New Rules for Tax Exemptions

In July, the Internal Revenue Service introduced the new Form 1023-EZ. The new form streamlines the application for recognition of tax exemptions. This redesign has caused some criticism from many large charity groups, while other groups have commended the agency for introducing the program. The IRS agency hopes that the new process and smaller application will reduce the backlog on applications.

Every year the IRS receives around 60,000 applications for tax-exemptions status. In the old form, agencies had to fill out nine pages that consisted of many schedules and they had to provide three or four years worth of financial data. The new form only consists of three pages. It can be used by most organizations applying for tax-exempt status with $50,000 in annual gross receipts or less, and assets of $250,000 or less.

The concern surrounding the new form comes from the National Council of Nonprofits. They claim that tax-exempt status should not be granted lightly. The new form lacks details. It asks for no financial data, in the documents.

The IRS claims that the change to the paperwork allows charities to speed up the applications process and get back to work that is more important. The process helps cut back the process time for many smaller nonprofits. Larger, more complicated nonprofits will still be required to fill out the longer Form 1023. Currently the wait time for nonprofit status is nine to fifteen months.

The IRS is not taking the granting of tax-exempt status lightly. They are still processing applications. The additional resources that are freed up to process the more complicated applications.

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Basic Reports for Nonprofit Organizations

Like many organizations and businesses, there are specific reports that nonprofit organizations have to provide when reporting about their organization. These report not only help determine the financial health of the organization, but many are also required by funders when applying for grants. The reports also convey important financial information to the board of trustees and the government.

The following are the basic financial reports that nonprofit organizations should include:

  • Statement of Financial Position: This is also referred to as a balance sheet. This summarizes the assets, liabilities and net assets of the organization at a specific date. It is like taking a picture of the organization at that particular period.
  • Statement of Activity: This is the income and expense statement. It shows an overview of the financial activity over a period in time. This statement will also show income with the expenses taken out, which will result in a profit or a loss.
  • Statement of Cash Flow: This statement summarizes the resources that are available to the organization during the reporting period and how the resources were used. This is one of the most useful reports because it shows the income coming and the expenses going out. A statement that shows projected cash flow can also be helpful to the board in determining if there will be any shortfalls or overages for the budget period.
  • Statement of Functional Expenses: This report is for all expenses related to the program services and supporting services. Expenses for each program and shown divided into the various programs. The expenses under the supporting services are usually divided into two sections, the management and the general expenses, and fundraising expenses.

There are other report that can be used such as government information returns, payroll tax returns, reports to founders, management reports, budget monitoring reports, and analysis of statements and investment reports. The report that your nonprofit needs is determined on an individual basis. Remember nothing replaces a qualified accountant that can take care of all the needs of the nonprofit.

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Preparing a Budget for a Nonprofit

For any organization, profit or nonprofit, it is important to establish a operational budget. The operational budget is the foundation for your work and how it will be carried out over the next year or even several years. You will be able to establish benchmarks for your organization, gauge the financial health from year to year, and determine what the organization’s priorities should be.

When developing your budget keep in mind the following:

  • Establish the budget period. Is it one year or multiple years? Determine how many years your budget needs to cover. If it needs to be more than a year at a time establish the intervals and reasoning for the multiple year budget.
  • Analyze financial performance and program achievements from the prior year. This gives you the opportunity to adjust your focus for programs that are doing well or other that may need a boost.
  • Set program and organizational goals. Once you determine what the performance was for last year, you can project what the performance should be for the coming budget period.
  • Estimate expenses. Every expense should be analyzed including fixed costs such as tax, rent, utilities, etc. and variable costs that fluctuate based on number of clients and environmental factors, and incremental expenses that only occur when a particular action is taken. The variable costs are the most challenging to predict, but they can be based on the last budgetary period or on a short/long range plan established by the organization.
  • Estimate anticipated revenue. Base what revenue off last budgetary period and then adjust for an increase or decrease based on prediction for the upcoming period.
  • Plan for needed cash flow and develop cash reserves. It is important to have the necessary cash for the day-to-day operation of the organization. Having a healthy cash flow and cash reserves can be beneficial for more than emergencies.
  • Adjust to align expenses and revenue. Make any adjustment necessary to maintain a positive budget and healthy cash flow for the organization.

When your budget is established, it is easy to see how the money flows through the organization and areas where refinement is necessary. The most important part to keep in mind is how much money you will raise. It is easy to say you will raise a lot of money, but it is important to be realistic when setting your goals and projections.

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Audits for Not-For-Profit Organizations

This is the time of year audits are conducted  in full force, but not all audits involve the IRS. Most audits are a review of procedures, internal and external management reviews, etc. Many time federal and state governments require a yearly audit for all businesses, whether for profit or not-for-profit. The federal government requires organizations receiving federal funds of more than $500,000 a year to go through a single audit, which is a yearly audit covering and entire year of the program in question.

If it is determined that your business needs an audit, then it is important that a licensed independent certified public accountant prepares it. The accountant will know that proper forms and procedures that the audit will need, and the requirements for the federal and state government.

Once the auditors determine what is required and beneficial then they can prepare to look into you organization. Auditors will examine many procedures during an audit, but you can expect them to look at:

  • Bank reconciliations
  • Selected restricted donations (To ensure that they are handled properly)
  • Grant letters
  • Physical assets
  • Journals
  • Ledgers
  • Board Minutes

Once they have examined everything then they will formulate a report on the accuracy of the financial reports.

If your company undergoes an audit, the board of directors should establish an audit committee that is responsible for selecting the auditor, reviewing the auditor’s outputs, and meeting with the auditor for the pre- and post-audit to address any issues or questions. This committee typically has ongoing responsibilities for the organization that includes the overall financial over-sight and internal financial controls.

Audits do not have to be a scary thing for companies to go through. It is important to review the internal controls and procedures that run the day-to-day part of the organization. It is important that everything runs smoothly, and audit will help with this process.

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How to Select an Auditor for Your Employee Benefits Plan

Businesses with over 100 participants in an employee benefits plan must have an audit on an annual basis. This audit must be filed, in fact, with the annual return. Many companies turn to simple services that provide nothing more than a basic look over the plan and provide the necessary files. Yet, before you choose anyone for the job, and potentially miss costly mistakes being made, it is critically important to focus on hiring a third party professional specializing in this type of audit.

Why Does It Matter?

Sometimes, it may seem that the least expensive option is the best option, but your business is likely suffering because of what you do not know. It is critical to have a professional with ample experience step in and to ensure that the necessary funds will be available to pay for all promised benefits to employees, including retirement and health needs. This is a legal responsibility, but it is also more than that.

An accurate plan is one that helps you to achieve your goals. Your employees are happy and that leads to good productivity. It also means you spend less money paying fines or trying to fund programs you cannot.

Who Should You Choose?

When selecting an auditor for your employee benefits plan, there are several key things to look for in these professionals. First, the auditor you use must be a licensed or certified public accountant. Aside from this, there are other things you will want to look for including:

  • The overall experience level of the auditor
  • The amount of time he or she has to dedicate to the job
  • The types of services offered specifically, you may wish to continue with the auditor for other needs as well
  • The cost of the service and how it is determined
  • The organization and timeliness of the individual

Take the time to get to know the auditor you select carefully. Not just anyone will meet the stringent requirements of the government and also ensure that you have an accurate, unbiased representation of what is happening with your employee benefits plan. The right professionals, like those at Crowley & Halloran, can help you to get this legal matter taken care of and ensure that your benefits plan is working in the best possible way it can for the benefit of both you and your employees.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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Whistle Blowing Done Right: How to Really Approach a Problem

You know a company or organization is doing something wrong. You may have just a few details, but you know the implications are incredible. What you may not know, though, is how to communicate this to the higher ups, whether that be someone in upper management or a government official. That’s why hiring a whistle blowing service is so important. With expert help, you can learn the depth of the problem and help to make significant changes. You do not want to be the type of person that sits on the sidelines and wonders if anything can be done.

Why a Third Party Provider?

Instead of trying to do the work yourself, hiring a third-party to handle the whistle blowing research is often best. It will ensure that you have the very best outcome. Consider the following.

You can remain anonymous. This means you can be assured that no one has to know what role you played in the process.

You have no need to move forward if there is no evidence of a problem after working with the third party provider. In other words, if there really is nothing wrong, you are not the one held responsible for the investigation.

A third party expert, like those available through our company, have the means and the know-how to uncover information people do not want to be seen. This is something you simply may not be able to do on your own.

Perhaps the most powerful reason to hire someone else to do this for you is the simplest of all. You want results and you want unbiased information. You do not want to hear that everything is fine unless you know that is the case from the evidence found. A common problem is that in-house staff often are not willing to provide information and you may run into more roadblocks than you thought. Even worse, people may lie to you.

Look at the evidence you have. Determine what this information means to other people, including those who may be suffering as the victims. You may not have the ability, time, or methods to fully investigate the problem, but you can hire a whistle blowing service to do the work for you. That means that you can find out if there is a problem and help to put a stop to it if it really is there. You can make the difference without any implications on yourself.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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How to Reduce Internal Fraud

In all businesses, having effective internal controls is very valuable. How do you know that your practices are effective? What can you as a business owner do to deter fraud in your business? Having effective internal controls will help your business keep up with the fast pace of the changing business practices. The following questions can help companies examine their internal controls to help prevent fraud.

Which businesses need to protect themselves against fraud?

No company, big or small, is immune to fraud. All the companies that have experienced fraud have one thing in common: they did not think that they were susceptible to fraud.

Businesses, especially smaller businesses, require employees to perform multiple tasks are at a greater risk of internal fraud. Businesses that cannot separate “conflicting tasks” increase the chance of fraud. When these tasks are separated, perpetrators are required to work together to steal from the company, which is harder to do then a single person doing all the tasks.

In larger business with more staff, tasks are separate, but perpetrators will still look for loopholes in the system. When owners are lax with monitoring, and given the opportunity weaknesses are exploited.

What Condition Motivates Internal Fraud?

When a perpetrator meets poorly designed and monitored internal controls, fraud happens. Companies should work to design proper controls, and be attentive in monitoring their effectiveness. The controls should be adapted to changing practices in the business, and not be ignored when the business becomes too busy to implement them. Owners need to be aware of internal controls and make them propriety to deter employees who might commit fraud.

How Can Companies Prevent Internal Fraud?

To help reduce the chances for fraud, companies must take a “top down” approach. Modeling and exhibiting the greatest degree of integrity set the tone for the company. Owners that do not uphold any level of integrity with aspects of the company cannot expect their employees to do so either.

When assessing controls, companies should identify areas with the biggest risk. Implement controls to shore up vulnerabilities uncovered in the assessment. Have a certified CPA audit financial records and procedures to determine where weaknesses are in the company. If the CPA specializes in fraud, this is especially helpful in determining what controls should be implemented to prevent fraud. Controls should be monitored and review regularly to truly reduce the likelihood of fraud.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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What The Healthcare Tax Credit Means To Small Businesses

Pamela HalloranThe Small Business Healthcare Tax Credit was first introduced in 2010 to encourage small businesses and tax-exempt organizations to offer healthcare benefits to employees. The qualifying small business is allowed to claim this healthcare tax credit that could help reduce the yearly tax bill.

The healthcare tax credit is available to employers who are providing healthcare for employees on a continual basis as well as to employers who are first-time healthcare insurance providers.

Business Size Matters

In order to qualify for this healthcare tax credit, the tax-exempt organization or small business should have a minimum of 25 full-time employees who earn not more than, on an average, of $50,000 per year. A larger business will not qualify for this credit. According to the Department of Labor, an employee who works at least 30 hours per week for the same employer is considered a full-time employee.

How Much Credit Can Be Claimed

For tax years 2010 through 2013, a qualifying tax exempt organization can claim up to 25 percent of the employees healthcare cost. A qualifying small business can claim up to 35 percent of the health premiums paid for employees.

For 2014 and after, that credit will increase to 50 percent of those premiums for small businesses and 35 percent for tax-exempt organizations, creating a significant tax credit that is a win-win for both employer and employee.

Healthcare Tax Credit Stipulations

The Small Business Healthcare Credit is non-refundable, meaning that it can only be applied to the taxes due for that year. There is no refund check for this credit. However, if the small business or organization does not use all of the qualifying credit for that particular year, it will carry forward to the next year, through 2016.

In order to claim the Healthcare Tax Credit, a small business or organization must file Form 8941, known as the Credit for Small Employer Health Insurance Premiums. This enables them to list all employees, premiums paid, and will calculate the credit for which they qualify and are able to claim for that particular tax year. The amount should also be filed on Form 3800, a General Business Credit form as part of the business credits for that year.

In case of audit, all employers or organizations should have all supporting documentation on file, including receipts of healthcare premiums paid, copies of employee healthcare statements from insurance providers and all employee names, ages and dates of healthcare enrollment.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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Global Opportunities: Small Businesses Make the Leap

Crowley Halloran Conference RoomIn today’s business environment, the more ways a company can share their product, the better for the company. Markets all over the world hold potential for small business, but what does it take to get into the foreign markets? Can small business take advantage of the global opportunities? The answer is yes. The global economy has never had more opportunities for small business, and with a strong global financial strategy, small businesses are competing in foreign markets.

To succeed globally, small businesses need to create a global financial strategy. Small businesses will face common issues and a few roadblocks in the global market, but having a well-defined plan can make the difference between being successful and failing in the new market

Some questions to consider when creating your plan are:

  • What performance indicators need measured for both financial and operation purposes?
  • How will accounts receivable and payable be set up and managed?
  • Is there enough support for multiple locations and countries?
  • How will the company keep control over the global financial process?
  • How are local tax regulations and requirements managed for each foreign location?
  • How are different currencies handled in foreign locations?

Being able to answer these questions and any other unique question regarding your company is the best way to start.

Some strategies that help in making a successful transition are setting up multi-entity accounting, understanding foreign tax laws and codes, managing multiple foreign currencies, and having local human resources. Businesses with multi-entity accounting have consolidated their business processes. By consolidating business processes, the company will eliminate duplicate work, create a standard workflow, and be able to support the demands of a more complex business model. Hiring a local accounting firm to help with all the local tax codes and regulations would be extremely useful when breaking into the global market. They will be able to navigate your business through the different regulations, and be able to keep up with the different currency fluctuations. They can also be part of your management team that will take care of the day-to-day running of the business.

Ventures into a new market are exciting new opportunities for small businesses. With a proper plan and a good management team, anyone, even a small business, can take advantage of the global business opportunities.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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Tips for picking a CPA

Mike Crowley | Crowley Halloran CPA

Michael W. Crowley, CPA - Principal

One of the most critical decisions anyone can make is picking a good-quality, reliable accountant. There are several things to keep in mind when a business owner chooses an accounting firm. Many accountants are excellent, but are they going to meet your business needs?

There are a few basic tips to keep in mind, as a business owner, when choosing a CPA firm:

Certification: The CPA should meet all the states requirements and passed the required exam. It is important that an accountant has met all the requirements and even continues their education to stay certified. It is the best way to know that they are current in all the new procedures and tax laws.

Experience: Make sure the accountant or CPA firm is experienced in the business field that your business specializes in. It is important that they know what the unique business needs are and how to handle any problems that may arise. They should have worked with that business industry before or something very similar.

Size: While the larger, more popular CPA firms may be ok, do not over look the smaller firms. The larger firms can probably take care of all the business needs and more, but the smaller firms will offer a more personalized approach. Many of the larger firms will contract out the smaller firms to work on small accounts anyway, so why not start with the local, smaller firm and go from there. Just make sure they meet the requirements that your business needs.

Get a Referral: One of the most important factors to finding a good, reliable CPA is to get a referral. Ask your friends, family, co-workers and other business owners to see who they would recommend. The best reference usually comes from word of mouth.

Once all the references have been compiled, do some research on the CPA firm and then ask to meet them and conduct an interview. Ask questions and find the right fit for you. Remember your CPA is to be one of your most trusted advisors, so make sure they are the right fit for you and your business.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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