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Monthly Archives: December 2018

Financial best practices for religious congregations

Erin Mirante1 Comment

Churches, synagogues, mosques and other religious congregations aren’t required to file tax returns, so they might not regularly hire independent accountants. But regardless of size, religious organizations often are subject to other requirements, such as paying unrelated business income tax (UBIT) and properly classifying employees.

Without the oversight of tax authorities or outside accountants, religious leaders may not be aware of all requirements to which they’re subject. This can leave their organizations vulnerable to fraud and its trustees and employees subject to liabilities.

Common vulnerabilities

To effectively prevent financial and other critical mistakes, make sure your religious congregation complies with IRS rules and federal and state laws. In particular, pay attention to:

Employee classification. Determine which workers in your organization are full-time employees and which are independent contractors. Depending on many factors, such as the amount of control your organization has over them, their responsibilities, and their form of compensation, individuals you consider independent contractors may need to be reclassified as employees.

Clergy wages. Most clergy should be treated as employees and receive W-2 forms. Typically, they’re exempt from Social Security taxes, Medicare taxes and federal withholding but are subject to self-employment tax on wages. A parsonage (or rental) allowance can reduce income tax, but not self-employment tax.

UBIT. If your organization regularly engages in any type of business activity that’s unrelated to its religious mission, be aware of certain tax and reporting rules. Income from such activities could be subject to UBIT.

Lobbying. Your organization shouldn’t devote a substantial part of its activities in attempting to influence legislation. Otherwise you might risk your tax-exempt status and face potential penalties.

Trust and protect

Faith groups can be particularly vulnerable to fraud because they generally foster an environment of trust. Also, their leaders may be reluctant to punish offenders. Just keep in mind that even the most devout and long-standing members of your congregation are capable of embezzlement when faced with extreme circumstances.

To ensure employees and volunteers can’t help themselves to collections, require that at least two people handle all contributions. They should count cash in a secure area and verify the contents of offering envelopes. Next, they should document their collection activity in a signed report. For greater security, encourage your members to make electronic payments on your website or sign up for automatic bank account deductions.

Seek expertise

Although your congregation is subject to less IRS scrutiny than even your fellow nonprofit organizations, that doesn’t mean you can afford to ignore financial best practices. Contact us for help.

Fringe benefits: Long-term care insurance can pay off

Erin Mirante0 Comment

The U.S. population is aging and, as it does, the need for long-term support and services will only grow. According to a 2017 fact sheet from the AARP Public Policy Institute, on average, 52% of people who turn 65 today will develop a severe disability that will require long-term care (LTC) at some point. For this reason, among others, employers should consider offering LTC insurance as a fringe benefit.

High cost of care

LTC insurance helps covered individuals pay for the care they need because of a severe cognitive impairment or if they need assistance with activities of daily living (ADLs), including bathing, dressing, toileting and eating. They might require assistance because of an accident, disability, chronic illness or aging.

The costs associated with such care have skyrocketed. AARP reports that the average annual cost of a private room in a nursing home in 2016 was about $92,000, with a shared room costing around $82,000 annually.

The average cost for a home health aide in 2016 was $20 per hour. With the average aide working about 30 hours per week, that came out to $31,000 per year. And, to the surprise of many, Medicare doesn’t pay anything for LTC, whether in-home or at a facility.

Purchase considerations

LTC insurance isn’t cheap. But by buying the insurance on a group basis, you may be able to obtain a discount from the individual policy rates.

You also might qualify for a guaranteed issue plan that provides coverage regardless of health status and need — meaning employees who might not be able to get coverage on their own would now have one less thing to worry about.

From a tax perspective, you can claim a deduction for the premiums you pay, and neither the premiums nor the benefits are taxable for the employee.

Employer benefits

The positive impact of offering LTC insurance can play out over the long term. First, a fringe benefit like this can draw better job candidates who are looking for more than just basic health care coverage. It might help you retain employees as well — especially those who are already looking toward retirement and beyond.

Think about extending LTC insurance to employees’ family members, too. As AARP notes, unpaid family and friends provide most LTC support, often incurring direct costs as well as lost wages and benefits. Employees providing caregiving could be forced to cut their work hours, take easier positions or quit work altogether.

By providing coverage for their family members, you could reduce the caregiving burden on your employees, relieving stress on them — and probably reaping productivity gains to boot.

A worthy consideration

Not every employer will have room in its benefits budget to buy LTC coverage. But if you’re looking to upgrade your fringe benefits, this is one perk that’s well worth considering. To discuss further, please contact us.

© 2018

3 under-the-radar aspects of payroll recordkeeping

Erin Mirante0 Comment

The phrase “payroll recordkeeping” may conjure images of paystubs and W-4s. But there are other aspects that often fly under the radar and lead to administrative slip-ups. Here are three examples.

1. Fringe benefit records

The tax code provides an explicit recordkeeping requirement for employers with enumerated fringe benefit plans, such as:

  • Health insurance,
  • Cafeteria plans,
  • Educational assistance,
  • Adoption assistance, and
  • Dependent care assistance.

You’re required to keep whatever records are needed to determine whether the plan meets the requirements for excluding the benefit amounts from employees’ taxable income.

Tax code provisions regarding fringe benefit records don’t specify how long records pertaining to fringe benefits should be kept. Presumably, they’re subject to the four-year rule that’s widely applicable to payroll recordkeeping. Thus, you should retain them for at least four years after the due date of any federal income, Social Security and Medicare taxes for the return period to which the records relate or the date such tax is paid, whichever is later.

Caution: To the extent that any fringe benefit records must also comply with ERISA Title I, a longer retention period of six years applies.

2. Unemployment tax records

The Federal Unemployment Tax Act (FUTA) requires employers to retain records relating to compensation earned and unemployment contributions made. Such records must be retained for four years after the due date of the Form 940, “Employer’s Annual Federal Unemployment Tax Return,” or the date the required FUTA tax was paid, whichever is later.

In addition, be sure to retain records substantiating:

  • The total amount of employee compensation paid during the calendar year,
  • The amount of compensation subject to FUTA tax,
  • State unemployment contributions made, with separate totals for amounts paid by the employer and amounts withheld from employees’ wages,
  • All information shown on Form 940 (with Schedule A and/or R as applicable), and
  • If applicable, the reason why total compensation and the taxable amounts are different.

Remember, record retention requirements are also set by the federal Department of Labor and state wage-hour and unemployment insurance agencies.

3. IRS informational returns

The Affordable Care Act (ACA) requires certain employers to file informational returns with the IRS — namely, Forms 1094-B, 1095-B, 1094-C, and 1095-C.

The B Forms are filed by minimum essential coverage providers (some self-insuring employers) to report coverage information. Meanwhile, the C Forms are filed by applicable large employers to provide information that the IRS needs to administer employer shared responsibility under the ACA, as well as receipt of premium tax credits. (Forms 1095-B and 1095-C are also furnished to individuals.) Retain these forms for at least three years from the reporting due date.

Also retain information returns and employer statements to employees on tip allocations for at least three years after the due date of the return or statement to which they relate.

Complex task

Paying employees is a complex task on its own; naturally, the recordkeeping involved can be challenging as well. Our firm can offer further assistance.

© 2018

Estimates vs. actuals: Was your 2018 budget reasonable?

Erin Mirante0 Comment

As the year winds down, business owners can be thankful for the gift of perspective (among other things, we hope). Assuming you created a budget for the calendar year, you should now be able to accurately assess that budget by comparing its estimates to actual results. Your objective is to determine whether your budget was reasonable, and, if not, how to adjust it to be more accurate for 2019.

Identify notable changes

Your estimates, like those of many companies, probably start with historical financial statements. From there, you may simply apply an expected growth rate to annual revenues and let it flow through the remaining income statement and balance sheet items. For some businesses, this simplified approach works well. But future performance can’t always be expected to mirror historical results.

For example, suppose you renegotiated a contract with a major supplier during the year. The new contract may have affected direct costs and profit margins. So, what was reasonable at the beginning of the year may be less so now and require adjustments when you draft your 2019 budget.

Often, a business can’t maintain its current growth rate indefinitely without investing in additional assets or incurring further fixed costs. As you compare your 2018 estimates to actuals, and look at 2019, consider whether your company is planning to:

• Build a new plant,

• Buy a major piece of equipment,

• Hire more workers, or

• Rent additional space.

External and internal factors — such as regulatory changes, product obsolescence, and in-process research and development — also may require specialized adjustments to your 2019 budget to keep it reasonable.

Find the best way to track

The most analytical way to gauge reasonableness is to generate year-end financials and then compare the results to what was previously budgeted. Are you on track to meet those estimates? If not, identify the causes and factor them into a revised budget for next year.

If you discover that your actuals are significantly different from your estimates — and if this takes you by surprise — you should consider producing interim financials next year. Some businesses feel overwhelmed trying to prepare a complete set of financials every month. So, you might opt for short-term cash reports, which highlight the sources and uses of cash during the period. These cash forecasts can serve as an early warning system for “budget killers,” such as unexpected increases in direct costs or delinquent accounts.

Alternatively, many companies create 12-month rolling budgets — which typically mirror historical financial statements — and update them monthly to reflect the latest market conditions.

Do it all

The budgeting process is rarely easy, but it’s incredibly important. And that process doesn’t end when you create the budget; checking it regularly and performing a year-end assessment are key. We can help you not only generate a workable budget, but also identify the best ways to monitor