What charitable givers need to know about taxes | tax preparation in elkton md | Weyrich Cronin & Sorra

What charitable givers need to know about taxes

Although most charitable donors aren’t primarily motivated by potential tax breaks, they still need to know how donations affect their taxes. It’s important for your not-for-profit to educate them — particularly as tax laws change. For example, in 2020 and 2021, even nonitemizers were allowed to deduct up to $300 and itemizers could deduct cash gifts up to 100% of their adjusted gross income (AGI).

These breaks have lapsed and aren’t available for 2022, unless Congress acts. The following summarizes laws that continue to affect donors.

Cash and certain property donations

Generally, donors who itemize can deduct total cash contributions up to 60% of their AGI. To be deductible, cash gifts under $250 must be supported by a bank record (such as a canceled check or credit card statement) or receipt (such as a thank-you letter from your nonprofit showing the date and amount of the gift). Cash gifts of $250 or more must be substantiated by a contemporaneous written acknowledgment from your nonprofit.

Total donations of ordinary-income property usually are deductible up to 50% of the donor’s AGI but limited to the donor’s tax basis in the property (typically the purchase price). Property is ordinary-income property when donors would recognize ordinary income or short-term capital gains if they sold it at fair market value (FMV) on the date of donation. Examples include stocks and bonds held for one year or less.

Capital gains property

Donors of capital gains property usually can deduct the property’s FMV, but a lower AGI limit of 30% applies. Property is considered capital gains property if the donor would have recognized long-term capital gains had he or she sold it at FMV on the donation date. This includes capital assets held more than one year. But in some circumstances, such as when the donation is intellectual property, only the donor’s tax basis of the property is deductible.

If your nonprofit uses tangible donated property for its tax-exempt purpose — for example, a museum displays a donated painting — the donor can deduct its fair market value. But if the property is put to an unrelated use (a hospital sells the donated painting), the deduction is limited to the donor’s basis in the property.

For donations of property, the substantiation requirements depend on the deductible value. If someone donates an item worth less than $250, a receipt is sufficient. However, for gifts:

  • Of $250–$500 in value, the donor must have a contemporaneous written acknowledgment from your nonprofit.
  • Of $501–$5,000 in value, the donor must also file Form 8283.
  • Of more than $5,000 in value, the donor must also obtain a qualified appraisal.

In general, only donations of the full ownership interest in property are deductible. The right to use property usually is considered a contribution of less than the donor’s entire interest in the property.

What isn’t deductible

Finally, make sure donors understand they can’t claim a deduction for the donation of their professional services. Related out-of-pocket costs, such as supplies and miles driven, on the other hand, are deductible as charitable contributions. Contact us for tax advice if you’re working with a donor making a major gift or complicated donation.

© 2022

 

CFO, yes or no? Here’s how to decide | tax accountant in baltimore md | Weyrich Cronin & Sorra

CFO, yes or no? Here’s how to decide

Whether your not-for-profit organization needs a chief financial officer (CFO) depends on many factors, such as the size of your organization, the complexity and types of revenue sources, and the number of programs you have. Static organizations are less likely to need a CFO than those with evolving programs and long-term plans that rely on investment growth, financing and major capital expenditures. So if your organization is expanding quickly, it might be time to consider hiring a financial executive.

Accounting and finance oversight

Generally, nonprofit CFOs (also known as directors of finance) are senior-level executives charged with oversight of accounting and finances. They work closely with executive directors, finance committees and treasurers and serve as business partners to program heads. CFOs report to the executive director or board of directors on their organization’s finances. They analyze investments and capital, develop budgets and devise financial strategies.

The CFO’s role and responsibilities vary significantly based on the organization’s size, as well as the complexity of its revenue sources. In smaller nonprofits, CFOs often have wide responsibilities — possibly for accounting, human resources, facilities, legal affairs, administration and IT. In larger nonprofits, CFOs usually have a narrower focus. They train their attention on accounting and finance issues, including risk management, investments and financial reporting.

Qualifications for the job

At a minimum, you want a CFO with in-depth knowledge of the finance, accounting and tax rules particular to nonprofits. Someone who has worked only in the for-profit sector may find the differences difficult to navigate. Nonprofit CFOs also need a familiarity with funding sources and grant management. If your organization expends $750,000 or more of federal assistance, your CFO will need to oversee an independent financial audit (also known as a “single audit”), as well as possible state-mandated audits.

The ideal candidate for the job should have a certified public accountant (CPA) designation and, optimally, an MBA. In addition, the position requires strong communication skills, strategic thinking, financial reporting expertise and the creativity to deal with resource restraints. Finally, you’d probably like the CFO to have a genuine passion for your mission — nothing motivates nonprofit employees like a belief in the cause.

Finding candidates

Your nonprofit’s ability to pursue its mission depends on its financial health and fiscal integrity. If your budget is swelling and your executives are struggling to manage financial tasks, it may be time to hire a CFO. Contact us if you need suggestions for finding candidates.

© 2022

 

No audit required? Do it anyway | accounting firm in washington dc | WCS

No audit required? Do it anyway

Your not-for-profit may not be required to undergo regular audits. But an audit can reassure donors and other stakeholders that you take seriously your responsibility. An audit can also help you identify risks before they become intractable problems. Here’s how to initiate and prepare for an audit.

Find and meet with an auditor

Start by drafting a request for proposal (RFP) for prospective auditors. The RFP should describe your organization, its programs, major funding sources and the type of service you need. Once you select an auditor, the firm will provide an engagement letter outlining the scope of services to be performed and assign responsibility for various tasks to your staff or the auditors.

The preaudit meeting with your auditors comes next. Finance staff and management should attend, as well as representatives from your board of directors or audit committee. Those involved will draw up a timeline for the work, and the auditors can answer any questions about the information they’ll need.

During this meeting, inform the auditors of any changes in your nonprofit’s activities since you first met. Also communicate new or eliminated programs, new grant reporting requirements, and changes to internal controls and staff.

Do your part

Collecting and organizing the documentation auditors need before they arrive saves them time and saves you money. Usually auditors will provide a list of documents — such as financial statements, accounting records, physical inventories and investment-related documents — and the date when each item is needed. Auditors also generally need organizational records such as:

  • Articles of incorporation,
  • Financial policies,
  • Exemption letters,
  • Board meeting minutes,
  • Grant agreements,
  • Pledges and other funding documents,
  • Contracts, and
  • Insurance policies.

You should gather support for footnote disclosures, as well. This includes documentation of significant estimates, pending litigation, restricted contributions and related-party transactions.

Head off issues

Don’t wait for auditors to find problems and ask questions. You can expedite the audit process and reduce costs when you identify and address issues before they’re raised by auditors.

For example, after making year-end closing entries, reconcile all your schedules and workpapers to the trial balance and review for obvious anomalies. Double-check manual journal entries, accrual calculations, entries that require estimates and in-kind donation valuations. Compare actual figures with budgeted ones and be ready to explain any significant variances.

No mandate?

Some nonprofits are required to conduct audits due to their large size (generally if they expend more than $750,000 a year). Grantmakers, banks and some states and municipalities may also require audited financial statements. But consider conducting regular audits, even if no mandate applies. Contact us for more information.

© 2022

 

2022 deadlines for reporting health care coverage information | CPA in Washington DC | Weyrich, Cronin & Sorra

2022 deadlines for reporting health care coverage information

Ever since the Affordable Care Act was signed into law, business owners have had to keep a close eye on how many employees they’ve had on the payroll. This is because a company with 50 or more full-time employees or full-time equivalents on average during the previous year is considered an applicable large employer (ALE) for the current calendar year. And being an ALE carries added responsibilities under the law.

What must be done

First and foremost, ALEs are subject to Internal Revenue Code Section 4980H — more commonly known as “employer shared responsibility.” That is, if an ALE doesn’t offer minimum essential health care coverage that’s affordable and provides at least “minimum value” to its full-time employees and their dependents, the employer may be subject to a penalty.

However, the penalty is triggered only when at least one of its full-time employees receives a premium tax credit for buying individual coverage through a Health Insurance Marketplace (commonly referred to as an “exchange”).

ALEs must do something else as well. They need to report:

  • Whether they offered full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan,
  • Whether the offered coverage was affordable and provided at least minimum value, and
  • Certain other information the IRS uses to administer employer shared responsibility.

The IRS has designated Forms 1094-C and 1095-C to satisfy these reporting requirements. Each full-time employee, and each enrolled part-time employee, must receive a Form 1095-C. These forms also need to be filed with the IRS. Form 1094-C is used as a transmittal for the purpose of filing Forms 1095-C with the IRS.

3 key deadlines

If your business was indeed an ALE for calendar year 2021, put the following three key deadlines on your calendar:

February 28, 2022. This is the deadline for filing the Form 1094-C transmittal, as well as copies of related Forms 1095-C, with the IRS if the filing is made on paper.

March 2, 2022. This is the deadline for furnishing the written statement, Form 1095-C, to full-time employees and to enrolled part-time employees. Although the statutory deadline is January 31, the IRS has issued proposed regulations with a blanket 30-day extension. ALEs can rely on the proposed regulations for the 2021 tax year (in other words, forms due in 2022).

In previous years, the IRS adopted a similar extension year-by-year. The extension in the proposed regulations will be permanent if the regulations are finalized. No other extensions are available for this deadline.

March 31, 2022. This is the deadline for filing the Form 1094-C transmittal and copies of related Forms 1095-C with the IRS if the filing is made electronically. Electronic filing is mandatory for ALEs filing 250 or more Forms 1095-C for the 2021 calendar year. Otherwise, electronic filing is encouraged but not required.

Whether you’re a paper or electronic filer, you can apply for an automatic 30-day extension of the deadlines to file with the IRS. However, the extension is available only if you file Form 8809, “Application for Extension of Time to File Information Returns,” before the applicable due date.

Alternative method

If your company offers a self-insured health care plan, you may be interested in an alternative method of furnishing Form 1095-C to enrolled employees who weren’t full-time for any month in 2021.

Rather than automatically furnishing the written statement to those employees, you can make the statement available to them by posting a conspicuous plain-English notice on your website that’s reasonably accessible to everyone. The notice must state that they may receive a copy of their statement upon request. It needs to also include:

  • An email address for requests,
  • A physical address to which a request for a statement may be sent, and
  • A contact telephone number for questions.

In addition, the notice must be written in a font size large enough, including any visual clues or graphical figures, to highlight that the information pertains to tax statements reporting that individuals had health care coverage. You need to retain the notice in the same location on your website through October 17, 2022. If someone requests a statement, you must fulfill the request within 30 days of receiving it.

Identify your obligations

Although the term “applicable large employer” might seem to apply only to big companies, even a relatively small business with far fewer than 100 employees could be subject to the employer shared responsibility and information reporting rules. We can help you identify your obligations under the Affordable Care Act and assess the costs associated with the health care coverage that you offer.

© 2022

 

What your nonprofit needs for a successful capital campaign | Tax Preparation in Bel Air MD | WCS

What your nonprofit needs for a successful capital campaign

Many nonprofits have put major purchases and other ambitious initiatives on hold during the pandemic. But if you need to buy or expand a facility, purchase expensive equipment, or seed an endowment, your organization may not want to wait any longer.

A capital campaign to raise funds can be more difficult at this time — but it’s possible. You just need to ensure your not-for-profit’s stakeholders fully support your goals and are willing to go the extra mile to achieve them.

A small army

Capital campaigns generally are long-term projects — often lasting three or more years. To carry out yours, you’ll need a champion with vision and stamina. Consider board members or look to leaders in the greater community with a fundraising track record, knowledge of your community, the ability to motivate others, and time to attend meetings and fundraising events.

Your leader will require a small army to achieve capital campaign goals. Volunteers, board members and staffers will be required to raise funds through direct mail, email solicitations, direct solicitations and special events. If you need more help, look to like-minded community groups and clients who have benefited from your services.

Fundraising smarts

The biggest challenge of any capital campaign is securing donations. To this end, identify a large group — say 1,000 individuals — to solicit. Draw your list from past donors, area business owners, board members, volunteers and other likely prospects. Then narrow that list to the 100 largest potential donors and talk to them first.

Traditional fundraising wisdom holds that you shouldn’t go public with your campaign until you’ve secured significant “lead gifts” from major donors. The percentage varies, with an organization commonly waiting until 50% to 65% of its fundraising goal is reached before announcing a campaign. Even if you decide not to follow this model, know that it’s generally easier to solicit donations under $1,000 after you’ve already landed several large gifts.

Keep in mind that your campaign will cost money to execute. Fundraising events, marketing materials, consultant fees and other expenses can eat into donations.

The right message

To engage key constituents, break down your ultimate target into smaller objectives. Celebrate as you reach each goal. Also regularly report gifts, track your progress toward reaching your ultimate goal and measure the effectiveness of your activities.

Pay attention to how you craft your message. Potential donors must see your organization as capable and strong, but also as the same group they’ve championed for years. Instead of focusing on what donations will do for your nonprofit, show potential donors the impact on their community.

Remember hidden costs

Is now the time for a capital campaign? It depends on many factors, including your organization’s fiscal health. Contact us for help evaluating your nonprofit’s financial fitness.

© 2022

 

Are your social media accounts working for — or against — you? | tax preparation in elkton md | WCS

Are your social media accounts working for — or against — you?

Social media is an essential tool for not-for-profit outreach, engagement and fundraising. But social media also poses a reputational threat if your organization doesn’t clearly communicate rules for its use and prepare for “emergencies.” If you haven’t already, it’s time to implement some best practices.

Rules of the road

The line between employees’ personal and work lives was already blurry, and the shift to remote work has only exacerbated this effect. This raises the risk of inappropriate posts on personal and organizational accounts.

The best defense is a formal social media policy. The policy should set clear boundaries about the types of material that are and aren’t permissible on both kinds of accounts. For example, it should prohibit employees from posting nonpublic information they’ve learned on the job. Also share the policy with board members and volunteers and emphasize that they could possibly harm your organization with their personal accounts.

Around the clock attention

Social media is 24/7, and incidents can escalate quickly. So be sure to devote the necessary resources to monitor your accounts and others that refer to your nonprofit.

With organizational accounts, check the posts and comments. Both can go viral and create trouble. That said, don’t get drawn into an exchange with a troll who’s posting in bad faith and simply trying to stir things up. Give your staff guidelines to help them determine when to engage and when to let it go. You can establish a zero-tolerance policy for offensive comments or disable comments altogether.

Consider subscribing to a “social listening” tool, such as Sprout Social or Brandwatch, that will alert you when your nonprofit’s name is trending on social media. These tools help you follow what people are saying about your organization and respond to them directly when appropriate.

Ready to respond

Mistakes — or intentionally damaging posts — can occur despite comprehensive policies. Create a formal response plan so you’ll be able to weather such events. The plan should assign responsibilities and include contact information for several spokespersons. Identify a specific trigger when it’s time to involve the executive director and board and include a list of potential responses, such as issuing a press release or bringing in a crisis management expert.

After a situation has resolved, you’ll want to sit down and review your plan’s effectiveness. Ask what worked and what didn’t.

Avoiding mistakes

You’ve probably seen other organizations mishandle ill-advised posts and attacks from outsiders on social media. Take their experience as an object lesson and put policies in place to help prevent the same from happening to your nonprofit.

© 2021

Your Board can’t do its Job without Information from You | tax preparation in elkton md | WCS

Your Board can’t do its Job without Information from You

If your not-for-profit’s board members don’t have the information they need to make decisions, the repercussions can be severe. Board time can be wasted, voting may be delayed and your organization may be unable to act when it needs to. Worse, board members might make decisions based on faulty information, negatively affecting your mission. Here’s how to prevent such outcomes.

For Fiduciary Success

To properly fulfill their fiduciary duties, your board needs certain information. The first is financial. To help your board fully understand your nonprofit’s position, provide it with copies of your Form 990. The board president or treasurer should review this document 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, and monthly and quarterly financial reports showing income and expenses. If your organization provides directors and officers insurance, provide proof to board members.

Share and Share Alike

Board members also need strategic information. This includes reports on your nonprofit’s work, such as how programs are being carried out and how they’re used, progress on event timelines, and membership statistics. If your organization collects information from the audience it serves, 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.

Sharing should go both ways. To help foster teamwork and commitment to the cause, ask that members provide 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).

Funneling Material

To prevent board members from wasting time reviewing irrelevant information, funnel all material through your executive director or another senior manager. Only executive-approved material should be provided to board members. If you have questions about your board’s fiduciary role, please contact us.

 

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

 

© 2021

 

Employers: The Social Security Wage Base is Increasing in 2022 | accountant in bel air md | WCS

Employers: The Social Security Wage Base is Increasing in 2022

The Social Security Administration recently announced that the wage base for computing Social Security tax will increase to $147,000 for 2022 (up from $142,800 for 2021). Wages and self-employment income above this threshold aren’t subject to Social Security tax.

Background Information

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees and self-employed workers — one for Old Age, Survivors and Disability Insurance, which is commonly known as the Social Security tax, and the other for Hospital Insurance, which is commonly known as the Medicare tax.

There’s a maximum amount of compensation subject to the Social Security tax, but no maximum for Medicare tax. For 2022, the FICA tax rate for employers is 7.65% — 6.2% for Social Security and 1.45% for Medicare (the same as in 2021).

2022 Updates

For 2022, an employee will pay:

  • 6.2% Social Security tax on the first $147,000 of wages (6.2% of $147,000 makes the maximum tax $9,114), plus
  • 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
  • 2.35% Medicare tax (regular 1.45% Medicare tax plus 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).

For 2022, the self-employment tax imposed on self-employed people is:

  • 12.4% OASDI on the first $147,000 of self-employment income, for a maximum tax of $18,228 (12.4% of $147,000); plus
  • 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a return of a married individual filing separately), plus
  • 3.8% (2.90% regular Medicare tax plus 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return).

More than One Employer

What happens if an employee works for your business and has a second job? That employee would have taxes withheld from two different employers. Can the employee ask you to stop withholding Social Security tax once he or she reaches the wage base threshold? Unfortunately, no. Each employer must withhold Social Security taxes from the individual’s wages, even if the combined withholding exceeds the maximum amount that can be imposed for the year. Fortunately, the employee will get a credit on his or her tax return for any excess withheld.

We Can Help 

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

 

© 2021

 

Opportunities and Challenges: Valuation in the Age of COVID-19 | accounting firms in baltimore | WCS

Opportunities and Challenges: Valuation in the Age of COVID-19

Valuation and estate planning go hand in hand. After all, the tax implications of various estate planning strategies depend on the value of your assets at the time they’re transferred.

The COVID-19 pandemic has had a significant impact on the value of many business interests and other assets, which may create some attractive estate planning opportunities. It also presents unique challenges for valuation professionals. As a result, it’s more important than ever to involve experienced valuation experts in the estate planning process.

What are the Opportunities?

With the value of many assets depressed (in many or most cases temporarily), now may be an ideal time to gift them, either directly to family members or to irrevocable trusts and other estate planning vehicles. Transferring assets while values are low also allows you to use as little of your gift and estate tax exemption as possible, maximizing the amount available for future gifts or bequests. As the economy fully recovers and assuming your asset values rebound, your beneficiaries should enjoy substantial growth outside your taxable estate.

What are the Challenges?

The pandemic has created a situation that’s truly uncharted territory for the valuation profession. Unlike other economic crises in recent years, most of the damage to the economy resulted from business closures and restrictions and other measures designed to help contain the virus.

For business valuations, the current environment presents several challenges, including:

Known or knowable. A fair market valuation generally doesn’t consider “subsequent events” — that is, events that occur after, and weren’t “known or knowable” on the valuation date. Experts generally agree that the COVID-19 pandemic wasn’t known or knowable as of December 31, 2019. Yet for valuation dates after that, determining whether the pandemic was known or knowable and should be considered in valuing a business or other asset can be a formidable task.

Valuation approaches. Generally, valuators consider all three of the major valuation approaches: the income, market and asset approaches. The pandemic may affect the relative appropriateness of each approach and the amount of weight they should be assigned.

For example, market-based methods, which rely on data about actual transactions involving comparable businesses, may be less relevant today if the underlying transactions predate COVID-19 (although it may be possible to adjust to reflect the pandemic’s impact).

Many valuators are emphasizing income-based methods, such as the discounted cash flow (DCF) method, which involves projecting a business’s future cash flows over a defined period (such as five years) and discounting them to present value. The advantage of DCF is that it provides a great deal of flexibility to model a business’s expected financial performance based on current conditions as well as assumptions about its eventual return to “normal” over the next several years.

Regardless of the method or methods used, it’s important for valuators to consider a business’s available cash and expected cash needs to assess its viability as a going concern. These considerations will be critical in evaluating a business’s risk and the impact of that risk on value.

What’s it Worth?

Depressed asset values can create attractive estate planning opportunities. While the pandemic has dropped the value of some assets, others haven’t been affected or have even increased in value. Contact us with questions regarding the valuation of your assets.

 

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

 

© 2021

 

Getting Personal for Fundraising Success | business consulting and accounting services in baltimore md | WCS

Getting Personal for Fundraising Success

According to a recent survey conducted by fundraising platform FrontStream, the vast majority (87%) of Americans say they’re donating to charity in 2021. And almost 20% claim they’re giving more this year than they did in 2020. However, remaining uncertainty surrounding COVID-19 and the economy is making fundraising challenging for many not-for-profits right now.

Social media and mobile apps have made asking for donations easier in some ways. However, one of the most effective strategies for raising money remains the personal appeal. Donors consistently are more likely to give if the request comes from a friend, colleague or family member who’s committed to your mission. Use this fact to put your nonprofit on stronger financial footing.

Board Members are Usually Best

All of your organization’s stakeholders can promote your nonprofit and request support from their contacts. But development staffers aside, board members generally make the most effective fundraisers because they’re knowledgeable about your organization, passionate about your mission and typically have a wide range of contacts in business and philanthropic circles.

You can support their efforts by making sure they have the proper information and training. Consider equipping them with a wish list of specific items or services your nonprofit needs. Keep in mind that not all of their friends or family members may be in a position to make a monetary donation. However, some people may be able to contribute goods (such as auction items) or in-kind services (such as website maintenance).

Effective Methods

When making a personal appeal to prospective donors, your board members should, when possible, meet in person. Letters and email can save time, but face-to-face appeals are more effective. This is especially true if your nonprofit offers donors something in exchange for their attention. For instance, they’re more likely to be swayed at an informal coffee hour or cocktail gathering (contingent, of course, on local COVID-19 threats and restrictions).

It’s also important for board members to humanize your cause. Say that your nonprofit raises money for cancer treatment. If board members have been affected by the disease, they might want to relate their personal experiences as a means of illustrating why they support your organization’s work.

Even when appealing to potential donors’ philanthropic instincts, it’s critical to mention other possible benefits. For example, if your nonprofit is trying to encourage business owners to buy ad space in your newsletter, board members could explain that your supporters are a desirable demographic, both in terms of spending power and an eagerness to “buy local.”

Work Every Channel

Although personal appeals are extremely effective, don’t dismiss any fundraising technique — particularly if it’s low- or no-cost and is easy to use, such as social media. The most successful nonprofits work every available channel to increase interest and donations. Contact us to discuss your fundraising challenges and goals.

 

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

 

© 2021