If you’re an executive or other key employee, you might be rewarded for your contributions to your company’s success with compensation such as restricted stock, stock options or nonqualified deferred compensation (NQDC). Tax planning for these forms of “exec comp,” however, is generally more complicated than for salaries, bonuses and traditional employee benefits. And planning gets even more complicated if you could potentially be subject to two taxes under the Affordable Care Act (ACA): 1) the additional 0.9% Medicare tax, and 2) the net investment income tax (NIIT). These taxes apply when certain income exceeds the applicable threshold: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for other taxpayers. Additional Medicare tax The following types of exec comp could be subject to the additional 0.9% Medicare tax if your earned income exceeds the applicable threshold: Fair market value (FMV) of restricted stock once the stock is no longer subject to risk of forfeiture or it’s sold, FMV of restricted stock when it’s awarded if you make a Section 83(b) election, Bargain element of nonqualified stock options when exercised, and Nonqualified deferred compensation once the services have been performed and there’s no longer a substantial risk of forfeiture. NIIT The following types of gains from stock acquired through exec comp will be included in net investment income and could be subject to the 3.8% NIIT if your modified adjusted gross income (MAGI) exceeds the applicable threshold: Gain on the sale of restricted stock if you’ve made the Sec. 83(b) election, and Gain on the sale of stock from an incentive stock option exercise if you meet the holding requirements. Keep in mind that the additional Medicare tax and the NIIT could possibly be eliminated under tax reform or ACA-related legislation. If you’re concerned about how your exec comp will be taxed, please contact us. We can help you assess the potential tax impact and implement strategies to reduce it. © 2017
There are more than 87,000 foundations in the United States — including family, corporate and community foundations — according to the Foundation Center. If your not-for-profit isn’t actively seeking grants from these groups, you’re neglecting a potentially significant income source. Know your target Probably the most important thing to remember when approaching foundations is that they tend to specialize, making grants to certain types of charities or in specific geographic regions. It’s not enough to be a 501(c)(3) organization — though your exempt status is critical. Your nonprofit’s mission and programs will need to match the interests of the foundation to which you’re applying. So it’s essential to research foundations before you apply for grants. Review annual reports, tax filings, press releases and any other information you can get your hands on. One place to start is the Foundation Center’s online directory at foundationcenter.org. Once you have a list of matches, don’t just start sending out long, detailed proposals. Call your target foundations and talk to staff members about the kind of information they need and their communication preferences. Most will be happy to provide insights into their decision-making process and shed light on your chances of securing a grant. Successful qualities The most successful foundation grant proposals have several qualities in common. For example, foundations like projects that are well defined and data driven with specific goals. They also want to know that their gifts are effective, so achievement of such goals needs to be measurable. It’s important to outline a project’s life cycle and how you plan to fund it to completion. Many foundations provide the money to initiate projects but expect nonprofits to use their own funds and other grants to continue them. In fact, if you hope to establish a long-term relationship with a foundation that has given you a grant, you must successfully finish what you started. If at first ... Keep in mind that a rejected proposal doesn’t have to shut the door on future opportunities. If your request is turned down, ask the foundation to explain its decision and to provide tips on making your proposals stronger. Many organizations are competing for the same foundation funds, so tenacity is crucial. Contact us for more tips on getting the funding your organization needs. © 2017
The Social Security Administration (SSA) announced on Friday that the maximum amount of wages in 2018 subject to the 6.2% Social Security tax (old age, survivor, and disability insurance) will rise from $127,200 to $128,700, an increase of a little more than 1%. By comparison, the 2017 wage base increased more than 7% over the 2016 wage base.
The maximum amount of Social Security tax a taxpayer could pay will therefore increase from $7,886.40 in 2017 to $7,979.40 in 2018, an increase of $93.
The SSA also announced that Social Security beneficiaries will get a 2% increase in benefits in 2018, after receiving a 0.3% increase in benefits in 2017 and no increase in 2016. The average retiree will receive an increase of $27 a month.
Among the other increases is the amount a worker under full retirement age can earn before he or she has Social Security benefits reduced. The limit increases from $16,920 for 2017 to $17,040 for 2018, after which $1 in benefits is withheld for every $2 earned above the limit.
There is no limit on the amount of wages subject to the other portion of the FICA tax, the 1.45% Medicare tax.
—JOURNAL Of ACCOUNTANCY - Sally Schreiber (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.
The extended deadline for filing 2016 individual federal income tax returns is October 16. If you extended your return and know you owe tax but can’t pay the bill, you may be wondering what to do next. File by October 16 First and foremost, file your return by October 16. Filing by the extended deadline will allow you to avoid the 5%-per-month failure-to-file penalty. The only cost for failing to pay what you owe is an interest charge. Because an extension of time to file isn’t an extension of time to pay, generally the interest will begin to accrue after the April 18 filing deadline even if you filed for an extension. If you still can’t pay when you file by the extended October 16 due date, interest will continue to accrue until you pay the tax. Consider your payment options So when must you pay the balance due? As soon as possible, if you want to halt the IRS interest charges. Here are a few options: Pay with a credit card. You can pay your federal tax bill with American Express, Discover, MasterCard or Visa. But before pursuing this option, ask about the one-time fee your credit card company will charge (which might be deductible) and the interest rate. Take out a loan. If you can borrow at a reasonable rate, this may be a good option. Arrange an IRS installment agreement. You can request permission from the IRS to pay off your bill in installments. Approval of your installment payment request is automatic if you: Owe $10,000 or less (not counting interest or penalties), Propose a repayment period of 36 months or less, Haven’t entered into an earlier installment agreement within the preceding five years, and Have filed returns and paid taxes for the preceding five tax years. As long as you have an unpaid balance, you’ll be charged interest. But this may be at a much lower rate than what you’d pay on a credit card or could arrange with a commercial lender. Be aware that, when you enter into an installment agreement, you must pledge to stay current on your future taxes. Act soon Filing a 2016 federal income tax return is important even if you can’t pay the tax due right now. If you need assistance or would like more information, please contact us. © 2017
Term limits for not-for-profit board members can be a double-edged sword. They can allow you to easily let go of unsuccessful board members, but they also can cause you to lose the best sooner than you’d like. Consider some of the issues involved before making a decision. Review the pros Term limits allow you to remove inactive or difficult members politely and, hopefully, without hurting their feelings. They also can create an opportunity for new board members with fresh ideas and perspectives to come on board and provide flexibility as your organization grows. Suppose, for example, that a board member’s term is expiring and a key initiative is to replace outdated technology. This is an ideal time to add a new board member with IT expertise. Term limits can help board members, too. By knowing in advance that their terms will be expiring, they can move on to other nonprofit boards without feeling guilty. And they can exit gracefully if age or life-changing situations affect their participation. Recognize the cons But in some circumstances, term limits do more harm than good. First, your organization may have to look for qualified and dedicated volunteers every couple of years — which can be difficult and time consuming. Also, term limits require your board and organization to commit to an endless cycle of new member training. This can diminish your board’s return on its training investment — by the time a member becomes a valuable asset and is effective, his or her term may be up. What’s more, you may sacrifice your most dedicated members. Although ideally all board members contribute significantly and equally, nonprofits often have a few members that perform the bulk of the board’s work. Losing one of these key people can be devastating. Last, you may lose institutional knowledge and organizational history when founding and experienced members leave. Other options If term limits aren’t appropriate for your organization but you want to ensure board members are active and engaged, think about developing an advisory committee to evaluate members and assess their ongoing interest. To discuss your options, contact us. © 2017
Not-for-profit special events can be lucrative from a fundraising standpoint, but they also carry significant risks. Proper insurance coverage can help protect your organization. Special event, special planning Risks associated with special events run the gamut from accidents and personal injury, to fraud and theft, to cancellation due to inclement weather or nonappearance by a featured performer. However, it’s possible to buy designated “special events insurance.” These policies provide coverage for lawsuits and claims brought by a third party who suffered a loss connected to the event. Coverage may include liquor liability coverage that protects your nonprofit against postevent calamities, such as an auto accident caused by an event guest driving under the influence. Cost-effective options There is a drawback: Special events insurance for a single event generally comes with a high price tag. Depending on the type of event and your current coverage, it might be more cost-effective to obtain coverage by extending one of the following types of insurance policies: Comprehensive/commercial general liability. CGL insurance provides coverage for claims that allege bodily injury or property damage. When necessary, the coverage usually can be extended to members, volunteers, temporary or leased workers, co-sponsoring organizations, outside sponsors and board members. Directors and officers liability. D&O insurance covers claims arising from the management or governance of an organization and can include coverage for board members and executives. Nonowned/hired automobile liability. You may need this coverage if volunteers or staff will use their own vehicles during the event, or if rented or hired cars, such as limousines, will be used. Fidelity. Fidelity bonds guard against the loss of money or property due to dishonest acts of staff or volunteers. Weather. Weather insurance provides coverage for losses resulting from weather-related event cancellations and is particularly important for outdoor events. Nonappearance/cancellation. This insurance protects against losses that result when a featured guest fails to appear. Check with your insurer You may already have some of this coverage under your current policies. But check with your insurer to learn whether your special event will be covered — and, if not, whether you could pay a one-time additional premium for protection. Contact us for more information on managing risk. © 2017
Your not-for-profit has probably spent a lot of time and effort attracting board members who have the knowledge, enthusiasm and commitment to make a difference to your organization. Unfortunately, what begins as a good relationship can sour over time, and you may find yourself in the tough position of having to “fire” a board member. 8 deadly sins Several behaviors can interfere with your board’s efficacy. Pay particular attention to members who: 1. Regularly miss meetings. Everyone has time conflicts now and then, but a chronically absent member drags down your board’s productivity and can lower morale among other members. 2. Don’t accept or complete tasks. Board members who aren’t willing to assume their share of the work force other members to pick up the slack. 3. Are motivated by personal agendas. Board members who pursue their own interests can waste time trying to convince others of their way of thinking — or can steer your nonprofit off course.4. Monopolize — or conversely, never participate in — discussions. There’s a happy medium when it comes to participation. Overbearing members stifle debate and those who sit silently through meetings may not be fully engaged.5. Treat peers disrespectfully. Boards are a team, and their members need to work together amicably.6. Betray confidentiality. Trust is an essential component of the board-organization relationship and your nonprofit can’t afford to have untrustworthy members. 7. Don’t disclose conflicts of interest. Board members risk eroding the trust of others, including external stakeholders if they make (or even appear to be making) decisions that benefit themselves over the best interests of your organization.8. Don’t realize when it’s time to retire. If a longtime board member is preventing your organization from moving forward and staying relevant, it may be time for him or her to move on. Take action Any of these behaviors can be toxic to your organization. When they start to interfere with your board’s work, it’s time to take action. Contact us for more information. © 2017
Own a vacation home? Adjusting rental vs. personal use might save taxes. If you rent out the home for less than 15 days, you don’t have to report the income, but rental expenses aren’t deductible. If you rent it out for 15 days or more, you must report the income, and deductibility of expenses depends on how the home is classified for tax purposes, based on personal vs. rental use. Adjusting the number of days you rent it out and/or use it personally between now and year end might allow the home to be classified in a more beneficial way. Contact us to learn more.
Out-of-pocket medical expenses may be deductible if they exceed 10% of your adjusted gross income. By “bunching” nonurgent medical expenses into alternating years, you may be able to exceed the floor. The “Unified Framework for Fixing Our Broken Tax Code” President Trump and congressional Republicans released on Sept. 27 proposes, among other things, increasing the standard deduction and eliminating most itemized deductions, which likely would include the medical expense deduction. So bunching such expenses into 2017 may be tax-smart. Contact us to learn more.