Nonprofit Stewardship Requires Good Processes

Stewardship is a promise to engage in responsible planning and management of resources. The stewardship concept can be applied to nature, economics, health, property, and information. For nonprofits, stewardship usually means the responsibility to make sure that the organization spends donations cost-effectively in support of the mission.

 

Nonprofits need to have good processes and systems to fulfill their stewardship role. Nonprofit Board members and management each have roles and responsibilities to implement and manage the processes needed to fulfill the promise to spent donations wisely and sustain the organization.

 

Nonprofits need to have good processes in three important areas to manage donations and make sure they are spent effectively:

 

  1. Verification – Collecting financial information and verifying that it is complete and accurate sounds basic, sure, but it’s so important! Capture donation information from all sources, like credit cards, checks and third parties. Reconcile deposits to donation reports. Confirm that all donor restrictions are documented so that promises to use funds for a specific purpose can be fulfilled.

 

  1. Anomaly Management – Identifying and following-up on occurrences that shouldn’t happen, or anomalies, helps nonprofits correct issues. Managing anomalies early in the process helps people work more efficiently and saves time researching issues. This approach can also help to identify the root causes that cause anomalies so they can be corrected to avoid recurrences.

 

  1. Independent Oversight – An important role of nonprofit Boards is to perform independent reviews of the organization’s financial performance and to take remedial action to address any issues. The Board is also tasked with assuring that financial accounting and standards of practice for nonprofits are followed and that financial functions are performed by qualified staff or consultants.

 

Nonprofits have a stewardship responsibility to use donations effectively to support their mission. By focusing on three important areas to manage donations and make sure they are spent effectively, the Board and management can fulfill those stewardship responsibilities.

 

Meal and Entertainment Deductions Under TCJA

Having a business meeting over a meal or celebrating a big contract with a team happy hour are common events. Before the 2017 Tax Cut and Jobs Act (TCJA), meals and entertainment directly related to a business activity were considered a “reasonable and customary” business deduction, subject to strict rules. For example, meals and entertainment that were considered “lavish” or where the taxpayer or her employee was not present were not tax deductible.

 

Passing the TCJA changed all of that. Or did it? Some confusion is still out there, leading to some people thinking that meals and entertainment expenses are no longer deductible. Not true! That misunderstanding could lead to missing some business deductions, and paying higher taxes. Not good!

 

In reality, the new tax law is so vague it does not specifically define the expense commonly known as a “business meal.” TCJA language retains the requirement that “the taxpayer or his agent” be present for the business meal to be deductible. However, it does not retain the “directly related” and “associated with” standards that used to apply.

 

The change in meals and entertainment language and how it will be interpreted by taxpayers and their tax advisors has not been tested. Recommended practice under TCJA is in line with common practice pre-TCJA. So what does that mean for you?

 

Under TCJA, businesses can deduct 50% of the cost of meals and entertainment when:

 

  1. The taxpayer or his agent is present and conducting business.

 

  1. Expenses are not lavish or extravagant under the circumstances.

 

  1. Records are kept of the date, amount, business purpose and attendees.

 

These “new” requirements look a lot like what most of us have been doing since 1986, the last time tax law changed related to business meals and entertainment. So don’t worry about taking a client out to a dinner meeting. Have a team meeting at the happy hour location, and then stay for some team bonding.  Keep the expenses reasonable, maintain complete records, and take that tax deduction. It’s okay.

Is Your Price “Right?”

The Price Is Right is a fun game show, but deciding the right price for your product or service is no game. Charging enough to make a profit and stay competitive in your market is a careful balancing act. You need to pay the bills without driving customers away from your business to the competition.

 

Figuring out Your Right Price boils down to three fundamentals:

 

  1. Cost – Start by identifying all of the costs associated with making your product or delivering your service. Not as easy as it sounds. The most obvious costs are usually the direct costs, like materials and labor. Rent, utilities and supplies are also easy to identify. Less obvious are costs that don’t happen all the time, like marketing and memberships. Add up all the costs to form a budget for the month or year to get a feel what it costs to deliver your product or service.

 

  1. Competition – Know your market, industry and competition to use as a benchmark, but not your only guide. Your competitors’ prices do not tell you if they are operating at a profit or anything else about the inside of the organization. Is there a lack of competition or unmet demand in your market? Competitive pricing under the right circumstances is a great opportunity to capture market share.

 

  1. Value – Identify and market the value proposition that differentiates your product or service, and use it to command a higher-than-average price in your market. Does your team have credentials, experience or knowledge that the competition doesn’t have? Do you offer a higher quality, longer lasting product? All of that can be reflected in a higher price.

 

Making sure that Your Price is Right is no game. Should you charge less to gain market share, or charge more to highlight your quality? Will you be able to cover your costs and make a profit? Feel confident that Your Price Is Right by considering the three fundamentals — cost, competition, and value.

Tax Basics for New Business

 

Today, I spoke with my absolute favorite kind of new client – a new business owner who wants to make sure she is covering all her bases when it comes to business taxes. Entrepreneurs who plan and ask for qualified professional advice have a better-than-average chance of meeting their goals.

 

All business owners need to know about taxes. All kinds of taxes: income, employment, sales and use, and property. Plus, if the business has sales or other business activities in more than one state, it has to follow the tax rules for each state. Needless to say, that involves more details than I can fit into this blog.

 

Here are the four basic tax areas that small businesses need to know:

 

  1. Income Tax

Net business income is subject to federal and state income taxes. For sole proprietors, net income is figured on Schedule C, which is part of the IRS Form 1040 for individual tax return. Net income is total business income minus the “reasonable and customary” expenses necessary to operate and sustain the business.

 

  1. Employment Tax

Payroll taxes of 15.3% must be paid on business wages or on net business income from self-employment using Schedule SE on the owner’s return. Non-owner employees must have taxes withheld and remitted to the IRS, state and Social Security Administration. Contractors to whom $600 or more is paid during the year are required to receive IRS Form 1099 to report their earnings.

 

  1. Sales Tax

State taxes are assessed on sales of products and some services, depending on the jurisdiction. Internet and mail order sales are subject to tax depending on the location of the seller and purchaser, and applicable laws. Businesses that operate in more than one jurisdiction, like my new client, must collect, report, and remit taxes in all applicable states.

 

  1. Business Property Tax

Tangible personal property used in a business is subject to property tax, usually collected at the local, or county, level. Taxed property includes furniture, machinery, tools, and all computer and peripheral equipment hardware and all operational software.

 

One business “tax” often overlooked by new businesses is a getting the appropriate business license for each jurisdiction in which it operates. Every business needs to be registered and licensed at the state and local level.

 

I am looking forward to meeting again with my new client next week. Entrepreneurs who plan and get professional advice not only meet their goals – they are fun to help.