Category Archives: Raleigh CPA Firm

Thanking Donors – What’s required by the IRS?

by Meagan Bulloch

As year-end fundraising drives have now ended, the development departments of many non-profits are busy preparing contribution acknowledgements or “thank you” letters.  So, how can these non-profits ensure they give the donors what they expect and what the IRS requires?

If a monetary contribution was made for which the organization did not provide any good or service in return, the donor is required to have a bank record or written acknowledgement of the gift before they can claim a charitable contribution deduction on their federal tax return.  It is acceptable if the acknowledgement is provided electronically to the donor but many organizations still find value in mailing personalized thank you letters.

If the donation received is greater than $250, a basic thank you note not will not suffice as adequate support for the IRS.  To aid your donors the organization should provide the following information in the acknowledgement/thank you letter:

  • Name of your organization
  • Statement that the non-profit is a recognized tax-exempt entity under IRS under Section 501(c)(3)
  • Amount of cash contribution or description of non-cash donation (but NOT the value)
  • Date the donation was received
  • A statement that no goods or services were provided by the organization in return for the contribution

Separate acknowledgements can be provided for each contribution exceeding $250, or an annual acknowledgement can be provided if more practical. Best practice is that acknowledgement(s) should be provided to donors no later than January 31 of the year following the donation.

If your organization received a quid pro quo contribution, when a donor makes a payment exceeding $75 that is comprised of both a contribution and a good or service provided by the organization, the organization is required to provide a written disclosure.

Example – The organization holds a dinner valued at $40 and charges a ticket price of $100, the donor’s tax deduction is limited to $60.  However, because the total amount paid was greater than $75, the organization must provide a disclosure statement to the donor even though the value of the contribution is less than $75.  The disclosure statement provided to donors should include:

  • A statement informing the donor of the amount of the contribution that is tax deductible – limited to the excess of the contribution less than fair market value of the goods or services received
  • A good faith estimate of the fair market value of the goods and services

A penalty is imposed on charities that do not meet the written disclosure requirement. The penalty is $10 per contribution, not to exceed $5,000 per fundraising event or mailing. An organization may avoid the penalty if it can show that failure to meet the requirements was due to reasonable cause.

But what if…

Gifts in-kind with a market value in excess of $5,000 may require an appraisal (that the donor can be required to pay for)

The above guidelines are detailed in the IRS Publication 1771, these rules do not apply to a donated motor vehicle, boat or airplane if the claimed value exceeds $500.  (See IRS Publication 4302, A Charity’s Guide to Vehicle Donations and IRS Publication 4303, A Donor’s Guide to Vehicle Donations).

Meagan ([email protected]) is an Audit Manager at Langdon & Company LLP.  She works primarily with non-profits in various industries.

Update on Increase of Deduction for Purchase of Tangible Property

by Eric Murphy

For several years, the IRS has deemed that tangible assets used in business such as equipment and computers with a purchase price of more than $500 must be capitalized and depreciated based on the Assets’ useful life.  Any money spent below $500 on an asset that would have traditionally be capitalized, could be expensed in the year of purchase instead.  The IRS made this rule under the Tangible Property Regulations, specifically Reg. 1.263(a)-1(f)(1)(ii)(D).  This deduction was allowed for businesses that didn’t have annual financial statements subjected to annual audits.

Under IRS Notice 2015-82,  the lower tier safe harbor amount was increased from $500 to $2,500 of costs per tangible item and can now be expensed instead of being capitalized for small businesses that don’t have audited annual financial statements.  This ruling will take effect for the tax year beginning January 1, 2016 all future years unless a modification is made at a future date.  The IRS will also not challenge amounts between $500 and $2500 that were expensed in prior years between December 31, 2011 and December 31, 2015 that should have been capitalized.book stack

If you’re a business owner who wants to make sure their purchases are properly recorded and reported in their financial statements and tax returns, contact Langdon & Company LLP.  Our team of highly skilled tax and bookkeeping professionals will assist you in making sure your company’s financial activity is reported properly and in conformity with all legally mandated requirements.  We will also analyze your statements and make suggestions on ways you can become more profitable and efficient to the best of our ability.

Eric ([email protected]) is a Senior in the Langdon & Company LLP tax practice. He works with a variety of clients in preparation of tax returns and other projects.

 

Due Dates for Federal Payroll Taxes

by Eric Murphy

If you’re a Sole Proprietor, a Partner in a partnership, a member of an LLC, or an officer in a corporation, it’s likely you have employees and yourself on payroll.  Due to this fact, it’s necessary for you to pay payroll taxes for Federal Withholding, Social Security, Medicare, as well as North Carolina Withholding taxes.

The frequency in which you pay the taxes is determined by the payroll tax liability incurred in any given Quarter in the Calendar year as follows:

  • Liability under $2,500: If you are required to file Form 941 and your employment tax liability for the preceding quarter or current quarter is less than $2,500, you may pay the taxes for the current quarter with your timely filed return instead of making deposits. These would be filed the final days of the months following the end of the quarters on January 31st, April 30th, July 31st, and October 31st.  The NC withholding taxes paid in with Form NC-5 should be filed at the same time.
  • Liability of $2,500 or more: Unless you are eligible to make payments with your return, you must deposit your taxes. If you are a Form 941 filer and you are not sure your total tax liability for the current quarter will be less than $2,500, (and your liability for the preceding quarter was not less than $2,500), make deposits using the semiweekly or monthly rules so you won’t be subject to failure-to-deposit penalties.

Per IRS Tax Topic 757, if you reported taxes of $50,000 or less during the previous quarter, you are a monthly schedule depositor, and you generally must deposit your employment taxes on payments made during a given month on or before the 15th day of the following month. For example, you must deposit taxes on payments made in January by February 15. If the 15th of any calendar month falls on a Saturday, Sunday or legal holiday, the deposit is due by the next banking day.  This same schedule applies to paying NC withholding taxes with Form NC-5.

Per IRS Publication 15 (Circular E), Employer’s Tax Guide for use in 2015, the following payment schedule must be used for semi-weekly filers (Entities with over $50,000 of tax liability in the previous quarter):

  • Deposit Federal Withholding and FICA employment taxes for payroll payments made on us flagWednesday, Thursday, and/or Friday by the following Wednesday.
  • Deposit taxes for payroll payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday.
  • Per IRS Tax Topic 757, if any of the 3 days following the date of the payroll payments is a holiday, you have an additional day for each day that’s a holiday to make the payment. For example:  If payroll was paid on Friday, September 4th the payroll tax deposits won’t be due until the following Thursday, given that Monday, September 7th, was a holiday.

You will make your deposits online through www.EFTPS.gov and report your deposits quarterly by filing Form 941 or annually by filing Form 944, it all depends on what the IRS instructs you to file based on the payroll thresholds you report in your initial 941 report.

It’s also essential that NC unemployment taxes are paid in for the quarter in the month following the end of the quarter to the NC Division of Employment Security.  These are paid in with Form NCUI-101 and must be prepared with the proper SUI rate assigned to your entity from the NC Division of Employment Security at the beginning of the year.  If you need the rate, an operator at the Division can provide it for you as long you provide either your Employer Identification Number or Account ID number assigned by the Division.  This should be filed at the same time as Form 941 is filed with the IRS.

If you have questions about your payroll taxes and withholdings, contact our office and speak to our payroll specialists.  Langdon & Company LLP has experienced professionals that would be glad to assist you in these matters.

Eric ([email protected]) is a senior in our tax practice.  He prepares and reviews a combination of both corporate and individual tax returns.

The Game Plan of an Audit

by Steve Schulzhistory-telecom-audit

Last week while talking to my brother on the phone he asked me what I did as an auditor. I began explaining what the purpose of an audit was, what some basic procedures were, and what different issues raised during an audit when he stopped me and said he had no idea what I was talking about. I sat there in silence for a second and realized there has to be a better way to explain to someone with no knowledge of accounting what I did day in and day out; then it hit me. As huge football fans, I could compare the two with ease – the players/team were the entity, each play was like a new transaction, and the officials were like the auditors. I called him back and went on to explain the following:

Having the necessary personnel – Having the necessary personnel is essential for both the engagement team and the entity. First and foremost, the audit staff must be independent and possess the proper level of training and knowledge to carry out the engagement(s) at hand. The entity also needs to have the appropriate staff able to handle daily processes that oversee the internal controls and maintain records of transactions. In comparison to football, officials must be unbiased, knowledgeable, and properly trained to work their assigned position. Each side of the ball will need the correct number of players and the offense will need to be in the proper formation before any play can be run. In all respects, failure to have the proper personnel may result in unfavorable conditions that gather insufficient audit evidence used to determine an opinion.

Building off of a strong pre-season – During the pre-season, teams, officials, and the league must prepare efficiently and effectively in order for things to run smoothly during the year. In audit this is similar to the planning stages. When planning the engagement, the audit team will come up with a strategy to understand the scope, timing, and direction of the audit; much like a team devises a game plan going into each game.

The players and the officials – Officials monitor each play just like auditors test the transactions of entities. During fieldwork, auditors will examine different accounts, test controls, and perform other procedures required to meet the needs of the game plan formulated during planning. If the results of the auditor’s test dictate that more testing is necessary, the auditor will need to carry out further procedures to get a better look into the area being tested. In comparison, officials on the field will use their training, judgement, and experience to call plays as accurately as possible however, sometimes they will need to investigate the issue further and will go to the replay system for help. This gives the referee the opportunity to get a closer look at the play and make a more accurate ruling, similar to further audit procedures.

whistleMaking the right call – Understanding that not all transactions are perfect, auditors must determine what differences or errors are material and force the auditor to alter their opinion on either the controls or financial statements. Likewise, officials are tasked to make sure that every game is played fairly. Some things, like a holding penalty, will not determine whether a game was played, as a whole, fairly or not  but major issues might. An example of this would be like playing with deflated footballs. This would cause an unfair advantage and may cause the contest to come under question and possibly a forfeit. In short, a holding penalty would be the equivalent of a five dollar difference between the receipt and what was recorded in the books while playing with deflated footballs would be the equivalent of a material misstatement.

Langdon & Company LLP has lots of professionals and football fans alike that would be happy to answer any of your audit questions.  Please contact our office for more information.

Steve ([email protected]) is a staff auditor with Langdon & Company LLP.  He focuses primarily on healthcare and nonprofit organizations.

 

Why Hire a CPA?

by Brittany Spragins

When looking to hire an accountant to prepare your taxes or perform an audit, you want to ensure that you select a CPA for several reasons.  When you see the CPA designation, you are assured a level of quality that surpasses the average accountant. CPA seal

Every state maintains its own standards and criteria for becoming a CPA.  According to the NC State Board of Accountancy, the use of the CPA designation is granted only to individuals “who meet the statutory requirements” of NCGS 93-12.  These requirements include passing all four sections of the CPA exam, receiving a minimum level of college education with an emphasis in accounting, an accounting law course that covers ethics, professionalism, and professional responsibility, and appropriate work experience.  When the CPA submits his or her application, it must be accompanied by 3 letters of recommendation to indicate “good moral character.”

When selecting a CPA, you are assured that,

“a CPA should at all times maintain independence of thought and action, hold the affairs of clients in strict confidence, strive continuously to improve professional skills, observe generally accepted principles and standards, promote sound and informative financial reporting, uphold the dignity and honor of the accounting profession, and maintain high standards of personal conduct.” -www.NCCPABoard.gov

In North Carolina, it is against the law to use the CPA title without the state’s approval that you meet its qualifications.  Part of the benefits to the client is that the NC CPA Board establishes consumer confidence since it instills peer reviews of the CPA’s work.  It also provides enforcement of professional ethics and code of conduct to ensure client confidence.

Whether you hire Langdon and Company LLP to assist you on a personal or corporate level, you can have the confidence that you are hiring a CPA firm that upholds the highest levels of professional and ethical standards, maintains excellent working knowledge of the tax and assurance current events, and is a focused on a personal relationship with the client.

For more information on CPA’s, you can visit the American Institute of Certified Public Accountants (AICPA) website www.aicpa.org or the NC State Board of Accountancy website www.nccpaboard.gov

Brittany ([email protected]) is a staff member of Langdon & Company LLP’s tax practice.  She focuses primarily on high net-wealth individual returns and their closely-held companies.

Adult Care Home News

by Rachel Owensdhhs

We now have some clarity when it comes to DHHS compliance for Adult Care Homes (ACH).  Last year, the North Carolina General Assembly passed General Statute 131 D-4.1-4.3. It was under this statute, that the Adult Care Cost Report requirement returned.  These cost reports are mandatory for facilities receiving State/County Special Assistance Program funds. Types of facilities subject to this requirement include nursing home combination facilities with adult care beds, mental health supervised living facilities, and all other  adult care homes (Licensed under general Statute Chapters 131E, 122C, and 131D, respectively).

In addition to these cost reports, any of these facilities that are licensed for 7 or more beds, are to be audited.  This audit is of the cost report information in the form of Agreed-Upon-Procedures (AUPs), that must be done by a certified public accountant (CPA)/independent accountant.

The requirements for the combination facilities are slightly different since they are based on the Medicare’s requirements of Skilled Nursing facilities.  Combined nursing facilities should submit a cost report and related AUPs based on their last completed Medicare cost report, which in most cases covers October 2013 through September 2014.

Important Dates:  For the mental health facilities, the reporting period is July 1, 2014 through June 30, 2015.  The reporting period for adult care home facilities is October 1, 2014 through September 30, 2015.

The due date is December 31, 2015 for all facilities.

All facilities that do not receive any funds through the State/County Special Assistance Program are considered exempt and an exemption form must be completed.  This form can be found on the DHHS Office of the Controller’s website at www.ncdhhs.gov/control.

Nursing-homeThe ACH cost report software is also available online, here.  All questions related to the AUPs can be addressed to [email protected].  If you have questions about cost report and AUP preparation, please contact our office.

Are You Withholding Enough?

by Cody Taylor

Have you ever gotten to the end of the year, filed your taxes and then been surprised by what you owe?  One of the factors that can contribute to your surprise is not withholding enough taxes from your paycheck.  If you are a W-2 wage earner (your employer takes taxes out of your paycheck) and your income profile isn’t very complicated you may be able to use the IRS Withholding Calculator to figure out the correct withholding level for you.

The IRS gives some tips for using the program:wallet - not used

  • Have your most recent pay stubs handy
  • Have your most recent income tax return handy
  • Estimate values if necessary, remembering that the results can only be as accurate as the input you provide.

To Change Your Withholding:

  • Use your results from this calculator to help you complete a new Form W-4, Employee’s Withholding Allowance Certificate
  • Submit the completed Form to your employer

Even if you’ve always gotten a refund there may be reason to look into your withholding amount or whether you may need to make an end of year estimated payment to cover any tax liability if your situation has recently changed.  Some scenarios include an increase in nonwage income (Interest, dividends, capital gains (ex. stocks), alimony or self-employment income), a change in marital status, you moved to a new state, gained or lost a dependent or maybe you simply had a change of income level recently.  Nonwage income does not usually have taxes withheld so an increase from one year to the next can surprise people at tax time if they aren’t prepared for it.

Withholding information is especially important when you or your spouse is self-employed.  The IRS Withholding Calculator is not recommended when your income profile contains alternative minimum tax, self-employment tax, or if you receive pass-through income in the form of a K-1(s).  These more complicated situations may require an end of year tax projection to ensure your tax liabilities are covered.

If the IRS Withholding Calculator is not right for your situation and you need some additional assistance with end of year tax planning please contact our office for additional information.

Cody ([email protected]) is a staff in our tax department.  He focuses on various closely-held family companies, and trusts.

FASB Delays Effective Date for Revenue Recognition Standard

by Rebecca Lunn

On May 28, 2014, Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. However, due to response from stakeholders, the FASB has delayed the effective date by one year. New effective dates are as follows:

  • Public business entities, certain not-for-profit entities, and certain employee benefit plans would apply ASU 2014-09 for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that year. Early application permitted only as of years beginning after December 15, 2016, including interim reporting periods within that year.
  • For all other entities, the ASU is effective beginning after December 15, 2018, and interim reporting periods within years beginning after December 15, 2019. Early application permitted as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period; or an annual reporting period beginning after December 15, 2016.

For additional details on ASU 2014-09, please see the earlier blog post written by Lee Byrd.  You can also contact our office with any questions.

 

Year-end filing of 1099-MISC

by Russell Barker

You might think 1099-MISC filing is a year-end job and does not need attention before that.  That couldn’t be farther from the truth.  You should always gather W-9 forms from applicable vendors whom you have paid year round.  A W-9 form is an IRS form in which the vendor provides name, address and tax identification number.  This number can either be a social security number or Taxpayor Identification Number (“TIN”). year-end-review-300x225

Generally, a 1099-MISC should be filed if the vendor is unincorporated AND amounts paid are:

  • at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
  • at least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate
  • any fishing boat proceeds
  • gross proceeds of $600, or more paid to an attorney during the year, or
  • withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.

The reason to start gathering this information is because at year end, you may not have contact with a vendor or cannot reach them.

What are the ramifications if you do not get this information and you should have?  The expense that you are trying to claim may not be valid and you might not have a credit on your books for the expense.  In some cases, this can cause an increase to your net income and more taxes you will have to pay at year end.

The old saying of an ounce of prevention is worth a pound of cure.  By obtaining and filing all W-9 forms, you will avoid a lot of unnecessary stress at year end. Langdon & Company LLP has a team of accounting service professional who are available to help with any of your Form 1099 questions.  Please contact our office for more information.

Russel Barker ([email protected]) is a Quickbooks ProAdvisor in our Accounting Services Department.  He works primarily with physician’s practices and other small businesses.