Your Organization’s Financial Health

Your personal health and your organization’s financial health are the same in at least one way — serious problems could exist that you cannot see or feel. A sudden loss of income or an unexpected expense can stop the heart of your organization just like a medical crisis can stop your body. For your organization, like your body, monitoring a few key areas can alert you to problems on the horizon.


At a minimum, organizations should monitor financial health in these three essential areas:


  1. Actual vs. Expected Financial Activity

Financial performance information should be compared to planned, or budgeted, performance to determine how actual events compare to what you thought would happen. Focus on variances in significant income and expense categories. Obtain explanations for why the budget or plan was not met. Did conditions change?  Were projections unrealistic? Focus on “why” and use that information to refine budgets and plans.


  1. Cash Flow

Project your cash inflows and outflows for at least three months, preferably for six or more. Assess whether income that you expect to take in is going to cover the amounts you need to pay. Sounds easy, but this analysis takes some thought and effort. You need to know your payments receivable and payable, regular payments that are required no matter what, such as payroll and rent, and your reconciled bank account balances. Be realistic about payment timing and what it really costs to sustain your organization.


  1. Expenses

Maintaining control over spending is the most important and most difficult part of running an organization. Demands to fund day-to-day operations, in addition to investing in technology and infrastructure, are constant. Prioritizing essential expenses and growth investments is a challenge that requires regular attention. This is particularly true in newer organizations where infrastructure investments are most crucial.


Maintaining your organization’s health is a lot like managing your personal health. Monitoring a few key health areas can alert you to problems on the horizon, and give you an opportunity to act before it’s too late.





Tax Change That’s Not in the Headlines

Last week, I blogged about four areas where taxpayers will see big changes in 2018 under the Tax Cut and Jobs Act (aka New Tax Law). All the big headlines are about three of those changes — itemized deductions vs. the new standard deduction, lower tax brackets, and higher child credits. The fourth change, elimination of the personal exemption through 2025, is not in the headlines, but it could be significant to some taxpayers.


Before the new tax law became effective, taxpayers got a deduction of $4,050 per qualified person, called a personal exemption. That deduction goes away completely through 2025, hitting some families pretty hard. It hasn’t been mentioned much, with all the talk about doubling the standard deduction. Many taxpayers will miss the personal exemption, but some won’t.


Who won’t miss the personal exemption?


One or two-person households that weren’t itemizing their deductions under the old tax law won’t miss the personal exemption. They get a higher deduction under the new tax law. For example, in 2017, a single taxpayer that didn’t itemize could take a standard deduction of $6,350 and a personal exemption of $4,050, for a total of $10,400. In 2018, that same taxpayer can take a standard deduction of $12,000. No personal exemption. But that taxpayer is happy because she gets to reduce her taxable income by $1,600 more than before.


Who will miss the personal exemption?


Examples of taxpaying households who will miss that $4,050 deduction per person are too numerous to describe. To give you an idea, here are three scenarios:


  1. Married couples with no dependents filing jointly in 2017 with $20,000 of itemized deductions could also deduct $8,100 of personal exemptions, for a pretty attractive total of $28,100. Those same couples can only deduct the new standard deduction of $24,000 in 2018.
  2. A head of household non-itemizer with two qualified dependents filing in 2017 could deduct a total of $21,500, a standard deduction of $9,350 and personal exemptions of $12,150. In 2018, that head of household will only deduct the new standard deduction of $18,000.
  3. A five-person household with $30,000 of itemized deductions got to reduce their taxable income by a total of $50,250 in 2017, after adding the $20,250 in personal exemptions. Same family in 2018? You guessed it – only a $30,000 deduction.


I could go on and on. Taxpayers really need to look at how elimination of the personal exemption will impact them in 2018. Better to figure it out now and plan for it, instead of getting an expensive surprise when filing taxes next year.

Looking at 2018 Taxes When You File for 2017

In the next few weeks, you’ll be gathering your 2017 income tax information, either to prepare your own returns or to hand it over to your tax preparer. What better time to think about how that same information would look for 2018?


Provisions in the Tax Cuts and Jobs Act passed in December 2017 could change your 2018 tax bill dramatically. It all depends on your current family size and make-up, income, and geography. Planning ahead can prevent an unhappy surprise come tax time next year.


Taxpayers (or their tax professionals) should review four areas where the new tax law could change their 2018 tax bill:


  1. Itemized Deductions – Until 2025, the new law limits several itemized deductions, including for state and local income, sales and property taxes, and home mortgage interest. Deductions are eliminated for home equity interest, non-disaster personal casualty losses, tax preparation, and investment fees. Good news for high income taxpayers — the itemized deduction phase-out is eliminated.


  1. Personal Exemptions and Standard Deduction – The $4,050 per person personal exemption goes away completely until 2025. That will hit some families pretty hard. It hasn’t been mentioned much, with all the talk about doubling the standard deduction. Taxpayers who find that the standard deduction is more beneficial than itemizing could still end up with a higher tax bill due to the loss of personal exemptions.


  1. Tax Bracket – Six of seven individual tax brackets are reduced through 2025. Most taxpayers will benefit from the new rates, but some who are currently in the 33% marginal tax bracket will find themselves in the 35% marginal bracket in 2018. This unfavorable change will mainly affect singles and heads of households with taxable income between $200,000 and $400,000.


  1. Child Credits – The maximum child credit increased from $1,000 to $2,000 per qualifying child. Check to see if you qualify for a full or partial credit based on your income.


Taxpayers with more complex situations, such as business owners, should consult a qualified tax professional to determine the impacts of the new tax law. For a tax professional to give you accurate and complete feedback, be prepared to discuss your current situation, and to share information about impending or planned changes. She or he will be able to use that information to project, analyze, and identify tax planning opportunities that fit your needs.


It’s tempting to get your 2017 tax filing over with and forget about next year. By taking some time to plan for your 2018 taxes now, you can avoid an expensive surprise at tax time next year.

Save for Retirement and Get a Tax Credit

Saving on your 2017 income tax bill while saving for retirement could be an even better deal than you thought. In addition to reducing your taxable income by funding an IRA or employer-provided salary-reduction arrangement, eligible taxpayers could also get a Saver’s Tax Credit.


A tax credit is a dollar-for-dollar reduction of your tax bill, as opposed to a tax deduction, which reduces your taxable income. A tax deduction reduces your tax bill based on your tax rate – the higher your tax rate, the higher your tax savings.


Figuring out whether you could receive a Saver’s Credit depends on the answers to three questions:


  1. Who is eligible for the credit?

    To claim the Saver’s Credit for 2017, the taxpayer must be at least 18, cannot be a full-time student, and cannot be claimed as a dependent on another person’s return. Her or his adjusted gross income cannot be more than specified limits, based on filing status (i.e., $62,000 for married filing jointly, $46,500 for head of household, or $31,000 for single, married filing separately, or qualifying widow(er).

  2. What 2017 contributions are eligible for the credit?

    Eligible contributions include funding a 2017 traditional or Roth IRA made by April 17, 2018. Salary reduction plan contributions, such as to an employer’s 401(k), SIMPLE IRA, SARSEP, 403(b), or 457(b) plan, are also eligible. Rollover contributions of any type are not eligible for the Saver’s Credit.

  3. How much is the Saver’s Credit?

    The amount of the Saver’s Credit is based on a percentage of the contributions that were made for 2017. The credit rate is between 10 and 50 percent, depending on income and filing status. For example, a single taxpayer with earned income of $31,000 who makes a $1,000 IRA contribution for 2017 is eligible for a $500 Saver’s Credit.