The CPA Desk

A Thought Leader Production by PKFTexas

Factors for Size of Charitable Deduction

Whether you’re claiming charitable deductions on your 2017 return or planning your donations for 2018, be sure you know how much you’re allowed to deduct. Your deduction depends on more than just the actual amount you donate.

Type of gift

One of the biggest factors affecting your deduction is what you give:

Cash. You may deduct 100% gifts made by check, credit card or payroll deduction.

Ordinary-income property. For stocks and bonds held one year or less, inventory, and property subject to depreciation recapture, you generally may deduct only the lesser of fair market value or your tax basis.

Long-term capital gains property. You may deduct the current fair market value of appreciated stocks and bonds held for more than one year.

Tangible personal property. Your deduction depends on the situation:

  • If the property isn’t related to the charity’s tax-exempt function (such as a painting donated for a charity auction), your deduction is limited to your basis.
  • If the property is related to the charity’s tax-exempt function (such as a painting donated to a museum for its collection), you can deduct the fair market value.

Vehicle. Unless the vehicle is being used by the charity, you generally may deduct only the amount the charity receives when it sells the vehicle.

Use of property. Examples include use of a vacation home and a loan of artwork. Generally, you receive no deduction because it isn’t considered a completed gift.

Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven.

Other factors

First, you’ll benefit from the charitable deduction only if you itemize deductions rather than claim the standard deduction. Also, your annual charitable donation deductions may be reduced if they exceed certain income-based limits.

In addition, your deduction generally must be reduced by the value of any benefit received from the charity. Finally, various substantiation requirements apply, and the charity must be eligible to receive tax-deductible contributions.

2018 planning

While December’s Tax Cuts and Jobs Act (TCJA) preserves the charitable deduction, it temporarily makes itemizing less attractive for many taxpayers, reducing the tax benefits of charitable giving for them.

Itemizing saves tax only if itemized deductions exceed the standard deduction. For 2018 through 2025, the TCJA nearly doubles the standard deduction — plus, it limits or eliminates some common itemized deductions. As a result, you may no longer have enough itemized deductions to exceed the standard deduction, in which case your charitable donations won’t save you tax.

You might be able to preserve your charitable deduction by “bunching” donations into alternating years, so that you’ll exceed the standard deduction and can claim a charitable deduction (and other itemized deductions) every other year.

Let us know if you have questions about how much you can deduct on your 2017 return or what your charitable giving strategy should be going forward, in light of the TCJA.

Hot Topics from the SEC

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s host, and I’m here today with Ryan Istre, an Audit Director and a member of the PKF Texas SEC team. Welcome to the Playbook Ryan.

Ryan: Thanks Jen, glad to be here.

Jen: So Ryan what are the hot topics that the SEC staff are looking into these days?

Ryan: That’s a good question Jen. So there are a lot of new accounting pronouncements that are coming up in the very near future but one of the hot topics that the SEC staff are looking into right now are non GAAP financial measures. Some of the items that have come out in recent comment letters relate to the prominence of which non GAAP measures are being displayed over GAAP measures, which we all know is a no-no per Regulation G.
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It’s time for nonprofits to embrace the cloud

Cloud computing promises lower technology costs and greater efficiency and productivity. Yet many nonprofits have yet to move to the cloud, possibly because their staffs are smaller and their IT expertise is limited. Fortunately, cloud computing is a simple concept that’s easy to adopt.

Remote control

Cloud computing, also known as “software as a service,” uses a network of remote third-party servers made available online. Rather than relying on your organization’s own computers or server, you remotely share software and storage to process, manage and share information.

For many nonprofits, the greatest advantage of using cloud services is lower costs. The technology generally eliminates pricey contracts and per-user licensing fees. Instead, cloud customers pay a monthly subscription fee or are billed based on actual usage. What’s more, service providers update their offerings and provide security patches on an ongoing basis.

Another benefit is the scalability of cloud services. You can scale up when you need more storage or data capacity and scale back when you need less. Also, because cloud services aren’t limited to a physical location and can be accessed from anywhere, they make it easy for colleagues, board members and volunteers to collaborate on projects. Finally, cloud services can make it easier to track and report funds over multiple time periods and to analyze budgets, expenses and cash flows. They can also produce specialized data reports.

Rest assured

Most reputable services boast stronger security, including firewalls, authorization restrictions and data encryption, than your own nonprofit could afford to put in place on its own. And cloud services typically offer continuous data backup and disaster recovery capabilities.

That said, your nonprofit can’t possibly have as much control over a cloud system as it would of its own infrastructure. So if control is a priority, you need to weigh it against the benefits of cloud computing.

Vendor options

You’ll want to look for a service that:

  • Frequently updates features,
  • Immediately responds to security threats,
  • Protects the privacy of your data, and
  • Backs up data in multiple locations.

Cost is another major consideration when selecting a vendor. But your nonprofit may qualify for discounts or even gratis services.

Get satisfaction

Before leaping into the cloud, be sure to research your options and get recommendations from other nonprofits and from IT experts.

Sec. 179 expensing information

If you purchased qualifying property by December 31, 2017, you may be able to take advantage of Section 179 expensing on your 2017 tax return. You’ll also want to keep this tax break in mind in your property purchase planning, because the Tax Cuts and Jobs Act (TCJA), signed into law this past December, significantly enhances it beginning in 2018.

2017 Sec. 179 benefits

Sec. 179 expensing allows eligible taxpayers to deduct the entire cost of qualifying new or used depreciable property and most software in Year 1, subject to various limitations. For tax years that began in 2017, the maximum Sec. 179 deduction is $510,000. The maximum deduction is phased out dollar for dollar to the extent the cost of eligible property placed in service during the tax year exceeds the phaseout threshold of $2.03 million.

Qualified real property improvement costs are also eligible for Sec. 179 expensing. This real estate break applies to:

  • Certain improvements to interiors of leased nonresidential buildings,
  • Certain restaurant buildings or improvements to such buildings, and
  • Certain improvements to the interiors of retail buildings.

Deductions claimed for qualified real property costs count against the overall maximum for Sec. 179 expensing.

Permanent enhancements

The TCJA permanently enhances Sec. 179 expensing. Under the new law, for qualifying property placed in service in tax years beginning in 2018, the maximum Sec. 179 deduction is increased to $1 million, and the phaseout threshold is increased to $2.5 million. For later tax years, these amounts will be indexed for inflation. For purposes of determining eligibility for these higher limits, property is treated as acquired on the date on which a written binding contract for the acquisition is signed.

The new law also expands the definition of eligible property to include certain depreciable tangible personal property used predominantly to furnish lodging. The definition of qualified real property eligible for Sec. 179 expensing is also expanded to include the following improvements to nonresidential real property: roofs, HVAC equipment, fire protection and alarm systems, and security systems.

Save now and save later

Many rules apply, so please contact us to learn if you qualify for this break on your 2017 return. We’d also be happy to discuss your future purchasing plans so you can reap the maximum benefits from enhanced Sec. 179 expensing and other tax law changes under the TCJA.

How Technology Impacts a Joint Venture Audit

Russ:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Russ Capper, this week’s guest host, and I’m here today with Brian Baumler, a Senior Vice President, and Kirsten Strieck, shareholder and Director of Operations and Client Services at Joint Venture Strategic Advisors.  Welcome to the Playbook.

Kirsten:  Thank you.

Brian:  Thanks for having us Russ.

Russ:  So you’ve both sort of been in this space, this joint venture mostly for oil and gas companies, for a few years right?

Brian:  That’s correct.  I’ve been in the oil and gas industry working in the oil and gas industry for CPA firms and also within industry for over 30 years.  So lots of experience which is a very powerful tool that we need to perform the services that we do.

Russ:  And I guess they’ve probably changed over the years how you do your joint venture consulting and auditing.

Brian:  Well obviously as you know technology over the last three decades has advanced the energy industry greatly in not only discovering oil and gas, but also in collaborating and sharing data.  And one of the secrets to providing a very efficient joint venture audit is also having access to that data.  So large cubes of data are the benchmark of information that we use to perform a lot of data analytics that help us focus in on core areas of the audit or operations that may have significant red flags and we can focus on those and not spend as much time on those areas that aren’t as important.

Russ:  Wow, so how do you do that?

Kirsten:  Well one of the areas that we use is a remote desktop server.  It allows us to A, audit wherever we are in the world and receive data from our clients anywhere.  We’re also using secure portals to receive this information from our clients so volumes of data come through the internet daily.

Russ:  I guess that also kind of lowers the expense completely doesn’t it if you’re not having to travel everywhere, right?

Kirsten:  That’s exactly right.

Russ:  Do you ever actually advise joint ventures without ever going there?

Kirsten:  Yes we do and it’s very beneficial to both our client and the operators.

Russ:  Wow, very interesting.

Brian:  It also helps too for the fact that we have two office locations so we can have multiple teams jointly working on a similar project together, sharing and collaborating information.

Russ:  And the two office locations Houston and Calgary, is that right?

Brian:  Correct.

Kirsten:  That’s correct.

Russ:  That’s really cool.  Well thanks a lot for bringing us up to date on Joint Ventures.

Brian:  Yep, thank you.

Kirsten:  Thank you.

Russ:  You bet.  For more information about JVSA visit JVSA.com.  This has been another Thought Leader production brought to you by PKF Texas Entrepreneur’s Playbook.  Tune in next week for another chapter.

Boosting the matching gifts your nonprofit receives

Corporate matching can double the value of donors’ gifts — a bonus no not-for-profit organization can afford to pass up. Are you doing everything you can to educate your financial supporters and their employers about matching gifts?

Encourage donors and employers

Most matching programs are managed by HR departments, which provide employees with matching gift forms. Typically, the employer sends the completed forms, along with the matched donations, to the charity the employee has chosen. Dollar-for-dollar matching is most common among participating corporations, but some companies offer more, others less. Many match donations to any nonprofit, but some are more restrictive.

To encourage increased matching gifts, draw up a list of employers in your area that offer matching. Typically, you can find this information in annual reports, on company websites or by calling companies’ HR, PR or community relations departments. If the company operates a foundation, its matching program may run through that entity.

Once you have a comprehensive and accurate list, post it on your website’s donation page. Also use the list to reach out to existing donors you know work for those companies. All of your nonprofit’s solicitations should encourage supporters to check with their employers about the availability of matching.

Set up your own program

If, despite your nonprofit’s best efforts, matching gifts only occasionally trickle in, consider creating your own matching pool. Ask board members and major supporters to match donations during a certain time period, for certain populations or for a minimum donation amount. For instance, your board might match all donations from new contributors in February or a major donor might commit to match gifts made at your annual gala.

Also keep in mind that some charitable foundations will match gifts to jump-start a fundraising effort or major campaign. Such an arrangement might be easier to set up than securing a large employer to donate to your organization.

Be persistent

Gift-matching enables donors to make larger contributions than they can manage on their own. Knowing their gift will be matched, they might even bump up the amount. Therefore, do everything you can to foster matching gifts. Contact us for more information.

Tax deduction for moving costs: 2017 vs. 2018

If you moved for work-related reasons in 2017, you might be able to deduct some of the costs on your 2017 return — even if you don’t itemize deductions. (Or, if your employer reimbursed you for moving expenses, that reimbursement might be excludable from your income.) The bad news is that, if you move in 2018, the costs likely won’t be deductible, and any employer reimbursements will probably be included in your taxable income.

Suspension for 2018–2025

The Tax Cuts and Jobs Act (TCJA), signed into law this past December, suspends the moving expense deduction for the same period as when lower individual income tax rates generally apply: 2018 through 2025. For this period it also suspends the exclusion from income of qualified employer reimbursements of moving expenses.

The TCJA does provide an exception to both suspensions for active-duty members of the Armed Forces (and their spouses and dependents) who move because of a military order that calls for a permanent change of station.

Tests for 2017

If you moved in 2017 and would like to claim a deduction on your 2017 return, the first requirement is that the move be work-related. You don’t have to be an employee; the self-employed can also be eligible for the moving expense deduction.

The second is a distance test. The new main job location must be at least 50 miles farther from your former home than your former main job location was from that home. So a work-related move from city to suburb or from town to neighboring town probably won’t qualify, even if not moving would have increased your commute significantly.

Finally, there’s a time test. You must work full time at the new job location for at least 39 weeks during the first year. If you’re self-employed, you must meet that test plus work full time for at least 78 weeks during the first 24 months at the new job location. (Certain limited exceptions apply.)

Deductible expenses

The moving expense deduction is an “above-the-line” deduction, which means it’s subtracted from your gross income to determine your adjusted gross income. It’s not an itemized deduction, so you don’t have to itemize to benefit.

Generally, you can deduct:

  • Transportation and lodging expenses for yourself and household members while moving,
  • The cost of packing and transporting your household goods and other personal property,
  • The expense of storing and insuring these items while in transit, and
  • Costs related to connecting or disconnecting utilities.

But don’t expect to deduct everything. Meal costs during move-related travel aren’t deductible • nor is any part of the purchase price of a new home or expenses incurred selling your old one. And, if your employer later reimburses you for any of the moving costs you’ve deducted, you may have to include the reimbursement as income on your tax return.

Please contact us if you have questions about whether you can deduct moving expenses on your 2017 return or about what other tax breaks won’t be available for 2018 under the TCJA.

Christmas Came Early for Some Fiscal Year Taxpayers

As we are all aware, the most comprehensive tax reform in over 30 years was signed into law December 22, 2017. Most of the new tax provisions are “effective” for taxable years beginning after December 31, 2017. Tax professionals are still awaiting guidance on how many of these provisions’ will actually be applied.

Arguably one of the biggest revisions resulting from the new tax bill was the reduction in the corporate tax rate to a flat 21%. This new law, as with most of the new provisions, per the new bill’s language is effective for taxable years beginning after December 31, 2017. How this law applies to fiscal year taxpayers, however, was unclear or unaddressed.

The new law, however, does not change IRC Section 15 which calls for the use of a “blended rate” for tax years in which there is a rate change. This calculation is performed by dividing the year end taxable income into two components; a pre rate change component and post rate change component based on a pro rata portion of the number of days in each period. Each component percentage is then multiplied by the total taxable income for the full fiscal year multiplied by the rate for that period. The components are added together to determine the taxpayer’s total tax liability for the full tax year.

What does this mean? Fiscal year taxpayers with tax years ending in 2018 will see a decrease in estimated tax payments and their overall tax liability for the 2017 tax filing! Consult your tax advisor for questions and further guidance.

What to Know About the SEC’s Revenue Recognition Rules

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and I’m here today with Ryan Istre, an audit director and a member of the PKF Texas SEC team.  Ryan, welcome back to the Playbook.

Ryan:  Thanks for having me here Jen.

Jen:  So I know there’s new revenue recognition rules coming, what are the SEC’s views on this for registrants?

Ryan:  That’s a very good question Jen.  The new revenue recognition rules – or ASC 606 – are going to be effective for most registrants beginning January 1st of 2018.

Jen:  So this year?

Ryan:  This year, that’s correct.  What this is intended to do is bring into congruence the SEC’s rules with the new revenue recognition standards.  Some of the topics that are being discussed are the potentially outdated Regulation SX rules.  Other topics which may be of a little more importance are the effect of what happens with retrospective application of these new pronouncements when there are predecessor financial statements followed alongside successive financial statements.
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Making the most of your nonprofit’s internal audit function

The key role of a not-for-profit’s internal auditors was once limited largely to testing financial and compliance controls and reporting their findings to the organization’s leadership. But today, with their cross-departmental perspective, internal audit staff (whether employees or outside consultants) can help anticipate and mitigate a variety of risks, improve processes — and even help evaluate your nonprofit’s strategies.

Core job

On its most basic level, the internal audit function provides independent assurance of compliance with a nonprofit’s internal controls and their effectiveness in mitigating financial and operational risk. Potential risks include fraud, insufficient funds to support programming and reputational damage.

Internal auditors start by identifying a nonprofit’s vulnerabilities and prioritizing them from high to low. Through testing and other methods, they then assess the effectiveness of internal controls. Auditors document their results in reports that include recommended improvements.

Internal auditors further evaluate compliance with laws, regulations and contracts. They follow up on management’s remediation actions to eliminate identified risks and assist external auditors, when applicable.

The effectiveness of the internal audit function hinges on auditor independence. Auditors should be independent from management and all areas they review to avoid bias or a conflict of interest. Auditors should report directly to the board of directors or its audit committee.

Expanded function

Although the internal audit function is often viewed mainly through the prism of compliance and internal controls, it has a lot to offer beyond risk assessments and audit plans. Savvy nonprofits have begun to tap internal audit for strategic purposes.

Auditors may serve as internal consultants, providing insights gathered while performing compliance and assessment work. For example, while reviewing invoices, internal auditors may discover a way to streamline invoice processing.

The internal audit function’s familiarity with the organization’s inner workings also affords it an unusual perspective for evaluating strategic opportunities. Does your nonprofit have a financial weakness that could undermine plans for continuing current programs or launching new ones? Your internal auditor probably knows the answer.

Ask for more

Increased public scrutiny of how nonprofits are governed and held accountable makes an effective internal audit function a must. But internal auditors can offer your nonprofit more than financial and compliance oversight. To ensure you’re making the most of this function, contact us.