donation

Article Dean Dorton

Donations to qualified charities are generally fully deductible, and they may be the easiest deductible expense to time to your tax advantage. After all, you control exactly when and how much you give. To ensure your donations will be deductible on your 2016 return, you must make them by year end to qualified charities.

When’s the delivery date?

To be deductible on your 2016 return, a charitable donation must be made by Dec. 31, 2016. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean? Is it the date you, for example, write a check or make an online gift via your credit card? Or is it the date the charity actually receives the funds — or perhaps the date of the charity’s acknowledgment of your gift?

The delivery date depends in part on what you donate and how you donate it. Here are a few examples for common donations:

Check. The date you mail it.

Credit card. The date you make the charge.

Pay-by-phone account. The date the financial institution pays the amount.

Stock certificate. The date you mail the properly endorsed stock certificate to the charity.

Is the organization “qualified”?

To be deductible, a donation also must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions.

The IRS’s online search tool, Exempt Organizations (EO) Select Check, can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions.

Access EO Select Check

Information about organizations eligible to receive deductible contributions is updated monthly.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making. But act soon — you don’t have much time left to make donations that will reduce your 2016 tax bill.

Article Dean Dorton

If you’re charitably inclined, making donations is probably one of your key year-end tax planning strategies. But if you typically give cash, you may want to consider another option that provides not just one but two tax benefits: Donating long-term appreciated stock.

More tax savings
Appreciated publicly traded stock you’ve held more than one year is long-term capital gains property. If you donate it to a qualified charity, you can enjoy two benefits: 1) You can claim a charitable deduction equal to the stock’s fair market value, and 2) you can avoid the capital gains tax you’d pay if you sold the stock. This will be especially beneficial to taxpayers facing the 3.8% net investment income tax (NIIT) or the top 20% long-term capital gains rate this year.

Let’s say you donate $10,000 of stock that you paid $3,000 for, your ordinary-income tax rate is 39.6% and your long-term capital gains rate is 20%. If you sold the stock, you’d pay $1,400 in tax on the $7,000 gain. If you were also subject to the 3.8% NIIT, you’d pay another $266 in NIIT.

By instead donating the stock to charity, you save $5,626 in federal tax ($1,666 in capital gains tax and NIIT plus $3,960 from the $10,000 income tax deduction). If you donated $10,000 in cash, your federal tax savings would be only $3,960.

Tread carefully
Beware that donations of long-term capital gains property are subject to tighter deduction limits — 30% of your adjusted gross income for gifts to public charities, 20% for gifts to nonoperating private foundations (compared to 50% and 30%, respectively, for cash donations).

And don’t donate stock that’s worth less than your basis. Instead, sell the stock so you can deduct the loss and then donate the cash proceeds to charity.

If you own appreciated stock that you’d like to sell, but you’re concerned about the tax hit, donating it to charity might be right for you. For more details on this and other strategies to achieve your charitable giving and tax-saving goals, contact us.

Article Dean Dorton

Recent economic volatility, financial reporting changes, and increased competition for donations has placed greater emphasis on managing resources and strategic decision making. Not-for-profit organizations that have active, qualified finance committees will have a competitive advantage in these uncertain times.

In this article we will explore the purpose and responsibilities of a finance committee, composition and structure of the committee and nonprofit finance committee best practices.

Nonprofit Finance Committee Purpose and Responsibilities

The main responsibility of the finance committee is to ensure that the institution is operating in a financially sustainable manner by balancing short-term and long-term obligations and goals. In order to fulfill this purpose, board members have certain roles and responsibilities:

  • Carry out the governing board’s fiduciary responsibility to ensure the organization’s mission and purpose are fulfilled by:
    • Gaining an understanding of how the organization is financially supported/capitalized
    • Assessing risks, internal and external, that may have a financial impact on the organization
    • Monitoring the organization’s financial efficiency
  • Provide financial guidance to the board of trustees through:
    • Assessing how to protect the organization’s resources
    • Overseeing the budgeting process to ensure that they are based on reasonable assumptions, aligned with organizational goals and that they are properly monitored
  • Determine what is possible given the available resources of the organization
    • Stay involved with other committees regarding new projects and expenditures
  • Assist management in executing the strategic goals of the organization by:
    • Establishing guardrails for management regarding their financial decision making authority
    • Ensuring management has the resources and skills required to facilitate proper internal controls
  • Timely communication of all pertinent issues to the board of directors

Financial reports and budgets are two significant tools at the committee’s disposal to effectively and efficiently perform their vital governance role. Financial statements have a retrospective focus in that financial statements, for the most part, report what has already happened while budgets have more of a forward looking focus, projecting what will happen in the future.

Ratio analysis (using common ratios to determine metrics such as asset turnover, profitability, leverage, and program expenses) can be utilized to help an organization identify negative trends before they become problems. Budgets should be reviewed by questioning the underlying financial assumptions of the budget and comparing them to historical data for reasonableness. Reconciliation between the financial statements and the budgets can also be an effective tool for the committee.

During this reconciliation, the committee works with management to explain significant variances. This process not only helps to understand past performance but is also useful in the development of the next period’s budget.

Nonprofit Finance Committee Composition and Structure

Since the finance committee plays such a vital role in the board’s governance of the organization, it is important to determine who should serve on the committee. The committee should comprise a chair and a vice chair for direction and focus. It should also include members of other key committees such as the student affairs committee, academic affairs committee, and other committees that oversee vital functions of the institutions. This will improve communication and cooperation between the finance committee and other committees.

Members should serve for terms of at least four to five years and the terms should be staggered to promote continuity. Oftentimes, the chief financial officer, budget officer, and chief accounting officer will serve as staff of the committee, and the president of the organization will attend committee meetings. Once again, this serves to aid communication and cooperation between management and the finance committee which is integral to effective governance.

In general, the finance committee should have the skills necessary to fulfill its responsibilities and be structured in a way that fosters communication and cooperation between other committees, the board, and management.

Nonprofit Finance Committee Best Practices

Below are a list of best practices for finance committees:

  • Chair of finance committee and board chair should define the scope and responsibilities of the finance committee
  • In spring or early summer, the finance committee chair and CFO should meet to coordinate the committee’s annual work and identify/discuss any key issues facing the organization
  • Chair should communicate the work plan to the rest of the committee and the board
  • At each board meeting, the finance committee chair should deliver a status update including information on budget to actual results, emerging trends, and expenditure recommendations

A typical work plan might include the following:

  • Late spring – Committee chair, CFO, and president meet to develop work plan and discuss key issues, internal and external, facing the organization
  • Early summer – Adopt annual budgets, both operational and capital
  • Fall – Review financial results for prior year and use to evaluate the reasonableness of the current budgets; discuss significant changes in key financial metrics
  • Winter – Re-examine revenue projections and discuss and agree on a set of budgetary assumptions for the following year
  • Spring – Study changes in revenue estimates and make recommendations for updates

Article written by Tom Smither, Supervisor of Assurance Services

Citations

Stafford, Ingrid. “The Finance Committee”. AGB Effective Committee Series. 2013

Article Dean Dorton

When it comes to deducting charitable gifts, all donations are not created equal. As you file your 2015 return and plan your charitable giving for 2016, it’s important to keep in mind the available deduction:

Cash. This includes not just actual cash but gifts made by check, credit card or payroll deduction. You may deduct 100%.

Ordinary-income property. Examples include stocks and bonds held one year or less, inventory, and property subject to depreciation recapture. You generally may deduct only the lesser of fair market value or your tax basis.

Long-term capital gains property. You may deduct the current fair market value of appreciated stocks and bonds held more than one year.

Tangible personal property. Your deduction depends on the situation:

  • If the property isn’t related to the charity’s tax-exempt function (such as an antique donated for a charity auction), your deduction is limited to your basis.
  • If the property is related to the charity’s tax-exempt function (such as an antique donated to a museum for its collection), you can deduct the fair market value.

Vehicle. Unless it’s being used by the charity, you generally may deduct only the amount the charity receives when it sells the vehicle.

Use of property. Examples include use of a vacation home and a loan of artwork. Generally, you receive no deduction because it isn’t considered a completed gift.

Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven.

Finally, be aware that your annual charitable donation deductions may be reduced if they exceed certain income-based limits. If you receive some benefit from the charity, your deduction must be reduced by the benefit’s value. Various substantiation requirements also apply. If you have questions about how much you can deduct, let us know.