Not-for-profits use special events to raise large amounts in a short period of time. Most often, the donor receives a direct benefit from the event — such as dinner or participation in a gaming activity. But special events don’t always meet their fundraising goals. In fact, organizations can lose money on them. Following these steps can help boost your event’s potential and enable you to decide whether to hold it again in the future.
Step 1: Make a budget
Planning and holding a successful event should start with a budget. Estimate what you anticipate revenue to be. If costs are likely to be greater than revenue, consider forgoing the event. Of course, you can also come up with a less costly event or look for sponsors to help defray expenses.
Step 2: Develop a marketing plan
Determine the target audience for your event and the best way to reach that audience. For example, bingo nights are often popular with seniors. And they may be more likely to read about the event in the local newspaper than on your nonprofit’s blog.
Step 3: Account for everything
Track all of your event’s costs to arrive at an accurate net profit amount. For example, a gala’s costs could include:
• Amounts paid to market the event, such as printed invitations and paid advertisements,
• Amounts paid related to the direct benefit that the participant receives, such as food, drinks and giveaways, and
• Other actual event costs, such as rental space and wait staff.
Step 4: Evaluate the event
After the event, review a detailed statement of its revenue and expenses, then compare them to what was budgeted. Take a look at ticket sales: Did you bring in the amount you had anticipated? Was the attendance worth the amount of planning and organizing that went into the event?
Next, evaluate money raised at the event itself. How much did your silent auction or raffle raise? Did you make more than the fair market value of the items donated? Also review unexpected expenses. Were these “one-time” or “special” costs that aren’t likely to occur yearly, or are they recurring? The answers to these questions can help you determine if the event was a true success.
Crunching the numbers
Consider these results — along with changes in your organization and evolving economic conditions that could affect profitability — when determining whether your event is likely to be successful in the future. If you’re unsure, contact us. We can help you crunch the numbers.
If your small business doesn’t offer its employees a retirement plan, you may want to consider a SIMPLE IRA. Offering a retirement plan can provide your business with valuable tax deductions and help you attract and retain employees.
For a variety of reasons, a SIMPLE IRA can be a particularly appealing option for small businesses. The deadline for setting one up for this year is October 1, 2018.
SIMPLE stands for “savings incentive match plan for employees.” As the name implies, these plans are simple to set up and administer. Unlike 401(k) plans, SIMPLE IRAs don’t require annual filings or discrimination testing.
SIMPLE IRAs are available to businesses with 100 or fewer employees. Employers must contribute and employees have the option to contribute. The contributions are pretax, and accounts can grow tax-deferred like a traditional IRA or 401(k) plan, with distributions taxed when taken in retirement. As the employer, you can choose from two contribution options:
1. Make a “nonelective” contribution equal to 2% of compensation for all eligible employees. You must make the contribution regardless of whether the employee contributes. This applies to compensation up to the annual limit of $275,000 for 2018 (annually adjusted for inflation).
2. Match employee contributions up to 3% of compensation. Here, you contribute only if the employee contributes. This isn’t subject to the annual compensation limit. Employees are immediately 100% vested in all SIMPLE IRA contributions.
Employee contribution limits
Any employee who has compensation of at least $5,000 in any prior two years, and is reasonably expected to earn $5,000 in the current year, can elect to have a percentage of compensation put into a SIMPLE IRA. SIMPLE IRAs offer greater income deferral opportunities than ordinary IRAs, but lower limits than 401(k)s.
An employee may contribute up to $12,500 to a SIMPLE IRA in 2018. Employees age 50 or older can also make a catch-up contribution of up to $3,000. This compares to $5,500 and $1,000, respectively, for ordinary IRAs, and to $18,500 and $6,000 for 401(k)s. (Some or all of these limits may increase for 2019 under annual cost-of-living adjustments.)
You’ve got options
A SIMPLE IRA might be a good choice for your small business, but it isn’t the only option. The more-complex 401(k) plan we’ve already mentioned is one alternative. Some others are a Simplified Employee Pension (SEP) and a defined-benefit pension plan. These two plans don’t allow employee contributions and have other benefits and drawbacks. Contact us to learn more about a SIMPLE IRA or to hear about other retirement plan alternatives for your business.
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.
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
The S corporation business structure offers many advantages, including limited liability for owners and no double taxation (at least at the federal level). But not all businesses are eligible - and, with the new 21% flat income tax rate that now applies to C corporations, S corps may not be quite as attractive as they once were.
The primary reason for electing S status is the combination of the limited liability of a corporation and the ability to pass corporate income, losses, deductions and credits through to shareholders. In other words, S corps generally avoid double taxation of corporate income — once at the corporate level and again when distributed to the shareholder. Instead, S corp tax items pass through to the shareholders’ personal returns and the shareholders pay tax at their individual income tax rates. But now that the C corp rate is only 21% and the top rate on qualified dividends remains at 20%, while the top individual rate is 37%, double taxation might be less of a concern.
On the other hand, S corp owners may be able to take advantage of the new qualified business income (QBI) deduction, which can be equal to as much as 20% of QBI. You have to run the numbers with your tax advisor, factoring in state taxes, too, to determine which structure will be the most tax efficient for you and your business.
S eligibility requirements
If S corp status makes tax sense for your business, you need to make sure you qualify - and stay qualified. To be eligible to elect to be an S corp or to convert to S status, your business must:
1. Be a domestic corporation and have only one class of stock,
2. Have no more than 100 shareholders, and
3. Have only “allowable” shareholders, including individuals, certain trusts and estates.
Shareholders can’t include partnerships, corporations and nonresident alien shareholders. In addition, certain businesses are ineligible, such as insurance companies.
Another important consideration when electing S status is shareholder compensation. The IRS is on the lookout for S corps that pay shareholder-employees an unreasonably low salary to avoid paying Social Security and Medicare taxes and then make distributions that aren’t subject to payroll taxes.
Compensation paid to a shareholder should be reasonable considering what a nonowner would be paid for a comparable position. If a shareholder’s compensation doesn’t reflect the fair market value of the services he or she provides, the IRS may reclassify a portion of distributions as unpaid wages. The company will then owe payroll taxes, interest and penalties on the reclassified wages.
Pros and cons
S corp status isn’t the best option for every business. To ensure that you’ve considered all the pros and cons, contact us. Assessing the tax differences can be tricky — especially with the tax law changes going into effect this year.
Americans gave unprecedented sums to charity in response to the devastating hurricanes last year. Large organizations, such as the American Red Cross, were equipped to handle the huge influxes of donations. However, some smaller charities were overwhelmed. Although it may seem like an unlikely problem, your not-for-profit needs a plan to handle a potential outpouring of support.
Know what’s normal
Perhaps the biggest lesson to learn from recent disasters is to always have an expansion plan in place. When the influx of online giving reached critical mass, many organizations found that their websites overloaded and went offline. Their sites had to be moved to more powerful servers to handle the increased traffic. Keep track of “normal” website hits, as well as the numbers of calls and email inquiries received, so you won’t be caught off guard when you start to surpass that amount. Also, know your systems’ ultimate capacity so you can enact a contingency plan should you approach critical mass.
Mobilize your troops
Having an “early warning system” is only one part of being prepared. You also need to be able to mobilize your troops in a hurry. Do you know how to reach all of your board members at any time? Can you efficiently organize volunteers when you need extra hands quickly?
Be sure you have:
• An up-to-date contact list of board members that includes home, office and mobile phone numbers,
• A process, such as a phone tree, so you can communicate with the board quickly and efficiently, and
• One or more emergency volunteer coordinators who can call and quickly train people when you need them.
Also conduct a mock emergency with staff and volunteers to learn where you’re prepared to ramp up and where you’re not.
A surge in donor interest may mean a surge in media attention. While it might be tempting to say, “not now, we’re busy,” don’t pass up the opportunity to publicize your organization’s mission and the work that’s garnering all the attention. In most cases, the immediate surge of interest eventually wanes. Before that happens, start to build lasting relationships with new donors and media contacts. Inform them about the work your organization does under “normal” circumstances and suggest ways to get them involved. © 2018
The Tax Cuts and Jobs Act (TCJA) liberalized the eligibility rules for using the cash method of accounting, making this method — which is simpler than the accrual method — available to more businesses. Now the IRS has provided procedures a small business taxpayer can use to obtain automatic consent to change its method of accounting under the TCJA. If you have the option to use either accounting method, it pays to consider whether switching methods would be beneficial.
Cash vs. accrual
Generally, cash-basis businesses recognize income when it’s received and deduct expenses when they’re paid. Accrual-basis businesses, on the other hand, recognize income when it’s earned and deduct expenses when they’re incurred, without regard to the timing of cash receipts or payments.
In most cases, a business is permitted to use the cash method of accounting for tax purposes unless it’s expressly prohibited from using the cash method or expressly required to use the accrual method.
Cash method advantages
The cash method offers the advantages of simplicity and tax-planning flexibility. Because the cash method is simpler than its counterpart, it’s easier and cheaper to implement and maintain. It also offers greater flexibility to control the timing of income and deductible expenses. For example, it allows you to defer income to next year by delaying invoices or to shift deductions into this year by accelerating the payment of expenses. An accrual-basis business doesn’t enjoy this flexibility. For example, to defer income, delaying invoices wouldn’t be enough; the business would have to put off shipping products or performing services.
Because income is taxed in the year it’s received, the cash method also does a better job of ensuring that a business has the funds it needs to pay its tax bill.
Accrual method advantages
In some cases, the accrual method may offer tax advantages. For example, accrual-basis businesses may be able to use certain tax-planning strategies that aren’t available to cash-basis businesses, such as deducting year-end bonuses that are paid within the first 2½ months of the following year and deferring income on certain advance payments.
The accrual method also does a better job of matching income and expenses, so it provides a more accurate picture of a business’s financial performance. That’s why it’s required under Generally Accepted Accounting Principles (GAAP). If your business prepares GAAP-compliant financial statements, you can still use the cash method for tax purposes. But weigh the cost of maintaining two sets of books against the potential tax benefits.
Making a change
Keep in mind that cash and accrual are the two primary tax accounting methods, but they’re not the only ones. Some businesses may qualify for a different method, such as a hybrid of the cash and accrual methods.
If your business is eligible for more than one method, we can help you determine whether switching methods would make sense and can execute the change for you if appropriate. © 2018
At this time of year, a summer vacation is on many people’s minds. If you travel for business, combining a business trip with a vacation to offset some of the cost with a tax deduction can sound appealing.
But tread carefully, or you might not be eligible for the deduction you’re expecting.
Business travel expenses are potentially deductible if the travel is within the United States and the expenses are “ordinary and necessary” and directly related to the business. (Foreign travel expenses may also be deductible, but stricter rules apply than are discussed here.) Currently, business owners and the self-employed are potentially eligible to deduct business travel expenses.
Under the Tax Cuts and Jobs Act, employees can no longer deduct such expenses. The potential deductions discussed below assume that you’re a business owner or self-employed.
Business vs. pleasure
Transportation costs to and from the location of your business activity may be 100% deductible if the primary reason for the trip is business rather than pleasure. But if vacation is the primary reason for your travel, generally none of those costs are deductible.
The number of days spent on business vs. pleasure is the key factor in determining whether the primary reason for domestic travel is business: Your travel days count as business days, as do weekends and holidays — if they fall between days devoted to business and it would be impractical to return home. Standby days (days when your physical presence is required) also count as business days, even if you aren’t called upon to work those days. Any other day principally devoted to business activities during normal business hours also counts as a business day. You should be able to claim business was the primary reason for a domestic trip if business days exceed personal days.
What transportation costs can you deduct? Travel to and from your departure airport, airfare, baggage fees, tips, cabs, etc. Costs for rail travel or driving your personal car are also eligible. Once at the destination, your out-of-pocket expenses for business days are fully deductible. Examples of these expenses include lodging, meals (subject to the 50% disallowance rule), seminar and convention fees, and cab fare.
Expenses for personal days aren’t deductible. Keep in mind that only expenses for yourself are deductible. You can’t deduct expenses for family members traveling with you — unless they’re employees of your business and traveling for a bona fide business purpose.
Substantiation is critical
Be sure to accumulate proof of the business nature of your trip and keep it with your tax records. For example, if your trip is made to attend client meetings, log everything on your daily planner and copy the pages for your tax file. If you attend a convention or seminar, keep the program and take notes to show you attended the sessions. You also must properly substantiate all of the expenses you’re deducting.
Additional rules and limits apply to the travel expense deduction. Please contact us if you have questions. © 2018
A not-for-profit’s growth stage generally starts two or three years after formation and continues until maturity at around age 7. This period comes with a sense of accomplishment and the opportunity to refine and expand, but these “adolescent” years can pose challenges as well.
Perhaps the most common marker of a growth-stage nonprofit is changes in the composition and focus of its board of directors. Boards usually continue to be active in operations to some degree, but also must begin to work on strategic matters — the policies, planning and evaluations necessary for long-term sustainability.
Founding board members may move on at this stage. The result could be a larger and more inclusive group of individuals, preferably with a wider range of skills, talents and backgrounds. Boards also can establish committees at this time.
As demand for services builds and you expand programming, staffing needs increase. Adding to staff in the growth stage will help avoid burnout. Your nonprofit should design a clear organizational structure and hire experienced managers.
You should also develop formal job descriptions. Employees will now be expected to work under formal systems, following policies and procedures and in a more efficient manner. Your organization’s executive director is still the primary decision maker, but he or she may not have time to be as involved in every area.
You might want to adjust your nonprofit’s mission during the growth stage. Changed demographics or economic developments could make it appropriate to revise your organization’s purpose. You can home in more intensely on a subset of the original mission or shift focus to another area. For example, a literacy organization that started out helping native English speakers improve their reading skills might expand to include teaching English as a second language. The charity may then develop a strategic plan to incorporate the changes to its mission.
Growth-stage organizations are generally in a more comfortable financial position, with less uncertainty. You may have developed good relations with key funders, but there are still obstacles in securing necessary funding (and cash flow) to support current programming.
To maintain growth, you’ll need to diversify revenue sources, manage cash flow and develop solid budgets. We can help you. © 2018
Nonprofits don’t face the same government regulations or public scrutiny as for-profit public companies do. But that doesn’t mean your board can afford to get slack about financial governance. Donors and watchdog groups pay close attention to organizations’ Forms 990 and the media is quick to pounce on rumors of fraud in the nonprofit sector. That’s why you should regularly evaluate your board’s financial oversight (if you aren’t already doing so) and recruit new members or outside advisors with financial expertise if necessary.
Your board needs to ensure that your nonprofit has reliable operating cash flow, avoids unnecessary risk and adheres to commonly accepted accounting policies. Start by focusing on activities that your finance and audit committees have the most direct influence on. For example, does your nonprofit have an operating reserves policy and are your reserves adequate? Does your outside auditor always issue clean reports? If not, how have auditor concerns been addressed?
If you spot negative patterns, dig deeper. In most cases, board members aren’t intentionally negligent. They may not have the time or energy that your organization’s financial governance requires or the background to successfully tackle the complex tasks they’ve been assigned.
If you’re having trouble finding qualified board members to sit on financial committees, you’re not alone. But it’s important to have at least a few qualified people on your board.
Good candidates can interpret financial statements and have a working knowledge of accounting principles. They should also be able to recognize nonfinancial indicators that measure the success of your mission, such as paid hours vs. volunteer hours. Professionals such as CPAs, bankers, and company controllers or CFOs usually fit the bill. But you might also look to attorneys who specialize in financial transactions or insurance professionals who have extensive risk-management experience.
Once you’ve found new board members who meet your criteria, train them on your organization’s issues. You may need to explain such concepts as the differences between restricted and unrestricted funds and accounting rules for pledges, endowments and charitable gift annuities.
Hiring an advisor
If you’re having trouble finding qualified individuals to staff your finance or audit committee, consider contracting with a CPA to act as your board’s independent advisor. A CPA can provide financial expertise and act as a liaison between your finance or audit committee and the full board or staff. Contact us for help. © 2018
If you run a business from your home or are otherwise self-employed and use part of your home for business purposes, a home office deduction might be available to you – if you meet the qualifications.
Homeowners know that they can claim itemized deductions for property tax and mortgage interest on their principal residences, subject to certain limits. Most other home-related expenses, such as utilities, insurance, and repairs, aren’t deductible. But if you use part of your home for business purposes, you may be entitled to deduct a portion of these expenses, as well as depreciation. Or you might be able to claim the simplified home office deduction of $5 per square foot, up to 300 square feet ($1,500).
Regular and exclusive use
You might qualify for the home office deduction if part of your home is used as your principal place of business “regularly and exclusively,” defined as follows:
1. Regular use. You use a specific area of your home for business on a regular basis. Incidental or occasional business use is not regular use.
2. Exclusive use. You use the specific area of your home only for business. It’s not necessary for the space to be physically partitioned off. However, you don’t meet the requirements if the area is used both for business and personal purposes, such as a home office that also serves as a guest bedroom.
Regular and exclusive business use of the space aren’t, however, the only criteria.
Principal place of business
Your home office will qualify as your principal place of business if you 1) use the space exclusively and regularly for administrative or management activities of your business, and 2) don’t have another fixed location where you conduct substantial administrative or management activities.
Examples of activities that are administrative or managerial in nature include:
- Billing customers, clients or patients,
- Keeping books and records,
- Ordering supplies,
- Setting up appointments, and
- Forwarding orders or writing reports.
Meetings or storage
If your home isn’t your principal place of business, you may still be able to deduct home office expenses if you physically meet with patients, clients or customers on your premises. The use of your home must be substantial and integral to the business conducted. Alternatively, you may be able to claim the home office deduction if you have a storage area in your home — or in a separate free-standing structure (such as a studio, workshop, garage or barn) — that’s used exclusively and regularly for your business.
The home office deduction can provide a valuable tax-saving opportunity for business owners and other self-employed taxpayers who work from home.
If you’re not sure whether you qualify or if you have other questions, please contact us. © 2018