Nonprofit Finance Reporting: Upcoming Changes to be Aware Of

Owning and operating a nonprofit organization can be a rewarding experience. Keeping accurate business records is critical. The daily operations of your nonprofit must match the documentation required by local, state, and federal agencies. Failure to follow rules and regulations could result in fines or the termination of your sales tax exemption status. Staying up to date on new changes will help you limit the chances for inaccurate reporting.

Use the new changes to go over reporting procedures within your nonprofit. The implementation of all the new requirements provides you with a chance to review any areas with less than efficient track records. Fixing small problems prior to the implementation of the new standard procedure is a cost effective practice for your nonprofit organization.

Changes Affecting Your Nonprofit

Starting in December 2017, new guidelines will be in place affecting your nonprofit organization. The new policies allow you to slowly implement the changes until the procedures become binding. Implementing the new rules into your organization will improve financial statements. Designed to reduce costs and the complex procedures for financial reporting, efficiency is the main goal.

  1. Classification of Net Assets

Classifying net assets will be simpler after the new regulation goes into effect. Replacing the current three category listing, the classification breaks down into two separate categories: assets with donor restrictions and without donor restrictions. By switching over to the two classifications, keeping an accurate record of donor enforced restrictions will be easier. Saving you valuable time and money, your nonprofit will no longer need to classify assets as unrestricted, temporarily restricted, or permanently restricted.

In addition to eliminating the three classifications, the changes affect other net assets, including:

  • Underwater Endowments: An endowment with less market value than in the past requires accurate tracking. Your nonprofit must show the exact nature of spending the funds.
  • Board-designated Net Assets: Funds or other assets met for specific causes within the nonprofit organization will no longer be able to receive time restrictions.
  1. Cash and the Liquidity of Assets

A designated plan must include the management of liquid assets, an established credit line, and available cash. Your nonprofit will need to show the handling of the cash on hand for daily expenditures. The balance sheet must provide all information relating to the transactions.

  1. Income Expenses and Investment Reporting

Prior to implementing the new changes, reporting was optional. Now, reporting all investment income against the investment expense is mandatory. Ensuring consistency in reporting is the goal.

  1. Cash Flow

Continuing to allow you to choose the best practice for your nonprofit, the use of indirect or direct cash flow method is still allowed. Using a direct method eliminates the need of indirect method reconciliation.

Implementing new standards will help your nonprofit organization to continue to run in a smooth, efficient manner. Your new financial statements should be able to give exact details of your nonprofit’s financial story. The changes will help your team keep accurate, consistent records for future tax reporting.

Navigating these new changes can be tricky for nonprofits.  Speaking with a reputable auditing and accounting firm, such as Ernst Wintter & Associates, will give you peace of mind in knowing that their staff are up to speed on what is necessary for your business to comply.  To prepare for these changes, contact us today and schedule a meeting with one of our Certified Public Accountants. 

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Home Office Space: Are you Deducting it Correctly?

Millions of people work out of their homes on daily basis. Running a small home business or telecommuting, working from home is a cost effective plan. Setting up a home office allows for a convenient work area to conduct your business. Even though people utilize home space for work, deducting your home office correctly is a wide spread mistake. Following specific regulations and guidelines, you will be able to deduct correctly to help earn credit to reduce your taxable income.

Two Important Factors in Deducting Home Office Space Use

The only way to maximize on your deductions for your home office is setting up a proper work space. Depending on specific guidelines, you will be able to use the home office space deductions for your own business or working for another employer. Your home office space does not require an entire room to claim deductions. Clearing a section of a room for work is sufficient to claim pertaining deductions.

Two important factors for deducting your home office space correctly must be considered.

  1. Work Space Only Rule: The home office space must be for work use only. Using the work area for other endeavors will not allow you to claim deductions for work.
  2. Regular Use: The second condition of deducting your work space area is regular use. Now, regular use does not mean everyday use. Consistent and constant use of the space is the main factor of regular use of your home office.

Home Office Space for Your Business

Along with exclusive work space and regular use, your home office must meet specific standards, including one of the following:

  • Principal place for conducting business
  • An area to meet with clients and perform administrative work
  • Separate structure from your home exclusively for your business.

If you meet one of these three categories, you may be able to deduct specific expenses from your home office space. Deductions vary in conjunction with the type of home business you run. The deductions fall into two specific expense categories.

  • Direct Expenses: Anything directly related to running your business including cell phone expenses, office supplies, computer purchases, room décor, and storage space.
  • Indirect Expenses: The indirect expenses are a percentage of your home expenses based on the size of your home office.

Telecommuting from Home

Along with deductions for your own home based office, you may be able to deduct expenses while working for an employer. The criteria for claiming deductions depends on varying factors, including:

  • The home office must be terms of your employment
  • Inability to perform your work duties without your home office space
  • Employer does not provide another area for you to work
  • Providing your own space is a requirement of your employer

Other terms and restrictions may apply to your telecommuting work space in your home.

Utilizing your home for work is ideal for your own business or telecommuting as part of your employment for an outside company. Deducting your expenses on your taxes enables you to save money.  If you are unsure if your home office qualifies for a deduction, contact a Certified Public Accountant like those at Ernst Wintter & Associates. Our CPA’s are available to assist you in navigating the various deductions that may be available to you.  Contact us today to schedule an appointment.