All posts by Pam Williams

How the New Tax Law Affects State Income Taxes

01_05_18_139882791_ftnp_560x292_1.jpgHow will the new tax law affect state income taxes? The Tax Cuts and Jobs Act, signed into law on Dec. 22, 2017, is a major revamping of federal taxes but it also could have sweeping effects on your state taxes. To name a few, most states use the federal system to calculate state taxable income, so you may see your state income tax liability change. New limits on the federal state and local tax deduction may indirectly impact individuals at the state level, especially in high tax areas. States will have to decide whether to conform with new federal tax rules.

If you have additional questions, please contact our office.  We will be happy to help you!

Valuing and reporting gifts in kind and donated services

Not-for-profit organizations don’t receive only cash donations. Your support also likely comes in the form of gifts in kind and donated services. But even when such gifts are welcome, it can be challenging to determine how to recognize and assign value to them for financial reporting purposes.

Recording gifts in kind

Gifts in kind generally are pieces of tangible property or property rights. They may take many forms, including:

• Free or discounted use of facilities,
• Free advertising,
• Collections, such as artwork to display, and
• Property, such as office furniture or supplies.

To record gifts in kind, determine whether the item can be used to carry out your mission or sold to fund operations. In other words, does it have a value to your nonprofit? If so, it should be recorded as a donation and a related receivable once it’s unconditionally pledged to your organization.

To value the gift, assess its fair value — or what your organization would pay to buy it from an unrelated third party. In many cases it’s easy to assign a fair value to property, but when the gift is a collection or something that doesn’t otherwise have a readily determinable market value, its fair value is more difficult to assign. For smaller gifts, you may need to rely on a good faith estimate from the donor. But if the value is more than $5,000, the donor must obtain an independent appraisal for tax purposes, which will give you documentation for your records.

Recognizing donated services

The fair value of a donated service should be recognized if it meets one of two criteria:

1. The service creates or enhances a nonfinancial asset. Such services are capitalized at fair value on the date of the donation. These types of services either create a nonfinancial asset (in other words, a tangible asset) or add value to an asset that already exists.

2. The service requires specialized skills, is provided by persons with those skills and would have been purchased if it hadn’t been donated. These services are accounted for by recording contribution income for the fair value of the service provided. You also must record it as a related expense, in the same amount, for the professional service provided.

Beyond the basics

These are only basic guidelines to recognizing and valuing gifts in kind and donated services. For more comprehensive information about handling these gifts, contact us.

Upcoming Deadline for Wage Statements and Independent Contractor Forms

01_04_18_810117502_ftnp_560x292_2.jpgBusinesses: Don’t forget the upcoming deadline for wage statements and independent contractor forms. Employers are required to file their copies of Form W-2 and Form W-3 with the Social Security Administration by Jan. 31. This deadline also applies to certain Forms 1099-MISC filed with the IRS to report nonemployee payments to independent contractors. An extension of time to file is no longer automatic, and the IRS will only grant extensions for very specific reasons. “Failure to file these forms correctly and timely may result in penalties,” the IRS stated.

If you have any questions on how to file these forms, contact Langdon & Company today!

How long should you retain payroll records?

Employers must exert a certain amount of time and resources to properly retaining their income tax records. But these aren’t the only documents you need to maintain. Retention of your organization’s payroll records is also important.

Rule of thumb

Most employers must withhold federal income, Social Security and Medicare taxes from their employees’ paychecks. As such, you must keep records relating to these taxes for at least four years after the due date of an employee’s personal income tax return (generally, April 15) for the year in which the payment was made. This is often referred to as the “records-in-general rule.”

These records include your Employer Identification Number, as well as your employees’ names, addresses, occupations and Social Security numbers. You should also keep for four years the total amounts and dates of payments of compensation and amounts withheld for taxes or otherwise ― including reported tips and the fair market value of noncash payments.

It’s also important to track and retain the compensation amounts subject to withholding for federal income, Social Security and Medicare taxes, and the corresponding amounts withheld for each tax (and the date withheld if withholding occurred on a day different from the payment date). Where applicable, note the reason(s) why total compensation and taxable amount for each tax rate are different.

Other data and documents

A variety of other data and documents fall under the records-in-general rule. Examples include:

• The pay period covered by each payment of compensation,
• The employee’s Form W-4, “Employee’s Withholding Allowance Certificate,”
• Each employee’s beginning and ending dates of employment,
• Statements provided by employees reporting tips received,
• Fringe benefits provided to employees and any required substantiation,
• Adjustments or settlements of taxes, and
• Amounts and dates of tax deposits.

Follow the rule, too, for records relating to wage continuation payments made to employees by the employer or third party under an accident or health plan. Such records should include the beginning and ending dates of the period of absence, and the amount and weekly rate of each payment (including payments made by third parties). Also keep copies of each employee’s Form W-4S, “Request for Federal Income Tax Withholding From Sick Pay,” and, where applicable, copies of Form 8922, “Third-Party Sick Pay Recap.”

Simple rule, complex info

As you can see, the records-in-general rule is fairly simple, but the various forms and types of information involved are complex. Please contact our firm for assistance in managing the financial aspects of your role as an employer.

“Innocent Spouse Relief”

01_04_18_462235785_ftnp_560x292_1.jpgAn ex-wife gets no tax relief. In general, married taxpayers who file a joint tax return are “jointly and severally liable” for the tax due on the return. However, spouses may be eligible for “innocent spouse” relief if they can prove they didn’t know about an understatement of tax. In one case, a married couple filed a joint return and later divorced. The U.S. Tax Court ruled the ex-wife wasn’t entitled to innocent spouse relief with respect to two sources of income earned by the ex-husband because she was aware he had received 1099 forms. (TC Summ. Op. 2017-95)

When are education expenses deductible?

Education expenses may be deductible, but not if the education is needed as a minimum requirement of the taxpayer’s current job, or if it qualifies him or her for a new profession. In one case, a taxpayer was hired as a speech pathologist, but she didn’t have the required master’s degree. After obtaining that degree, she deducted the costs on her tax return, but the IRS disallowed the deductions. The U.S. Tax Court agreed, because the degree was needed to meet the minimum requirements of her job and also qualified her for a new profession. (TC Summary Op 2017-93)

Withholding guidance for Employers

Employers: Withholding guidance coming soon. With the new tax law now in place, Form W-4 will need to be substantially revised. On Dec. 26, the IRS announced it is working on withholding guidance and anticipates issuing it this month. Employers and payroll companies will be encouraged to implement the changes in Feb. The IRS stated the information will be designed to work with W-4 forms already filed. Use of the new withholding tables will allow employees to see changes in their paychecks as early as Feb. Until then, employers should continue using 2017 tables.

Charitable Solicitation License Refresher

By Rebecca Lunn

In the nonprofit arena, charitable solicitation licenses are a necessity for certain fundraising efforts. If you are an organization or individual that asks the public for contributions or donations to support a charitable purpose, a charitable solicitation license (“CSL”) is needed, unless specifically exempt by law. As many states have laws regulating the solicitation of funds for charitable purposes, it is important to check the requirements for each state your organization operates in to ensure compliance.

For organizations based in North Carolina whom are currently registered with the NC Secretary of State (SoS) Charities Bureau, keep in mind the following renewal requirements:

·       The NC SoS notifies by mail all organizations who already hold licenses 65 days prior to their annual renewal date of the renewal requirements.  Typically, each organization files its own CSL renewal directly with the NC SoS.

·       The NC SoS has published on its website that all organizations who have a current CSL should disclose its licensure status, such as including a statement with the following wording on all solicitations: “Financial information about this organization and a copy of its license are available from the State Solicitation Licensing Branch at 919-807-2214 or 888-830-4989 for NC Residents.”

·       Licenses are generally due 4 ½ months following the fiscal year-end date of the organization; however, all organizations in “current” standing with the NC SoS receive a 60-day extension without having to request it.  For example, a calendar year organization in current standing has a CSL renewal due date of July 15th in reliance on the automatic 60-day extension.  Absent current standing status, an organization will be subject to late filing penalties upon its eventual updating of its record with the NC SoS.

·       If more time is needed to file the CSL renewal, an additional 30-day extension is available to the organization by filing a copy of the Federal Form 8868 (extension for IRS Form 990) prior to the expiration of the automatic 60-day extension.  As a result, a calendar-year organization may, by timely-filed request, extend the period of time for CSL renewal to August 15th.

·       When the CSL renewal is actually prepared, organizations must comply with the annual financial disclosure requirements via submission of one of the following: (1) a copy of the duly executed Form 990, (2) copy of the Audited Financial Statements, or (3) completing a NC SoS “Annual Financial Report” signed by 3 members of the organization’s board of directors, finance committee or audit committee. 

If you are an organization who needs assistance or has additional questions on the Charitable Solicitation License requirements or renewal process, our accounting professionals at Langdon & Company would be glad to assist. Please contact us at 919-662-1001 for further information.

Also, for further information specific to the North Carolina filing requirements, please visit https://www.sosnc.gov/csl/ThePage.aspx. 

Rebecca [email protected] is an Audit Senior who works primarily with non-profit organizations.

Update: NC Adult Care Home Cost Reports

The NC Department of Health and Human Services released a memo dated May 15, 2017 detailing the official instructions for Adult Care Home reporting requirements as well as the release of Agreed-Upon-Procedures (AUP) instructions. As of November 21, 2016, the Cost Report for Adult Care Homes was reinstated with the significant change being reporting is only every two years, beginning this year.

To comply with these requirements all facilities that receive State/County Special Assistance funds are required to file a cost report. Those facilities that have more than 7 beds are additionally expected to have Agreed-Upon-Procedures performed.  The cost reports will be completed using the latest completed fiscal year end. These cost reports are due – September 30, 2017!

As an advocate for providers we are flexible in the midst of inconvenient legislation and would be happy to serve your Organization as well. If you have questions, please contact [email protected] or [email protected]!

https://www2.ncdhhs.gov/control/acf/2016-17/aup/adult-care-mental-health-faciliites.pdf

 

 

 

 

What Can We Do For You?

By Lee Byrd

Small business owners and nonprofit executives often wear many hats while managing their organization. Whether it’s day-to-day accounting or oversight of an internal accounting department, an accounting firm offers many services that will allow you to focus on the core strategies of your business. Here at Langdon & Company LLP, we offer a wide range of services from basic bookkeeping to acting in a CFO role to financial statement audits and tax return preparation. Often times you will find that the cost of hiring an accounting firm to perform these services is less than hiring an employee.

Bookkeeping Services

Many small organizations do not have the need or financial resources to hire a full-time employee to perform the day-to-day bookkeeping tasks. In such caserviceses, it may be helpful to seek the aid of an accounting firm that can provide services such as accounts payable and receivable, billing, payroll, bank reconciliations, general ledger entries and monthly financial reports. You will gain the knowledge of an experienced bookkeeper with access to CPAs within the firm at a cost effective rate.

CFO Services

Do you need the expertise of a Chief Financial Officer but can’t bear to add such a salary to your already tight budget? A CPA firm can offer the expertise of a CFO in tasks such as creating budgets, preparing financial statements, analysis of financial data, or review of your organization’s internal accounting personnel offering a greater segregation of duties. These services can be provided on a periodic basis, such as monthly or quarterly, or on a project by project basis, as needed throughout the year.

Audit and Attest Services

Whether it is at the request of a lender or required by the organization’s by-laws, many organizations feel the need for a higher level of review of the financial statements. CPA firms offer attest services that will provide the level of assurance needed. An Audit provides the highest level of assurance that the finaauditncial statements are free from material misstatement and includes the auditor obtaining an understanding of the client’s internal controls and assessing fraud risks. An audit is also the most costly level of attest service. While less costly, a Review is substantially narrower in scope than an audit and provides only limited assurance. A review consists mostly of inquiry and analytical procedures. If the audit or review services do not meet the needs of the organization, CPA firms also offer Agreed Upon Procedure (AUP) services. An AUP is an engagement in which an auditor is engaged to carry out procedures of an audit nature to which the auditor, the client, and any appropriate third party have agreed and to report on factual findings.

Tax and Consulting

In addition to day-to-day booking or more extensive oversight services, accounting firms also advise clients on financial strategies, such as lowering tax burdens, providing suggestions on a business plan, or suggestions on the most effective way to comply with third party regulations. CPAs can also assist with the preparation of state and federal tax returns.

Langdon & Company LLP is a full-service CPA firm committed to providing quality customer service in the highest professional manner. Contact us to see how we can help you!

Lee ([email protected]) is an Audit Manager with Langdon & Company LLP. She works with many not-for-profit and healthcare organizations.