“Darn. I need that document, but I’m not at the office.”
That’s a phrase that is slowly phasing out.
Over the years, the cloud has been on the rise with many people, as well as companies, making the transition to store physical content digitally. In addition to efforts of going paperless, the main appeal of cloud-based software is accessibility any- and everywhere.
The relatively new federal procurement standards significantly alter the way not-for-profit organizations receiving federal funding handle purchasing. And while your organization may have changed its written policies to comply with the revised standards, it may be easier to follow the rules on paper than in practice.
Summing Up the Standards
The standards, “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” impose strict requirements on not-for-profits receiving federal funds. For example, you must pay attention to the amount of a purchase because it determines the procurement methods you need employ.
“Micro-purchases” of supplies or services up to $3,500 generally can be awarded without soliciting competitive quotes. “Small purchases” of services, supplies or other property that don’t cost more than $150,000 require price or rate quotes from several qualified sources.
For purchases exceeding $150,000, you must select vendors or suppliers based on publicly solicited sealed bids or competitive proposals. Select the lowest bid or the proposal most advantageous to the relevant program based on price and other factors that impact the program performance. Also perform a cost or price analysis for every purchase over $150,000, to make independent estimates before receiving bids or proposals.
Noncompetitive proposals solicited from a single source are permissible in only limited circumstances. For example, they’re allowed in the event of a public emergency where the not-for-profit must respond immediately.
Clearing Documentation Hurdles
You should already be following the revised standards, which went into effect in fiscal year 2017. However, some not-for-profits have found it challenging. Significant barriers to full compliance include culture shock and staff resistance. Also, these standards have multiple documentation requirements that few organizations previously met:
Designing a checklist that outlines the decisions needed at each price level will make the process more manageable, as will keeping the required documentation.
Reduce the Risk
Failure to comply with procurement standards could result in your not-for-profit’s loss of federal funding. You can reduce that risk, though, by auditing your new procedures and processes to confirm that they’re getting the job done. Contact us for assistance.
In many parts of the country, summer is peak season for selling a home. If you’re planning to put your home on the market soon, you’re probably thinking about things like how quickly it will sell and how much you’ll get for it. But don’t neglect to consider the tax consequences.
Home Sale Gain Exclusion
The U.S. House of Representatives’ original version of the Tax Cuts and Jobs Act included a provision tightening the rules for the home sale gain exclusion. Fortunately, that provision didn’t make it into the final version that was signed into law.
As a result, if you’re selling your principal residence, there’s still a good chance you’ll be able to exclude up to $250,000 ($500,000 for joint filers) of gain. Gain that qualifies for exclusion also is excluded from the 3.8% net investment income tax.
To qualify for the exclusion, you must meet certain tests. For example, you generally must own and use the home as your principal residence for at least two years during the five-year period preceding the sale. (Gain allocable to a period of “nonqualified” use generally isn’t excludable.) In addition, you can’t use the exclusion more than once every two years.
More Tax Considerations
Any gain that doesn’t qualify for the exclusion generally will be taxed at your long-term capital gains rate, as long as you owned the home for at least a year. If you didn’t, the gain will be considered short-term and subject to your ordinary-income rate, which could be more than double your long-term rate.
Here are some additional tax considerations when selling a home:
Tax basis. To support an accurate tax basis, be sure to maintain thorough records, including information on your original cost and subsequent improvements, reduced by any casualty losses and depreciation claimed based on business use.
Losses. A loss on the sale of your principal residence generally isn’t deductible. But if part of your home is rented out or used exclusively for your business, the loss attributable to that portion may be deductible.
Second homes. If you’re selling a second home, be aware that it won’t be eligible for the gain exclusion. But if it qualifies as a rental property, it can be considered a business asset, and you may be able to defer tax on any gains through an installment sale or a Section 1031 exchange. Or you may be able to deduct a loss.
A Big Investment
Your home is likely one of your biggest investments, so it’s important to consider the tax consequences before selling it. If you’re planning to put your home on the market, we can help you assess the potential tax impact. Contact us to learn more.
Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s host, and I’m here today with Danielle Supkis Cheek, a director on our Entrepreneurial Advisory Services Team. Welcome back to the Playbook, Danielle.
Danielle: Thank you.
Jen: So our Entrepreneurial Advisory Services Team tends to work with startups quite a bit, and I know you’ve got a lot of – your background is in the startup space – what’s your advice for them to get their accounting started off [on] the right foot for bankers, financials, all that kind of stuff?
Danielle: That’s a big area.
Jen: It is.
Danielle: For either pre-revenues or startup companies and those with not a lot of operation experience, it can be a really overwhelming task in the first place. Usually you need to start with some kind of model, because you don’t actually have any revenues or any transactions to actually account for, and then it all the way moves to once they start having transactions and the accounting. So in the more pre-idea stage on that modeling aspect my biggest piece of advice is really to think through every single step of your day, and make sure every single step of that day – once you’re in your future operations – is accounted for somehow in your model. So if you’re showing up to an office, there should be rent on your books somewhere or in your model.
Many not-for-profit organizations 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 not-for-profit 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:
Activities often are mis-classified as advertising. Using logos or slogans that are an established part of a sponsor’s identity is not, by itself, advertising. And if your not-for-profit 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.
If you received a large refund after filing your 2017 income tax return, you’re probably enjoying the influx of cash. But a large refund isn’t all positive. It also means you were essentially giving the government an interest-free loan.
That’s why a large refund for the previous tax year would usually indicate that you should consider reducing the amount of your tax withholding (and/or what estimated tax payments you’re making) for the current year. But 2018 is a little different.
The TCJA and Withholding
To reflect changes under the Tax Cuts and Jobs Act (TCJA) — such as the increase in the standard deduction, suspension of personal exemptions and changes in tax rates and brackets — the IRS updated the withholding tables that indicate how much employers should hold back from their employees’ paychecks, generally reducing the amount withheld.
The new tables may provide the correct amount of tax withholding for individuals with simple tax situations, but they might cause other taxpayers to not have enough withheld to pay their ultimate tax liabilities under the TCJA. So even if you received a large refund this year, you could end up owing a significant amount of tax when you file your 2018 return next year.
Perils of the New Tables
The IRS itself cautions that people with more complex tax situations face the possibility of having their income taxes underwithheld. If, for example, you itemize deductions, have dependents age 17 or older, are in a two-income household or have more than one job, you should review your tax situation and adjust your withholding if appropriate.
The IRS has updated its withholding calculator (available at irs.gov) to assist taxpayers in reviewing their situations. The calculator reflects changes in available itemized deductions, the increased child tax credit, the new dependent credit and repeal of dependent exemptions.
More Considerations
Tax law changes aren’t the only reason to check your withholding. Additional reviews during the year are a good idea if:
You can modify your withholding at any time during the year, or even multiple times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. (For estimated tax payments, you can make adjustments each time quarterly payments are due.)
The TCJA and Your Tax Situation
If you rely solely on the new withholding tables, you could run the risk of significantly underwithholding your federal income taxes. As a result, you might face an unexpectedly high tax bill when you file your 2018 tax return next year. Contact us for help determining whether you should adjust your withholding. We can also answer any questions you have about how the TCJA may affect your particular situation.
Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s host, and I’m here today with Danielle Supkis Cheek, a Director on our Entrepreneurial Advisory Services team. Welcome back to the Playbook, Danielle.
Danielle: Thanks. Thanks for having me again.
Jen: So, we’ve done a series of accounting pronouncements from several of our other directors. What’s your perspective on some things that have been released recently?
Danielle: My big concern is actually the interplay between the various pronouncements. The pronouncements that we have coming out, particularly revenue recognition and the lease standards, are going to impact every single piece of the balance sheet, fairly simultaneously, within a one to two-year period. Continue Reading
Most charitable not-for-profits have a never-ending need for volunteers. But finding new ones can be time-consuming — and volunteer searches aren’t always successful. Here are recruitment ideas that can help your not-for-profit.
Look Nearby
Is your not-for-profit familiar to businesses, residents and schools in the surrounding community? People often are drawn to volunteer because they learn of a worthwhile organization that’s located close to where they live or work.
Start to get to know your neighbors by performing an inventory of the surrounding area. Perhaps there’s a large apartment building you’ve never paid much attention to. Consider the people who live there to be potential volunteers. Likewise, if there’s an office building nearby, learn about the businesses that occupy it. Their employees might have skills, such as website design or bookkeeping experience, that perfectly match your volunteer opportunities.
Once you’ve identified some good outreach targets, mail or hand-deliver literature introducing your not-for-profit as a neighbor and describing your needs. Consider inviting your neighbors to a celebration or informational open house at your offices.
Fine-tune Your Pitch
By making your pitches as informative and compelling as possible, you’re more likely to inspire potential volunteers to action. Specifically, explain the:
When possible, incorporate photographs of volunteers at work — along with their testimonials. And make it easy for people to take the next step by including your contact information or directing them to your website for an application.
Reach Out to Your Network
Develop a system for keeping those closest to your organization — major donors, board members and active volunteers — informed of your volunteer needs. These individuals often are influential in their communities, so a request from them is more likely to get people’s attention. They may even frame a request for assistance in the form of a challenge, with the solicitor being the first to volunteer their time or funds, of course.
Remain in Pursuit
No matter how precise or thorough your initial recruiting efforts, remember that one-time or sporadic efforts are insufficient to attract a steady supply of volunteers. To get the resources you need, make volunteer recruitment a continuous process that draws on several strategies.
With the April 17 individual income tax filing deadline behind you (or with your 2017 tax return on the back burner if you filed for an extension), you may be hoping to not think about taxes for the next several months. But for maximum tax savings, now is the time to start tax planning for 2018. It’s especially critical to get an early start this year because the Tax Cuts and Jobs Act (TCJA) has substantially changed the tax environment.
Many Variables
A tremendous number of variables affect your overall tax liability for the year. Looking at these variables early in the year can give you more opportunities to reduce your 2018 tax bill.
For example, the timing of income and deductible expenses can affect both the rate you pay and when you pay. By regularly reviewing your year-to-date income, expenses and potential tax, you may be able to time income and expenses in a way that reduces, or at least defers, your tax liability.
In other words, tax planning shouldn’t be just a year-end activity.
Certainty vs. Uncertainty
Last year, planning early was a challenge because it was uncertain whether tax reform legislation would be signed into law, when it would go into effect and what it would include. This year, the TCJA tax reform legislation is in place, with most of the provisions affecting individuals in effect for 2018 – 2025. And additional major tax law changes aren’t expected in 2018. So there’s no need to hold off on tax planning.
But while there’s more certainty about the tax law that will be in effect this year and next, there’s still much uncertainty on exactly what the impact of the TCJA changes will be on each taxpayer. The new law generally reduces individual tax rates, and it expands some tax breaks. However, it reduces or eliminates many other breaks.
The total impact of these changes is what will ultimately determine which tax strategies will make sense for you this year, such as the best way to time income and expenses. You may need to deviate from strategies that worked for you in previous years and implement some new strategies.
Getting started sooner will help ensure you don’t take actions that you think will save taxes but that actually will be costly under the new tax regime. It will also allow you to take full advantage of new tax-saving opportunities.
Now and Throughout the Year
To get started on your 2018 tax planning, contact us. We can help you determine how the TCJA affects you and what strategies you should implement now and throughout the year to minimize your tax liability.
Jen: This is the PKF Texas’ Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s guest host, and I’m here today with Danielle Supkis Cheek, a director and one of our certified fraud examiners. Danielle, welcome to the Playbook.
Danielle: Thanks, Jen.
Jen: I know the Association of Certified Fraud Examiners just recently released their 2018 report to the nation discussing fraud and various statistics. What do small businesses need to know to prevent fraud or at least reduce their risk of fraud?
Danielle: So there’s a lot of things small- and medium-sized businesses can do. Continue Reading
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