Industry Benchmarking Archives - Page 13 of 32

To make the most of social media, just “listen”

Tax Prep, Planning & Strategy|December 24, 2019

How well do you listen to your not-for-profit’s supporters? If you don’t engage in “social listening,” your efforts may not be good enough. This marketing communications strategy is popular with for-profit companies, but can just as easily help nonprofits attract and retain donors, volunteers and members.
Social media monitoring
Social listening starts with monitoring social media sites such as Facebook, Twitter, LinkedIn and Instagram for mentions of your organization and related keywords. But to take full advantage of this strategy, you also must engage with topics that interest your supporters and interact with “influencers,” who can extend your message by sharing it with their audiences.
Influencers don’t have to be celebrities with millions of followers. Connecting with a group of influencers who each have only several hundred followers can expand your reach exponentially. For example, a conservation organization might follow and interact with a popular rock climber or other outdoor enthusiast to reach that person’s followers.
Targeting your messages
To use social listening, develop a list of key terms related to your organization and its mission, programs and campaigns. You’ll want to treat this as a “living document,” updating it as you launch new initiatives. Then “listen” for these terms on social media. Several free online tools are available to perform this monitoring, including Google Alerts, Twazzup and Social Mention.
When your supporters or influencers use the terms, you can send them a targeted message with a call to action, such as a petition, donation solicitation or event announcement. Your call to action could be as simple as asking them to share your content.
You can also use trending hashtags (a keyword or phrase that’s currently popular on social media) to keep your communications relevant and leverage current events on a real-time basis. Always be on the lookout for creative ways to join conversations while promoting your organization or campaign.
Actively seeking opportunity
Most nonprofits have a presence on social media. But if your organization isn’t actively listening to and communicating with people on social media sites, you’re only a partial participant. Fortunately, social listening is an easy and inexpensive way to engage and become engaged.
© 2019

Nonprofits: How to invest in an investment advisor

Accounting & Assurance|December 22, 2019

You may think that only large, well-endowed not-for-profits require the advice of an investment manager. But even smaller nonprofits with modest endowments — particularly smaller nonprofits that don’t have in-house financial expertise — can benefit from hiring an investment professional.
Finding qualified candidates
Finding the right investment consultant for your organization starts with identifying a pool of qualified candidates with proven track records. Ask for referrals from local private foundations (possibly ones that have funded you in the past) or other area nonprofits. Also, members of your board may know investment managers they can recommend. Qualified candidates should have experience working with nonprofit endowments.
Request detailed proposals from candidates on how they’d manage your investments — as well as how they wish to be compensated for their services. Generally, investment managers charge clients based on one (or a combination) of three structures: 1) fees or commissions on trades; 2) a percentage of the asset values they’re managing; or 3) an hourly rate. Many nonprofits prefer that their investment manager’s compensation be based on asset value or hours, rather than commissions.
After reviewing the candidates’ proposals and checking their references, allow search committee members to talk to other nonprofit leaders to gauge their satisfaction level with your short list. Then select two or three people to interview.
Conducting interviews
Members of your board’s investment or finance committee should interview the candidates carefully. They should look for someone who closely follows market movements and trends, has a thorough understanding of different types of investments, and is capable of creating and managing a balanced portfolio that can grow without incurring excessive risk. Understanding the candidates’ investment processes, along with their long-term results, is essential.
Other desirable qualities include experience assisting investment committees in drafting and changing investment policies and an ability to clearly explain the processes and considerations behind their investment decisions. To get at some of these issues, committee members might ask candidates their advice for an organization that’s more (or less) risk averse than a traditional nonprofit. Or based on what they know of your organization, what changes to the current investment strategy might they propose?
Good candidates should express empathy toward the kinds of problems facing your organization and suggest investment solutions specific to your nonprofit. And they should have the time to properly manage your investments. Ask how many hours per month they anticipate spending on your account and whether they’d be able to attend off-hour meetings, if necessary.
Trusting your choice
Finally, consider how much you trust the candidate. Don’t engage an investment manager for your nonprofit unless you’d wholeheartedly trust the person to handle your personal life savings. For advisor recommendations, contact us.
© 2019

Accountable plans save taxes for staffers and their nonprofit employers

Accounting & Assurance|December 19, 2019

Have staffers complained because their expense reimbursements are taxed? An accountable plan can address the issue. Here’s how accountable plans work and how they benefit employers and employees.
Be reasonable
Under an accountable plan, reimbursement payments to employees will be free from federal income and employment taxes and aren’t subject to withholding from workers’ paychecks. Additionally, your organization benefits because the reimbursements aren’t subject to the employer’s portion of federal employment taxes.
The IRS stipulates that all expenses covered in an accountable plan have a business connection and be “reasonable.” Additionally, employers can’t reimburse employees more than what they paid for any business expense. And employees must account to you for their expenses and, if an expense allowance was provided, return any excess allowance within a reasonable time period.
An expense generally qualifies as a tax-free reimbursement if it could otherwise qualify as a business deduction for the employee. For meals and entertainment, a plan may reimburse expenses at 100% that would be deductible by the employee at only 50%.
Keep good records
An accountable plan isn’t required to be in writing. But formally establishing one makes it easier for your nonprofit to prove its validity to the IRS if it is challenged.
When administering your plan, your nonprofit is responsible for identifying the reimbursement or expense payment and keeping 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 that employees otherwise would have received.
The IRS also 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 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.
Inexpensive retention tool
Accountable plans are relatively easy and inexpensive to set up and can help retain staffers who frequently submit reimbursement requests. Contact us for more information.
© 2019

Use Capital Losses to Offset Capital Gains

Tax Prep, Planning & Strategy|December 17, 2019

When is a loss actually a gain? When that loss becomes an opportunity to lower tax liability, of course. Now’s a good time to begin your year-end tax planning and attempt to neutralize gains and losses by year end. To do so, it might make sense to sell investments at a loss in 2018 to offset capital gains that you’ve already realized this year.

Now and later

A capital loss occurs when you sell a security for less than your “basis,” generally the original purchase price. You can use capital losses to offset any capital gains you realize in that same tax year — even if one is short term and the other is long term.

When your capital losses exceed your capital gains, you can use up to $3,000 of the excess to offset wages, interest and other ordinary income ($1,500 for married people filing separately) and carry the remainder forward to future years until it’s used up.

Research and replace

Years ago, investors realized it could be beneficial to sell a security to recognize a capital loss for a given tax year and then — if they still liked the security’s prospects — buy it back immediately. To counter this strategy, Congress imposed the wash sale rule, which disallows losses when an investor sells a security and then buys the same or a “substantially identical” security within 30 days of the sale, before or after.

Waiting 30 days to repurchase a security you’ve sold might be fine in some situations. But there may be times when you’d rather not be forced to sit on the sidelines for a month.

Fortunately, there’s an alternative. With a little research, you might be able to identify a security in the same sector you like just as well as, or better than, the old one. Your solution is now simple and straightforward: Simultaneously sell the stock you own at a loss and buy the competitor’s stock, thereby avoiding violation of the “same or substantially identical” provision of the wash sale rule. You maintain your position in that sector or industry and might even add to your portfolio a stock you believe has more potential or less risk.

If you bought shares of a security at different times, give some thought to which lot can be sold most advantageously. The IRS allows investors to choose among several methods of designating lots when selling securities, and those methods sometimes produce radically different results.

Good with the bad

Investing always carries the risk that you will lose some or even all of your money. But you have to take the good with the bad. In terms of tax planning, you can turn investment losses into opportunities — and potentially end the year on a high note.

Don’t flood email inboxes with excessive communications

Tax Prep, Planning & Strategy|December 17, 2019

Is your not-for-profit making the most of its email list? If you send every item to individual donors, corporate supporters, volunteers and the media — regardless of their interests or investment in your organization — you probably aren’t. Email segmentation can help you communicate with everyone more efficiently and effectively.

Keep them tuned in

There are many reasons to think about sending particular emails to only specific slices of your email list. For starters, too many irrelevant emails from your nonprofit will cause some recipients to tune out or unsubscribe.

Segmentation can also increase your response rates and strengthen engagement. Recipients will get more information they value and less that doesn’t interest them, fostering greater trust in your organization and its communications. And segmentation lets you experiment with different tones, writing styles, subject lines and visual presentations to determine which work best. You may learn that different groups respond differently based on the message.

Review historical activity

If you already have the data, you may want to begin tailoring emails according to such demographic factors as age, gender, location and income. If you don’t already possess this information, though, gathering it can prove delicate. You need to be careful not to turn off potential supporters with your inquiries.

Try segmenting your list on the basis of past activity. For example, track event attendance, volunteer work, donations or membership renewal. Further narrow the segment by setting a date parameter (for example, activity within the past quarter or year).

Or create subgroups based on donation amounts or specific campaigns. “Super donors” whose giving exceeds a certain threshold, “super attendees” who attend a specified number of events in a year and “super volunteers” who donate a certain number of hours in a year might receive every email, while others receive fewer.

Maximize value of assets

Supporter data, including email addresses, is probably one of your organization’s most valuable resources. For more information on maximizing the potential of your assets, contact us.

Expanded 529 plans offer unique estate planning benefits

Tax Prep, Planning & Strategy|December 15, 2019

If you’re putting aside money for college or other educational expenses, consider a tax-advantaged 529 savings plan. Also known as “college savings plans,” 529 plans were expanded by the Tax Cuts and Jobs Act (TCJA) to cover elementary and secondary school expenses as well. And while these plans are best known as an educational funding vehicle, they also offer estate planning benefits.

What do 529 plans cover?

529 plans allow you to contribute a substantial amount of cash (lifetime contribution limits can reach as high as $350,000 or more, depending on the plan) to a tax-advantaged investment account. Like a Roth IRA, contributions are nondeductible, but funds grow tax-deferred and earnings may be withdrawn tax-free provided they’re used for “qualified education expenses.”

Qualified expenses include tuition, fees, books, supplies, equipment, room and board and, under the TCJA, up to $10,000 per year in elementary or secondary school expenses. Earnings used for other purposes are subject to income tax and a 10% penalty.

What are the estate planning benefits?

These plans are unique among estate planning vehicles. Ordinarily, to shield assets from estate taxes, you must permanently relinquish all control over them. But contributions to a 529 plan are considered “completed gifts” — which means the assets are removed from your taxable estate, together with all future earnings on those assets — even though you retain considerable control over the money. For example, unlike most other estate planning vehicles, you can control the timing of distributions, change beneficiaries, move the funds into another 529 plan, or even cancel the plan and get your money back (subject to taxes and penalties).

As a completed gift, a 529 plan contribution is eligible for the annual gift tax exclusion (currently $15,000). But unlike other vehicles, you can bunch up to five years’ worth of annual exclusions into one year. This allows you to contribute up to $75,000 in one year, without triggering gift or generation-skipping transfer (GST) taxes and without using up any of your lifetime exemption. There are implications, however, if you don’t survive the five years.

Why does it matter?

You might think that these benefits are of little value now that the TCJA has temporarily doubled the lifetime gift and estate tax exemption to an inflation-adjusted $10 million ($20 million for married couples who design their estate plans properly). This year, the exemption amount is $11.4 million ($22.8 million for married couples).

After all, few families are currently affected by these taxes. But it’s still a good idea to shield wealth from potential estate taxes and to make the most of your annual exclusion. This is because the new exemptions are scheduled to return to their previous levels after 2025 and there’s nothing to stop lawmakers from reducing the exemption in the future. 529 plans and other traditional estate planning tools provide some insurance against future estate tax changes.

A poorly worded apportionment clause can upend an estate plan

Tax Prep, Planning & Strategy|December 12, 2019

Federal estate tax liability is no longer an issue for many families, now that the gift and estate tax exemption stands at $11.4 million for 2019. But there are still affluent individuals whose estates may be subject to hefty estate tax bills. If you expect your estate to have significant estate tax liability at your death, it’s critical to include a tax apportionment clause in your will or revocable trust.

An apportionment clause specifies how the estate tax burden will be allocated among your beneficiaries. Omission of this clause, or failure to word it carefully, may result in unintended consequences.

How to apportion estate taxes

There are many ways to apportion estate taxes. One option is to have all of the taxes paid out of assets passing through your will. Beneficiaries receiving assets outside your will — such as IRAs, retirement plans or life insurance proceeds — won’t bear any of the tax burden.

Another option is to allocate taxes among all beneficiaries, including those who receive assets outside your will. And yet another is to provide for the tax to be paid from your residuary estate — that is, the portion of your estate that remains after all specific gifts or requests have been made and all expenses and liabilities have been paid.

Omission of an apportionment clause

What if your will doesn’t have an apportionment clause? In that case, apportionment will be governed by applicable state law (although federal law covers certain situations).

Most states have some form of an “equitable apportionment” scheme. Essentially, this approach requires each beneficiary to pay the estate tax generated by the assets he or she receives. Some states provide for equitable apportionment among all beneficiaries while others limit apportionment to assets that pass through the will or to the residuary estate.

Often, state apportionment laws produce satisfactory results, but in some cases, they may be inconsistent with your wishes.

Avoid surprises

If you ignore tax apportionment when planning your estate, your wealth may not be distributed in the manner you intend. To avoid unpleasant surprises for your beneficiaries, be sure to include an apportionment clause that clearly spells out who will bear the burden of estate taxes. Contact us with any questions regarding taxes or estate planning.

Understanding the contents of a will

Tax Prep, Planning & Strategy|December 10, 2019

You probably don’t have to be told about the need for a will. But do you know what provisions should be included and what’s best to leave out? The answers to those questions depend on your situation and may depend on state law.

Basic provisions

Typically, a will begins with an introductory clause, identifying yourself along with where you reside (city, state, county, etc.). It should also state that this is your official will and replaces any previous wills.

After the introductory clause, a will generally explains how your debts and funeral expenses are to be paid. The provisions for repaying debt generally reflect applicable state laws.

Don’t include specific instructions for funeral arrangements. It’s likely that your will won’t be accessed in time. Spell out your wishes in a letter of instructions, which is an informal letter to your family.

A will may also be used to name a guardian for minor children. To be on the safe side, name a backup in case your initial choice is unable or unwilling to serve as guardian or predeceases you.

Specific bequests

One of the major sections of your will — and the one that usually requires the most introspection — divides up your remaining assets. Outside of your residuary estate, you’ll likely want to make specific bequests of tangible personal property to designated beneficiaries.

If you’re using a trust to transfer property, make sure you identify the property that remains outside the trust, such as furniture and electronic devices. Typically, these items won’t be suitable for inclusion in a trust. If your estate includes real estate, include detailed information about the property and identify the specific beneficiaries.

Once you’ve covered real estate and other tangible property, move on to intangible property, such as cash and securities. Again, you may handle these items through specific bequests where you describe the property the best you can.

Finally, most wills contain a residuary clause. As a result, assets that aren’t otherwise accounted for go to the named beneficiaries, often adult children, grandchildren or a combination of family members.

Naming an executor

Toward the end of the will, name the executor — usually a relative or professional — who is responsible for administering it. Of course, this should be a reputable person whom you trust. Also, include a successor executor if the first choice is unable to perform these duties. Frequently, a professional is used in this backup capacity.

Cross the t’s and dot the i’s

Your attorney will help you meet all the legal obligations for a valid will in the applicable state and keep it up to date. Sign the will, putting your initials on each page, with your signature attested to by witnesses. Include the addresses of the witnesses in case they ever need to be located. Don’t use beneficiaries as witnesses. This could lead to potential conflicts of interest. Contact us with questions.

What’s the difference between the two types of power of attorney?

Tax Prep, Planning & Strategy|December 8, 2019

When drafting your estate plan, you and your attorney must account for what happens to your children and your assets after you die. But your plan must also spell out your wishes for making financial and medical decisions if you’re unable to make those decisions yourself. A crucial component of this plan is the power of attorney (POA).

ABCs of a POA

A POA appoints a trusted representative to make medical or financial decisions on your behalf in the event an accident or illness renders you unconscious or mentally incapacitated. Without it, your loved ones would have to petition a court for guardianship or conservatorship, a costly process that can delay urgent decisions.

POAs in action

A POA is a document under which you, as “principal,” authorize a representative to be your “agent” or “attorney-in-fact,” to act on your behalf. Typically, separate POAs are executed for health care and finances.

A health care POA authorizes your agent — often, a spouse, child or other family member — to make medical decisions on your behalf or consent to or discontinue medical treatment when you’re unable to do so. Depending on the state you live in, the document may also be known as a medical power of attorney or health care proxy. Be aware that a POA for health care is distinguishable from a “living will.”

A POA for property appoints an agent to manage your investments, pay your bills, file tax returns, continue your practice of making annual charitable and family gifts, and otherwise handle your finances, subject to limitations you establish.

To spring or not to spring

Generally, POAs come in two forms: nonspringing, or “durable” — that is, effective immediately — and springing; that is, effective on the occurrence of specified conditions. Typically, springing powers take effect when the principal becomes mentally incapacitated, comatose, or otherwise unable to act for himself or herself.

Nonspringing POAs offer several advantages. Because they’re effective immediately, they allow your agent to act on your behalf for your convenience, not just if you become incapacitated. Also, they avoid the need to make a determination that you’ve become incapacitated, which can result in delays, disputes or even litigation.

A potential disadvantage to a nonspringing POA is the concern that your agent may be tempted to abuse his or her authority or commit fraud.

Given the advantages of a nonspringing POA, and the potential delays associated with a springing POA, it’s usually preferable to use the nonspringing type and to make sure the person you name as agent is someone you trust unconditionally.

If you’re still uncomfortable handing over a POA that takes effect immediately, consider signing a nonspringing POA but have your attorney hold it and deliver it to your agent when needed. Contact us with questions.

A buy-sell agreement can provide the liquidity to cover estate taxes

Tax Prep, Planning & Strategy|December 5, 2019

If you own an interest in a closely held business, it’s critical to have a well-designed, properly funded buy-sell agreement. Without one, an owner’s death can have a negative effect on the surviving owners.

If one of your co-owners dies, for example, you may be forced to go into business with his or her family or other heirs. And if you die, your family’s financial security may depend on your co-owners’ ability to continue operating the business successfully.

Buy-sell agreement and estate taxes

There’s also the question of estate taxes. With the federal gift and estate tax exemption currently at $11.4 million, estate taxes affect fewer people than they once did. But estate taxes can bring about a forced sale of the business if your estate is large enough and your family lacks liquid assets to satisfy the tax liability.

A buy-sell agreement requires (or permits) the company or the remaining owners to buy the interest of an owner who dies, becomes disabled, retires or otherwise leaves the business. It also establishes a valuation mechanism for setting the price and payment terms. In the case of death, the buyout typically is funded by life insurance, which provides a source of liquid funds to purchase the deceased owner’s shares and cover any estate taxes or other expenses.

3 options

Buy-sell agreements typically are structured as one of the following agreements:

Redemption, which permits or requires the business as a whole to repurchase an owner’s interest,
Cross-purchase, which permits or requires the remaining owners of the company to buy the interest, typically on a pro rata basis, or
Hybrid, which combines the two preceding structures. A hybrid agreement, for example, might require a departing owner to first make a sale offer to the company and, if it declines, sell to the remaining individual owners.

Depending on the structure of your business and other factors, the type of agreement you choose may have significant income tax implications. They’ll differ based on whether your company is a flow-through entity or a C corporation. We can help you design a buy-sell agreement that’s right for your business.

To make the most of social media, just “listen”

Nonprofits: How to invest in an investment advisor

Accountable plans save taxes for staffers and their nonprofit employers

Use Capital Losses to Offset Capital Gains

Don’t flood email inboxes with excessive communications

Expanded 529 plans offer unique estate planning benefits

A poorly worded apportionment clause can upend an estate plan

Understanding the contents of a will

What’s the difference between the two types of power of attorney?

A buy-sell agreement can provide the liquidity to cover estate taxes

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