Claiming Charitable Donation Deductions – What Donors and Charities Need to Know.

Donors:

When making a charitable donation of cash or property of $250 or more, it is the donor’s responsibility to prove entitlement of a deduction.   The charity should provide a contemporaneous written acknowledgement (CWA) of your donation – either at the time of donation or by sending all CWAs at the end of the year – but in the end, the taxpayer bears the burden of proof.  This documentation – a receipt of sorts – must contain three pieces of information.

1. The amount of cash and a description of any property contributed.
2. A statement as to whether the donor received any goods or services in return for the donation.
3. A description and estimate of the value of any goods or services provided to the donor.  

Additionally, CWAs must be submitted to the donor on or before the date of the donor’s tax return for the year the contribution was made is filed, or the due date (including extensions) of the return, whichever is earlier. 

If you make a donation of less than $250 to a charity, you do not need a CWA.   For example, donations of $200 three times during the year would not require a CWA to claim the deduction even though the total contribution to the charity exceeded $250.

Charities:

While the burden of proof lies with the taxpayer, it is in the best interest of the charity to provide donors with all the necessary documentation whether they ask for it or not.  We encourage charities to send valid CWAs to donors throughout the year; however, no later than January of the following year.

Related Article:   Tax Tip: 9 Things the IRS Wants Taxpayers to Know About Charitable Giving

Fuel Tax Updates

Biodiesel Blender’s Credit

The biodiesel blender’s credit is due to expire at the end of 2011, and at this point, no extension will be granted.  Eligible gallons of biodiesel must be blended AND sold in 2011 in order to receive the $1 per gallon federal biodiesel blender’s credit.  Biodiesel purchased and blended in 2011 but not sold until 2012 will not be eligible. 

Illinois Extends State’s Biodiesel Tax Credit Through 2018

The Illinois tax credit, previously due to expire at the end of 2013, has been extended five years through 2018.  The incentive gives complete fuel tax exemption for any blend of biodiesel greater than 10%. 

Tax Free Sales of Gasoline

Gasoline sold for the exclusive use by state, local government or non-profit education organizations are sales which are eligible for a refund of the federal gasoline excise tax.  Gasoline may be sold tax free by an Ultimate Vendor as long as the ultimate purchaser fits one of these three categories.

As a reminder, Ultimate Vendors are not immune to IRS audits, so take a moment to review the claim requirements below. 

According the IRS, the Ultimate Vendor is the appropriate party to claim a refund of taxes as long as the Ultimate Vendor is registered with the IRS.  Each claim must contain:

1. Total number of gallons covered by the claim.
2. The claimant’s registration number.
3. Statement that the claimant has sold the fuel without tax included in the price, repaid the tax to the ultimate buyer, or has written consent of the buyer to seek the claim.
4. An unexpired certificate from the buyer.   Model certificates can be found on the IRS website.  Refer to Model Certificate M or Model Certificate P.  

All information on the certificate must be current, and the certificate expires on the earlier of one year after the date of the certificate or the date a new certificate is given to the registered ultimate vendor. 
More information can be found on the IRS website. 

This Holiday Season Bergan Paulsen Wishes You MORE…

The Who, What, When and Why of a Compilation, Review & Audit

The difference between a compilation, review and audit comes down to the level of assurance your organization is looking for and what outside parties may require from you.  We break each one down for you below.  In addition, we’ve offered additional insight as to why your organization may benefit more from a compilation, review or audit.

Compilation

What:  A CPA (or team of CPAs) will gain an understanding of your business and the accounting practices common in your industry.  The team will then compile financial statements from the information provided by the management of your organization ensuring the statements are free from obvious material errors.  Finally, the team will issue a report stating that the financial statements were compiled but not review or audited.
Who:  Generally small, privately held companies that need help in preparing financial statements.
When:  Compilations can be prepared on a monthly, quarterly or annual basis.
Why:  You may want to consider a compilation if your organization or business has limited capabilities for preparing financial statements.  

Review

What: When a CPA (or team of CPAs) reviews financial statements, he or she will issue a report that provides limited assurance that material changes to the financial statements are not necessary.  Before a review can happen, all financial statements must be compiled by the organization’s management team not the CPA performing the review.  This compilation will allow the CPA to gain more insight into your organization and the industry in which you work.  From there, the CPA will ask questions concerning the accounting practices of your organization and then will analyze financial statements for unusual items and trends.  This procedure will only ensure the financial statements are reasonable.
Who:  Organizations that need to submit financial statements to third parties such as creditors and regulatory agencies.  A review may also be useful for business owners who are not actively engaged in day to day business activities.
When:  Reviews are generally completed annually.
Why:  Some creditors and business owners require only a review with a limited level of assurance of financial statements instead of a full audit. 

Audit

What:  An audit provides the highest level of assurance since financial statements are analyzed with a fine-tooth comb.  An independent CPA will confirm balances with banks and creditors, observe inventory counting and test selected transactions by examining supporting documents.  The CPA will also contact outside sources to verify information to reduce the risk that the statements will be materially inaccurate. The CPA will issue a report with findings and a statement that financial statements are presented fairly.  An auditor approaches an audit with professional skepticism and provides a reasonable level of assurance that the financial statements are free from material errors and fraud.  Who:  Businesses or organizations that need a higher level of assurance to outside entities.
When: Audits are generally completed annually.
Why:  An organization or business will need an audit when a high level of assurance  is required by third party entities and groups. 

For more information, visit our website.  You can also contact any of our CPAs that offer assurance services.

Ag Tax Incentives Boosted for 2011

ARTICLE:  TAX INCENTIVES BOOSTED FOR 2011

Bergan Paulsen Partner Mike Regan recently shared his expertise with Heartland Co-op for their Lifeline newsletter publication.  The article entitled Tax Incentives Boosted for 2011 explores various tax incentives offered for 2011 specifically the Section 179 Expense Deduction, available for both new and used equipment purchases, and Bonus Depreciation, new equipment purchases only. Further, farmers can write off for taxes certain expenses for prepaid supplies and crop inputs, but there are certain requirements that must be met.  Find out more about these incentives and requirements by reading the full article. 

Click here to view the full publication.

State of Iowa Fuel Taxes

Update as of 1/12/2012:  While the Department of Transportation will still need to find nearly $50 million in savings, Legislators are considering a gas tax increase in 2 phases with Branstad’s approval.  The proposal would call for a 4 cent increase in fuel tax in both 2013 and 2014. 

Iowa Governor Terry Branstad has made the decision to not support recommendations made by the Transportation 2020 group.  These changes include an eight to ten cent gas tax increase and an increase in other fees to generate revenue for road repairs during the 2012 legislative session.  Without the support of the Governor on this issue, it is unlikely that enough votes from Senate and House Republicans will be secured to pass the bill.

Instead of an increase in the gas tax, the Governor has asked the Department of Transportation to look for nearly $50 million in savings over the next year, through reduced administrative costs and duplication at all levels of state government.  This would be the equivalent of about two cents of fuel tax revenue.  The Governor acknowledges the need for additional revenue to support repairs for the state's highways, but stated that funding should come from increased efficiency in highway programs before the state increases taxes.  He wants to ensure that current tax revenue received from fuel taxes is being spent appropriately before an increase is implemented.

There are several factors that have led to annual shortfalls in revenue to maintain the road system including:

• Decrease in federal funding;
• The state gas taxes haven't been increased since 1989;
• Vehicles are more fuel efficient today than they were when the gas tax was last increased and consumers are leading towards purchase of these fuel efficient vehicles; and
• An increase in the costs to repair old roads and construct new roads.

Even though it is unlikely to see an increase in fuel taxes during the next legislative session, the issue is will likely be revisited by those in favor of it in the 2013 session

President Signs into Law New Tax Breaks for Hiring Veterans

President Obama has signed into law increased tax credits for hiring certain veterans. The credits are part of the Work Opportunity Credit, which requires that employers certify through state jobs agencies that employees qualify for the credits.

The veteran credits available effective for veterans hired starting November 22:

- A maximum $4,800 credit (40% of the first $12,000 in qualifying wages) for veterans with a service-related disability hired within 12 months of discharge (no change from prior law).

- A maximum credit of $9,600 (40% of the first $24,000 in qualifying wages) for veterans with a service-related disability who have been unemployed for at least six months of the prior 12 months.

- A maximum credit of $5,600 (40% of the first $14,000 in qualifying wages) for non-disabled veterans who have been out of work for at least six months out of the prior 12 months.
 
- A maximum credit of $2,400 (40% of the first $6,000 in qualifying wages) for veterans who have been unemployed at least four weeks, but less than six months, in the past year.

Employers claiming the WOTC have to have the employee certified as qualifying by the state job service before hiring;  they may instead complete a "pre-screening notice (Form 8850) by the date of the employment offer and submit it to the state agency within 28 days after the employee start date. 

While the rest of the WOTC expires at the end of this year (unless it gets extended again), the veterans credits apply for hires through 2012.

Commercial Enterprises in Iowa are Exempt from Paying Sales Tax on Computers

Did you know that “commercial enterprises” in Iowa are exempt from paying sales tax on computers and all devices fastened to it?  We’ve had this tid-bit come up with a few clients recently and thought it might be good information to share with all of our Iowa clients. 

Who is eligible?

Commercial Enterprises include businesses and manufacturers conducting business for profit but excludes professions, occupations, and nonprofit organizations.

More definitions:

• “Profession” means a vocation or employment requiring specialized knowledge and often long and intensive academic preparation. Lawyers and doctors are examples of professions. Professions, including professional corporations, do not qualify for the exemption.
• “Occupation” means an individual who has a particular skill or trade. Farming is considered to be an occupation; therefore, farmers do not qualify for the exemption.

What is eligible?

• “Computer” means stored program processing equipment and all devices fastened to it by means of signal cables or any communication medium that serves the function of a signal cable. A computer is a device having information processing capabilities and includes word processing equipment, testing equipment, and programmed or programmable microprocessors and any other integrated circuit embedded in the machinery or equipment.
• “Devices” means the physical computer assembly and peripherals fastened by a signal cable or other communication medium including, but not limited to, such items as the central processing unit, keyboards, consoles, monitors, display units, memory, disk and tape drives, terminals, printer, plotters, modems, tape readers, card readers, card or tape punchers, document sorters, optical readers, and digitizers.
• For further definitions, please click here.

If you are an organization that qualifies and have purchased technology equipment, it may be worth your time to do some further investigating to see if you qualify.  Feel free to get in touch with one of our team members with further questions. 

Get To Know MORE about Chad Abbas.

We recently had the chance to catch up with Tax Partner, Chad Abbas.  He shared his thoughts on leadership, the accounting industry and the importance of communication skills.

What are some of the more important leadership lessons you’ve learned in your career?
I’ve learned to hold true to what I believe in.  The business environment can be tough, but you will be successful if you are able to not sacrifice those things that are most important to you.

Why accounting?  What brought you to this career and what do you like most about it?
I really enjoy working with people.  I get a lot of satisfaction from knowing that what I do every day helps people – whether those people are part of a business, an individual or a colleague!

Why BP?  What differentiates this firm for you?
Top to bottom there is a genuine care and concern for our clients and each other within this firm.  That passion for helping others is something that I not only relate to but it brings me in the door everyday ready to get to work!

What do you look for when you hire?
When someone makes it through the education systems that we typically recruit from, we know they have the technical background that it takes.  So, it really comes down to their communication skills and job experience.  And out of those things, we can give them the experience so it’s imperative that they can communicate and relate well to our clients.

How would you summarize your leadership philosophy?
You know, I try to keep an even keel most of the time.  I think that by not letting my highs get too high and my lows too low, I am able to set the tone for my team and lead by example.

What advice would you give someone getting out of school right now?
I would tell them to go after what they enjoy rather than what they think will bring wealth or prestige.  Your chance of success is so much greater when you genuinely enjoy what you do.

What Constitutes “Timely” when Remitting Employee Deferrals?

A challenging, but important, aspect of being in compliance with Department of Labor (DOL) requirements when evaluating your employee benefit plans is timely remittance of employee deferrals. 

If a plan provides for salary reductions from employees’ paychecks for contribution to the plan (such as in a 401(k) plan or a SIMPLE IRA plan), the employer must deposit the contributions in a timely manner. The law requires that participant contributions be deposited in the plan as soon as it is reasonably possible to segregate them from the company’s assets, but no later than the 15th business day of the month following the payday. If employers can reasonably make the deposits sooner, they need to do so. 

The Safe Harbor Rule applies to small employers with less than 100 participants in their 401(k) plan. If amounts withheld as elective deferrals are deposited with the plan’s trustee within seven business days, the deposit will be deemed to be timely.

In the end, consistency and actually defining what is reasonably within your organization is key. 

For further compliance assistance regarding Employee Benefit Plans, visit the Department of Labor website or contact a member of the Bergan Paulsen team. 

Bergan Paulsen is a member of the American Institute of CPAs’ Employee Benefit Plan Audit Quality Center. The center is a voluntary membership organization established to promote the quality of employee benefit plan audits. 

House-approved 3% tax repeal bill awaits Obama's signature

Unanimous bipartisan House approval of a bill to repeal the 3% withholding tax rule for contractors is a victory for the construction industry. The bill also provides tax incentives for companies that hire unemployed military veterans. The repeal “will provide some much-needed relief for a hard-hit industry and its struggling workers," said Stephen Sandherr, CEO of AGC. President Barack Obama has said he will sign the bill.

For more information about the 3% tax repeal bill click here.

Employee Benefit Plans – When is an audit required?

Most employers are expected to offer an employee benefit plan.  Although benefit plans can be a means for attracting and retaining quality employees, there are many challenges to offering such plans.
The most challenging aspects of an employee benefit plan come to interpreting the plan document.  Ensure that your organization reviews the plan yearly and that the person in charge of administering the plan is trained.  Ultimately it is the employer’s responsibility to keep the plan in compliance with applicable laws but helpful resources such as a third party administrator and a CPA can offer peace of mind.

Begin by counting the participants in your plan. 

4 keys to counting participants:

• Use the first day of the plan year, not the last day of the previous plan year (Count must include those who became eligible on the 1st day of the plan year).
• Include all employees who have met the plan’s eligibility requirements, taking into account entry dates.
• Include participants who are eligible but not contributing.
• Include all terminated employees who have account balances under the plan.

An employee benefit plan audit is required when a plan has 100 or more participants on the 1st day of the plan year.  It is also required if 6% or more of the Plan’s assets are invested in a real estate limited partnership that is self-trusteed. 

An employee benefit plan audit is NOT required when applying the 80/120 Exception.  A plan with no less than 80 but no more than 120 participants at the beginning of the plan year that filed a Form 5500 for the previous plan year may elect to file the same type (i.e. small plan or large plan) of Form 5500 it filed the previous year.  Any plan filing an annual report under this exception need not engage an auditor nor file detailed financial statements.


For further compliance assistance regarding Employee Benefit Plans, visit the Department of Labor website or contact a member of the Bergan Paulsen team. 

Bergan Paulsen is a member of the American Institute of CPAs’ Employee Benefit Plan Audit Quality Center. The center is a voluntary membership organization established to promote the quality of employee benefit plan audits.

Senate Moves to Repealing 3-Percent Rule

On November 7, the senate voted to take-up legislation that would repeal the 3-percent withholding tax imposed on federal contractors.  Senate Majority Leader Harry Reid plans to amend the bill with legislation that would provide tax credits for companies that hire veterans with service-connected disabilities.

The withholding tax repeal is estimated to cost $11.2 billion over 10 years, according to the Joint Committee on Taxation.  The House approved a measure that would offset the cost by changing the calculation of modified adjusted gross income in determining eligibility for some health care credits, including Medicaid, and the Children’s Health Insurance Program.  Reid said he would prefer a different pay-for but may change his mind if passage of the VOW to Hire Heroes Bill of 2011 is assured with the House offset.

The VOW to Hire Heroes Bill of 2011 proposes a tax credit of up to $5,600 for hiring veterans who have been looking for a job for more than six months, as well as a $2,400 credit for veterans who are unemployed for more than four weeks, but less than six months.  In addition, the measure calls for a tax credit of up to $9,600 for hiring veterans with service-connected disabilities who have been looking for a job for more than six months.  It also provides expanded training and education opportunities for all veterans.  Democrats have proposed paying the $1.6-billion cost of the legislations by delaying scheduled fee reductions on mortgage application for loans guaranteed by the Department of Veterans Affairs.

President Urges Passage

President Obama on November 7 appealed to members of Congress to pass tax credits for employers who hire unemployed veterans of the wars in Iraq and Afghanistan at a time when nearly three-million former service members are transitioning to civilian life.  “Our veterans did their jobs.  It’s time for Congress to do theirs,” Obama said at a Rose Garden event attended by former service members and representatives of veterans’ organizations that support the hiring incentives.  The president urged lawmakers to “put our veterans back to work, and pass this element of the jobs package that benefits our veterans and gives businesses an incentive to hire veterans.”

2011 Year-End Tax Planning - What You Need to Know

Twenty-five years ago, Congress overhauled the Tax Code in the Tax Reform Act of 1986. At that time, the 1986 Tax Reform Act was praised for simplifying a Tax Code that had grown too complex. Since 1986, complexity has returned to the Tax Code, largely because Congress has enacted a host of temporary tax incentives with a variety of expiration dates.

Few tax laws have complicated tax planning as much as the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). EGTRRA was enacted as a temporary tax law although many predicted that a future Congress would make EGTRRA permanent. And while some of EGTRRA's retirement savings provisions were made permanent in 2004, other provisions have only been extended one or two years at a time. Many of the extended tax provisions are scheduled to expire at the end of 2011 or the end of 2012, leaving year-end 2011 tax planning a challenge for many individuals and businesses.

Individuals

Income/deduction shifting. Income and deduction shifting is a traditional year-end tax strategy that is worth a look at year-end 2011. However, one key complication is uncertainty over the individual income tax rates after 2012. We know that the individual income tax rates will be 10, 15, 25, 28, 33, and 35 percent for 2012. Under current law, the 10 percent rate is scheduled to expire after December 31, 2012 and the remaining rates are scheduled to revert to 15, 28, 31, 36, and 39.6 percent after December 31, 2012. As a result, some taxpayers may want to abandon the traditional strategy of shifting income into a future year and recognize income in 2011or 2012 when the lower rates are available.

Capital gains/dividends. Reduced tax rates on qualified dividends and capital gains are scheduled to expire after December 31, 2012.  Taxpayers need to carefully review when to recognize income from qualified capital gains and dividends to maximize their tax savings in 2011 or 2012.

AMT. For many individuals, year-end tax planning requires "running the numbers" for regular federal tax liability and alternative minimum tax (AMT) liability, and this year is no exception. Taxpayers may want to explore if certain deductions should be more evenly divided between 2011 and 2012 and which deductions may qualify, or will not be as valuable, for AMT purposes.

Gift tax exclusion. Many individuals overlook gift-making as a year-end tax strategy.  Under current law, the annual gift tax exclusion per recipient on which no gift tax is due is $13,000 for 2011 and 2012. Married couples may make combined tax-free gifts of $26,000 to each recipient.  Use of a “lifetime” estate and gift tax exclusion should also be considered for larger gifts.

Bíg ticket purchases. Taxpayers planning a big ticket purchase in 2012 may want to accelerate that purchase into 2011 to take advantage of the deduction for state and local general sales taxes. The deduction for state and local general sales taxes is scheduled to expire after December 31, 2011. Taxpayers may take the deduction for state and local general sales taxes in lieu of the deduction for state and local income taxes.

Energy improvements. In recent years, Congress has enacted a number of tax incentives to encourage homeowners to make energy efficient improvements to their primary residences. The Code Sec. 25C tax credit for certain nonbusiness energy property is scheduled to expire after December 31, 2011. The credit is complex; if you are considering installing energy efficient improvements such as windows, doors, heat pumps, and other items, please contact our office to determine if your purchase qualifies for the credit.

More incentives. More individual incentives scheduled to expire after December 31, 2011 include (not an exhaustive list):

• Employee-side payroll tax cut
• Above-the-line deduction for qualified tuition and related expenses
• Tax-free distributions from individual retirement plans for charitable purposes by individuals age 70 1/2 and older
• Deduction for classroom expenses of qualified educators
• Expansion of adoption credit and adoption assistance
  

Businesses

Bonus depreciation. Business taxpayers have a limited window in which to take advantage of 100 percent bonus depreciation. One hundred percent bonus depreciation applies to qualified property acquired after September 8, 2010 and before January 1, 2012, and placed in service before January 1, 2012. Bonus depreciation is scheduled to drop to 50 percent for calendar year 2012.  State depreciation rules may differ.

Code Sec. 179 expensing. Business taxpayers also have a limited window in which to take advantage of enhanced Code Sec. 179 expensing. For tax years beginning in 2011, the Code Sec.179 dollar limit is $500,000 and the investment limit is $2 million. The dollar limit for years beginning in 2012 is scheduled to fall to $139,000 and the investment limit is scheduled to fall to $560,000. State depreciation rules may differ.

Real property expensing.  After 2011, special expensing rules for qualified real property are scheduled to expire.  A taxpayer that places qualified leasehold improvement property, qualified restaurant property or qualified retail improvement property in service in a tax year that begins in 2011 may elect to treat the property as Code Sec. 179 property and expense up to $250,000 of the cost of the property.

WOTC.  The Work Opportunity Tax Credit (WOTC) is scheduled to expire after December 31, 2011). The WOTC rewards employers that hire individuals from one of nine groups of targeted job seekers. Under current law, the WOTC applies to wages paid to qualified individuals who begin work for the employer before January 1, 2012.

 Research tax credit. The research tax credit is designed to encourage businesses to increase their spending on research and development of new technologies. The 2010 Tax Relief Act extended the credit through December 31, 2011.

FUTA Surtax. The 0.2 percent FUTA surtax expired after June 30, 2011. As a result, the FUTA tax rate falls to 6.0 percent for the remaining six months of 2011 before any state unemployment tax credits are taken into account. The IRS has indicated it will provide guidance for employers. Our office will keep you posted of developments.

Energy tax incentives. A number of tax credits for alcohol fuels and biodiesel/renewable diesel will expire after December 31, 2011. Tax credit for construction of new energy efficient homes and manufacture of energy efficient appliances will also expire after December 31, 2011.

FASB Issues Accounting Standards Updates for Certain Health Care Entities

The Financial Accounting Standards Board issued an Accounting Standards Update in July 2011 regarding “Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities.”

This update applies to entities within the scope of Topic 953, Health Care Entities that recognize large amounts of patient service revenue at the time of service even though the entities do not assess a patient’s ability to pay. The changes are as follows:

• Reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue on their statement of operations.  
• Providing enhanced disclosure about their policies for recognizing revenue and assessing bad debts.  
• Disclosing patient service revenue as well as qualitative and quantitative information about changes in the allowance for doubtful accounts.  

Click here to read the full report.

Get To Know MORE About Chris Honkomp.

Chris was recently honored to be recognized by the Corridor Business Journal as one of the 40 of the Corridor’s outstanding leaders under the age of 40.  We spent 15 minutes with him to pick his brain on leadership, family and writing papers in college!


1.    What are some of the more important leadership lessons you’ve learned in your career?
I have learned the true meaning behind the cliché, “you’re only as strong as your weakest link.”  To me, leadership is about developing young talent as fully and quickly as possible so that the overall team succeeds.

2.    Why accounting?  What brought you to this career and what do you like most about it?
To be honest, I chose a major in college that would require me to write the least amount of papers.  And although that was beneficial to me at the time, I’ve since learned what a career in accounting really means.  Today it’s a challenging environment that is different every day and is conducive to my competitive nature.  I put that competitive energy toward helping clients consistently get better!

3.    Why BP?  What differentiates this firm for you?
You know, coming out of school, I thought about leaving Iowa but with four younger brothers still here and active in school and sports, I knew that I wanted to stick close to home.  I chose to invest in my family and community and work for the firm that had the reputation as the best and that was – and is – Bergan Paulsen!

4.    What do you look for when you hire?
We look for individuals that come from a good educational program but beyond that we look at their work experience.  We want people to come to us with developed communication skills and a desire to help clients succeed.

5.    How would you summarize your leadership philosophy?
Balance.  This is an interesting and important word to me.  I think with most things, in work and in life, the right answer usually lies somewhere in the middle.  The word pertains to work / life balance as well as the balance you bring to providing the right solution for a client.

6.    What advice would you give someone getting out of school right now?
Find what you’re passionate about and good at, set goals and go after it!  Be confident in your ability to share fresh ideas and make an impact!

FASB Committee Considers Nonprofit Financial Reporting Changes

Nonprofit organizations are neither public nor private businesses creating a unique situation in regards to accounting standards. Because nonprofits are accountable to the public, the Financial Accounting Standards Board’s (FASB) Not-for-Profit Advisory Committee (NAC) is studying ways to improve financial reporting for nonprofit entities. The NAC has identified several potential projects for the FASB’s standard-setting agenda, three of which are:

1. Net Asset Classes – Redefine or relabel classifications to better convey nonprofit liquidity. 
2. Form of Financial Statements – Improve statements to better communicate the financial landscape. 
3. Management Discussion & Analysis – Include commentary from nonprofit directors to further explain the financial story. 

For more information, read the full article: FASB Not-for-Profit Advisory Committee Recommends Improvements to Financial Reporting.

Tax Strategies for a New Economy

During economic downturns, states are often searching for ways to supplement their declining tax revenues while businesses are formulating strategies to improve their profitability by reducing tax liabilities. Businesses look to sales and property taxes to reduce their overall tax payments but in an economic environment that has been declining, companies must prepare themselves to deal with states’ more aggressive pursuit of sales and property tax revenues.

Options to Minimize Corporate Sales Tax 

• Restructuring Individual Transactions or Business.
  Vendor contracts often offer good opportunities to restructure transactions to be more tax advantageous. For instance, a vendor that bills one lump sum for both telephone support and software updates could be restructured to bill them separately so that the support is not subject to state sales tax.
  In addition, a company may look at restructuring its business. For instance, a company may operate an internal fleet of trucks and delivery vehicles. By restructuring, the company could isolate the delivery of its own products to possibly take advantage of a exemption on the trucks, tires and fuel used for delivery of business’ goods. 
• Request Formal Rulings on State Tax Interpretations.
  Companies can also request formal rulings on state tax interpretations which could provide further insight into what is taxable. 
• Adjust Business to Market Products that are Exempt from Sales Tax.
  Companies may be able to tweak their offerings in order to remain exempt from sales tax. As an example, an electronic information service company may change its model so that consumers are unable to print anything tangible. 

External Obsolescence and Property Taxes
External obsolescence can be used to reduce the assessed value of property and, in turn, property taxes. While sales taxes may increase, there is potential to offset that cost with reductions in property taxes during a down economy. External obsolescence occurs when external forces beyond a company’s control – such as the economy – negatively influence property value. In today’s market, it’s not a question of whether a company or industry is experiencing external obsolescence but rather to what extent is it experiencing external obsolescence?

In a tight economy, companies must be aware of the effects that sales and property taxes can have on their profitability. As always, it’s important to work with a trusted advisor who can help you navigate tough times so that you can weather the storm and come out the other side better than before!

Fraud: No Organization is Immune

Bergan Paulsen Partner, Mike Regan, was published in the most recent Fall edition of the Minnesota Grain and Feed Association’s Mill & Elevator Magazine. The full article, “Fraud:No Organization is Immune” dives into what agribusiness organizations can do to protect themselves from the three types of fraud.  Read the highlights below.

Businesses purchase insurance to protect their companies from natural disasters and develop procedures to secure trade secrets from outside competitors, but not all businesses have developed the proper processes to protect themselves from internal corruption and fraud.  Because instances of fraud can cost a company millions, it is important to know that there are ways to prevent fraud and to detect these instances early. 

The top five things agribusiness organizations can do to protect themselves from fraud:

1.      Fraud hotline – Allowing others in the organization to submit anonymous tips of fraudulent activity accounts for over 40% of initial detections and is, by far, the most effective action an organization can take. 

2.      Internal procedures established by management – Developing budgets and establishing measurable financial objectives set clear expectations of acceptable employee behavior.

3.      Fraud awareness/ethics training – Ensure that all employees are aware of what to look for and understand company policies and procedures on reporting potential fraudulent activities.

4.      Internal audits – Internal auditors provide ongoing monitoring and assessments of activities.

5.      Surprise audits - An unannounced audit or a different auditing process can bring to light fraud that perpetrators did not have time to cover up. Surprise audits can also be useful at deterring fraud, not just detecting it.

Source: 2010 Report to the Nations on Occupational Fraud and Abuse, published by the Association of Certified Fraud Examiners.

Ask the Quickbooks Experts: Online vs. Desktop Editions?

Our team of QuickBooks ProAdvisors is frequently asked the same question, “Which version is right for me – the online or the desktop edition?”  The answer usually depends on your business, lifestyle and needs.  Below, we created an easy comparison based on our tried-and-true experiences. 

Round 1:  Cost

• The online edition is available for a low fixed cost per month beginning at $12.95 per month.
• The desktop edition is available for an affordable, one-time purchase price.

Winner? We really think it’s a toss-up.  Depending on your needs, both are affordable options.

Round 2:  Reports

• This online edition gives you the ability to view reports almost anywhere and at any time but the report offering is limited.  
• The robust reporting that the desktop version offers gives you the ability to turn almost any report into a visual graph or pie-chart. 

Winner?  The desktop version takes the cake for us thanks to its visual reporting elements.

Round 3:  Modules

• The online version supports simple accounting and but isn’t able to support the more complex modules.
• Only the desktop version allows users to manage purchase and sales orders, progress billing or job costing/work orders.  Additionally, the desktop edition gives you the ability to pay your bills using the QuickBooks Bill Pay Service.

Winner?  The desktop version wins another round with its additional capabilities that create greater efficiency.

Round 4:  Access

• The online version is available anywhere you have an internet connection and is convenient for those clients who travel frequently or have numerous locations.
• You can access the desktop version only on computers in which you have installed the program.

Winner?  The online version creates maximum convenience and efficiency when it comes to having access when needed.

Round 5:  Data Back-up

• With the online edition your files are secure, updated automatically and backed-up without any additional steps on your end.
• The desktop version requires you to have a back-up process in place and usually requires additional steps on your end.

Winner?  The online version offers the most efficient back-up process.

A Day in the Life of a Bergan Paulsen Accountant - Pt. 2

From Gary Wilgenbusch, Staff Accountant 

Read more about Gary on our website.

If I had to sum up a typical day at Bergan Paulsen in three words, I would say; exercise, entries and engagement.

I always start my day by exercising my right to coffee.  And the best part is that at Bergan Paulsen, you have so many choices based on how much additional help you need in staying awake – decaf, regular and Starbucks are always available for the taking.

Once I have the coffee decision taken care of, I review my emails, voicemails and any current work in progress and begin prioritizing!  My work for the day will vary depending on the time of year but generally is a combination of assisting clients with posting journal entries, entering clients’ book updates – typically in Quickbooks – and preparing tax returns for any combination of C-Corporations, S-Corporations, Partnerships and individuals.

I also work on the audit engagement team and at times may need to visit a clients’ office for a few days at a time.  It’s during these days that I leave my business casual dress at home and “suit up!”  Bergan Paulsen strives to always give their clients MORE – even if that means a MORE professional looking staff accountant!

Each week, I am afforded the opportunity to work with peers, managers and partners.  I enjoy working at Bergan Paulsen because it gives me a great opportunity to learn while working closely with all of these levels of talent.

Read the first part of this series by clicking here.

A Day in the Life of a Bergan Paulsen Accountant - Pt. 1

From a Staff Accountant in the Cedar Rapids Office

I would use three words to sum up my role at Bergan Paulsen; caffeine, crunch, collaborate.

I usually start my day off around 8:10 in the break room by filling up my coffee.  If it’s a Friday, I might even grab a donut from our Friday treat selection – predetermined by the workout that I had the night before!

Once I get the right Pandora station tuned in, I sip my coffee and begin inputting my time into our time tracking system.  Although this can be quite monotonous, it’s a nice way to get the day started.  In other words, I try to ease myself into the crunch portion of the day.

After checking my email for updates and reading the CPA Letter Daily, I review my project list and get started.  Most projects require the crunching of numbers that you expect when you sign up for accounting work but the great thing about Bergan Paulsen is that there is plenty of opportunities to collaborate with team members on all levels.  Not only do I get to work with a mentor on a regular basis but I am also able to work alongside both peers and partners.  

Our lunch hours are typically flexible based on the project load and time of year.  During tax season, I will take minimal time and sometimes just eat at my desk.  Throughout the “off season,” however, I often utilize the flexibility to run errands or even head home to get a few things accomplished! 

In addition to my role as staff accountant, I also serve on the firm’s Fun Committee.  This role has allowed me to get to know the people I work with through various events such as the recent Iowa vs. Iowa State tailgate that we held.  

My typical day ends when I stop in and talk to Terri – our friendly front desk receptionist.  I always let her know that I will be gone for the rest of the afternoon so she is able to direct client calls accordingly.  It’s this kind of friendly collaboration that makes working at Bergan Paulsen great.  We are all focused on the same end goal – giving our clients MORE!

Read part two of this series by clicking here.

FASB Changing Disclosures by Entities Participating in Multiemployer Pension Plans.

Recently, the Financial Accounting Standards Board announced that it had approved revisions to the proposed Accounting Standards Update (ASU), Compensation -- Retirement Benefits -- Multiemployer Plans (Subtopic 715-80): Disclosure about an Employer’s Participation in a Multiemployer Plan. The proposed ASU and the FASB’s related revisions are intended to provide more information about an employer’s financial obligations to multiemployer pension plans. Multiemployer pension plans are commonly used by an employer to provide benefits to union employees who may work for many employers during their working life, in order to enable them to accrue benefits in a single pension plan.

Currently, employers are required to disclose only their total contributions to all multiemployer plans in which they participate.

The new disclosures announced by the FASB include:

• The amount of employer contributions made to each significant plan and to all plans in the aggregate;
• An indication of whether the employer’s contributions represent more than 5% of total contributions to the plan;
• An indication of which plans, if any, are subject to a funding improvement plan;
• The expiration date(s) of collective bargaining agreement(s) and any minimum funding arrangements;
• A description of the nature and effect of any changes affecting comparability for each period in which a statement of income is presented; and
• The most recent certified funded status of the plan, as determined by the plan’s so-called “zone status,” which is required by the Pension Protection Act of 2006.

If the zone status is not available, an employer will be required to disclose whether the plan is: (a) less than 65% funded; (b) between 65% and 80% funded; or (c) greater than 80% funded.

The FASB expects that the revisions will be finalized and added to the Codification in September 2011. For public entities, the enhanced disclosures will be required in fiscal years ending after December 15, 2011. For nonpublic entities, the enhanced disclosures will be required in fiscal years ending after December 15, 2012.

Asset-Based Financing 101

Once considered financing of last resort, asset-based lending and factoring have become popular choices for companies that do not have the credit rating or track record to qualify for more traditional types of financing.

In general terms, asset-based lending is any kind of borrowing secured by an asset of the company. For our discussion purposes today, we will consider asset-based lending to mean loans to businesses that are secured by trade accounts receivable or inventory.

 

Because asset-based lenders focus on collateral, rather than credit-worthiness, they do deals that more traditional lenders shy away from. Borrowers put up equipment, inventory, accounts-receivable and other liquid assets in exchange for the money. Asset-based lenders that are either nonbanks or separate subsidiaries of banks are not subject to such constraints. This gives asset-based lenders the freedom to finance thinly capitalized companies.

Your Guide to Asset-Based Lending Terms

• A revolver is a secured line of credit. The granting of the security interest to the lender creates a borrowing base for the loan. As receivables are collected, the money is used to pay down the loan balance.
• A “lockbox” or a “blocked account” is established by the lender for the receipt of collections of the accounts receivable. The company’s customers are instructed to pay their accounts to the lockbox, and the lender pays down the loan with these funds.
• Eligible inventory includes finished goods and marketable raw materials and excludes work-in-process and slow-moving goods. There could be additional limits on the advance rate for specially manufactured goods that can only be sold to a specific customer.
•  Purchase order financing can be used by companies that receive an unusually large order. The credit grantor accepts the purchase order from the company’s customer as collateral for the loan.
• Factoring is a financial transaction whereby a business sells its accounts receivable to a third party, the factor, at a discount to obtain cash. Factoring differs from a bank loan in three ways: (1) The emphasis is on the value of the receivables, not the borrower’s creditworthiness; (2) factoring is not a loan—it is the purchase of the receivable; and (3) a bank loan involves two parties whereas factoring involves three.

Tax Tip: Charitable Giving

Most of us know that if you make a donation to a charity, you may be able to take a deduction for it on your tax return. What we don’t all know is how do we go about doing that and what should we know before we take the deduction?

Here are the top nine things the IRS wants every taxpayer to know before deducting charitable donations.

1. Make sure the organization qualifies. Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization or check IRS Publication 78, Cumulative List of Organizations.

2. You must itemize. Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.

3. What you can deduct. You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.

4. When you receive something in return. If your contribution entitles you to receive merchandise, goods, or services in return - such as admission to a charity banquet or sporting event - you can deduct only the amount that exceeds the fair market value of the benefit received.

5. Recordkeeping. Keep good records of any contribution you make, regardless of the amount. For any cash contribution, you must maintain a record of the contribution, such as a cancelled check, bank or credit card statement, deduction record or a written statement from the charity containing the date and amount of the contribution and the name of the organization.

6. Pledges and payments. Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, you can only deduct $200.

7. Donations made near the end of the year. Include credit card charges and payments by check in the year you give them to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.

8. Large donations. For any contribution of $250 or more, you need more than a bank record. You must have a written acknowledgment from the organization. It must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If you donated property, the acknowledgment must include a description of the items and a good faith estimate of its value. For items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. If you claim a deduction for a contribution of noncash property worth more than $5,000, you generally must obtain an appraisal and complete Section B of Form 8283 with your return.

9. Tax Exemption Revoked. Approximately 275,000 organizations automatically lost their tax exempt status recently because they did not file required annual reports for three consecutive years, as required by law. Donations made prior to an organization's automatic revocation remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax deductible contributions.

The Bonus Depreciation.

The 2010 Tax Relief Act benefits businesses by increasing 50 percent bonus depreciation to 100 percent for qualified investments made after September 8, 2010 and before January 1, 2012 (before January 1, 2013 for certain longer-lived and transportation property).

This provision is especially beneficial for businesses because bonus depreciation, unlike Code Sec. 179 expensing, is not limited to smaller companies, or capped at a certain dollar level. However, only new property qualifies for the 100 percent bonus depreciation (unlike Code Sec. 179 expensing, which can be claimed for both new and used property).

How does this help the health care industry?

In January 2011, XYZ medical practice, a calendar year business, buys $1 million of qualifying property eligible for the 100 percent bonus depreciation deduction. Under the 2010 Tax Relief Act's enhanced 100 percent bonus depreciation provision, XYZ medical practice will be able to claim a $1 million depreciation deduction for the property on its 2011 Federal tax return. This provision can also apply to the nonstructural components of construction of a new facility, remodeling of an existing facility, or an addition. Most of the states did not couple with this legislation including Iowa.

Additional Assistance.

Although enhanced 100 percent bonus depreciation is not extended into 2012, the new law does provide 50 percent bonus depreciation for qualified property placed in service after December 31, 2011 and before January 1, 2013.

Code Section 179 Expensing.

Over the years, Congress has repeatedly increased dollar and investment limits under Code Sec. 179 to encourage spending by businesses. For tax years beginning in 2010 and 2011, the 2010 Small Business Jobs Act increased the Code Sec. 179 dollar and investment limits to $500,000 and $2 million, respectively. For tax years beginning in 2012, the new law provides for a $125,000 dollar limit and a $500,000 investment limit (both indexed for inflation). Without this provision, the dollar and investment limits would have reverted to $25,000 and $200,000, respectively, for tax years beginning after 2011. Amounts that are not eligible for expensing due to excess investments cannot be carried forward and expensed in a later year; they may only be recovered through depreciation.

Iowa recently passed legislation to couple with this legislation and allow the correction to be made on the 2011 tax return in lieu of amending 2010. This change will allow you to “double-up” your Sec. 179 claim on your 2011 Iowa return.

IRS Grants Filing Extension to Trucking Companies for Form 2290 Tax Returns

The Internal Revenue Service recently advised trucking companies and other business owners of heavy highway vehicles that their next federal highway use tax return, usually due August 31, will instead be due on November 30, 2011.

Because the highway use tax is currently scheduled to expire on September 30, 2011, this extension is designed to alleviate any confusion and possible multiple filings that could result if Congress reinstates or modifies the tax after that date.

Under temporary and proposed regulations, the November 30 filing deadline for Form 2290 -- Heavy Highway Vehicle Use Tax Return -- for the tax period that begins on July 1, 2011, applies to vehicles used during July, as well as those first used during August or September. Returns should not be filed and payments should not be made prior to November 1.

To aid trucking companies applying for state vehicle registration on or before November 30, the new regulations require states to accept as proof of payment the stamped Schedule 1 of the Form 2290 issued by the IRS for the prior tax year ending on June 30, 2011.

This is an adjustment as normally, after a taxpayer files the return and pays the tax, the Schedule 1 is stamped by the IRS and returned to filers for this purpose. A state ordinarily may accept a prior year's stamped Schedule 1 as a substitute proof of payment only through September 30.

For those acquiring and registering a new or used vehicle during the July-to-November period, the new regulations require a state to register the vehicle without proof that the highway use tax was paid if the person registering the vehicle presents a copy of the bill of sale or similar document showing that the owner purchased the vehicle within the previous 150 days.