were Steve Byrne (Atlanta), Nicole Cunningham (Birmingham) and Dianne Kopczynski (Bradenton).

Kyle Nichols
and Nick Rider won the individual competition with their true musical talent. Nick played the bass guitar and Kyle sang while playing guitar and harmonica. Bradley Abell came in second for his Napoleon Dynamite dance, complete with “Vote for Donny 3 more years” shirt. Ross Cannon came in 3rd for his individual karaoke effort.

 
The Bradenton office took home the trophy for the “office competition” category with their best karaoke rendition of Miley Cyrus’ “Party in the USA.” The entire office participated.  An office celebration is in the works.

Congratulations to all our talented winners!

 

 


Wednesday, June 28th, 2017

Managing the risks of your nonprofit’s special events with insurance

Not-for-profit special events can be lucrative from a fundraising standpoint, but they also carry significant risks. Proper insurance coverage can help protect your organization.

Special event, special planning

Risks associated with special events run the gamut from accidents and personal injury, to fraud and theft, to cancellation due to inclement weather or nonappearance by a featured performer. However, it’s possible to buy designated “special events insurance.”

These policies provide coverage for lawsuits and claims brought by a third party who suffered a loss connected to the event. Coverage may include liquor liability coverage that protects your nonprofit against postevent calamities, such as an auto accident caused by an event guest driving under the influence.

Cost-effective options

There is a drawback: Special events insurance for a single event generally comes with a high price tag. Depending on the type of event and your current coverage, it might be more cost-effective to obtain coverage by extending one of the following types of insurance policies:

Comprehensive/commercial general liability. CGL insurance provides coverage for claims that allege bodily injury or property damage. When necessary, the coverage usually can be extended to members, volunteers, temporary or leased workers, co-sponsoring organizations, outside sponsors and board members.

Directors and officers liability. D&O insurance covers claims arising from the management or governance of an organization and can include coverage for board members and executives.

Nonowned/hired automobile liability. You may need this coverage if volunteers or staff will use their own vehicles during the event, or if rented or hired cars, such as limousines, will be used.

Fidelity. Fidelity bonds guard against the loss of money or property due to dishonest acts of staff or volunteers.

Weather. Weather insurance provides coverage for losses resulting from weather-related event cancellations and is particularly important for outdoor events.

Nonappearance/cancellation. This insurance protects against losses that result when a featured guest fails to appear.

Check with your insurer

You may already have some of this coverage under your current policies. But check with your insurer to learn whether your special event will be covered — and, if not, whether you could pay a one-time additional premium for protection. Contact us for more information on managing risk.

© 2017


Tuesday, June 27th, 2017

Claiming a federal tax deduction for moving costs

Summer is a popular time to move, whether it’s so the kids don’t have to change schools mid-school-year, to avoid having to move in bad weather or simply because it can be an easier time to sell a home. Unfortunately, moving can be expensive. The good news is that you might be eligible for a federal tax deduction for your moving costs.

Pass the tests

The first requirement is that the move be work-related. You don’t have to be an employee; the self-employed can also be eligible for the moving expense deduction.

The second is a distance test. The new main job location must be at least 50 miles farther from your former home than your former main job location was from that home. So a work-related move from city to suburb or from town to neighboring town probably won’t qualify, even if not moving would increase your commute significantly.

Finally, there’s a time test. You must work full time at the new job location for at least 39 weeks during the first year. If you’re self-employed, you must meet that test plus work full time for at least 78 weeks during the first 24 months at the new job location. (Certain limited exceptions apply.)

What’s deductible

So which expenses can be written off? Generally, you can deduct transportation and lodging expenses for yourself and household members while moving.

In addition, you can likely deduct the cost of packing and transporting your household goods and other personal property. And you may be able to deduct the expense of storing and insuring these items while in transit. Costs related to connecting or disconnecting utilities are usually deductible, too.

But don’t expect to write off everything. Meal costs during move-related travel aren’t deductible. Nor is any part of the purchase price of a new home or expenses incurred selling your old one. And, if your employer later reimburses you for any of the moving costs you’ve deducted, you may have to include the reimbursement as income on your tax return.

Questions about whether your moving expenses are deductible? Or what you can deduct? Contact us.

© 2017


Wednesday, June 21st, 2017

3 types of information your nonprofit’s board needs

 

Information is power. And regularly supplying information to your not-for-profit’s board of directors is the key to the board properly fulfilling its duties. This doesn’t mean you have to share every internal email or phone message. Board members should, however, receive and understand information that will help them work together and better serve your organization.

Three types of information are important to share with your board:

1. Financial. To fulfill their fiduciary duties, the board must receive copies of your Form 990, and the board president or treasurer should review and approve it before it’s filed. The board also must get the results of any audit you’ve conducted, salary information for key staff, monthly and quarterly financial reports showing income and expenses, and proof of directors and officers insurance, if your organization provides it.

2. Strategic. This includes reports on your nonprofit’s work, such as:

  • How programs are being carried out,
  • Program usage statistics,
  • Progress on event timelines, and
  • Membership statistics.

If your organization collects information from the audience it serves through formal or informal means, provide at least an executive summary of your findings to your board. Occasionally sharing with the board articles that relate to your nonprofit’s mission, locations or audiences also may be useful.

3. Board member. To help foster teamwork and commitment to the cause, ask that members share brief bios and other relevant background information. Also publicly share thank-yous when board members make special efforts — whether those efforts are individual (such as securing an event sponsor) or group (performing due diligence on a new executive director).

Of course, you always want to inform your board when unexpected events occur, particularly if they have the potential to negatively affect your organization or require swift action. But don’t deluge your board with so much information that they can’t keep up. If it’s something that will help them serve your nonprofit, it’s something you should share. Contact us for more information on good nonprofit governance.

© 2017


Tuesday, June 20th, 2017

Are income taxes taking a bite out of your trusts?

If your estate plan includes one or more trusts, review them in light of income taxes. For trusts, the income threshold is very low for triggering the:

  • Top income tax rate of 39.6%,
  • Top long-term capital gains rate of 20%, and
  • Net investment income tax (NIIT) of 3.8%.

The threshold is only $12,500 for 2017.

3 ways to soften the blow

Three strategies can help you soften the blow of higher taxes on trust income:

1. Use grantor trusts. An intentionally defective grantor trust (IDGT) is designed so that you, the grantor, are treated as the trust’s owner for income tax purposes — even though your contributions to the trust are considered “completed gifts” for estate- and gift-tax purposes.

IDGTs offer significant advantages. The trust’s income is taxed to you, so the trust itself avoids taxation. This allows trust assets to grow tax-free, leaving more for your beneficiaries. And it reduces the size of your estate. Further, as the owner, you can sell assets to the trust or engage in other transactions without tax consequences.

Keep in mind that, if your personal income exceeds the applicable thresholds for your filing status, using an IDGT won’t avoid the tax rates described above. Still, the other benefits of these trusts make them attractive.

2. Change your investment strategy. Despite the advantages of grantor trusts, nongrantor trusts are sometimes desirable or necessary. At some point, for example, you may decide to convert a grantor trust to a nongrantor trust to relieve yourself of the burden of paying the trust’s taxes. Also, grantor trusts become nongrantor trusts after the grantor’s death.

One strategy for easing the tax burden on nongrantor trusts is for the trustee to shift investments into tax-exempt or tax-deferred investments.

3. Distribute income. Generally, nongrantor trusts are subject to tax only to the extent they accumulate taxable income. When a trust makes distributions to a beneficiary, it passes along ordinary income (and, in some cases, capital gains), which are taxed at the beneficiary’s marginal rate.

Thus, one strategy for minimizing taxes on trust income is to distribute the income to beneficiaries in lower tax brackets. The trustee might also consider distributing appreciated assets, rather than cash, to take advantage of a beneficiary’s lower capital gains rate.

Of course, this strategy may conflict with a trust’s purposes, such as providing incentives to beneficiaries, preserving assets for future generations and shielding assets from beneficiaries’ creditors.

If you’re concerned about income taxes on your trusts, contact us. We can review your estate plan to uncover opportunities to reduce your family’s tax burden.

© 2017


Thursday, June 15th, 2017

“The Mat Ladies” – Take 2!

Julie Poole and Diane Smith of the Bradenton office were inspired by “The Mat Lady” blog post, so they decided to try their hands at making sleeping mats themselves.  “So after tax season, Diane Smith and I started cutting, tying and crocheting our plastic bags for a mat.”  – Julie Poole

Their first mat was completed at the end of May and they are working on making more. Becky Morris has now joined in and is helping to cut the bags. Once they get an inventory of mats, they will donate them to the Bradenton First Baptist Church who feed the homeless once a week.

The first completed mat

If you recall, a long-time friend of Central Office’s Linda Hutchins requested M&J’s help to donate plastic grocery store bags so that she could make sleeping mats to hand out to the homeless. Click here to re-read “The Mat Lady” blog post.

Great job Julie, Diane and Becky!

 


Thursday, June 15th, 2017

Bradenton’s Spring Fling 2017

The Bradenton office enjoyed the day at the Sun-N-Fun Resort in Sarasota on Friday, June 9th. The group dined on a picnic style buffet lunch before heading to the outside bar for refreshing beverages. The kids in particular took advantage of the Olympic-sized swimming pool, mega slide and the indoor pool’s obstacle course. It was a great day at “work”!

     


Wednesday, June 14th, 2017

Social impact bonds can fund nonprofit social services and offer other benefits

Social impact bonds provide a relatively new method of funding social programs. Several U.S. cities already pay some not-for-profit social service providers through such programs. Might your organization benefit?

In a nutshell

Traditionally, government agencies extend funding to nonprofit social service providers to pay for specific activities or delivery models. But what if the nonprofit lacks the upfront money to pursue the required outcomes? Few organizations have the deep pockets necessary to fully finance programs themselves.

That’s where outside investors — including philanthropists and foundations — may come in. They supply the necessary capital and operating funds by investing in social impact or “pay for performance” bonds issued by the nonprofit or its intermediary. In exchange, they’ll receive a share of the government payments made for successful outcome-based performance.

The advantages

Investors generally assume the risk of social impact bonds because there’s a chance they won’t earn income or receive a return on their capital. Not surprisingly, government agencies are attracted to the idea of transferring risk away from taxpayers. But social impact bonds may provide additional benefits.

For example, the bonds can help fund preventive services (such as medical screenings that facilitate early intervention) that could save more government funds down the road. Social impact bonds also can eliminate wasteful spending on programs that don’t work but have continued to receive funds because they undergo little evaluation.

What’s more, traditional funding frequently comes with tight restrictions that stifle novel but as-yet-unproven approaches. Social impact bonds are believed to foster creativity.

Still novel and uncertain

Social impact bonds won’t work for every social service nonprofit. They’re still novel and the extent of a capital market for social programs is uncertain. But if your nonprofit has measurable outcomes that are highly correlated with social net benefits, social impact bonds could be in your future. Contact us for more information.

© 2017