Does your private foundation have a detailed conflict-of-interest policy? If it doesn’t — and if it doesn’t follow the policy closely — you could face IRS attention that results in penalties and even the revocation of your tax-exempt status.
Here’s how to prevent accusations of self-dealing.
Continue Reading Why Foundations Need Strong Conflict-of-Interest Policies
Employees or independent contractors? It’s not only for-profit companies that struggle with the question of how to classify workers for federal tax purposes. Not-for-profit organizations must withhold and pay Social Security, Medicare and unemployment taxes for employees, but not for contractors. (There may also be state tax responsibilities.)
But be careful before you decide that most of your staffers must be contractors. The IRS may not agree.
Continue Reading How to Classify Your NFP’s Workers for Tax Purposes
While you probably don’t have any problems paying your tax bills, you may wonder: What happens in the event you (or someone you know) can’t pay taxes on time?
Most importantly, don’t let the inability to pay your tax liability in full keep you from filing a tax return properly and on time. In addition, taking certain steps can keep the IRS from instituting punitive collection processes.
Here’s a look at the options.
Continue Reading Can’t Pay Individual Taxes? Here’s What to Know
Current financial pressures mean that your not-for-profit probably can’t afford to pass up offers of support. Yet you need to be careful about blindly accepting grants. Smaller not-for-profits that don’t have formal grant evaluation processes are at risk of accepting grants with unmanageable burdens and costs. But large organizations also need to be careful because they have significantly more grant opportunities — including for grants that are outside their current expertise and experience.
Here’s how accepting the wrong grant may backfire in costly and time-consuming ways.
Continue Reading Considerations When Accepting New Grants for Your NFP
There’s a new IRS form for business taxpayers that pay or receive nonemployee compensation. Beginning with tax year 2020, payers must complete Form 1099-NEC, Nonemployee Compensation, to report any payment of $600 or more to a payee.
Why the new form?
Prior to 2020, Form 1099-MISC was filed to report payments totaling at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee. These payments are referred to as nonemployee compensation (NEC) and the payment amount was reported in box 7.
The IRS and the U.S. Treasury had disbursed 160.4 million Economic Impact Payments (EIP) as of May 31, 2020, according to a new report. These are the payments being sent to eligible individuals in response to the economic threats caused by COVID-19. The U.S. Government Accountability Office (GAO) reports that $269.3 billion of EIPs have already been sent through a combination of electronic transfers to bank accounts, paper checks and prepaid debit cards.
Eligible individuals receive $1,200 or $2,400 for a married couple filing a joint return. Individuals may also receive up to an additional $500 for each qualifying child. Those with adjusted gross income over a threshold receive a reduced amount.
However, the IRS says some payments were sent erroneously and should be returned.
There are many ways for a not-for-profit organization to lose its tax-exempt status — including participating in lobbying and campaign activities, receiving excessive unrelated business income and allowing board members to financially benefit from their positions. But the most common reason not-for-profits lose their status is failure to file an annual Form 990 or 990-N for three consecutive years.
If your organization has landed on the IRS’s revocation list for this reason, don’t panic. The process for reinstatement is relatively simple.
Continue Reading Need to Regain Tax-Exempt Status for Your Not-for-Profit?
Many taxpayers don’t make the grade when it comes to recordkeeping. If you operate a small business, or you’re starting a new one, you probably know you need to keep records of your income and expenses. In particular, you should carefully record your expenses in order to claim the full amount of the tax deductions to which you’re entitled. And you want to make sure you can defend the amounts reported on your tax returns if you’re ever audited by the IRS or state tax agencies.
Certain types of expenses, such as automobile, travel, meals and office-at-home expenses, require special attention because they’re subject to special recordkeeping requirements or limitations on deductibility.
It’s interesting to note that there’s not one way to keep business records. In its publication “Starting a Business and Keeping Records,” the IRS states: “Except in a few cases, the law does not require any specific kind of records. You can choose any recordkeeping system suited to your business that clearly shows your income and expenses.”
Here are three court cases to illustrate some of the issues.
Nearly everyone has heard about potentially receiving an Economic Impact Payment (EIP), which the federal government is sending to help mitigate the effects of the coronavirus (COVID-19) pandemic. The IRS reports that in the first four weeks of the program, 130 million individuals received payments worth more than $200 billion.
However, some people are still waiting for a payment. And others received an EIP but it was less than what they were expecting. Here are some answers why this might have happened.
Continue Reading Was Your Economic Impact Payment Lower Than Expected?
The IRS recently released the 2021 inflation-adjusted amounts for Health Savings Accounts (HSAs).
HSA Basics
An HSA is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.” An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high deductible health plan.” In addition, a participant can’t be enrolled in Medicare or have other health coverage (exceptions include dental, vision, long-term care, accident and specific disease insurance).
In general, a high deductible health plan (HDHP) is a plan that has an annual deductible that isn’t less than $1,000 for self-only coverage and $2,000 for family coverage. In addition, the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) cannot exceed $5,000 for self-only coverage, and $10,000 for family coverage.
Within specified dollar limits, an above-the-line tax deduction is allowed for an individual’s contribution to an HSA. This annual contribution limitation and the annual deductible and out-of-pocket expenses under the tax code are adjusted annually for inflation.
Continue Reading The 2021 Amounts for Health Savings Accounts from the IRS