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Member of Russell Bedford International, a global network of independent professional service firms.
Which employer-offered benefits are you taking advantage of? Do you know all of the benefits available to you? Not only do many employer-offered benefits provide impactful resources to you and your family, but some save you significant money and taxes. Below is a list of benefits that your employer may offer and the tax benefits of each. If you’re unsure of what is available to you, we recommend asking your employer for more information.
For a company that has 50 or more employees, the Affordable Care Act (Obamacare) requires the business to offer at least 95% of its full-time employees and their dependents (but not spouse) with affordable minimum essential health care coverage or be subject to a penalty. If you work for one of these larger employers and the company picks up the entire health insurance premium cost, consider yourself lucky, as the costs of health insurance coverage have risen dramatically over the last few years.
The tax-free benefit of what the employer covers is valuable. If you aren’t aware of the value of this nontaxable employee benefit, you can look at your Form W-2, box 12a, code DD, which shows your share of the cost of employer-sponsored health coverage.
Although some larger employers may provide a company-funded retirement plan that will pay you a monthly benefit when you retire, most generally offer 401(k) plans with which an employee can save for retirement by making pre-tax contributions of up to $19,500 for 2020. And if the employee is age 50 or over, they can qualify to make a catch-up contribution of up to $6,500, bringing the total to $26,000. Some employers also match their employees’ contributions up to a certain amount, which means an employee should endeavor to contribute at least the amount that the employer will match.
Certain transportation-related fringe benefits that an employer may provide to employees are tax-free to the employee, and the employer can deduct the cost. For 2020, the limit on tax-free employer reimbursements is $270 per month each for qualified parking, transit passes, and commuter transportation.
This is a special account established by an employer that allows employees to contribute to the account through salary-reduction contributions. The benefit is that the contributions are pre-tax, meaning the employee doesn’t pay taxes on the money contributed to the account. The FSA account can be used to pay for health plan deductibles, co-payments, and even some over-the-counter-medications with pre-tax dollars. The annual limit on contributions is inflation adjusted and is $2,750 for 2020. However, if you don’t use the money in your FSA, you’ll lose it.
The cost for the first $50,000 of group term life insurance (GTLI) coverage provided by an employer is excluded from the employee’s taxable income. However, the employer-paid cost of group term coverage in excess of $50,000 is taxable income to the employee, even if he or she never receives it.
An employee doesn’t have to include in his or her income amounts paid by the employer for educational assistance under a qualified education-assistance program. The maximum amount of educational assistance that an employee can exclude is $5,250 for any calendar year. Excludable assistance under a qualified plan includes, among others, tuition, fees, books, supplies, and equipment. The education is any training that improves an individual’s capabilities, whether or not it is job-related or part of a degree program.
An employee may exclude amounts paid or expenses incurred by the employer for qualified adoption expenses connected to the employee’s adoption of a child, if the amounts are furnished under an adoption-assistance program in existence before the expenses are incurred. If the adopted child is a special needs child, the exclusion applies regardless of whether the employee actually has adoption expenses. The maximum exclusion amount is inflation adjusted annually and is $14,300 for 2020 per child, for both non-special needs and special needs adoptions. The exclusion is phased out when the employee’s modified adjusted gross income is between $214,520 and $254,520 for 2020. Taxpayers can claim a tax credit for qualified adoption expenses, subject to the same phaseout range as for the exclusion, but any excludable employer-paid expenses can’t be used for the credit.
Qualified payments made or reimbursed by an employer on behalf of an employee for child and dependent care assistance are excluded from the employee’s gross income. The amount of the exclusion is limited to the lesser of $5,000 ($2,500 for married individuals filing separately), the employee’s earned income, or the income of the employee’s spouse. A child and dependent care tax credit is available to taxpayers, but no credit is allowed to an employee for any amount excluded from income under his or her employer’s dependent care assistance program.
Employees who have a high-deductible health plan through their employer can open a health savings account (HSA) and make annually inflation-adjusted pre-tax contributions, which, for 2020, can be up to $7,100 for families and $3,550 for a single individual. When distributions are made for medical expenses, the money comes out tax-free. However, distributions not used to pay qualified medical expenses are taxable, and if the plan’s owner is under the age of 65, nonqualified distributions are subject to a 20% penalty. Some individuals let the account grow and treat it as a supplemental retirement plan, waiting until after age 65 to begin taking taxable but penalty-free distributions.
If you have any questions about how employer-offered benefits might apply to you or if you are an employer interested in providing any of these benefits to your employees, please contact Cray Kaiser.
Tax debt can quickly snowball from interest, penalties, late fees, and the amount of the taxes due. And if you have unpaid taxes that you haven’t yet been making payments toward, it might make you fearful that the IRS will come knocking one day. However, a lot of the scaremongering surrounding the IRS is largely sensationalized in media and daily conversation. Rest assured, agents won’t come bursting through your door just because you have tax debt. In reality, they must follow due process in accordance with the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA). This means that you will always receive written notice concerning your balance due as well as collection actions and any requests for payment plans or settling your account.
However, if you haven’t received further notification concerning what you owe, you may be able to ride out the little-known statute of limitations on tax debt collections, which is 10 years.
What the 10-Year Statute of Limitations Entails
Your tax debt can actually be canceled in 10 years if the IRS makes no efforts to collect on your account — and if you also don’t contact the IRS. However, it’s not as simple as just waiting a decade without ever paying the taxes you owe. There are conditions that must be satisfied. The first is that this 10-year time frame doesn’t begin when you filed that tax return with a balance due or when you realized you owed taxes you couldn’t pay.
The official statute of limitations date begins once you receive written notice from the IRS concerning what you owe. You may receive a notice of deficiency with an actual tax bill or a substitute tax return if you didn’t file by the due date. So, if you filed your tax return on June 15, 2023, and got a notice in the mail dated September 1, your statutory period would begin September 1, not June 15. This date is called the Collection Statute Expiration Date (CSED), and if you make it to September 1, 2033, without further collection actions, then you can actually get your entire tax bill from this period canceled. (Note: Future tax bills, such as next year’s taxes you also can’t afford to pay on the due date, do not count toward this.)
However, the IRS will not actively notify you of this. While the date of assessment is also generally when that notice is received, the IRS has argued over when the assessment date actually was. Some situations can also delay the CSED by halting the clock on the 10-year time frame, such as:
It takes six months after bankruptcy cases settle to get the clock restarted on the CSED, so this means the IRS has more time to take collection actions against you, and the IRS will tend to ramp up these efforts before the statute of limitations expires.
When you access your tax account transcript through your IRS Online Account [Hyperlink: https://www.irs.gov/payments/your-online-account], the transcript will indicate the earliest CSED associated with each tax debt. However, this is only a tentative estimate of the earliest possible date. The IRS can change this date based on the circumstances listed above, and you may also challenge the date through a formal process if you believe it is incorrect.
State Tax Debt
Unlike the IRS, state tax departments do not have reciprocity with the RRA or the Taxpayer Bill of Rights. Taxpayers who are subject to state income tax need to find out what options, if any, are offered by their state tax department, and they may actually take harsher collection actions. They can do this because many state departments do not have oversight committees. They also generally do not offer taxpayers the option to settle back taxes or make payment plans, and many do not have a statute of limitations on collections. The IRS tends to get a bad rap in movies and on TV, but it’s actually the state tax departments that are more likely to show up unannounced.
It’s very rare that anyone rides out the statute of limitations on unpaid taxes, and it’s usually due to extenuating circumstances like disability or a debilitating business closure. If enough time has passed that you think you might be able to go the whole 10 years without payments or responses to collection actions, you must keep fastidious records of all correspondence with the IRS. If the IRS sent you little or no mail in the time period after the time you think the CSED kicked off, you may qualify for the statute of limitations, but you should not intentionally try to ride it out without the guidance of a tax professional specializing in tax relief and resolution issues. Please contact Cray Kaiser today if you have any questions relating to unpaid taxes or your tax situation. We’re here to help.
Please note that this blog is based on tax laws effective in December 2023, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
The digital world is not only here, but it’s continuing to evolve and impact all aspects of our lives – accounting included. Last month the CK team took a trip to Silicon Valley for the QuickBooks Connect conference and we were reminded just how much technology has impacted the way in which we serve our clients. Technology has changed the way accounting departments are structured, how they communicate and the actual production of financial reporting.
The way in which we utilize technology to expand consultative services to assist our clients is the criteria that will set a firm apart from a digital firm. Here are three characteristics that signify a digital, forward-thinking accounting firm:
We are in an application (app) driven world. What used to be a wholly encompassed accounting system has been replaced with various apps that drive efficiencies within specific functionalities such as bill payments, cash flow forecasting, payroll, and much more. Those apps then integrate into well-known accounting platforms such as QuickBooks, Xero, Sage or NetSuite thus pulling all key information into one spot. Sometimes information can be communicated and reported with just a single click, resulting in a more streamlined and robust accounting software that is customized for each user.
Bank information is also typically a click away through a connected application with the financial institution. Rules and smart lists are used to record transactions and the output is posted in the form of transactions which are incorporated into the general ledger details. Both in-house and outsourced accountants can maintain the apps, understand discrepancies and reconcile accounts through the accounting system features. Therefore, selecting an accountant or accounting firm that is skilled with apps is a necessity in the digital world.
The development and utilization of apps and cloud-based accounting platforms allow for users, accountants and other personnel to work remotely. Face-to-face meetings have been replaced with video conferences, e-mails and chat platforms. The ability to facilitate verbal and written communication using these new methods is vital to the success of an organization in the digital world. The ability to get your message across in concise, easy to understand ways is imperative and a skill that will never be replaced with the newest app.
Investing in apps will reduce the time incurred on maintaining and recording detail transactions. This newly saved time can then be invested in enhanced financial reporting and data analysis. In other words, accountants are now utilized for more value-added services to research trends, project future operations, perform cash flow analysis and analyze cost saving initiatives. This allows departments to have more meaningful discussions, brainstorm and strategize for short and long-term planning. While there are various apps to assist in this regard, the real value is in the interpretation of the results that lead to significant business decisions. The opportunity to take on new investment opportunities that will strengthen your organization in the years ahead is invaluable and is not something that can be recommended by an app. It’s the true difference between a commodity-focused accountant and a forward-thinking, client-focused accountant.
Cray Kaiser continues to embrace the use of technology within the full suite of our clients’ accounting needs. We will continue to advise stakeholders with information that is one click away to allow them to manage and understand their financial data through apps and other tools. But we also remain steadfast in the ability to communicate, advise and offer best practices throughout the life cycle of your organization as you navigate the digital world.
We look forward to helping you leverage technology for the benefit of your organization. Please contact Cray Kaiser at 630-953-4900 today to get started or click here to learn about our Accounting Services.
Whether you’re an established nonprofit, a concerned family member, or just someone with an idea and the drive to achieve it, crowdfunding can be an effective way to raise money and awareness. These days all it takes is a cause, an email address, and social media to start raising funds. If done properly you might find yourself meeting your goals in no time. But before you get started with your crowdfunding endeavor, especially as a nonprofit organization, there are a few tips and tax considerations to consider.
Crowdfunding allows people to raise awareness and money for an organization’s cause via online campaigns designed to attract support and donations. But it’s not exclusive to nonprofits – crowdfunding websites can be set up for start-up companies, entrepreneurs, and established businesses too. So, if you’re a nonprofit looking to crowdfund, be sure to pick an online platform that is geared toward or entirely dedicated to nonprofits. You’ll want to make sure the platform speaks to your intentions and your potential donors.
In order to create a crowdfunding page, you will need to be vetted by the sponsoring platform by describing your cause and intentions. You will also have to provide personal information so that they can hold someone accountable for the actions of the site. Many of the available crowdfunding platforms charge a basic fee and the fees vary across providers. Some platforms also share donor information with other businesses so be sure to investigate which platform fits your cause, budget, and donor needs before making a final decision.
Creating your page is only the first step. In order to increase the reach and impact of your campaign, you must also share the crowdfunding site across the multiple social media outlets you belong to such as Facebook, LinkedIn, Instagram, etc. Consider other ways that you can spread your message such as an email blast to your existing supporters or a direct mail campaign. Sharing your cause with as many people as possible will help it gain traction as your message is exposed to more and more people. You never know who may come upon your page and feel as passionate about your cause as you are!
Once donations start rolling in, you should set up a separate bank account to segregate all the money raised from the crowdfunding site. Do not comingle any of the funds with a personal or individual account. This can be construed as fraudulent and misleading by donors and potential authorities. Many crowdfunding platforms set up protocols to prevent these types of actions and deter fraudulent people. You should also note that there is normally an adjustment/waiting period for withdrawing the money raised. Sometimes crowdfunding platforms require you to reach your goal before any funds can be withdrawn.
Most states require fundraising registration for any organization or person that plans to solicit the general public for donations in their state. In Illinois, you must register with the Attorney General even if you only plan to raise $1.00. However, there are some exemptions for medical or personal funds raised on behalf of a singular individual. All other organizations soliciting donations must apply for charitable status whether raising funds in-person or online. Unfortunately, this will be the case for many states until they revise their laws for online crowdfunding.
In most cases, the funds you raised will not classify as a charitable donation. You need to go through a very formal process of registering your organization (or cause) as a tax-exempt entity with the IRS and the related state agency in order to receive charitable status. If you haven’t registered for tax exemption, then the revenue raised on the crowdfunding site will be considered gifts with no tax benefit to the donors. Also, if any one donor contributes more than the gift tax exempt threshold (currently $15,000) they will be required to file a gift tax return. This may not be an issue if you are only trying to raise a limited amount of funds. However, if your goal is to turn your cause into an established organization you may want to consider registering for tax exemption.
If you are preparing your own nonprofit crowdfunding imitative and would like assistance with registering your tax-exempt organization or making sure your crowdfunding is properly setup, please contact Cray Kaiser today. Our team would be glad to help you make your nonprofit crowdfunding efforts as impactful as possible!
Click here to read about nonprofit crowdfunding tax consequences.
As the end of the year approaches and the holiday season brings on the spirit of giving, we will all see an uptick in the number of charitable solicitations arriving in our inboxes. And since some charities sell their contributor lists to other charities, frequent contributors may find themselves besieged by requests from unfamiliar organizations.
As a result, here are three tips to keep in mind as you make charitable contributions:
Be careful. Scammers are out there pretending to be legitimate charities. And they’re looking to take advantage of your generosity for their gain.
When making a donation to a charity with which you’re unfamiliar, you should take a few extra minutes to ensure that your gifts are going to a good cause. The IRS has a search feature, the Tax Exempt Organization Search, which allows people to find legitimate, qualified charities to which donations may be tax-deductible. Note that you can always deduct gifts to churches, synagogues, temples, mosques, and government agencies — even if the Tax Exempt Organization Search tool does not list them in its database.
More and more, organizations and communities are also using crowdfunding campaigns to fundraise and connect with potential donors. While the vast majority of these campaigns are legitimate, be aware that not all crowdfunding donations are tax deductible. If a qualifying charity or religious organization is behind the campaign and receiving the funds, your donation will likely be treated as a regular tax-deductible contribution. But if an individual, business, or anything else that’s not a charity is receiving the funds, then the IRS would treat the donation as a non-deductible gift rather than a deductible contribution. Common examples of non-deductible gifts would be for campaigns to raise funds for a community members’ medical expenses, or to help local businesses recover from natural disasters. These campaigns may be worthy of support, but they are not tax deductible unless backed by a qualified charity.
Here are some other ways to ensure your contributions go to legitimate charities:
Contributions to charitable organizations are deductible if you itemize your deductions on Schedule A. Generally, the deduction is the lesser of your total contributions for the year or 50% of your adjusted gross income. However, the 50% is increased to 60% for cash contributions in years 2018 through 2025. Lower percentages may apply for non-cash contributions and contributions to certain types of organizations. Itemized deductions reduce your gross income when determining your taxable income.
However, with the increase in the standard deduction as a result of the 2017 tax reform, many taxpayers are no longer itemizing their tax deductions (because the standard deduction provides a greater tax benefit). For those in this situation, there are two possible workarounds:
Bunching Deductions: As a rule, most taxpayers just wait until tax time to add everything up and then use the higher of the standard deduction or their itemized deductions. If you want to be more proactive, you can time the payments of tax-deductible items to maximize your itemized deductions in one year and take the standard deduction in the next. Click here to learn more about bunching.
Qualified Charitable Distributions: Individuals age 70½ or older – who must withdraw annual required minimum distributions (RMDs) from their IRAs – are allowed to annually transfer up to $100,000 from their IRAs to qualified charities. Here is how this provision works, if utilized:
1) The IRA distribution is excluded from income;
2) The distribution counts toward the taxpayer’s RMD for the year; and
3) The distribution does NOT count as a charitable contribution deduction.
At first glance, this may not appear to provide a tax benefit. However, by excluding the distribution, a taxpayer lowers his or her adjusted gross income (AGI), which helps with other tax breaks (or punishments) that are pegged at AGI levels, such as medical expenses when itemizing deductions, passive losses, and taxable Social Security income. In addition, non-itemizers essentially receive the benefit of a charitable contribution to offset the IRA distribution.
Charitable contributions are not deductible if you cannot substantiate them. Forms of substantiation include a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or a letter) showing the charity’s name, the date of the contribution, and the amount of the contribution. In addition, if the contribution is worth $250 or more, the donor must also get an acknowledgment from the charity for each deductible donation.
Non-cash contributions are also deductible. Generally, contributions of this type must be in good condition, and they can include food, art, jewelry, clothing, furniture, furnishings, electronics, appliances, and linens. Items of minimal value (such as underwear and socks) are generally not deductible. The deductible amount is the fair market value of the items at the time of the donation; as with cash donations, if the value is $250 or more, you must have an acknowledgment from the charity for each deductible donation.
Note that the door hangers left by many charities after picking up a donation do not meet the acknowledgement criteria; in one court case, taxpayers were denied their charitable deduction because their acknowledgement consisted only of door hangers. When a non-cash contribution is worth $500 or more, the IRS requires Form 8283 to be included with the return, and when the donation is worth $5,000 or more, a certified appraisal is generally required.
Special rules also apply to donations of used vehicles when the claimed deduction exceeds $500. The deductible amount is based upon the charity’s use of the vehicle, and Form 8283 is required. A charity accepting used vehicles as donations must provide Form 1098-C (or an equivalent) to properly document the donation.
No matter what time of year you find yourself making charitable contributions, we encourage you to do it responsibly. Unfortunately, there are complexities when it comes to the spirit of giving and there are individuals out there who are looking to take advantage of well-intentioned people. If you have any questions related to charitable giving, please contact Cray Kaiser today. We’d be happy to help!
Please note that this blog is based on tax laws effective in December 2023, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
As you fill your shopping cart this holiday season you might be wincing at the price tag of some of the presents for your family and friends. But did you know that certain holiday gifts can yield tax benefits? While your online shopping won’t help minimize your taxes, larger gifts can go a long way in bringing you benefits in 2020. Here are a few examples:
If you’re an employer you may purchase gifts this time of year for your team members. If the gift is infrequently offered and has a fair market value so low that it would be impractical to account for it, the gift’s value would be treated as a de minimis fringe benefit. Therefore, it would be tax-free to the employee and tax-deductible by the employer.
Note that a gift of cash, regardless of the amount, is considered additional wages and is subject to employment taxes (FICA) and withholding taxes. Gift certificates, debit cards, and other items that are convertible to cash are also considered additional wages, regardless of the amount. Furthermore, if the employee receiving a cash gift is a W2 employee, the employer cannot issue a 1099-MISC. The cash amount must be treated as W2 income.
Did you know that according to gift tax laws, any individual can pay a student’s tuition directly to a qualified school or university, and it will be exempt from gift tax and gift tax reporting? What student wouldn’t love to have part of his or her tuition paid? It would make a great gift.
As an aside, college tuition generally qualifies for a tax credit. Another quirk in the tax laws says that the education credit goes to the individual who claims the child as a dependent, resulting in another gift from the noncustodial individual who pays the tuition.
Here’s an example: Whitney is attending college and is the dependent of her mother and father. Whitney’s grandfather makes a tuition payment directly to her college and therefore has no gift tax issues. And since Whitney is a dependent of her parents, her parents can claim any available tuition credit. Thus, by paying the tuition, her grandfather made a gift of tuition to his granddaughter and a gift of the tuition credit to her parents.
If you purchase an electric car as a holiday gift for your spouse or even yourself, you will find that most electric cars come with a tax credit. To qualify to claim the credit on your 2019 tax return, the car will have to be “placed in service” by December 31, 2019. So merely ordering the vehicle, even if payment for it is made at the time when the order is placed, won’t be enough. You will need to receive the car and start using it before New Year’s Day.
But before you take the leap, be sure to research the credit available for the electric car you are looking at purchasing. Some credits affiliated with popular electric vehicles may have already expired or have been reduced.
You should also know that the credit is non-refundable for vehicles used strictly for personal use, meaning it can only offset your actual tax liability; any excess credit over your tax liability will be lost. Electric cars used in a business have less stringent tax liability limitations.
Of course, contributions to qualified charitable organizations can be deducted, provided you itemize your deductions. If you are over age 70.5 and have not taken your required minimum distribution (RMD) from your IRA account for 2019, you might consider making direct transfers to the charities of your liking, thereby satisfying your RMD requirement while avoiding taxation of the distribution. Contact your IRA custodian or trustee to arrange the transfer, which would need to be completed by December 31, 2019 to count for 2019.
Some words of caution about charitable contributions during the holiday season: When you are shopping at a mall and drop cash into the holiday kettle, you won’t get a receipt for your contribution, and a cash charitable contribution cannot be claimed as an itemized deduction without documentation. The same goes for buying and then giving new, unused toys to holiday toys-for-kids drives, which have become very popular. In this case, save the purchase receipt for the toys and request verification of the contribution from the sponsoring organization. If the drop point is unmanned and it is not possible to obtain a contribution verification from the organization, the IRS will allow a deduction of up to $249, provided you document the purchase of what you’ve donated.
‘Tis the season for holiday shopping (and tax benefits)! If you have questions about how these suggestions might impact your tax situation, please give us a call at 630-953-4900.
Please note that this blog is based on tax laws effective in November 2019, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
Each day in the life of a nonprofit is spent managing limited resources, often requiring staff members to accept responsibility for tasks both inside and outside of their areas of expertise. That means that any interruption to operations such as staff termination, illness or other unforeseen events can greatly impact the ability to achieve the organization’s mission. And in those moments, nonprofits need additional support to keep basic operations running smoothly.
That’s where Cray Kaiser comes in. Our firm has been a significant resource to nonprofits when they’ve faced an unplanned crisis. When staff responsibilities are stretched thin, it’s vital that financial operations remain uninterrupted. But that’s not always the case, especially when the single team member responsible for accounting activities is unavailable.
Below is an example of how we recently worked with a nonprofit organization on their accounting services and the positive impacts it had on their operations.
One day, a local nonprofit organization found all of their accounting and financial reporting functions come to a halt due to an unplanned staff exit. The organization relied upon this single individual to perform a substantial portion of the day-to-day accounting tasks. And then suddenly, at a moment’s notice, the ability to pay vendors, access the accounting system and prepare for the year-end audit was lost.
Vendors were becoming impatient with delayed payments. The board was left unprepared for an upcoming external audit. The ability to secure continued funding was at risk. The problem had escalated to a crisis almost immediately. That’s when CK was called in.
Our first action was to work with the executive team to develop and implement a strategy to restore all accounting functions as soon as possible. Within a few days, we were able to get the backlog of vendor payments current, a check disbursement process streamlined and authorization levels more defined.
Then, our focus and attention shifted to the financial reporting process. Through this process, we found that significant time was spent in managing charitable giving with manual spreadsheets and that the donor reporting was non-existent. We identified and recommended best practices that enabled the organization to streamline reporting, strengthen internal controls and provide donors confidence that funding was allocated to the appropriate programs and activities.
Based upon these recommendations, CK worked with a third-party software provider and the nonprofit organization to implement a new accounting system. The addition of this software helped streamline manual processes and reduce organizational resources devoted to recordkeeping. Now, key donor reports are just a click away and transactional postings are fully integrated, requiring less manual journal entries into the system.
Finally, our nonprofit client was also feeling pressure for an upcoming year-end audit. As auditors ourselves, we had a clear understanding of the work papers and disclosures that would need to be provided during the audit process. This enabled us to assist the organization in planning for the audit by meeting with the new audit firm, preparing work papers and assisting the auditors with key disclosures for the financial statements. This knowledge and experience allowed us to educate the management team on the importance of providing a well-defined audit trail for transactions including up-to-date accounting procedures. At the end of the audit, our client received an unmodified opinion despite the significant personnel change.
Our relationship with this nonprofit client continues to be strong today not just because of the work performed in their time of need, but more importantly, through our efforts of developing strong lines of communication with the management team and board of directors. Throughout the process, we were there to provide vital communications and support, whether it was a conference call or our physical presence in the board meetings.
CK takes great pride in weathering the storm with our clients and being able to share in their successes. As for this client, we continue to provide weekly onsite visits for check processing, monthly reporting and annual audit preparation services. The organization continues to receive unmodified audit opinions and we help keep them updated on new regulations and standards affecting the industry. From time to time we even step in to provide advisory services such as cash management, payroll processing and customized reporting for various committees such as in the case of fundraising efforts.
Accounting services are a growing need for many organizations, whether a nonprofit or a closely held company, and they can be customized to meet your specific goals and objectives (even as they change and evolve).
Please contact Cray Kaiser for additional information on how these services can help you or click here to learn about our Accounting Services.
Over the last few decades, Master Limited Partnerships (MLPs) have gone mainstream. But what are MLPs? They are companies structured as partnerships and traded on the stock exchanges. You can buy units of the partnership as easily as you can buy common stock.
In order to be a classified as an MLP, the partnership needs to meet two qualifications:
1) The partnership must operate in an industry such as energy or natural resources
2) The partnership must distribute at least 90% of its income to its unitholders
By distributing more than 90% of its income the partnership avoids double taxation, which occurs when tax is paid by corporations first and capital gains tax is paid by individuals on dividends received. With MLPs, the partnership does not pay corporate tax and distributions to the unitholder will be higher because the tax is only paid once at the unitholder level.
At year-end you will receive Form K-1 from the MLP, which allocates income based on your ownership percentage. Since these MLPs operate in a capital-intensive sector, most of the income that is allocated will in many cases be losses, due to the high rate of depreciation. And since you are considered a limited owner of the MLP, these losses will be deferred until you sell your units. On the other hand, the distributions are considered a return of capital and not taxed until you sell your units.
As you can imagine, investing in MLPs introduces more complexity in the preparation of your taxes. In addition to Form K-1, you will be required to individually report each K-1 on your tax return. And the sale of any units in the MLP will require you to determine ordinary and capital portions of any gains, as both have different tax rates.
It is generally recommended that MLPs are held in taxable accounts because any distributions over $1,000 in a retirement account could result in Unrelated Business Taxable Income (UBTI) tax. This is a special tax accessed by the IRS and would cause additional fees charged by your brokerage. Both of these would reduce the appeal of the MLP structure.
If you are interested in MLPs but don’t want to conduct in-depth research or deal with the complexity of tax preparation, you can find Exchange Traded Funds (ETFs) that will circumvent K-1 reporting and diversify company risk. However, keep in mind that the ETFs will be treated as a common stock, which would result in double taxation.
Master Limited Partnerships are complicated in nature and have various tax implications and strategies. If you need guidance on your MLP or EFT, please call Cray Kaiser for assistance.
Please note that this blog is based on tax laws effective in October 2021, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
Which of my product lines are yielding the greatest margins?
Did I earn a profit from Location A last year?
Why is my top line revenue growth not attributing to an increase in my bottom-line results?
Which of my fundraising activities were the best utilization of our resources?
As a business owner or nonprofit organization, if you find that the answers to these questions aren’t a few keystrokes away, you most likely haven’t established profit center reporting into your accounting system. And now is the perfect time to do it!
Profit center reporting is a tool that management can use to review operational profit and loss results for a department, branch, product line, location or activity. It will also provide more meaning to overall profit and loss statements as it allows you to dissect the operational results into meaningful data that can be used in strategic planning.
You may not know that many accounting systems, such as QuickBooks, have the capability to track this type of operational data for you. It is usually an option that can be simply activated and requires little set up. Your accountant can help you with set up if you need additional assistance.
Once profit center reporting is made available, the transactional processing, sales, and billing functions will need some tweaking. Each transaction, activity, product or service item needs a profit center code to provide the revenue stream for the reporting. This can usually be captured as you set up the individual sales categories or lists in your accounting system.
Segregating the cost structure for the profit center reporting may be more complex because there will be different categories of costs to consider. For instance, some costs are tied directly to a profit center and others are general in nature and may relate to several profit centers. These general costs may need to be grouped together and allocated into the profit centers on a monthly basis through a general journal entry. Your accountant can assist you in determining a reasonable basis to allocate such costs in order to provide you with meaningful data.
Generating reports by profit center is a byproduct of your transactional processes. With profit center reporting in place, management will be able to compare select profit centers to identify which units provide the highest sales volume, why different locations’ cost structures yield different results, and how both of these attributes affect the overall entity’s operational results.
Through this process, management can:
With a few changes to your accounting system structure and transactional processing, a wealth of data can be at your fingertips. The information gleaned through profit center reporting will assist you in understanding your operational activities more clearly, allowing you to make informed decisions and initiate strategic planning. Please contact Cray Kaiser if you’d like help setting up your profit center reporting or click here to learn about our Accounting Services.
There are a multitude of ways that technology has turned our world upside down. One of the most recent examples is cryptocurrency. And it’s inevitable that as cryptocurrency gains more traction, it will gain more attention from the IRS. The Service already knows that many cryptocurrency owners are not reporting or paying taxes on their cryptocurrency transactions. In fact, the IRS recently issued warning letters to over 10,000 taxpayers it suspects might have an under-reporting problem. So, if you own cryptocurrency, please keep reading for important information.
Cryptocurrency is a form of digital money that is not controlled by any central authority. The first cryptocurrency created was Bitcoin, back in 2009. Since then, over 4,000 other cryptocurrencies have been created. Cryptocurrency can be digitally traded between users and can be purchased for, or exchanged into, US dollars, euros, and other real or virtual currencies.
One of the big issues surrounding cryptocurrency is how it is treated for tax purposes. The IRS says that it is property, which means that every time it is traded, sold or used as money in a transaction, it is treated much the same way as a stock transaction would be. In other words, the gain or loss over the amount of its original purchase cost must be determined and reported on the owner’s income tax return. That treatment applies every time it is sold or used as money in a transaction.
On the bright side, cryptocurrency is generally treated as a capital asset for most holders, so any gain is a capital gain. If the gain is held for more than a year and a day, any gain will be taxed at the more favorable long-term capital gains rates. If the cryptocurrency is being held as an investment and the sale results in a loss, then the loss may be deductible. Capital losses first offset capital gains during the year, and if a loss remains, taxpayers are allowed a $3,000 per year loss deduction against other income, with a carryover to the succeeding year(s) if the net loss exceeds $3,000.
When cryptocurrency is used as payment to an employee, the usual payroll withholding and reporting still apply, and if used to make payments to an independent contractor, 1099 form reporting is still required. If the individual receiving payment in cryptocurrency is subject to backup withholding, the payer is required to withhold the required amount. In all reporting and withholding instances, the amounts must be in US dollars.
If you have received one of the 10,000 letters sent out by the IRS, do not ignore it! The IRS compiled this list of taxpayers that it feels has not been reporting their cryptocurrency transactions from various ongoing IRS compliance efforts. Here are the three types of letters that were sent out and what you should do if you received it:
The IRS has announced that it will remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits and criminal investigations.
Taxpayers who do not properly report the income tax consequences of virtual currency transactions are liable for the tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.
If you have received one of these IRS letters – or even if you haven’t had correspondence from the IRS but have unreported cryptocurrency transactions from past years – and need assistance, please contact Cray Kaiser. We’re here to help!
Please note that this blog is based on tax laws effective in October 2019, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
