The new COVID-19 relief law that was signed on December 27, 2020, contains a multitude of provisions that may affect you. Here are some of the highlights of the Consolidated Appropriations Act, which also contains two other laws: the COVID-related Tax Relief Act (COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act (TCDTR).   Direct payments The law provides for direct payments (which it calls recovery rebates) of $600 per eligible individual ($1,200 for a married couple filing a joint tax return), plus $600 per qualifying child. The U.S. Treasury Department has already started making these payments via direct bank deposits or checks in the mail and will continue to do so in the coming weeks. The credit payment amount is phased out at a rate of $5 per $100 of additional income starting at $150,000 of modified adjusted gross income for marrieds filing jointly and surviving spouses, $112,500...[ Read More ]
COVID-19 has shut down many businesses, causing widespread furloughs and layoffs. Fortunately, employers that keep workers on their payrolls are eligible for a refundable Employee Retention Tax Credit (ERTC), which was extended and enhanced in the latest law. Background on the credit The CARES Act, enacted in March of 2020, created the ERTC. The credit: Equaled 50% of qualified employee wages paid by an eligible employer in an applicable 2020 calendar quarter, Was subject to an overall wage cap of $10,000 per eligible employee, and Was available to eligible large and small employers.   The Consolidated Appropriations Act, enacted December 27, 2020, extends and greatly enhances the ERTC. Under the CARES Act rules, the credit only covered wages paid between March 13, 2020, and December 31, 2020. The new law now extends the covered wage period to include the first two calendar quarters of 2021, ending on June 30, 2021. In addition, for...[ Read More ]
The COVID-19 relief bill, signed into law on December 27, 2020, provides a further response from the federal government to the pandemic. It also contains numerous tax breaks for businesses. Here are some highlights of the Consolidated Appropriations Act of 2021 (CAA), which also includes other laws within it. Business meal deduction increased The new law includes a provision that removes the 50% limit on deducting business meals provided by restaurants and makes those meals fully deductible. As background, ordinary and necessary food and beverage expenses that are incurred while operating your business are generally deductible. However, for 2020 and earlier years, the deduction is limited to 50% of the allowable expenses. The new legislation adds an exception to the 50% limit for expenses of food or beverages provided by a restaurant. This rule applies to expenses paid or incurred in calendar years 2021 and 2022. The use of the word...[ Read More ]
It’s been a tough year for not-for-profits. Many have experienced an increased demand for services just as revenues have plummeted. Until the COVID-19 pandemic is over, your organization’s board of directors will likely play a special role in ensuring that it remains on track financially. In particular, the board should focus on two issues: 1. Budget variances Each month, the board should compare your nonprofit’s budget to actual results and look for unexplained variances. Some discrepancies are bound to happen in this tumultuous time, but your staff should be able to explain all significant differences thoroughly. There may be reasonable explanations for changes in incoming revenue and expenses, such as increased program demands, funding changes or event cancellations. When necessary, the board should direct management to modify activities to mitigate negative variances or institute cost-saving measures. Board members also should keep an eye open for overspending in one program that’s...[ Read More ]
The coming audit season might be much different than seasons of yore. As many companies continue to operate remotely during the COVID-19 pandemic, audit procedures are being adjusted accordingly. Here’s what might change as auditors work on your company’s 2020 year-end financial statements. Eye on technology Fortunately, when the pandemic hit, many accounting firms already had invested in staff training and technology to work remotely. For example, they were using cloud computing, remote access, videoconferencing software and drones with cameras. These technologies were intended to reduce business disruptions and costs during normal operating conditions. But they’ve also helped firms adapt while businesses are limiting face-to-face contact to prevent the spread of COVID-19. When social distancing measures went into effect in the United States around mid-March, many calendar-year audits for 2019 were already done. As we head into the next audit season, be prepared for the possibility that most procedures —...[ Read More ]
Does anyone actually read footnotes? If they’re financial statement footnotes, the answer is usually “yes.” Footnotes can provide donors, governmental supporters and other stakeholders with critical information about your not-for-profit. So it’s important to work with your CPA to make sure your footnotes are accurate and thorough. Operations and accounting policy snapshot One important set of footnotes is the summary of significant accounting policies. This includes two sections. The first is a brief description of your operations (featuring your chief purpose and sources of revenue). The second is a list of the significant accounting policies that have been applied in preparing your statements. Your summary should outline specific policies such as: The accounting method you used, Classification of cash equivalents, Fixed asset capitalization levels, Depreciation methods, Uncertain tax positions, Recognition of contributions and grants as revenue, and Recognition of in-kind contributions. Investment lowdown Footnotes are also used to disclose information...[ Read More ]
Today, many banks are working with struggling borrowers on loan modifications. Recent guidance from the Financial Accounting Standards Board (FASB) confirms that short-term modifications due to the COVID-19 pandemic won’t be subject to the complex accounting rules for troubled debt restructurings (TDRs). Here are the details. Accounting for TDRs Under Accounting Standards Codification (ASC) Topic 310-40, Receivables — Troubled Debt Restructurings by Creditors, a debt restructuring is considered a TDR if: The borrower is troubled, and The creditor, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession it wouldn’t otherwise consider. Banks generally must account for TDRs as impaired loans. Impairment is typically measured using the discounted cash flow method. Under this method, the bank calculates impairment as the decline in the present value of future cash flows resulting from the modification, discounted at the original loan’s contractual interest rate. This calculation may be further complicated if...[ Read More ]
Holiday-inspired generosity and the desire to reduce tax liability makes the end of the year a busy time for charitable giving. According to Network for Good and other sources, approximately 30% of charitable gifts are made in December alone. For nonprofits, an important part of processing these donations is sending thank-you letters that acknowledge gifts. To ensure your letters contain everything they should, here’s a refresher course. The basics and more The IRS mandates that taxpayers substantiate single contributions of $250 or more with written acknowledgments from donation recipients. You can help build good relationships with donors by providing them with all of the information they need in a timely manner. Along with the basics, such as your nonprofit’s name, the amount and date of the donation, make sure your acknowledgment letters state whether donors received anything in exchange for their gifts. For example, you might state that no goods...[ Read More ]
Many businesses are closed or are limiting third-party access as COVID-19 surges across the United States. These restrictions could still be in place at year end — a time when external auditors traditionally observe physical inventory counts for calendar-year entities. Here’s how you can identify and overcome the challenges associated with inventory counts during the pandemic. What’s expected to change? Companies conduct manual counts at the end of the accounting period to ensure that the inventory balance reflected on their balance sheet matches what’s held on-site in raw materials, work-in-progress and finished goods. The extent to which your counting procedures will need to change during the COVID-19 crisis depends on your circumstances. For example, you may need to make only minimal changes to protect employees and third parties, if your inventory is stored in one warehouse and requires only a small team to conduct the count. Possible safety measures might...[ Read More ]

Cutoffs: What counts in 2020 vs. 2021

Posted December 11, 2020

As year end approaches, it’s a good idea for calendar-year entities to review the guidelines for recognizing revenue and expenses. There are specific rules regarding accounting cutoffs under U.S. Generally Accepted Accounting Principles (GAAP). Strict observance of these rules is generally the safest game plan. The basics Companies that follow GAAP must use the accrual method of accounting, not the cash method. That means revenues and expenses must be matched to the periods in which they were earned or incurred. The end of the period serves as a “cutoff” for recognizing revenue and expenses. For a calendar-year business, the cutoff is December 31. However, some companies may be tempted to play timing games to lower taxes or boost financial results. The temptation might be especially high in 2020, as many companies struggle during the COVID-19 pandemic. Now or later Test your understanding of the cutoff rules with these two hypothetical situations:...[ Read More ]