While the number of plug-in electric vehicles (EVs) is still small compared with other cars on the road, it’s growing — especially in certain parts of the country. If you’re interested in purchasing an electric or hybrid vehicle, you may be eligible for a federal income tax credit of up to $7,500. (Depending on where you live, there may also be state tax breaks and other incentives.) However, the federal tax credit is subject to a complex phaseout rule that may reduce or eliminate the tax break based on how many sales are made by a given manufacturer. The vehicles of two manufacturers have already begun to be phased out, which means they now qualify for only a partial tax credit. Tax credit basics You can claim the federal tax credit for buying a qualifying new (not used) plug-in EV. The credit can be worth up to $7,500. There are...[ Read More ]

Accounting For Overhead Costs

Posted June 19, 2019

Accurate overhead allocations are essential to understanding financial performance and making informed pricing decisions. Here’s guidance on how to estimate overhead rates to allocate these indirect costs to your products and how to adjust for variances that may occur. What’s included in overhead? Overhead costs are a part of every business. These accounts frequently serve as catch-alls for any expense that can’t be directly allocated to production, including: Equipment maintenance and depreciation, Factory and warehouse rent, Building maintenance, Administrative and executive salaries, Taxes, Insurance, and Utilities. Generally, such indirect costs of production are fixed, meaning they won’t change appreciably whether production increases or diminishes. How are overhead rates calculated? The challenge comes in deciding how to allocate these costs to products using an overhead rate. The rate is typically determined by dividing estimated overhead expenses by estimated totals in the allocation base (for example, direct labor hours) for a future...[ Read More ]
Most TCJA provisions went into effect in 2018 and apply through 2025 or are permanent, but two major changes affect individuals beginning in 2019: 1) While the TCJA reduced the medical expense deduction threshold from 10% of adjusted gross income to 7.5%, the reduction applies only to 2017 and 2018. So for 2019, the threshold returns to 10%. 2) For divorce agreements executed (or, in some cases, modified) after Dec. 31, 2018, alimony payments won’t be deductible by the payer but will be excluded from the recipient’s taxable income. Contact us for details.
A new accounting rule for reporting leases goes into effect in 2019 for public companies. Although private companies have been granted a one-year reprieve, no business should wait until the last minute to start the implementation process. Some recently revised guidance is intended to ease implementation. Here’s an overview of what’s changing. Old rules, new rules Under the existing rules, companies must record lease obligations on their balance sheets only if the arrangements are considered financing transactions. Few arrangements get recorded, because accounting rules give companies leeway to arrange the agreements in a way that they can be treated as simple rentals for financial reporting purposes. If an obligation isn’t recorded on a balance sheet, it makes a business look like it is less leveraged than it really is. In 2016, the Financial Accounting Standards Board (FASB) issued a new standard that calls for major changes to current accounting practices...[ Read More ]
  If your not-for-profit relies heavily on a few funding sources — for example, an annual government or foundation grant — what happens if you suddenly lose that support? The risk may be compounded if you generally spend every penny that comes in the door and fail to build adequate reserves. Bottom line: If your nonprofit hopes to serve its community many years into the future, you need to think about financial sustainability now. Information, please No organization can accurately evaluate its sustainability without timely, comprehensive and accurate financial reporting. In addition to providing a current picture of your standing, financial reports should compare actual figures with historical and projected numbers. Some nonprofits use “dashboards” that give real-time financial data, ratios and trends in easily understood graphic form. It’s not enough for the board to review financial statements. Board members must provide true fiscal oversight and not leave major financial...[ Read More ]
Directors and officers (D&O) liability insurance enables board members to make decisions without fear that they’ll be personally responsible for any related litigation costs. Such coverage is common in the business world, but fewer not-for-profits carry it. Nonprofits may assume that their charitable mission and the good intentions of volunteer board members protect them from litigation. These assumptions can be wrong. Asked and answered Here are several FAQs to help you determine whether your board needs D&O insurance: Whom does it cover? A policy can help protect both your organization and its key individuals: directors, officers, employees and even volunteers and committee members. What does it cover? Normally, D&O insurance covers allegations of wrongful acts, errors, misleading statements, neglect or breaches of duty connected with a person’s performance of duties. Examples include: Mismanagement of funds or investments, Employment issues such as harassment and discrimination, Self-dealing, Failure to provide services, and Failure to...[ Read More ]
If you think that, once your not-for-profit receives its official tax-exempt status from the IRS, you don’t have to revisit it again, think again. Whether your organization is a Section 501(c)(3), Sec. 501(c)(7) or other type, be careful. The activities you conduct, the ways you generate revenue and how you use that revenue could potentially threaten your exempt status. It’s worth reviewing the IRS’s exempt-status rules to make sure your organization is operating within them. Hot buttons There are many categories of tax exemption — each with its own rules. But certain hot-button issues apply to most tax-exempt entities. These include: Lobbying. Having a Sec. 501(c)(3) status limits the amount of lobbying a charitable organization can undertake. This doesn’t mean lobbying is totally prohibited. But according to the IRS, your organization shouldn’t devote “a substantial part of its activities” trying to influence legislation. For nonprofits that are exempt under other categories...[ Read More ]
Private companies that follow U.S. Generally Accepted Accounting Principles (GAAP) must comply with the landmark new revenue recognition standard in 2019. Many private company CFOs and controllers report that they still have significant work to do to meet the demands of the sweeping rules. If you haven’t started the implementation process, it’s time to get the ball rolling. Lessons from public company peers Affected private companies must start following Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification Topic 606), the first time they issue financial statements in 2019. For private companies with a fiscal year end or issuing quarterly statements under U.S. GAAP, that could be within the next few months. Other private companies have until the end of the year or even early 2020. No matter what, it’s crunch time. Public companies, which had to begin following the standard in 2018, reported that,...[ Read More ]
Churches, synagogues, mosques and other religious congregations aren’t required to file tax returns, so they might not regularly hire independent accountants. But regardless of size, religious organizations often are subject to other requirements, such as paying unrelated business income tax (UBIT) and properly classifying employees. Without the oversight of tax authorities or outside accountants, religious leaders may not be aware of all requirements to which they’re subject. This can leave their organizations vulnerable to fraud and its trustees and employees subject to liabilities. Common vulnerabilities To effectively prevent financial and other critical mistakes, make sure your religious congregation complies with IRS rules and federal and state laws. In particular, pay attention to: Employee classification. Determine which workers in your organization are full-time employees and which are independent contractors. Depending on many factors, such as the amount of control your organization has over them, their responsibilities, and their form of compensation,...[ Read More ]