The Coronavirus Aid, Relief, and Economic Security (CARES) Act eliminates some of the tax-revenue-generating provisions included in a previous tax law. Here’s a look at how the rules for claiming certain tax losses have been modified to provide businesses with relief from the novel coronavirus (COVID-19) crisis. NOL deductions Basically, you may be able to benefit by carrying a net operating loss (NOL) into a different year — a year in which you have taxable income — and taking a deduction for it against that year’s income. The CARES Act includes favorable changes to the rules for deducting NOLs. First, it permanently eases the taxable income limitation on deductions. Under an unfavorable provision included in the Tax Cuts and Jobs Act (TCJA), an NOL arising in a tax year beginning in 2018 and later and carried over to a later tax year couldn’t offset more than 80% of the taxable...[ Read More ]
The law providing relief due to the coronavirus (COVID-19) pandemic contains a beneficial change in the tax rules for many improvements to interior parts of nonresidential buildings. This is referred to as qualified improvement property (QIP). You may recall that under the Tax Cuts and Jobs Act (TCJA), any QIP placed in service after December 31, 2017 wasn’t considered to be eligible for 100% bonus depreciation. Therefore, the cost of QIP had to be deducted over a 39-year period rather than entirely in the year the QIP was placed in service. This was due to an inadvertent drafting mistake made by Congress. But the error is now fixed. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. It now allows most businesses to claim 100% bonus depreciation for QIP, as long as certain other requirements are met. What’s also helpful is that...[ Read More ]
A key fiduciary duty of your not-for-profit’s board of directors is to oversee and monitor the organization’s financial health. Some financial warning signs — such as the loss of a major funder — may jump out immediately. But other red flags can be more subtle. Here are some of them. Budget issues Certain budget-related issues may hint at rocky financial times to come. Having no budget is a flashing red light and suggests an undisciplined approach to fiscal matters. But assuming management has submitted a budget, your board should ensure it’s in line with board-developed and approved strategies. Once a budget has been okayed, the board needs to compare it to actual results for unexplained variances. Some discrepancies are bound to happen, but staff should explain significant differences. There may be a reasonable explanation, such as program expansion, funding changes or macroeconomic factors. But your board should be wary of...[ Read More ]
The deductibility of most charitable gifts hasn’t changed since passage of the Tax Cuts and Jobs Act, but some recordkeeping requirements have. Helping your donors who itemize deductions understand the rules and benefits of their gifts can strengthen your not-for-profit’s ties with them — and may help increase contributions. Allowable deductions Generally, donors can deduct total contributions of money or property up to 60% of their adjusted gross income. The amount of the allowable deduction varies, but cash donations are 100% deductible if the donor maintains proof (such as bank records or thank-you letters from your nonprofit). Donations of ordinary-income property usually are limited to the donor’s tax basis in the property (usually the purchase price). Specifically, donors can deduct the property’s fair market value (FMV) less the amount that would be ordinary income or short-term capital gains if they sold the property at FMV. Property is ordinary-income property when...[ Read More ]
If you’re a parent, or if you’re planning on having children, you know that it’s expensive to pay for their food, clothes, activities and education. Fortunately, there’s a tax credit available for taxpayers with children under the age of 17, as well as a dependent credit for older children. Recent tax law changes Changes made by the Tax Cuts and Jobs Act (TCJA) make the child tax credit more valuable and allow more taxpayers to be able to benefit from it. These changes apply through 2025. Prior law: Before the TCJA kicked in for the 2018 tax year, the child tax credit was $1,000 per qualifying child. But it was reduced for married couples filing jointly by $50 for every $1,000 (or part of $1,000) by which their adjusted gross income (AGI) exceeded $110,000 ($75,000 for unmarried taxpayers). To the extent the $1,000-per-child credit exceeded a taxpayer’s tax liability, it resulted...[ Read More ]
Do you own a business but haven’t gotten around to setting up a tax-advantaged retirement plan? Fortunately, it’s not too late to establish one and reduce your 2019 tax bill. A Simplified Employee Pension (SEP) can still be set up for 2019, and you can make contributions to it that you can deduct on your 2019 income tax return. Even better, SEPs keep administrative costs low. Deadlines for contributions A SEP can be set up as late as the due date (including extensions) of your income tax return for the tax year for which the SEP first applies. That means you can establish a SEP for 2019 in 2020 as long as you do it before your 2019 return filing deadline. You have until the same deadline to make 2019 contributions and still claim a potentially substantial deduction on your 2019 return. Generally, most other types of retirement plans would have to...[ Read More ]
Although most not-for-profits have been hurt by the coronavirus (COVID-19) pandemic, your organization’s specific challenges probably depend on your mission, constituency and other factors. For example, social distancing rules have forced most arts organization to temporarily shut down and furlough employees. Many social services charities, on the other hand, have remained open and are struggling to meet surging demand for services. What unites the nonprofit sector right now is financial insecurity. Without reserves and a resilient revenue model, you may be unable to continue operations. Here’s how your leadership needs to act to keep your organization afloat. Take stock First, determine your nonprofit’s cash position and how long you can continue operating if no new revenue comes in. If you’ve built an emergency reserve fund, you may be able to continue for six or more months. Unfortunately, most charities have much thinner cash cushions — perhaps only enough to cover...[ Read More ]
Whether your not-for-profit is newly deluged with demand for services or you’ve closed doors temporarily, it’s important to keep up with legislation responding to the coronavirus (COVID-19) crisis. On March 18, the Families First Coronavirus Response Act was signed into law to provide American workers affected by the pandemic with extended sick and family leave benefits. The new law applies to your nonprofit if you have fewer than 500 employees, although you may be exempt if you have fewer than 50. Here are some details. 3 things to know There are three important components of the new law: 1. Paid sick leave. If a staffer is ill, is instructed to be isolated by a physician or government authority or is caring for a sick family member or child whose school has closed, your organization must provide two weeks of paid leave. Pay part-time workers based on their average hours over a...[ Read More ]
On March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. How is this massive $2 trillion recovery package poised to help your not-for-profit organization? It depends on your group’s size, financial condition and other factors. But most nonprofits affected by the coronavirus (COVID-19) outbreak are eligible for some relief under the CARES Act. Paycheck Protection Program (PPC) This $349 billion loan program (administered by the Small Business Administration) is intended to help U.S. employers, including nonprofits, keep workers on their payrolls. To potentially qualify, you must be a 501(c)(3) or 501(c)(19) organization with less than 500 full- or part-time employees. PPC loans can be as large as $10 million. But most organizations will receive smaller amounts — usually equal to 2.5 times their average monthly payroll costs. If you receive a loan through the program, proceeds may be used only for paying certain expenses, including: Payroll, Health...[ Read More ]