Owning a small business can be both a risky and scary proposition. That’s why it’s imperative to make every dollar count. But despite best efforts, 82% of small businesses fail because of cash flow issues, according to the Bureau of Statistics.1
To further emphasize the point, U.S. Bank conducted a recent study on small businesses and discovered these statistics on how cash flow can exacerbate other issues.2
- 82% – Poor cash flow management skills/poor understanding of cash flow
- 79% – Starting out with too little money
- 78% – Lack of well-developed business plan, including insufficient research on the business before starting it
- 77% – Not pricing properly or failure to include all necessary items when setting prices
- 73% – Being overly optimistic about achievable sales, money required, and about what needs to be done to be successful
- 70% – Not recognizing or ignoring what they don’t do well and not seeking help from those who do
Do your expenses exceed your available cash?
If so, you may have a cashflow issue. If you’re just getting started, it’s an absolute necessity to keep track of your expenses. Of course, the best way to not exceed your expenses is to bring in more cash. But if you’re in the early stages of growth, this may not happen right away. But eventual success is more likely by remembering these key steps:
- Assembling the right team at the right time
- Achieving product/market fit
- Staying on top of the competition
- Getting the necessary funding
- Discipling yourself so expenses don’t exceed existing cash
Managing funds can be a juggling act for a small business owner. Especially when you must pay other employees and most importantly yourself.
So how do you separate business funds from personal funds?
One way is to have an emergency fund when market demand for your product is less. In other words, put more aside during your busy season when your product is in more demand, so you can make it through your off-season.
If your business doesn’t have an off-season you’ll have to be even more disciplined separating business and personal finances, so you have enough for things like housing, food, insurance, utilities, and dependent family members as well as money for your operating expenses.
Seek Out Professional Advice
The best way to increase the likelihood that your small business stays in business is to seek out professional accounting advice. A good accountant will help you create a budget and tell you when it’s a good time to expand and how far you can stretch your finances without taking risks.
Going with your gut can be good for some business decisions but a great accountant can also help pinpoint when business pickups by creating forecasts. A detailed forecast can make sure you can accomplish that growth and business goals in a sustainable and efficient way.
And when tax season rolls around a good accountant can offer a variety of correct ways to file your business taxes. As you probably already know, the current U.S. tax law for small business owners is very complex. And getting it right can be hard for busy entrepreneurs.
Our financial experts at Integrity Accounting are happy to help ensure your small business success with a personalized strategy. Call 505.205.1900 for a consultation or click to schedule an appointment.
2. Jessie Hagen of U.S. Bank, cited on the SCORE/Counselors to America’s Small Business website http://www.score.org
The risks of starting a business are high. But the rewards are equally great. The best way of increasing your chances of success is by keeping your expenses under control and not overpaying on your taxes. However, a survey conducted by personal finance expert Garrett Gunderson found that among his small business owner clients; approximately 93% had overpaid on their taxes over the past dozen years.
With the tax season behind us, chances are as a small business owner, you may have lost out on certain tax breaks—especially if you didn’t have the help of an accountant. Here are a few tax tips and money saving ideas that can help you avoid unnecessary taxes and keep more bucks in the bank.
Keep all receipts. Why do this? Because keeping receipts create the roadmap of your expenses throughout the year. Many of those receipts are for goods and services that can be deducted on your taxes, offsetting taxable income. Depending on your business structure, there are specific deductions you can take for certain structures, plus deductions that apply across all structures. Just remember to create a system for yourself that organizes your receipts for the next year.
Put money in a traditional IRA. Contributing to your IRA is considered a pre-tax contribution which translates to having less taxable income at the end of the year.
Set reminders to pay quarterly taxes. Stay on top of this responsibility through properly addressed envelopes so it’s hard to miss deadlines.
Make charitable donations. This reduces your tax burden and helps your small business get its name out there in the community while helping others. Remember your total tax deductions must exceed the standard deduction.
Get professional help. A certified bookkeeper knows the ins and outs of the tax code and can help your business take advantage of deductions, so you don’t overpay in taxes.
The financial experts at Integrity Accounting can help you avoid tax overpayment and keep your expenses focused on the bottom line. Call 505.205.1900 for a consultation or click to schedule an appointment.
From the counting of goats as a sign of wealth to the record keeping of income from the temples in lower Mesopotamia; accounting and account tools have been the “language of business” since the dawn of civilization. In fact, Egyptian and Mesopotamia clay tables show the recording of tax accounting as early as 2000 to 3300 BC.
Fast forward to today, and accounting remains a major player. The big difference is the disruptive advent of technology and the desire of accountants and bookkeepers who want more efficiency and automation in their practice.
Take for instance, businesses and individuals who need assistance on their taxes turn to QuickBooks Online which recently hit 2.55 million subscribers worldwide for the self-employed. Or Xero accounting software for small businesses which now has 1.2 million customers. These software tools are not only important to individuals and small businesses but also to accountants because of their relationships with these users as they navigate their financial data.
Since we’re well into 2018, here are some of the trends in these types of technology for accountants, small businesses and freelancers that have been defining the year thus far:
Impact of the Gig Economy
If you’re an independent worker, you’re aware of the challenges of short-term contracts and freelance work. You go from “gig to gig” as opposed to having a permanent job where your taxes are automatically taken out by your employer. The McKinsey Institute’s October 2016 report Independent work: Choice, necessity, and the gig economy found that 162 million people in the US and Europe are currently engaged in “gig” work.
An accountant can you help navigate the tricky world of self-employment and provide guidance on the expense claim process. They can also assist with things like getting access to tax self-assessment apps and learning materials, so you can better understand your income and what must be reported to the IRS.
Tax System Changes
You should have already received your tax documents for the upcoming tax season. For employees, it’s a W-2. For Freelancers it’s 1099 forms. Something else to keep in mind is that the IRS recently released their 2017 Digital Services report which includes implementing online tax accounts and developing application programming interfaces (APIs) to better engage with third-party software. An accountant can help you understand the new legislation and how it affects your taxes going forward.
The Growth of Artificial Intelligence (AI)
Because accounting is such an old profession, there hasn’t been much innovation besides software that assists in number keeping. But now AI and machine learning technologies have gotten into the bookkeeping industry. Accounting software vendors you’re already familiar like Intuit, OneUp, Sage and Xero already have out new functions like automation for data entry, reconciliations and more.
And according to Forbes, by 2020, mundane accounting tasks like tax, payroll, audits and even banking will be fully automated. Ask your accountant about AI tools that are already out there. For instance, there’s Sage’s chatbot Pegg, Xero’s Discuss, Quickbooks’ Assistant for small and medium enterprises (SME)s—all of which can eliminate accounting errors that are generally hard to find. These advancements are important because they help reduce accountant liability, so they can focus more on being your advisor.
More Focus on Data Security
With big data breaches happening more and more, accountants understand the importance of safeguarding your financial data and personal information. Be sure to ask your accountant about what type of security software they’ve invested in before you do business with them.
The Rise of DIY Accounting Solutions
Even though software like Intuit’s Quickbooks Assistant and Xero have virtual assistants that make accounting tools simpler to use, SMEs still need a strategy for the future. Personalized insight is something software can’t provide. So, accountants have an opportunity to redefine their roles and offer customers their in-depth knowledge of accounting systems and weight the financial climate to help your business thrive.
What accounting trends have you noticed in 2018?
It’s never too late to start planning for your success. Use these trends as part of your 2018 strategy and reap the benefits. Integrity Accounting can answer questions about the latest technology for tax preparation and offer guidance to help your business grow regardless if you’re self-employed or have employees. For more information, visit www.accountingnewmexico.com or call 505-205-1900.
Hiring a Tax Professional? Here are Top Three Questions to Ask.
It was Benjamin Franklin who said nothing is certain “except death and taxes.” And if you’re like most people, you probably aren’t too excited about the upcoming tax season. In fact, only 45% of the American public has a favorable view of the IRS, compared with 48% who rate it unfavorably.1
One way to avoid the inevitable is to get somebody else to do it—preferably a tax professional. If you’re considering this, you’re in good company. A 2016 GoBankingRates study discovered that about 37% of Americans pay a professional for their tax filing.2 But before you pick up your phone and hire one. Here are three questions you should ask your tax professional before you hire them:
Question One: What are your fees?
This important question may not get a straight answer from your tax professional because it all depends on your return. Are you filing a return in multiple states? Did you work different types of jobs that may require additional forms or schedules? Some tax preparers charge additional fees for these type of complex tax returns. Still, others may charge only a flat fee for their services.
Also be especially wary of professionals who calculate their fees as a percentage of your refund. These types of individuals may be too aggressive in obtaining deductions which may get you on the IRS’ audit list.
Average fees of most tax accountants are…
Here’s what The National Society of Accountant had reported from their members: The average fee charged to prepare an itemized Form 1040 with Schedule A and a state tax return is $273, and the cost for a Form 1040 without itemized deductions and a state return is $176. If you own a business, it’s $457 for an itemized 1040 with schedule C business income 7 State & State Return.3
Question Two: What documentation do I need for my filing?
Knowing the answer to this question will save you time and money. Also remember that regardless of who you hire to prepare your taxes, you are the one ultimately responsible for ensuring all the right paperwork (bank statements, paystubs, 1099 forms, etc.) is there once you begin your tax filing. Remember, regardless of whether your filing is simple or complex, it’s smart to bring all relevant paperwork to ensure you get the maximum return.
Question Three: Do you have Audit Support in the event of a tax audit?
No one likes to ask this question, because no one wants to go through a tax audit. With that said, there is some measure of comfort and reassurance knowing you have a professional on your side if your return is flagged by the IRS. If they do offer this service, find out what it will cost you.
What other questions do you have?
At Integrity Accounting, get your questions answered about your tax preparation and get the guidance you need to ensure a successful tax filing. For more information, visit www.accountingnewmexico.com or call 505-205-1900.
1 – http://www.pewresearch.org/fact-tank/2015/04/10/5-facts-on-how-americans-view-taxes/
2 – https://www.gobankingrates.com/taxes/43-percent-americans-file-taxes-comfort-home-survey-finds/
3 – http://connect.nsacct.org/blogs/nsa-blogger/2017/01/27/nsa-survey-reveals-fee-and-expense-data-for-tax-accounting-firms-in-2016-and-2017-projections
Not all gifts or donations to non-profits are created equal. In fact, there are certain cases where the non-profit may even consider not accepting the gift at all. Gifts of real-estate, for example, may cause the non-profit to incur upfront costs to either maintain or sell the property that they do not currently have available.
One piece of advice to avoid these types of donations is to form a policy that outlines what donations your non-profit is willing to accept and the chain of command that donation approvals will have to follow. It may also be prudent to form a gift approval committee that can review donations on a case to case basis.
Define a holding period for an illiquid gift, and establish in an additional cash gift from the donor is necessary to cover the carrying costs of the asset. Define what is expected of the donor if the liquidation of the asset does not occur within the expected timeline. If there are certain types of assets the organization is not willing to accept, clearly identify them in the policy.
Accepting non-cash gifts can often cause complex tax issues. We recommend setting a minimum gift amount. This will ensure that any upfront expenses that the non-profit could incur will be covered.
For more advice regarding non-profit donations, click here.
- We’ll save you money– Hiring a virtual CPA will save you money as you only use us when you need us– as little or as often as you need — rather than having a full time CFO in the office all of the time, demanding a high salary. You get the freedom and flexibility to choose when you need your virtual CFO’s help and pay accordingly!
- We provide tailor made financial strategies- as an independent firm, we have all of the skills that typical CFOs do, and more. We can apply these skills to multiple industries and situations making us a great asset to your specific business and giving you the best chance at success.
- We have an independent perspective- sometimes you just need a fresh pair of eyes to see a situation clearly. Integrity accounting provides that – an objective look at your financial situation to help you resolve any issues efficiently and resolve them in a timely and cost efficient manner.
- We’re professionals in our field- we have high level training for this type of position, and have experience in managing finances for multiple companies. We’re confident that we can find and provide the right financial solution for your company – while saving the expense you would have providing a salary for a full time in house CFO.
- The bottom line, cost savings – you can hire an Integrity accountant as your virtual CFO costs a fraction of the amount it would be to hire an in-house employee. It ends up saving you from paying for extra office space, computer equipment, a full salary, employment taxes and health coverage.
Contact us today to see how we can help you
Integrity has performed accounting services for small businesses across New Mexico for several years. During this time, we have heard several business owners list regretful decisions that they made while their business was either just starting out or in the growing phase. Accounting mistakes can put your business in a bad position, leaving you with debts that your fledgling company has no way of paying, or can cause you to waste valuable time in order to fix them. These mistakes listed below are some of the most common that we have seen small business owners make that could have easily been avoided.
Keep Track of Receivables
As your business starts to grow, so will your pile of receivables. These documents are sometimes the only proof your company will have that a customer owes your business money. Matching customer payments to the receivables can be a time consuming process, and it is far too easy to fall behind on this task. We have seen several businesses that, come tax time, are swimming in a receivables mess because of the lack of attention to detail. Our advice would be to consider accepting online payments, which can automate the entire receivables process.
Don’t Toss Expense Receipts
As a business owner, it becomes easy to swipe that business card and continue on with your day. But when tax time comes around, unlabeled expenses can be difficult to categorize. Was that $50.00 charge for lunch with a client or office expenses? Keeping a copy of your receipts is key to avoiding a high tax bill if you were to ever get audited. Keep an envelope in your car specifically for the purpose of keeping these receipts and consider purchasing software that will allow you to scan receipts into your accounting system.
Don’t Just Rely on Yourself
Many small business owners have found their way to our office after several months or years of trying to handle their accounting on their own. Typically, we are able to find deductions that they were eligible for in previous years that they did not claim. Relying on yourself for all of your accounting tasks may save some money in the short term, but in the long run it could cost your company a fortune. Also, the time that you spend on your own accounting is time that you could be spending improving your business. Hiring a bookkeeper is never a bad idea either, as they can help keep costs down when it finally is time to meet with your accountant.
Integrity is proud to serve New Mexico small businesses with our premium accounting services. We treat each account as though it were our own firm when we were first getting started. If you think your business could benefit from our services, please contact us. We look forward to hearing from you.
For not-for-profits, June 30th marks the time for year-end audits. As with most years, 2017 brings several changes to the not-for-profits tax code and many other issues. During this time, management can find themselves in a very stressful situation, or even at risk of losing their tax exempt status.
A few of the changes this year involve a new FASB not-for-profit presentation standard, which has made some of the most significant changes to the not-for-profit statement since the 1990’s. The new standard has completely changed the way in which not-for-profits report their net assets, liquidity, and cash flows. Also, the IRS has recently changed the way they review their Form 990-series returns,
“Data-driven decision-making for the Internal Revenue Service Exempt Organizations (EO) division involves running over 200 data queries on Form 990-series returns to ascertain whether a return might warrant examination.”
This increases the chance that if you make a slight error on your Form 990-series return, that it will warrant further investigation from the IRS.
These issues give not-for-profits even more of a reason to partner with an accounting professional to help them prepare for their year-end audits. Integrity Accounting has been assisting not-for-profit organizations for over a decade and has the experience needed to navigate these audits problem-free. For more information, visit the contact section of our site and fill out the form. We will contact you as soon as possible to answer any questions you may have.
We offer a wide array of services to business and individuals throughout the state of New Mexico and beyond. We provide our clients with service that doesn’t just meet expectations, but exceeds them with value-added services. We pride ourselves in offering exemplary customer service to our clients to build long lasting and productive relationships.
For more information regarding top issues for not-for-profits in 2017, click here.
Or, visit our blog regarding how to protect your tax-exempt status here.
New Mexico CPA Tips on ID Theft Prevention:
The IRS has recently implemented various authentication measures that emerged from the Security Summit. While many of the measures might go unnoticed, some are quite obvious. One measure is the two-factor authentication for e-services – which has already prompted a lot of feedback (including some complaints.) But according to the IRS, these measures will significantly decrease risk of fraud and ID theft.
“the Internal Revenue Service today launched a more rigorous e-authentication process for taxpayers that will significantly increase protection against identity thieves impersonating taxpayers to access tax return information through the IRS Get Transcript online service. “ – IRS.GOV
The other is the optional W-2 pilot program, that isn’t being heavily used just yet. The program is an effort to help stop tax return fraud and identity theft.
“…initiative to verify the authenticity of Form W-2 data. This initiative is one in a series of steps to combat tax-related identity theft and refund fraud.
The objective is to verify Form W-2 data submitted by taxpayers on e-filed individual tax returns.” – IRS.GOV
This Verification code appeared on approximately 50 million Forms W-2 in 2017, up from the 2 million forms in 2016.
These techniques implemented by the IRS can certainly be a hassle, but as a CPA firm that has seen our fair share of clients’ identities compromised – and the cost and pain that goes along with it – we know that these measures are worth it. The real benefit of these IRS programs is to keep you, your information, and your identity safe from fraud.
See more at: http://blog.aicpa.org/2017/01/id-theft-two-prevention-hassles-worth-your-time.html
|During January ||All Employers – Give your employees their copies of Form W-2 for 2016 by January 31, 2016. If an employee agreed to receive Form W-2 electronically, post it on a website accessible to the employee and notify the employee of the posting by January 31. |
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| ||All Businesses – Give annual information statements to recipients of certain payments you made during 2016. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient. |
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|January 10 ||Employees – who work for tips. If you received $20 or more in tips during December 2016, report them to your employer. You can use Form 4070 Employee’s Report of Tips to Employer. |
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|January 17 ||Individuals – Make a payment of your estimated tax for 2016 if you did not pay your income tax for the year through withholding (or did not pay in enough tax that way). Use Form 1040-ES. This is the final installment date for 2016 estimated tax. However, you do not have to make this payment if you file your 2016 return (Form 1040) and pay any tax due by January 31, 2017. |
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| ||Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in December 2016. |
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| ||Employers – Nonpayroll Withholding. If the monthly deposit rule applies, deposit the tax for payments in December 2016. |
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| ||Farmers and Fishermen – Pay your estimated tax for 2016 using Form 1040-ES. You have until April 18 to file your 2016 income tax return (Form 1040). If you do not pay your estimated tax by January 17, you must file your 2016 return and pay any tax due by March 1, 2017, to avoid an estimated tax penalty. |
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|January 31 ||Individuals – who must make estimated tax payments. If you did not pay your last installment of estimated tax by January 17, you may choose (but are not required) to file your income tax return (Form 1040) for 2016 by January 31. Filing your return and paying any tax due by January 31, 2017, prevents any penalty for late payment of the last installment. If you cannot file and pay your tax by January 31, file and pay your tax by April 18. |
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| ||Employers – File Form W-3, Transmittal of Wage and Tax Statements, along with Copy A of all the Forms W-2 you issued for 2016. If you file Forms W-2 electronically your due date for filing them with the SSA will be extended to March 31. The due date for giving the recipient these forms is still January 31. |
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| ||Businesses – Give annual information statements to recipients of certain payments made during 2016. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient. This due date only applies to certain types of payments. |
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| ||Health Coverage Reporting – Applicable Large Employers. Provide Form 1095-C to full-time employees. For all other providers of minimum essential coverage, provide Form 1095-B to responsible individuals. Notice 2016-70 extends the due date for providing individuals the 2016 Form 1095-B and the 2016 Form 1095-C from January 31, 2017, to March 2, 2017. |
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February Tax Due Dates 2017
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|February 10 ||Employees – who work for tips. If you received $20 or more in tips during January, report them to your employer. You can use Form 4070. |
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| ||Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the fourth quarter of 2016. This due date applies only if you deposited the tax for the quarter in full and on time. |
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| ||Employers – Federal unemployment tax. File Form 940 for 2016. This due date applies only if you deposited the tax for the year in full and on time. |
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| ||Employers – Nonpayroll taxes. File Form 945 to report income tax withheld for 2016 on all nonpayroll items. This due date applies only if you deposited the tax for the year in full and on time. |
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| ||Certain Small Employers – File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2016. This tax due date applies only if you deposited the tax for the year in full and on time. |
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| ||Farm Employers – File Form 943 to report Social Security and Medicare taxes and withheld income tax for 2016. This due date applies only if you deposited the tax for the year in full and on time. |
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|February 15 ||Individuals – If you claimed exemption from income tax withholding last year on the Form W-4 you gave your employer, you must file a new Form W-4 by this date to continue your exemption for another year. |
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| ||Businesses – Give annual information statements to recipients of certain payments made during 2016. You can use the appropriate version of Form 1099 or other information return. |
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| ||Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in January. |
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| ||Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in January. |
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|February 16 ||Employers – Begin withholding income tax from the pay of any employee who claimed exemption from withholding in 2016, but did not give you a new Form W-4 to continue the exemption this year. |
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|February 28 ||Payers of Gambling Winnings – File Form 1096, Annual Summary and Transmittal of U.S. Information Returns, along with Copy A of all the Forms W-2G you issued for 2016. If you file Forms W-2G electronically (not by magnetic tape), your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms remains January 31. |
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| ||Large Food and Beverage Establishment Employers – with employees who work for tips. File Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer’s Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically your due date for filing them with the IRS will be extended to March 31. |
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| ||Businesses – File information returns (Form 1099) for certain payments you made during 2016. These payments are described under January 31. There are different forms for different types of payments. Use a separate Form 1096 to summarize and transmit the forms for each type of payment. See the General Instructions for Certain Information Returns for information on what payments are covered, how much the payment must be before a return is required, what form to use, and extensions of time to file. |
If you file Forms 1097, 1098, 1099, 3921, 3922 or W-2G electronically, your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms will still be January 31.
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| ||Health Coverage Reporting – If you are an Applicable Large Employer, file paper Forms 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and 1095-C with the IRS. For all other providers of minimum essential coverage, file paper Forms 1094-B, Transmittal of Health Coverage Information Returns, and 1095-B with the IRS. If you are filing any of these forms with the IRS electronically, your due date for filing them will be extended to March 31. |
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March Tax Due Dates 2017
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|March 1 ||Farmers and Fishermen – File your 2016 income tax return (Form 1040) and pay any tax due. However, you have until April 18 to file if you paid your 2016 estimated tax by January 17, 2017. |
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|March 10 ||Employees who work for tips. – If you received $20 or more in tips during February, report them to your employer. You can use Form 4070. |
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|March 15 ||Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in February. |
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| ||Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in February. |
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| ||Partnerships – File a 2016 calendar year income tax return (Form 1065). Provide each partner with a copy of their Schedule K-1 (form 1065-B) or substitute Schedule K-1. To request an automatic 6month extension of time to file the return, file Form 7004. Then file the return and provide each partner with a copy of their final or amended (if required) Schedule K1 (Form 1065) by September 15. |
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| ||S Corporations – File a 2016 calendar year income tax return (Form 1120S) and pay any tax due. Provide each shareholder with a copy of Schedule K-1 (Form 1120S), Shareholder’s Share of Income, Credits, Deductions, etc., or a substitute Schedule K-1. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe. |
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| ||Electing large partnerships – Provide each partner with a copy of Schedule K-1 (Form 1065-B), Partner’s Share of Income (Loss) From an Electing Large Partnership. The due date applies even if the partnership requests an extension of time to file the Form 1065-B by filing Form 7004. |
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| ||S corporation election – File Form 2553, Election by a Small Business Corporation, to choose to be treated as an S corporation beginning with calendar year 2017. If Form 2553 is filed late, S treatment will begin with calendar year 2018. |
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|March 31 ||Electronic Filing of Forms – File Forms 1097, 1098, 1099, 3921, 3922, and W-2G with the IRS. This due date applies only if you file electronically. Otherwise, see February 28. The due date for giving the recipient these forms generally remains January 31. |
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| ||Electronic Filing of Form W-2G – File copies of all the Form W-2G (Certain Gambling Winnings) you issued for 2016. This due date applies only if you electronically file. Otherwise, see February 28. The due date for giving the recipient these forms remains January 31. |
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| ||Electronic Filing of Forms 8027 – File copies of all the Forms 8027 you issued for 2016. This due date applies only if you electronically file. Otherwise, see February 28. |
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| ||Electronic Filing of Forms 1094-C and 1095-C and Forms 1094-B and 1094-B – If you’re an applicable Large Employer, file electronic forms 1094-C and 1095-C with the IRS. For all other providers of essential minimum coverage, file electronic Forms 1094-B and 1095-B with the IRS. Otherwise, see February 28. |
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April Tax Due Dates 2017
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|April 10 ||Employees – who work for tips. If you received $20 or more in tips during March, report them to your employer. You can use Form 4070. |
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|April 18 ||Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in March. |
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| ||Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in March. |
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| ||Individuals – File an income tax return for 2016 (Form 1040, 1040A, or 1040EZ) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. Then file Form 1040, 1040A, or 1040EZ by October 16. |
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| ||Household Employers – If you paid cash wages of $2,000 or more in 2016 to a household employee, file Schedule H (Form 1040) with your income tax return and report any employment taxes. Report any federal unemployment (FUTA) tax on Schedule H (Form 1040) if you paid total cash wages of $1,000 or more in any calendar quarter of 2015 or 2016 to household employees. |
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| ||Individuals – If you are not paying your 2017 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2017 estimated tax. Use Form 1040-ES. |
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| ||Corporations – File a 2016 calendar year income tax return (Form 1120) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe in taxes. |
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| ||Corporations – Deposit the first installment of estimated income tax for 2017. A worksheet, Form 1120-W, is available to help you estimate your tax for the year. |
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May Tax Due Dates 2017
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|May 1 ||Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the first quarter of 2017. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until May 10 to file the return. |
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| ||Employers – Federal unemployment tax. Deposit the tax owed through March if more than $500. |
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|May 10 ||Employees – who work for tips. If you received $20 or more in tips during April, report them to your employer. You can use Form 4070. |
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| ||Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the first quarter of 2017. This due date applies only if you deposited the tax for the quarter in full and on time. |
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|May 15 ||Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in April. |
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| ||Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in April. |
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June Tax Due Dates 2017
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|June 12 ||Employees – who work for tips. If you received $20 or more in tips during May, report them to your employer. You can use Form 4070. |
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|June 15 ||Individuals – If you are a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, file Form 1040 and pay any tax, interest, and penalties due. Otherwise, see April 18. If you want additional time to file your return, file Form 4868 to obtain 4 additional months to file. Then file Form 1040 by October 16. |
However, if you are a participant in a combat zone you may be able to further extend the filing deadline.
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| ||Individuals – Make a payment of your 2017 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the second installment date for estimated tax in 2017. |
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| ||Corporations – Deposit the second installment of estimated income tax for 2017. A worksheet, Form 1120-W, is available to help you estimate your tax for the year. |
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| ||Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in May. |
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| ||Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in May. |
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July Tax Due Dates 2017
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|July 10 ||Employees – who work for tips. If you received $20 or more in tips during June, report them to your employer. You can use Form 4070. |
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|July 17 ||Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in June. |
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| ||Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in June. |
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|July 31 ||Employers – Federal unemployment tax. Deposit the tax owed through June if more than $500. |
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| ||Employers – If you maintain an employee benefit plan, such as a pension, profit sharing, or stock bonus plan, file Form 5500 or 5500-EZ for calendar year 2016. If you use a fiscal year as your plan year, file the form by the last day of the seventh month after the plan year ends. |
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| ||Certain Small Employers – Deposit any undeposited tax if your tax liability is $2,500 or more for 2017 but less than $2,500 for the second quarter. |
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| ||Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the second quarter of 2017. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until August 10 to file the return. |
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| August Tax Due Dates 2017 |
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|August 10 ||Employees – who work for tips. If you received $20 or more in tips during July, report them to your employer. You can use Form 4070. |
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| ||Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the second quarter of 2017. This due date only applies if you deposited the tax for the quarter timely, properly, and in full. |
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|August 15 ||Employer – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in July. |
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| ||Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in July. |
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September Tax Due Dates 2017
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|September 11 ||Employees – who work for tips. If you received $20 or more in tips during August, report them to your employer. You can use Form 4070. |
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|September 15 ||Individuals – Make a payment of your 2017 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the third installment date for estimated tax in 2017. |
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| ||Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in August. |
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| ||Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in August. |
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| ||Electing Large Partnerships – File a 2016 calendar year income tax return (Form 1065-B) and pay any tax due. This due date applies only if you timely requested an automatic 6-month extension. Otherwise, see March 15. Provide each partner with a copy of Schedule K-1 (Form 1065-B) or a substitute Schedule K-1. |
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| ||S Corporations – File a 2016 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you timely requested an automatic 6-month extension. Otherwise, see March 15. Provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1. |
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| ||Partnerships – File a 2016 calendar year return (Form 1065). This due date applies only if you were given an additional 6-month extension. Otherwise see March 15. Provide each partner with a copy of Schedule K1 (Form 1065) or a substitute Schedule K1. |
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| ||Corporations – Deposit the third installment of estimated income tax for 2017. A worksheet, Form 1120-W, is available to help you make an estimate of your tax for the year. |
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October Tax Due Dates 2017
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|October 10 ||Employees – who work for tips. If you received $20 or more in tips during September, report them to your employer. You can use Form 4070. |
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|October 16 ||Individuals – If you have an automatic 6-month extension to file your income tax return for 2016, file Form 1040, 1040A, or 1040EZ and pay any tax, interest, and penalties due. |
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| ||Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in September. |
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| ||Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in September. |
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| ||Corporations – File a 2016 calendar year income tax return (Form 1120) and pay any tax, interest, and penalties due. This due date applies only if you timely requested an automatic 6-month extension, Otherwise, see April 18. |
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|October 31 ||Employers – Social Security, Medicare, and withheld income tax. File form 941 for the third quarter of 2017. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 13 to file the return. |
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| ||Certain Small Employers – Deposit any undeposited tax if your tax liability is $2,500 or more for 2017 but less than $2,500 for the third quarter. |
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| ||Employers – Federal Unemployment Tax. Deposit the tax owed through September if more than $500. |
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November Tax Due Dates 2017
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|During November ||Employers – Income tax withholding. Ask employees whose withholding allowances will be different in 2018 to fill out a new Form W-4. the 2018 revision of Form W-4 will be available on the IRS website by mid-December. |
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|November 13 ||Employees – who work for tips. If you received $20 or more in tips during October, report them to your employer. You can use Form 4070. |
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| ||Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the third quarter of 2017. This due date only applies if you deposited the tax for the quarter timely, properly, and in full. |
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|November 15 ||Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in October. |
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| ||Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in October. |
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December Tax Due Dates 2017
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|December 11 ||Employees – who work for tips. If you received $20 or more in tips during November, report them to your employer. You can use Form 4070. |
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|December 15 ||Corporations – Deposit the fourth installment of estimated income tax for 2017. A worksheet, Form 1120-W, is available to help you estimate your tax for the year. |
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| ||Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in November. |
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| ||Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in November. |
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Before delving any further into the oft-misunderstood world of 990s, here are a few of the more salient though little-known facts about them:
In a 2012 study of the 990 forms that had been filed between 2001 and 2006, Identity Founder (as reported in The Chronicle of Philanthropy) found that one in five tax-exempt organizations had included Social Security numbers on them—even though SS numbers are not required by the IRS. However, and this is the scary part, the IRS is required to make the returns publicly available; naturally, though, the Service but does not have the authority to redact Social Security numbers. Meaning . . . Yes. Whoever puts their Social Security number on a 990 has now made it available to anyone and everyone—over the Internet and everywhere else, as nonprofit organizations are required to make their IRS Form 990 (and their exemption application) available for public inspection during regular business hours.
There are over 1,616,000 tax-exempt nonprofits in the U.S.
Since 2011, more than 500,000 nonprofits across the country have automatically lost their tax-exempt status for having failed to file a 990 form three years in a row.
So if you’re a nonprofit, or planning to file as a nonprofit, the first thing you should know is, despite being able to classify yourself as tax-exempt—i.e., you do not have to pay federal taxes—most nonprofits still must file an informational return with the IRS. That annual report is a Form 990. Which actually comes in several forms: 990, 990-EZ, 990-N, and 990-PF.
And which form you need to file depends on the filing year and the gross receipts of your organization. All 501(c)(3) private foundations file a 990. Nonprofits with gross receipts of more than $50,000 file Form 990 or 990-EZ; nonprofits with gross receipts of less than $50,000 file Form 990-N; and private foundations file Form 990-PF.
The 990 was essentially designed for transparency—to allow the IRS and the general public to evaluate a nonprofit’s operations. The form includes the nonprofit’s mission and information about its programs and finances.
The key to the 990s is to realize that not all nonprofits are created alike. Ergo, not all nonprofits are required to file annual returns. Which ones are truly exempt? Most faith-based organizations, religious schools, and missions or missionary organizations; subsidiaries of other nonprofits (ones covered under a group return that are filed by the parent organization); many government institutions; and state institutions that provide essential services.
The first thing to do, before you even check with the IRS as to whether or not your organization needs to file a return, is to think about filing a 990 just in case. Organizations that have not yet been recognized as exempt still have a duty to file a Form 990. And the duty to file begins on the date of your incorporation. Even if the customer-service agent at the IRS tells you, Hey, you’re fine. You’re a nonprofit. No need to file that 990. Don’t believe them (unfortunately). Better to be on the safe side and file anyway. Better yet, check with us at Integrity Accounting. We know the rules. We know who qualifies as tax-exempt and who doesn’t. And we can file that 990 for you.
Because, even when you do know you need to file that 990, many nonprofits forget to do so. Or they file late.
For most nonprofits, that date to file is nigh: May 15th, for many. (Technically, it’s due on the 15th day of the 5th month after the end of the organization’s taxable year. Usually, then, May 15.) And many nonprofits forget to file. We won’t let that happen. And the failure for not filing is costly. If an organization fails to file a 990 three years in a row, the IRS will automatically revoke its tax-exempt status. (Hence, that figure above, which is a whole lotta lost nonprofits.) The IRS, as pointed out by Cullinane Law Group attorney Mollie Culllinane, a Texas Super Lawyer who specializes in nonprofit law, has no appeal process for automatic revocations due to failure to file. Without this status, your organization could be subject to paying income taxes.
Other penalties are just as severe. Organizations with revenues over $1 million can be dinged for as much as $50,000, and ones with revenues below $1 million can be held accountable for $10,000. While organizations may request two three month extensions, in the words of charitylawyerblog.com columnist and nonprofit law expert Ellis Carter has pointed out, no organization should assume that they’ll get a pass or an extension or that any penalty will be abated or forgiven. Even organizations that have just been created or those with zero revenue, they need to file a Form 990.
And if you’re the head of your nonprofit and your goal is to file a 990 yourself, thinking you’ll be saving your nonprofit a little money—that’s one of the downfalls of many a nonprofit. You forget. You get behind. You fail to file. Then, Wham! There goes your tax-exempt status.
Other pitfalls, as again pointed out by charitylawyerblog.com’s Carter: using your state’s form for nonprofit article of incorporation, which usually does not include the provisions that the IRS requires. Misclassifying your employees. Pulling bylaws off the Internet or off other organizations. Forming an LLC (the IRS will not view an entity with private owners as operating for exclusively tax-exempt purposes. And failing to file 990s for that startup period. As stressed by Carter, if you’re filing as a nonprofit, the IRS recognizes you as such from that moment you file. Even if it’s a short year, even if you bring in no revenue. And as Carter says, “If you don’t file 990s while you are waiting for tax-exempt status, the IRS may revoke an exemption immediately upon granting it.”
These are only some of the reasons—some of them obvious, some not so obvious—why you need to file a 990. And why you’d be doing yourself and your nonprofit a favor by talking to us here at Integrity Accounting. We will help you figure out just how tax-exempt you really are, and whether or not you are required to file that 990.
Well, there are many reasons. Not least among them being: we at Integrity Accounting like what we do. To paraphrase Sally Field: We really, really like it. Is filing taxes something you enjoy doing as much as we do? If it is, if you like doing it and it’s cost-effective, i.e., if you’re taxes are pretty straightforward and you can get them done in five hours or less and there’s little chance of any mistakes or worry that the IRS won’t be knocking on your door down the line, then, yes, going solo probably works.
But what if numbers aren’t your thing? What if you want to save yourself some time? Integrity Accounting can help you cut down on the confusion, and cut down on the time it takes to do the job effectively. What if you owe back taxes?
Or maybe you’ve undergone a major life change in the past year? Divorce, inheritance, married, retired? New kids? Inheritances and divorces can be costly, while kids and marriage can save you money. Or maybe you’re starting a new business. Integrity can help you with all the proper forms.
Maybe you’re bringing in more than $200,000 per year. Chances are, you’re doing that well financially, you’re probably plenty smart enough to file your taxes on your own. But do you want to spend your time doing that? When we at Integrity Accounting—we like finding loopholes and new laws and obscure codes that will ultimately save you money. It’s fun for us. Is it fun for you? Is it financially fun for you? Besides, the likelihood of an audit increases the more you make: if you’re making under $200K, the chance of an audit is 0.9%; over $200K, 3.7%; over $1 million, 12.5%. You keep doing what you’re doing (well enough to make all that money), and let us do what we do best: taxes—and having your back if the IRS comes calling.
Or maybe you own a business, you’re self-employed, you have rental properties. There are opportunities to minimize taxes by depreciating business or real estate assets.
Or you have some real estate you’re wanting to unload. An accountant can help you use a like-kind exchange to minimize your taxes on the gain of property that you are planning to sell. “Historically, these exchanges are a very important consideration for a very important segment of the economy,” said Jeffrey D. DeBoer, chief executive of the Real Estate Roundtable. And so . . . important to you and your tax returns.
We can also be a huge help in setting aside money for kids and grandkids—or whomever. There are all sorts of options for tax-deferred or tax-free saving, whether you are considering creating a trust for your children or setting up a 529 plan for college saving plan. (Many parents have been wondering of late what steps they can take to keep their education savings intact, according to 529 experts like David Malone, director of Investment Management at Ascensus, the leading administrator of 529 college savings plans, and Joe Hurley, founder of Savingforcollege.com and the nation’s foremost expert on 529s.) Or say you’re wanting to make a large gift. Simple, right? It’s not as easy as dropping a five-dollar bill into that Salvation Army bucket. Integrity can fill you in on all the different tax advantages (yes, the advantages of giving away money) that are out there, including using your retirement plan as a source of funds or employing a donor advised fund.
Let’s say you don’t have any specific reason. We can still help you. How? We’re up on all the changes in the tax laws. We’re ever mindful of what’s going on and how the latest changes might help or hinder you. Or maybe your own tax situation has changed and you’re not even aware of it—how to guard against unseen hits, how to take advantage of something that could be very much in your favor.
But one of the best reasons to seek us out here at Integrity is this: we will never lie to you about your finances. We’re your best sounding board. Would that real estate investment yield a satisfactory return on investment? Should you lease or purchase that piece of capital equipment? Is that a sound stock investment? Can you really give your cousin $13,500 this year tax-free (to her) or is it still $11,000? Or what is the figure nowadays anyway?
If any of the above sounds like it might apply to you, then visit us at Integrity Accounting. We like what we do. We really do. And so will you. You really will.
Among the Top 24 Taxpayer Problems of 2015, as recently put out by National Taxpayer Advocate Nina Olson, who heads the Taxpayer Advocate Service (TAS), an independent office within the IRS that helps taxpayers and protects taxpayer rights, perhaps the scariest and yet most promising concern is Number 16: Identity theft.
Identity theft isn’t just media-sexy or trendy, it’s real. As stated in Olson’s report, “tax-related identity theft (IDT) occurs when an individual intentionally uses the personal identifying information of another person to file a falsified tax return with the intention of obtaining an unauthorized refund. Identity theft victims must substantiate their identity with the Internal Revenue Service (IRS), file various forms, and wait months or even years to receive their tax refunds and unwind the account issues.”
While Olson praised the IRS’ recent revamp (a centralized approach), “the National Taxpayer Advocate remains much more concerned with the IRS’s IDT victim assistance procedures than she is with the organizational structure of the IDT victim assistance unit.”
And the number of victims continues to grow. At the end of September 2015, the IRS had more than 600,000 identity theft cases affecting taxpayers (excluding duplicates), an almost 150 percent increase over 2014.
Olson’s recommendations, with which we here at Integrity concur: expand the Identity Protection PIN availability nationwide, appoint one contact person and a direct phone line for identity theft victims with multiple issues, revamp account reviews so that all issues are resolved before a case is closed, and train employees to deal with identity theft.
To its credit, the IRS has implemented new safeguards for 2016 and has also launched its own anti-tax return identity theft campaign: Taxes. Security. Together. (This, despite the major gaffe wherein the agency sent out IP PINs dated for 2014 instead of 2015. These special PINs are for taxpayers who’ve had their identities stolen; last year alone, the IRS issued more than 1.2 million of the special filing numbers.)
Some T.S.T. anti-tax return identity theft suggestions:
Always use security software with firewall and anti-virus protections. Make sure the security software is always turned on and can automatically update. Encrypt sensitive files such as tax records you store on your computer. Use strong passwords.
Learn to recognize and avoid phishing emails, threatening calls and texts from thieves posing as legitimate organizations such as your bank, credit card company—even the IRS. Do not click on links or download attachments from unknown or suspicious emails.
Protect your personal data. Don’t routinely carry your Social Security card, and make sure your tax records are secure.
And if you have had your identity stolen, the IRS has also provided some psychological if not exactly practical relief by making available (sort of) a copy of any return that was illegally filed under your name and Social Security number.
More an awareness campaign than anything, T.S.T. still has some useful, if common-sense suggestions. And it’s a campaign we here at Integrity appreciate because the agency has taken the unusual step of including tax experts like ourselves and others in the tax industry in its efforts to protect your federal and state tax accounts from identity thieves.
“Tax preparers,” as the IRS’ T.S.T. document pointed out, “are critical and valued partners in the tax administration process, and they have an important role to play in helping prevent identity theft.” Yes we do.
Yes. We. Do.
So you’ve secured your nonprofit’s tax-exempt status. Congratulations! Now that you’re done, it can be tempting to coast. However, a quick glance through Google News shows 5 articles about organizations that may be losing their tax-exempt status. The NFL and the YMCA two of the high-profile cases.
So, how do you keep you tax-exempt status secure? Well, the IRS outlines 6 different ways that non-profit organizations can lose their non-profit status:
- Private/Benefit Inurement
- Political Activity
- Unrelated Business Income (UBI)
- Annual Reporting Obligation
- Operation in Accord with Stated Exempt Purpose(s)
The rest of this blog will delve into each offense and offer tips for avoiding IRS penalties.
Remember Your Annual Reporting Obligation
Nonprofit organizations are tax-exempt, but they still have to submit income documentation to the IRS each year. This helps the IRS verify that the nonprofit organization still qualifies for exemption. To fulfill this requirement, nonprofits must complete one of the forms in the 990 series.
A failure to meet this obligation is the easiest way to lose your tax-exempt status. Thanks to the Pension Protection act of 2006, there is a new law that allows for an automatic revocation of a nonprofit’s tax-exempt status if the organization fails to file for three consecutive years. If this happens, you still have the ability to regain your tax-exempt status, but it’s a pain. Trust us.
Avoid Private Benefit and Inurement
Nonprofit organizations are created to serve an “exempt purpose.” This purpose is the reason that the nonprofit has been granted an exempt status. If the organization deviates from this “purpose” in order to benefit a private interest, organization, or individual, it could lose its tax-exempt status.
When that benefit is directed internally towards board members or important employees, it’s referred to as inurement. Inurement occurs when internal stakeholders are paid excessive income or sold property at a price lower than the fair market value.
Earlier this year, the NFL voluntarily gave up their nonprofit status. According to Forbes, the NFL was trying to avoid Congressional investigations related to benefit and inurement. Since NFL Commissioner Roger Goodell made approximately 40 million per year, this isn’t hard to imagine.
To avoid penalty for private benefit or inurement, develop a process for approving benefits and salaries. When developing the process, remember that nonprofits serve the public good, not private organizations or employees. Make sure that people buy into the process, and make sure the process considers fair market value. If you’re unsure whether you’re overcompensating an employee or benefitting an organization, consult an attorney or an accounting firm.
Avoid Political Activity and Lobbying
As a rule of thumb, all 501(c)3 organizations should avoid the political sphere. The IRS prohibits political activity and lobbying. The penalty? You guessed it – revocation of the organization’s tax-exempt status.
Political activity includes any activity that supports or opposes a political candidate or party in the federal, state, or local government. Lobbying is the process of contacting or urging others to contact members of a legislative body in order to influence ongoing legislative decisions. This includes proposing, supporting, opposing, and rejecting legislature. 501(c)3 organizations are allowed to lobby, but it cannot be a significant part of the organizations’ activities.
Don’t do it. Don’t support political parties, candidates, or campaigns. I know this answer sounds flippant, but political activity is prohibited. Period.
Lobbying is a slightly different story. Some legislation can directly influence your organization’s ability to function. Take Planned Parenthood as an example. For better or for worse, Planned Parenthood is directly influenced by legislation on abortion. Because of this, it can be tempting to engage in lobbying in order to protect the organization and its purpose. Our advice here? Only lobby in small doses. You’re probably safe encouraging your constituents to lobby and making persuasive phone calls. If you’re devoting organizational resources to lobbying, you may want to reconsider.
Operate in Accord with Stated Exempt Purpose(s) and Minimize UBI
In finance, the market looks unfavorably on organizations that generate too much income from secondary or tertiary business practices. The same is true for nonprofit organizations and the IRS. The money that comes from the practices is called unrelated business income or UBI. Nonprofits are allowed to have UBI, but not too much. Think property sale or equipment sale.
On that same note, nonprofits should also operate in accordance with their tax-exempt purpose. This requirement is fairly straightforward. Nonprofits exist for a specific purpose, and they’re given a tax-exempt status to pursue that purpose. If a nonprofit deviates from their purpose on a large level, the organization must inform the IRS or risk losing its status.
I you feel that your nonprofit is growing away from its tax-exempt purpose, inform the IRS. Nonprofits can update their purpose, and it’s a whole lot easier than re-applying for tax exemption. If you plan to gain income from a program or sale that is not directly related to your tax-exempt purpose, contact an attorney. If the monetary value is too high, you may need to inform the IRS.
- Stay true to your nonprofit’s mission
- Keep accurate financial records and report your income every year.
- Keep lobbying to a minimum
- When in doubt, consult with an accounting firm
- If you’re still in doubt after the accountant, consult an attorney.
Sources: IRS, NOLO, Forbes
Photo Credit: HubSpot
Employees in nonprofit organizations wear many hats. Directors end up managing budgets and program managers end up managing marketing campaigns. There are limited available resources, and everyone has to be ready to step up to the plate. With help, most employees can piece together a marketing campaign or a new budget without significant negative consequences.
That said, a nonprofit organization’s most valuable asset is its nonprofit status. If you happen to work in a nonprofit organization, and you’re wearing an accounting hat today, feel free to use this quick guide to help you claim and protect your nonprofit status.
Are You Exempt?
The first step is to determine whether or not you’ve already claimed your tax exempt status. If your organization has already claimed its status, feel free to skip ahead. If not, keep reading to learn how to claim tax exemption for your nonprofit organization.
- First determine if your organization is a trust, corporation, or association
- Second, gather your organization’s documents, including: articles of incorporation for a corporation; articles of organization for a limited liability company; articles of association or constitution for an association, or trust agreement; and declaration of trust for a trust.
- Determine your state’s exempt registration requirements. Here are New Mexico’s.
- Obtain an employer ID number (EIN) for your new organization. Not sure how? Click here.
Can You Lose Your Tax Exempt Status?
Once you have achieved exempt status, it’s important to comply with federal regulations to make sure you don’t lose your tax exempt status.
According to a recent NOLO article, “Noncompliance with tax laws and IRS regulations can result in termination of your nonprofit’s tax exemption.” The article continues, “Fortunately, a look at history shows that a nonprofit must engage in some truly egregious conduct to lose its 501(c)3 tax exemption.”
While NOLO’s assertion may be true, the easiest way to lose a tax exempt status is failing to report annual earnings. While nonprofits are exempt from taxation, they also are required to report earnings annually. Failure to do so can results in revocation of the organization’s tax exempt status.
Best Practices for Nonprofit Bookkeeping
Let’s assume your organization is operating in compliance with laws and regulations – you still need to be mindful of protecting your status. Below a few best practices that will help prepare you for challenges or audits.
Keep Good Corporate Records
Corporate records include notes of decisions made that affect the organization. Good practice is to keep detailed minutes from every meeting.
Keep Information In a Corporate Record Book
Keep records in a Corporate Records Book. “The book should also contain a copy of your articles of incorporation, bylaws, and tax exemption determination letters from the IRS and your state tax agency if applicable.”
Keep Record of All Financial Transactions
Employ a double-entry bookkeeping system so nothing is accidentally omitted. There’s a lot to take into account, but hopefully this quick guide will help you claim and protect your tax-exempt status. If you still feel lost, schedule a consultation with us so we can help your nonprofit stay exempt