Nonprofits: Employment and Compensation Tips

A solid workforce is a necessity for any type of business to be successful. Even though many nonprofits rely heavily on the kindness of volunteers, employees are crucial for daily operations. Using a preplanned outline, hiring employees for your nonprofit organization does not need to be a challenging experience.

Finding the Right Employees for Your Nonprofit Organization

Being honest about your needs is a great way to attract the right staff to your organization. Many individuals will choose to work for a nonprofit due to the mission of the organization.

Know Your Needs

Do not be in a rush. Finding the right person requires patience. Consider the type of employee you want for your nonprofit. Go over education requirements, work experience, certifications, and other vital aspects.

Incorporating all your needs for the vacancy, write out a detailed job description. Include the following details:

  • Job Title
  • Work Hours: Clearly state the hours you may need the new hire to work, including shifts, weekend, and holiday requirements.
  • Compensation: A range of pay for the job title or grade within the nonprofit.
  • Responsibilities: Summary of the job, tasks, and other potential work-related demands.
  • Qualifications: Summarize the requirements for the job, including education, technical skills, background check, training, and other necessary requirements for performing the job.
  • Special Demands: Lifting requirements, ability to stand for long periods of time or travel needs.

Use the job description as a stepping stone for your hiring process.

Find the Right Candidate

After reviewing the job description, utilize available resources to help find the right candidates to fit your needs.

  • Ask current employees
  • Reach out to your donors through your newsletter or website
  • Ask friends or clients
  • Use social media platforms
  • Post job requirements on employment sites or boards
  • Reach out through your blog
  • Place a classified ad

Creating a large pool of potential employees will help your nonprofit organization find the right candidate.

Review Your Budget

Working with a strict budget, most nonprofits organizations are exempt from paying income, sales, and property taxes. Nonprofits must still pay employee taxes. Reviewing your budget allows you to set the compensation range for your new hires. Staying within budget keeps your overhead low.

Compensation and Benefits

When discussing compensation and benefits with a potential new hire, put an emphasis on the positive attributes of working for your nonprofit organization.

  • Flexible work schedule
  • No or limited weekend and holiday work
  • Health insurance benefits
  • Chance for travel
  • Paid vacations
  • Paid family leave
  • Tuition reimbursement
  • Paid training
  • Retirement fund

For the right candidate, the extra benefits often outweigh the lower compensation rate. Many job seekers will opt for nonprofits due to nature of the organization.

Promote From Within

Promoting a current employee or hiring a volunteer for a job vacancy creates a loyal workforce. Knowing the individual understands your nonprofit’s mission helps make the transition smooth.

Finding the right candidate for an open position in your nonprofit does require planning, time to implement, and effort. Working toward your vision of the future for your nonprofit, the new hire should fit easily into the company’s culture. At the same time, staying flexible about the vacancy provides you with the opportunity to change the job description and requirements to bring the right person into your nonprofit.

While you handle the hiring of new employees for your organization, let the CPAs at Ernst Wintter & Associates help your nonprofit with its accounting needs.  Our staff have over 25 years of experience, focusing on assisting nonprofits follow best practices.  Schedule an appointment with us today!

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Tax Tips for Private Foundations

Tax planning is different for private foundations than other charitable organizations. Private foundations pay an excise tax. Generally started by a large individual donation from an individual or business, a private foundation is a nonprofit charitable organization. Unable to qualify as a public charity, the private foundation produces income by investing the primary donation in a variety of money making options. The private foundation has a board of directors or trustees to manage the distribution of funds to charitable causes.

Tax Tips to Help Your Private Foundations

Tax planning is a necessity for private foundations to meet IRS criteria. Exempt from paying income tax, private foundations must pay an excise tax of 1 to 2 percent on net investment income. Your private foundation’s tax liability is dependent on numerous operating factors. Keeping all the information up to date is essential for minimizing tax liability.

Be Proactive

Being proactive with your recordkeeping methods is crucial. Waiting until the last minute to gather pertinent information for your bookkeeper or accountant may result in errors. Remind employees, managers, trustees, or the board of directors the importance of keeping ongoing and accurate records for tax time.

Provide Documentation

Keeping track of specific information will help determine the amount of tax liability for the year. The tax rate for a private foundation depends on the following:

  • Grants: Distributing grants or donations to specific charities is the main purpose of a private organization. Document the amount of the grant, the individual or entity receiving the grant, and all the pertinent information for the IRS. As regulated by the government, a private foundation must distribute 5 percent of the non-charitable assets.
  • Expenses: Keeping track of operating expenses is critical for deductions. Qualified expenses may include rent, employee or officer compensation, advisory fees, commission, and daily operating costs.
  • Income: Continuing donations from the founder, another donor, or an investment produces a profit – record the amounts with backing documentation. Investment accounts may include stocks, bonds, real estate, interest earned, or mutual funds.
  • Market Value of Assets: The current value of the private foundation’s assets is part of the calculation of the amount of taxes due. Keep track of the market value of all current assets, depletion of value, and new purchases for tax time.

If you are uncertain about a transaction, expense, or investment, save the information. Having too much information during tax season is better than too little. Reducing your excise tax is dependent on the combination of all the daily operating components.

Know Your Deadlines

Keep track of upcoming deadline for tax filing. Failing to file by the 15th day of the 5th month in the foundation’s accounting period may result in costly penalties exceeding thousands of dollars. If you cannot gather all your information by the deadline, request an extension. The extension will provide you with a sufficient amount of time to get your paperwork in order.

Private foundations are set up to help charitable causes. Decreasing tax liability with tax planning helps promote the charitable act of giving to deserving individuals or causes.  If your foundation is looking for assistance in preparing documents for filing, contact the Certified Public Accountants at Ernst Wintter & Associates today.  Our CPAs specialize in nonprofit audit service and assisting a variety of businesses comply with accounting regulations. 

Small Businesses and Upcoming Tax Changes

New tax laws and regulations change frequently. Knowing how the upcoming tax changes will affect your small business is crucial. Being prepared for changes will help you through the tax season.  Consult with your accountant now to ensure you are aware of how these changes will affect your business.

Tax Changes Affecting Small Businesses

The Tax Cut and Jobs Act of 2017 will have a significant effect on your small business tax. Increasing economic growth throughout the United States is the goal behind the sweeping changes. The changes do depend on numerous factors including the amount of profit, hiring, cash on hand, and expenses.

Keeping accurate records with valid documentation of your daily operations will help you through the changes. The changes are extensive, but a partial list includes:

  • Corporate Tax Rate: Starting in 2018, any small business with a C corporation standing will have a flat tax rate of 21 percent.
  • Tax Rate Deduction: Other small business classifications have specific criteria to be met in order to claim the new 20% deduction of the amount of the pass-through business income.
  • Corporate AMT: The elimination of the corporate Alternative Minimum Tax (AMT).
  • Bonus Depreciation: When the property reaches specific criteria, deduction depreciation will begin at 100%. Starting in 2022, the elimination of the bonus depreciation will be reduced to 80%. Taking four years, the lowered deduction is the first step to phasing out the bonus depreciation.
  • Vehicle Depreciation: Specific limits go into effect on the amount of vehicle depreciation you will be able to deduct. When a vehicle ineligible for bonus depreciation is put into use after 2017, a maximum of $10,000 depreciation deduction is allowed. After 2017, new limits will go into effect.
  • Equipment Expenses: The amount of expensing equipment gets a major increase. Up from the $510,000 cap in 2017, the new amount starting in 2018 is 1 million.
  • Work Opportunity Tax Credit (WOTC): Hiring an individual from predetermined target groups, enables you a $1200 to $9600 credit to help reduce your tax liability.
  • Family and Medical Leave: A new credit will be in place to reduce your overall liability. An employee will be able to take a maximum of 12 weeks of leave within one tax year.
  • Cash Method of Accounting: Another specific change in the new tax year focuses on accounting methods. The number of taxpayers using the cash method of accounting increases. The changes must meet specific guidelines including the number of gross receipts and the type of business.
  • Net Operating Losses: With exception to property and casualty insurance companies, an 80% cap on taxable income is put into place. Unless you are a farming business, the two-year net operating loss carryback was eliminated.

If you are unsure how the above changes or any other tax modification will affect your small business, seeking professional help is crucial. Some of the changes will only affect the 2017 tax year, while others may take four years or longer to phase out.  Contact the tax professionals at Ernst Wintter & Associates today.

Nonprofit Basics: Three Internal Controls your Organization Needs

Operating a nonprofit organization is a great way to give back to the community or a specific cause. Managing your nonprofit’s financial records is a critical component of your daily operations. When your nonprofit organization collects cash, checks, goods, or other monetary resources, a set of specific rules and guidelines must be in place. Using internal controls are a way to prevent mishandling of the collected assets.

3 Critical Internal Controls for Your Nonprofit Organization

  1. The Need for a Paper Trail

In today’s electronically advanced marketplace, many nonprofits overlook the necessity of a paper trail. A paper trail helps you document accounts paid, cash received for payment or donations, invoices sent, and other details of your daily operation.

Example documents to include:

  • Offer duplicate receipts for cash donations
  • Keep all receipts, paid invoices, deposit slips, and other related paperwork
  • Keep all paid bills, financial statements, bank deposits, employee payroll details, and other forms of daily operations.
  • Print financial statements daily (you can also back up information on your computer or server)
  • If using checks, consider duplicate copies to have an instant receipt of payment
  • Cash on hand needs to be counted daily
  • Paying with cash requires a detailed invoice
  • Prior to sending out invoices, make copies, and keep detailed records in your general ledger.

When in doubt, save the paperwork – keeping too much documentation is better than not enough. Create a well-organized filing system to allow for instant access to needed documents. The smallest piece of information may help your nonprofit save money. If mishandling of funds occurs, the paper trail acts as a way to review the situation.

  1. Involving Employees in Financial Operations

Nonprofits rely heavily on community donations and other resources to stay in operation. Involving more than one highly responsible employee to handle financial assets benefits your nonprofit. The strict process allows a defense against the mishandled funds. Most employees understand the need for protocols involving your nonprofit’s financial information.

Examples of needing two employees to help protect your financial operations include:

  • Using two signatures to release a check for payment.
  • Paying funds for invoices need documentation of check number, person authorizing payment, and date of payment.
  • If transferring funds electronically, set up a system to produce documentation for payment.
  • Implement a two-step authorization process for electronic payment.
  • Prior authorization of materials or services for reimbursement of purchase involving an employee.
  • Require a receipt or invoice for reimbursement.

When asking employees to be part of your daily financial operations, you instill a sense of loyalty to the company. Most employees recognize the importance of your nonprofit’s mission and goals.

  1. Reporting to Your Financial Statements for Review

When using computerized software for financial statements, upload regular reports to a committee, board, or accounting firm. Consistent uploads allow another person to review the statement for possible problem areas. If you are not using computerized software or need a hard copy, create detailed reports for members of the board or committee to review.

The main reason for using internal controls is protecting your nonprofit’s financial well-being. Without strict internal controls, the chances of fraud increase. Loss of donations or other assets from the lack of strict policies can damage your nonprofit’s financial status.  While setting up these controls may take some time, it will certainly be beneficial in the long run.  If you need help getting organized, contact the accountants at Ernst & Wintter Associates today.  Our professional staff are available to help with you basic account organization to complex and specific questions, unique to your organization.

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. 

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.

Broker Dealer Annual Audit: Checklist of What you Need to Prepare

Changes to the annual audit require broker-dealers to be proactive in being prepared. Working closing with the US Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) reviews broker-dealers closely to ensure compliance with rules and regulations. Failure to comply may result in heavy fines or a disruption in business.

Owners of brokerage firms need to actively communicate the importance of following proper procedures to employees. Individuals are entrusting you with their finances. Any type of mishandling of funds or failure to follow rules damages your brokerage firm’s reputation. If you are unsure of the recent changes or need answers, contact your brokerage firm’s CPA to guide you through the requirements for the annual audit.

Basic Checklist to Prepare for Your Broker-Dealer Audit

Ensuring your brokerage firm is compliant is the main purpose of the FINRA annual broker-dealer audit. The auditor will check different aspects of your daily operations. Prior to the audit, prepare your employees. Ensure your team is following the rules and regulations in compliance with the SEC and the FINRA requirements.

The auditor will carefully examine your brokerage firm’s daily operating procedures. Having your financial statements, company’s logs, and daily monitoring records prepared is critical. The auditor checks your records to ensure the proper handling of your clients’ money. Before the audit day arrives, gather all the necessary documentation, including:

  • License: In your annual audit, the broker-dealer will check your license. Do not allow your license to lapse for any reason. An up to date license ensures your brokerage firm is aware of the industry’s changing requirements and guidelines.
  • Financial Statements and Reports: Current financial statements to provide documentation for the proper handling of investments.
  • Customer Accounts: Review the customer account records to ensure all the information is current. Having employees update addresses, telephone numbers, tax identification numbers, and personal details should be an ongoing process throughout the year to eliminate the possibility of errors.
  • Compensation Records: Provide compensation records to verify proper procedures.
  • Communication: Provide documentation of emails or letters regarding SEC or FINRA communication.
  • Complaints: The auditor will analyze your records to ensure all procedures follow fair trade practices. Provide the auditor with resolutions regarding any type of complaint. Failing to be aggressive in fixing or handling complaints may harm your brokerage firm’s ability to conduct business.
  • Employee Records: A current list of managers who handle the daily transactions of higher funded investments.

If you are uncertain about the exact records, contact your firm’s CPA. Your CPA will be able to provide you with insight. The broker-dealer audit review of the documents is from an independent source. Any errors or failure to provide the current statements or documentation will delay the auditing process. Being prepared and professional at the time of the audit is critical.

Assessing the documents for misrepresentation, the auditor will carefully examine all materials to identify risks. Keeping accurate records of your customers, employees, and daily transactions will help minimize the chances of failing the audit. Costly fines, damaged reputation, and delay in business can result from an inaccurate audit review. Keep in mind, providing more documentation and records is better than too little.  If your firm is looking for a CPA, contact Ernst Wintter & Associates.