accounting for nonprofits – Beck & Company

Accounting for Nonprofits: Are Donor Advised Funds Right for Your Nonprofit?

When it comes to accounting for nonprofits, keeping up to date with all the changes, advances, and newcomers to the field of finance and accounting can be challenging. We spotted this information about donor advised funds and wondered how many of our nonprofit colleagues were aware of this opportunity for charitable giving. Today we’ll take a look at donor advised funds and what they might mean to your nonprofit organization.

According to GuideStar, donor advised funds managed $85 billion in assets by 2016. Here’s how donor advised funds work, the pros and cons, and next steps if you would like to investigate them further.

What Is a Donor Advised Fund?

A donor advised fund is a mutual fund created for the purpose of donating assets to a 501c3 organization. Donors with considerable assets may give to a donor advised fund instead of establishing a foundation or philanthropic charity to ensure their money is allocated to specific nonprofits. Donor advised funds are often maintained and managed by well-known fund companies such as Schwab, T. Rowe Price, and other financial companies. For example, T. Rowe Price created their Program for Charitable Giving in 2000 to enable individuals to give through the vehicle of an established fund.

How Does a Donor Advised Fund Work?

Donor-advised funds are managed by sponsoring organizations. The organizations must be 501(c)(3) tax-exempt organizations. Sponsoring organizations generally fall into three categories: community foundations, single-issue organizations, or national organizations, such as the previously mentioned T. Rowe Price Program for Charitable Giving. Companies like Price often create national organizations, Vanguard, and Schwab to give their customer base an effective way to manage giving programs.

Donor advised funds work as follows:

Individual or corporate donors contribute to a donor advised fund. They may take an immediate tax deduction.
Assets now belong exclusively to the DAF.
Often (but not always) the original donor is now listed as an ‘advisor’ to the DAF.
The donating “advisor” can now recommend how the DAF assets are used and invested.
The fund proceeds grow tax-free.
The DAF advisor (the original donor) may request that donations be given to charitable organizations.
The DAF fund management team conducts due diligence and, if the organization the DAF advisor wishes to give money to is a legitimate and eligible to receive tax-free donations, grants are issued to the charities.

Thus, donors may use a DAF to pass money tax-free to a nonprofit entity. The DAF acts as an intermediary between donors and charitable organizations. This is similar, but not identical, to how private foundations act. In the case of the DAF, many individuals may contribute to the DAF, instead of one person establishing a private foundation to pass grants along to their favorite charity.

Accounting for Nonprofits: Pros and Cons of DAFs

There are numerous pros and some cons to utilizing DAFs for charitable contributions.

Pros:

Donors can take an immediate tax deduction regardless of when the money is actually given to the charitable organization. By placing money into the DAF, donors receive immediate tax benefits.
Large financial firms managing DAFs are experienced at handling non-cash assets such as donations of stock, reducing headaches for accounting for nonprofits on how to categorize and value such donations.
Ease of donating non-cash assets enables people to give more generously than they might otherwise.
An experienced financial manager also handles daily money management decisions for the fund.

Cons:

Nonprofits may wait a considerable amount of time before receiving the aforementioned donation. There is no payout deadline.
It can be difficult for investors to ascertain management or transaction fees.
Some donors treat these funds as places to stash cash; they have no intention of giving more.

For nonprofits interested in participating as recipients in donor advised funds, it’s important to take a few steps to establish your credibility and appeal as a recipient of their largesse. In general, you can solicit gifts directly from DAFs. Be sure to set up a profile on GuideStar or another charity watchdog site and be thorough and transparent with your nonprofit financials. Familiarize yourself with IRS rules regarding DAFs, and enact training to ensure everyone in your organization knows about DAFSs and can process gifts efficiently.

DAFs aren’t for everyone, but they do provide nonprofit organizations with another powerful way to solicit funds and help donors view their organization as a potential recipient of gifts.

Beck & Company

Beck & Company is an independent certified accounting firm specializing in nonprofit organizations. Since 1987, we have helped many nonprofits in the Washington D.C. area and along the Eastern seaboard with their accounting and financial management needs. We provide audit, tax, accounting, and consulting service that addresses all aspects of a small to mid-sized nonprofit organization’s business. Contact us or call 703-834-0776 x8001.

Tax Cuts and Jobs Act: What It Means for Your Nonprofit

Accounting for nonprofits will be impacted by the new Tax Cuts and Jobs Act signed into law by President Donald Trump on December 22, 2017. The act went into effect January 1, 2018. Although the new law impacts corporations, individuals, and nonprofits, the impact on nonprofit organizations is minimal. If you handle accounting for nonprofits, you’ll want to pay particular attention to the new provisions in the Tax Cuts and Jobs Act to ensure compliance with the law as well as utilizing every possible advantage.

A Summary of Major Changes.

A detailed analysis of the full law isn’t possible within this article. However, if you’d like more information, you can:

Read the full document on the gov website.
Review highlights of major changes from the National Association of Tax Professionals.
Read an analysis of the act from the Brookings Institute.

Let’s take a look at the major changes impacting all, and especially nonprofits, from the Tax Cuts and Jobs Act.

Changings affecting individuals expire in 2025.
New tax tables and rates are in effect from 2018 through 2025.
The system for taxing capital gains and qualified dividends did not change under the act, except that the income levels at which the 15% and 20% rates apply were altered (and will be adjusted for inflation after 2018).
During 2018 the 15% rate will start at $77,200 for married taxpayers filing jointly, $51,700 for heads of household, and $38,600 for other individuals. The 20% rate will start at $479,000 for married taxpayers filing jointly, $452,400 for heads of household, and $425,800 for other
The standard deduction increased through 2025 for individual taxpayers to $24,000 for married taxpayers filing jointly, $18,000 for heads of household, and $12,000 for all other individuals. The additional standard deduction for elderly and blind taxpayers was not changed by the
The act repealed all personal exemptionsthrough 2025. The withholding rules will be modified to reflect the fact that individuals can no longer claim personal

Changes to Charitable Contributions of Note for Accounting for Nonprofits

The biggest change for those handling accounting for nonprofits is the changes to income-based percentage limits for charitable contributions. The income-based limit is now 60%.

The act also repealed provisions that provide an exception to the written acknowledgment requirement for certain contributions that are reported on the done organization’s return — a prior-law provision that had never been put in effect because regulations were never issued. That’s good news for those doing accounting for nonprofits.

The news that income-based percentage limits for contributions of cash might inspire donors to give more. This might be an excellent time to increase donor outreach, marketing efforts, and donor relations programs.

Mention the new income-based percentage limits in your outreach communications. Although the tax savings may not be the big reason why people give your nonprofit, all points, including your organization’s mission, vision, tax exempt status and effectiveness in its given area contribute to the overall impression it makes on donors. It can either encourage them to give more or turn to another charity.

Another thing to keep in mind is that changes to the laws also change the disposable income available to consumers. In other words, potential donors have a little more cash to spend or give as they see fit. Although some certainly want to spend or save it, others will give, and give generously. You may want to tie in your marketing programs to the changes and remind people to give now, before the end of the fiscal year, so they can claim charitable deductions on this year’s taxes.

The President hasn’t said if more changes are expected, so if you handle accounting for nonprofits, it’s fairly safe to assume that the tax laws now in effect will remain stable, at least through the end of the current administration’s term in office. Most of the changes found in the Tax Cuts and Jobs At will remain in effect until 2025, giving you plenty of time to adjust to them. You can move ahead with certainty on your plans to maximize the new law’s impacts for potential donors.

Beck & Company

At Beck & Company, we have extensive experience and a tradition of creative thinking, technical expertise, and a collaborative spirit that can help your nonprofit achieve its goals. Whether you want to increase donor confidence and support through transparent accounting practices or find a partner for your annual audit, we can help. Contact us today or call 703-834-0776.

Will Blockchain Technology Eventually Affect Accounting for Nonprofits?

In the field of accounting for nonprofits, you may never have dreamed that you’d need to consider blockchain. Blockchain, the technology undergirding the entire cryptocurrency realm and beyond, is a rising star in the world of technology innovations. You may not think that as an accountant, especially one who does accounting for nonprofits, that you must consider blockchain. But, its impact goes well beyond Bitcoin, Ripple, and all the other cryptocurrencies out there.

What Is Blockchain?

In 2008, a white paper appeared on an obscure forum for technology enthusiasts. The paper, entitled, “Bitcoin: A Peer-to-Peer Electronic Cash System”, outlined a new system of value exchange. This pure peer-to-peer electronic cash system was built upon a foundation of mathematical computations called blockchain.

Before this paper was published, people worldwide had dreamed up an electronic transfer system for cash, but the problem of double counting and tracking securely each transaction had not been solved. The pseudonymous author of the paper, Satoshi Nakamoto, discovered a solution to the double counting problem through what has since become known as blockchain.

The blockchain is a distributed database of records. This database is also called a public ledger. It contains all the transactions or digital events that have been executed and shared among participating parties.

When a transaction is made in the public ledger, it must be verified by consensus of a majority of the participants in the system. Once a transaction is confirmed, it’s never erased. Every single transaction on the blockchain from the moment it began to this present second is recorded and saved. You can look back along the blockchain to verify a transaction or see it changing now.

The blockchain can be accessed from any location via the internet. Transactions which take place between users are verified and added to the global blockchain ledger by “miners” who, by contributing their computing power, earn small transaction fees.

While we use the singular term “blockchain”, there are literally thousands of blockchains worldwide, or distributed ledgers, each running on their own mathematical code. That’s what sets them apart from one another. When you want to make a transaction, a signal goes out along the blockchain, which then is received by all the computers, or nodes, on the chain. When the majority or consensus verifies the authenticity of the transaction, the transaction is complete.

An Example of a Blockchain Transaction

Let’s use bitcoin as an example since that’s the most famous (and first) cryptocurrency ever on the blockchain, and the first transaction on the blockchain was the transference of bitcoin. In this example, you want to send 1 bitcoin from your account, called a wallet, on an exchange, or place where fiat currency such as dollars can be exchanged for bitcoins.

You want to send this bitcoin to your friend Susan. You log into your exchange account and type in Susan’s public bitcoin wallet address. Each account has a public address, which looks like a long string of letters and numbers, and a private key, which is held by the account owner. The private key is NEVER shared—sharing it gives anyone access to your wallet. It’s like leaving your wallet, purse, or bank account open.

You enter the amount of bitcoin you want to send to Susan and her public wallet address and hit “send.” A signal goes out through the exchange to all the nodes on the bitcoin blockchain. Miners on the blockchain confirm that yes, you have the bitcoin in your account and that yes, Susan’s wallet account is authentic. Once this is confirmed, a process which can take a few hours or even days, depending on blockchain traffic, the bitcoin arrives in Susan’s wallet. Now Susan, using her private key set up on the site hosting her wallet, can access her money and spend it or exchange it for another currency such as dollars, euros, or other cryptocurrencies.

The Impact on Accounting for Nonprofits

Although this may sound esoteric, blockchain technology itself goes well beyond cryptocurrencies. The government of Sweden moved all its land titles onto a unique blockchain, forming a permanent and publicly accessible record of every land title transaction. Think about that for a minute and how it impacts the real estate market. Anyone can now do a title search. It is no longer relegated to title search companies to hunt down records—they are all available via the internet for anyone to view.

For accountants, the potential is still being explored. Imagine using blockchain to record all your nonprofit’s transactions. The blockchain would form a permanent, public ledger. It would eliminate fraud since consensus must be reached to change data on the nodes, so one person can’t tamper with the books.

The Ethereum blockchain offers something called smart contracts which eliminate the middleman in any contract. Consider the benefits of transactions without having a third party involved. Real estate and automobile transactions could take place on the blockchain via smart contract without needing to run them through the court system or another recording body—it’s all on the blockchain.

For accountants, this is an exciting time, and although the blockchain can be difficult to wrap your head around when you’re immersed in traditional finance, it holds enormous potential. It’s still in its infancy, but bears watching.

Beck & Company

Beck & Company is a certified public accounting firm serving the greater Washington D.C. area and the Eastern seaboard. We offer consulting services, auditing, and software selection to help nonprofits with their accounting needs. Contact us today for more information or assistance.

Tax Changes Impacting Accounting for Nonprofits

The House and the Senate passed the tax reform bill late in 2017, and it will change accounting for nonprofits. This tax reform bill impacts many areas of taxation, including several that will impact nonprofit organizations. President Trump is expected to sign the bill into law, which will enact some sweeping changes that benefit corporate America as well as educational nonprofits, and more.

Some things remain the same, while others are changing. The biggest changes affecting nonprofits include the increase in the deduction limit for charitable contributions and the significant reduction in the corporate tax rate. Below, a summary of major points nonprofit financial managers needs to know. For a complete review of your nonprofit finances, contact Beck & Company. We are happy to assist you with compliance with the new tax laws and reviews and audits of your current financials.

Taxation Changes that Affect Accounting for Nonprofits

Many previous tax reform bills had little, if any, impact on accounting for nonprofits. This one, however, will offer many changes that you should be aware of as you move into the new year.

Here’s a summary of the major changes that will affect accounting for nonprofit organizations:

The deduction limit for charitable contributions increased to 60% from 50%. This may be a good time to add a few donor campaigns to your nonprofit marketing and add this fact to encourage increases in donations.
The corporate tax rate drops from 35% to 21%. This is a big change intended to free capital in the for-profit sector, but one that will also help your nonprofit.
Section 529 plans are now available for both elementary and secondary education support, which may impact educational nonprofits.
Unrelated business activities must report profit and loss as a stand-alone figure before accounting for the $1,000 deduction.
There’s a provision in the House bill under which unrelated business income tax that includes any expenses paid or incurred by a tax-exempt organization for the following, provided such amounts are not deductible under section 274: qualified transportation fringe benefits, a parking facility used in connection with qualified parking, or any on-premises athletic facility.
There’s a new excise tax on education institutions. It generally applies to schools with 500 or more students with 50% of students located in the U.S. The new Act includes a 1.4% excise tax on the net investment income. That’s not yet defined, so you’ll need to check back to see how this ripples through the new year.
There’s a new 21% excise tax on compensation in excess of $1 million to the top five highest-paid employees at tax-exempt organizations. There are several exemptions, limitations, and qualifications to this, so you may wish to consult with the experts at Beck & Company for details.

There are, of course, more changes in the new Act, and some things are untouched. The Johnson Amendment, for example, which restricts 501(c)(3) organizations from directly or indirectly participating in political campaigns or activities remains unchanged.

You may read the Act in its entirety on the White House website.

Any change to the tax code is sure to impact your organization. Large or small, such changes can feel disruptive. Beck & Company is here to help you understand and comply with tax changes and other issues impacting accounting for nonprofit organizations.

Beck & Company

FASB Changes Impact how Grant Revenues are Categorized

The comments period may have ended, but changes are still coming to Accounting Standards Update (ASU), titled Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made. FASB issued a call for comments, which ended November 1. The proposed changes would clarify revenue recognition for contributions received and made and help nonprofits account more clearly for certain types of funds.

What Is the Proposed Change and Framework?

The changes are intended to help nonprofits distinguish between contributions (nonreciprocal transactions) and exchange (reciprocal) transactions. The changes also hope to add clarity to conditional and unconditional contributions. The results of the proposed framework changes may, in fact, push more grants into the category of contributions.

Under the new framework, if grants are deemed to be exchange transactions, then the revenues should be recorded as per the guidelines under Revenue from Contracts with Customers (Topic 606) or other applicable topics.

Grants determined to be contributions should be recognized instead as revenues in accordance with Subtopic 958-605, Not-for-Profit Entities–Revenue Recognition.

Nonprofits Still Have a Say

Nonprofits still have a majority say in how grants are categorized. Their first step is to determine whether a particular grant is a revenue or exchange transaction. If the grantor receives services of comparable value, it is usually safe to say that a transaction is an exchange.

The good part of the proposed guidelines is that the FASB includes numerous examples to help nonprofits understand the proposed framework and determine for themselves how the revenues will be categorized. Nonprofit still have a great deal of latitude in how and why they categorize particular revenues. They must, however, adhere to their own internal logic and establish guidelines based on the overarching, generally accepted accounting standards.

When Will the Changes Take Effect?

If the proposed changes do take effect, they won’t impact nonprofit reports until 2019 or 2020. They may impact organizations with the calendar year ending in 2019 or the fiscal year ending in 2020. Accounting actions completed before these dates may follow the old guidelines, which gives organizations plenty of time to update their accounting methods. If significant changes are made between the previous books and the new books, under the changed guidelines, the reason for the change should be noted in the financials next to each line that is affected by the change.

Accounting for Nonprofits Is Always Changing

Although it may seem as if accounting for nonprofits should be straightforward, grants represent an area with the potential for considerable gray areas. Nonprofit financial managers should look at the intention of the grant, whether any reciprocal action or stipulation is required, or how the grant must be satisfied.

Straight grants with no conditions attached are the easiest to recognize in revenues. Others, that come with conditions need careful, thoughtful attention. Developing your own set of revenue recognition rules that are in line with the FASB recommendations may be helpful to keep your organization consistent in how it manages its grant funds.

Beck & Company

Accounting for Nonprofits: The Hallmarks of Top Staff Accountants

Among all the topics surrounding accounting for nonprofits, the characteristics or hallmarks of top staff accountants are things rarely discussed. Of course, it takes accuracy to be an accountant, as well as a logical mind, strong attention to detail, and good communication skills.

But going beyond these requirements is a list of highly specific skills that all top-level staff accountants share. If you’d like to be numbered among the best accountants in your field, then make these skills a priority for your own personal development.

The Characteristics of Top Accountants

The best nonprofit financial managers and top accountants share the following characteristics.

Accuracy: All accountants must be accurate, but top accountants leave no stone unturned in their quest for all the details that matter. Good accountants must regularly review their own performance and look for mistakes in their own work before sending material on to others.
The big picture: Top accountants have the ability to step back and take in the big picture. They’re good at what they do, but they also have the ability to see how their work fits into the larger mission of the organization and, as such, they understand how to be helpful to others.
Deadlines: Many professions are deadline-driven, but accountants are always exceptionally deadline-oriented people. Top accountants set personal deadlines and try to achieve their goals early. They allow extra time in a project for those “just in case” moments when someone calls in sick or competing deadlines take people’s focus away from their project. Good accountants plan; great accountants plan for deadlines along with contingency plans.
Excellent communication skills: Accountants aren’t often thought of as communicators, but strong communication skills are a must for top accountants. Not only are you called upon to share facts and figures with others in your department, but you must be able to translate that information into language everyone within your organization can understand. There’s also the important matter of communicating with subordinates and managers. Keeping everyone informed, and understanding how and when to share information, is a hallmark of an exceptional accountant.
Integrity: We want everyone working with us to have integrity. Accountants must have exceptional integrity. Because they are charged with nonprofit financial management, they must be rigorously honest in everything they do. They must also be responsive to questions, complaints, and problems brought to their attention. Integrity, honesty, and ethics are part of the package that makes a great accountant.
Exceptional computer skills: Conquering spreadsheets, understanding the nuances of your company’s ERP system, and handling all reporting needs with calm assurance are all part of the job for the best accountants. They become the guru that everyone turns to when they need help with the number-crunching aspects of their company’s software. Even if you’re not a technical whiz, becoming fluent with the software package that your company has chosen is one of the ways in which top accountants go the extra mile.

Becoming the Best of the Best: Professional Development

What does it take to become and remain the best of the best? Ongoing professional development is a vital step for nonprofit financial managers and those leading accounting for nonprofits.

Such professional development need not be formal classes, although that can help. Professional development may take the form of attending seminars and online workshops, attending conferences, and networking with others in your profession.

Regardless of the form it takes, top accountants do not remain hunched over their spreadsheets all day. They are a vital and important part of the nonprofit team. Are you a leader among accountants? Set a personal goal for yourself to do all you can to be the best nonprofit accountant your organization has ever met.

Beck & Company

Accounting for Nonprofits: Finance and Fundraising Cooperation

Accounting for nonprofits includes both the finance and fundraising departments. These departments may be in the same division: accounting. Yet, although you work in the same office, it may feel as if you’re in entirely different organizations.

Although two entirely different groups, both share similar challenges. It’s important for both finance and fundraising to understand the duties they each perform, as well as the challenges they share. Understanding these facts leads to better communication and outcomes for all.

Similar Challenges

The finance and fundraising departments reflect different functions. Finance manages the money within a nonprofit; fundraising generates income to support programs. Both offer valuable services but have different budgeting needs. Often, these needs come into conflict.

The fundraising department wishes that the finance department could:

Understand that you must spend money on marketing to raise money for donations.
Acknowledge the inherent challenges of fundraising, especially during economic downturns.
Assist with improving and maintaining strong donor relations.
Be flexible with fundraising—it’s not always black and white in this group.

Meanwhile, down the hall or across the room, the people in the finance department also face challenges that they wish the fundraising department understood. Your colleagues in the finance department probably wish that you could:

Ask for help when you need it.
Understand and acknowledge that finance’s job is both time-consuming and complicated.
Help them by providing information when they ask for it and need it.
Learn basic accounting best practices.
Adhere to deadlines.

When you look down the list of things each group wishes the other knew, the commonalities stand out. Respect. Understanding. Better communications. It’s a simple wish list that can be a reality with the addition of a few steps and tools to help all do their work better.

Bringing Together Finance and Fundraising – Happy Together

You can help both fundraising and finance meet in the middle by offering software that makes accounting for nonprofits easier. Software such as Intacct ERP software provides support for all financial transactions and obligations, including fundraising.

Data that is entered into one central database can be shared without barriers. It makes communication around issues related to the data easier. Finance can offer insights and support to fundraising; fundraising can share their needs and goals with finance. It’s a simple best practice that facilitates better communication and shared goals.

Other best practices that both finance and fundraising might consider implementing include group meetings, stand up meetings, and meetings with the entire accounting team. Such meetings need not be lengthy. “Stand Up” meetings come from the literal requirement that people remain standing during a meeting. Because you can’t get comfortable, you keep the meeting short. Each person reports quickly and succinctly on their team’s accomplishments and needs for the week. It’s also a time when groups can ask questions of one another and share information so that everyone is on the same page.

Accounting for Nonprofits: Improvements with Communications

Accounting for nonprofits includes both fundraising and finance. By focusing on what you hold in common and on the shared goals that support your organization’s mission, you’ll find that many aspects of your work improve. Software such as Intacct ERP software facilitates this transition as it provides enhanced reporting and insight into your organization’s data.

Beck & Company

Accounting for Nonprofits Update: Implications of Revenue Recognition changes

Here’s an update from the world of accounting for nonprofits on FASB Accounting Standards Update (ASU) No. 2014-09, Revenue From Contracts With Customers (Topic 606), perhaps the most comprehensive set of changes to accounting principles ever released by the organization. These changes in revenue recognition impact almost every company in the United States applying GAAP. In fact, any company with tax compliance requirements should consider themselves affected by Topic 606.

Find out how Beck & Company can help work smarter the easy way with Outsourced Accounting. Contact Beck & Company online for more information, or call us directly at (703) 834-0776 x 8001. We look forward to hearing from you.

Effective Date

If you handle accounting for nonprofits, you need to know the effective dates. These are the dates by which you should begin applying the changes in revenue recognition. The current dates are as follows:

December 15, 2017: Public entitles, certain not for profits, and certain employee benefits plans.
December 15, 2018: All other entities.
Interim periods in fiscal years after December 15, 2019, will impact other entities.

Improving Transparency and Clarity

FASB launched these recommendations after lengthy consideration, considering feedback from many quarters in the world of accounting for nonprofits and for profits. The goals of Topic 606 are to improve transparency, clarity, and usefulness of reported accounting information.

The goals include the desire to:

Streamline statement preparation
Reduce essential guidance
Offer a more robust revenue framework
Improve comparability across entities
Remove inconsistencies
Fix and remove weaknesses in prior revenue standards

These sweeping changes were well received by most accountants, but as the date for implementation draws nearer, there are some concerns being voiced.

Over time, industry-specific revenue reporting nuances and eccentricities crept into accounting, until the actual revenue reporting became complex and difficult for people outside of the accounting world to understand. The new standard seeks to streamline reporting so that all industries report along similar lines.

Questions and More Questions

Those responsible at nonprofits for implementing Topic 606’s guidelines have voiced several important questions related to implementation.

FASB has, to date, released four sets of clarifications:

ASU No. 2016-08, addressing principal versus agent considerations;
ASU No. 2016-10, identifying performance obligations and licensing;
ASU No. 2016-12, a clarification of narrow scope improvements and practical expedients (directed at items such as the reporting of noncash consideration, contract modification and completed contracts at transition, collectability matters, and other concerns); and
ASU No. 2016-20, 13 specific corrections and/or improvements on an array of issues, including loan guarantees, contract costs—impairment testing, and provision for losses on construction-type and production-type contracts.

People responsible for accounting for nonprofits are encouraged to follow the FASB’s updates online in case additional clarification is released before the first date arrives.

Revenue Recognition and Accounting for Nonprofits

Revenue recognition is one of the biggest areas impacted by Topic 606. The new guidelines request that nonprofits recognize revenue when they reasonably expect to receive it. This may impact donations, such as donations made in wills or trusts bequeathed to a nonprofit. In the past, it was up to the nonprofit to decide when they chose to recognize the revenue. Now, FASB recommends as part of GAAP, that nonprofits only recognize the revenue when they have a reasonable chance of receiving it.

Let’s assume that someone leaves $100,000 in their will to the local animal shelter, a nonprofit organization. The animal shelter should wait until the will is in probate and the executor announces all debts have been settled and there is $100,00 left to give to the shelter before recording it.

Accounting for Nonprofits and Tax Implications: Call Beck & Company

Beck & Company is a Washington D.C. area nonprofit accounting firm with a team of expert auditors, accountants, and advisors available to help nonprofits of all sizes. We provide a variety of consulting and accounting services to help you improve operations and efficiency. For more information, please contact us at 703-834-0776 x 8001.

Accounting for Nonprofits: The Basics of Charitable Deductions

Accounting for nonprofits includes understanding the basics of charitable deductions. Many nonprofit organizations promote the fact that donations count towards charitable deductions on the donor’s income tax without truly understanding what this means and the ramification of such deductions. This primer will help you understand the basics of how charitable deductions work, the limitations on them, and what this means for your nonprofit organization.

Accounting can be easy with the wide range of nonprofit services from Beck & Company. Get trusted answers and solutions when you contact Beck & Company.

Cash and Noncash Deductions

Both cash and noncash donations may qualify for deductions. Nonprofit donors can deduct the gift of money or the gift of an automobile, for example.

To be a valid tax deduction, however, your donation must contribute towards the overall good of the organization. It must also be a contribution to an eligible organization. An eligible organization is defined as any organization the IRS has recognized as a nonprofit. This may include a social, religious, medical, political, or other nonprofit organization.

Why People Donate – Financial Management for Nonprofits

Why people choose to donate to a nonprofit organization is an intensely personal decision. Many choose the nonprofit because of its mission; they believe in what the organization stands for or want to support its projects.

As part of accounting for nonprofits, however, the budget that you help prepare annually can be a powerful tool to support someone’s decision to donate or discourage them from donating. Building an effective budget that supports programs first and puts donations behind programs is an important step. Preparing an annual report that the general public can read and understand is also critical to help people choose your organization as the recipient of their donations.

Maximums for Charitable Deductions

Of course, you want to encourage people to donate as much as they can. But only a certain portion of their donation can count towards a charitable deduction. Charitable cash donations, for example, are limited to 30 – 50% of a patron’s gross annual salary, depending on the type of organization.

You should always provide donors with a receipt for their cash or noncash donation. Cash receipts can be for the face value of the donation, but noncash donations can sometimes be tricky to calculate. How much is a used living room set or a bag of clothing worth to a charity? Many charities can offer you a receipt with a set amount of the donation on it such as $25 for noncash items that are difficult to evaluate and estimate.

Generally, charities give receipts out for donations exceeding $250. However, most charities provide receipts for most donations, no matter how small the amount. Online giving makes it very easy for nonprofits to issue receipts automatically, which can then be printed by the donor and saved for tax purposes.

Affix a Value

Do you give items to donors as a thank you gift? For example, many nonprofits give tote bags away at events. Assigning a value to that tote bag helps recipients deduct the value of it from their charitable contribution. For example, if you give away a $5 value tote bag with every $50 donation, the charitable deduction is only valued at $45.

Although you can’t control how donors will ultimately prepare their taxes, by providing gift receipts, documenting thank-you gift costs, and preparing accurate budgets, you can encourage donations. Accounting for nonprofits isn’t only about numbers on a report; with the right accounting approach, you can help your nonprofit meet its mission goals.

Nonprofit Accounting with Beck & Company

Beck & Company is a Washington D.C. area nonprofit accounting firm with a team of expert auditors, accountants, and advisors available to help nonprofits of all sizes. We provide a variety of consulting, auditing, and accounting services and blend knowledge from the accounting and nonprofit worlds to help you improve operations and efficiency. For more information, please contact us at 703-834-0776 x 8001.

Using Project Management Systems for Better Nonprofit Financial Management

What do project managers and accountants have in common? Both professions seek to minimize and manage risk. Although the two at first do not seem to have much in common, it is this commonality that makes project management a great field to study for hints on how to improve nonprofit financial management. Accounting for nonprofits can be improved by using the terminology, processes, and systems developed by the world of project management.

Partnering with Project Management

Good project managers know that every project begins with fact-finding and the creation of a project document, called the project charter, that provides the scope of the project with goals, milestones, and action steps. Accountants can take this concept even further.

Accountants understand the scope and flow of information within a company. Although they may not create the project charter, they can review it when created by other team members to ensure that nothing is missed. By collaborating with the project management team, they can act as support for the project rather than gatekeepers to the budget. It’s a subtle shift in roles that can make them more of a partner than an adversary within an organization

Managing Project Risk

Every project carries with it some risk. Accountants dislike risk even more than project managers! To mitigate project risk, you can take several steps.

Remain involved in the project. Although you may feel as if you can delegate the project to others and provide only cursory feedback, it is best to remain actively involved in any projects. Watching and monitoring the work as it unfolds and progresses allows you to step in with advice and guidance as needed. As the project unfolds, your assistance may be invaluable.
Ask questions like an auditor. Auditors look at each area and ask probing questions to uncover gaps that need to be fixed. You can work with stakeholders to uncover gaps, problem areas, and untapped resources within a project. Think like an auditor and ask insightful questions.
Adjust for pressure points. Like a load bearing wall, there are going to be some people in the project management team who bear most of the load, especially around delivery time. Adjust around their schedules to free time for the project needs. Work with the project management team to apportion resources and prioritize around major tasks.

By staying close to the project from start to finish, you’ll have your finger on the pulse of the work and can offer advice and make adjustments to the project schedule as needed.

What About Scope Creep?

Nearly every project suffers from scope creep, that uncomfortable feeling that more tasks than originally anticipated are being piled onto the original scope of work. Some level of scope creep is inevitable, if undesirable. Changes may occur because new information comes to light, vendors have altered requirements, and other unexpected problems arise.

But other types of scope creep include the human element, or stakeholders piling work onto the project. If that’s the case, then accounting can act as the team member who validates and allows the request to go forward or pushes it to another project. As the person in charge of nonprofit financial management, you have a good sense of whether tasks might be requirements for the project or whether someone is padding it to help get work done. In that case, you know what to do…

Risk Assessment Post-Project

After the project is complete, an accountant’s job isn’t finished. Assessing post-project risk is another area where accountants can use their unique skills to contribute to the project.

Management may require a report on the project’s completion, budget, and open items. Nonprofit financial managers can lead and guide this effort to help uncover any areas left to complete and how these are best delegated.

The world of nonprofit financial management continues to grow and evolve. No longer limited to spreadsheets, audits, and taxes, the nonprofit accountant is an integral part of the leadership team. Project management skills can be learned and shared with groups to add value from an accountant’s perspective.

Nonprofit Accounting with Beck & Company

Beck & Company is a Washington D.C. area nonprofit accounting firm with a team of expert auditors, accountants, and advisors available to help nonprofits of all sizes. We provide a variety of consulting, auditing, and accounting services and blend knowledge from the accounting and nonprofit worlds to help you improve operations and efficiency. For more information, please contact us at 703-834-0776 x 8001.