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.


Super-Funding College Saving Plans

We all know that college is expensive. It can cost upwards of $41,000 a year for private four-year college and $18,500 for a state college. Because of the high cost of college many wealthy clients are taking advantage of 529 college saving plans and the special rule that allows contributors to front-load five years of savings in one year.

The 529 college saving plan are a great way to save for college. The plan allows a parent, grandparent, etc. to establish a college fund for each child. This fund can be used to pay for college, but does not have a timetable on which the money has to be spent or withdrawn. It is a great way to save for college and can be included in estate planning.

There is currently a special rule that governs how contributions can be made. This rule allows contributors to front-load five years of savings in one year. So for clients, that means they can set aside 14,000 at the end of one year (in December) and then in January they can contribute another $70,000 for each would-be scholar. This is a grand total of $84,000 per child.

This strategy allows wealthy clients to take substantial amounts of money out of there estate without facing penalties from the IRS. If the money or part of the money is not used then the account can be transferred to another child, or the funds can be withdrawn. If the funds are withdrawn then there is a 10% penalty and taxes on the earnings.

There is one drawback. If the account is owned by the college student or their parents this counts as an asset and reduces the need-based aid by a maximum of 5.64% of the asset’s value. If the plan is in the name of the grandparents it will not affect the federal financial aid application, but the withdrawals made on the account do count against the aid needs and have a large consequence.

While this plan is good, very few can afford to do contribute that much at a time, but contributions can be made in December and then again in the spring with tax refunds. It just matters that you do something then wait until it is too late.


A Change to Flexible Spend Accounts

At the end of October, the Treasury Department and the Internal Revenue Services announced a change to the 29-year-old rule that requires participants of flexible spending accounts to use their balances or forfeit the balance at the end of the year. The much-needed change is a huge step forward for hard-working Americans who use the money to pay for health care expenses throughout the year.

The modification to the ‘use-it or lose-it’ rule now allows participants to rollover up to $500 at the end of each year. The Treasury Department predicts that this modification will cut back on wasteful spending at the end of each year. For many people, the rollover option will be very helpful because the accuracy of what goes into the account will not have to be so precise, they will have some flexibility.

Employers will be given an option at the end of the year. Right now, they have the option of giving flexible account participants a 2 ½ month grace period for their account. They will then lose all the money at the end of the 2 ½ months. The other option is the $500 rollover. The rollover does not have a limit on the time, and can be carried over each year as necessary.

There are a few critics of the new plan that include people who would like to see the entire balance rollover instead of just $500, but the overall response to the new proposal is surprise and pleasure. The Treasury Department and IRS are moving in the right direction, and many people are welcoming the change.


IRS Modify Flexible Spending Accounts

Millions of Americans use flexible spending accounts (FSA) to pay for their healthcare. Flexible spending accounts have been around for over thirty years, and the ‘use it or lose it’ rule has left users scrambling at the end of the year to spend all the left over money remaining in their account. At the end of October, the IRS announced that they are going to be more flexible with the FSAs. The modification allows employees to carry over up to $500 in unused account balances. This will have many Americans breathing a sigh of relief in the last few months of this year.

The IRS and the Department of the Treasury made the decision to allow rollover for FSA accounts to cut back on wasteful spending. This decision came more than a year after the Treasury and IRS announced plans to change the 29-year-old rule that forces participants to use their balance or forfeit the unused balance. The current rule also offers the employer the choice to extend a 2½-month grace period. At the end of the grace period the participant would then lose the unused portion of the savings.

With the modified rule, the employers will have two options, the $500 rollover or the 2½-month grace period. Both are intended to reduce the amount of wasteful spending incurred with the end of the year. The only stipulations, the employer must choose either the rollover option or the grace period. Millions welcome the great news of the change to the ‘use it or lose it’ rule. The Treasury Department estimated that 14 million families will now participate in health care FSA given the changes in policy.


Repaying Student Loan Debt

Around 11.2 trillion of workers in the US owe student loans. Many of those are struggling to pay them back, but have managed until now. The federal government established a way for public service workers to have their student loans forgiven.

The Consumer Financial Protection Bureau released a report stating that more than a quarter of the public service workforce is eligible for loan forgiveness, but many do not know about the program. They would like to find ways to get the information to the workers. If you would like more information visit to find out if you qualify for student loan forgiveness.


Making Changes to Reverse Mortgages

Traditional mortgages, borrowers, and lenders are still feeling the financial crunch that was the result of the financial crisis. Along with the traditional, the Federal Housing Administration (FHA) is also feeling the pinch with its reverse mortgage program, and as a result, the Department of Housing and Urban Development (HUD) has established guideline that make the program more restrictive by reducing the borrowing limits and increasing the insurance premiums.

The new changes will take effect on September 30, 2013. The changes include:

  • Consolidation of the HECM Saver and HECM Standard loans into one loan
  • An adjustment of the upfront Mortgage Insurance Premium (MIP) to 0.50%
  • The borrower is only allowed to access up to 60% of the principal limit at closing or within the first year.
    • The exception is if they have “mandatory obligations” which could include closing costs, existing liens being refinances, delinquent Federal debt or other debt amounts that exceed 60% of the principal. The cap is moved to meet the mandatory obligations plus 10%.
    • If the borrower will be assessed an additional 2% upfront MIP if more than 60% of the Principal limit is meet at closing or during the first year.

There are additional changes that take effect January 13, 2014. This will require borrowers to undergo an mandatory financial assessment to determine if they are capable of maintaining the property tax and insurance payments with their other income. If they are unable to meet the obligations then the payments will be drawn from the reverse mortgage and placed in an escrow account.

With the new regulations, the goal is to reduce the number of people using reverse mortgage who are already financially distressed, and prevent them from defaulting on the loan and foreclosing on the property anyways.


Planning for Back-To-School

There are many changes occurring as millions of us head back to school. With so many changes, it is a good time to review financial plan. It is also a good time to discuss financial responsibility with children whether they are going off to college or starting Kindergarten.

During this time of year, it hit home just how much we spend on getting kids back to school. There are new gadgets to buy, clothes, shoes, school supplies, books, tuition, etc. that we spend our money on during back-to-school time. It is important, especially this time of year, to set a budget and keep it. Showing kids how to be financially responsible can start at a young age, and the knowledge will prepare them for the future.

To start create a family budget that include money for the extras of back-to-school, and keep to the limit set. If children are old enough to have and use credit cards, set a responsible limit, while allowing them the freedom to choose what they want to buy. A good way to do this would be to give them a prepaid card that has a specific limit. When the money is gone, it is gone. Make them earn more before you put more on the card.

Teach children to protect their personal information. Anyone at any age can be exploited and be a victim of fraud. Teach them to use secure passwords, and only use social security numbers if required.

For parents of children of any age, it is time to start a saving plan for college. It is never too late to start and never too early either. College can be financially draining to the college student and parents. By planning and saving even a little, it will help alleviate the cost burden of college. If starting early enough calculate cost for tuition, books, housing, etc. and set your saving to reflect the cost. Periodically check the total and adjust where needed.

By taking some small steps, financial responsibility can be achievable for anyone, including children and young adults.


Post DOMA Wealth Management Tips

There have been many changes now that the Supreme Court overturned the Defense of Marriage Act (DOMA). Some of the changes include how same-sex couples are able to manage their wealth in regards to their partner. Couples will need to think about changing or review many aspects to their financial wealth. The following are point to consider reviewing to get a fresh look at how the law changed same-sex couples’ financial plans.

  • Revisit your Financial Plan. Having your marriage recognized by the government is a big deal. There are many points to you financial plan that will need to be reviewed.
  • Update Estate Plans. The biggest benefit of having your marriage recognized by the federal government is there is no penalty of estate tax. Since the estate will be given over to a spouse, there is not estate tax to take 40% of the estate from them. It also give spouses a change to establish trusts, wills, general power of attorney and healthcare powers.
  • Beneficiary Designations for Retirement Accounts. Now that the same rules apply, same-sex couples can revisit beneficiary designations. The survivorship rules apply to IRAs and other qualified retirement plans.
  • Investment Portfolios. Are there any adjustments to investment that need to be made so you are truly investing together? Think about updating account titles or reorganizing the portfolio in a manner that would be more beneficial to both partners.
  • Tax Planning. The ability to file jointly is now a massive win. While you may choose not to change anything, it is worth a look. It may be in your best interest to file jointly and save you hundreds in taxes not paid. You may even want to look at amending the past three year’s taxes to see if filing jointly would be a benefit.
  • Health Insurance Benefits. An overhaul to the family health insurance plan is in order. If you are not already provided with spousal health insurance, it may be cheap to switch.
  • Taxable Estate and Social Security. If your spouse had died in the last three year, amend the estate tax return and have the taxes refunded. There is three years to be able to do this, so act soon. Also married couples are eligible for 50% of spousal Social Security benefits of the spouse’s full retirement age. If it is bigger switch to spousal benefits.
  • Consider the Whole Family. Since estate planning extends to children for most mixed gender couple, it should also extend to children for same-sex couples. Make sure the estate plan also defines the word spouse.
  • PreNuptials. It is important to protect you assets before entering into a marriage. Since the laws apply to everyone, any laws dissolving a marriage also applies.

College Loans: Paying Them Off

Now that you are a college graduate, you have many things to think about; finding a job, maybe a new place to rent, and paying off student loan debts. With all the talk about student loan interest rates in Congress, it is important for student have a plan for paying off loans after college. Nearly 12 million students will take out loans to help pay for college, and with 37 million students currently with outstanding debt, the total student loan debt is reaching towards 1 trillion. Having a plan to help reduce student debt loan is vital for any college graduate.

Most college students do not fully understand the financial burden student loans will be on their future. Around 75% of them will make sacrifices, either personally or financially, to repay the loan. Some tips that will help make it easier to repay student loans debt are:

  • Understand You Options. It is important to know the different options of payment, including standard repayment, graduated repayments, extended repayment, and income-based repayment. Research which payment would work best for you and contact you lender for financial help. If you cannot pay there are options for you including deferment, forbearance, and loan cancellation. Many of the option will require an application and financial proof, so working with your lender is very important.
  • Keep Track of Paperwork. Keeping accurate records including promissory notes, correspondence from lenders, notes on phone calls and other loan related paper. If you lose any paperwork, you may have problems providing information to your lender if you need to seek a deferment, forbearance, or loan cancellation.
  • Grace Period. Most student loans have a 6 to 9 month grace period before official payments start. Use this time to find a job, make a budget and start tracking your monthly expenses. Make sure to budget in paying student loans, so you are not surprised when the payments begin.
  • Student Loan Interest Deductions. If you pay $600 or more to a single lender, our interest is deductable. At the end of the year you will receive Form 1098-E from your lender showing the exact amount of interest paid over the year.

How Your CPA Can Help Stop Identity Theft

The thought of identity theft is scary, but during tax season, identity theft becomes a nightmare for almost 450,000 people, and it is increasing every year. The IRS processes 145 million returns in a year. Almost 109 million of the claims are refunds, and average $3,000. This makes tax returns a prime target for any would be thief. It is important to know how to protect yourself during tax season to prevent the worst from happening.

Identity theft has devastating consequences. It will delay taxpayer refunds, victims may lose job opportunities, be refused for loans, housing, cars, and can even be arrested for crimes that they did not commit. The most common ways thieves obtain information is through email or phone phishing and dumpster diving. Thieves are looking for personal information, such as, bank records and credit card receipts.

If your identity is stolen, several steps should be taken. First, file a report with the police. Close any bank or credit cards accounts affected. Inform credit bureaus and consider freezing credit accounts. A freeze restricts access to the credit reports and prevents thieves from opening other accounts with the stolen information. The IRS has a form (Form 14039) that needs filled out if your identity was stolen anytime during the year. Make sure that you answer all IRS notices immediately, using the name and number printed on the notice.

To prevent identity theft, shred any mail that has personal information on it before throwing it away. Watch credit reports from the three major credit bureaus. If working with a CPA, forward any emails that appear to be from the IRS to them and do not click on any of the links before forwarding the email. Keep your SSN safe; do not give it out, store the card in a secure place. Protect your home computer with firewall, anti-spam, and anti-virus software and update regularly. Change passwords to bank and credit cards sites regularly.

None of this is a guarantee that your identity is safe, but the more you safeguard your personal information the better chances you have of not being a victim.

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.