With the season of giving upon us, it is a good time to remember that the charitable donations you make during the year help individuals in need and may provide you with a potential tax benefit.
In addition to making donations to long-standing, well-established 501(c)(3) charities, taxpayers in 2017 are giving to organizations that provide relief specifically to victims of the Las Vegas shooting, the California Wildfires and Hurricanes Harvey, Irma and Maria. Moreover, the rise of crowdfunding websites in today’s hyper-social environment has made it easier for individuals and organizations to raise money in less time than ever before. However, not all giving is created equal. To qualify for a charitable deduction, please consider the following:
- Ensure the charity meets the IRS’s qualifications as a tax-exempt organization. Criminals are known to take advantage of devastating events and create bogus charities for which they use the telephone, email and social media to solicit donations from unsuspecting and altruistic victims. Before reaching into your pocket, visit the IRS’s Exempt Organization (EO) Select Check online tool at https://apps.irs.gov/app/eos/. A gift may be tax deductible only is it is given to a tax-exempt organization and not set aside for use by a specific person. This is an especially important point to remember when donating to crowdfunding campaigns. If the project is not associated with a qualified 501(c)(3) charity or if your monetary contribution is intended to benefit a named person or persons, the IRS will not allow you to claim a tax deduction.
- Understand the limits of charitable deductions. Generally, charitable giving can provide you with a deduction of 20 percent, 30 percent or 50 percent of your adjusted gross income (AGI), depending on the type of property you donate and the type of organization to which you give. However, for the 2017 tax year, Congress lifted the 50 percent of income limit on qualified contributions to hurricane relief charities in order to allow taxpayers to make larger gifts during a time of significant need.
- Decide what type of gift to give. Deductible monetary gifts are those you make by cash, check, credit card or payroll deductions to qualifying organizations. The deduction for gifts of personal property, including clothing, toys or furniture, is limited to the item’s fair market value (FMV), or the amount you would receive if you were to sell those items on the open market. When the FMV of property such as cars or boats exceeds $500, your deduction will be the lesser of 1) the gross proceeds the organization receives from its sale of the vehicle or 2) the vehicle’s FMV on the date of the contribution. When you give a gift of sticks, land or other appreciated assets that you held for more than one year, your deduction will be limited to 20 percent of your AGI. However, by gifting those assets to a charity, you may be able to avoid capital gains taxes on the disposition of those assets and reduce the amount of your adjusted gross income that is subject to the Alternative Minimum Tax (AMT).
- Keep receipts and records proving all donations. When making monetary gifts, ensure that the receiving organizations provide you with a receipt or written statement that lists your name, the name of the charity, and the date and amount of each of your contributions. To substantiate gifts you make via payroll deductions, you must keep copies of pay-stubs or Form W-2 wage statements that show the amount withheld and the name of the receiving charity.
- Give before Dec. 31, 2017. To receive a potential deduction in the current tax year for monetary gifts, you must mail or use a credit card to charge your donation before the last day of the year. This applies even if the organization does not deposit your gift until after Jan. 1, 2018.
- Forget the deduction and give your time. Countless organizations are in dire need of volunteers to lend their time and help advance their goals and mission. While you may not deduct the value of the time you spend as a volunteer, the IRS does allow you to deduct the miles you travel to and from the locations where you donate your time.
About the Author: Adam Cohen, CPA, is an associate director in the Tax Services practice of Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale office at (954) 712-7000
or via e-mail info@bpbcpa.com.
The U.S. tax code allows individuals to claim a deduction on their federal income tax returns when they donate money or products to a charitable, non-profit organizations. The deductible contribution reduces the amount of a taxpayer’s income that is subject to tax. However, all donations are not treated equally. Following are some tips for taxpayers to remember to in order to maximize the tax benefits of their charitable contributions.
Ensure the Charity is Qualified. Taxpayers should confirm that the entities to which they make contributions are in fact qualified exempt organizations that are eligible to receive tax-deductible donations. This may be accomplished on the IRS’s website or on the website of Charity Navigator.
Know the Treatment for Different Types of Donations. The amount taxpayers may deduct for gifts of property, rather than cash, are limited to the item’s fair market value. Therefore a donation of used clothing, furniture or other household goods is deductible only up to the amount the taxpayer would receive if he or she sold the property on the open market during that tax year. Special rules apply for donations of large-ticket items, such as cars and boats.
Similarly, the amount taxpayers may deduct from their taxable income will be limited when they receive something in return for their donation, such as meals or merchandise. Under these circumstances, taxpayers may only deduct the amount of their contributions that exceed the fair market value of the benefits they received.
Get Documented Proof. To deduct a charitable contribution of cash or goods valued at $250 or more, taxpayers must receive from the exempt organization a written statement detailing the amount of the contribution and/or a description of the donated property.
Know Your Reporting Requirements. Taxpayers intending to deduct charitable contributions must itemize deductions on Schedule A of file Form 1040, U.S. Individual Income Tax Return. For non-cash contributions totaling more than $500 for the year, taxpayers must File Form 8283. Property valued at more than $5,000 requires taxpayers to include with their income tax filing a qualified appraisal of the property.
About the Author: Adam Cohen, CPA, is an associate director in the Tax Services practice of Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via e-mail info@bpbcpa.com.
In following up with the IRS’s requirement under the Protecting Americans from Tax Hikes Act (PATH Act), the agency has finalized how prospective social welfare organizations seeking to operate as 501(c)(4)s may apply to be treated as exempt from income taxes.
Under the final guidelines, a social welfare organization established after July 8, 2016, will have 60 days from the date of its formation to electronically file with the IRS Form 8976, Notice of Intent to Operate Under Section 501(c)(4). Organizations formed before July 8, 2016, that have not applied for IRS determination and those that have filed at least one annual return face a deadline of September 6, 2016.
Information required on Form 8976 includes an organization’s name, address, state of organization, employer identification number and the month in which its accounting period ends. Organizations must also provide detailed information about their missions, purpose and the needs they fulfill in the community. In addition to completing the form, prospective organizations will be required to pay a $50 user fee.
The IRS will acknowledge electronically that it received the prospective 501(c)(4)’s notice within 60 days of the initial filing.
Should a social welfare organization fail to file an initial notice of intent within the required 60 days after it is established, it will be subject to a penalty equal to $20 for each day after the expiration of this time period, up to a maximum of $5,000.
The advisors and accountants with Berkowitz Pollack Brant work extensively with not-for-profit organizations, providing operational and strategic plan consulting services, tax compliance services, financial statement audits and reviews, and employee benefit plan services.
About the Author: Adam Cohen, CPA, is an associate director in the Tax Services practice of Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via e-mail info@bpbcpa.com.
Posted on September 15, 2016 by
On August 18, 2016, the Financial Accounting Standards Board (FASB) issued its latest update relating to how not-for-profits (NFPs) communicate their financial stories. While the new standards will not go into effect until after December 15, 2017, nonprofit charities, foundations, associations, museums, universities and religious organizations should take the time now to become familiar with Phase 1 of the update and begin taking steps to adopt the initial changes before the release of Phase 2 standards in the near future.
Financial statements are critical to help not-for-profit organizations inform key stakeholders about their fiscal health. Donors, grantors, lenders and creditors rely on the information contained in these documents to understand how and where a NFP will spend its financial contributions, which ultimately support the NFP’s mission and fund the programs and services it provides to help those in need. However, the FASB identified concerns about the “complexity, insufficient transparency and limited usefulness” of the current model of NFP financial reporting that has been in place for more than two decades. After six-years of planning, the FASB issued proposed regulations to simplify the way in which NFPs quantify and qualify their financial performance, their liquidity and cash flows, and their classification of net assets. The latest update aims to achieve this goal.
Two-Class System for Reporting Net Assets
Under Phase 1 of the new accounting standards for nonprofits, the existing three-class system of classifying net asset as unrestricted, temporarily unrestricted and permanently restricted, will be replaced with a simpler two-class structure. Going forward, NFPs will differentiate net assets solely between those net assets with donor restriction and net assets without donor restrictions. With this change, NFPs will still be required to disclose, on the face of financial statements, the nature and amounts of donor-imposed restrictions. However, this information will be supported with enhanced footnote disclosures detailing the limitations that governing boards and donors place on net assets and how the NFPs will ultimately allocate those assets in the future.
Another change intended to improve how stakeholders read and understand NFPs’ financial statements is the required disclosure of underwater endowment funds. When the fair market value of a donor-restricted endowment is less than the original gift amount or the amount the NFP is required to maintain by the donor or by law, NFPs will be required to also report the amount of the deficiency and their governing boards’ policies or decisions to reduce or spend from these funds.
Reporting on Expenses and Investment Returns
The new accounting standards require non-profit entities to report on either the face of financial statement or in disclosure notes not just the function of their expenses (as presently required by generally accepted accounting principles) but also the nature of those expenses. In addition, financial statement notes will need to include an analysis of how the NFP’s apply this information to allocate costs among their programs. This will provide readers of financial statements with more accurate detail about whether an NFP’s expenses are fixed or discretionary, how the expenses relate to the NFP’s mission and how the NFP allocates resources to pay those expenditures.
With regard to investment return, NFPs will no longer be required to disclose investment expenses. Rather, investment return should be presented net of all related external and direct internal investment expenses. This is expected to provide a more comparable measure of investment reporting across all not-for-profits, regardless of their investment activities. Moreover, this new method for presenting investment return will eliminate the difficulties and related costs that NFPs have faced in the past when identifying embedded fees and reporting this information.
Reporting on Liquidity and Availability of Resources
Understanding how a nonprofit manages its liquidity and liquidity risk is an important indication of how it makes use of the resources available to it and how well it maintains adequate cash flow to continue its operations. To make this information more transparent to readers of financial statements, the accounting standards update will require NFPs to disclose in financial statement notes quantitative information regarding how they will manage available liquid resources to meet cash needs for general expenses for the year following the balance sheet date. In addition, NFPs will be required to provide on the face of financial statements or in disclosure notes detailed quantitative information regarding their availability of financial assets at the balance sheet date to meet cash needs for the next year.
Reporting of Operating Cash Flows
Not-for-profits may continue to present the statement of cash flows using either the direct or indirect method of reporting. However, under the new reporting standard, NFPs employing the direct method to report cash flow will no longer be required to take the extra step of reconciling net income to the cash amounts presented under the indirect method.
Early Adoption
While the effective date of the new accounting standards for nonprofits will not begin until fiscal years after December 15, 2017, and for interim periods with fiscal years beginning after December 15, 2018, it behooves NFPs to begin adopting Phase 1 of the new model early. Non-profits will be facing quite a few accounting changes in the coming years, including Phase 2 of the NFP reporting model as well as new standards for accounting for leases and recognizing revenue, both of which will also impact private businesses. This confluence of change will require NFPs to reassess and update their current processes and legacy accounting systems, including engaging in more in-depth and detailed analysis of their net assets and availability of resources, their expenses and their liquidity risk. According to the FASB, the new guidance, once adopted, will ultimately improve a not-for-profit’s ability to communicate its true financial health with its stakeholders and save the NFP additional costs and complexities when preparing their financial statements in the future. Not-for-profit entities should meet with their tax and audit professionals now to begin the process of adopting the new changes.
Berkowitz Pollack Brant has deep experience working with many Florida-based not-for-profit entities, including tax-exempt social and civic organizations, private foundations, hospitals, religious organizations and education institutions. The firm’s advisors and accountants provide tax compliance, audit and attest, and business-advisory services to help these organizations better manage risks, improve efficiency and operate with the highest levels of fiscal responsibility.
About the Author: Megan Cavasini, CPA, is an associate director with Berkowitz Pollack Brant’s Audit and Attest practice, where she works with non-profit organizations and real estate businesses. She can be reached at the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email at info@bpbcpa.com.
Posted on August 11, 2016 by
Most non-profit organizations recognize the power social media can wield to increase awareness and engagements among potential donors. For proof, look no further than the Ice Bucket Challenge, which successfully raised interest, excitement and millions of dollars for ALS research.
Social media platforms are now making it easier for 501(c)(3) organizations to request and process charitable donations from fans and followers directly on the non-profits’ social media pages. Both Facebook and Instragram recently introduced a feature that allows not-for-profits to add a “Donate Now” button directly to their Pages and link ads. By adding the “Donate Now” button, nonprofits can expedite the fundraising process and allow their supporters to make donations without ever leaving Facebook. Alternatively, nonprofits may use the “Donate Now” button to redirect donors to their own charitable websites. With both options, donors will be prompted to share the nonprofit’s Page and invite their friends to make a donation as well. This feature not only expands the nonprofits exposure to the public, it also advances the organization’s goal of fulfilling its mission one dollar at a time.
Berkowitz Pollack Brant has deep experience working with many Florida-based not-for-profit entities, including tax-exempt social and civic organizations, private foundations, hospitals, religious organizations and education institutions. The firm’s advisors and accountants provide tax compliance, audit and attest, and business-advisory services to help these organizations better manage risks, improve efficiently and operate with the highest levels of fiscal responsibility.
About the Author: Megan Cavasini, CPA, is an associate director with Berkowitz Pollack Brant’s Audit and Attest practice, where she works with real estate businesses and non-profit organizations. She can be reached at the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via email at info@bpbcpa.com.
