The CPA Desk

A Thought Leader Production by PKFTexas

How Your Nonprofit Can Successfully Execute a Capital Campaign

When your not-for-profit desperately needs a new facility, costly equipment or an endowment, a capital campaign can be the best way to raise funds. But to be successful, a campaign requires strong leadership, extensive planning and dedicated participants.

Leading the troops

Capital campaigns generally are long-term projects — often lasting three or more years. To carry out yours, you need a champion with vision and stamina. Consider board members or look to leaders in the greater community with such qualifications as:

  • A fundraising track record,
  • Knowledge of your community and local issues,
  • The ability to motivate others, and
  • Time to attend planning sessions and fundraising activities.

Most capital campaigns require a small army to raise funds through direct mail, email solicitations, direct solicitations and special events. In addition to staff and board members, reach out to current volunteers, like-minded community groups and clients who’ve benefited from your services.

Approaching donors

Identify a large group — say 1,000 individuals — to solicit for donations. Draw your list from past donors, area business owners, board members, volunteers and other likely prospects. Then narrow that list to the 100 largest potential donors and talk to them first. Secure large gifts before pursuing anything under $1,000.

Be sure to train team members on how to solicit funds and provide them with sample scripts. To help volunteers make effective phone solicitations, record a few calls and play them back for the group to critique.

Focus on execution

It’s important to ensure that key constituents share your fundraising vision and strategies for reaching the campaign’s goals. Break down your overall goal into smaller objectives and celebrate when you reach each one. Also regularly report gifts, track your progress toward reaching your ultimate goal and measure the effectiveness of your activities.

Also pay attention to how you craft your message. Potential donors must see your organization as capable and strong, but also as the same group they’ve championed for years. Instead of focusing on what donations will do for your nonprofit, show potential donors the impact on their community.

Many measures of success

You’ll know you’ve reached your goal when you’ve raised a certain dollar amount. But don’t forget about other measures of success, such as return on investment or percentage of past donors contributing. We can help you identify the most valuable metrics.

Year-End Giving: What You Need to Know

Charitable giving can be a powerful tax-saving strategy: Donations to qualified charities are generally fully deductible, and you have complete control over when and how much you give. Here are some important considerations to keep in mind this year to ensure you receive the tax benefits you desire.

Delivery date

To be deductible on your 2017 return, a charitable donation must be made by Dec. 31, 2017. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean? Is it the date you, for example, write a check or make an online gift via your credit card? Or is it the date the charity actually receives the funds — or perhaps the date of the charity’s acknowledgment of your gift?

The delivery date depends in part on what you donate and how you donate it. Here are a few examples for common donations:

Check. The date you mail it.

Credit card. The date you make the charge.

Pay-by-phone account. The date the financial institution pays the amount.

Stock certificate. The date you mail the properly endorsed stock certificate to the charity.

Qualified charity status

To be deductible, a donation also must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions.

The IRS’s online search tool, Exempt Organizations (EO) Select Check, can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. You can access EO Select Check at http://apps.irs.gov/app/eos. Information about organizations eligible to receive deductible contributions is updated monthly.

Potential impact of tax reform

The charitable donation deduction isn’t among the deductions that have been proposed for elimination or reduction under tax reform. In fact, income-based limits on how much can be deducted in a particular year might be expanded, which will benefit higher-income taxpayers who make substantial charitable gifts.

However, for many taxpayers, accelerating into this year donations that they might normally give next year may make sense for a couple of tax-reform-related reasons:

  1. If your tax rate goes down for 2018, then 2017 donations will save you more tax because deductions are more powerful when rates are higher.
  2. If the standard deduction is raised significantly and many itemized deductions are eliminated or reduced, then it may not make sense for you to itemize deductions in 2018, in which case you wouldn’t benefit from charitable donation deduction next year.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making — or the potential impact of tax reform on your charitable giving plans.

2018 First Quarter Tax Deadlines You Need to Know

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 31

  • File 2017 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • Provide copies of 2017 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
  • File 2017 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS.
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2017. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 12 to file the return.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2017. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 12 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944,“Employer’s Annual Federal Tax Return.”)
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2017 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 12 to file the return.

February 28

  • File 2017 Forms 1099-MISC with the IRS if 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is April 2.)

March 15

  • If a calendar-year partnership or S corporation, file or extend your 2017 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2017 contributions to pension and profit-sharing plans.

Three Tax Tips to Follow When Buying a Business

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s guest host, and I’m here with Martin Euson, one of our Tax Directors on our Transaction Advisory Services team.  Welcome to the Playbook, Martin.

Martin: Thank you very much, Jen. It’s a pleasure to be here.

Jen: So, when we talk transaction advisory services I know there are some considerations, tax considerations to make when you’re advising, you know, a business owner on potentially buying another business. What types of things do you tell them?

Martin: Jen, I would say first and foremost it is critically important for any buyer to really understand the form of the transaction, the substance of the transaction, and the structure of the transaction that they are proposing to undertake.  As you might imagine, when you’re thinking about that, you have the legal form and then you also have how the transaction is going to be treated for tax purposes, and they are not always the same. So, it’s really important for buyers to understand where those two roads diverge because all of the future decisions after that really are going to be driven by that distinction.

Jen: And so, what else do you tend to tell people when you’re advising them on things to know about the buy side?

Martin: I would say another important factor is for buyers to really be able to manage and limit their exposure, manage their risk and limit their exposure when we’re talking about the historical tax liabilities of the business that they’re proposing to buy.

Jen: So, what does that mean?

Martin: What that really means is that there is a concept that’s referred to a successor liability, and when a buyer buys another business, depending on how they buy it, they may be assuming any historical tax liabilities that that business may or may not have. If there’s unpaid taxes, in other words, the buyer may step into the shoes of that former owner and then become liable for those taxes.

Jen: Ok, so that’s when they would call us so that we can take a look at the contracts, take a look and give them the proper advice?

Martin: Exactly. That is really going to unfold through a process of tax due diligence. You’re going to have a purchase and sale agreement, you’re going to want to make sure that you have the maximum protection that you can have in that agreement, yes.

Jen: Perfect. Well, it sounds like we need to get you back to talk a little bit more to talk about what buyers need to know.  Can we get you back?

Martin: Absolutely.

Jen: Perfect. To learn more about how we can assist you with potential transactions, visit pkftexas.com/transactionadivosryservices/. And this has been another Thought Leader Production brought to you by the PKF Texas Entrepreneur’s Playbook.

Get Usable Results for Your Nonprofit When Surveying Constituents

To make sound decisions, your not-for-profit’s leadership should periodically survey donors and other constituents. But how do you design a survey to ensure a high response rate and constructive feedback?

Clarify goals

The first step is to define the survey’s purpose. Determine what you want to learn and how you’ll use the data you collect.

If, for example, you’re planning to build a recreation center, ask what activities survey recipients would like to see offered at the new facility. They might give you a wish list of activities, with “swimming” at the top.

But if you already knew swimming was popular and had anticipated this response, your survey results don’t really help your leadership make decisions. Instead, ask more specific questions, such as “What hours and days of the week would you most likely use the pool?” and “How much would you be willing to pay per visit?”

Stay focused and offer incentives

You’ll want to be sharply focused, isolating a single issue or initiative. And keep the survey short. Some experts suggest that, ideally, it should take no longer than five minutes to complete.

Avoid bias and pledge privacy

One of the biggest challenges of survey writing is to draft unbiased questions. Take care not to lead respondents to answers you’d like to hear. Avoid loaded words and strong language, and consider seeking the services of a survey professional to ensure objectivity.

Finally, be sensitive to privacy concerns. Reassure survey recipients that their responses will remain confidential, and honor that promise.

Glad you asked

Getting feedback from constituents on the job you’re doing, or planning to do, is critical to the efficacy of your leaders’ decision making. Contact us for more information.

Consider Giving Appreciated Stock to Reduce Capital Gains Tax

We’re entering the giving season, and if making financial gifts to your loved ones is part of your plans — or if you’d simply like to reduce your capital gains tax — consider giving appreciated stock instead of cash this year. Doing so might allow you to eliminate all federal tax liability on the appreciation, or at least significantly reduce it.

Leveraging lower rates

Investors generally are subject to a 15% tax rate on their long-term capital gains (20% if they’re in the top ordinary income tax bracket of 39.6%). But the long-term capital gains rate is 0% for gain that would be taxed at 10% or 15% based on the taxpayer’s ordinary-income rate.

In addition, taxpayers with modified adjusted gross income (MAGI) over $200,000 per year ($250,000 for joint filers and $125,000 for married filing separately) may owe the net investment income tax (NIIT). The NIIT equals 3.8% of the lesser of your net investment income or the amount by which your MAGI exceeds the applicable threshold.

If you have loved ones in the 0% bracket, you may be able to take advantage of it by transferring appreciated assets to them. The recipients can then sell the assets at no or a low federal tax cost.

The strategy in action

Faced with a long-term capital gains tax rate of 23.8% (20% for the top tax bracket, plus the 3.8% NIIT), Rick and Sara decide to transfer some appreciated stock to their adult daughter, Maia. Just out of college and making only enough from her entry-level job to leave her with $25,000 in taxable income, Maia falls into the 15% income tax bracket. Therefore, she qualifies for the 0% long-term capital gains rate.

However, the 0% rate applies only to the extent that capital gains “fill up” the gap between Maia’s taxable income and the top end of the 15% bracket. In 2017, the 15% bracket for singles tops out at $37,950.

When Maia sells the stock her parents transferred to her, her capital gains are $20,000. Of that amount, $12,950 qualifies for the 0% rate and the remaining $7,050 is taxed at 15%. Maia pays only $1,057.50 of the federal tax on the sale vs. the $4,760 her parents would have owed had they sold the stock themselves.

Additional considerations

Before acting, make sure the recipients won’t be subject to the “kiddie tax.” Also, consider any gift and generation-skipping transfer (GST) tax consequences.

For more information on transfer taxes, the kiddie tax or capital gains planning, please contact us. We can help you find the strategies that will best achieve your goals.

Brian Baumler Talks Joint Ventures and JVSA

Russ:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Russ Capper, this week’s guest host, and I’m here with Brian Baumler, a Senior Vice President with Joint Ventures Strategic Advisors and an Audit Director with PKF Texas.  Brian welcome to the Playbook.

Brian:  Thank you very much Russ, really appreciate it.

Russ:  You bet.  So our topic today is Joint Ventures.  PKF has been in that business for quite some time, right?

Brian:  Absolutely.  Being here in Houston, Texas a lot of joint venture activities take place in energy so being in the energy capital of the world you’ve got to have the Joint Ventures Strategic Advisor Services.

Russ:  Okay, and that Joint Venture Strategic Advisor Services is kind of an upgraded version of what you guys have been doing historically, right?

Brian:  You could say that.  We started getting more heavily involved in it just a few years ago and we now have a group of over 30 people that are assisting us with those types of services right now in Houston.

Russ:  So I’m real curious, I see and know, maybe have been in a joint venture or two myself over time, but when you’re coming in as an advisor do you show up and you’re automatically working for both sides?

Brian:  Well that’s an interesting question.  The reality is we’re engaged by one party but we can represent both sides of the joint venture.  If it just so happens that the way we execute upon what we’re doing we’re actually representing both sides because the benefits of whatever comes out of those joint ventures does that in both parts.

Russ:  Real interesting.  So strategic advisors on joint ventures, you’re coming in there and they’re not really merged, they’re just sort of partnering on an initiative.

Brian:  That’s exactly correct; they’re mutually executing under arrangement to pursue an investment interest jointly and hopefully have a good result.

Russ:  Okay, but it seems to me that has more of a chance of going off the track than a real merger; is that right?

Brian:  Well the reality is you want to make sure that whoever the operator is is the partner who’s really responsible for executing under all the activities that they mutually agreed to in the beginning, and at the end of the day you’re just trying to make sure everybody stays honest.

Russ:  Okay, well I want to have you back and talk about this a little more, is that okay with you?

Brian:  Absolutely.

Russ:  All right.  For more about joint ventures services visit JVSA.com.  This has been another Thought Leader Production brought to you by PKF Texas Entrepreneur’s Playbook.

Accelerate Property Tax Payment to This Year – Here’s Why

Accelerating deductible expenses, such as property tax on your home, into the current year typically is a good idea. Why? It will defer tax, which usually is beneficial. Prepaying property tax may be especially beneficial this year, because proposed tax legislation might reduce or eliminate the benefit of the property tax deduction beginning in 2018.

Proposed changes

The initial version of the House tax bill would cap the property tax deduction for individuals at $10,000. The initial version of the Senate tax bill would eliminate the property tax deduction for individuals altogether.

In addition, tax rates under both bills would go down for many taxpayers, making deductions less valuable. And because the standard deduction would increase significantly under both bills, some taxpayers might no longer benefit from itemizing deductions.

2017 year-end planning

You can prepay (by December 31) property taxes that relate to 2017 but that are due in 2018 and deduct the payment on your 2017 return. But you generally can’t prepay property tax that relates to 2018 and deduct the payment on your 2017 return.

Prepaying property tax will in most cases be beneficial if the property tax deduction is eliminated beginning in 2018. But even if the property tax deduction is retained, prepaying could still be beneficial. Here’s why:

  • If your property tax bill is very large, prepaying is likely a good idea in case the property tax deduction is capped beginning in 2018.
  • If you could be subject to a lower tax rate in 2018 or won’t have enough itemized deductions overall in 2018 to exceed a higher standard deduction, prepaying is also likely tax-smart because a property tax deduction next year would have less or no benefit.

However, there are a few caveats:

  • If you’re subject to the AMT in 2017, you won’t get any benefit from prepaying your property tax. And if the property tax deduction is retained for 2018, the prepayment could cost you a tax-saving opportunity next year.
  • If your income is high enough that the income-based itemized deduction reduction applies to you, the tax benefit of a prepayment may be reduced.
  • While the initial versions of both the House and Senate bills generally lower tax rates, some taxpayers might still end up being subject to higher tax rates in 2018, either because of tax law changes or simply because their income goes up next year. If you’re among them and the property tax deduction is retained, you may save more tax by holding off on paying property tax until it’s due next year.

It’s still uncertain what the final legislation will contain and whether it will be passed and signed into law this year. We can help you make the best decision based on tax law change developments and your specific situation.

Three Steps to Take When Expanding Your Business

Jen:  This is the PKF Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and I’m back here with Chip Schweiger, one of our audit directors at the firm.  Chip welcome back to the Playbook.

Chip:  Thanks Jen, good to be here.

Jen:  Houston is an international city; we’ve got a lot of businesses coming in, setting up shop here.  What do you recommend somebody do when they get here?

Chip:  I give folks three pieces of advice:

  • One, get a PEO or a payroll function in place right away.  You’ve got to pay your employees and it’s a lot more complicated than just writing a check.  There’s withholding, there’s quarterly filing statements and so it’s important to get a professional involved.
  • Secondly, get a good attorney and help get the articles of incorporation set up and get the organization set up to do business in Houston and in Texas.
  • And three, probably most importantly, get a good accountant to help you out, someone like PKF Texas; we can help you with taxes, we can help you with attest services and really help you get off to a good start with your business.

Jen:  That’s great, in fact we have a whole program called the International Healthy Start Program so we’d love to help out people with that.  Thanks so much for being here.

Chip:  Absolutely.

Jen:  Turn learn more about how we can help your international business visit PKFTexas.com/internationaldesk.  And this has been another Thought Leader Production brought to you by the PKF Texas Entrepreneur’s Playbook

Maximize Donor Generosity This Holiday Season

People are naturally inclined to make charitable gifts around the holidays. With the end of the year fast approaching, your not-for-profit should prepare now to take advantage of donors’ generosity. Here are four tips for making the most of the season:

  1. Strike early. Plan events or solicitations for early December or sooner. By being one of the first to appeal to givers’ seasonal generosity, you increase the odds of securing an early commitment and avoiding the donor fatigue that may set in later as solicitations and holiday financial demands mount.
  2. Target qualified prospects. Rather than blitz every prospect in your database, identify the best prospects among current donors. Past donors are more likely to give again and in larger amounts than those who have never donated before. Consider factors such as how often individuals have given in the past, how recently they’ve given, their likely ability to give and their degree of attachment to your organization. You can then write meaningful, personal appeals that encourage a greater commitment.
  3. Make it personal. The more personal a solicitation, the more effective it’s likely to be, with face-to-face appeals being especially powerful. The holiday season is the ideal time for executives and board members to solicit past supporters and promising new ones.
  4. “Missionize” late-year events. Attendees are already inclined to give; it’s just that most need to be inspired to give more. So don’t allow an event to take place without making a brief but carefully crafted pitch for your nonprofit. Make your mission come alive through your remarks or a short video presentation. When telling the audience about the great work you’re doing, mention how much more you could do with their help and talk about specific needs for cash, in-kind goods and services. People are more likely to give when they clearly understand the difference their gifts can make.

The holiday season is an opportune time to raise funds for your nonprofit. All you have to do is ask — but in the right way. Contact us for more fundraising ideas.