Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Please Note: Our office will be closed Wednesday, April 16th.
Newsbits
How to reach younger donors
A survey of more than 6,500 young people, ages 20 to 35, suggests that one of the most important things you can do to reach them is to make your website easy to read on a mobile device. The Millennium Impact Report 2012, sponsored by the Case Foundation, found that more than three-quarters of respondents own a smartphone, and 79% of those respondents have used the device to connect with a nonprofit, including via Facebook, Twitter, e-mail and e-newsletters.
According to the report, the prominence of smartphone use makes a mobile strategy more critical than ever — in particular, optimizing websites, e-newsletters and solicitations for mobile devices.
About 65% of respondents said they liked to learn about a nonprofit through its website. Respondents also liked to learn about organizations through social media (55%), e-mail newsletters (47%), print (18%) and face-to-face conversations (17%).
Revising financial data on Charity Navigator
If you’ve recently taken a more conservative approach to valuing your corporate product donations (also known as “gifts in kind”), Charity Navigator has established a way to reflect the impact of such changes. The website is allowing charities that adopt a more conservative approach to revise past financial data to be more comparative — avoiding the appearance of dramatic drops in revenues that would trigger concerns about ongoing operations and sustainability.
To revise data, nonprofits must provide Charity Navigator with Form 990 tax returns from past years adjusted to report the groups’ product donations under the new approach. A nonprofit’s audit committee must sign off on the revised financial information, and the nonprofit must post the information on its website.
Some organizations are concerned that restating financial information reported in prior year IRS Form 990 and audited financial statements will raise concern about those filings. Changing valuations based on current conditions or new accounting standards may not be relevant to prior periods and may not result in valid reports. Therefore, some nonprofits are forgoing this option and merely noting information about such changes in their narratives.
Pro bono services needed
The national Pro Bono Readiness Survey, conducted by consultants LBG Associates, finds that 66% of U.S. nonprofits need pro bono services more than any other volunteer work. The survey revealed particular demand for marketing, technology, strategic planning, management, human resources and leadership development services.
But respondents also said making good use of pro bono services is challenging. Hurdles include the inability to sustain project results over the long term without ongoing external support and the lack of strong project planning and time management tools.
Getting a handle on the flow of cash
In a slow economy, many nonprofit leaders worry about having enough money to meet their organizations’ financial obligations each month. But those who effectively monitor their nonprofits’ cash flow can successfully predict when the money coming in will balance with the money going out, when they’ll have a surplus of cash, and when they’ll have a shortage. They can plan — and take actions — accordingly.
What’s cash flow management?
Cash flow management involves analyzing cash inflows and outflows based on the timing of receipts and payments. It’s more than taking your annual budget figures and dividing by 12 to come up with a static, monthly amount — this won’t give you an accurate snapshot of your cash flow.
Take an annual event. If it’s a holiday dinner, costs rise in November and December as you plan, and pay for, the event. Costs also may bump up noticeably in, say, January if you publish an annual membership directory then. In fact, costs can vary significantly from month to month for a variety of reasons — for example, as heating and cooling costs rise and fall or staffing needs change.
Where do you begin?
To begin managing your not-for-profit’s cash flow, create a cash flow report using a simple grid. Along the top, list all 12 months and label them either “actual” or “projected.” Going down the page, create rows for the following information:
Beginning balance. This line shows the amount of cash you had at the start of the month.
Cash coming in. Create line item entries for the largest income categories you’ll have for each specific month. Total all the individual entries to calculate the amount of incoming cash.
Cash going out. Make line item entries for the largest categories of expenses, combining as necessary. Total all individual entries to calculate the amount of outgoing cash.
Net inflow/outflow. Subtract your cash going out from your cash coming in to determine your net inflow or outflow.
Ending balance. Add the beginning balance to the net inflow/outflow number to get an idea of your cash position for each month.
Use historical data in addition to what’s on your calendar for the year ahead to help create your projections. Remember, you’re creating a time-based report, not simply averaging expenses and income over 12 months.
Be realistic about when cash will actually come in. If your big fundraiser is cash-based, you’ll have the money in the month of the event. But if you’re executing a fundraising campaign, donations can come in months after your initial mailings. Reflect that in your projections.
Other information to collect?
To complete your cash flow report, compile a total of your cash on hand and estimates of cash receipts and their due dates. You’ll also need to enter into the report payment amounts and schedules for personnel expenses (including salaries, wage increases, taxes and benefits).
Other data you’ll need includes consulting and professional services fees, occupancy charges (including rent and insurance), and office charges (including telephone service, equipment rental, service contracts and supplies). Last, be sure to include financing costs and all other expense categories (including travel, postage and printing).
Get help, if needed
We can help you devise your cash flow report and review maiden entries. We can walk you through the analysis process to help ensure that your reports are used to your nonprofit’s best advantage. Over time, the ability to successfully project and manage cash flows and positions — along with effectively managing the budget and having sufficient liquidity — will be key to your organization’s viability.
Follow these dos and don’ts to maintain your 501(c)(3) status
Your status with the IRS as a tax-exempt “public charity” gives you significant benefits — paying no federal, state or local income taxes is the most obvious advantage. And the good news doesn’t stop there.
The designation also enables you to receive donations, may qualify you for special grants and government funding, and can entitle you to special rates for services, such as mail delivery. In short, the status better enables your organization to apply its financial resources toward its mission and goals than if it were a for-profit entity.
But keeping your 501(c)(3) status isn’t automatic. Here are some important dos and don’ts to follow if you want to retain the privilege:
The “Dos”
Do comply with reporting obligations. Your nonprofit is required to file some type of IRS Form 990 — Form 990, Form 990-EZ or Form 990-N, depending on the amount of your total annual receipts and total assets — each year. If you fail to do so for three years in a row, your tax-exempt status will be revoked.
If you’re required to file the full Form 990 or Form 990-EZ, be sure to annually complete Schedule A, Part I (“Reason for Public Charity Status”) to identify why you aren’t a private foundation. Check the box that coincides with the reason that you’re a public charity for the current tax year.
You also must file all required payroll tax returns for your employees and 1099 forms for independent contractors, and answer related questions about these workers on your Form 990.
Do maintain the required level of public support. As detailed on Schedule A to the 990, if your nonprofit is primarily supported by a government unit or the general public or is a community trust (Box 5, 7 or 8 on Schedule A, Part I), you’ll also need to pass the public support test on Part II of Schedule A. If your organization is exempt because it receives more than one-third of its support from contributions and activities related to its exempt function, as outlined in IRC Section 509(a)(2), you’ll need to pass the public support test on Part III of Schedule A each year.
Do pay employment taxes and properly withhold from employees’ paychecks. Even though your organization doesn’t pay income taxes, you must still pay applicable employment taxes, such as the employer portion of each employee’s Social Security and Medicare taxes. And you must withhold from your employees’ paychecks the employee portion of employment taxes, as well as federal, state and local income taxes where applicable — and remit the withheld amounts to the appropriate governmental agency.
Do use a formal process to approve compensation. The salaries and benefits you pay your executive director and “key employees” are available to the public on your Form 990 and have been identified as a primary focus of exempt organizations’ audits by the IRS. Even more important than the compensation total is the process you use to determine that the compensation is reasonable and comparable to amounts paid by organizations of similar size and activity. The IRS sees this review and approval as a responsibility of your board of directors or one of its committees.
The “Don’ts”
Don’t operate for the benefit of private interests. No part of a 501(c)(3) organization’s earnings or equity can benefit individuals, such as the organization’s founders, executives or board members — or their family members. Your nonprofit was granted its tax-exempt status to benefit the public, not private parties or interests.
Don’t generate excessive unrelated business income (UBI). UBI is income from a trade or business activity that is regularly carried on and is unrelated to your exempt mission. Although the Internal Revenue Code is silent as to how much is too much, excessive UBI has been interpreted as spending a “significant” amount of time on the unrelated activity.
For example, if an organization has more expenditures for the unrelated activity than program expenses, the IRS likely will consider terminating its exempt status. But courts have considered an organization spending even as little as 10% of its total efforts on a UBI activity to be too much.
Don’t pay more than market rates for goods and services. Ensure you’re using your organization’s resources wisely by getting at least three quotes before purchasing a significant asset or establishing a service contract or a standing order for supplies. If you ever decide to do business with related parties (board members, founders, executives or their businesses), the other quotes will support the “going rate” in your market and show you aren’t providing an excess benefit to the related party.
Should the IRS determine that you’ve provided excess benefits, your organization and its leaders will be subject to penalties as well as the possibility of losing the nonprofit’s exempt status.
Don’t engage in substantial lobbying or any political campaign activities. Two methods can determine whether lobbying activities are “substantial.” One considers the time spent by compensated employees and volunteers on lobbying activities. The other is the expenditure tests.
Your nonprofit can elect to use the latter option — called a 501(h) election — by filing Form 5768. (Churches are ineligible.) The 501(h) election sets a defined limit on the amount of resources an organization can use to influence legislation before losing its exempt status, based on a percentage of its total expenses.
Political campaign activities include making contributions to a political campaign fund or making public statements for or against a candidate (either written or verbal). Participating in any of these activities can result in the IRS either revoking your exempt status or imposing certain excise taxes on your organization.
IRS releases guidance on health care act's "play or pay" provisions
The IRS has issued extensive proposed regulations implementing the employer-shared responsibility provisions, also known as “play or pay,” of the Patient Protection and Affordable Care Act of 2010. The regulations address numerous topics. This article focuses on which employers must provide affordable health coverage, the requirements for such coverage and the penalties for failing to provide it.
Clarification for seniors regarding property tax deferral and exemptions in Colorado
There has been some confusion regarding agreen mailer insert that many of us received with our annual property tax statement. If not read carefully, (both sides), this form can be misleading. So to clarify what programs are available to senior citizens in Colorado, we've highlighted both the property tax deferral and exemption information in this article.
Helpful tools in tracking your refund are getting heavy traffic
On February 14th, the IRS issued a statement that it is experiencing heavy volume on"Where's My Refund?"onirs.govand also the refund feature on theIRS2gophone app, causing delays and service disruptions.
The IRS strongly urges taxpayers to only check on their refunds once a day. IRS systems are only updated once a day, usually overnight, and the same information is available whether on the Internet, IRS2go smartphone app or on IRS toll-free lines.
Here are some tips to help you with your refund questions:
Have your Social Security number, filing status and refund amount ready before using a refund tool.
Only check “Where's My Refund?” once a day as your information will not change.
To avoid system delays, the best time to check on refunds is evening and weekends.
What you should know about identity theft
The IRS reported this month that they have seen a significant increase in refund fraud that involves identity thieves who file false claims for refunds by stealing and using someone's Social Security number. We thought this would be a good time to remind you thatthe IRS does not initiate contact with taxpayers by email. So if you receive such an email soliciting personal or financial information, forward it to the IRS atphishing@irs.gov. For phishing scams by phone, fax or mail, call 1-800-366-4484.
To read IRS Tax Tip,"Ten Things the IRS Wants You to Know About Identity Theft",Click Here.
This alert covers a number of different topics and you may have some questions. Please feel free to contact us by phone at (719) 630-1186 orSecure Emailif we can assist you in any way.
SKR+Co Alert: Employer-owned life insurance, new foreign account rules, & new tax forms!
February 8, 2013
Employers with life insurance contracts on employees, officers and directors, take heed!
We would like to bring to your attention an IRS requirement that many employers have overlooked. If you are an employer with employer-owned life insurance contracts issued after August 17, 2006, you are required by the IRS to report information about this contract on Form 8925. This article will explain the reporting requirements you need to follow.
Final rules on foreign account reporting are released
The U.S. Department of the Treasury and the IRS have issued comprehensive final regulations implementing Foreign Account Tax Compliance Act (FATCA) information reporting provisions. Under the regulations, foreign financial institutions (FFIs) — including foreign banks, brokers, insurance companies and investment funds — must disclose to the IRS certain information about their U.S.-owned accounts. This article reviews the major provisions of the final regulations and the potential impact on individual taxpayers with foreign accounts.
Although the IRS is still in the process of updating some forms and instructions, many are ready to go! On our website, www.skrco.com, click on the tab, Tax Forms, to see and download or print the forms you need this tax season.
If you have any questions, please contact us at (719) 630-1186 or through ourSecure Email.
SKR+Co Alert: 1099 reporting, charitable IRA distributions, late tax season opening and more!
January 24, 2013
Form 1099-related questions on your business tax return
The deadline (January 31) is quickly approaching for businesses to issue Form(s) 1099 when applicable. And this year, the IRS may be looking more closely at how the two questions added to the business tax return are answered. This article explains when Form 1099 must be filed, the due dates and penalties involved, as well as how to file.
Newly revived "charitable IRA rollovers" – Time is running out
The American Taxpayer Relief Act of 2012 (ATRA) revives for 2012 and 2013 the opportunity to make tax-free IRA distributions (up to $100,000 per year) for charitable purposes. If you’re age 70½ or older, you can make a direct contribution from your IRA to a qualified charitable organization without owing any income tax on the distribution. This “charitable IRA rollover” can be used to satisfy required minimum distributions.
To help taxpayers take advantage of the 2012 revival, ATRA allows a charitable rollover made in January 2013 to be treated for tax purposes as if it had been made Dec. 31, 2012. And if you took an IRA distribution in December 2012 and contribute it to charity in January 2013, the “direct contribution” requirement is waived; you can contribute the distribution to a qualified charity in January 2013 and treat it as a 2012 direct contribution, provided the other requirements are met.
New, simplified option for claiming home office deduction
Owners of home-based businesses and home-based workers will have a simpler option to figure the deduction for business use of the home, beginning with the 2013 tax return. The new optional method allows home-based businesses to deduct up to $1,500, based on $5 per square foot and up to 300 square feet. For more information, please read the IRS announcement from January 15, 2013.
Late tax season opening for many, but don't delay!
Due to the late passage of the American Tax Relief Act (ATRA), the Internal Revenue Service announced that it will open tax season for individual filers on January 30th. In addition, many forms are still in the process of being revised and will not be available until a later date. And, you may once again have a delay in receiving your 1099s from your brokerage firm.
That being said, as our clients, we strongly suggest that you not delay in gathering your tax information and sending it in to us to begin preparing the return. Even if you have not yet received everything, there is much that we can do today to get your tax return ready for filing which will make the process much quicker once the forms are ready.
If you have questions about how the filing delays may impact you, please contact us.
Please let us know if we can answer any questions or help in any way. You can contact us at (719) 630-1186 or through ourSecure Email.
SKR+Co Alert: Specific American Taxpayer Relief Act Changes Affecting Individuals & Businesses
January 11, 2013
Last week's e-blast included an overview of the key changes under The American Taxpayer Relief Act of 2012 (ATRA), signed into law Jan. 2, 2013 to address the “fiscal cliff”. This e-blast contains much more detailed information regarding these changes.
Despite some legislative relief, many individuals will see higher taxes in 2013
The American Taxpayer Relief Act of 2012 does, as its name implies, provide substantial tax relief to many taxpayers. But while higher-income taxpayers will enjoy some benefits, they’ll also see some tax increases. This article provides a closer look at ATRA’s most important changes for individuals, along with the tax planning implications.
2013 tax law changes may warrant a review of your estate plan
The ATRA provides substantial estate tax relief compared to the changes that otherwise would have gone into effect in 2013. In addition, it provides increased estate tax law certainty. Nevertheless, ATRA isn’t all positive for estate planning: It increases the estate tax rate compared to the 2012 estate tax law regime. The many changes going into effect in 2013 may warrant an estate plan review. This article details some of the most important changes to consider.
American Taxpayer Relief Act will save taxes for many businesses
The ATRA extends and enhances many breaks for businesses. In particular, it provides incentives for businesses to invest in assets, research and people. This article provides an overview of ATRA’s most important changes for businesses, along with the implications for 2012 tax returns and tax planning for 2013 and beyond.
We've added a Tax Law Change Update to our website that provides an overview of changes resulting from the American Tax Relief Act.
We’ve recently made some major updates to our Web Tax Guide: We added aTax Law Change Update(see above), incorporated updates throughout the guide in light of the ATRA changes, and added information about 2013 exemptions, limits, and thresholds released by the IRS.
Please let us know if you have any questions about these resources, articles, or how the recent tax law changes might affect you. You can contact us at (719) 630-1186 or through our Secure Email.
SKR+Co Alert: Immediate Payroll and Sales Tax Increases & Overview of Just Passed American Tax Relief Act
January 2, 2013
Social Security tax rates go back upandEl Paso County sales tax also increases, effective Jan. 1, 2013
One itemnotincluded in the American Tax Relief Act was an extension of the two percent employee payroll tax cut for social security, implemented in 2010. The rate was 4.2% and will now return to 6.2% on wages earned beginning Jan. 1, 2013. Therefore, employers should make sure their payroll software is updated for the new rate. (QuickBooks, for example, will calculate withholding at the new rate if the Payroll Update is run.)For more information, please click hereor seeIRS Notice 1036.
Additionally, El Paso County's sales tax rate has also increased, effective Jan. 1, 2013. The rate is now 1.23% from the prior rate of 1.00%. Businesses currently charging sales tax need to update their applicable software and their reporting for this new rate.For more information on the new rate, click here.
What the fiscal cliff deal – passage of the American Tax Relief Act (ATRA) – means for you
After much contention and negotiation, President Obama and Congress finally came to agreement on legislation to address the “fiscal cliff.” The American Tax Relief Act (ATRA) prevents income tax rate increases for all but approximately the top 2% of taxpayers. ATRA also extends other income tax breaks for individuals and businesses and addresses the alternative minimum tax (AMT) and the estate tax. This article provides an overview of some of the act’s key tax law changes.
We hope to send you more detailed information regarding how ATRA affects individuals, businesses, and estate planning next week.
Happy New Year!
All of us at Stockman Kast Ryan + CO wish our clients and friends a very happy, healthy, and prosperous 2013. We look forward to helping you achieve your goals this year and for many years to come.
If you would like to contact us for any reason, please feel free to call us at (719) 630-1186 or email us through ourSecure Email. We look forward to serving you!
The IRS provides guidance on additional 0.9% Medicare tax
On Nov. 30, the IRS issued proposed regulations regarding the 0.9% Additional Hospital Insurance Tax on High-Income Taxpayers (commonly referred to as the additional Medicare tax), which takes effect Jan. 1, 2013. This article details how the tax may affect individuals, employers and payroll service providers.
The IRS provides guidance for new 3.8% tax on investment income
Recently, the IRS issued proposed regulations regarding the new 3.8% net investment income tax (NIIT, also known as the Medicare contribution tax) that was created by the Health Care and Education Reconciliation Act of 2010 and takes effect Jan. 1, 2013. This article details what investment income is subject to the tax and how to calculate it.
Incorrect notices sent by the Colorado Department of Revenue
When the Colorado Department of Revenue (CDOR) implemented a new computer system recently, it created mismatches in information. As a result, numerous notices have been generated, many of which are incorrect.
Many of you have called and are concerned because you received a tax notice from CDOR. We're seeing notices disallowing Enterprise Zone credits, credit for taxes paid to another state, Colorado Source capital gains, some issues related to withholding from your W-2, as well as other situations.
Be careful not to jump to conclusions because in most cases, the information filed with CDOR was correct. However, it sometimes costs more to contest the notice than to simply let the credit be disallowed, for example.
If you receive such a notice, call your tax accountant and let us help you determine the facts and what action, if any, should be taken in your specific situation.
2012 Gift tax annual exclusion: Use it or lose it
The 2012 gift tax annual exclusion allows you to give up to $13,000 per recipient tax-free without using up any of your lifetime gift tax exemption. If you and your spouse “split” the gift, you can give $26,000 per recipient. The exclusion is scheduled to increase to $14,000 ($28,000 for split gifts) in 2013.
The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can avoid gift and estate taxes.
But you need to use your 2012 exclusion by Dec. 31 or you’ll lose it. The exclusion doesn’t carry from one year to the next. For example, if you don’t make an annual exclusion gift to your grandson this year, you can’t add $13,000 to your 2013 exclusion to make a $27,000 tax-free gift to him next year.
Year-End Tax Planning
With so much uncertainty regarding taxes and the fiscal cliff, now is a great time to come in and talk through the issues that affect your situation.
Donating Appreciated Property to Charity
The tax law imposes stringent requirements for deducting charitable gifts of property. The rules are especially tough when donating appreciated property. If taxpayers don’t observe all of them, the tax deduction may be reduced or even eliminated.A recent U.S. Tax Court case dramatically illustrates this point. This article discusses the tax benefits of donating appreciated property to charity and details the case of Mohamed v. Commissioner.
Beginning on Jan. 1, 2013, the standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes will be:
56.5 cents per mile for business miles driven.
24 cents per mile driven for medical or moving purposes.
14 cents per mile driven in service of charitable organizations.
We welcome the opportunity to talk with you about your specific needs or to answer your questions, You can contact us at (719) 630-1186 or through our Secure Email.
The SKRCO Nonprofit Newsletter November 2012
The value of donated property is in the eye of the marketplace
Nonprofits often struggle with valuing noncash and in-kind donations, including the value of houses or other buildings. Although the amount that a donor can deduct generally is based on the donation's fair market value (FMV), there's no single formula for calculating FMV for every type of gift. This article discusses the basics of FMV, along with three FMV factors the IRS regards as particularly relevant. A sidebar explains when donors need to seek an appraisal.
Employee vs. independent contractors –Classify your workers per IRS guidelines
The IRS has publicly stated it plans to crack down on organizations that improperly classify workers as independent contractors instead of employees. This article details the steps one must take to be sure that employee classifications stand up to IRS scrutiny. It explains the difference between an employee and an independent contractor, how to determine the status of current workers, and what to do if violations have been committed.
Are you covered? – Internal controls fight technology-related fraud
The ability to accept and make online payments and maintain databases with detailed profiles of constituents offers obvious benefits to nonprofits under constant time and money pressures. But it may also be subject to fraud attempts that can dodge traditional internal controls. This article discusses measures that are available to combat these risks. In particular, it shows how to prevent fraud when making or accepting online payments and explains how to protect cardholders' privacy.
In this issue, "Newsbits" takes a quick look at the costs vs. the benefits for a nonprofit in having social media fans; Financial Accounting Standards Board (FASB) projects regarding nonprofits' financial statements and financial communications; and a study showing that dual-channel donors (those who give both online and offline) have the highest annual donor value.
