Raising the Bottom Line

Tax Credit for Maryland Businesses That Take Cyber Security Measures

Posted by Leonard Rus on Tue, Oct 16, 2018 @ 10:16 AM

Maryland Cyber Security Tax Credit

There’s excellent news for Maryland businesses and it comes in the form of a tax credit.

If your business has purchased cyber security goods or services from a Maryland cyber security company, congratulations. You’ve taken a smart step toward protecting your business from hackers. The promising news doesn’t stop there. There’s also a strong chance you’ll be eligible for a tax credit.

Called the Buy Maryland Cybersecurity (BMC) Tax Credit, this new credit “provides an incentive for Qualified Maryland Companies to purchase cybersecurity technologies and services from a Qualified Maryland Cybersecurity Seller. Qualified Maryland Companies may claim a tax credit for 50% of the net purchase price of cybersecurity technologies and services purchased from a Qualified Maryland Cybersecurity Seller,” according to the Maryland Department of Commerce’s website.

Things to know about the BMC tax credit:

  • You can claim up to $50,000 in tax credits in a single year on a first come first served basis.
  • The tax credit must be claimed for the tax year in which a purchase is made.
  • A Qualified Maryland Company is defined as one that has fewer than 50 people and is required to file a tax return in Maryland.

Investors of Maryland Cyber Companies Will Benefit, Too

The good news isn’t just for those who purchase cyber security services.

If you invest in a cyber security company in Maryland, you could qualify for the Cybersecurity Investment Incentive Tax Credit (CIITC).

Specifically, if you invest $25,000 or more in a cyber security business that has less than 50 employees, you might be eligible for a refundable tax credit for one-third of your investment. If you back a cyber security business in Allegany, Dorchester, Garrett or Somerset County, that credit increases to 50%.

Things to know about the CIITC:

  • You must submit an application for the credit at least a month before your investment.
  • There is a $250,000 limit per investor within a fiscal year.

3 Reasons Why You Should Support Maryland Cyber Security Companies

If your business hasn’t yet worked with a Maryland cyber security company, now is the time to start. Here’s why:

  1. You could be eligible for the tax credits described above, adding more money back to your bottom line.
  1. Taking steps to protect your organization from a hack or cyber attack is just smart business. If you think your organization is too small to be the target of a hack, you’ll want to read this blog post from our cyber security experts.
  1. You’ll be supporting Maryland’s business community. The tax credit was created, in part, to help promote Maryland’s cyber security industry, as our friends at the Cyber Association of Maryland, Inc. explain in their blog post.

Need Tax or Cyber Security Help?

To find out whether you or your business qualifies for either tax credit, our tax team can help. Call us at 800.899.4623 or contact us online.

If you want to protect your business from a cyber attack -- and possibly benefit from a tax credit in the process -- Gross Mendelsohn’s Technology Solutions Group can help. Call us at 800.899.4623 or contact our cyber security team online.

Download our five minute guide to cyber security here

Tags: technology, tax credits, business tax planning, tax, business owners, construction, real estate, Manufacturing & Distribution, government contractors, healthcare

Hiring a CPA Expert: Why to Do It Sooner Rather Than Later

Posted by James Kern on Tue, Oct 02, 2018 @ 07:45 AM

desk of CPA expert reviewing documents for attorney

A Certified Public Accountant (CPA) financial expert can provide valuable assistance to attorneys throughout the discovery phase of a litigation case.

Cases involving economic damages often depend on documents to establish or disprove the amount of the plaintiff’s damages. A financial expert gathers, analyzes and evaluates information from documents to calculate damages, and to provide expert testimony opining as to the amount of damages.

When is the right time to hire your CPA expert? The answer is simple: sooner rather than later. Let’s consider why.

Requests for Production of Documents

Requests for production of documents are one of the primary means of obtaining the data and information the expert will need to calculate damages.

CPAs know the types of documents typically maintained by businesses and individuals, and the accounting lingo used to refer to certain documents so that the opposing party will understand what documents are to be produced. CPAs retained early in the case can assist the attorney in developing a more precise and effective request for production of documents to obtain key relevant documents.

Serving requests for production of documents early on in the case, rather than late in the game, carries several benefits.

  • Obtaining relevant documents sooner provides the attorney and expert more time to review and analyze the data to evaluate its impact on damages and other aspects of the case.
  • Documents are useful in preparing for depositions. Obtaining those documents early allows more time to develop specific questions.
  • Information contained in documents may identify additional individuals that the attorney needs to depose and those depositions can be scheduled promptly.
  • Based on review of the documents initially produced, you may identify additional documentation that needs to be requested.

The specific documents to be requested will vary based upon the facts and circumstances of each case. Some documents tend to be more reliable than others. The CPA can provide the attorney with information as to the typical reliability of certain documents.

Generally, financial documents should be requested for a period of three to five years prior to the event or act causing the damages and for all subsequent periods.

The financial documents typically needed include:

Tax Filings

Financial Statements (Balance Sheets, Income Statements, Statements of Cash Flow)

  • Prepared by external accountants (audited, reviewed or compiled)
  • Internally prepared
  • Forecasts and projections
  • Personal net worth statements

Business Records

  • Detailed general ledgers (electronic copy if available)Sales reports – by month, customer and product
  • Payroll registers and wage summaries
  • Inventory reports
  • Depreciation schedules
  • Accounts receivable agings
  • Accounts payable agings

Other Documents

  • Shareholder/partner/operating agreements
  • Contracts including employment agreements, non-compete agreements, etc.
  • Loan agreements
  • Lease agreements
  • Minutes of board of directors and stockholder meetings

The Risk of Waiting

If you wait until late in the discovery phase before hiring your CPA expert, you run the risk of not having obtained key relevant documents from the opposing party that your expert will need to properly evaluate and calculate damages. This could put the success of your case in jeopardy.

How Your CPA Expert Can Help As Your Case Progresses

By hiring the CPA expert early in the case, the CPA can help the attorney by identifying specific documents to request from the opposing party to obtain relevant information that the expert will need to evaluate and calculate the plaintiff’s economic damages.

CPAs retained early in the case can also provide assistance with interrogatories by suggesting relevant questions or assisting in answering questions from the opposing party. As the case progresses, the CPA can also assist the attorney in preparing for portions of depositions that pertain to financial and other matters to gather evidence as to economic damages. Once the opposing expert has issued a report, the CPA can evaluate the opposing expert’s work, prepare a rebuttal report, and discuss the strengths and weaknesses of the opposing expert’s position and opinions with the attorney.

For Help

Our Forensics & Litigation Support Group can help. Jim Kern, CPA, CFE, CVA, specializes in damage calculations including lost profits, shareholder/partner disputes, lost earnings due to personal injury, construction losses, fraud and embezzlement, and performs evaluations of the financial condition and earnings of individuals and businesses. Contact him online or call 800.899.4623.

divorce whitepaper for family law attorneys

Tags: litigation support, forensic accounting, James Kern, attorneys

The Wayfair Decision Will Significantly Impact Online Sellers

Posted by Leonard Rus on Thu, Sep 27, 2018 @ 09:48 AM

Wayfair Case Impact On Online Sellers blog post

Sales and use tax compliance has changed significantly with the recent U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. The changes especially impact online sellers.

It’s imperative that you understand where your business has nexus and how the recent ruling might impact your taxes and reporting requirements.

Background

On June 21, 2018, the U.S. Supreme Court handed down a landmark decision in the sales and use tax nexus case South Dakota v. Wayfair, Inc.

The 5-4 ruling overturns physical presence standards upheld in previous cases, such as Quill Corp. v. North Dakota (1992) and National Bellas Hess Inc. v. Department of Revenue of Illinois (1967), where a business had to have a physical presence in the state for the state to impose sales and use tax collection obligations on the business.

It’s worth noting that in 1992 and 1967, online retailers such as Amazon, Wayfair and Etsy didn’t exist. The retail landscape has changed dramatically since then, as have tax laws and reporting requirements.

Before we dig in and talk about how this Court decision could impact you and your business, let’s step back and look at nexus and the Quill Court case.

What Is Nexus and Why Is It Significant?

Nexus describes the amount and degree of a taxpayer’s connection with a state before the taxpayer becomes subject to the state’s taxing jurisdiction.

If a taxpayer has established sales and use tax nexus, the state will require the taxpayer to register, collect and remit sales and use taxes on sales made to purchasers in that state.

States exercise their power to tax through statutes, case law, regulation or policy. Generally, state statutes are broadly written and include phrases such as “doing business in” or “deriving income from” to describe activity that will trigger nexus, and a subsequent filing obligation. Statutes vary from state to state.

With the boom of ecommerce, states have lost significant tax revenue. Many states have become more aggressive in enacting various statutes that require out-of-state sellers to collect and remit sales tax. Over half of the states that impose a general statewide sales tax now have addressed a form of “economic” nexus, where nexus is generally established based on a certain threshold of economic activity in a state rather than just a physical presence.

The Quill Case and Its Significance

In 2016, South Dakota passed an economic presence statute that required out-of-state sellers to collect and remit sales tax as if the seller had a specified level of activity in the state. This new standard applied if the business delivered more than $100,000 of goods or services in South Dakota or engaged in 200 or more separate transactions in South Dakota in the current calendar year or the prior calendar year. The case was ultimately heard by the U.S. Supreme Court, which concluded that the physical presence rule of Quill is “unsound and incorrect.”

By overturning Quill, the Court opened the possibility for states to impose sales tax collection obligations (and perhaps other taxes) based on economic presence.

Two Steps Businesses Should Take Now

The U.S. Supreme Court’s decision in Wayfair will affect companies that have economic presence in a state that meets that state’s nexus standard within the Court’s new ruling. It especially impacts online businesses where, in the past, the lack of a physical presence prohibited a state from imposing sales and use tax collection requirements on those businesses.

ACTION for taxpayers: Out-of-state sellers that deliver goods or provide services into a so-called “economic presence” state will quickly need to determine if the business exceeds the state’s specific economic sales or activity thresholds, generally in the prior calendar year or previous 12 months.

At least 25 states have enacted economic nexus models with varying enforcement dates. Other states are issuing nexus guidance suggesting economic nexus policies may be enacted.

ACTION for taxpayers: Sellers should conduct an analysis on each state that has adopted, or plans to adopt, economic nexus threshold requirements for sales and use tax collection to ensure they are in compliance with all jurisdictions (state and local) in which they have customers. It is also reasonable to expect that states may use this ruling to determine economic nexus thresholds for state income tax purposes as well.

Review Your Sales and Use Tax Compliance Requirements Now

Now is the time to clearly understand how this Court decision will affect you. To discuss the impact of the case on your business, call us at 800.899.4623 or contact us online. We can conduct a multi-state nexus review for your business and provide tax planning guidance based on your situation.

subscribe to Gross Mendelsohn blog

Tags: multi-state tax, taxpayers, tax, construction, Manufacturing & Distribution, real estate, government contractors, business owners, Leonard Rus

Highlights of IRS Guidance On Section 199A for Sole Proprietorships, S Corps, Partnerships and Trusts

Posted by Kevin Relf on Mon, Sep 10, 2018 @ 08:57 AM

Section 199A guidance - what does it mean

The IRS finally issued its long awaited proposed regulations for the qualified business income deduction, also known as the Section 199A deduction for qualified business income of pass-through entities.

Whew, what a mouthful! If your head is already spinning, I encourage you to keep reading, as business owners stand to benefit from this deduction.

The Section 199A deduction allows owners of sole proprietorships, S corporations and partnerships to deduct up to 20% of income earned by the business.

We got excited when the IRS released its guidance on the QBI deduction, because taxpayers and CPAs alike have struggled to fully understand this complex aspect of the Tax Cuts and Jobs Act.

There’s good news and bad news, however.

The bad news is that there are more than 100 pages of proposed regulations to wade through and understand. The regulations are complex.

The good news is that we’ve done the reading for you, and break down the highlights of what business owners need to know.

Before we dive in, let’s take a quick look back at the basics of Internal Revenue Code Section 199A, which was enacted under The Tax Cuts and Jobs Act (TCJA) at the end of 2017.

A Refresher On the Section 199A Deduction

Section 199A generally allows owners of pass-through businesses such as sole proprietorships, S corporations, or partnerships to deduct up to 20% of income earned by the business. Our blog post, Qualified Business Income Deduction: A Primer On the New Section 199A, covers the basics of Section 199A.

The qualified business income deduction (QBID) is available to eligible taxpayers whose taxable income is less than $315,000 if married filing jointly ($157,500 for all other taxpayers). The deduction is generally limited to 20% of the taxpayer’s qualified business income (QBI), or 20% of taxable income minus net capital gains.

The proposed regulations address many of the questions raised by the new law, clarify a number of details left unclear by the tax code, and are quite extensive at 184 pages in length. The regulations are broken down in to six sections. We’ll cover the more pertinent areas below.

9 Key Take-Aways From the Proposed Regulations

The complexity of Section 199A leaves many taxpayers with more questions than answers.

The proposed regulations attempt to offer guidance on some of these questions, defining terms used Section 199A and offering computational guidance, including the impact of losses on Section 199A calculations.

Let’s dive into the highlights of the proposed regulations.

1. Definition of “Trade or Business” for Purposes of the Qualified Business Income Deduction

A taxpayer must determine the amount of QBI for each of his or her trades or businesses.

The proposed regulations generally define the term “trade or business” to mean “a Section 162 trade or business other than the trade or business of performing services as an employee.”

Under the proposed regulations, the term “trade or business” also includes the rental or licensing of tangible or intangible property that does not rise to the level of a Section 162 trade or business, provided that the property is rented or licensed to a trade or business that is commonly controlled, meaning the business has at least 50% common ownership.

This proposed regulation permits most “self-rental” real estate to qualify for the deduction even if it doesn’t otherwise rise to the level of a Section 162 trade or business. Though this proposed regulation provides some relief, there are situations that still may result in unfavorable treatment under this standard, such as:

  1. A real estate business that leases property to unrelated parties will still need to meet the Section 162 standard.
  2. For business activities conducted through multiple entities, each entity must qualify as a trade or business on its own and an activity that does not rise to the level of a trade or business cannot be aggregated with another activity that is a trade or business. This can be problematic for businesses that have rental real estate in a separate entity, a common practice for both legal and other non-tax reasons.
2. General Computational Guidance

The proposed regulations address a number of computational matters at the pass-through business and individual level.

Netting of QBI

The code section is written to force the netting of positive and negative QBI, as Example 1 illustrates. The proposed regulations clarify that the negative QBI is netted against the positive QBI in proportion to the relative amounts of positive QBI from the trades or businesses with positive QBI, as seen in Example 2.

Example 1:

An individual with $100 of positive QBI from Herman’s Shoe Supply, $100 of positive QBI from Socks by Sam, and $100 of negative QBI from Hannah’s Distribution Co. has a net $200 of QBI.

Example 2:

Continuing with the example above, Herman’s Shoe Supply produced one-half of all positive QBI ($100 out of $200), so one-half of the negative QBI (or $50) is applied to reduce Herman’s Shoe Supply’s QBI. Similarly, the QBI of Socks by Sam is reduced by $50 to a net $50.

The adjusted QBI of each business with positive QBI is then compared to W-2 wage and asset basis limitations for that particular business to determine the tentative QBID for that business. The W-2 wages and asset basis of the trade or business that produced negative QBI are not taken into account by the trades or businesses with net positive QBI.

Carryover of net QBI losses

If an individual has net negative QBI from all trades or businesses, then there will be no QBID for that tax year and the net negative amount will carryover. In the subsequent tax year, that negative QBI is treated as an amount from a separate trade or business, which will then follow the loss reallocation rules discussed above in later years. The W-2 wages and asset basis of the trades or businesses producing the net negative QBI do not carryover to the subsequent year.

Fiscal-year pass-through entities

The proposed regulations provide that QBI reported to individuals on K-1s in 2018 from fiscal-year pass-through entities does qualify for QBID, provided all other requirements are met.

For example, an individual who receives a K-1 from an S corporation with a tax year ending June 30, 2018, will be able to claim QBID on its 2018 individual tax return with respect to all income on the K-1 even though a portion of it was generated during the 2017 calendar year.

This is a very taxpayer-friendly clause and a welcome clarification for all fiscal-year pass-through business owners.

3. W-2 Wages and Unadjusted Basis Immediately After Acquisition (UBIA)

As we discussed in our earlier article about Section 199A, for higher income taxpayers, the amount eligible for the 20% deduction with respect to a qualified trade or business (QTB) is limited to the greater of:

  1. 50% of the W-2 wages paid with respect to the QTB and
  2. The sum of 25% of the W-2 wages with respect to the QTB plus 2.5% of the UBIA of all qualified property with respect to the QTB.

W-2 wages

In general, the proposed regulations provide that the term “W-2 wages” means amounts

reported for federal employment tax purposes, including certain deferred compensation. This definition includes amounts paid by another entity as long as the trade or business claiming the wages is the common law employer of the employees. Thus, businesses that lease employees may still be able to claim those W-2 wages as their own.

Additionally, any entity with multiple trades or businesses must allocate its W-2 wages between those businesses. W-2 wages must be allocated to the owners of pass-through businesses in the same manner as wage expense is allocated.

Unadjusted basis of qualified property (UBIA)

For purposes of the asset limitation, qualified property means tangible, depreciable property that is held by and used in the trade or business for the production of QBI, and for which the depreciable period has not ended.

The depreciable period is the normal tax recovery period but can never be shorter than 10 years. The cost basis of qualified property means the tax basis on the date placed in service, and is determined without regard to any depreciation or other expensing (e.g., Section 179). UBIA is allocated to the owners of pass-through businesses in the same manner as tax depreciation expense is allocated. Special rules exist for assets placed in service near year end. We’ll address anti-abuse rules later.

4. Qualified Business Income

Section 199A provides a list of items that are not treated as qualified items of income, gain, deduction or loss for QBI purposes. Clarifying the meaning of the terms listed in the code section, the proposed regulations provide specific rules with respect to the inclusion/exclusion of the certain items, including the following.

Capital gains and losses

The code section excludes capital gains and losses from QBI. Under the proposed regulations, capital gains and losses would be excluded from QBI, including gains and losses that are treated as capital gains or losses.

Interest income

The code section provides that QBI does not include any interest income other than interest income that is properly allocable to a trade or business. The proposed regulations clarify that interest income received on working capital, reserves and similar accounts are not properly allocable to a trade or business.

5. Aggregation Rules

The Section 199A deduction is claimed by individuals, trusts and estates, though the deduction is based on the QBI, W-2 wages and assets of each individual trade or business.

It is common for a business to be conducted through multiple legal entities. For existing business structures, wages may be paid by one entity while the income is generated in another. As such, applying the W-2 wage or asset tests separately for entities that are under common control could result in unfavorable computations.

The proposed regulations permit taxpayers to aggregate related businesses. Note that these aggregation rules are unique to QBID, and do not rely on any other existing aggregation rules, such as passive activity grouping or at-risk grouping rules.

In order to aggregate for QBID purposes, each of five requirements must be met:

  1. Each trade or business must be under common ownership, either directly or indirectly, with the same person or group of persons owning 50% or more of each trade or business that will be aggregated.
  2. The common ownership must exist for the majority of the tax year.
  3. The businesses must have the same taxable year. An exception to this requirement exists for short periods.
  4. None of the aggregated businesses can be a specified service trade or business (SSTB).
  5. The aggregated trades or businesses must satisfy at least two of the following factors:
    • They provide products and services that are the same or customarily offered together.
    • They share facilities or significant centralized business elements (personnel, accounting, legal, manufacturing, purchasing, HR or IT).
    • They are operated in coordination with one or more of the businesses in the aggregated group (e.g., supply chain interdependency).

Aggregation is only done by individuals, estates or trusts, and it is elective. This is done by including aggregation disclosures with the tax return. Once a decision has been made to aggregate certain trades or businesses, they are treated as one trade or business for QBID and must be consistently reported as such by the electing owner in future years. Aggregation decisions can only change when new trades or businesses are acquired or created, or where certain businesses no longer qualify for aggregation. Each owner of a business is able to make their own aggregation decisions irrespective of the aggregation decisions of other owners.

This new aggregation rule provides welcome relief for many closely-held business structures.

In essence, this allows the owners of existing, interrelated businesses to maintain their structures while treating the overall enterprise as a single business for QBID. However, because pass-through businesses cannot aggregate at the entity level, this will require those entities to report all information for each trade or business to their owners as if there will be no aggregation. As a result, aggregation could be favorable for taxpayers, but it will come with increased reporting requirements.

6. Specified Service Trades or Businesses

One of the more hotly debated topics of the Section 199A deduction involves the definition of specified service trade or businesses (SSTB). This is because the owners of SSTBs are not eligible for QBID if their income exceeds the thresholds discussed earlier.

The code section provides a list of fields and a catch-all “skill or reputation” clause but provides no detailed definitions. The proposed regulations include detailed definitions for the list of SSTBs and also narrows the scope of the “skill or reputation” clause.

The expanded definitions are as follows:

Meaning of services performed in the field of health – The provision of medical services by individuals such as physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists and other similar healthcare professionals performing services in their capacity as such who provide medical services directly to a patient. It excludes services not directly related to a medical services field even though the services provided may purportedly relate to the health of the service recipient such as health clubs or health spas, payment processing services, medical research, or the manufacture or sale of pharmaceuticals or medical devices.

Meaning of services performed in the field of law – The performance of services by individuals such as lawyers, paralegals, legal arbitrators, mediators and similar professionals performing services in their capacity as such. It does not include the provision of services by printers, delivery services or stenography services.

Meaning of services performed in the field of accounting – The provision of services by individuals such as accountants, enrolled agents, return preparers, financial auditors and similar professionals performing services in their capacity as such.

Meaning of services performed in the field of actuarial science – The provision of services by individuals such as actuaries and similar professionals performing services in their capacity as such.

Meaning of services performed in the field of performing arts – The performance of services by individuals who participate in the creation of performing arts, such as actors, singers, musicians, entertainers, directors and similar professionals performing services in their capacity as such. It does not include services that are not unique to the creation of performing arts, such as facility maintenance and operation, and audio or video broadcast.

Meaning of services performed in the field of consulting – The provision of professional advice and counsel to clients to assist the client in achieving goals and solving problems, and includes advice and counsel regarding advocacy provided with the intention of influencing decisions of government and legislators. Consulting does not include services where advice and counsel is not provided, such as sales or the provision of training and educational courses. Moreover, this does not include consulting services that are embedded in, or ancillary to, the sale of goods or performance of non-SSTB services where there is no separate payment for the consulting services.

Meaning of services performed in the field of athletics – The performance of services by individuals who participate in athletic competitions such as athletes, coaches and team managers in sports such as baseball, basketball, football, soccer, hockey, martial arts, boxing, bowling, tennis, golf, skiing, snowboarding, track and field, billiards and racing. It does not include services that are not unique to the athletic competition, such as facility maintenance and operation, and audio or video broadcast.

Meaning of services performed in the field of financial services – The provision of financial services to clients including managing wealth, advising clients with respect to finances, developing retirement plans, developing wealth transition plans, the provision of advisory and other similar services regarding valuations, mergers, acquisitions, dispositions, restructurings (including in Title 11 or similar cases) and raising financial capital by underwriting, or acting as a client’s agent in the issuance of securities and similar services. This specifically includes services provided by financial advisors, investment bankers, wealth planners and retirement advisors.

Meaning of services performed in the field of brokerage services – The provision of brokerage services includes services in which a person arranges transactions between a buyer and a seller with respect to securities for a commission or fee. This does not include services provided by real estate agents and brokers, or insurance agents and brokers.

Meaning of the provision of services in investing and investment management – The provision of services involving the receipt of fees for providing investing, asset management or investment management services, including providing advice with respect to buying and selling investments. This does not include the direct management of real property.

Meaning of the provision of services in trading – This includes the trading in securities, commodities or partnership interests. However, this does not include hedging transactions that are undertaken by a business, such as a manufacturer or farmer, who is not otherwise considered a trader.

Meaning of the provision of services in dealing – This involves regularly purchasing securities, commodities, or partnership interests from and selling those assets to customers in the ordinary course of a trade or business or regularly offering to enter into, assume, offset, assign or otherwise terminate positions in those assets with customers in the ordinary course of a trade or business. This does not include a business that regularly originates loans but only engages in negligible sales of those loans.

Meaning of trade or business where the principal asset of such trade or business is the reputation or skill of one or more employees or owners – This includes a trade or business that consists of any of the following activities:

  • A trade or business in which a person receives fees, compensation or other income for endorsing products or services
  • A trade or business in which a person licenses or receives fees, compensation or other income for the use of an individual’s image, likeness, name, signature, voice, trademark or any other symbols associated with the individual’s identity
  • Receiving fees, compensation or other income for appearing at an event or on radio, television or another media format

The code section provides that engineers and architects are not SSTBs. The proposed regulations do not directly define these exempted fields.

The proposed regulations also include a de minimis rule whereby a business with gross receipts of $25 million or less will not be considered an SSTB if less than 10% of its gross receipts are attributable to the performance of specified services. For businesses with more than $25 million of gross receipts, the threshold is lowered to 5%. Therefore, businesses involving multiple activities may be considered an SSTB if one part of the business is a specified service with gross receipts that exceed the de minimis threshold.

As we discussed above, an SSTB is not eligible for aggregation, so the relevant wage and asset limitations will need to be reviewed carefully.

7. Anti-abuse Rules

Since the TCJA was passed into law, various strategies for maximizing the potential QBID for particular businesses have been mentioned.

Three potential strategies are directly addressed in the proposed regulations:

Breaking apart SSTBs

This strategy takes an SSTB and break it into multiple businesses. For example, a law firm that conducts an SSTB could separate out its real estate into a separate partnership, which would then lease it back to the law firm.

The proposed regulations address this strategy as inconsistent with the intent of QBID. As a result, a new rule was created to provide that any business that’s under common ownership (50% or more common ownership, including direct and indirect ownership by related parties) will be treated as an SSTB with respect to the income from the services or property provided to the related SSTB.

If the business provides 80% or more of its property or services to a commonly controlled SSTB, then that entire business will be considered an SSTB.

In applying this rule to the law firm example described above, the real estate rental activity would be considered an SSTB if the law firm was the only tenant. However, income from any portion of the building rented to third parties could be eligible for QBID if those third parties occupied at least 20% of the building, assuming all other requirements are met.

Changing from employee to independent contractor

The definition of a qualified trade or business excludes the trade or business of performing services as an employee. Some taxpayers surely have considered converting from an employee to an independent contractor so that the amounts previously paid as wages would become eligible for QBID.

The proposed regulations address this by adopting a rebuttable presumption that an individual who was previously treated as an employee for federal employment tax purposes with respect to a business will still be treated as an employee of that business despite a change in federal employment tax classification. This presumption applies regardless of whether the individual provides services directly or indirectly through an entity or entities. However, the presumption can be rebutted by showing that the individual is properly classified as an independent contractor under federal tax law.

While it is certainly possible to change the classification from an employee to an independent contractor, we expect that the IRS will view this type of change with a great deal of skepticism and that sufficient documentation will be needed to substantiate the change.

Property acquired at end of year

The cost basis of qualified property is determined as of the end of the tax year for purposes of the 2.5% limitation discussed earlier. If a business needs more assets to support a full 20% QBID, one possible option is to acquire or contribute qualifying property just prior to year end and potentially sell or distribute that property shortly after year end.

The proposed regulations impose time and use restrictions on property that is acquired by a business in close proximity to its year end. Under the general rule, property that is acquired within 60 days of year end and is disposed within 120 days of acquisition will not be considered qualified property unless it has been used for at least 45 days in the business.

Property that does not meet the 45-day use standard can still be considered qualified property if the taxpayer demonstrates that the principal purpose of the acquisition and disposition was a purpose other than increasing its QBID eligibility.

8. Reporting Rules

A pass-through entity must separately identify and report the following on the Schedule K-1 issued to its owners:

  • Each owner’s allocable share of QBI
  • W-2 wages
  • UBIA of qualified property attributable to each trade or business
  • Whether any of the trades or businesses is an SSTB

A pass-through entity must also report the following on an attachment to the Schedule K-1: any QBI, W-2 wages, UBIA of qualified property, or SSTB determinations, reported to it by a pass-through entity in which it owns a direct or indirect interest.

As previously described, the aggregation rules require annual filings or else the trades or businesses will not be permitted to be aggregated.

9. State Tax Considerations

It is uncertain what, if any, impact the proposed regulations will have for state income tax purposes. That’s because the Section 199A deduction does not provide for a deduction in computing federal adjusted gross income (AGI), but instead allows the Section 199A deduction in arriving at federal taxable income.

In nearly every state that imposes a personal income tax, the starting point for determining state taxable income is federal AGI. Since the Section 199A deduction is not part of the determination of AGI, it is generally not included in the state tax base unless the state legislature chooses to specifically conform and incorporate the provision into state law.

Questions?

While the Section 199A deduction can offer a substantial benefit to owners of sole proprietorships, S corporations and partnerships, it is indeed complex.

Our tax department can help you determine whether you are eligible for the deduction, or if the structure of your business should be, or remain, a pass-through entity or a C corporation. Contact us online or call 800.899.4623 to discuss how your business can take advantage of the Section 199A deduction.

subscribe to Gross Mendelsohn blog

Tags: tax deduction, tax, business tax planning, business owners, Kevin Relf

Quick Guide: Maryland Student Loan Debt Relief Tax Credit

Posted by David Leipnik on Fri, Aug 31, 2018 @ 01:24 PM

Student Loan Debt Relief Tax Credit

If you have incurred at least $20,000 in undergraduate and/or graduate student loan debt, you may be eligible for a Maryland tax credit.

Am I eligible for the credit?

To be eligible for the Student Loan Debt Relief Tax Credit, you must:

  1. File Maryland state income taxes for the tax year you are applying for the credit;
  2. Have incurred at least $20,000 in undergraduate and/or graduate student loan debt;
  3. Have at least $5,000 in outstanding student loan debt remaining when applying for the tax credit;
  4. Have completed and submitted an application to the Maryland Higher Education Commission by September 15, 2018; and
  5. Have submitted all required graduate and/or undergraduate student loan information, including Maryland income tax information and college transcripts

How much is the credit worth?

The credit can be worth up to $5,000. Last year, credit amounts ranged from $1,000 - $1,200. With that money saved on your Maryland taxes, you must use the credited amount to pay down your student loan debts in either a one-time payment or through monthly payments during the two year period after the credit has been awarded.

How do I apply?
To apply, you must submit an application to the Maryland Higher Education Commission by September 15, 2018. You may want to note that you must include a copy of your undergraduate and/or graduate transcripts for the loan years in which you incurred the debts and have the application notarized. To download a copy of the application, click here.

Questions?

Contact our tax team online or by calling 410.685.5512. You can also find frequently asked questions for the Student Loan Debt Relief Tax Credit here.

subscribe to Gross Mendelsohn blog

Tags: tax credits, Maryland, David Leipnik

Gross Mendelsohn’s Staff Raises the Glass Ceiling with a Set of Golf Clubs

Posted by Jiselle Zunino on Thu, Aug 30, 2018 @ 11:18 AM

ladies-golf-group-picture

It’s no secret that playing golf can help you develop business relationships. While business has a long-standing place on the golf course, women haven’t had a prominent place on the green. According to Forbes, women are interested in playing golf, but they don’t because they haven’t been invited or don’t feel especially welcome. When only 19% of adult golfers are women, it’s intimidating to start.

That’s why Gross Mendelsohn’s Women’s Initiative offered golf lessons to the firm’s female staff members. Six women took the firm up on the offer, and headed to the golf course for six lessons with a local golf pro.

Getting Our Golf On

Our golfers participated in the “Get Golf Ready” program, created by the PGA to teach rookies how to get better at golf. Our team members included:

Those of us who participated came from different departments, backgrounds and experience levels. The instructor, Erick Brock, PGA, broke down each session to focus on a particular skill set.

Lisa Johnson noted, “I’ve always been curious about golf, but I was intimidated to learn the game. I thought this program was the perfect way to start playing. Our instructor made us feel comfortable and confident from the beginning, which erased any intimidation we had. Doing this as a group made a huge difference as we encouraged each other and celebrated our successes. I look forward to continuing the program.”

tekoa gamble gets the fabled golf swoosh

Instructor Erick Brock guides Tekoa Gamble through the shot while everyone listens in.

Condoleezza Rice says that playing golf is an essential tool for building relationships that help women advance in their careers. It’s usually played in beautiful settings and a cocktail awaits you at the clubhouse. Raising the glass ceiling AND raising the cocktail glass? Seems like a no-brainer that women would love this sport just as much as men. Our Gross Mendelsohn team sure did!

“I initially signed up to learn to play golf with the intention of it being something that would help me in the area of business development,” Becky Spezzano explained. “The unexpected bonus has been getting to spend time with women from all departments in the firm and bond over learning a new skill.”

Each week, the lessons focused on building small movements, up to the final lesson: using the driver. By the end of six sessions, all our golfers passed Erick’s final exam and succeeded in getting their balls on the green.

Tekoa Gamble couldn’t have appreciated the opportunity more. “Erik’s teaching style made it fun and exciting. He connected concepts to everyday things you do so he made it relevant, but also included important etiquette and tons of helpful tips. As soon as he explained what I was doing wrong, I was able to correct it. I have been inspired to learn more on my own even with my busy schedule. I can now watch it on TV instead of changing the channel.”

“My favorite part of the lessons was seeing everyone’s progression each week. We built upon the skills we had learned in the previous weeks and applied it to the next phase of our lesson. We also had a great group of women who all supported each other,” explained Brooke Peterson.

Did Gross Mendelsohn’s Golfers Really “Get Golf Ready?”

We’ll let you see for yourself…

 

 


 

Women's Initiative Mission

Tags: women in business, leadership, business owners

4 Small Business Apps That Integrate With QuickBooks

Posted by Taylor Dean on Tue, Aug 28, 2018 @ 09:10 AM

small business owner using QuickBooks app

Millions of small business owners – about 4.3 million to be more precise – rely on QuickBooks to manage their day-to day-accounting. While QuickBooks has earned a reputation for its ease of use, many small business owners don’t realize that with the addition of one or more software applications, they can run their business more efficiently both on the front end and on the back end.

There’s An App for That

There are dozens of applications that integrate with QuickBooks and the list seems to grow by the day.

These apps make QuickBooks more powerful and are designed to help you more efficiently manage the front end of your business. Many of these “helper” applications work in conjunction with a variety of other applications and many are industry specific

Let’s take a look at four apps that’ll help you get more out of your QuickBooks accounting system

1. ServiceTrade

Who it’s for – service contractors

ServiceTrade is field service management application for service contractors. ServiceTrade is a prime example of how you can use an app to improve the front end management of your business. The app helps your customer-facing technicians – who are the backbone of any service business – and your office staff deliver outstanding customer service.

When you use ServiceTrade, your technicians can get real-time access to customer data, schedules, equipment detail and warranties (and much more), all from their mobile devices in the field.

The app helps bridge the gap between your field technicians and office staff. ServiceTrade’s Dispatch Board allows easy access to job details, new appointments, changing schedules and quotes. Your office staff will be able to see the status of service calls and track technicians’ time via a GPS job clock. Your bookkeeping staff will love ServiceTrade since the app minimizes data entry, thanks to its integration with QuickBooks, and makes invoicing simple.

ServiceTrade Dashboard

[source: ServiceTrade]

Want to wow your customers? ServiceTrade allows your customers to go online to see real-time job status, review and approve photos and quotes, and get an after-service report so they’ll understand the value of your services.

2. Acctivate

Who it’s for – inventory-driven businesses like distributors and retailers

While QuickBooks does have a built-in inventory management function, inventory-driven businesses like distributors and retailers can quickly outgrow it. Acctivate offers a more robust solution for better inventory management.

Acctivate is inventory management software that integrates with QuickBooks. The app works for businesses in any industry.

Tracking inventory in real-time as it flows through your business, Acctivate improves communication and collaboration between your purchasing, warehouse, sales, marketing, customer service and management personnel. The robust application can help you improve purchasing decisions; better control inventory; manage sales, order fulfillment and customer service; and see key metrics of your business operations. It allows for just in time inventory management.

Business owners and accounting staff can pull standard and customizable reports to enable more informed decision-making about customers, suppliers and opportunities for improvement. Users can configure graphic-based dashboards to show real-time information on things like inventory levels, sales pipeline, order fulfillment and daily sales.

Acctivate Dashboard

[source: Acctivate]

3. Bill.com

Who it’s for – any type of business

Bill.com digitizes a company’s bill payment process. The beauty of this application is that billing activity automatically sync with your QuickBooks accounting system in real time. This eliminates the need for double entry and reduces the risk of errors. It also gives you a real-time view of cash flow.

For paying and processing your bills, the app allows you to pay bills anytime from any device. You can choose your preferred payment method – you can make ACH payments or mail paper checks to your vendors. Bill.com allows you to customize the memo field and easily see outgoing payments.

Bill.com Vendor Payment

[source: Bill.com]

For invoicing your customers, you can send automatic electronic invoices and reminders. You can choose whether you’re paid by ACH, credit card, PayPal or ePayment.

4. POS Link

Who it’s for – restaurants

This app is for restaurants that are already using Micros or Aloha to record sales transactions. POS Link helps simplify the QuickBooks accounting process by automating everything – from entry to reporting.

For restaurants with multiple locations, POS Link is particularly useful. It allows you to manage all of your locations through a single portal, giving you real-time access to sales, tips, discounts, expenses, gift cards and tax collected

Communication with employees can be a challenge in the fast-paced restaurant business. POS Link solves that problem by allowing you to automatically email a “daily manager report” to anyone on your staff.

POS Link Daily Manager Report

[source: Dataraunt]

Similarly, you can tell POS Link to email alerts to your bookkeeping staff so they know about new marketing campaigns, so they know to track them in QuickBooks. This will give you more meaningful information about which marketing campaigns are effective.

Restaurant owners don’t go into business because they enjoy accounting. In fact, it’s usually just the opposite! POS Link can give your QuickBooks accounting system a big boost by producing a complete audit trail from the sales system to QuickBooks, giving you peace of mind when it comes to accuracy.

Speaking of accuracy, POS Link’s Automatic Balancer can be set to resolve rounding errors. It can also be set to make line items alternate between debits and credits. One thing we like most about the Automatic Balancer feature is that if sales are out of balance, your bookkeeper will get an email alert.

Need Help?

This list of apps is only the tip of the iceberg. Don’t see what you’re looking for? The QuickBooks Apps Store has a full list of apps and allows you to search for apps based on function and business type.

To learn how you can get more out of your QuickBooks accounting system, talk to our Smart Accounting Solutions Support team by calling 800.899.4623 or contact us online.

subscribe to Gross Mendelsohn blog

Tags: Smart Accounting Support Solutions, Taylor Dean, government contractors, QuickBooks

Show Me the Numbers: How the New Tax Law Will Affect Business Owners

Posted by Chaim Fine on Thu, Aug 23, 2018 @ 08:10 AM

New Tax Law Comparison blog post

A lot has been written on the new tax law, more formally known as the Tax Cuts and Jobs Act, and how it will affect taxpayers. But really, what most business owners want to know is the bottom line – the actual numbers – and how the TCJA will affect them personally.

There is really no simple way to determine how the tax law will affect you without a comprehensive analysis of your tax situation. (No worries – we can do that for you! Contact us to talk with one of our tax experts.)

We’re going to show you the numbers through a real life example. Let’s take a look behind the curtain, shall we?

Business Owners Have Important Decisions to Make

If you’re a business owner, and not just an individual taxpayer, the TCJA requires you to make some critical decisions in the near future. Let’s look at choice of entity.

For instance, it might be advantageous for an S corporation to change to a C corporation. Also, and this is really important, if the entity is something other than a C corp, you will need to determine if you’ll be eligible for the 20% Qualified Business Income deduction.

As with most business decisions, it’s a smart idea to have a CPA do a thorough analysis of your specific situation in order to choose the best entity type.

A Comparison of Tax Liability: Before and After the New Tax Law

The best way to illustrate how the new tax law will affect business owners is to look at a real-life situation that shows a business owner’s tax liability both before the tax law (2017) and after the tax law (2018).

Let’s set the scene. Alice is the owner of Big Dogs Drywall, a small construction company. The business is an S corp. Alice is the sole owner, married with two children, and takes an annual distribution of $300,000.

The following table shows Alice’s tax liability for both 2017 and 2018, with 2018 reflecting the new tax law’s changes.

Comparison Before After New Tax Law

As you can see, Alice’s tax bill is lower in 2018 compared to 2017, by $27,117, under the new tax law. The reason for the decrease is mainly due to the Qualified Business Income deduction and lower tax rates. When doing your tax planning, it is absolutely critical that you make sure your business qualifies for the full 20% deduction.

Now let’s consider this same scenario, but with Alice’s business changing from an S corp to a C corp as of January 1, 2018.

C Corp After New Tax Law

With Alice’s business as a C corp instead of an S corp in 2018, her tax bill is slightly lower. However, she will need to factor in the dividends paid out, as that amount will be taxed at 15%. That number could be higher or lower depending on an individual’s taxable income. In this scenario, it would not make sense to convert the business to a C corp.

For most small businesses where the owners take distributions/dividends, an S Corp will most likely be more advantageous. Even for large corporations, which might not need to declare dividends, there are still other factors to consider.

More Money In Your Employees’ Pockets?

Most taxpayers have seen increases in their paychecks as employers decreased their withholding due to the anticipation of a tax decrease. However, based on a report from the Government Accountability Office, 30 million taxpayers – that’s roughly 21% of all taxpayers – will have under withheld and will owe money comes April 2019. Even if you believe your tax situation is relatively simple, regardless of whether you are a business owner, it is wise to run a tax projection to avoid unpleasant surprises.

What Will 2019 Look Like for You?

Many taxpayers, particularly business owners, are unclear on what their tax situation will look like in 2019.

Contact us here or call 800.899.4623 to speak with one of our tax advisors, who will explain how you can prepare for 2019, and take advantage of any new tax savings opportunities.

For a broad overview of the tax law, check out our blog post, Here’s How the New Tax Reform Law Will Affect You and Your Business.

subscribe to Gross Mendelsohn blog

Tags: taxpayers, tax, tax planning, Chaim Fine, business owners, Manufacturing & Distribution, construction, real estate, government contractors, healthcare, business tax planning

REVEALED: 10 Things You Should Know About the New Tax Law

Posted by Matthew Preller on Mon, Aug 20, 2018 @ 08:47 AM

ten things in new tax law blog post

By now, most taxpayers are aware of some of the basics of the Tax Cuts and Jobs Act, including the decrease in individual and corporate tax rates and increase in standard deductions. But there are some aspects of the new law that haven’t gotten nearly as much attention. That’s why we’re going to reveal ten things you might not know about the tax law, but should.

1. Creation of Qualified Business Income

The Qualified Business Income (QBI) deduction is an entirely new deduction added by the TCJA.

For tax years 2018 through 2025, individuals will receive a 20% deduction for business income reported on their individual tax return.

Here’s a simple example: Kevin is an electrician who reports $100,000 of net income on his 2018 tax return. His QBI deduction would be $20,000 so he would, in effect, only be taxed on $80,000.

This deduction is available regardless of whether a taxpayer decides to itemize on their return. There are many limitations and restrictions to this provision, and a good number of CPAs consider QBI to be the most complicated provision in the tax law. We tackle the QBI deduction in this blog post. To fully understand how the QBI deduction impacts your situation, you should talk with your CPA.

2. Changes in Entertainment Expenses Deductibility

The TCJA repealed the deduction, previously limited to 50%, for business entertainment, which includes expenditures for taking clients to sporting events and shows, and paying for season tickets for various entertainment events. Since these items are no longer deductible, it is essential that you properly identify and segregate those expenses going forward.

3. Increase in Child and Family Tax Credit

The TCJA doubled the child credit for children under age 17 to $2,000. It also introduced a new $500 credit, per dependent, for a taxpayer’s dependents who are not “qualifying children,” but who still meet the IRS’s tests for dependency.

In addition, the phase-out limits for these credits have increased. Under the TCJA, joint filers whose adjusted gross income is less than $400,000 ($200,000 for others) are eligible for the child tax credit. This means that more families will be able to take advantage of the credit.

4. Limitation of State and Local Taxes

The TCJA added a limitation of $10,000 on state and local taxes. There seems to be a misconception out there that the limit is $10,000 per person, when in fact it is $10,000 per tax return.

This means that if you are a single filer you get $10,000 of itemized deductions; if you are married filing jointly, you and your spouse will get a combined $10,000 deduction. This deduction encompasses state and local income taxes, property taxes and sales taxes.

5. Elimination of Miscellaneous Itemized Deductions

One change that will have a particularly big impact is the elimination of miscellaneous itemized deductions. These deductions include investment management fees, accounting fees, and unreimbursed business deductions such as job education, job related travel, union dues, etc. Taxpayers who have historically had a large amount of investment fees, along with some insurance salespeople, could see a significant impact from this.

6. Changes to Mortgage Interest Deductions

Mortgage interest on loans used to acquire a principal residence and a second home is only deductible on debt up to $750,000 (down from $1 million). Loans in existence on December 15, 2017 are grandfathered, with a balance up to $1 million still allowed.

Interest on home equity indebtedness, such as a home equity line of credit, is no longer deductible unless the debt is really acquisition indebtedness (used for home improvement). Consider whether the indebtedness was used for business or investment purposes to determine whether an interest deduction may be available in a different category.

7. Changes to Depreciation

Over the past decade, bonus depreciation and Section 179 expensing have been popular tax planning tools for businesses. 

While the rate of bonus depreciation and the amount of the maximum Section 179 limit have varied over the years, business owners have long enjoyed the ability to deduct significant portions (or the entirety) of fixed asset purchases. The TCJA increased the bonus depreciation percentage to 100% until 2023, when it will decrease by 20% until it reaches zero.

Bonus depreciation is now available for both used and new qualified assets. The Section 179 expense limit is now $1 million of allowable expensing with a total purchase threshold of $2.5 million. If you purchase more than $2.5 million in eligible fixed assets in the course of the year, you will see a reduction in the amount you are allowed to expense under Section 179.

These amounts are much higher than they have historically been and, in many cases, well beyond what an average business owner will spend in a given year. However, these higher limits and the availability of bonus depreciation and Section 179 presents some excellent tax planning opportunities.

8. Expansion of Section 529 Plans

Section 529 plans have been a widely used tool to help taxpayers save money for their child’s college education. The funds you put into your 529 plan have to be used for qualified higher education costs, but the TJCA expanded the list of what qualifies as a higher education expense. Depending on your 529 plan, you may be eligible for a state tax deduction for contributions to the plan. The TCJA expanded the opportunities available for education tax planning by allowing $10,000 per year to be distributed from 529 plans to pay for private elementary and secondary tuition.

9. Alimony Recognition Rules Changed

Under the prior law, individuals who paid alimony to an ex-spouse received a deduction for the alimony paid, while the individuals receiving the alimony treated those payments as income. Tax reform has eliminated the deduction for alimony paid and the recognition of income for alimony received effective for divorce decrees executed after December 31, 2018.

10. Credit for Family and Medical Leave

A new tax credit was created under the TCJA for employers who provide eligible employees paid family and medical leave. Many employers are already providing paid leave to employees who qualify for this deduction. The credit could be as high as 25% of the compensation paid to the employee while on leave, resulting in large tax savings.

Find Out How the New Tax Law Impacts You

There’s no better time than now to find out exactly how the Tax Cuts and Jobs Act affects you and your tax situation. Contact us here or call 800.899.4623 to speak with one of our tax advisors, who will explain how you can take advantage of any new tax savings opportunities.

subscribe to Gross Mendelsohn blog

Tags: tax credits, tax, tax planning, Matthew Preller, business owners, Manufacturing & Distribution, real estate, taxpayers, healthcare, nonprofit, government contractors, construction

Quick Guide: Special Accounting Considerations for Religious Organizations

Posted by Ernie Paszkiewicz on Thu, Aug 16, 2018 @ 09:36 AM

Quick Guide Special Accounting Considerations for Religious Organizations

Religious organizations may technically be classified as nonprofit organizations, yet they are subject to a unique set of accounting rules. Anyone providing accounting services within a religious organization must be aware of special policies that can affect the organization’s compliance and tax status.

Here are just a few accounting considerations religious organizations should be aware of:

1. Oversight

Unlike the average nonprofit organization, religious organizations are often governed by the rules of a larger governing entity, like an archdiocese. This oversight body often sets its own rules as to when each organization needs an audit, review or compiled financial statement. This results in a large number of religious organizations with an improper level of financial reporting, which can affect their compliance.

2. Allowability

Generally Accepted Accounting Principles (GAAP) are the accounting standards issued by the Financial Accounting Standards Board (FASB) that are used by CPA firms if that organization’s financials need to be prepared with GAAP. However, many religious organizations elect to use the cash basis, modified cash basis or accrual basis of accounting, while choosing not to follow all GAAP requirements. This is often determined based on the requirements of the organization’s governing entity.

3. Payroll

Some religious organizations have special rules regarding payroll, like payroll for ministers. Generally, an organization is not required to withhold federal income taxes for ministers. In addition, certain payments for parsonage and housing allowances are not taxable to a minister.

4. Reimbursement of business expenses

Reimbursement of business expenses is sometimes handled incorrectly at religious organizations. If any employee is reimbursed for expenses incurred, and the employee accounts for those expenses with an expense report, those expenses are not taxable to the person. However, if the employee is given a type of expense allowance and no documentation of the expenses incurred is provided to the organization, those payments should be included in that person’s payroll.

5. Taxes

While religious organizations are generally exempt from taxes, that doesn’t mean every activity the organization undertakes is tax-free. There are activities that can cause an organization to be subject to unrelated business income taxes (UBIT) as well as tax compliance issues. Here are just a few examples of activities that could cause a religious organization to be liable for income tax:

6. Charitable contributions

Compliance issues often come up as a result of solicitation and recognition of charitable contributions. Any contribution a religious organization receives that exceeds $250 is supposed to be acknowledged in writing by the organization via receipt. The acknowledgement should have information regarding the donation as well as statements as to whether anything was received by the donor in return for the contribution.

Questions?

If you have any questions, please call Ernie Paszkiewicz, CPA, director of Gross Mendelsohn's Nonprofit Group, at 800.899.4623 or contact him online.

Learn what to expect during your nonprofit's next audit (free eBook)

Tags: nonprofit, Ernie Paszkiewicz