When it comes to charitable deductions, all donations aren’t created equal

Typically, it’s better to defer tax. One way is through controlling when your business recognizes income and incurs deductible expenses. Here are two timing strategies that can help businesses do this: Defer income to next year. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services. Accelerate deductible expenses into the current year. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before Dec. 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid. But if you think you’ll be in a higher tax bracket next year (or you expect tax rates to go up), consider taking the opposite approach instead — accelerating income and deferring deductible expenses. This will increase your tax bill this year but can save you tax over the two-year period. These are only some of the nuances to consider. Please contact us to discuss what timing strategies will work to your tax advantage, based on your specific situation. © 2017 http://www.glasercompany.blog

How to find an investment manager for your nonprofit’s portfolio

Say that your not-for-profit’s investment portfolio has recently grown in size and complexity due to a new endowment. Yet your staff doesn’t have the time or expertise to wisely invest and monitor these funds. This is probably the time to hire an investment advisor — but how do you find the best person to make prudent investments while meeting your investment goals?

Where to start

Finding an advisor starts with identifying a pool of qualified candidates with proven track records. Experience working with nonprofit endowments is key.

Request detailed proposals on how each candidate would manage your investments. Also ask for referrals from local private foundations (possibly ones that have funded you in the past) or other area nonprofits.

Compensation issues

Compensation is a critical issue when engaging an investment advisor. Ask candidates to outline in their proposals how they’ll be compensated for their services. Generally, investment managers charge clients based on one (or a combination) of three structures:

1. Fees or commissions on trades,
2. A percentage of the asset values they’re managing, or
3. An hourly rate.

Many nonprofits insist that their investment manager’s compensation be based on asset value or hours, rather than commission. Trade commission structures can give investment managers an incentive to make trades — even when they’re not in the best interests of the nonprofit.

Conducting interviews

Once you’ve narrowed your list to a few individuals, interview them. Look for someone who closely follows market movements and trends, has a thorough understanding of different types of investments, and is capable of creating and managing a balanced portfolio that can grow without incurring excessive risk.

Understanding the candidates’ investment processes, along with their long-term results, is essential, too. Other desirable qualities include experience assisting investment committees in drafting and changing investment policies and an ability to clearly explain the processes and considerations behind their investment decisions.

Proceed carefully

Select your investment manager carefully — particularly if your nonprofit depends on its endowment to generate monthly revenue. For help finding the right advisor, contact us.

4 ways to influence the public perception of your nonprofit

Don’t wait until you’re facing a PR crisis to address the public’s perception of your not-for-profit. To ensure public trust and respect, you need to be proactive. Consider taking these four steps:

1. Regularly communicate with key constituencies. This means keeping them informed about the latest fundraising figures, how you’re using donations and progress you’re making toward your strategic goals. If the only time you communicate with the public is when you need to raise funds or renew memberships, you’re missing prime reputation-building opportunities.

2. Educate staff and volunteers. Your executive director isn’t the only spokesperson for your nonprofit. Every time staff members or volunteers act on behalf of your organization, they’re representing it. Make sure they understand this responsibility and provide them with appropriate training.

3. Be ready for the boomerang effect. If another nonprofit makes headlines for squandering its funds or some other perceived act of mismanagement, your own organization may feel some of the heat. Be prepared to explain the system of checks and balances your organization has in place to prevent a similar crisis.

4. Let go of what you can’t control. When you run your organization honestly and transparently, you’re working in the best interest of donors and beneficiaries. Some people, however, may still be skeptical of your mission or operations. It’s probably not worth your time to try to win over these rare cynics. Know when to cut your losses and move on.

For more information on ensuring a positive public perception of your organization, contact us.

© 2016

2016 IRA contributions — it’s not too late!

Yes, there’s still time to make 2016 contributions to your IRA. The deadline for such contributions is April 18, 2017. If the contribution is deductible, it will lower your 2016 tax bill. But even if it isn’t, making a 2016 contribution is likely a good idea.

Benefits beyond a deduction

Tax-advantaged retirement plans like IRAs allow your money to grow tax-deferred — or, in the case of Roth accounts, tax-free. But annual contributions are limited by tax law, and any unused limit can’t be carried forward to make larger contributions in future years.

This means that, once the contribution deadline has passed, the tax-advantaged savings opportunity is lost forever. So it’s a good idea to use up as much of your annual limit as possible.

Contribution options

The 2016 limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on December 31, 2016). If you haven’t already maxed out your 2016 limit, consider making one of these types of contributions by April 18:

1. Deductible traditional. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — the contribution is fully deductible on your 2016 tax return. Account growth is tax-deferred; distributions are subject to income tax.

2. Roth. The contribution isn’t deductible, but qualified distributions — including growth — are tax-free. Income-based limits, however, may reduce or eliminate your ability to contribute.

3. Nondeductible traditional. If your income is too high for you to fully benefit from a deductible traditional or a Roth contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take qualified distributions you’ll be taxed only on the growth. Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.

Want to know which option best fits your situation? Contact us.

© 2017

Are you ready for the new revenue recognition rules?

A landmark financial reporting update is replacing about 180 pieces of industry-specific revenue accounting guidance with a single, principles-based approach. In May 2014, the Financial Accounting Standards Board (FASB) unveiled Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. In 2015, the FASB postponed the effective date for the new revenue guidance by one year. Here’s why companies that report comparative results can’t delay any longer — and how to start the implementation process.

No time to waste

The updated revenue recognition guidance takes effect for public companies for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The update permits early adoption, but no earlier than the original effective date of December 15, 2016. Private companies have an extra year to implement the changes.

That may seem like a long time away, but many companies voluntarily provide comparative results. For example, the presentation of two prior years of results isn’t required under GAAP, but it helps investors, lenders and other stakeholders assess long-term performance.

Calendar-year public companies that provide two prior years of results will need to collect revenue data under one of the retrospective transition methods for 2016 and 2017 in order to issue comparative statements by 2018. Private companies would have to follow suit a year later.

A new mindset

The primary change under the updated guidance is the requirement to identify separate performance obligations — promises to transfer goods or services — in a contract. A company should treat each promised good or service (or bundle of goods or services) as a performance obligation to the extent it’s “distinct,” meaning:

1. The customer can benefit from it (either on its own or together with other readily available resources), and

2. It’s separately identifiable in the contract.

Then, a company must determine whether these obligations are satisfied over time or at a point in time, and recognize revenue accordingly. The shift to a principles-based approach will require greater judgment on the part of management.

Call for help

Need assistance complying with the new guidance? We can help assess how — and when — you should report revenue, explain the disclosure requirements, and evaluate the impact on customer relationships and other aspects of your business, including tax planning strategies and debt covenants.

© 2016

Can you defer taxes on advance payments?

Many businesses receive payment in advance for goods and services. Examples include magazine subscriptions, long-term supply contracts, organization memberships, computer software licenses and gift cards.

Generally, advance payments are included in taxable income in the year they’re received, even if you defer a portion of the income for financial reporting purposes. But there are exceptions that might provide you some savings when you file your 2016 income tax return.

Deferral opportunities

The IRS allows limited deferral of income related to advance payments for:

• Goods or services,
• Intellectual property licenses or leases,
• Computer software sales, leases or licenses,
• Warranty contracts,
• Subscriptions,
• Certain organization memberships,
• Eligible gift card sales, and
• Any combination of the above.

In the year you receive an advance payment (Year 1), you may defer the same amount of income you defer in an “applicable financial statement.” The remaining income must be recognized in the following year (Year 2), regardless of the amount of income you recognize in Year 2 for financial reporting purposes. Let’s look at an example.

Fred and Ginger are in the business of giving dance lessons. On November 1, 2016, they receive an advance payment from Gene for a two-year contract that provides up to 96 one-hour lessons. Gene takes eight lessons in 2016, 48 lessons in 2017 and 40 lessons in 2018.

In their applicable financial statements, Fred and Ginger recognize 1/12 of the advance payment in their 2016 revenues, 6/12 in their 2017 revenues and 5/12 in their 2018 revenues. For federal income tax purposes, they need to include only 1/12 of the advance payment in their 2016 gross income. But they must include the remaining 11/12 in their 2017 gross income.

The applicable financial statement

An applicable financial statement is one that’s audited by an independent CPA or filed with the SEC or certain other government agencies. If you don’t have this statement, it’s still possible to defer income; you simply need a reasonable method for determining the extent to which advance payments are earned in Year 1.

Suppose, for example, that a company issues gift certificates but doesn’t track their use and doesn’t have an applicable financial statement. The company may be able to defer income based on a statistical study that indicates the percentage of gift certificates expected to be redeemed in Year 1.

If your business receives advance payments, consult your tax advisor to determine whether you can reduce your 2016 tax bill by deferring some of this income to 2017. And make sure you abide by the IRS’s rules on these payments.

© 2017