Personal Attention. Efficiency. Collaboration. One Central Office.

These aren’t normally the words used to describe a leading accounting firm, but it’s exactly what we deliver at Clark Nuber.

Say hello to

Jeff

CPA, MST | Shareholder

Whether it’s water skiing, golfing, scuba diving, spending time with family, or attending sporting events, when he’s not hard at work in the office, Jeff can be found outdoors.

 » Read more

Clark Nuber PS
posted this blog on

Clark Nuber is partnering with LeaseCrunch to assist organizations in implementing the new FASB lease accounting standard ASC, Topic 842.

LeaseCrunch is a cloud-based software solution that enables entities to more easily address the challenges created by the new lease standard, while automating the required deliverables. The new lease standard requires substantial footnote disclosures from entities. LeaseCrunch eases this burden by providing entities with many of the disclosures (FASB, GASB and IFRS) needed to complete the footnote, reducing mistakes and the time required of their accounting team. Examples of these footnotes include finance lease expense (amortization and interest), operating lease expense, weighted-average remaining lease term, weighted-average discount rate, and maturity analysis. LeaseCrunch will also calculate the corresponding journal entries.

LeaseCrunch’s “software wizards” will guide users through the complicated requirements of the standard. These wizards help users evaluate the five criteria of lease classification and determine term length when actions like early termination or renewal options must be factored in. These wizards can be implemented as a requirement in the data entry workflow or used as an optional assistant for users to reference when necessary.

LeaseCrunch holds both a SOC 1 and SOC 2 report and has been vetted for strong IT security.

If your company or organization is struggling with implementing the new lease accounting standard, contact Clark Nuber to learn how our professionals and LeaseCrunch can assist you.

© Clark Nuber PS and Developing News, 2022. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Developing News with appropriate and specific direction to the original content.

 

Keep Reading

Articles and Publications

9 Best Practices in Responsible Fundraising

Charities rely on the generosity of donors to make programs happen, and contributions are often the lifeblood of the organization. Organizations that build responsible fundraising practices are more likely to succeed than those that do not. The following are practical guidelines, policies, and practices that charities soliciting funds should review and address.

1. Abide by the Code of Ethics and Donor Bill of Rights

Without public trust and confidence, fundraising would not be able to exist. Ethical, responsible fundraising practices should be openly talked about and frequently communicated within each organization. To help with this, the Association of Fundraising Professionals (AFP) has developed the Code of Ethics, providing principles and standards to guide organizations and development professionals in their fundraising practices. The AFP also co-authored the Donor Bill of Rights. The AFP encourages organizations to educate their fundraisers regarding the Code of Ethics and Donor Bill of Rights and to consider adopting them as policy documents. Many charities have also posted a link to the Code of Ethics and Donor Bill of Rights on their website as a way to communicate organizational integrity to donors. Follow this link to find both the Code of Ethics and Donor Bill of Rights.

2. Adopt and/or Revise a Gift Acceptance Policy

Have you ever received a call from a donor offering to donate property in Timbuktu, a timeshare in the Bahamas, or an interest in a privately held company? Or perhaps they want to start an endowment with a $1,000 gift. Accepting the wrong gift can potentially result in some unintended consequences, such as environmental liabilities, property taxes, and unrelated business income tax. The bottom line is each gift needs to be evaluated for financial value and costs as well as alignment with the not-for-profit’s mission, goals, and strategies. No matter how sophisticated your fundraising program is, every organization should have a gift acceptance policy that provides the organization with a decision-making tool for when to accept or reject a gift. A sound gift acceptance policy should include:
  • What type of gifts the organization will accept, including crypto currencies and non-fungible tokens
  • What is the policy for disposition of non-cash gifts
  • Thresholds for gifts with significant purpose restrictions or endowments, as these require staff resources to properly track and account for
  • What types of gifts need board approval or review by outside legal counsel
  • Who is responsible for administration of the gift, including any professional or other fees associated with the donation

3. Be Transparent with Donors

Donors are inspired and more confident when they have access to information. Use the website to share information within a few clicks regarding the charity’s finances and operations, which could include:
  • Vision and mission statement
  • IRS Form 990 and audited financial statements
  • Annual report
  • Programs and achievements
  • List of board members and staff
  • Fundraising disclosures
This transparency includes keeping the organization’s profile updated on Guidestar by Candid.

4. Comply with Donor Restrictions

By accepting a restricted gift, a charity has a fiduciary responsibility to ensure contributions get used as intended. If a charity is unable or unwilling to use the contribution as the donor intended, it is obligated to contact the donor for permission to use it for other purposes or offer to return the gift. A charity should take special care when composing solicitation and campaign materials and address potential issues, such as use of excess contributions, allocations in multi-purpose campaigns, and use in support of indirect program costs (i.e., overhead).

5. Properly Track Fundraising Costs

There is great interest by donors, the media, and watchdog groups in evaluating an organization’s fundraising costs. Charities should have appropriate technology as well as develop internal policies and procedures for tracking fundraising costs. Fundraising costs are the direct and indirect costs incurred to solicit and collect contributions and can include salaries, postage, printing, rent, depreciation, utilities, etc.

6. Evaluate Return on Investment from Fundraising Activities

Charities are responsible for monitoring and evaluating fundraising success. The most common benchmark used to measure return on investment (ROI) from fundraising is the ratio of fundraising costs as a percentage of funds raised. However, most would contend it is more complex than that and that the ratio should take into account the maturity of the fundraising program, mix of fundraising activities, and size and type of charity. It also does not consider achievement of goals, outcomes and impacts. So, other measurements include donor retention rates, number of new donors, and median gift sizes. A charity should develop benchmarks for how it would like to measure ROI and review its results over a period of time.

7. Register with the State

Forty-one states and the District of Columbia require charities to register prior to soliciting any contributions from the public or engaging in fundraising activities. The registration is usually with the Secretary of State or the Attorney General’s office and consists of providing the state with detailed information regarding programs and finances. Once a charity is registered, most states require renewal annually. Organizations that solicit in more than one state can sometimes use a common form called the Unified Registration Statement, although some states will still require specific forms to be filed. Also, if you are contracting with a professional fundraiser, check to see if the state has registration requirements for such professionals or any additional requirements for the charity that enters into such contracts.

8. Provide Donor Acknowledgements and Receipts

Donors like to be thanked and expect an acknowledgement of their gift. The IRS can deny donors charitable deductions for not having adequate documentation. Donor acknowledgments should include:
  • Name of the charity and donor
  • Date of the contribution
  • Description of any property donated
  • Amount of cash contribution (never include value of noncash donations)
  • Value of any goods or services provided by the charity to the donor
  • A statement indicating the tax deduction may be limited
Read the following article to learn more about donor receipt requirements. This area is a great opportunity for the finance and development teams to review the IRS Publication 1771 Charitable Contributions – Substantiation and Disclosure Requirements together to ensure the organization complies.

9. Bridge the “GAAP” Between Accounting and Development

Provide training to both your accounting and development staff on which gifts can be reported under generally accepted accounting principles (GAAP). Have routine cross-department meetings to review gifts for proper accounting recognition and reconcile the accounting and development records at least quarterly. The following article covers four areas to collaboratively focus on for better data and compliance. Charities that are committed to responsible fundraising practices will foster the trust of the public, increase donor confidence, and ultimately have more successful fundraising programs. If you have questions about best practices, or establishing policies and procedures for your organization, send us an email. © Clark Nuber PS, 2022.  All Rights Reserved

Annual B&O Tax Apportionment Reconciliation Due October 31st for Washington State

For business and occupation (B&O) tax purposes, taxpayers earning apportionable revenue calculate their taxable Washington revenue by applying a “receipts factor” apportionment methodology. Taxpayers computing B&O tax in this manner are required to complete and file an Annual Reconciliation of Apportionable Income form with the Department of Revenue.

When Is the Annual Reconciliation of Apportionable Income Form Due?

The form must be submitted to the Department of Revenue by October 31st of each year. Failure to timely file the reconciliation form may result in penalties.

Who Must File?

In-state taxpayers that earn income from apportionable business activities performed for customers located inside and outside of Washington may apportion such revenue to Washington for B&O tax purposes. Out-of-state taxpayers earning apportionable income attributable to Washington are required to apportion their revenue and report to Washington when the taxpayer exceeds either the receipts, payroll, or property thresholds described below. Taxpayers that are required to apportion income, or that take an apportionment deduction for B&O tax purposes, must file an annual reconciliation form. The following is a non-exhaustive list of apportionable activities:
  • Service and other activities
  • Royalties
  • Travel agents and tour operators
  • Public and nonprofit hospitals
  • Real estate brokers
  • International investment management services
  • Aerospace product development

What Is This Filing?

The Department of Revenue allows taxpayers to use the prior year’s apportionment factor for reporting current year liabilities. This simplifies the taxpayer’s reporting method but then requires the business to do a true-up at the end of the year to determine the current year’s factor based on actual data. The purpose of the annual reconciliation is to correct apportionable receipts reported to the Department using the previous year’s factor or incomplete year-to-date data. If additional B&O tax is due as a result of the reconciliation, late payment penalties are automatically waived provided the form is filed by the October 31 deadline. The form is required to be filed even if the true-up results in no additional tax liability.

How Is the Single-Factor Apportionment Formula Applied?

The numerator of the factor is the apportionable revenue attributable to Washington State. The denominator of the apportionment factor is the apportionable revenue attributable to those states (including Washington) in which the company files business tax returns or is deemed to have created nexus under Washington’s economic nexus standards. (Apportionable revenue sourced to a state or country in which the business does not have substantial nexus is excluded from the denominator and is commonly known as throw-out revenue.) The business’ gross apportionable income from apportionable activities is multiplied by the apportionment factor to determine the amount of receipts that are subject to B&O tax. A business is considered to have substantial B&O tax nexus in Washington if it:
  • has more than $100,000 in receipts sourced to this state;
  • has physical presence in this state; or
  • is commercially domiciled in this state.

Where Do I File?

The form is available on the Department of Revenue’s website. The filing can also be completed using the Department’s MyDOR online system.

What if I Need Help?

Please contact the Clark Nuber state and local tax practice with any questions regarding apportionment or if you desire any assistance in fulfilling the annual reconciliation requirement. © 2022 Clark Nuber PS. All Rights Reserved

Explainer: Federal Payroll Credits for Research Activity, How the Credits are Claimed, and The Inflation Reduction Act of 2022 Enhancements

Beginning in 2023, the Inflation Reduction Act of 2022 (the 2022 Act) allows small business employers who invest in research activity to elect a new payroll credit of up to $250,000.  (This goes beyond the $250,000 currently allowed (see below), for a potential annual total payroll credit of $500,000). When applicable, the new payroll credit offsets the electing employer’s future Medicare tax obligations (i.e., 1.45% of all wages paid, also known as the “Hospital Insurance Tax”). As noted above, the new credit program augments the existing payroll credit election. Since 2016, qualifying taxpayers who make a timely filed election can use credits generated through investment in research activity as future payroll tax credits up to $250,000. Elections made for years prior to 2023 could/can only offset the electing employer’s “FICA Tax” obligations (i.e., 6.5% of applicable wages, also known as Old Age, Survivors, and Disability Insurance Taxes). For years beginning after 2022, small businesses who annually generate sufficient research credits can now elect up to a total of $500,000 credits per year. However, it’s important to note that the first $250,000 of elected credits offset only FICA tax. Any amount elected over $250,000 can only offset Medicare tax up to an additional $250,000. The new law also implies the type of credit is established at the time of the election. That means any carryforward of the payroll credits retain their character as either a FICA tax credit or a Medicare tax credit, depending on the total amount of the original year election. To claim the payroll credits, a taxpayer must meet the definition of a “qualified small business” (see below) and generate sufficient research activity credits. The research must be performed in the United States. The election is available annually when made in a timely filed federal income tax return.

Background on the Payroll Credit Program

The Protecting Americans from Tax Hikes Act of 2015 (“the 2015 Act”) created a new incentive program for small businesses that invest in qualifying research. Beginning in 2016, the 2015 Act allowed taxpayers to elect to treat credits generated from qualifying research activity as “payroll credits.” (The annual limit on the election is $250,000.) The payroll credit election is made in the taxpayer’s income tax return for the year the credit is originally generated. The resulting payroll credit is claimed in the taxpayer’s payroll return as an offset to the employer’s future FICA tax obligation. The taxpayer can begin to claim the payroll credit in the payroll return for the first quarter that begins after the date the taxpayer files its annual income tax return containing the election. If the credit exceeds the actual FICA tax liability for the first eligible quarter, the remaining credit carries forward to future quarters until it is fully utilized. The new payroll tax program created by the 2015 Act was a welcome addition to the incentives associated with research for small businesses. Prior to this program, pre-revenue companies could only enjoy the cash benefit of the research credit in a future period when the company finally generated sufficient revenue to reach profitability. As a result, many early-stage companies never enjoyed the intended timely cash flow boost the research credit program was designed to provide. Because the payroll credit program generates an almost immediate cash benefit, the 2015 Act program greatly accelerated the timing of the intended research subsidy.

Example 1:

Company X reported a loss in its 2015 tax return and also qualified for a research credit of $25,000. Company X first reports profits in year 2020 and 2021 but completely offsets the profits with its prior-year loss carryforward deduction. In 2022, Company X also reports tax due of $50,000 and no longer has any loss carryforward deduction. Finally, Company X realizes the benefit of the $25,000 credit carryforward (seven years after it made its original credit claim).

Example 1a:

Same facts as Example 1, except the year is 2016. Company X qualifies for the payroll credit election. Company X files its income tax return in March of 2017 and elects to treat $25,000 (all of its research credit) as a payroll credit. In its second quarter payroll return, the company reports a $30,000 FICA liability. Company X claims a $25,000 credit against the liability.

Definition of a Qualified Small Business

A taxpayer is a “qualified small business” for this purpose if its revenue (i.e., includes any type of gross receipts) for the year in question is under $5 million, and the year falls before or within a five consecutive year window that begins with the first year the taxpayer reports gross receipts. Note that the rules provide no allowance for de minimis amounts of gross receipts, such as interest on cash reserves. This means that even pre-revenue companies can trigger the beginning of the five-year window. Also, note that related taxpayers are tested as a single taxpayer for purposes of the $5 million test. A wealthy individual investor or a large strategic business investor, when grouped with a pre-revenue company under the “single company” test, may disqualify the pre-revenue company from accessing the payroll credit.

How the Credit is Claimed (The Forms)

The IRS has created multiple forms to facilitate claiming the research/payroll credits against payroll tax liabilities. First, the business includes Form 6765, “Credit for Increasing Research Activities” in its income tax return for the year it engages in research activity. This form calculates the amount of the research credit the business is eligible for the reporting year. Form 6765 also includes a section where the business indicates the amount of the research credit it would like to use as a payroll credit against future payroll liabilities. Next, when filing its quarterly payroll tax, Form 941, the employer includes Form 8974 “Qualified Small Business Payroll Tax Credit for Increasing Research Activities.” Form 8974 is used to determine the amount of the payroll tax credit that an employer can claim on Form 941 as an offset against its FICA tax for the reported quarter. Since the credit is not refundable, Form 8974 limits the credit to the lessor of: A) the total amount elected on Form 6765, or B) the employer’s total FICA tax liability for the quarter. If B) applies, any excess credit is carried forward and reported successively in future quarters until it is fully utilized. As mentioned above, beginning in 2023, some employers will be allowed to claim the payroll credit against Medicare taxes. Accordingly, the IRS is expected to revise these forms and/or their instructions to facilitate the additional credit claim opportunity.

Enhancements Added by the Inflation Reduction Act of 2022

The 2022 Act clearly enhances the payroll credit program for some taxpayers for tax years that begin after December 31, 2022. As mentioned above, it allows up to an additional $250,000 payroll credit that can offset the Medicare tax. However, it appears that the Medicare tax offset is not available unless the total amount of the research credit in a given year exceeds the $250,000 FICA tax offset credit. Also, a literal reading of the new law implies that the character of any quarterly credit carryforward is fixed as FICA tax or a Medicare tax credit in the year of the original claim, depending on the total amount of the payroll credit election in that year. That is, if the original credit is less than or equal to $250,000, it is all characterized as a FICA tax credit. If the amount elected exceeds $250,000 then the excess (up to an additional $250,000) is characterized as a Medicare tax credit. Please note that the above explanation (as illustrated in the examples below) is based on this author’s literal reading of the language of the 2022 Act. Further published guidance by the IRS or Treasury could prescribe a different interpretation. For example, allowing the credits to offset both types of payroll taxes in an applicable quarter, regardless of the election amount, up to $500,000, would be a welcome interpretation.

Example 2:

Company X reports $180,000 of credit in its 2023 return filed on March 18th of 2024, and second quarter 2024, reports a FICA tax liability of $50,000 and a Medicare tax liability $30,000.  In the second quarter return, the employer can only offset $50,000 of FICA tax. Even though the total credit exceeds the FICA tax liability, none of the credit can offset the Medicare tax liability for second quarter. The remaining $130,000 would be carried forward as a credit that can only offset FICA tax in third quarter (and beyond if not used).

Example 2a:

Assume the same facts as Example 2, except Company X elects a total payroll credit of $300,000 in its 2023 return. Then in second quarter 2024, all of the FICA tax liability could be offset, leaving a $200,000 credit carrying forward to offset only future FICA tax liabilities, and all of the second quarter Medicare tax liability could also be offset, leaving a $20,000 credit carrying forward only as a Medicare tax offset to third quarter (and future quarters, if applicable). Note that the new law did not change the definition of a qualified small business for this purpose. Early versions of the bill suggested increasing the revenue limit to $10 million per year, but this was removed in final enacted bill.

Does Claiming the Payroll Credit Reduce the Employer’s Deduction for Payroll Taxes?

No, the rules allowing the payroll credit state that even though the payroll credit reduces the actual amount of payroll taxes due for a given quarter, the payroll credit does not reduce the income tax deduction for the full payroll tax liability (i.e., the amount calculated before application of the credit).

Example 3:

Company A’s Form 1120 for 2022 reports a payroll credit election of $50,000. The return is filed in March of 2023. Company A’s second quarter Form 941 reports a FICA tax payroll liability (before the application of the payroll credit) of $60,000. Company A claims the full 2022 payroll credit of $50,000. Company is allowed an income tax deduction of $60,000 in its 2023 Form 1120, even though its net second quarter FICA tax liability after the credit was only $10,000.

Conclusion:

Beginning in 2023, qualifying small businesses that invest in qualified research activity can enjoy additional payroll credits (raising the annual limit from $250,000 up to $500,000). This is welcome news to early-stage companies. However, note that the newly allowed credits (i.e., credits exceeding $250,000) can only be applied against future Medicare tax liabilities. In some cases, this could delay the full enjoyment of the additional credits. Allowing the additional credits to offset either type of payroll tax would have provided a more helpful incentive to many small businesses seeking to fund additional research. If you have questions about the federal payroll credit, reach out to a Clark Nuber professional. Mandy Collins is a valued Clark Nuber alum.  © Clark Nuber PS, 2022. All Rights Reserved.

Featured Resources