All posts by Rachel Owens

Does your nonprofit properly report donations?


Your not-for-profit probably already ensures that donors receive a receipt with information about claiming a charitable contribution deduction on their tax return. But your obligations may go further than that. For noncash donations, you might have responsibilities related to certain tax forms.

Form 8283 for donors

When filing their tax returns, donors must attach Section A of Form 8283, “Noncash Charitable Contributions,” if the amount of their deduction for all noncash gifts is more than $500. Only when a single noncash contribution is greater than $5,000 does the donor need to complete Section B, which must be signed by an official of the organization receiving the donation or another person designated by that official. When you return a Schedule B to a donor, the donor should provide you with a full copy of Form 8283.

Donors usually must obtain an appraisal for donated property over $5,000. However, your official’s signature on Section B doesn’t represent concurrence with the appraised value of a donation. It merely acknowledges receipt of the described property on the date specified on the form.

Form 8282 for nonprofits

Your organization generally needs to file Form 8282, “Donee Information Return,” with the IRS if you sell, exchange or otherwise dispose of a donated item within three years of receiving the donation. File the form within 125 days of the disposition unless:

• The item was valued at $500 or less at the time of the original donation, or

• The item was consumed or distributed without compensation in furtherance of your exempt purpose. For example, a relief organization that distributes donated medical supplies while aiding disaster victims isn’t required to file Form 8282.

You also must provide a copy of Form 8282 to the donor. When a donated item is transferred from one nonprofit to another within three years, the transferring organization must provide the successor with its name, address and tax identification number, a copy of the Form 8283 it received from the original donor, and a copy of the Form 8282 within 15 days after filing with the IRS.

Avoidable consequences

Failing to file required forms can lead to IRS penalties. While your organization may be excused if you show the failure was due to reasonable cause, your donor still stands to lose the tax deduction — a result neither of you want. Contact us if you have questions.

© 2018

Do your employees a favor and remind them about their W-4s


Employees don’t always fill out their W-4 forms accurately. For example, some may wrongly write “exempt” on the withholding portion of the form to ensure that no federal or state tax is withheld. Others may be inadvertently underwithholding because of recent tax law changes.

Although the employees themselves are liable for improperly completing their W-4s, you can do them a favor by reminding them of possible mistakes. After all, the IRS may eventually come calling on your organization if someone appears to be underwithholding.

Key questions

Here are some questions to ask when determining whether an employee can legitimately claim to be exempt from withholding:

Did the employee have a tax liability in the previous year? If the employee received a refund of all federal income tax paid (or had a right to a refund), he or she may be able to claim exempt status, depending on the answer to the next question.

Does the employee expect to have a tax liability this year? To legitimately claim to be exempt, the employee must be able to state that he or she had no tax liability last year and doesn’t expect to have a tax liability this year.

Also, an “exempt” W-4 is valid for only one year and expires in February of the following year. If your payroll includes employees who claim to be exempt, require them to fill out new W-4 forms annually.

TCJA impact

Because of the many changes wrought by the Tax Cuts and Jobs Act (TCJA), and as you’re likely aware, earlier this year the IRS issued new withholding tables — and withholding amounts have generally dropped. The new tables are intended to work with current W-4 forms. However, just because you’re correctly following the withholding tables for an employee doesn’t mean the employee isn’t having too little (or too much) tax withheld.

Remind all employees that they should use the new IRS calculator (available at irs.gov) to determine whether the appropriate amount is being withheld. If it isn’t, they should submit a new W-4 to you to adjust their withholding. Employees who may be at risk for underwithholding include those who itemize deductions, who hold multiple jobs, or who have dependents age 17 or older.

More changes ahead

IRS Form W-4 is currently in a bit of a state of flux. A new version of the form is expected for 2019 that more clearly reflects the TCJA’s provisions. Some of the applicable rules for filing the form could change along with it. Our firm can keep you apprised of the latest news affecting W-4s and help you gather and verify the right information.

© 2018

Knowing whether income is sponsorship or advertising


Many not-for-profits supplement their usual income-producing activities with sponsorships or advertising programs. Although you’re allowed to receive such payments, they’re subject to unrelated business income tax (UBIT) unless the activities are substantially related to your organization’s tax-exempt purpose or qualify for another exemption. So it’s important to understand the possible tax implications of income from sponsorships and advertising.

What is sponsorship?

Qualified sponsorship payments are made by a person (a sponsor) engaged in a trade or business with no arrangement to receive, or expectation of receiving, any substantial benefit from the nonprofit in return for the payment. Sponsorship dollars aren’t taxed. The IRS allows exempt organizations to use information that’s an established part of a sponsor’s identity, such as logos, slogans, locations, telephone numbers and URLs.

There are some exceptions. For example, if the payment amount is contingent upon the level of attendance at an event, broadcast ratings or other factors indicating the quantity of public exposure received, the IRS doesn’t consider it a sponsorship.

Providing facilities, services or other privileges to a sponsor — such as complimentary tickets or admission to golf tournaments — doesn’t automatically disallow a payment from being a qualified sponsorship payment. Generally, if the privileges provided aren’t what the IRS considers a “substantial benefit” or if providing them is a related business activity, the payments won’t be subject to UBIT. But when services or privileges provided by an exempt organization to a sponsor are deemed to be substantial, part or all of the sponsorship payment may be taxable.

What is advertising?

Payment for advertising a sponsor’s products or services is considered unrelated business income, so it’s subject to tax. According to the IRS, advertising includes:

• Messages containing qualitative or comparative language, price information or other indications of value, • Endorsements, and • Inducements to buy, sell or use products or services.

Activities often are misclassified as advertising. Using logos or slogans that are an established part of a sponsor’s identity is not, by itself, advertising. And if your nonprofit distributes or displays a sponsor’s product at an event, whether for free or remuneration, it’s considered use or acknowledgment, not advertising.

Complex rules

The rules pertaining to qualified sponsorships, advertising and unrelated business income are complex and contain numerous exceptions and situation-specific determinations. Contact us with questions.

© 2018

Cost control takes a total team effort

“That’s just the cost of doing business.” You’ve probably heard this expression many times. It’s true that, to invoke another cliché, you’ve got to spend money to make money. But that doesn’t mean you have to take rising operational costs sitting down.

Cost control is a formal management technique through which you evaluate your company’s operations and isolate activities costing you too much money. This isn’t something you can do on your own — you’ll need a total team effort from your managers and advisors. Done properly, however, the results can be well worth it.

Asking tough questions

While performing a systematic review of the operations and resources, cost control will drive you to ask some tough questions. Examples include the following:

• Is the activity in question operating as efficiently as possible?
• Are we paying reasonable prices for supplies or materials while maintaining quality?
• Can we upgrade our technology to minimize labor costs?

A good way to determine whether your company’s expenses are remaining within reason is to compare them to current industry benchmarks.

Working with your team

There’s no way around it — cost-control programs take a lot of hard work. Reducing expenses in a lasting, meaningful way also requires creativity and imagination. It’s one thing to declare, “We must reduce shipping costs by 10%!” Getting it done (and keeping it done) is another matter.

The first thing you’ll need is cooperation from management and staff. Business success is about teamwork; no single owner or manager can do it alone.

In addition, best-in-class companies typically seek help from trusted advisors. An outside expert can analyze your efficiency, including the results of cost-control efforts. This not only brings a new viewpoint to the process, but also provides an objective review of your internal processes.

Sometimes it’s difficult to be impartial when you manage a business every single day. Professional analysts can take a broader view of operations, resulting in improved cost-control strategies.

Staying in the game

An effective, ongoing program to assess and contain expenses can help you prevent both gradual and sudden financial losses while staying competitive in your market. For further information about cost control, and customized help succeeding at it, contact Langdon & Company LLP today!

© 2018

Accounting for pledges isn’t as simple as it might seem

When a donor promises to make a contribution at a later date, your not-for-profit likely welcomes it. But such pledges can come with complicated accounting issues.

Conditional vs. unconditional

Let’s say a donor makes a pledge in April 2018 to contribute $10,000 in January 2019. You generally will create a pledge receivable and recognize the revenue for the April 2018 financial period. When the payment is received in January 2019, you’ll apply it to the receivable. No new revenue will result in January because the revenue already was recorded.

Of course, you can’t recognize the revenue unless the donor has made a firm commitment and the pledge is unconditional. Several factors might indicate an unconditional pledge. For example:

• The promise includes a fixed payment schedule.
• The promise includes words such as “pledge,” “binding” and “agree.”
• The amount of the promise can be determined.

Conditional promises, on the other hand, could include a requirement that your organization complete a particular project before receiving the contribution or that you send a representative to an event to receive the check in person. Matching pledges are conditional until the matching requirement is satisfied, and bequests are conditional until after the donor’s death.

You generally shouldn’t recognize revenue on conditional promises until the conditions have been met. Your accounting department will require written documentation to support a pledge before recording it, such as a signed agreement that clearly details all of the terms of the pledge, including the amount and timing.

Applying discounts

Pledges must be recognized at their present value, as opposed to the amount you expect to receive in the future. For a pledge that you’ll receive within a year, you can recognize the pledged amount as the present value. If the pledge will be received further in the future, though, your accounting department will need to calculate present value by applying a discount rate to the amount you expect to receive.

The discount rate is usually the market interest rate, or the interest rate a bank would charge you to borrow the amount of the pledge. Additional entries will be required to remove the discount as time elapses.

Word of caution

Proper accounting for pledge receivables can be tricky. But if you don’t record them in the right financial period, you could run into audit issues and even put your funding in jeopardy. Contact us for help.

© 2018

Manage health benefits costs with a multipronged approach

Many companies offer health care benefits to help ensure employee wellness and compete for better job candidates. And the Affordable Care Act has been using both carrots and sticks (depending on employer size) to encourage businesses to offer health coverage.

If you sponsor a health care plan, you know this is no small investment. It may seem next to impossible to control rising plan costs, which are subject to a variety of factors beyond your control. But the truth is, all business owners can control at least a portion of their health care expenses. The trick is taking a multipronged approach — here are some ideas:

Interact with employees to find the best fit. The ideal size and shape of your plan depends on the needs of your workforce. Rather than relying exclusively on vendor-provided materials, actively manage communications with employees regarding health care costs and other topics. Determine which benefits are truly valued and which ones aren’t.

Use metrics. Business owners can apply analytics to just about everything these days, including health care coverage. Measure the financial impacts of gaps between benefits offered and those employees actually use. Then appropriately adjust plan design to close these costly gaps.

Engage an outside consultant. Secure independent (that is, non-vendor-generated) return-on-investment analyses of your existing benefits package, as well as prospective initiatives. This will entail some expense, but an expert external perspective could help you save money in the long run.

Audit medical claims payments and pharmacy benefits management services. Mistakes happen — and fraud is always a possibility. By regularly re-evaluating claims and pharmacy services, you can identify whether you’re losing money to inaccuracies or even wrongdoing.

Renegotiate pharmacy benefits contracts. As the old saying goes, “Everything is negotiable.” The next time your pharmacy benefits contract comes up for renewal, see whether the vendor will do better. In addition, look around the marketplace for other providers and see if one of them can make a more economical offer.

There’s no silver bullet for lowering the expense of health care benefits. To manage these costs, you must understand the specifics of your plan as well as the economic factors that drive expenses up and down. Please contact our firm for assistance and additional information.

©2018

Should your nonprofit have an advisory board?

Your not-for-profit is likely governed by a core group of board members. But the addition of an informal advisory board can bring complementary — and valuable — skills and resources to this group.

Review representation

Look at your general board members’ demographics and collective profile. Does it lack representation from certain groups — particularly relative to the communities that your organization serves? An advisory board offers an opportunity to add diversity to your leadership. Also consider the skills current board members bring to the table. If your board lacks extensive fundraising or grant writing experience, for example, an advisory board can help fill gaps.

Adding advisory board members can also open the door to funding opportunities. If, for example, your nonprofit is considering expanding its geographic presence, it makes sense to find an advisory board member from outside your current area. That person might be connected with business leaders and be able to introduce board members to appropriate people in his or her community.

Waive commitment

The advisory role is a great way to get people involved who can’t necessarily make the time commitment that a regular board position would require. The advisory role also may appeal to recently retired individuals or stay-at-home parents wanting to get involved with a nonprofit on a limited basis.

This also can be an ideal way to “test out” potential board members. If a spot opens on your current board and some of your advisory board members are interested in making a bigger commitment, you’ll have a ready pool of informed individuals from which to choose.

Be candid

Advisory board members likely will be present at board meetings, so it’s important to explain to them the role they’ll play. Advisory board members aren’t involved in the governance of your organization and can’t introduce motions or vote on them.

How you use your advisory board members is up to you. Use them as much, or as little, as you need; just make sure they understand limits to their authority. Contact Langdon & Company LLP for more information.

© 2018

Minding eligibility rules when managing 401(k) enrollment

If your organization offers a 401(k) plan, you’re probably aware that you can lay down some rules regarding when participants may enroll. Many plan sponsors strive for a happy medium between immediate enrollment and highly restricted or delayed enrollment.

As you seek to attain the right balance, bear in mind that the Employee Retirement Income Security Act restricts your ability to limit eligibility in multiple ways. Here are a few rules to bear in mind:

Age restriction. You don’t have to enroll employees below the age of 21, but you cannot have an age restriction over such age. This may or may not have an impact, depending on your workforce demographics. Many plans either have no age requirement or use age 18 as the minimum age.

Delayed gratification. You can require employees to wait up to only 18 months to enter the plan. This is accomplished by requiring employees to work at least 1,000 hours over the course of a 12-month period to gain eligibility. The plan then provides that, once eligibility is met, entry into the plan is the next semiannual entry date.

For example, suppose your plan operates on a calendar year. You hire Jane on July 2, 2018, and she completes one year of service and the 1,000-hour requirement by July 2, 2019. She would enter the plan as of January 1, 2020.

Category-based standard. Plan sponsors can assign different standards for exempt vs. nonexempt employees. For example, you could set more generous eligibility rules for exempt employees. You might want to do so if the labor market is tight for the types of jobs your exempt employees hold, but not your nonexempt employees.

However, your ability to establish these job classification distinctions is limited by your need to satisfy IRS coverage tests. These tests are designed to prevent discrimination against lower-paid workers.

For example, the percentage of participating nonhighly compensated employees (NHCEs) cannot be less than 70% of the participation rate of highly compensated employees (HCEs). In addition, the average benefits received by NHCEs must equal at least 70% of benefits received by HCEs. The average benefits test also features a more subjective nondiscriminatory classification component. You can also create different eligibility rules for union and nonunion jobs, and those distinctions, like the delayed eligibility timing tactic, aren’t subject to the minimum coverage tests.

Restricting 401(k) plan participation eligibility isn’t for everyone. But it may help you better control administration costs. Feel free to reach out to our firm for more information.

© 2018