January 2018 - Accounting X

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New Tax Laws Could Hurt Nonprofits

New Tax Laws Could Hurt Nonprofits

 

Many individuals and businesses open their wallets during the holidays to support local and national charities. Under current tax laws, itemizing allows them to deduct these donations from their taxes. The standard deductions are increasing, which means fewer people need to itemize, erasing the tax advantages of generosity. Let’s look at other changes to nonprofit tax laws.

 

Impacts of New Nonprofit Tax Laws

The new Republican tax law hurts nonprofits in the following areas:
-Increase in standard deduction will do away with tax incentives to donate to charities
-Unfavorable changes to tax-exempt status of interest income from bonds
-Changes to business income produced by nonprofit entities

 

Higher Standard Deductions are a Blow to Charitable Giving

Currently, many taxpayers itemize tax deductions, such as charitable donations. Under the new tax laws, effective Jan 1, 2018, standard deductions dramatically increase. Fewer people will itemize when the tax benefits of doing so disappear. As a result, charitable giving is expected to drop, negatively impacting nonprofit organizations that rely on donations to stay afloat. This is just one negative change in nonprofit tax laws.

 

Reduced Tax-Exempt Interest on Bonds

Nonprofits use advance repayment bonds to pay for construction and capital expenditures. Interest gained on these bonds is currently exempt from taxation. Donors accept lower returns in exchange for tax-exempt bond income. In return, this allows nonprofits to negotiate lower interest payments, reducing the cost of borrowing. Under the new rules, this interest becomes taxable.

 

Business Income Tax on Unrelated Business

Treatment of Unrelated business income tax, referred to as UBIT, changes under the new nonprofit tax laws. Under the new rules, charities cannot use losses from an unprofitable business to decrease tax liability on an unrelated profitable business. However, it can use losses from one year to reduce taxes on another year in the same business.

 

On the Brighter Side

On a happier note for charities, wealthier donors can deduct more charitable gifts. The current limit of 50 percent of adjusted gross income increases to 60 percent under the new laws. This will likely encourage higher donations from top earners that could offset losses due to the other changes.

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1099 Form deadline is right around the corner, is your company in compliance?

1099 Form deadline is right around the corner, is your company in compliance?

You should start preparing, filing, and delivering 1099 form as early as possible. Most businesses tend to underestimate the period required for collecting and confirming all information necessary for this process and end up being caught up by the deadline. It is best if you ensure that all vendors and contractors have issued you with w-9 form before they receive their first payment as this documentation will profoundly assist you in preparation of 1099 forms.

1099 form

Individuals and businesses that give payments of miscellaneous income to service providers are expected to issue them with 1099 forms by the end of January or in most cases February of the year following the tax year which is the year when the income was paid. These are people you pay for services that are not your employees. This year, some payers were lucky as IRS gave them a reprieve until 16th of February. This means that the payers should wait a little longer before receiving an email.

 

Some organizations send these forms at the same time they send checks to avoid sending a form later. Contractors should not assume that they are lucky and off the hook if they do not receive it by the end of January. However, there are penalties for businesses who issue these forms late as this may inconvenience the contractors and IRS.

 

Why it is important to have updated addresses of the contractors
Whether you have the contractors’ address, it is vital to confirm it and ensure that it is correct because the information is reported to the state tax authority and IRS based on the contractors’ Social Security number. Contractors should update their address directly with the company to ensure that they see all the forms that IRS sees.

 

Moving forward in 2018, ensure that you have form w-9 from all your contractors before they get paid as this will save you a lot of pressure and headache trying to track down their EINs and addresses. Do not ignore the process to ensure that you finish up the procedure before the end of January as this will save you penalties unless you have reasonable causes of delays to show if you get caught up by the deadline.

For more information on how a professional accounting firm can help you prepare contact us today!

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