Although people cannot control the timing of death to take advantage of the new estate tax law changes, they can surely control the timing of making gifts to children and/or grandchildren. The way the new Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 works makes gifting between now and the end of 2012 both exciting and challenging and may require some creative planning and quick actions before year-end (only three days left!). Below are a few important features in the new estate and gift tax law:
- The new law confirms that there is no GST tax on gifts to grandchildren in 2010. That means unlimited GST exemption in 2010.
- Starting in 2011, the GST tax will come back at a 35% rate and the GST exemption will be at $5 M only.
- The gift tax exemption in 2010 is still capped at $1 M but it will increase to $5 M in 2011.
- The gift tax rate for 2010, 2011, and 2012 is all the same at 35%.
As you can see, the tax result would be quite different if you were to make large gifts to children and/or grandchildren in 2010 v. 2011.
There is frequently confusion amongst nonprofit organizations as to what record –keeping is required for payroll charges to federal grants. For most nonprofits the requirements are spelled out in OMB Circular A-122 (2 CFR 230), Attachment B, paragraph 8 in a section on compensation for personal services. It defines the rules for all types of “pay” including: salaries, wages, director and executive committee member fees, incentive awards, fringe benefits, pension plan costs, allowances for off-site pay, incentive pay, location allowances, hardship pay, and cost of living differentials.
As with any charge to a federal grant payroll charges must meet the general tests of allowability in that it must be a necessary and reasonable charge allocable to the award. The charge must also be consistently treated with all other payroll charges, consistent with organizational policies, incurred in accordance with GAAP and not charged elsewhere to another award or function by the organization. Fringe benefits associated with payroll charges (such as the employers portion of social security, insurances, contributions to retirement programs, compensated absences such as vacation, holiday and sick leave and so forth) are also allowable provided the tests noted above are met.
The documentation of payroll time charges that is required includes the following elements: Continue reading »
Nearly a year ago, Bill and Melinda Gates along with Warren Buffet began a campaign, known as “The Giving Pledge”, which commits wealthy individuals to give away the majority of their wealth to charity. This campaign began after the Gates’ and Buffet pledged the majority of their wealth to philanthropic causes and realized that they should convince other super wealthy individuals and couples to do the same. Recently, the Wall Street Journal ran an article that 16 new billionaire signatories have pledged, including Mark Zuckerberg of Facebook notoriety and Steve Case, co-founder of AOL. They join what now totals as more than 50 donors.
Although the pledge states that one will give away more than half their wealth, which can be in the form of a bequest, many of the new signatories are younger and desire to donate the majority of their fortunes while they are still alive. Younger philanthropy represents a growing trend in the nonprofit world today. Today, philanthropy is not only for the elderly and rich, but younger and younger successful business people are turning their money into charitable results now. One member of The Giving Pledge stated that he would like to direct and take responsibility for his charitable donations. This new trend of younger philanthropy will hopefully help out many worthy charitable groups in the near future and encourage more young entrepreneurs to start giving. To read more click here.
Tis the season, but at Aronson Foundation all the seasons matter. We believe that corporate giving is an important component of being a part of the community. Our efforts, as well as those of other area companies, were recognized in this week’s Washington Post. These are tough times all around and it is heartwarming to see the long list of DC area companies that are giving back.
On November 3, 2010, the IRS issued its Employee Plans 2011 Priority Agenda as part of its ongoing effort to increase 403(b) compliance by providing guidance, education, and compliance enforcement through plan audits.
Common issues that the IRS is finding during these plan audits include:
- Universal availability violations – previously excluded employees may not be excluded under current provisions.
- Catch-up contributions – the lifetime catch up limit is set at $15,000. Many audits are uncovering excess catch up contributions above and beyond this limit.
- Early withdrawal and hardship distributions – the audits have uncovered violations of withdrawal limits and deferral hold periods because of withdrawals taken directly from the plan vendor.
- Loans – the audits have uncovered violations of the amounts and numbers of loans due in part to multiple vendor plans.
For more on the compliance audits see plansponsor.com.
To help prepare for an IRS audit of your 403(b) plan, there are some helpful resources available such as:
On Wednesday, Dec. 15th, the Senate passed the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010” (“2010 Tax Relief Act” or “Act”) and the House of Representatives passed it the next evening. Continue reading »
In these times of doing more with less, CFO and controllers are trying to figure out that means for their department’s workload. Adding staff is often not an option. How do you get all of the work done with fewer people? If you don’t happen to have a wizard on staff and your fairy godmother isn’t answering her phone, there may be some practical ways to help address the problem. The Journal of Accountancy offers seven suggestions for accounting departments running lean. To see their suggestions, read the article entitled, Make Your Accounting Department More Efficient.
The IRS has issued temporary and final regulations that provide, effective January 1, 2011, that all federal tax deposits (FTDs) must be made by electronic funds transfer (EFT). Learn about electronic payment options on IRS.gov. After December 31, 2010, paper coupons may no longer be used to submit federal depository taxes, such as employment taxes.
EFTPS is a service offered free by the U.S. Department of the Treasury for people to pay federal taxes electronically. EFTPS users can make tax payments 24 hours a day, seven days a week from home or the office.
Deposits can be made online with a computer or by telephone. EFTPS also significantly reduces payment-related errors that could result in a penalty. The system helps taxpayers schedule dates to make payments even when they are out of town or on vacation when a payment is due. EFTPS business users can schedule payments up to 120 days in advance of the desired payment date.
U.S. Treasury bills are short term obligations sold at a price less than their face value. Treasury notes and bonds are long term obligations that make semi-annual coupon interest payments. What is the proper way to record activity on these investments?
On a non-interest bearing note, such as a treasury bill, the difference between the face value and the purchase price is interest income. A discount is recorded when the amount paid is less than the face value and a premium when the amount paid is more than the face value (FASB Codification 835-30-25-5). At the time of purchase, a note with no periodic interest payments is valued at the present value of the future principal payments (face value). The present value calculation for notes paying periodic interest includes adding the present value of the future interest payments and the present value of the future principal payments. Treasury bills, because purchased at discount are effectively sold at their present value. Continue reading »
In these trying times with Federal debt increasing daily with no end in sight, President Obama has appointed a committee to research and recommend changes to the tax code that would increase tax revenues. One such change being discussed is to eliminate the tax deduction for charitable gifts and replace it with a special tax credit at a rate of 15%. The tax credit would differ from a traditional tax credit, as it would be paid directly to the charity that received the donation rather than the person making the donation. To illustrate, when a person wants to contribute $100, they would make a donation of $85 the IRS would contribute a check to the charity for remaining $15. This tax credit would allow lower and middle class earners who don’t itemize deductions to donate smaller amounts with the same benefit to their charities.
However, upper middle class and high earners are the main users of the charitable contribution tax deduction and these brackets would be impacted greatly by the proposed change. Charitable high earners historically have been able to make charitable donations to reduce taxable income. The idea of eliminating the deduction is also unsettling to many charities who survive off of big donations from wealthy philanthropists. The reduction of donation revenues to many charities when many are struggling in this weakened economy will affect many people.
The expectation is that the donor base would widen but the amounts per donor would decrease. It remains to be seen if this would increase or decrease overall contributions. Perhaps the committee will continue to brainstorm for ideas.
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