Month: December 2017

Tax Exempt Organizations Disaster Relief Written Acknowledgements

by Karen Atchley, CPA

Partner at Atchley & Associates, LLP

The Disaster Tax Relief and Airport and Airway Extension Act of 2017 was signed into law on September 28, 2017 (hereafter referred to as The Disaster Tax Relief Act).  The legislation provides tax relief to the victims of Hurricanes Harvey, Irma and Maria and funds the Federal Aviation Administration through March 2018.

Although this new law affects individuals and employers, the purpose of this paper is to advise tax exempt organizations concerning one specific area of the new law relating to issuance of charitable contribution acknowledgement letters.  The law added a temporary suspension of the adjusted gross income (AGI) limitations that are imposed on qualified charitable contributions. The taxpayer must make an election for the temporary suspension of the AGI limitations to apply.

 In general, the law prior to the September 28, 2017 legislation provides that individual’s cash contributions are deductible in any one year up to 50% of AGI and noncash contributions are deductible in any one year up to either 20% or 30% of AGI.  Contributions limited by AGI are carried forward to subsequent years for up to five years.

A qualified charitable contribution under the new law is a contribution that was paid during the period beginning August 23, 2017 and ending on December 31, 2017, in cash to an organization described in section 170(b)(1)(A), for relief efforts in the Hurricane Harvey, Irma, or Maria disaster areas.  The contribution must be substantiated with a contemporaneous written acknowledgement from the charitable organization that states that the contribution was or is to be used for relief efforts.

Most charitable organizations are aware of Internal Revenue Code (IRC) Section 170(f)(8)(A), which requires that the organization must provide the donor with a written acknowledgement of the donor contribution if the contribution was for $250 or more.  IRC Section 6115 requires the charitable organization to provide the donor with a written statement if a contribution is made for $75 or more if part of the contribution is for goods or services (quid pro quo) and the statement must contain a good-faith estimate of the value of goods and services that the charity has provided to the donor.  What charitable organizations may not know is that The Disaster Tax Relief Act requires written acknowledgement that not only states that the contribution was or is to be used for relief efforts but also requires a letter to the donor regardless of the size of the contribution.

In summary, charitable organizations that collected funds that were collected during 2017 and used in the relief efforts in the Hurricane Harvey, Irma or Maria disaster areas will want to start working on their acknowledgement letters for 2017 early in 2018 since all qualified relief contributions require an acknowledgement letter.

Note: Regulations may subsequently be issued that affect this provision of the tax law.  Check with your tax advisor to determine whether any subsequent tax law changes are made.  This paper is not intended to address all the provisions of The Disaster Relief Act but only the provision relating to the issuance of written acknowledgements.

How to conduct a year-end risk assessment

Auditors assess their clients’ risk factors when planning for next year’s financial statement audit. Likewise, proactive managers assess risks at year end. A so-called “SWOT” analysis can help frame that assessment.

Typically presented as a matrix, this analysis of strengths, weaknesses, opportunities and threats provides a logical framework for understanding how a business runs. It tells what you’re doing right (and wrong) and predicts what outside forces could impact cash flow in a positive (or negative) manner.

Internal factors

SWOT analysis starts by identifying strengths and weaknesses from the customer’s perspective. Strengths represent potential areas for boosting revenues and building value, including core competencies or competitive advantages. Examples might include a strong brand image, a loyal customer base or exceptional customer service.

It’s important to unearth the source of each strength. When strengths are largely tied to people, rather than the business itself, consider what might happen if a key person suddenly left the business. To offset key person risks, consider:

  • Purchasing life insurance policies on key people,
  • Initiating noncompete or buy-sell agreements, or
  • Implementing a formal succession plan designed to transition management to the next generation.

Weaknesses represent potential risks and should be minimized or eliminated. They might include high employee turnover, weak internal controls, unreliable quality or a location with poor accessibility. Often weaknesses are evaluated relative to the company’s competitors.

Outside influences

The next part of a SWOT analysis looks externally at what’s happening in the industry, economy and regulatory environment. Opportunities are favorable external conditions that could increase revenues and value if the company acts on them before its competitors do.

Threats are unfavorable conditions that might prevent your company from achieving its goals. Threats might come from the economy, technological changes, competition and increased regulation. The idea is to watch for and minimize existing and potential threats.

Need help?

Contact us for help putting your company’s risk framework together. We can guide you on how to use SWOT analysis to evaluate 2017 financial results and plan for the future.

© 2017

‘Tis The Season for Giving

by Nicole Oeltjen

Tax Senior at Atchley & Associates, LLP

 

The holidays are approaching and with the spirit of giving all around you may be inspired to donate to a local charity. Charitable giving makes you feel good, and bonus-you can save on your tax liablity! There are several ways to donate to a charitable organization which can help those in need or to further a cause you are passionate about. You can donate good old fashion cash or non-cash items such as food, clothing, toys, as well as donations of stock and vehicles. When donating non-cash items, the deductible value is the fair market value of the item-generally the value at which the item would be exchanged between a willing buyer and a willing seller where both have reasonable knowledge of all the relevant facts. Best practice is to document the donation either with bank records, written acknowledgement from the organization, or a telephone bill if donating by text. If you donate similar non-cash items valued at more than $5,000, generally, you will need a qualified appraisal in order to claim a deduction. When donating a vehicle, the organization should issue you a Form 1098-C.

Although purchasing raffle tickets from an organization is helping the organization raise money, the cost of the raffle ticket is not considered a charitable contribution to the buyer, but rather a ticket purchase to gamble. You do not receive a deduction for buying charitable raffle tickets. However, donating items to an organization for a raffle or an auction is considered a non-cash donation to the extent of its fair market value.  If you purchase an item from an auction that the organization is holding then the charitable contribution is the amount that is in excess of the fair market value of the item purchased. Generally, you will want to obtain a written acknowledgement letter from the organization stating the fair market value along with the amount paid for the item purchased at the auction.

In order to receive a tax benefit you must file Form 1040 and itemize using Schedule A instead of using the standard deduction. This means your personal expenses such as medical, real estate and sales tax, mortgage interest, charitable contributions, and other qualified personal deductible expenses are greater than the standard deduction.

Be sure that your charitable donation is to a qualified 501(c)(3) organization. If you do not know, usually the organization’s website or acknowledgement letter will inform you of the type of non-profit organization. You can also check the IRS website to confirm.

Happy Giving!!