Tag: Taxes

Uh-Oh: What to Do If Your Organization Loses Tax Exempt Status

It’s with a sinking feeling that you learn your nonprofit’s tax exempt status has been denied. You’ve got two tasks before you now: figuring out how it happened so that you can prevent it from happening again in the future, and appealing the decision to get your nonprofit’s tax exempt status active again.

Tax-Exempt Status: What Does It Mean?

Non-profit status is granted to your organization by the state. It is a business designation, not a tax designation. Once your organization has non-profit status, you can then apply for tax-exempt status.

Reasons Why You Can Lose Tax Exempt Status

The IRS lists six reasons why you can lose your tax exempt status. These fall into the following categories:

  1. Deriving private benefit from charitable activities: This is a big no-no with the government. As a nonprofit organization, the benefits derived from your organization must flow to the groups you say you serve. You shouldn’t personally profit from the activities or the organization.
  2. Lobbying: Nonprofits must not engage in political lobbying.
  3. Political activity: Nonprofits must also refrain from any other political activities.
  4. Unrelated business income: Income that’s derived from avenues not directly related to your nonprofit’s mission or activities can also be cause for losing tax exempt status.
  5. Failing to file an annual report: Even if your organization doesn’t have to pay an annual income tax, in order to maintain your tax exempt status, the government requires specific information be reported each year. Failure to file an annual report can be problematic because it contains much of the required information to maintain tax exempt status.
  6. Deviating from tax-exempt purposes: An organization sets forth specific reasons why it should be tax-exempt. Deviating from these purposes, or changing too much of what it does, is another reason why it can lose tax-exempt status.

Regaining Tax Exempt Status

It goes without saying that losing your tax exempt status is a serious problem. It shows that someone in your organization isn’t filing the right documents or that the group has lost sight of its mission. It may be time to meet with your leadership team and make sure everyone is on the same page.

After the dust settles and you can figure out where the mistakes occurred that led to losing nonprofit status, it’s time to roll up your sleeves and regain your status.

The National Council on Nonprofits recommends that you consult the IRS’s publication, Revenue Procedure 2014-11, and consult with your accounting firm for help regaining your nonprofit status. You must also clearly communicate with your members and donors, who may worry that their donations or dues aren’t being used properly. Let them know what is going on and the steps you are taking to fix the problem.

Going forward, be sure to take the following steps to safeguard your nonprofit status:

  • Maintain accurate records in a central location, and update those records periodically.
  • File all paperwork at the state and federal levels by the due date. Leave nothing to chance. Make it a priority!
  • Screen all potential new projects according to the rubric of how well they meet your current mission. Be tough. If they don’t fit the mission, you may need to pass on them.
  • Make sure that no one at your organization derives monetary gain from their work at the organization. Make it clear as part of your HR policies that such actions aren’t tolerated.
  • Hire external counsel, such as a CPA firm, to review your annual reports and your record keeping. An annual audit conducted by a reputable firm is a necessity.

It can be disheartening to learn that your organization has lost its nonprofit status. Take steps to rectify the situation and prevent future problems, clearly communicate those steps to your constituents, and soon you should be back on track to serve the people or causes that need you the most.

Beck & Company Certified Public Accountants and Business Advisors

At Beck & Company, our team of certified public accountants can guide you on how to apply for and maintain your tax-exempt status. We provide auditing services, consulting, business advice, workshops, and seminars for the nonprofit world. For more information, contact us or call 703-834-0776.

Hints and Questions to Consider when Choosing a Tax Advisor

Last week, we took a look at factors that go into choosing a tax advisor and what your business should be getting out of this tax advisor. You can read more about this here. Now that you know what you should be looking for and what benefits should come out of having a tax advisor, it is time to take a closer look at the process of actually securing a tax advisor for your business during the hiring process. Beck and Company’s Certified Public Accountants and Business Advisors are experienced and qualified to help your business with their tax preparation and can offer further advice on securing a tax advisor as well. We provide innovative tax compliance and consulting solutions in addition to tax planning and preparation assistance. We have certified public accountants (CPAs) who can help. Learn more about our tax service offerings here.

Whether you choose a Beck and Company CPA or someone else to be your tax advisor, the following hints should be at the forefront of your mind when choosing the right tax preparer or advisor to do your taxes. Finding an advisor who is truly committed to your business success is absolutely paramount. Selecting the right advisor should be a process not unlike selecting a full-time employee who’s the right fit for your business. These hints will help you to secure the right person with the right intentions which will ultimately save you from major headaches down the road. With that in mind, consider the following hints.

Helpful Hints When Choosing a Tax Preparer/ Advisor

  • Use a reputable tax professional who signs the tax return and provides a copy.
  • Consider whether the individual or firm will be around to answer questions about the preparation of the tax return months, or even years, after the return has been filed.
  • Check the person’s credentials. Only attorneys, CPAs, and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection, and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
  • Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources that also holds them to a code of ethics.
  • Be cautious of tax preparers who claim they can obtain larger refunds than other preparers.

These hints alone are not sufficient. You will want to be sure to interact with and communicate with three or four options in tax advisors before making your final decision. When you interview them, consider the following questions to ask them. Their answers will offer guidance and insight into your ultimate tax advisor final decision. In addition to these guiding questions that are found below, a few key qualities you should discuss during an interview are availability, qualifications and experience, client longevity, and price.

Questions to Ask when Choosing a Tax Advisor

  • What is the candidate’s educational background? Do they have an advanced degree?
  • What qualifications does the candidate have?
  • Do they have expertise in areas relevant to your business?
  • How long has the candidate been doing tax advising?
  • Do they have any licenses? If so, which licenses do they have?
  • Will he or she provide at least three references of current clients?
  • Have they been cited by any professional or regulatory body for disciplinary reasons?
  • How and what do they charge? What fees will they charge?
  • Do they provide ongoing reviews and planning strategies for you?
  • Will they represent you if you are audited?
  • Are you comfortable with your prospective accountant/ tax advisor?

The right answer to these questions depends on your individual business’ situation and needs, but what is most important is that you do your homework and make an educated decision when it comes to the important choice in picking a tax advisor. For more information about the process or to find a tax advisor for your business, contact us here at Beck and Company CPAs.

Benefits of and Ways to Choose the Best Tax Advisor

Choosing the right person to be your company’s tax advisor is no easy task. Similar to choosing a good accountant for your overall business needs, you will want a tax advisor who will have the specific characteristics and qualifications you need while also being a good fit in personality and style.

For many small and mid-sized businesses, it is recommended that you do not do your taxes alone but that you consult a certified public accountant (CPA) to be involved in the tax process. This CPA acts as the tax advisor because they can give advice on which tax strategies to take or not to take based on their interpretation of IRS rulings and past experience. There are endless complexities and deductions that can be easily missed without the expertise of a CPA, and they can be vital to long-term strategic planning as well. This means that the CPA is not just communicating at tax time but throughout the year so that there are no surprises at tax time. This includes advising on investment monitoring and keeping current on upcoming tax legislation. Another perk in hiring a CPA as your company’s tax advisor means they will represent you in an audit before the IRS, if needed, so you don’t have to go it alone.

It is important to remember that you are not only paying for tax preparation but also for the advice relationship when using a CPA as a tax advisor. Beck and Company’s Certified Public Accountants and Business Advisors offer tax planning and preparation services if you are in need of a tax advisor or want more information about finding the best one. Learn more about our Tax Consulting Services by visiting here.

What are the key factors that go into choosing a tax advisor?

You can think of this as the “two Cs”: competence and communication.

  • Competence: Your tax advisor should have tax preparation expertise and be up-to-date on ever-changing tax laws. Be sure that they not only have a solid background with regards to tax expertise but also are competent in realms that match up to your business’ unique industry.
  • Communication: Even a very skilled and competent tax advisor is not worth your time if they do not communicate regularly or honestly. They are expected to keep you informed so there are no surprises but also to communicate well with you in general. If the right person has the wrong personality or skill set, it will still be the wrong choice for your business. Choose someone that will mesh well with your company and staff.

What should your business be getting out of your tax advisor?

In addition to the qualities and skills that a CPA should provide your business, consider the following parameters so you get the most out of your tax advisor both initially and over the long-term future.

·         Write a job description.

Hiring a professional is no different than hiring an employee. Outline specifically what you want them to do.

·         Match personalities.

It’s important that your personality and that of the people you engage with are compatible. It’s not unusual for a professional to have a great relationship with one client and not satisfy another. The problem could be a simple personality clash.

·         Communicate regularly.

If you dump your whole financial future in the hands of a tax advisor without ongoing communications, you’re asking for trouble. Nobody is going to have as much interest in the financial future of your business as you. Make sure you have a strong line of communication open with your advisor.

·         Demand results.

If you don’t like the way they do business or the results they get, fire them and find someone else. Don’t hold on to someone who is not helping to further you company’s success.

Next week, we will take a look at some hints and questions to consider when you are in the process of initially hiring a tax advisor and are hoping to choose the right one. Stay tuned for these important tips. In the meantime, contact us here at Beck and Company CPAs so we can help you with your tax service needs or help you find a great tax advisor for your business.