News & Events – Meyers Brothers Kalicka

Preserve Your Investment Portfolio with a Smart Spending Policy

Thu, 23 Apr 2026 18:10:01 GMT

You want your nonprofit’s investment portfolio to be around for the long haul. But to help ensure it's available to fund capital projects and operational costs, you must adopt an effective spending policy. This includes a formula that stipulates what percentage of your investments you may withdraw each year.

There’s no one optimal spending policy. The best option for your nonprofit’s situation will depend on a variety of factors, which you should discuss with a financial advisor who specializes in nonprofit organizations. But the following are common types of spending policies.

Fixed rate method

Also known as the simple spending rule, this approach specifies a fixed annual spending rate applied to the beginning-period market value of an investment portfolio. It’s generally simple to understand and apply.

However, the fixed rate method can result in big swings in spending from one year to the next based solely on the investment portfolio’s performance in the prior year. In a multi-year period of strong investment performance, it may lead to higher spending increases compared with alternative techniques. This can undermine your portfolio’s growth.

Rolling average approach

If you choose the rolling average approach, your organization will apply a spending rate to the moving market-value average of your investment portfolio — usually calculated over a three-year period. A rolling average generally improves year-to-year consistency in spending, but it’s vulnerable to market volatility.

For example, this rule could dictate more spending than would be wise in a year when the portfolio value has dropped substantially. Or it could produce a low spending amount when your nonprofit needs extra financial support.

Inflation-based spending

With an inflation-based method, your nonprofit sets an initial dollar amount for spending, then adjusts that amount annually for inflation. Sometimes the adjustment will involve a cap and a floor based on the portfolio’s beginning market value.

This approach can simplify budgeting, stabilize spending and help grow your investment portfolio because the spending amounts tend to be smaller. It doesn’t account for the portfolio’s market value, but it can facilitate greater spending in challenging times than the rolling average method. Of course, higher spending can also eat into your investment portfolio.

Hybrid rules

A hybrid model generally considers both inflation and market value. A large chunk of your yearly spending is based on an inflation adjustment to the previous year’s spending. The remainder might be based on, for example, the application of a fixed rate to your portfolio’s market value or a percentage of the rolling-average rule amount. Hybrid spending policies tend to result in stable spending, in both dollar amounts and as a percentage of portfolio value.

Another hybrid formula — the geometric approach — reflects movement in both inflation and the market. A geometric rule reduces year-to-year volatility and can lessen the impact of market declines on spending. However, this approach is typically difficult to calculate. There may be another method that’s easier for your organization to work with.

Review and revise?

We can help you understand the different types of investment spending policies. Although following a consistent policy is usually recommended when evaluating financial performance, your nonprofit’s circumstances may indicate that it’s time to review and revise its methodology.

The Value of Volunteers

Mon, 13 Apr 2026 14:07:10 GMT

Making the case for greater recruitment and retention efforts

You probably think your nonprofit’s volunteers are worth their weight in gold. After all, they provide essential labor, skills, and passion, significantly extending your nonprofit’s capacity and reducing costs. The bottom line: They allow you to achieve more with fewer resources.

But what does the labor market say? Recent research by Independent Sector and the University of Maryland’s Do Good Institute estimates that one hour of volunteer time is worth $34.79 (as of 2024, the latest data available). Here's more information on their Value of Volunteer Time report and other charitable volunteer research. Spoiler alert: It’s good news!

Don’t underestimate us

The Value of Volunteer Time shows a 3.9% increase in the value of volunteer labor from 2023, compared with a 2.9% inflation rate over the same period. If you multiply $34.79 by the average annual hours a volunteer works (52), the total equates to nearly $1,809 per volunteer each year.

Of course, the value of volunteers varies by state and jurisdiction, based largely on local wage rates. The report puts an hourly estimate of $52.06 for District of Columbia volunteers, $42.00 for Massachusetts and $40.14 for California. By contrast, volunteers in Iowa are valued at $29.96, in Louisiana at $29.14 and in Puerto Rico at $17.32. Professionals such as accountants, attorneys and IT experts can deliver even greater value as volunteers for nonprofits — wherever the organizations might be located.

Many nonprofits paused in-person recruitment efforts during the COVID-19 pandemic. However, volunteerism has generally rebounded since 2020. According to AmeriCorps, just over 60 million Americans volunteered in 2021, but by 2024, the number had soared to nearly 75.7 million. That represents about 28.2% of Americans age 16 and older. An even higher percentage, 54.2%, reported “informal” volunteer work, such as helping their neighbors by housesitting, running errands or lending tools, according to U.S. Census Bureau statistics.

Kids are all right

Census data says that members of Generation X, usually defined as those born between 1965 and 1980, lead other population groups in formal volunteering and that Baby Boomers dominate informal volunteering. But Gen Z and Millennials are catching up. More than half of Millennials and Gen Z adults say they’ve volunteered for a nonprofit recently.

A DoSomething Strategic and American Red Cross survey of younger adults and teens found that Generation Z volunteers prioritize work that offers “community impact,” “friends and connections,” and “growth opportunities.” One way you might attract their attention is to make virtual volunteer opportunities (such as online fundraising) available or to offer “micro-volunteering” or one-day commitments.

DoSomething (dosomething.org) specifically matches young people with causes and charities based on their interests and available time. Other websites, such as Idealist (idealist.org), can also help connect your organization with young volunteers for short- and long-term projects.

You might also want to partner with employers. Local businesses might be interested in collaborating with your nonprofit on a company-wide service day that pays employees to give back to their community while socializing with colleagues. Also, identify employers that offer paid volunteer time off (VTO) to employees. Eight hours — or a full day of VTO — is commonly offered as a fringe benefit.

Make the case for more

Whether your team consists entirely of unpaid volunteers or includes just a few dedicated individuals supporting your paid staff, each volunteer is invaluable. And if your nonprofit is like most, you could probably use a few extra hands.

That’s why knowing the value of a volunteer’s time is critical. It can help you make the case for spending additional time and resources on recruiting volunteers and formalizing your volunteer program. If you don’t already have one, consider hiring a volunteer coordinator to administer volunteer “rewards” initiatives, volunteer performance reviews and other elements of an organized volunteer program.

Feeling Philanthropic? Avoid Splitting Property Among Charities

Mon, 13 Apr 2026 13:49:35 GMT

Tax Tip:

When you make a bequest of property to a charity, its value is exempt from estate tax. However, according to the U.S. Tax Court, that may

not be the case if you split an asset between two or more charities.

In one case, a donor left her 100% interest in a limited liability company (LLC) to two charities: 75% to a private foundation and 25% to a church. When she died, the LLC, which owned an interest in a mobile home park, was valued at just over $25 million. On her estate tax return, her estate deducted the LLC’s full value as a charitable donation.

The court agreed with the IRS that fractional interest discounts should be applied to each charity’s gift, reducing the combined charitable deduction by more than $4 million and triggering nearly $1.7 million in additional estate tax. To avoid this result, donors should consider leaving an asset to a single charity, such as a private foundation, and allow the foundation to determine its ultimate disposition.

Mailing vs. Filing: What Counts as On-Time with the IRS

Thu, 09 Apr 2026 19:56:46 GMT

The new U.S. Postal Service (USPS) rules could affect whether your tax filling is considered late or filed on time. With the recent change in the postmark date system, published in November 2025 in the Federal Register, the new rule explains that a machine-applied postmark indicates the date of the "first automated processing operation" at a processing facility, which may be later than the date the mail was dropped off.

What does this mean for you? This rule change could be problematic for tax filings, because the new USPS rules may cause your postmark to be later than the day you actually mailed your documents. If received after the IRS deadline, the document won't be considered timely filed or payment timely made unless the postmark bears a date on or before the due date (IRC Sec. 7502). The IRS will treat a tax return or payment postmarked on or before the due date as timely even if it arrives days later.

If your postmark is dated after the deadline (even by a day) your filing will be considered late, and you could face penalties for this.

What can you do to avoid this? If you are close to the filing deadline, do not rely on the USPS alone. To ensure your postmark date is the same as your date of mailing is, use an authorized private delivery service (UPS, FedEx, or DHL Express). If you still want to use the USPS as your method of delivery, to ensure that your postmark date is the same as the date of mailing, and have documentation to prove of it, visit the USPS counter and use one of the following:

Certified Mail;
Registered Mail; or
Postage Validation Imprint (special marking indicating postage paid and date accepted).

The above options provide documentation proof of the mailing, which can protect you if there is ever a question about whether or not you filed timely.

Recommended Method: File and Pay Electronically

If possible, filing your return or making a tax payment electronically is the safest way to sidestep any issues with postmarks. You receive immediate confirmation, and you don’t have to worry about postmarks or mail delays.

However, there are a few forms that are not eligible for electronic filing (Form W-7 and Form 706). To avoid potential filing issues, it is best to visit a USPS counter for documented proof of mailing or use an authorized private delivery service that provides a tendering receipt.

File Timely and with Ease

Each year the IRS processes between 75-90 million paper documents. While most mail is processed without issue by the USPS, delays and losses can still occur. Under the new USPS rules, the postmark may not accurately reflect the date the documents were mailed. Exercise caution for the rest of the tax filing season and wrap up 2025 by steering clear of postal penalties and future headaches.

Recognizing Q1 Work Milestones

Mon, 30 Mar 2026 16:30:56 GMT

Celebrating Our Employees on Their Work Anniversaries: Quarter One 2026

With gratitude and recognition, we congratulate our employees who are celebrating work anniversaries in Q1 2026. Your dedication and commitment to Meyers Brothers Kalicka, P.C. (MBK) have been invaluable, and your impact is recognized and appreciated. MBK recognizes that at the core of our ability to implement our mission and vision, is our people. The contribution from every employee enables us to better serve our clients, honor our community roots, and support each other.

Endowment Management 101

Fri, 27 Mar 2026 12:30:16 GMT

If your nonprofit has an endowment, you understand that it’s a major responsibility. For example, organizations must adhere to certain regulations, including when it comes to spending from investment income. For this reason, many nonprofits opt to have a financial professional manage their endowment investments. But even if you have professional guidance, it’s important for both your staff and board members to know the basics of endowment management.

Making prudent decisions

First, it’s important to distinguish endowments from operating reserves. Endowments generally are designed to provide steady income while their core investments grow untouched. That steady income can be a financial safeguard in times of crisis.

A significant portion of most nonprofit endowment assets are restricted funds. Organizations generally must conform to provisions of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). Among other things, UPMIFA allows nonprofits to include appreciation of invested funds as part of what’s “spendable” in addition to realized gains, interest and dividends.

UPMIFA also provides guidance for “prudent” decisions. It suggests that spending more than 7% of an endowment in any one year generally isn’t fiscally responsible; however, not all states have enacted this provision. And UPMIFA specifies procedures for nonprofits to change an endowment’s purpose — useful for those that may be dedicated to obsolete or impractical purposes.

Creating a spending policy

Your spending policy should define how much of your endowment fund’s income can be spent on operations each year. Often, this is defined as a percentage of between 4% and 7% of a rolling average of endowment investments. A rolling average helps even out the ups and downs of market returns and prevents the endowment’s contribution to any one budget year from being significantly lower than contributions to other years.

However, this approach doesn’t address whether your endowment fund will be able to maintain a similar level of funding for future operations. Also, because investment returns usually don’t correspond to the inflation rates that affect your operating budget, your spending policy should be based on more than just recent returns. To factor inflation into your spending policy, you might start with a relatively conservative, inflation-free investment rate of return. Then, adjust it for inflation to arrive at a spending rate you can apply on an annual basis.

Keeping it current

If you haven’t done so recently, now’s the time to review your organization’s endowment spending policy. Economic realities or developments within your nonprofit may have changed since your policy’s inception. Check with your CPA or investment professional to discuss changes to your policy to meet your needs.

The IRS "Dirty Dozen for 2026"

Wed, 25 Mar 2026 15:38:22 GMT

Each year, the IRS releases its "Dirty Dozen" list of common scams and schemes that taxpayers should be aware of.

The 2026 list includes:

IRS impersonation by email and text (phishing + smishing). Scammers send emails, direct messages (DMs), and texts that appear to be from the IRS, often using alarming language and QR codes that direct taxpayers to fake IRS websites to “verify” accounts, enter personal information, or claim refunds.
AI-enabled IRS impersonation by phone (robocalls, voice mimicry, spoofed called ID). Phone scams continue to evolve, including calls that use computer-generated tactics and spoofed caller ID to appear legitimate.
Fake charities. Fraudsters often exploit tragedies and disasters by creating fake charities to collect donations and personal information.
Misleading tax advice on social media. Viral “tax hacks” can push taxpayers to file returns with false information or claim credits they don’t qualify for, leading to refund delays, audits, penalties, or worse.
Identify theft involving IRS Online Account access. Criminals may attempt to use stolen personal information to gain unauthorized access to a taxpayer’s IRS online account or may pose as helpers to collect sensitive information during account setup.
Abusive undistributed long-term capital gain claims. The IRS identified an increase in the abuse of Form 2439. This form allows shareholders of certain investment funds or real estate trusts to claim a refundable credit for taxes paid on undistributed capital gains.
Bogus “Self-Employment Tax Credit” promotion. Scammers use misleading claims about a broad “self-employment tax credit” to encourage inaccurate filings and generate improper refunds.
Ghost preparers. A “ghost” preparer prepares a return but refuses to sign it and/or refuses to include a Preparer Tax Identification Number (PTIN).
Non-cash charitable contribution schemes. Some schemes involve inflated appraisals of donated property using syndicated conservation easements or art.
Overstated withholding schemes (fabricated wage/withholding data). Scammers encourage taxpayers to inflate withholding amounts (sometimes described as “other withholding”) to manufacture a larger refund by reporting zero or little income on incorrect forms.
Spear-phishing and malware campaigns targeting tax professionals. Tax professionals and businesses remain targets of “new client” or “document request” emails that deliver malicious links or attachments to steal client data or access systems.
Aggressive or misleading Offer in Compromise marketing (“OIC mills”). The Offer in Compromise program can help certain eligible taxpayers resolve tax debt when they are unable to pay in full, but “OIC mills” often overpromise results and charge high fees to taxpayers who don’t qualify.

The IRS emphasizes that taxpayers are legally responsible for what's on their tax returns and advises consulting with reputable tax professionals.

For more information visit the IRS News Release here.

Understanding Board-Designated Net Assets

Mon, 23 Mar 2026 17:28:51 GMT

Sometimes donors put restrictions on their donated funds, and in other instances, nonprofit boards place limits on certain assets. Board-designated net assets can prove critical to the survival of programs, projects — or even your organization itself. Let’s take a closer look.

What they are

The term “board-designated net assets” generally refers to funds that haven’t been restricted by donors but are subject to self-imposed limits on their use. They’re typically intended to ensure that funding is available when needed. Board-designated funds also can play a role in fundraising by demonstrating your organization’s commitment to a specific plan or program.

They may be designated for a special, one-off purpose or set aside on an as-needed basis for a specified period of time (for example, covering contingent liabilities that may or may not arise). Unlike net assets with donor restrictions, where only the original donor may remove the restrictions, designated funds can be undesignated at the discretion of your board of directors and therefore are considered to be unrestricted.

In most cases, funds are designated by a board, but, in some organizations, a board assigns this responsibility to management. Ideally, it’s assigned to specific positions (such as chief financial officer) that possess the requisite knowledge and judgment, rather than to specific individuals. In such circumstances, be sure to formally document these delegations. In addition, have your board regularly review actual designations made by management. And, of course, properly document every net asset designation.

When to disclose them

There are benefits to taking the time to properly document board designations. For example, the practice will make it easier to comply with financial reporting requirements in Financial Accounting Standards Board Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. ASU 2016-14 requires nonprofits that follow U.S. Generally Accepted Accounting Principles to disclose board-designated net assets and their purposes on their financial statements or in the notes to those statements.

Also bear in mind that designating net assets can affect the amounts in your liquidity and the availability disclosure. Designating a large chunk of cash for a capital project, for example, could reduce your liquidity.

How to manage them

Your organization should adopt formal policies and procedures related to managing board-designated net assets. For example, your policy should require your board to establish objectives for designated net assets. That might include providing an internal line of credit to better manage cash flow and allow financial flexibility. Other objectives could be related to funding future programs or projects, maintaining reserves, or funding an endowment.

Be sure your policy clearly delineates authority. Document whether it’s your board or management that can designate and undesignate funds, and under what circumstances exceptions are allowed.

Finally, describe procedures for monitoring designated net assets, including stating whether funds will be segregated. Procedures are necessary to track expenditures and comply with applicable reporting requirements as well.

Take a closer look

Board-designated net assets have their own obligations and responsibilities. If your organization is considering this option, consult with your CPA to help with the details.

MBK Recently Welcomed Four New Hires

Thu, 19 Mar 2026 13:13:31 GMT

Meyers Brothers Kalicka, P.C. Announces New Hires

Holyoke, MA — Meyers Brothers Kalicka, P.C. is proud to announce the following new hires:

Anthony Casabianca, Associate
Laurel Williams, Associate
Ashlie Baker, Senior Associate
Robert Knight, CPA, Manager

Tax-Saving Estate Plan Strategies

Tue, 17 Mar 2026 13:00:18 GMT

Consider a charitable remainder trust

If you’d like to benefit your favorite charities while creating an income stream for yourself or a loved one, consider incorporating a charitable remainder trust (CRT) into your estate plan. It can reduce the size of your taxable estate and provide a charitable income tax deduction.

What is a CRT?

A CRT is an irrevocable trust to which you contribute stock or other assets. The trust pays you (or your spouse or other beneficiaries) income for life or a term of up to 20 years, then distributes the remaining assets to one or more charities. When you fund the trust, the assets are removed from your taxable estate and you’re entitled to a charitable income tax deduction (subject to applicable limits) equal to the present value of the charitable beneficiaries’ remainder interest. (If you name someone other than yourself or your U.S. citizen spouse as the income beneficiary, there could be gift tax consequences.)

There are two types of CRTs, each with its own pros and cons:

Charitable remainder annuity trusts (CRATs). A CRAT pays out a fixed percentage of the trust’s initial value and doesn’t allow additional contributions once it’s funded.
Charitable remainder unitrust (CRUTs). A CRUT pays out a fixed percentage of the trust’s value recalculated annually, and allows additional contributions.

CRATs offer the advantage of uniform payouts, regardless of fluctuations in the trust’s value. CRUTs, on the other hand, allow payouts to fluctuate because they increase as the trust’s value increases. And, as noted, CRUTs allow you to make additional contributions. One potential disadvantage of a CRUT is that payouts shrink if the trust’s value declines.

Why can a CRT be a good tax strategy?

A CRT can help you diversify your portfolio in a tax-efficient way if you own non-income-producing assets that would generate a large capital gain if sold. Because a CRT is tax-exempt, it can sell the property without paying tax on the gain at the time of the sale. The CRT can then invest the proceeds in a variety of stocks and bonds.

If you’re the income beneficiary, you may owe capital gains tax when you receive the payments. But the payments will be spread over time, so much of the liability will be deferred. Plus, a portion of each payment may be considered tax-free return of principal. This may help you reduce or avoid exposure to the top 20% long-term capital gains tax rate or the 3.8% net investment income tax.

Keep in mind that, to ensure that a CRT is a legitimate charitable giving vehicle, IRS guidelines require that the present value of the charitable beneficiaries’ remainder interest be at least 10% of the trust assets’ value when contributed. The computation of the present value is affected by several factors, including the length of the trust term (or the beneficiaries’ ages, if payouts are made for life), the size of annual payouts and an IRS-prescribed Section 7520 rate.

Will it work for you?

If you’d like to incorporate charitable giving into your estate plan, a CRT could be a good move — especially if you can fund it with highly appreciated assets. But it’s important to consult with your estate planning advisor to help evaluate whether it’s a good fit for your situation.

What Could Happen if You Don't File Your Taxes?

Tue, 10 Mar 2026 10:00:01 GMT

Tax Tip:

If you're required to file a tax return but don’t, the IRS might step in and file one for you. That’s rarely in your favor. This is called a Substitute for Return (SFR). It usually means the IRS has received some income-related info about you, such as a W-2 from your job or a 1099-INT from your bank, and they’re using that to estimate your taxes.

Before filing an SFR, the IRS will generally try to contact you and encourage you to file the return yourself. But if you don’t respond or file by the extended due date, they might go ahead and prepare the return on your behalf. The catch? An SFR doesn’t include any deductions, credits or exemptions you might qualify for, which can lead to a much higher tax bill.

If you receive a Notice of Deficiency (CP3219N) with the above-mentioned proposed tax bill, don’t ignore it. Contact us with questions.

Manufacturers: Could You Use a Break?

Mon, 02 Mar 2026 13:30:04 GMT

The QPP deduction is a major new tax break for manufacturers

For manufacturers planning to build new facilities or expand their existing plants, last year’s One Big Beautiful Bill Act (OBBBA) introduced a powerful new tax incentive. Over the next several years, manufacturers may immediately expense the cost of constructing — or, in some cases, acquiring — qualified production property (QPP).

Unlike bonus depreciation — which allows you to expense the cost of equipment, machinery or certain interior improvements to commercial buildings typically depreciated over five to 15 years — the QPP deduction allows you to deduct up front the cost of real property that would otherwise be depreciable over 39 years.

Eligible property

QPP refers to the portion of nonresidential real property a company uses as an integral part of a U.S.-based qualified production activity (QPA). A QPA is an activity that substantially transforms raw materials (going beyond simple assembly) in the process of manufacturing, producing or refining a qualified product. Qualified products include any tangible personal property other than food or beverages prepared and sold at retail in the same building (for example, a restaurant).

Note that QPP does not include the portions of a manufacturer’s facility used for non-QPA functions. Excluded from QPP are offices used for administrative services as well as areas used for lodging, parking, sales, research, software development or engineering activities.

Requirements for expensing QPP

To claim the QPP deduction, a manufacturer must satisfy several requirements:

The original use of the property must commence with the taxpayer (except for certain acquired property). It’s important to note that the OBBBA specifies that property used by the taxpayer’s lessee is not “used by the taxpayer,” although some commentators believe that certain related-party leases or partnership arrangements will qualify.
Construction of the property must begin after January 19, 2025, and before January 1, 2029.
The QPP must be placed in service before January 1, 2031.

There’s one key exception to the original use requirement: A manufacturer may claim the QPP deduction for existing property it acquires after January 19, 2025, and before January 1, 2029, provided the property was not:

Used in a QPA by anyone from January 1, 2021, through May 12, 2025,
Used by the taxpayer at any time before it was acquired, and
Acquired from a related party.

Property acquired pursuant to a written binding contract executed before January 19, 2025, doesn’t qualify, even if the transaction is consummated between January 19, 2025, and January 1, 2029.

Be aware of recapture rules

To avoid tax surprises down the road, take note of the QPP deduction’s recapture provision. Under this provision, if a manufacturer claims the QPP deduction but stops using the property as a QPP within 10 years after placing it in service, a portion of the deduction is subject to recapture at ordinary income tax rates.

In addition, if QPP is sold or otherwise disposed of, the portion of the gain attributable to the QPP deduction will be recaptured and taxed as ordinary income. That’s because under the OBBBA, QPP is treated as Internal Revenue Code Section 1245 property. When such property is sold or otherwise disposed of, the gain is taxed as ordinary income to the extent of previous depreciation deductions and any gain beyond that amount is taxed as capital gain.

A long-term commitment

The purpose of the QPP deduction is to incentivize manufacturers to make long-term investments in production facilities. So, while the deduction offers remarkable tax benefits, manufacturers taking advantage of these benefits must be prepared to make a long-term commitment. If you think you may sell QPP or divert it to other activities within 10 years, be sure to incorporate potential recapture of the deduction into your planning.

New FAR Thresholds

Fri, 27 Feb 2026 21:12:13 GMT

Is your nonprofit in compliance?

If your nonprofit receives federal funding, you need to be aware of the latest adjustments to the Federal Acquisition Regulation’s (FAR) acquisition-related thresholds. FAR’s inflation adjustments, the latest of which became active on October 1, 2025, are required by law every five years. They provide nonprofits with an opportunity to review the procurement methods they use when purchasing property or services required for federally funded projects. Here’s what you need to know about the five thresholds.

1. Micro-purchases

The micro-purchase threshold (MPT) is available for acquisitions that don’t exceed a current threshold of $15,000. Organizations can award these purchases without soliciting competitive price or rate quotations if they consider a price reasonable based on research, experience, purchase history and other information. However, you should maintain documents to support your conclusions. To the extent practicable, award micro-purchases equitably among qualified suppliers.

In some circumstances, your nonprofit may be able to apply a higher MPT. But final approval will depend on the federal agency and the actual purchase amount.

2. Small purchases

For purchases greater than the MPT but less than that of the $350,000 simplified acquisition threshold (SAT), recipients must obtain price or rate quotes from an “adequate number” of sources. Your organization can generally exercise its judgment in determining what constitutes an adequate number.

You may opt for a lower SAT than that under FAR. Your nonprofit is responsible for determining an appropriate SAT based on internal controls, risk and your organization’s documented procurement procedures (see, “Items to include in your written procurement procedures” at x). Note that to take advantage of recent increases to the SAT and MPT, you must revise your procurement policies accordingly. Until you do so, acquisitions will remain subject to the previous thresholds.

3. Sealed bid

The sealed bid method for purchases that exceed the SAT is feasible when:

You have a complete, adequate and realistic specification or purchase description,
Two or more responsible bidders are willing and able to compete effectively for the business, and
Your procurement is suitable for a fixed-price contract, and you can select the winning bidder based primarily on price.

Your nonprofit must publicly solicit these bids. You must also award a fixed-price contract (lump sum or unit price) to the vendor whose bid is the lowest and that satisfies all material terms and conditions. Additional requirements apply, and you must document a justification for all bids you reject. This method is usually preferred for construction contracts.

4. Proposal

Proposals are also applicable to purchases that exceed the SAT and are used when sealed bids aren’t appropriate. They can result in either fixed-price or cost-reimbursement contracts.

Requests for proposals require public notice. They must identify all evaluation factors and their relative importance, and your organization must have written procedures for evaluation and selection. You must solicit proposals from multiple qualified entities and, as much as practicable, consider all submitted proposals. Award contracts to the entity that proposes the best price and other advantageous factors.

5. Noncompetitive

Your nonprofit can employ noncompetitive procurement methods if the:

Total amount of the transaction doesn’t exceed the MPT,
Transaction can be fulfilled only by a single source,
Procurement represents a public exigency or emergency that can’t wait for the process of soliciting competitive proposals, or
Noncompetitive method is requested in writing and the respective agency or pass-through entity provides written approval.

Noncompetitive methods are also permitted if, after soliciting multiple sources, you decide that competition is inadequate.

Don’t risk it

Noncompliance with federally mandated procurement methods can prove costly. Potential penalties range from temporary withholding of payments and disallowed payments to suspension or termination of the award and withholding of new awards or continuation funding. If you have questions about the proper method to use — or how to apply it — we can help.

Sidebar: Items to include in your written procurement procedures

Required procurement methods aren’t the only purchasing-related mandate imposed on federal funding recipients. Among other things, your nonprofit also must adhere to documented procurement procedures that are consistent with your state, local and tribal laws and regulations, as well as additional standards.

Your procedures must include:

Oversight of contractors to ensure they perform according to their contract or purchase order,
Written conflict-of-interest standards,
How to avoid unnecessary or duplicative items,
When appropriate, instructions on “strategic sourcing” of common or shared goods and services (for example, using procurement agreements with other entities),
When feasible and cost-efficient, the use of excess and surplus federal property, and
How to use “value engineering” with construction contracts to analyze items or tasks to ensure their essential function is provided at the lowest cost.

Finally, your organization needs to maintain records detailing the history of each procurement transaction. These include your rationale for choosing the procurement method, contract type and contractor (or rejection of a contractor), and the basis for the contract price.

Tax Planning for Investors: Know Your Basis and Holding Period

Fri, 27 Feb 2026 18:23:27 GMT

In theory, when you sell stocks or mutual fund shares, calculating your gain or loss for tax purposes is simple: It’s the difference between the sale price and your cost basis. In practice, however, it can get complicated. That’s because many people buy multiple shares of the same investments over time at different prices — for example, through an automatic dividend reinvestment plan or a dollar cost averaging strategy.

Complicating things further, the tax implications of a sale depend on how long you’ve held an investment. Securities held for more than one year generate long-term capital gains, taxed at 0%, 15% or 20%, depending on your tax bracket. Gains on securities held for one year or less are taxed at ordinary income tax rates as high as 37%.

What are the tax implications?

Suppose Steve buys 1,000 shares of a company for $10 per share ($10,000 total) in January 2021, buys another 1,000 shares in January 2025 for $25 per share ($25,000 total) and another 500 shares in January 2026 for $28 per share ($14,000 total).

In July 2026, he sells 500 shares for $36 per share ($18,000 total). For purposes of this example, assume that Steve paid no commissions or fees on his purchases and that he’s in the 32% tax bracket (with a 15% long-term capital gain rate).

Steve’s basis in the shares, and therefore the amount of taxable capital gain, depends on which shares are being sold. For example:

If Steve sells 500 shares from the block purchased in January 2021, his basis is $5,000 (500 x $10) and his capital gain is $13,000 ($18,000 – $5,000), resulting in a tax of $1,950 (15% x $13,000).
If Steve sells 500 shares from the block purchased in January 2025, his basis is $12,500 (500 x $25) and his capital gain is $5,500 ($18,000 – $12,500), so the tax is $825 (15% x $5,500).
If Steve sells 500 shares from the block purchased in January 2026, his basis is $14,000 (500 x $28) and his capital gain is $4,000 ($18,000 – $14,000). In this scenario, however, Steve’s capital gain is short-term, which is subject to his ordinary income tax rate. So, the tax is $1,280 (32% x 4,000).

In this example, selling shares purchased in January 2025 results in the lowest tax bill. (Note: This example doesn’t consider the net investment income tax or any potential state tax.)

How do you determine your basis?

Your cost basis in a stock or mutual fund is what you paid for it, including commissions, “loads” and other fees. It may be adjusted over time to reflect events that affect basis, such as mergers, stock splits or wash sales.

If you buy shares of the same investment at different prices, the method of determining your basis when you sell has a big impact on your tax bill. For stocks, the IRS recognizes two methods:

First-in first-out (FIFO). FIFO assumes the first shares purchased are the first sold. It offers simplicity, but if share values rise over time, as in our example, it results in the largest tax bill because the older shares have a lower basis.
Specific identification. Under this method, you specify which shares are sold. It requires meticulous recordkeeping, but it gives you the greatest flexibility to time the realization of gains and losses to achieve the best tax result.

For mutual funds, there’s a third option: average cost, which is the total cost of all your shares divided by the total number of shares. Typically, this method results in a tax that falls between FIFO and specific identification.

The average cost method can simplify the basis calculation and help distribute your tax liability evenly over time. Keep in mind, however, that once you use this method, your basis in all existing shares is locked in.

What’s the right method for you?

Most brokers apply FIFO by default unless you instruct them otherwise. FIFO often results in higher tax bills up front. If tax deferral is your goal, specific identification provides the greatest control over the tax consequences. When determining which shares to sell, keep in mind that selling the highest-cost shares minimizes gains, but if you acquired them within the last year, those gains will be short-term capital gains. To decide which shares to sell, you’ll typically need to weigh the impact of smaller gains taxed at a higher rate against larger gains taxed at a lower rate.

It’s also important to consider your tax circumstances. Often, the best strategy is to minimize taxable capital gains, but in some situations, you may want to do the opposite. For example, if you’re looking to harvest capital gains to offset capital losses realized during the year, you’re better off selling the lowest-basis shares first. Your tax advisor can help determine the optimal approach for your circumstances.

Sidebar: Customized basis approaches

While the specific identification method offers the greatest control over the timing of gains and losses, it involves a bit of legwork. To simplify things, many brokers offer customized approaches, which essentially are standing orders under the specific identification method. Examples include last-in, first-out (LIFO), highest-cost, first-out, or an approach that relies on an algorithm to optimize share selection based on cost basis and holding period. Even if you choose one of these approaches, it’s a good idea to review each potential sale to ensure it achieves your tax objectives.

Renting to Family and Friends: Handle with Care

Tue, 17 Feb 2026 14:39:50 GMT

Tax Tip:

Ordinarily, you can deduct the expenses of owning and operating a rental property. You may even be able to claim a loss if those expenses exceed your rental income (subject to certain limitations).

However, suppose you rent a property to a family member or friend for less than fair market rent. In that case, the IRS will consider the property a personal residence rather than a rental one. As a result, you’ll still have to report the rental income on your tax return, but you’ll lose many of the deductions associated with rental properties. On the bright side, depending on the circumstances, you may still be able to deduct some or all of your mortgage interest and property taxes.

Meyers Brothers Kalicka, P.C. Announces 2026 Promotions

Thu, 05 Feb 2026 19:06:57 GMT

Meyers Brothers Kalicka, P.C. is proud to announce the following promotions:

Elise Puza, Manager
Lauren Foley, Supervisor
Joanne Haley, Supervisor
Keara King, Supervisor
Karen Korpinen, Supervisor
Mia McDonald, Supervisor
Lyudmila Renkas, Supervisor
Jacob Bear, Senior Associate
Taylor Sawicki, Senior Associate
Justin Szwajkowski, Senior Associate

Elise Puza, CPA, Manager

Lauren Foley, Supervisor

Joanne Haley, Supervisor

Keara King, Supervisor

Karen Korpinen, CPA, Supervisor

Mia McDonald, CPA, Supervisor

Lyudmila Renkas, Supervisor

Jacob Bear, Senior Associate

Taylor Sawicki, Senior Associate

Justin Szwajkowski , Senior Associate

Are You Ready to File Your 2025 Taxes?

Thu, 05 Feb 2026 17:03:47 GMT

January 26 was the official beginning to tax season. It is time to focus on closing out the 2025 tax year and filing returns.

2025 was a big year for tax law changes. Most notably, in July 2025, the federal One Big Beautiful Bill Act (OB3) was enacted. Several of its provisions impact your 2025 tax reporting. Additionally, states have struggled with whether and how to adopt OB3 changes. Guidance from the IRS and the states has been slow in coming and there remains some uncertainty. This tax season promises to be an exciting one, but we’ll all do our best and get through it.

What’s new on your 2025 tax return?

In addition to higher standard deductions (increased annually), there are several new items to be aware of, including new deductions. Note that most of the deductions noted are limited or phased out for higher income taxpayers, so make sure ask your tax adviser about whether you may take them. They include:

Personal deduction for seniors: New $6,000 single / $12,000 MFJ deduction for individuals born before January 2, 1961.
Higher state and local tax (SALT) deduction: For those itemizing deductions, the SALT deduction cap has been raised to $40,000 (up from $10,000).
Car loan interest deduction: If you purchased a new car that was produced in the U.S. in 2025, you may be eligible to deduct up to $10,000 of car loan interest.
Tax deductions for tips: If you work in an industry where tipping is common, you may deduct up to $25,000 of your tip income. This deduction phases out for higher income taxpayers.
Tax deduction for overtime: If you earn overtime, you may be eligible to deduct up to $12,500 of eligible overtime pay.
Charitable contribution deduction: For itemized returns, the annual charitable deduction limit for monetary donations is equal to 60% of your adjusted gross income (AGI) for 2025.
Higher child tax credit: OB3 raised the maximum child credit to $2,200 (up from $2,000).
Expiration of clean vehicle tax credits: The credit for purchasing a new EV or FCV vehicle is not available for vehicles purchased after September 30, 2025.
Cryptocurrency: Crypto transactions on any centralized crypto exchange like Coinbase will be reported to the IRS and to you. So, if you sold or exchanged your crypto holdings on such a platform in 2025, you should expect a 1099-DA to be sent to you by mid-February. Speak with a trusted tax preparer to make sure your investments are accounted for properly on your return.

For additional information, please take a look at these MBK articles: Individual Tax Planning 2025 and Business Tax Planning 2025 .

Preparing your return

Will you be preparing your return yourself, or will you hire someone to file on your behalf? Have a plan in place now, so you know what required information you need to have at hand, and what you expect to pay for completion of all needed forms. If you will be using a new tax preparer, they will ask for a copy of your prior year return in addition to all relevant documents for your 2025 tax filing.

The IRS also offers a Free File program if your income is below $84,000. Go to IRS.gov or see the IRS2Go app to see your options. You may also qualify for local tax assistance through programs like Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE).

Other considerations

Use your resources

The Interactive Tax Assist (ITA) is an IRS online tool (https://www.irs.gov/help/ita) to help you get answers to several tax law items. ITA can help you determine what income is taxable, which deductions are allowed, filing status, who can be claimed as a dependent, and available tax credits. You can also visit MBK 2025 Tax Filing to find more resources for assistance with your 2025 tax filing including blogs on the latest changes and links to useful IRS and state resources.

Be vigilant

Be especially careful during this time of year to protect yourself against those trying to defraud or scam you. The IRS will NEVER call you directly unless you are already in litigation with them. They will not initiate contact by email, text, or social media. The IRS will contact you by US mail. However, you still need to be wary of items received by mail. Anything requesting your social security number, or any credit card information is a dead giveaway for scam identification. Watch out for websites and social media attempts that request money or personal information. You can check the IRS.gov website to research any notice you receive or any concerns you may have. You can also contact your tax practitioner for assistance.

What if you have been compromised?

How do you know if someone has filed a return with your information? The most common way is your tax return will get rejected for e-file. These scammers file early. You may also get a letter from the IRS requesting you verify certain information. If this does happen, there are steps to take to get this rectified:

Contact IRS Identity Protection Specialized Unit (800-908-4490)
File Form 14039 Identity Theft Affidavit
Paper file your return

In addition, we recommend you take further steps with agencies outside the IRS:

Report incidents of identity theft to the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.
File a report with the local police.
Contact the fraud departments of the three major credit bureaus:
Equifax – www.equifax.com , 800-525-6285
Experian – www.experian.com , 888-397-3742
TransUnion – www.transunion.com , 800-680-7289
Close any accounts that have been tampered with or opened fraudulently.

Identity Protection PIN (IP PIN)

If you are a confirmed identity theft victim, the IRS will mail you a notice with your IP PIN each year. You need this number to electronically file your tax return.

You may also opt into the IP PIN program. Use this link https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin to set up your IP PIN. An IP PIN helps prevent someone else from filing a fraudulent tax return using your social security number.

Getting your paperwork in order

Get your paperwork in order early to ease the stress of tax season. Below is a list of the most common required forms and items to gather, as well as few other things for you to consider as you prepare to file your 2025 tax return. Please note that this list is not exhaustive because everyone's tax situation is different.

Make a note of changes to your life

It is important to review and organize any and all significant life events that happened in the past year as they may affect your tax return. Significant life events can include changes in marital status, welcoming a new child, a dependent filing their own tax return for 2025 tax year, or, in the unfortunate circumstances, the loss of a spouse or a dependent. Having records of this information can help ensure your return is accurate.

Documentation of income:

W-2 - Wages, Salaries and Tips
W-2G – Gambling Winnings
1099-Int & 1099-OID – Interest income statements
1099-DIV – Dividend income statements
1099-B – Capital Gains – sales of stock, land, and other items
1099-G – Certain Government Payments
Statement of State Tax Refunds
Unemployment Benefits
1099-Misc – Miscellaneous Income
1099-NEC – Independent contractor income
1099-S – Sale of Real Estate (home)
1099-R – Retirement Income
1099-SSA – Social Security income
K-1 – Income from Partnerships, Trusts and S-Corporations

Documentation for deductions:

If you think all your deductions for Schedule A will not add up to more than $15,750 for single, $23,625 for head of household or $31,500 for married filing jointly, save your time and plan to take the standard deduction.

Itemized Deductions:

Medical expenses - out of pocket (limited to 7.5% of Adjusted Gross Income)
Medical insurance (paid with post-tax dollars)
Long term care insurance
Prescription medicine and drugs
Hospital expenses
Long-term care expenses (in-home nurse, nursing home etc.)
Doctors and dentist payments
Eyeglasses and contacts
Miles traveled for medical purposes
State and Local taxes you paid
State withholding from your W-2
Real estate taxes paid
Estimated state tax payments and amount paid with prior year return
Personal property (excise)
Interest you Paid
1098-Misc – Mortgage Interest Statement
Interest paid to private party for home purchase
Qualified investment interest
Points paid on purchase of principal residence
Points paid to refinance (amortized over life of loan)
Mortgage insurance premiums
New car loan interest
Gifts to Charity
Cash and check receipts from qualified organization
Non-cash items need a summary list and responsible gift calculation (IRS tables). If the gift is valued more than $5,000 a written appraisal is required.
Donation and acknowledgement letters (over $250)
Gifts of stocks – you need the market value on the date of gift

Additional adjustments:

1098-T – Tuition Statement
Educator expenses (Up to $300)
1098-E - Student Loan Interest Deduction
5498 HSA – Health Savings Account contributions
1099-SA - Distributions from HSA
Qualified Child and Dependent Care Expenses
Verify any estimated tax payments (does not include taxes withheld)

Sole proprietors (Schedule C) or owners of rental real estate (Schedule E, Part I) need to compile all income and expenses for the year. You need to retain adequate documentation to substantiate the amounts that are reported.

Items to keep on your radar

Submitting documents via United States Postal Service (USPS):

If you are planning to mail your documents, be aware of the latest post office change effective 12/24/25.

The new rule effects the postmark date system, published in the 11/24/25 Federal Register , explains that a machine-applied postmark indicates the date of the "first automated processing operation" at a processing facility, which may be later than the date the mail was dropped off.

What could this mean? May be problematic for tax filings, because if received after the due date, the document won't be considered timely filed or the payment timely made unless the postmark bears a date on or before the due date (IRC Sec. 7502).

Tips on how to avoid a late filing or payment:

If working with a tax preparer, send your documents in sooner rather than later to avoid the need to go on extension or any fees/penalties.
Request a manual postmark by presenting the envelope at a USPS retail counter. The postage validation imprint applied to the envelope when a customer pays for postage will also show the correct USPS acceptance date.
Senders may also use Registered or Certified Mail to obtain a receipt as evidence of the mailing date.

The End to Paper Checks:

On March 25, 2025, President Trump signed Executive Order 14247 in an effort to modernize "Payments To and From America's Bank Accounts", which will require all payments and collections related to Federal agencies to be fully electronic. Read more on this topic here: Phase Out of Paper Checks .

File timely and with confidence

Make this tax season go smoothly by getting your paperwork organized early and alerting your tax preparer to any changes to your life or financial situation. The sooner you file, the sooner you can focus on a great outlook for 2026.

The Phase Out of Paper Checks - An Electronic Future

Sat, 31 Jan 2026 16:08:05 GMT

Updated note as of 1/30/2026*

The IRS recently issued clarification and answered common questions regarding the transition to electronic payments. We wanted to update everyone that the below article still has the most accurate information and is up to date with clarifications the IRS has made. The Treasury is still requiring most disbursements to be made electronically with limited exceptions and if taxpayers do not provide proper banking information, refunds will be delayed. The order also still applies to payments made to the IRS and taxpayers should prepare accordingly. For the upcoming filing season, checks and money orders will still be accepted as a temporary solution for payments made to the IRS, but this option will be permanently removed in most circumstances in the near future.

The IRS update can be found at the below link, and our office is continuing to monitor further changes and updates and we will keep you informed with any new developments.

https://www.irs.gov/pub/taxpros/fs-2026-02.pdf

Why now?

The mandate is a part of the current administration’s effort to reduce government spending and increase government efficiency. The Order notes that the cost to maintain the physical infrastructure and technology required to issue and receive paper checks was over $657 million in 2024. In addition, the Order sites security concerns as another reason to eliminate paper checks.

What does this mean for you?

Effective as of September 30, 2025, the Treasury will now require most Federal disbursements, including IRS tax refunds to be made electronically (through direct deposit, debit/credit cards, digital wallets, or real-time payment systems). The Order will impact all Federal disbursements, affecting millions of Americans in the coming year. In addition to tax related items, major areas affected by the Order include Social Security and, Veterans' Benefits.

With the September 30, 2025 deadline behind us and the IRS not providing tax payers with clear instruction on how the Executive Order would go into effect in a reasonable time period, the IRS has attempted to simplify the implementation by clarifying that all taxpayers should continue to use existing procedures for filing their 2024 tax returns. This means that if you still need to file your 2024 tax return, or are expecting to receive additional Federal disbursements and you do not have access to switch to receiving these items electronically, the IRS will still be issuing checks for the time being. However, this is a temporary solution, as detailed guidance for the upcoming filing 2025 tax returns and the full switch to electronic refunds are expected in the coming months.

Tax Payments: How you can prepare

The executive order also applies to payments made to the Federal Government such as estimated tax payments and balances due. The IRS clarified that for now, taxpayers should continue to use existing payment options such as checks or money orders to the Federal Government. As the IRS moves towards requiring electronic payments to the Government for tax payments, additional guidance will be released before the upcoming filing season.

The IRS has a Direct Pay option, allowing you to pay estimated payments or balances due directly from your bank account to the IRS, with no check required. If you have not already set up a direct payment option with your accountant, you can sign up for the IRS Direct Pay program on the IRS website at www.irs.gov/payments .

Already set up? Verify your bank account information that is one file. If you work with an accountant to prepare your taxes annually or to pay quarterly estimates, it is a good idea to get in contact with them to ensure you are prepared for the transition.

Tax Refunds: How you can prepare

Taxpayers currently receiving refunds by paper checks must be ready to electronically receive future refunds. This is done by designating bank account information on filed tax forms directing the IRS where to directly deposit a refund.

Are there any exceptions to the Order?

The Order specifies some situations in which the Federal government will continue to allow paper checks to be issued in the future. Most notably, those who are without access to a bank account, or in certain emergency situations, may be exempt from the Order. Prepaid debit cards and digital wallets offer alternatives for those without traditional bank accounts.

There is expected to be additional guidance issued by the Treasury in the coming months in regards to this Executive Order. We are watching this issue closely and will keep you informed of any new developments.

Need additional help?

Contact our office today with any questions via email at reception@mbkcpa.com or by phone at 413-536-8510.

A Buy-Sell Agreement has Estate Benefits

Mon, 12 Jan 2026 20:37:56 GMT

Tax Tip:

In many cases, a large portion of a small business owner’s estate consists of the individual’s ownership share in the company. If the business doesn’t have a buy-sell agreement in place, heirs may face significant challenges when the owner dies. They may be forced to sell the business interest to pay estate taxes. In a limited market, that could mean selling at a steep discount. Heirs who opt to retain the business interest must obtain a qualified valuation for tax purposes, which the IRS may challenge. This brings the risk of penalties and higher taxes.

A carefully drafted buy-sell agreement resolves these issues by guaranteeing a sale under pre-approved terms, ensuring liquidity to cover estate taxes. It also establishes the business’s fair market value for federal estate tax purposes, which minimizes IRS disputes. In short, a buy-sell agreement protects the business owner’s estate, simplifies tax compliance and provides heirs with financial security.

Add "Tax Reporting" to Your Special Event's To-do List

Wed, 07 Jan 2026 13:31:00 GMT

Special events, such as galas, conventions and sports tournaments, require an enormous amount of planning. So you’d be forgiven if you pushed “tax compliance” to the bottom of your to-do list. However, tax reporting for nonprofit events may differ from and be more complex than what you’re accustomed to with other activities. So the sooner you start thinking about it, the better.

Reporting requirements

If your organization adheres to Generally Accepted Accounting Principles (GAAP), you typically report revenue and expenses related to special events on your financial statements as net special event revenue. For tax purposes, though, your organization may need to report some of the event ticket revenue as contributions on your IRS Form 990. For example, if attendees pay more for a ticket to a dinner than the dinner’s fair market value (FMV), the excess would be a contribution.

You also must report other special event data on Form 990 if you have more than $15,000 in fundraising event gross income and contributions. Complete Schedule G, “Supplemental Information Regarding Fundraising or Gaming Activities.” It requires your organization to report amounts for individual events that grossed over $5,000. Besides revenue amounts, you’ll need to report these expenses:

Cash prizes,

Noncash prizes,

Facilities rental,

Food and beverages,

Entertainment, and

All other direct costs.

If your event includes gaming, you’ll need to answer a series of multipart questions. You’ll also need to allocate income and expenses between the gaming and fundraising events.

Goods and in-kind donations

Nonprofits often rely on donated services or facilities, as well as the work of volunteers. Although GAAP generally requires nonprofits to record these types of in-kind contributions and, in some cases, the value of volunteer time, the IRS doesn’t include them in contributions or expenses.

Say a local hayride vendor donates $2,000 of his time and use of his truck to your autumn harvest festival. You must report a donation of $2,000 in services on your financial statement, with a corresponding in-kind expense. But you won’t report the amount in contributions or expenditures for tax purposes.

Goods donated for an event, on the other hand, receive similar treatment on financial statements and tax returns. They’re reported as contribution revenue and, when the donations are used, as expenses. For example, if a vendor donates balls and gloves for a softball tournament, the donation is a contribution. When the items are used at the event, they’re an expense.

Role of FMV

Donors may not be aware of tax rules for participating in a special event, particularly if they’re accustomed to deducting the full amount of cash donations. Help them understand that deductible contributions are reduced by the FMV of the benefit they receive (for example, the meal, entertainment, round of golf or souvenir t-shirt).

You should provide donors with a written statement listing their payment amount and the FMV of goods and services received. If their payments are more than $75, tell them to deduct only the excess of their payment over the FMV. Note that it’s the initial payment amount that triggers the obligation, not the amount of the deductible portion. Also recognize that failure to make this disclosure can result in a penalty of $10 per contribution, up to a maximum of $5,000 per fundraising event.

Careful recordkeeping

As with other kinds of financial reporting, good recordkeeping is essential to accurately reporting special events. Track revenues, expenses and related documentation throughout the planning stage, and ensure that data is easily accessible in one place after your big event. Contact us about special circumstances, such as the additional reporting implications of gaming activities or if you think your event has potentially produced taxable unrelated business income.

2025 Federal Information Return Reporting Considerations

Mon, 05 Jan 2026 19:17:36 GMT

General Federal Year-end Information Return Filing Requirements for Forms W-2, W-3, and 1099 (INT, NEC & MISC)

Electronic filing is required if at least 10 of the following forms, combined, are required to be filed: W-2, 1094, 1095-B, 1095-C, 1097-BTC, 1098, 1098-C, 1098-E, 1098-Q, 1098T, 1099, 3921, 3922, 5498, 9027, W02G and 499R-2/W-2PR.
In some cases, electronic filing is given more time to file with the IRS than paper filing.
Filing and due date information is set forth in IRS Publication 509 , Tax Calendars for use in 2026 ( https://www.irs.gov/pub/irs-pdf/p509.pdf ). See also IRS Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G, which sets forth electronic filing format specifications.
Typically, due dates fall at the end of a month. However, if a due date is a weekend day or holiday, the next business day becomes the due date. Also, Congress or the President may specify a different due date, e.g., if there is an emergency. In 2026:
1/31/2026 is a Saturday, making 2/2/2026 the next business day, and
2/28/2026 is a Saturday, making 3/2/2026 the next business day.
Currently, information reporting due dates for 2026 are:

Special Issue - Tips & Overtime

Federal: The One Big Beautiful Bill Act (OBBBA) enacted in July 2025, allows certain employees to deduct tips and overtime compensation. One area of uncertainty, affecting both employers and employees, regards 2025 payroll reporting for tips and overtime.

Under the OBBBA, from 2025 to 2028, certain employees who receive qualified:

tips may deduct up to $25,000 of those tips, and/or
overtime pay may deduct up to $12,500 of qualified overtime compensation ($25,000 for joint filers).

To enable employees to report their deduction, the OBBBA requires employers to provide separate accounting of the total amount of cash tips and overtime. Employers failing to comply with these reporting requirements may be subject to penalties.

Although the IRS has released a draft version of Form W-2 for 2026 reflecting OBBBA changes, the 2025 version of the form will not be updated, creating a challenge for employer reporting compliance. As a result, for tax year 2025, the IRS announced in that employers will not face penalties for failing to provide required tip and overtime accounting to employees (Notice 2025-62). This relief only applies to tax year 2025 because the IRS recognizes that employers might not have the information required to be reported.

For 2025, the IRS encourages employers to provide some accounting so employees can claim the deduction on their federal tax returns. The IRS has stated that employers may report the amounts of qualified tips and overtime to employees through secure methods, including an online portal or additional written statements provided to employees. When reporting these amounts, employers should not stop at the maximum of $25,000 (tips) or $12,500 (overtime). The full amounts of qualified tips and overtime should be reported. It is up to employees to determine the maximum deductible amount when preparing their federal income tax returns.

With little authoritative guidance and difficulty getting full information from existing systems and payroll providers, employers must do their best in providing employees with this information. Employers could, for example, provide the information by separate letter or use W-2 Box 14 (Other). For the most current guidance (updated as issued), go to: https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions and click on “No tax on tips (Section 70201)” and “No tax on overtime (Section 70202).”

MA, CT, ME, RI, VT, NY: These states do not allow employees to deduct tips or overtime; thus, this reporting issue does not impact NE and NY payroll reporting.

Highlights of the Revised Uniform Guidance

Mon, 05 Jan 2026 16:13:55 GMT

Federal agencies were required to adopt the U.S. Office of Management and Budget’s (OMB) latest revised Uniform Guidance (UG) by October 1, 2024. It affects organizations with a fiscal year ending September 30, 2025, and later. The revisions are being welcomed by many nonprofit organizations because the changes aim to help reduce the burden on recipients and subrecipients of federal grants and other financial assistance. Read on to learn about some of the ways OMB is trying to make life easier for nonprofits.

Raise the Thresholds

The revised UG increases several important thresholds, such as the threshold for determining if your organization is subject to a single audit of its financial statements and programmatic compliance. The audit requirement now applies only to nonprofits that spend at least $1 million in federal financial assistance in the fiscal year, up from a previous $750,000.

It also amends the Type A/B threshold for entities with total federal expenditures of $34 million or less (an increase from $25 million). For these organizations, the threshold to determine if a program is Type A for purposes of the single audit major program determination rose to $1 million from $750,000. The threshold for Type B programs requiring risk assessment increased to $250,000. Additional changes have been made to the thresholds for organizations with total annual federal expenditures exceeding $34 million.

The thresholds for equipment and unused supplies doubled to $10,000. As a result, you can expense equipment purchased for less than $10,000 — rather than capitalizing it over time — and keep, sell or otherwise dispose of it with no further responsibility to the federal agency. In addition, if unused supplies exceed $10,000 in total aggregate value at the termination or completion of a project or programs (and the supplies aren’t needed for another federal award), you must retain them to use on other activities — or sell them. Either way, you’re required to compensate the federal government for its share.

Increase the De Minimis Cost Rate

The de minimis indirect cost rate has increased from 10% to 15% of Modified Total Direct Costs (MTDC). You may apply for lower rates if desired, but you can’t be required to apply for lower rates, unless mandated by statute. The revised UG makes clear, too, that pass-through entities must accept federally negotiated indirect cost rates for subrecipients. This means that if your nonprofit has negotiated rates with one federal agency, it will receive the same cost rate from all other federal, state and local agencies.

Note, though, that the revised UG changes the exclusion amount for subaward costs in the MTDC computation. It jumps from $25,000 to $50,000. OMB has also indicated that it might permit recipients and subrecipients to use direct labor as the base for the de minimis rate (instead of the MTDC) at some point in the future.

Encourage Community Engagement

The UG includes several changes that recognize that the communities most in need of assistance often have trouble navigating the complex process of grant application. For example, it eliminates the requirement to use English in notices, applications and reporting. The revised UG also requires federal agencies to improve the official descriptions of their programs (referred to as “Assistance Listings”) in the Federal Program Inventory, a new searchable website with information on the spending associated with all federal assistance programs.

Further, it instructs federal agencies to simplify their Notices of Funding Opportunities. For example, agencies must now provide basic information at the top of a grant announcement and use plain language, not jargon, when describing program requirements.

Leverage Opportunities

Although many of the UG’s changes are favorable for nonprofits, the changes may require some adjustments to policies within your organization. We can help you understand the changes and advise on ensuring compliance.

Time to Review Compensation? Keep Excess Benefit Transactions in Mind

Mon, 05 Jan 2026 16:02:27 GMT

In a tight job market, where nonprofit organizations are competing with for-profit businesses for talent, you may find it necessary to raise your compensation. If so, keep in mind the potential tax penalties that can result if the IRS deems your compensation more than reasonable. Here are some answers to common questions on the topic.

Who’s Involved?

Excess benefit transaction (EBT) rules generally apply to “covered organizations,” meaning 501(c)(3) and 501(c)(4) organizations. They don’t, however, apply to private foundations. The rules also involve “disqualified persons,” including:

Individuals in a position to exercise substantial influence over your organization’s affairs,

Family members of disqualified individuals,

Entities in which disqualified individuals have a 35% or greater stake,

Individuals able to substantially influence a Section 509(a)(3) supporting organization, and

Donors and donor advisors involved in transactions with donor-advised funds (DAFs).

Family members generally include a disqualified person’s parents, siblings and their spouses, children and their spouses, and grandchildren and their spouses. Under proposed regulations, the definition of “donor-advisor” would include personal investment advisors who manage the investment or provide investment advice related to both the DAF assets and the donor’s personal assets.

What’s an EBT?

Generally, an EBT is a transaction with two components:

1. A covered organization must directly or indirectly provide an economic benefit to a “disqualified person,” and

2. The value of the benefit must exceed the value of the consideration the nonprofit received in exchange from the disqualified person.

The IRS examines all consideration and benefits exchanged.

What are the Potential Tax Risks?

Although revocation of your tax-exempt status technically is possible, in practice, the sole penalty is “intermediate sanctions,” also known as an excise tax. Disqualified individuals who engage in EBTs face an excise tax of 25% of the excess benefit received. They should make a timely correction to the transaction by, for example, returning the excess benefit. If they don’t, the IRS will impose an additional excise tax of 200% of the excess benefit.

Notably, your nonprofit’s managers also are at risk of a financial penalty. A manager found to have knowingly participated in an EBT might end up on the hook for a 10% tax on the excess benefit up to $20,000, to be paid by the individual.

How Can You Reduce Threats?

The tax regulations provide nonprofits a safeguard known as the “rebuttable presumption of reasonableness.” The compensation you pay disqualified persons is presumed to be reasonable if you satisfy three requirements:

1. Advanced approval from an authorized body . The compensation arrangement should be approved by your board of directors or a

board committee composed entirely of individuals who don’t have conflicts of interest.

2. Comparability . The authorized body must obtain and rely on appropriate data on the comparability of the compensation before

making its determination. Appropriate data includes compensation paid by similar organizations for comparable positions, the

availability of similar services in your geographic area and current compensation surveys compiled by independent firms.

3. Documentation . The authorized body needs to adequately — and concurrently — document the basis for its determination.

Documentation must note the transaction’s terms and the date it’s approved; the members of the authorized body present for debate

of the transaction and who voted on it; and any actions taken by a member who has a conflict of interest.

The documentation also must include comparability data and how it was obtained. This can be difficult to come up with — but smaller organizations are in luck. Authorized bodies of nonprofits with annual gross receipts of less than $1 million can fulfill the requirement if they have data on compensation paid for similar services by three comparable organizations in the same or similar communities for similar services.

Protect Your Organization

Rising salaries are a fact of life for many organizations. To avoid penalties, take the time to get reasonable-compensation reviews for your highest-paid employees. We can help you through the review process.

Sidebar: Who Wields Substantial Influence?

Board members and executives usually have “substantial influence” over their nonprofits for excess benefit transaction purposes. But less obvious are other individuals who can also have such influence. The IRS considers several factors that indicate whether someone has substantial influence over an organization’s affairs, including if the person:

Founded the organization,

Is a substantial contributor in the current and four previous tax years

Is compensated based primarily on revenue derived from the nonprofit’s activities or a department or function they control,

Has authority to control or determine a substantial portion of the nonprofit’s capital expenditures, operating budget or employee compensation,

Manages a discrete segment of the organization that represents a substantial portion of its activities, assets, income or expenses,

Owns a controlling interest (by vote or value) in an entity that’s a disqualified person, or

Is a non-stock organization controlled directly or indirectly by one or more disqualified persons.

By contrast, contractors (such as attorneys, CPAs or investment advisors), whose only relationship to the organization is providing professional advice on transactions from which they won’t economically benefit (other than customary fees), generally don’t have substantial influence.

MBK's Year-end Tax Update Hybrid Roundtable

Tue, 23 Dec 2025 20:33:31 GMT

On December 12 ^th MBK Senior Manager Mary Walsh and Tax Supervisors Olivia Calcasola and Elise Puza presented a special hybrid roundtable discussion with individuals and business leaders.

Team MBK provided insights on year-end tax planning strategies and items to consider for the future. Collaboratively, the speakers covered topics impacting individuals, trusts and estates, businesses, and non-profits, while highlighting key immediate and future considerations related to the One Big Beautiful Bill Act (went into effect July 2025). The presentation portion of the roundtable concluded with a snapshot of what is happening at a state and local level.

After the presentation wrapped up, there was an opportunity for attendees to ask questions, which led into further discussions on challenges and solutions.

The presentation/discussion-style format of the roundtable made this event impactful because it gave individuals and business leaders an opportunity to discuss ideas related to specific areas of the business. To learn more about MBK's roundtables, sign up here for the event newsletters.

MBK Adopted Two Families this Holiday Season

Fri, 19 Dec 2025 21:14:13 GMT

MBK held a toy drive to support the HCS HeadStart's (HCS) Christmas Campaign. HCS is a multi-service agency that provides education services and support for low-income and at-risk families in Western Massachusetts.

As part of their campaign, MBK ‘adopted’ two families of four and fulfilled their Christmas wish lists. Led by team leader, Olivia Calcasola, team members at MBK donated gifts for all family members and raised over $500. All together, the team was able to provide each family with gifts for both the children and their parents. The children received multiple toys, clothing, and shoes, while families were also given household items and a $125 Walmart gift card each to purchase items of their choosing.

Olivia and Katrina delivered the donations and met with HCS’s Family and Community Engagement Coordinator, Terri who expressed her gratitude for the firm’s generosity. We want to thank everyone who participated and helped to make this holiday season a little brighter for families in need.

HCS HeadStart Inc.’s Mission:

Since 1965, Holyoke • Chicopee • Springfield Head Start, Inc. has been committed to providing low-income children and their families with a Beacon of Hope and source of support for a brighter future. They strive to do so by providing high quality comprehensive child development services to enrolled children and empowering families to achieve stability in their home environment.

For more information about the organization or to get involved, visit https:// hcsheadstart.org

Succession Planning

Wed, 17 Dec 2025 12:00:13 GMT

How would your nonprofit handle a leader's departure?

Even in an egalitarian organization where each staffer’s contributions are valued, the departure of an executive director (ED) or other senior leader can be devastating. If your nonprofit doesn’t have a succession plan, such an event can be even more traumatic. The services, relationships, finances and the very existence of an organization may be threatened. If you haven’t already done so, plan now for a smooth and orderly transition.

Significant consequences

Succession planning shouldn’t be limited to your ED position. Include every employee who’s considered indispensable and difficult to replace due to experience, institutional knowledge, donor relationships and other characteristics. Ask whose departure would have the most significant consequences for your organization and its ambitions. When you look at it that way, you can see why succession planning should be broader than you might first consider. In addition to the ED, you may need to develop plans for high-level staff (for example, the development director) and even board members.

Also, keep in mind the various departure scenarios. Some leaders may announce their retirement a year in advance, giving you plenty of time to plan. However, in other circumstances, a leader could unexpectedly die or become disabled, rendering them unable to perform their job. Consider how you’d handle a sudden leadership emergency. You might, for example, want to nurture relationships with nonprofit headhunting agencies, should you need their services at some point.

Focus on the future

Successors must have specific qualifications to carry out your organization’s short- and long-term strategic plans and goals, which their job descriptions might not reflect. Review and refresh job descriptions to account for any changes to your size, offerings and needs — and keep these descriptions updated.

Remember that succession planning is future-focused, and you should consider the current jobholder’s experience and qualifications only as a starting point. What worked for the last 10 or 20 years might not cut it for the next 10 or 20, so build some flexibility into your nonprofit’s roles.

Groom potential successors

Although you shouldn’t publicize jobs until they’re available, you might want to start grooming potential internal candidates before the need arises. Identify “high potential” employees with the ambition, motivation and ability to move up substantially in your organization. You can assess your staff using performance evaluations, discussions about career plans and other tools to determine who might be qualified a year or several years from now.

Once you’ve identified potential internal candidates, make individual plans for each. Action plans might include job shadowing, which can provide you with insight into how a person would perform in the position under consideration. Also offer mentoring and coaching. For example, if you assign someone a special project, follow the staffer’s progress closely and provide constructive feedback throughout the assignment.

Important: Avoid leaving potential leaders in holding patterns. If they don’t receive timely promotions or other growth opportunities, they may pack up their skills and qualifications and go elsewhere.

Formal document

Although succession plans usually aren’t legal documents, your plan should be a formal, written document that you can easily share with board members and others who may be privy to the details. You should also share the plan’s existence with key stakeholders, including employees, grantmakers, and donors. This will assure them that your nonprofit is prepared and likely won’t be knocked off course if a leader suddenly leaves.

Workforce & Career Development in the Accounting Industry: A Gen Z Perspective

Mon, 15 Dec 2025 21:07:10 GMT

Starting a Career in a Changing Industry

Gen Z’s first years in accounting look different from those of earlier generations. Many individuals now start early in their careers by gaining experience through internship programs. Where they develop a deeper understanding of the accounting industry by actively engaging with seasoned professionals and learning from their real-world experiences. The days of starting with stacks of paper and hours of manual reconciliations are largely gone. Modern accounting systems, automation tools, and cloud platforms handle much of the repetitive work that once defined entry-level roles. This change means new graduate hires often jump directly into analysis, client communication, and strategic discussions, responsibilities that previously took years to reach.

Because of this early exposure and industry evolution, many young professionals are shaping careers that are more fluid than linear. They are open to moving between public and private practice, trying out specialized areas like forensic investigations or sustainability reporting. In addition to moving between private and public, young professionals are open to being crossed trained in multiple industries and services. This diverse approach to career development provides opportunities for growth from multiple perspectives, positioning career advancement as a menu of options rather than a rigid path.

Workplace culture plays a central role in these decisions. While salary still plays a factor, Gen Z places high value on flexible schedules, hybrid work arrangements, and leaders who prioritize a balance between well-being and workload. The young accountants anticipate regular feedback instead of waiting for annual reviews. They look for mentors who will provide guidance not only on technical work but also on professional development and career planning.

Learning, Connection, and Purpose

For Gen Z, professional development is an ongoing process. Beyond the mandatory continuing professional education (CPE) hours, they actively pursue training in areas such as data visualization, financial modeling, and cybersecurity. Many are drawn to learning methods that fit into busy schedules consisting of short online modules, peer-led workshops, or interactive webinars. They appreciate employers who support a variety of educational formats creating the diverse web of opportunities in a career.

Networking has also evolved for this generation. While in-person industry events remain valuable, digital spaces have expanded their reach. Platforms like LinkedIn, virtual conferences, and even niche online communities allow Gen Z accountants to connect with peers, mentors, and potential employers around the globe. These connections often lead to opportunities that traditional local networking might not uncover. Firms support young professionals by having business development groups – allowing them to take initiative in creating relationships among themselves and further in the business community. Business development groups not only expand young professionals’ networks but also help them build essential soft skills such as communication, leadership, and relationship management, all vital for long-term career growth.

Purpose-driven work is another key motivator. Many Gen Z professionals seek roles where they can make a meaningful impact, whether by contributing to sustainability initiatives, participating in socially responsible projects, or aligning with companies that demonstrate strong ethical standards. Firms encourage the young professionals to be actively involved with internal business development groups, niche driven work, or being deeply rooted in ways to give back to the community.

The Road Ahead

As Gen Z gains experience and advances within the profession, their influence is likely to accelerate ongoing changes in accounting. Their desire for adaptability, meaningful engagement, and skill diversity aligns closely with the industry’s shift toward technology-driven advisory services.

They also understand that technical expertise alone won’t guarantee long-term success. Many are actively seeking opportunities to strengthen soft skills like leadership, collaboration, and clear communication abilities that enhance client relationships and open doors to management roles. By blending strong interpersonal skills with technical knowledge, they are positioning themselves for a wide range of career options, including roles that didn’t exist a decade ago.

In the years ahead, Gen Z will continue to build the profession, pushing for workplaces that balance tradition with innovation and value both the numbers and the people behind them. For these emerging professionals, accounting isn’t just about maintaining the books, it’s about creating a career that reflects their values, skills, and vision for the future.

Effective Onboarding for Your Nonprofit's Board Members

Tue, 02 Dec 2025 17:11:32 GMT

Welcoming new members onto your nonprofit organization’s board is more than a formality. It's a critical process that determines how effective and engaged they’ll be over the long term. Here are some practical steps to help ensure your onboarding strategy empowers new board members and prepares them to make meaningful contributions.

Clarify roles and provide resources

Start by articulating the board’s responsibilities and individual directors’ roles. Most board members will probably bring professional experience, but they may not be familiar with the nuances of nonprofit governance. Share board member job descriptions that outline fiduciary duties, meeting conventions, committee service and fundraising expectations. New members should also receive an onboarding packet that includes:

Descriptions of your organization’s mission, vision and strategic plan,

Recent financial statements and budgets,

Bylaws and governance policies,

Meeting schedules and past minutes, and

Key staff and board member bios.

Such documentation enables new directors to understand your organization’s current position and long-term objectives. If you conduct performance reviews of board members, make sure they understand that the job’s responsibilities also involve accountability. You don’t want to spring performance reviews on these unsuspecting volunteers!

Introductory meetings

Onboarding isn’t only about sharing information. It’s also about building relationships. Schedule a welcome meeting with your board’s chair and your nonprofit’s executive director to provide a personalized introduction. Arrange for a board mentor or peer liaison to serve as a go-to resource for questions. And consider hosting informal gatherings or lunches to help integrate new members socially and foster a sense of community.

To ensure that new board members understand the nuts and bolts of the position, host a formal orientation session. Provide new members, particularly those from outside the nonprofit sector, with training on the basics of nonprofit accounting and fundraising. Attendees should be encouraged to ask questions, provide feedback and share their motivations for joining your board.

This is also a good opportunity for new members to learn about the various standing committees and decide where they'd like to serve. It’s essential to let them choose where they want to direct their energy, but you may want to steer them toward a committee that aligns with their skill sets and experiences.

Following up

The onboarding process doesn’t end after one board orientation or introductory meeting. Be sure to follow up with members at regular intervals to assess how they’re acclimating to the role and to provide additional resources and support as needed.

Exceptions to the 10% Early Withdrawal Penalty for IRAs

Tue, 25 Nov 2025 22:06:33 GMT

Tax Tip:

If you have a tax-deferred retirement plan, you probably know they’re designed to encourage you to grow your savings by leaving your money in the account. Therefore, withdrawals before age 59 ½ generally trigger a 10% penalty. But suppose you need to access your funds. Traditional 401(k) plans list several exceptions to the penalty, including for the birth or adoption of a child, personal emergencies, and disaster recovery. However, the exceptions for IRAs are a little different. For example, they allow you to take penalty-free distributions for a first-time home purchase. You may take up to $10,000 to buy or build a first home, meaning that you haven’t owned a home in the past two years. Also, you can pay for higher education expenses. You may withdraw funds to pay qualified higher education costs for yourself, your spouse or your children. For students enrolled at least half-time, this includes tuition, fees, books, and room and board. And finally, certain unemployed persons can use funds to pay for health insurance premiums. If you’ve lost your job and received unemployment compensation for 12 consecutive weeks, you can take IRA distributions to pay health insurance premiums.

Note: The amounts withdrawn will still be added to your taxable income, and additional rules and limits apply.

MBK Partners with Jammie Jingle for a Second Year

Tue, 25 Nov 2025 21:23:42 GMT

For the second year in a row, Meyers Brothers Kalicka, P.C. (MBK) held a pajama drive for Jammie Jingle as one of the fall community service initiatives. An organization spearheaded by Allison Gaynor, an administrative assistant at the firm. This year she welcomed the support of MBK and shared in the joy of entering her second decade of collecting pajamas for her beloved organization. Allison has taken in over 3,000 pajamas over the years she has been collecting. The pajamas have been donated to local charities such as CHD for Kids, DCF Springfield, Mass ROCA, and Ronald McDonald House Charities.

MBK collected pajamas in sizes ranging from newborn to adult 3X, as well as monetary donations. Collectively they were able to donate over a hundred pairs of pajamas. Later to be distributed by Allison to local charities, just in time for the holiday season.

For additional information, please connect with Allison through Jammie Jingle’s dedicated Facebook page: https://www.facebook.com/share/g/1FNAKuxvkQ/

Celebrating Community, Connection, and Gratitude

Tue, 25 Nov 2025 18:30:14 GMT

As we gather to celebrate Thanksgiving, we want to take a moment to reflect on what truly matters… gratitude. To you, our valued clients, employees, and our community: thank you for being an essential part of our journey!

Our clients: We thank you for your loyalty throughout the years and your trust in us to serve you. We extend our greatest gratitude to you and your families this Thanksgiving!

Our employees: thank you all for your continued contributions to make MBK a premier accounting and consulting firm. Without your commitment, creativity, trust, and dedication, we would not be who we are today. We are truly grateful for our incredible team here who feel like an extension to our own families. Wish you and yours a very Happy Thanksgiving!

Our community: Western Massachusetts is not just a home; it is a workplace and a place to thrive. We are grateful to be a part of this strong and vibrant community. Happy Thanksgiving to our community!

Our firm will be closing early on November 26 at 1 p.m. and will reopen on December 1 at 8:30 a.m. to allow staff to celebrate the holiday with their loved ones.

New Law, New AMT Rules: Are You at Risk?

Tue, 11 Nov 2025 18:40:15 GMT

The alternative minimum tax (AMT) resembles the regular federal tax system, but it has a different purpose. It’s intended to ensure that people with certain types of income still pay taxes, even if they otherwise qualify for many deductions.

To accomplish this objective, the AMT adds back some income that’s tax-free under the conventional rules and doesn't allow certain deductions. If your AMT liability is higher than your regular tax liability, you must pay the AMT instead.

The 2017 Tax Cuts and Jobs Act (TCJA) brought AMT rates that were more taxpayer-friendly for 2018 through-2025. Also, the chances of being hit with the AMT were reduced. With the passage of the One Big Beautiful Bill Act (OBBBA), there are more changes to the AMT — and the news is mixed for taxpayers.

How Rates Apply

The top AMT rate is 28%, compared to the 37% maximum regular federal income tax rate. So, at first glance, AMT may not seem like a big concern. But because the AMT applies to a broader income base with fewer deductions and credits, it can still result in a higher tax bill for some.

In 2025, the 28% AMT rate kicks in when AMT-calculated taxable income exceeds $239,100 for most filing categories, and on the amount in excess of $119,550 for those that are married filing separately. Below those thresholds, the AMT rate is 26%.

Exemption Changes

When calculating alternative minimum taxable income, the rules allow an inflation-adjusted exemption, similar to a deduction. The TCJA significantly increased these amounts for 2018 through 2025, and the OBBBA made them permanent with annual adjustments for inflation. This is a good thing for many taxpayers. For 2025, the exemptions are:

$137,000 for joint filers,
$88,100 for unmarried taxpayers, and
$68,500 for married individuals filing separately

However, if your income is high enough, your exemption may be reduced or eliminated. In 2025, the phaseout begins at $626,350 for most filing categories or $1,252,700 for joint filers and surviving spouses. The applicable exemption is reduced by 25% of the excess of your alternative minimum taxable income over the applicable phaseout threshold.

Under the OBBBA, these thresholds drop steeply to $500,000 and $1 million starting in 2026. (They’ll be annually adjusted for inflation thereafter.) The new law also increases the phaseout exemption threshold from 25% of the excess to 50% of the excess. This could push more high-income taxpayers into AMT territory.

Risk Predictors

Many factors interact to determine whether you’ll be affected by the AMT, making it hard to predict whether you’re at risk. However, there are some types of income and deductions that tend to increase exposure.

First, higher-income taxpayers face a greater risk of owing the AMT — especially if much of your income comes from capital gains, investments or other non-wage sources. As such income rises, the AMT exemption may shrink or disappear entirely.

Second, living in a high-tax state can increase exposure. Under regular tax rules, state and local taxes may be deductible, but the AMT disallows them, potentially raising your bill.

Even using the standard deduction, which most taxpayers claim, can trigger AMT. That’s because the AMT system doesn’t permit the standard deduction, leaving more of your income taxable.

No Assumptions

The bottom line is, beginning next year, you should make no assumptions regarding your AMT liability. The OBBBA will bring less favorable exemption rules, which could increase your risk. Contact your tax advisor for a full review of your potential AMT exposure.

Individual Tax Planning 2025

Fri, 07 Nov 2025 15:36:05 GMT

Itemized Deductions

The TCJA suspended several itemized deductions for 2018 through 2025 while boosting the standard deduction. The OBBBA generally extends these rules with some modifications.

If you expect to itemize deductions on your 2025 tax return, take advantage of several key deductions that can lower your tax bill. Consider the following:

Donate cash or property to a qualified charitable organization (see more below).
Pay deductible mortgage interest if it makes sense for your situation. This includes interest on acquisition debt up to $750,000 for your principal residence and one other home.
Make state and local tax (SALT) payments up to the annual deduction limit. Under the OBBBA, the SALT cap is quadrupled from $10,000 to $40,000 for 2025, subject to a phase-out for high-income taxpayers. The cap increases by 1% annually through 2029 before expiring.

Charitable Donations

The tax law allows you to deduct charitable donations within generous limits. However, the OBBBA adds several tax complications.

For the first time ever, the OBBBA imposes a floor of 0.5% of adjusted gross income (AGI) before you can claim any charitable deduction, effective in 2026. This new rule may be especially important if you are planning to donate appreciated long-term gain property, such as stock, that would qualify for a deduction equal to the property’s fair market value (FMV). The deduction for property is limited to 30% of AGI, but any excess may be carried over for up to five years.

The OBBBA also allows a deduction of up to $1,000 for non-itemizers, beginning in 2026. The maximum deduction is doubled to $2,000 on a joint return.

Consider bunching charitable donations in a year in which you expect to itemize. For instance, if you are itemizing in 2025, you may step up charitable gift-giving before January 1. As long as you make a donation this year, it is deductible in 2025—even if you charge it in December 2025 and pay it in 2026.

Home Energy Credits

If you own your principal residence, you may benefit from two types of “home energy” tax credits on your 2025 return.

Make energy-saving installations before the end of the year to secure credits for qualified improvements. Under the OBBBA, both credits will expire after 2025 and are not expected to be renewed.

The two credits still available before 2026 are as follows:

Energy Efficient Home Improvement Credit: This is a 30% credit for qualified expenses like insulation, central air conditioners, water heaters, furnaces, heat pumps, biomass stoves and boilers and home energy audits, up to a maximum of $3,200.
Residential Clean Energy Credit: This is a 30% credit for the cost of new qualified clean energy property like solar electric panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells and battery storage technology.

401(k) Plan Savings

Contributions to a 401(k) plan are made by employees on a pre-tax basis and can earn tax-deferred income until withdrawals are made. Plus, your company may provide “matching contributions” based on a percentage of salary.

For 2025, the regular contribution limit is $23,500, but if you are 50 or older you can add a “catch-contribution” of $7,500 for a total of $31,000. Even better: Under SECURE 2.0, those age 60 through 63 can make a “super catch-up contribution” of $11,250 for a total of $34,750.

Beginning in 2026, if individuals age 50 and over earned more than $145,000 in the prior year, any of their 401(k) catch-up contributions must be made to a Roth-type account.

The Roth version of the 401(k) imposes tax on amounts contributed in 2025, but future payments are generally exempt from tax.

Required Minimum Distributions

Generally, you must begin taking “required minimum distributions” (RMDs) from qualified retirement plans, like 401(k) plans, and IRAs after a specified age. Under SECURE 2.0, the age threshold has been raised to 73 (scheduled to increase to 75 in 2033). The amount of the RMD is based on IRS life expectancy tables and your account balance at the end of last year.

Assess your obligations. If you can postpone RMDs longer, you can continue to benefit from tax-deferred growth. Otherwise, make arrangements to receive RMDs before January 1, 2026, to avoid any penalties.

Family Tax Breaks

If you are a parent with young children, you may be entitled to several tax breaks designed to reduce your family’s tax burden.

For 2025, parents may claim a Child Tax Credit (CTC) of $2,200 for each qualifying child, subject to a phase-out beginning at $200,000 for single filers and $400,000 for joint filers.
The dependent care credit is enhanced for certain taxpayers with a modified adjusted gross income (MAGI) below specified levels. For high-income taxpayers, the maximum credit remains $600 for one child and $1,200 for two or more children.
Under the TCJA, parents could withdraw up to $10,000 tax-free from a Section 529 plan for higher education to pay a child’s tuition at a qualified elementary or secondary school. The OBBBA doubles the cap to $20,000, beginning in 2026.

Other Tax Breaks

Under the new law, employees can annually deduct part of overtime pay, up to $12,500 for single filers and $25,000 for joint filers, retroactive to January 1, 2025. But the deduction is only available for the “premium” of part overtime pay based on the “time-and-a-half rate” mandated by the Fair Labor Standards Act (FLSA).

In addition, the deduction is phased out based on MAGI. The phase-out begins at $150,000 of MAGI for single filers and $300,000 for joint filers.

Similarly, the OBBBA creates a new deduction for up to $25,000 of tips received by an employee in a services industry from 2025 through 2028, subject to a phase-out above $150,000 of MAGI for single filers and $300,000 for joint filers.

This year-end tax-planning article is based on the prevailing federal tax laws, rules and regulations. Of course, it is subject to change, especially if additional tax legislation is enacted by Congress before the end of the year.

Finally, remember that this article is intended to serve only as a general guideline. Your personal circumstances will likely require careful examination. You should schedule a meeting with your adviser to assist with all your tax-planning needs.

Business Tax Planning 2025

Tue, 04 Nov 2025 15:27:59 GMT

Business Tax Planning:

Depreciation-Based Deductions

A business may benefit from one of two depreciation-related tax breaks, or both, for qualified property placed in service. The OBBBA enhances those tax breaks, beginning in 2025.

Ensure that qualified property is placed in service before the end of the year. Otherwise, your business does not qualify for either tax break on its 2025 return.

Section 179 deduction: Section 179 allows a business to currently deduct the cost of qualified property up to an annual limit, subject to a phase-out. The OBBBA permanently hikes the limit to $2.5 million and the phase-out threshold to $4 million in 2025, with future indexing.
First-year bonus depreciation: The TCJA authorized 100% first-year bonus depreciation subject to a phase-out over a five-year period. The applicable percentage for 2025 was scheduled to be only 40%, but the OBBBA permanently restores the 100% deduction, retroactive to January 20, 2025.

Regular depreciation deductions may be elected. As always, special rules may apply, such as a separate set of limits on vehicles.

Research & Experimental (R&E) Expenses

Previously, the tax law permitted a company to fully deduct domestic R&E expenses in the year in which they were incurred. But the TCJA required costs incurred after 2021 to be capitalized and amortized over 60 months.

Now the new law reinstates the prior rules, retroactive to January 1, 2025. (Alternatively, a business can still elect to amortize the expenses over 60 months.) Due to special transitional rules for expenses incurred in 2022 through 2024, it may be beneficial to file amended returns for these years. Note: The amortization period for foreign R&E expenses remains at 15 years.

Miscellaneous

Stock up on routine supplies (especially if you expect prices to rise soon). If you buy the supplies in 2025, they are deductible this year even if they are not used until 2026.

The OBBBA imposes a 1% “floor” on deductions for charitable donations by C corporations, beginning in 2026. A corporation may increase its donations late in 2025 to avoid the upcoming floor on deductions.

Owners of pass-through business entities like S corporations and partnerships may adopt SALT “workarounds” to qualify for state deductions or credits. The entities make the payments and then tax benefits are passed through to individuals on their personal tax returns.

Maximize the qualified business income (QBI) deduction of up to 20% for pass-through entities and self-employed individuals. Note: special rules apply if you are in a “specified service trade or business” (SSTB). The OBBBA extends this tax break and makes it permanent.

Finally, remember that this article is intended to serve only as a general guideline. Your personal or business circumstances will likely require careful examination. You should schedule a meeting with your adviser to assist with all your tax-planning needs.

Businesses Should Prepare for Changing IRS Reporting Requiremnts

Mon, 03 Nov 2025 13:01:19 GMT

Over a certain amount, payments made in the course of a trade or business must be reported to the payees and to the IRS, using a specific form. The recently enacted One Big Beautiful Bill Act (OBBBA) made changes to some widely used IRS forms. Here’s a breakdown for business owners.

Form 1099-MISC

Businesses must report a variety of non-wage miscellaneous payments that exceed a certain amount on Form 1099-MISC, “Miscellaneous Information.” Generally, these are payments made to individuals, partnerships or unincorporated entities. Examples include rents, prizes and awards; certain unclassified compensation or remuneration; and other fixed gains, profits or income.

Currently, the threshold that triggers the issuance of this form is $600 per year per recipient. But thanks to the OBBBA, this amount will rise to $2,000 starting with the 2026 tax year. Then, beginning in 2027, the threshold will be adjusted annually for inflation. This should mean a substantial and welcome reduction of the reporting burden for many businesses.

What isn’t reported on a Form 1099-MISC? Examples include gifts, payments for medical or legal services, wages, benefits and reimbursements.

Form 1099-NEC

Businesses need to report payments to certain workers on Form 1099-NEC, “Nonemployee Compensation.” Examples include disbursements to independent contractors, freelancers or gig workers in the course of a trade or business.

As is the case for Form 1099-MISC, the reporting threshold for Form 1099-NEC for 2025 is $600 per year per recipient. But again thanks to the OBBBA, this amount rises to $2,000 for 2026 and will be adjusted annually for inflation starting in 2027.

Although businesses won’t be required to issue Form 1099-MISC for payments below the threshold beginning in 2026, payees who don’t receive the form must still report their income to the IRS. After all, such income will remain taxable.

Form 1099-K

Mobile payment service providers — such as PayPal, Venmo, Square and Cash App — must file Form 1099-K, “Payment Card and Third Party Network Transactions” with the IRS when a seller using their services receives payments exceeding a set threshold. Generally, they provide a copy of the form to the seller as well.

The threshold had been scheduled to be $2,500 for 2025 and only $600 for 2026 and beyond, regardless of the number of transactions. However, the OBBBA returns the threshold for issuing Form 1099-K to $20,000 from more than 200 transactions during the year, retroactive to 2021.

The payment platform must identify and separate transactions by type. Payments not reported on the form include personal transactions, such as gifts and reimbursements.

Backup withholding

Backup withholding may be required when a payee fails to submit or accurately complete Form W-9, “Request for Taxpayer Identification Number and Certification.” It’s also necessary if IRS notifies you of the need to do backup withholding. The amount to withhold is 24%, which must be remitted to the IRS. The backup withholding is then reported on:

Form 1099-MISC for amounts associated with rents, prizes, awards, medical payments, etc.,

Form 1099-NEC for amounts associated with payments to nonemployees, such as independent contractors and freelancers, or

Form 1099-K for transactions related to third-party payment networks (though this rarely occurs).

You must issue the appropriate Form 1099 to both the payee and the IRS by January 31 of the following year.

Adjustments ahead

Prepare now for these changes. You might need to adjust your systems to track total payments by recipient, collect accurate W-9s, and stay ahead of IRS filing deadlines. The rising thresholds may reduce your reporting burden — but not your responsibility to track and report all taxable income.

Charitable Giving Under the New Tax Law

Thu, 30 Oct 2025 18:22:19 GMT

As the end of the year approaches, many people begin thinking about philanthropy. While planning your charitable giving, be sure to consider the potential impact of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4.

Several provisions of this new law could affect the tax deductibility of your charitable gifts. Let’s look at some key changes made by the OBBBA and explore some strategies to help maximize the tax efficiency of your giving.

Above-the-line deductions

Starting with the 2026 tax year, the OBBBA restores the expired COVID-era “above-the-line” charitable deduction for non-itemizers and increases it to $1,000 for single filers and $2,000 for joint filers (up from $300 and $600, respectively). That means you don’t have to itemize deductions to enjoy the tax benefits of charitable giving. Note, however, that this deduction isn’t available for contributions to donor-advised funds or donations to private nonoperating foundations.

Potential strategy : If you’re among the 90% or so of taxpayers who don’t itemize, consider putting off charitable gifts until early next year to take advantage of above-the-line deductions.

Note : Effective in 2027, the OBBBA also establishes a tax credit of up to $1,700 for donations to specific organizations that grant scholarships to K–12 schools.

New floor on itemized deductions

For itemizers, starting in 2026, you’ll be able to deduct qualified charitable donations only to the extent they exceed 0.5% of your adjusted gross income (AGI). So, for example, a married couple with an AGI of $400,000 can deduct charitable donations only if the value of those donations exceeds $2,000.

Potential strategy : Consider making large charitable donations this year, before the 0.5% floor kicks in. Going forward, you can maximize your deductions by “bunching” them — that is, making larger charitable gifts less frequently.

Suppose the married couple from our previous example typically donates $10,000 per year to charity. The floor limits each deduction to $8,000 — $16,000 over a two-year period. If, instead, they donate $20,000 every other year, their deduction for the same two-year period will increase to $18,000.

Note : A donor-advised fund can help you implement a bunching strategy. You can bunch contributions to the fund into a single tax year to maximize your tax benefits while still timing your charitable gifts as you see fit.

Reduced benefits for top bracket

Starting in 2026, for taxpayers in the highest tax bracket (37%), the OBBBA limits the value of all itemized deductions — including charitable deductions — to 35%. Under current law, for someone in the 37% bracket, a $10,000 deduction translates into $3,700 in tax savings. Beginning next year, the same deduction will generate only $3,500 in tax savings.

Potential strategy : Donors in the top tax bracket may want to consider accelerating significant planned charitable gifts into 2025 to maximize their deductions before the new limit takes effect.

Increased limit for some cash gifts

Charitable deductions in a given tax year are limited to a certain percentage of AGI, with the excess carried forward for up to five years. Historically, cash gifts to public charities have been limited to 50% of AGI, and gifts of appreciated long-term capital assets (such as stock or real estate held for more than one year) to such charities have been limited to 30% of AGI. Lower limits apply for gifts to private foundations. The Tax Cuts and Jobs Act increased the deduction limit for cash gifts to public charities to 60% of AGI through 2025, and the OBBBA made this increase permanent.

Potential strategy: Weigh the potential tax benefits of donating cash against the benefits of donating appreciated property. (See “Cash or appreciated assets: Which should you donate?” below.)

Timing is everything

The new tax law creates both opportunities and challenges for charitable donors. To support the causes you care about — while reducing your tax bill — ask your CPA for help developing a charitable giving strategy that aligns with the new rules and times your gifts for maximum impact.

Sidebar: Cash or appreciated assets: Which should you donate?

Is it better to donate appreciated long-term capital assets or to sell those assets and donate the cash? The answer depends on several factors, including your adjusted gross income (AGI) and the size of the gift.

All things being equal, there’s an advantage to donating appreciated capital assets. That’s because, in addition to deducting the fair market value of the assets, you also avoid the capital gains taxes you would have owed had you sold the assets and donated the proceeds. But all things aren’t necessarily equal: You’ll also need to consider the lower deduction limit for capital assets (which is 30% of AGI) versus cash (which is 60% of AGI).

If the amount of your gift is less than 30% of your AGI, the deduction limit isn’t a factor and you’re better off donating assets. But if it’s more than 30% of your AGI, you’ll need to weigh the potential tax benefits of the two strategies. If you donate assets, you’ll avoid capital gains tax, but a portion of your deduction will have to be carried forward to future tax years. On the other hand, if you sell the assets and donate the proceeds, you’ll owe capital gains tax but will enjoy a larger charitable deduction in the first year.

Determining the right strategy is a matter of crunching the numbers and estimating the relative tax benefits in the coming years.

Need Employees? This Tax Credit May Help

Mon, 13 Oct 2025 20:21:59 GMT

Tax Tip:

The unemployment rate was 4% in January 2025. The Work Opportunity Tax Credit (WOTC) is available to employers that hire workers from targeted groups who face significant barriers to employment. The credit is generally worth up to $2,400 for each eligible employee. The maximum credit amounts differ for some employees, including certain veterans, long-term family assistance recipients and summer youth workers.

In most cases, eligible employees must begin working for the employer before January 1, 2026. Also, the job applicant and the employer must complete a prescreening notice before a job offer is made.

Hunger Awareness Food Drive Supporting Alianza DV Organization Through Rachel's Table

Mon, 13 Oct 2025 16:14:43 GMT

Every September across the nation is a campaign known as “Hunger Action Month”, which encourages action against hunger and food insecurity across the United States. This year, Meyers Brothers Kalicka, P.C. (MBK) took initiative in raising awareness for those who face hunger and food insecurity right in the local community. Led by spearheads, Mallory Beauregard and Keara King, the firm held a successful food drive supporting Alianza DV Organization through Rachel’s Table. Two organizations making direct impacts on families & individuals across the Western Massachusetts community.

About the Organizations

Rachel’s Table

A near and dear organization to MBK, Rachel's Table holds a special meaning as David Kalicka, CPA, MST, Partner Emeritus, has a personal connection to the organization, his sister was one of its original founders. Founded in 1992, in the Springfield /Longmeadow area by the Women's Philanthropy Division of the Jewish Federation of Western Massachusetts. The reach that Rachel's Table has on the community expands from Hampshire, Hampden, Franklin counties, and even into Hartford county located in Connecticut.

Some statistics on the organization:

As of October 2022, the quantity of food delivered to agencies has increased by approximately 75%.
Access to quality of foods increased by 60% which includes produce, meat, and dairy products.
Since the COVID pandemic, the number of agencies supported by Rachel’s Table increased 50%.
Of the agencies supported by Rachel’s Table, 50% of them are not supported by the Food Bank or other food access programs.

Alianza DV Organization

Founded in 1980, the grassroot initiative raises awareness to live free from domestic violence. Providing individuals with safe housing, food, clothing, medical support, court orders, legal help, therapy, childcare, and more.

Statistics on the organization:

Since 1980, they have been able to provide shelter and support for more than 10,000 women and children lives.
Supported 22,000 other lives through community-based programs.
Yearly, they provide shelter for 80 to 100 women and 140 children.

MBK’s Collective Impact

Together as a team, MBK raised over $700 dollars which was used to purchase the following pantry staples:

48 Cans of Beans (Black, Pinto, Kidney & Garbanzo)
24 Cans of Corn
48 Boxes of Mac & Cheese
36 Cans of Spaghetti & Meatballs
24 Cans of Tuna
24 Boxes of Instant White Rice
21 Jars of Adobo Seasoning
20 Boxes of Cereal
15 Boxes of Granola Bars
14 Boxes of Fruit Snacks
11 packs of Fruit Cups
10 packs of Juice Boxes
9 Jars of Peanut Butter
6 Jars of Jelly
6 Cans of Evaporated Milk
5 Boxes of Wheat thins
5 Bottles of Vegetable Oil
4 Bottles of Olive Oil
3 Honey Bears
2 Boxes of Dry Milk pouches

Baby & Child Essentials:

30 Jars of Baby Food
8 packs of applesauce cups
7 Bottles of Formula
4 boxes of Baby Cereal
4 boxes of Fruit pouches

Along with the collection of items in the lobby, MBK was able to donate to the Alianza DV Organization well over 400 LBs of canned goods and non-perishable items picked up by Rachel's Table's team on September 30 ^th to conclude Hunger Awareness month.

To learn more about the Rachel’s Table and Alianza DV Organization and the opportunities to give back to the community, learn more here:

Rachel’s Table: https://feedwma.org/
Alianza DV Organization: https://www.alianzadv.org/

Workaholism: The Overlooked Addiction

Thu, 09 Oct 2025 12:52:19 GMT

by Christopher Soderberg, MBA and Justin Szwajkowski, MSA

Addiction has become a prevalent topic in today’s society, dominating headlines and impacting communities globally. The destructive effects of many of the most common and prevalent addictions are becoming better documented and have led to more open discussions with the younger generation in an effort to deter them from falling victim to their binds. While the most destructive of these addictions often come to mind when the idea is brought up, many do not consider the same chemical pathways and environmental factors can be responsible for other forms of addictions. In recent years, a new form of addiction has risen in frequency, work addiction, sometimes coined as “workaholism.” This addiction is defined as a compulsive need to work incessantly, even when it causes harm to one’s physical or mental health. In the relentless pursuit of professional success, it often cumulates to the point of burnout, a term that has become quite common in today’s society. Acknowledging the detrimental effects of burnout on one’s professional performance is the first step towards embracing work-life balance, a strategy that ultimately revitalizes productivity and enhances long-term career success.

In many ways, work is one of the biggest defining characteristics of a human being. What you do for work becomes a large part of who you are, how you see the world, how you live, and what you talk about. Work ethic and personal success has become a common status symbol within the community and between peers. For these reasons, it is easy to see how unhealthy working habits can soon become routine and normalized within one’s own life. While working hard is certainly important, finding a healthy balance between professional success and personal well-being is essential for long-term fulfillment and sustained progress.

In 1989, sociologist Ray Oldenburg shared his ideas on these topics in his book, “The Great Good Place,” and coined the idea of a “third place” for individuals to help drive this balance. When taking a step back and reflecting on one’s life, an individual’s first two places are obvious. The first place being one’s home, while the second their workplace. These places are where a substantial chunk of one’s life are centered, and in the modern working environment, these places can even become blurred, with the adoption of hybrid work models becoming more common. To effectively manage the stress of these two places, its essential to have a third place – a dedicated space outside of these two environments where you can go and relax, recharge and detach from the ordinary for a moment. In many cases, the “third place” can be anywhere or anything you want it to be – the golf course, the gym, the library, even an open field. To truly serve its purpose, your third place should be a space where you can pursue your passions, establish new hobbies, and build meaningful connections. Finding this third place and incorporating it into your schedule will help you not only counteract the effects of workaholism and burnout, but it will help you become a more effective and well-rounded boss or colleague by increasing your overall mental wellbeing.

When one begins to take the essential steps in addressing their work life balance, or workaholism, they not only restore their own well-being, but also enhance their professional and personal relationships, ultimately leading to increased production and happiness. When individuals experience burnout from this behavioral addiction, they often begin to experience irritableness, exhaustion, and decreased motivation, which directly impacts the quality and quantity of their work. Most people can probably think about their friends, colleagues, or family and pinpoint an individual who has dropped nearly everything else and worked themselves into the ground on the chase for success. Luckily, as noted previously, there are steps that one can take to both achieve this success and improve their quality of life. Setting boundaries, taking breaks throughout the day, prioritizing your well-being and the scariest for many – taking your vacation time are all ways you can recharge your mental and physical health. These simple remedies lead to renewed focus, increased creativity, and a stronger sense of purpose, ultimately resulting in a significant boost in performance.

It is important to emphasize that the idea of being able to remove yourself from your work is not to say you should not work hard. It is still possible to be the first person into the office, the last to leave, and even put in overtime while still leaving dedicated time for things you enjoy. Short term compromises can and will sometimes be necessary - issues will pop up and some weeks may leave less room to visit your “third place” than others. Success is a direct result of this kind of hard work and dedication, but that does not mean it has to come at the sacrifice of yourself and those around you. The career ladder is a marathon and not a sprint, and long-term balance offers benefits which outweigh a metaphorical short-term sprint that results in burnout.

In summary, you can still build a successful career while maintaining a balance in life that keeps you energized and well rounded. Jack Dorsey, co-founder of Twitter and Square, blocks at least one day off a week to go hiking, per a CNBC interview in 2019. Warren Buffet famously took time out of his days to take ukulele lessons and play regularly, as he admitted to Yahoo during an interview in 2023. These figures achieved incredible levels of career success, and likely worked harder than most for sustained periods of time, however they still found hobbies and pursued passions to keep them recharged and balanced in life. Similar to other addictions, drawing boundaries and making changes to eliminate compulsive or learned behaviors can be challenging. In the long run, however, creating a life of balance will be beneficial not only in life outside of the office, but also in career success.

Valuation Discounts for Gift and Estate Planning

Tue, 07 Oct 2025 13:24:41 GMT

Because transfer taxes depend on FMV, effective planning for business owners includes valuing the business. For those who partially own privately held entities, valuation discounts, that reduce an owner’s share of business value, may apply. Valuation discounts:

offer significant tax minimization opportunities because they reflect that partial ownership a business entity is worth less than the owner’s proportionate share of the whole, and
are commonly used for business appraisals for private businesses held in corporations, partnerships (including family limited partnerships, or “FLPs”) and limited liability companies (LLCs).

Applying discounts can reduce valuations for estate tax purposes while simultaneously allowing lifetime gifting of a percentage of the corporation, LLC, trust, or FLP at a reduced tax rate.

What Are Valuation Discounts?

In determining the FMV of an owner’s business interest, appraisers typically start with the owner’s proportionate share of the FMV of the entire business. Then, appraisers may adjust this amount for factors including form of ownership, restrictions on ownership transferability, and prevailing market conditions. Adjustments that decrease value are valuation discounts, and adjustments that increase value are valuation premiums.

Valuation discounts reflect economic reality. For example, a 25% interest in a private company isn't simply worth 25% of the company's net asset value. Instead, its FMV is diminished by the minority owner's inability to control company affairs. Also, in contrast to publicly traded corporation shareholders, the private owner cannot readily convert the interest to cash by selling. For wealth transfer planning, this gap between proportional and actual market value creates legitimate tax advantages when properly structured.

Common Valuation Discounts

The most common valuation discounts are those for lack of marketability, lack of control, and minority share discounts. These discounts can range from 10% to 45%, depending on several factors.

Lack of marketability: Refers to the discount applied when valuing a company that is not publicly traded. The idea is that a discount exists between a stock that is publicly traded (and therefore has a market) and a privately held stock, which often has little if any marketplace. In other words, because a privately held stock does not have clear market, it deserves a discount.

Lack of control: Refers to a reduction in a company’s share value due to a shareholder’s lack of ability to exercise control over the company. Here, a business interest is considered to be worth less than a controlling interest in a company because business decisions (e.g., determining compensation, setting policies, deciding to sell or liquidate, and declaring dividends) are not in the shareholder’s control. Thus, when noncontrolling or nonvoting shares are valued for a private company, a discount for lack of control is often applied.

Minority share: Refers to the disadvantage of holding a minority interest in a business. The minority share discount, also called a minority interest discount, is closely related to the lack of control discount. It reflects the idea that a partial ownership interest is worth less than its pro rata (proportionate) share of the total business due to the minority owner’s lack of control in business decision making.

FLP and LLC owners often use valuation discounts because the entity structures lend themselves to discounts. While the Internal Revenue Service closely scrutinizes family-controlled entities, decades of litigation have produced a substantial body of case law that offers clear guidance for properly applying discounts. These precedents establish a well-defined pathway for legitimately and legally transferring wealth to heirs while significantly reducing gift and estate taxes.

Valuation discounts are undoubtedly important in determining FMV for transfer tax purposes. However, to properly value an ownership interest in a privately held business, it is important to consider the level of control and marketability of the equity interest being transferred. Proper discount application requires careful navigation of complex regulations and adherence to the principles established through numerous court decisions. Consulting with a valuation analyst or an estate planner can help you to determine the applicability and level of discounting to apply to your business or your circumstances.

Celebrating MBK’s Q3 Work Anniversaries: Recognizing Commitment and Success

Mon, 06 Oct 2025 13:33:35 GMT

At Meyers Brothers Kalicka, P.C. (MBK), our unwavering commitment to our vision statement is the cornerstone of our success. We envision MBK as an employer of choice in Western Massachusetts, setting the bar for organizational culture and commitment to community, one employee at a time. Our firm is dedicated to providing our professionals with the resources and training they need to thrive in a new era of public accounting. This enables us to deliver the highest level of quality service to our clients, ensuring their continued satisfaction and success.

As we enter the final quarter of 2025, we take this moment to celebrate the dedication and hard work of our employees who reached milestones in the third quarter. Your commitment, talent, and contributions to MBK are truly invaluable, and we’re proud to recognize all you’ve accomplished.

Congratulations again to our colleagues celebrating work anniversaries in Q3 2025. Here’s to more years of shared success!

Announcing Three New Hires at MBK

Wed, 01 Oct 2025 13:43:11 GMT

Meyers Brothers Kalicka, P.C. Announces New Hires

Holyoke, MA — Meyers Brothers Kalicka, P.C. is proud to announce the following new hires:

Edmund Keyes III, CPA, MSA
Mary Walsh, JD, LL.M, CPA (Florida)
JoLynn Wells, CPA, MST

Planning for 2025 and The Future with The New Tax Law

Tue, 30 Sep 2025 16:10:21 GMT

Will you be able to benefit from the One Big, Beautiful Bill Act (OBBBA), signed into law earlier this year? The law makes many tax provisions, which were scheduled to expire at year end, permanent and includes other favorable changes for individual taxpayers. (However, some tax breaks have been eliminated.) Here's a summary of six important changes that may affect you and your family.

1. Tax rates and brackets are permanent

The Tax Cuts and Jobs Act (TCJA) established seven ordinary income rate brackets for individual taxpayers: 10%, 12%, 22%, 24%, 32%, 35% and 37%. However, these brackets were scheduled to expire at the end of 2025. The OBBBA makes the TCJA rates permanent with annual inflation adjustments to the rate bracket thresholds after 2025.

2. Expanded standard deductions are also permanent

The TCJA dramatically increased standard deduction amounts. The OBBBA makes these standard deductions permanent. For 2025, the basic standard deductions are as follows:

$15,750 for single taxpayers,
$23,625 for heads of households, and
$31,500 for married couples filing jointly.

These amounts will be adjusted for inflation for 2026 and future years. As before, additional standard amounts are allowed for individuals who are 65 or older or blind.

3. Eligible seniors get a new deduction

For 2025 through 2028, the OBBBA allows individuals age 65 and older to claim a new senior deduction of up to $6,000, subject to income-based phaseouts. This deduction is available whether you itemize or not. If both spouses of a married joint-filing couple are age 65 or older, each spouse is potentially eligible for a separate deduction of up to $6,000, for a combined total of up to $12,000.

The senior deduction begins to phase out when modified adjusted gross income (MAGI) exceeds:

$75,000 for unmarried individuals, or
$150,000 for married couples filing jointly.

4. The SALT deduction is increased

The TCJA limited the state and local tax (SALT) deduction for itemizers to $10,000 ($5,000 for married individuals who file separately). For 2025 through 2029, the OBBBA increases the SALT deduction limit to $40,000 ($20,000 for married individuals who file separately), subject to income-based phaseouts.

For 2026, the cap will be $40,400 ($20,200 for married individuals who file separately) and there will be 1% annual inflation adjustments for 2027-2029. Starting in 2030, the SALT deduction is scheduled to revert to the TCJA limit of $10,000 ($5,000 for married individuals who file separately).

For 2025, the higher SALT deduction limits begin to phase out for taxpayers with MAGI over $500,000 ($250,000 for married individuals who file separately). After 2025, the phaseout thresholds will be adjusted annually for inflation. Under the phaseout rule, the SALT deduction limitation is reduced by 30% of MAGI above the applicable threshold, but not below the TCJA limit of $10,000 ($5,000 for married individuals who file separately).

5. Child Tax Credit is enhanced

Starting in 2025, the OBBBA permanently increases the child tax credit to $2,200 for each qualifying under-age-17 child (up from $2,000 for 2024), subject to income-based phaseouts. This break will be adjusted annually for inflation after 2025.

The refundable portion of the child credit is made permanent. The refundable amount is $1,700 for 2025, with annual inflation adjustments starting in 2026.

The child credit MAGI phaseout thresholds of $200,000 and $400,000 for married joint-filing couples are also made permanent. These thresholds won't be adjusted annually for inflation.

Important: Starting in 2025, no child tax credit will be allowed unless you report Social Security numbers (SSNs) for the child and the claiming taxpayer on the return. For married couples filing jointly, an SSN for at least one spouse must be reported on the return.

6. Credit for other dependents is permanent

The new law also makes permanent the $500 credit for a dependent who isn't a qualifying child. Before the OBBBA, this credit was scheduled to disappear after 2025.

This credit can apply to a dependent child over the age limit or a dependent elderly parent. It's subject to the same income-based phaseouts as the child tax credit.

More certainty

These are just some highlights of the sweeping tax law changes under the OBBBA. The new law contains numerous tax-related provisions and provides greater certainty for this year and the future. The IRS is expected to issue guidance in the coming months to clarify the new rules. In the meantime, contact us to discuss how the OBBBA will affect your tax situation.

Sidebar: Large gift and estate tax exemption is permanent

The Tax Cuts and Jobs Act (TCJA) significantly increased the unified federal gift and estate tax exemption. For 2025, the exemption is $13.99 million. However, under the TCJA, the exemption was scheduled to revert to its pre-TCJA level after 2025, unless Congress extended it. This caused uncertainty for wealthy individuals whose estates may be exposed to gift and estate taxes if the higher exemption amount were to expire.

Good news: The expanded exemption is now permanent under the One, Big, Beautiful Bill Act. For 2026, the exemption increases to $15 million (effectively $30 million for married couples). It’ll be adjusted annually for inflation after 2026. This permanence will make it much easier for affluent families to plan their estates

Are Your Business Expenses Properly Substantiated?

Tue, 23 Sep 2025 19:44:46 GMT

Tax Tip:

Businesses can generally deduct their “ordinary and necessary” business expenses. But even a legitimate expense isn’t deductible unless it’s adequately substantiated.

Typically, substantiation requires proof of payment and evidence showing the character and deductibility of the expenditure. Proof of payment may include canceled checks, bank statements, credit card statements or invoices marked “paid.” You can establish the character and deductibility of an expense with items such as sales slips, invoices, receipts, payment acknowledgments and check registers. A canceled check may also suffice if it indicates the nature of the expense.

If a business can’t fully substantiate an expense, the courts have some leeway to approximate deduction amounts, provided the business presents sufficient evidence to support an estimate. However, this approach isn’t available for expenses that are subject to heightened substantiation requirements, such as travel, meals and entertainment

A Brief History of Women in Accounting

Fri, 19 Sep 2025 13:30:00 GMT

How Far We’ve Come, and How MBK Is Helping Lead the Way

Accounting hasn’t always been an open profession for women. For much of the 19th and early 20th centuries, women were excluded from formal financial roles, limited by both law and bias. Today, the picture is changing, but not nearly fast enough. While women now dominate the pipeline for entry-level accounting roles, there’s still a steep climb to the top. Firms like Meyers Brothers Kalicka, P.C. (MBK) are helping shift that story, showing what it looks like when equity becomes action.

The Early Trailblazers

The first woman in the U.S. to officially enter the accounting profession was Christine Ross. She passed the CPA exam in 1898 and was certified in 1899, at a time when few women even worked outside the home. She faced major obstacles due to her gender, including a six-month delay in receiving her certificate. But Ross paved the way for generations of women who followed.

By the mid-20th century, more women were joining the accounting workforce, though often in clerical or support roles. The push for professional recognition continued, slowly gaining traction as women entered higher education in larger numbers and earned the degrees needed to compete for CPA licensure.

The history of women in accounting reflects a broader story of progress, persistence, and unfinished business. From early pioneers who broke barriers in the 19th century, to today’s highly credentialed professionals, women have helped shape the industry while pushing for equity in roles, recognition, and leadership. Still, the gaps remain. Current national statistics show a strong presence of women in the workforce, but a sharp drop at the leadership level. At MBK, the picture looks different—and offers a real-time example of change in action.

From Barrier-Breakers to a Majority (...sort of)

Today, women are not just present in the field—they are the majority. Nationally, 59.7% of accountants and auditors were women in 2022, according to the U.S. Bureau of Labor Statistics. In Massachusetts, women represented 57% of accounting professionals as of 2023, reinforcing the strength of the talent pipeline in one of the country’s most competitive markets.

The profession continues to grow. New technologies, expanded advisory services, and evolving financial regulations are driving demand for CPAs and accounting specialists, opening up diverse career paths in public accounting, private industry, government, and nonprofit sectors.

The Leadership Drop-Off

Despite their dominance in the workforce, women remain underrepresented at the top. Across the country, women make up just 15% of partners at non–Big Four firms. This leadership gap is even more pronounced outside major urban centers. In cities, the numbers tend to be "higher." For example, in Boston, 22.5% of audit partners are women. This is one of the highest percentages in the country, but it is still far from achieving true equality.

The reasons for this disparity are complex. Women often face limited access to mentorship, inconsistent support for work-life balance, and fewer structured advancement pathways. Many firms lack transparency around promotion timelines or fail to create environments where emerging leaders can stay visible and supported throughout their careers.

MBK’s Numbers Look Different

MBK is one of the firms rewriting this narrative. The firm’s leadership includes 60% women among senior managers, supervisors, department heads, and 33% of its partner group is female. These numbers place MBK well ahead of both state and national averages, and they reflect more than good intentions.

MBK has built internal programs that make advancement clear and accessible. Professionals with leadership potential are supported through a formal partner-track system, mentorship pairings, and flexible work structures that allow for both professional growth and personal stability. Importantly, women at MBK are not just on the team. They are at the table, in the boardroom, and in front of clients.

Connecting to a Larger Movement

The Massachusetts Society of CPAs has made it clear: the future of accounting will depend on retaining and advancing the diverse talent already in the pipeline. Firms that can create sustainable leadership opportunities for women will be better positioned to serve clients, retain staff, and shape the future of the profession.

As the fall recruiting season begins, MBK is a standout for students, career-changers, and experienced professionals who want more than just a job. Professionals want to grow in a place where leadership is visible, mentorship is active, and advancement is not just possible, but expected.

MBK’s numbers are not the norm, but they could be. They reflect a firm that’s doing the work now, not waiting for the industry to catch up. And that makes all the difference.

S Corporation Year End Payroll Reporting Considerations - Fringe Benefits

Wed, 17 Sep 2025 14:19:33 GMT

What are Fringe Benefits?

A fringe benefit is a form of pay, including cash, amounts paid on behalf of an employee (e.g., health and life insurance, retirement and health accounts), or in-kind (e.g., property, meals, company cars), in addition to stated pay for the performance of services. Under the Internal Revenue Code (“Code”), The Code provides that fringe benefits are taxable, excluded or partially taxable, depending on the type of benefit. If a fringe benefit is excluded or partially taxable, it must be “qualified”, i.e., meet strict requirements to qualify for this preferential tax treatment. Even if excluded or partially taxable by employees, employers may deduct the cost of fringe benefits.

What are S Corporations?

Qualifying corporations that make “S” elections under the Code are not separately taxed, as regular (“C”) corporations are. S Corp status allows corporations to avoid double taxation by passing income, losses and deductions to its shareholders, who report these items directly on their tax returns. Often, S Corp shareholders are also employees.

Fringe Benefits & S Corp 2% Shareholder-Employees

Due to the overlap between owner and employee status, special rules apply to S Corp shareholder-employee fringe benefit taxation and reporting. These rules apply to shareholders owning 2% or more of S Corp stock (“2% shareholders”). Even if excludible by regular employees, 2% shareholder benefits are generally taxable and must be reported on the shareholder’s W-2. The following benefits are treated differently for 2% shareholders:

Compliance and Planning

Many S Corporations are unaware of these rules and may face IRS adjustment if fringe benefits are not properly reported. If fringe benefits are omitted from W-2 reporting, the IRS may disallow related deductions, resulting in increased taxable income and potential penalties.

If you are an S Corp, planning to start an S Corp, or a 2% shareholder-employee, it’s important to review all the shareholders’ ownership percentages to determine the correct tax treatment of shareholder-employee fringe benefits. The S Corp should decide which benefits to offer and clearly communicate this information to its payroll provider, especially regarding shareholders benefits. Be sure to consult your CPA or refer to the IRS website for fringe benefit guidance.

One Big Beautiful Bill Act

Tue, 02 Sep 2025 14:43:46 GMT

On July 4, 2025, President Trump signed Pub. L. No. 119-21 into law, known as the “The One Big Beautiful Bill Act” (OBBBA). The OBBBA makes permanent both individual and business provisions contained in the Tax Cuts and Jobs Act (TCJA) and also provides new temporary tax provisions, such as new deductions for tipped wages, overtime pay, and auto loan interest.

The OBBBA contains more than 110 tax provisions. Most are effective beginning in 2026. However, a number of important provisions are effective in 2025, including:

Business provisions effective in 2025:

Individual provisions effective in 2025:

Additionally, the OBBBA contains directions to terminate the IRS Direct File program; however, it does not actually terminate the program. It is likely that the program will be terminated before the 2025 filing season.

Additional Individual Provisions to Keep an Eye on for 2026

Tax credit contributions to scholarship-granting organizations.
Expansion of 529 programs to include elementary, secondary, and home schooling expenses.
Charitable Contributions: Nonitemizers may deduct up to $1,000 (single) and $2,000 (joint)

Next Steps:

The new legislation raises both opportunities and challenges. We recommend taking the following actions as soon as possible:

Evaluate 2025 midyear tax strategies to take advantage of new deductions, credits, and planning opportunities.
Meet with your accountant to review the new laws and how it may affect your situation and to develop a strategy.

Supporting Students through Stuff the Bus: A Community Effort

Tue, 26 Aug 2025 14:41:04 GMT

As the back-to-school season begins, many students and families eagerly prepare for the upcoming academic year. However, for some, the burden of acquiring essential school supplies can pose a significant challenge. MBK teamed up with United Way of Pioneer Valley to help "Stuff the Bus" and bring school supplies to students who are homeless or in need.

Stuff the Bus aims to alleviate the financial strain on families by ensuring that every student has access to the resources they need to succeed in their studies. The event showcases the remarkable commitment and dedication of the community to supporting education and the future success of students.

Participating for a fourth year, team MBK collected unopened school supplies led by champions Partner, Matt Nash and Supervisor, Chris Soderberg. A table of physical donations were made by the team, and a total of $500 was collected, which was strategically allocated to purchase 350 items from Target.

This year United Way of Pioneer Valley set a donation goal of stuffing 700 backpacks for elementary students. As of August 8 ^th , they surpassed this goal and were approaching a total of 900 backpacks. In addition to donations for elementary students, the firm expanded the drive to include donations for teachers’ classroom supplies. Donations of items to the United Way of Pioneer Valley included: backpacks, notebooks, crayons, glue sticks, pencils, pens, erasers, pencil sharpeners, rulers, pencil boxes and cases, loose leaf paper, composition books, highlighters, index cards, post-it-notes, paper towels, cleaning supplies, tissues, etc.

Chris delivered the collected school supplies to the United Way of Pioneer Valley on August 16 ^th which was later distributed to Hampden County, South Hadley, and Granby schools.

To learn more about United Way of Pioneer Valley Stuff the Bus, visit their website: https://www.uwpv.org/stuff-the-bus .

New Accounting Rules for Crypto Donations Go Into Effect

Tue, 19 Aug 2025 13:23:18 GMT

Nonprofits increasingly receive donations in the form of cryptocurrencies such as Bitcoin and Ethereum. As digital assets have become more common, so has the need for clear and consistent accounting standards. The Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2023-08 to help tax-exempt organizations recognize and report crypto donations. This new guidance took effect for fiscal years beginning after December 15, 2024, and nonprofits are permitted to adopt it early. If you haven’t already, get up to speed on the rules.

What does it change?

In the past, cryptocurrency holdings were recorded as indefinite-lived intangible assets under ASC 350, similar to the treatment of any trademarks or copyrights. ASC 350 required organizations to report crypto at the lowest value it reached since acquisition (referred to as “impairment”), even if the asset later regained or exceeded its original value. Such reporting can lead to distorted financial statements.

ASU 2023-08 introduces a significant change: Cryptocurrencies must now be measured at fair value, and any shifts in value must be recognized in the statement of activities. This enables you to:

Report the current market value of crypto assets on financial statements,
Recognize both gains and losses as they occur, and
Reduce the need for complex impairment testing.

Note: These new rules apply to crypto assets that are intangible and fungible and that don’t provide enforceable rights to goods or services.

Implications for nonprofits

For charitable organizations, ASU 2023-08 has several important implications. First, nonprofit financial statements are likely to reflect the real-time value of crypto donations more accurately, thereby aiding your decision-making. Also, these rules replace a burdensome impairment model with a more straightforward fair value approach, saving you time and reducing audit complexities.

However, understand that fair value accounting will introduce more visible swings in the value of crypto donations, especially if you hold them for extended periods. Ensure you have access to reliable market data for valuing crypto assets. You may also need to review your organization’s internal controls regarding crypto custody and valuation.

Take action now

ASU 2023-08 uses a fair value model to align cryptocurrency accounting with reporting for other market-traded investments such as stocks. To prepare for the change, your nonprofit should review its crypto-related policies and consult with your board’s audit or finance committee to help ensure smooth implementation. Accounting for crypto remains a complex endeavor, so reach out to us.

A Donor-Advised Fund May Pair Perfectly with an Estate Plan

Tue, 12 Aug 2025 17:33:16 GMT

Tax Tip:

Using a donor-advised fund (DAF) is worth considering if charitable giving is high on your estate planning objectives. What’s the main attraction? Among other things, a DAF can give you greater control over your charitable endeavors than direct donations.

A DAF generally requires an initial contribution of at least $5,000. A financial institution or an independent sponsoring organization manages the fund and charges an administrative fee, typically based on a percentage of the assets on deposit.

You instruct the DAF on how to distribute contributions to your preferred charities. While deciding which charities to support, your contributions are invested and potentially grow within the account. Then, the sponsoring organization vets the charitable organizations you choose to ensure they’re qualified to accept DAF funds. Finally, the checks are cut and distributed to the charities.

Behind the Boxes: A Day at the Food Bank Warehouse

Mon, 04 Aug 2025 18:09:10 GMT

In a world where far too many individuals go without access to healthy food, a group of compassionate individuals came together to make a difference. We want to extend our heartfelt congratulations to Karen, Catie, Allison, Donna, Jacob, Jimmy, Zac, John, Elise, and Katrina for their incredible participation in the food sorting community service initiative on Friday, July 25 ^th at the Food Bank of Western Massachusetts’ Warehouse.

The team collaboratively sorted, organized, and packaged over 3,500 pounds of bread which was distributed to various food pantries and organizations in the surrounding community. Together, we end hunger with the Food Bank of Western Massachusetts.

About the Organization

Some statistics on the Food Bank’s impact in the community:

120,038 Individuals Served per Month (average)
18% Seniors
29% Kids
53% Adults
17.1 Million pounds of food distributed in 2024
5,824 Brown bags served in 2024
11,528 pounds vegetables grown and distributed in 2024

To learn more about the Food Bank of Western Massachusetts and the opportunities to give back to the community, visit their website: https://www.foodbankwma.org/get-involved/home/

Handling Controversial Contributions

karona@mbkcpa.com (Katrina Arona) — Wed, 30 Jul 2025 13:00:15 GMT

In economically fraught times, it’s hard to envision a scenario in which your nonprofit would turn down a donation. But suppose that donation has the potential to put your organization in the hot seat because the donor is involved in illegal, unethical or controversial activities. In that case, it may be in your organization’s best interest to refuse the financial support.

Point, counterpoint

The risk of reputational damage is a compelling reason to decline controversial contributions. You might find that some of your current supporters are among the most vociferously opposed to these donations. Disagreements also divert attention from your ethical standards and positive accomplishments, not to mention alienating future donors.

However, arguments can be made to hold on to controversial donations. Not every donor is an angel or operating from purely altruistic motives. Insisting otherwise could drastically reduce revenue. The argument goes that money given to a nonprofit generally benefits society as a whole, particularly when the recipient engages in social welfare work. And, if you turn away funds, you could have to cut programs, dip into your endowment or sell other assets.

Put research front and center

A simple policy that helps prevent later embarrassment and regret is to research all prospective donors who promise gifts over a certain amount. Most nonprofits can’t afford a full-time staff dedicated to donation due diligence. But you might ask a board member or other volunteer to perform some basic searches. At the very least, search the donor’s name online using terms such as allegation, bankruptcy, bribe, controversy, court, fraud, human rights, investigation, prosecution, unethical and scandal.

Web searches can uncover vital information, including the source of a donor’s wealth, possible legal entanglements, support for other nonprofits and the historical business practices of any companies they own or control. Pay particular attention to the person’s public statements, such as those posted on social media, as well as stories from reputable news outlets. If such investigations seem outside your nonprofit’s wheelhouse, you may want to pay a professional background search service to look into more prominent donors.

Gift acceptance policy

Include a research requirement in any formal gift acceptance policy. A policy can help guide you when you need to make an important decision under pressure. If you have to refuse a gift, for instance, you can simply point the donor to your policy.

The policy should explicitly state which donations you’ll accept and which you won’t. Most organizations refuse donations of stolen funds or those clearly generated illegally. But what about “clean” donations that you suspect are given to support a dicey donor’s public relations efforts? What about anonymous gifts? Some nonprofits find anonymous donations risky by nature, but you may decide you can safely accept them.

If you accept donations from controversial donors, you’ll likely need to explain that decision at some point. So, include communications guidelines in your gift acceptance policy. Determine who will speak for your organization, which channels you’ll use and how much information you’ll share.

Surprise!

Also establish a process for handling gifts from donors that become controversial only after you’ve received them. It may help to consider this real-life example where the donor’s business actions directly affected the interests of a charity’s clients.

A pharmaceutical company’s new owner made headlines for dramatically increasing the cost of critical medications. At that point, some of his charitable contributions became public. One nonprofit that supports homeless people, some of whom depend on the drugs of the donor’s company, returned his gift. But the donor’s alma mater didn’t. The educational institution apparently decided that the owner’s business decisions didn’t undermine its academic mission.

Stick to your values

Regardless of where you stand on common gift acceptance scenarios, ensure your policy is clear and explicit. Generally, if a donation appears suspicious or inconsistent with your mission, it's prudent to decline it. In such cases, be sure to obtain board feedback and ensure that all decision-makers are in agreement.

The Other Side of Victory: Stories and Lessons from Women in Sports

karona@mbkcpa.com (Katrina Arona) — Mon, 28 Jul 2025 17:55:01 GMT

This is a concept that more women should feel empowered and energized by. Being confident and unapologetically sharing your confidence - and your passion - will only work to inspire and lift others up around you. Empowered women empower women!

Ilona is only one of the many current voices in women’s sports who I have found inspiration in, and whose exemplary leadership has helped guide me to where I am today in my professional career. Another one of the most powerful moments came just weeks ago, when Faith Kipyegon became the first woman to attempt running under four minutes in the mile. This experiment is incredibly significant to the athletics and running community, because while thousands of men have achieved this feat, it is one that no woman has ever accomplished. Faith, the world record holder in this distance, embraced the challenge head-on with the full support of her sponsor, Nike, and their innovative teams and technology - which sought to optimize the perfect conditions and variables to best set her up for success. Following this attempt, as a fan of the sport and as a woman, was incredibly motivating and exciting and came with major takeaways that can be applied to women in the workplace.

Find a team and trust in them.

To break a barrier as significant as Faith set out to do, alone, would be impossible. Faith had a team on the track - 13 world-class pacers who were all also Olympians and champions in their own right. They were organized in a meticulous formation to minimize draft and pull her along to her goal time. There was something incredibly emotional and empowering about watching all of these men and women come together and be unified in the support of Faith and her goal. In addition to this direct support on the track, Faith had a stadium full of fans cheering her on in person, and countless others across the world.

The same concept is applicable to the professional environment. Especially when first entering the field, it can be intimidating as a woman to speak up in a room that is often full of men. There is also so much to balance throughout the day - be it work-related goals and obligations, family, volunteering, outside passions, mental and physical health, or any other commitments. What is most important is building a community of people who you trust and can lean on for support as needed. Whether offering advice or providing cheers and moral support, having teams of people you love and look up to is the foundation of success. To this point, it is also essential to surround yourself with people who challenge you. When your support system has role models who can push you to improve and who have achieved successes that you aspire to reach, it will provide a source of continuous motivation.

Try something new.

In Faith’s case, this was all orchestrated and designed by Nike’s innovation team, much like a science experiment. It included new shoes, new high-tech gear, new pacing formations, and so much more, all aimed to create optimal conditions.

Although optimal conditions are never truly realistic or practical, this attempt goes to show the benefits of not being afraid to switch things up in the workplace. Change is uncomfortable, but growth comes from being able to exist in and embrace this discomfort. This can help foster a fresh take and create a culture where new ideas are welcomed and encouraged. Whether it improves efficiency or helps to create stronger bonds across different teams, being open to change comes with so many benefits. In addition, on an individual level for women in the workplace, it opens up new opportunities to take on leadership roles and provide mentorship to others. Being confident enough to challenge yourself and step out of your typical comfort zone will lead by example for other women to do the same and will help their aspirations and growth trajectory.

Be bold, be confident, and don’t stop trying - trust the process.

Faith may not have become the first woman to break four minutes in the mile, but at its core, that was not the purpose of the challenge or what it represented for women. Faith set out to prove that she is brave enough to set a scary goal and to try something perceived as impossible. Then, she was strong enough to persevere when it did not go as hoped. And even though she did not reach this stretch goal on her first true attempt, she turned around and ran a world record in the 1500-meter race the next weekend, which is a distance just shy of one mile. Even though she did not hit her first goal, this is a remarkable testament to how she was able to take all her training, enthusiasm, and drive - to then pivot, refine a new goal, and execute.

The same concept is applicable to professionals, it is important to not get discouraged when challenges are encountered. Although it is okay and normal to become frustrated with difficulties, what will truly yield the best results is when you don’t allow yourself to dwell on these perceived failures. The ability to be coached - being able to seek out and be open to receiving feedback - is what encourages growth. It is even more powerful and impactful to find other women who too have grown through the workforce and experienced similar challenges, to learn from their experiences and take lessons back to your own.

Be passionate and excited about something.

Faith’s love of the sport and desire to advance it and be challenged is what makes the seemingly impossible, possible. This passion and excitement is what creates value as a woman in the workplace. When you are doing something that is meaningful or that makes you happy, you’ll be more productive and better at communicating and lifting others up. Being a woman in the profession comes with knowing you have the opportunity to inspire others, and it is so important to be able to use this to offer continuous encouragement and share the excitement and the triumphs that come with achieving meaningful milestones. Although these successes look different to everyone, it is incredibly impactful to be in a position where you can help to celebrate daily accomplishments big and small, and grow the next generation of strong, confident women.

Are You Sure About Those Beneficiaries?

karona@mbkcpa.com (Katrina Arona) — Fri, 25 Jul 2025 13:00:11 GMT

Regularly review who'll receive your assets

Do you know the meaning of the term “nonprobate assets?” These assets bypass more traditional estate planning vehicles, such as a will or revocable trust, and are transferred to family members through beneficiary designations. Nonprobate assets include IRAs, certain employer-sponsored retirement accounts, life insurance policies, and some bank or brokerage accounts.

If you’ve designated beneficiaries for certain assets, it’s critical to review your choices periodically. This is especially important after a major life change, such as a divorce or the birth of a child or grandchild.

Best practices

As you review your beneficiary designations, keep the following best practices in mind:

Choose a primary beneficiary plus one or more contingent beneficiaries. Suppose your primary beneficiary passes away before you do. If you haven’t named a contingent beneficiary for an asset, the asset will end up in your general estate, potentially disrupting your intended distribution plan.

Plus, assets that might otherwise be protected from creditors could lose that protection if transferred to your estate. To maintain control over your wealth and preserve protection from creditors, designate a primary beneficiary and at least one alternate choice. Also, avoid naming your estate as a beneficiary.

Be prepared to change your mind in light of changing circumstances. Choosing beneficiaries isn’t a one-and-done deal. Failure to update beneficiary designations to reflect changing circumstances creates a risk that you’ll inadvertently leave assets to someone you didn’t intend to benefit, such as an ex-spouse.

It’s also important to update your designation if the primary beneficiary dies — especially if there’s no contingent beneficiary or if the contingent beneficiary is a minor. Suppose, for example, that you name your spouse as the primary beneficiary of a life insurance policy and your minor child as the contingent beneficiary. Now, suppose your spouse dies while your child is still a minor. In that case, it’s advisable to name a new primary beneficiary to avoid the complications of leaving assets to a minor (such as court-appointed guardianship).

Don’t overlook the impact on government benefits. If a loved one depends on Medicaid or other government benefits (a disabled child, for instance), naming that person as the primary beneficiary of a retirement account or other asset may disqualify the individual for those benefits. A better approach may be establishing a special needs trust for your loved one and naming the trust as the beneficiary.

Consider whether relevant tax laws have changed. Changing tax laws can easily derail your estate plan if you fail to update your plan accordingly. For instance, the SECURE Act sounded the death knell for the “stretch” IRA. Previously, when you left an IRA to a child or other beneficiary (either outright or in a specially designed trust), distributions could be stretched over the beneficiary’s life expectancy, maximizing tax-deferred savings. However, the SECURE Act requires most nonspousal beneficiaries of IRAs to distribute the funds within 10 years after the owner’s death. Thus, in light of this change, you should review the designated beneficiaries for your IRAs and other retirement accounts.

Unintended consequences

No matter how carefully you plan your estate, inappropriate beneficiary designations for nonprobate assets can easily thwart your objectives. Avoid unintended consequences by reviewing your beneficiary designations regularly to ensure they’re still appropriate and align with your overall estate planning goals. Work with your professional advisors to determine whether you need to make any designation changes.

Nonprofits and Federal Government Grants

karona@mbkcpa.com (Katrina Arona) — Tue, 22 Jul 2025 17:52:31 GMT

What now?

Filling funding gaps made by government cuts

If your nonprofit depends on government grants — particularly federal government grants — you’re probably dealing with a lot of uncertainty right now. But even if funding for the next year (or longer) is in doubt, your organization has options. Several avenues may be available to replace lost revenue. Let’s take a look.

Big piece of the pie

According to the Urban Institute, government funding accounts for approximately one-third of the revenue flowing into the nonprofit sector. This includes state and local government grants that often are funded indirectly by the federal government.

In every state, 60% to 80% of nonprofits that receive government grants would be at risk of financial shortfall without this funding. A reduction or elimination of federal funding can easily threaten an organization’s survival.

Proactive steps

Taking specific steps can help mitigate the financial consequences associated with funding cuts. Management should, for example:

1. Assess the risk. Don’t wait until you receive notice of a funding cut. Assess potential damage now to plan appropriately. If you suffered funding cuts or delays in early 2025, you may already know how further cuts would affect your budget and ability to pursue your nonprofit’s mission.

For a better handle on the situation, review upcoming expenses and liquid assets on hand to determine how many months of operating expenses you'd likely be able to cover. The shorter the period, the sooner you should act to line up other revenue sources or reduce spending (see “Cost cutting: The other side of the coin” below).

2. Reach out to donors. As many did during the COVID-19 pandemic and the 2008 recession, some major donors may be willing to waive or at least relax restrictions on their gifts, allowing you to use the funds for operations and programming. To encourage the support of other donors, illustrate the outcomes made possible because of previous gifts and explain in concrete terms the impact of lost federal funding. For instance, show how many people will go without meals, job training or health care. Also, highlight the tax benefits of donating through a donor-advised fund or IRA charitable distribution.

3. Pursue major gifts. For some organizations, the threshold for a major gift might be $1 million, but for many small nonprofits, $1,000 could be a sizable contribution. You can identify possible major gift sources by listing your top 50 to 100 active funders. Research them to determine if they have the wealth and philanthropic inclinations to make more significant gifts. Then, develop a compelling message that conveys the urgent need for substantial donations to your organization.

Ensure that appeals to these supporters are delivered personally, not via mail or email. Your executive director and board members might call or arrange to meet with those on your list. Even if individuals or grant makers don’t give immediately, nurturing such relationships can pay off down the road when they're inclined to provide financial support.

4. Encourage planned giving. It may seem like a luxury to devote limited resources to planned giving when facing near-term budget holes. However, 2025 is prime time to discuss the topic with Baby Boomers. The so-called Great Wealth Transfer, during which Boomers are expected to leave about $84 trillion by 2045, is already on.

If you secure planned giving agreements, you aren’t only boosting future financial support. Research published in the University of California Davis Law Review suggests that annual giving naturally increases when individuals incorporate a charitable component into their estate planning. It shouldn’t necessarily reduce current support, particularly if you have longtime donors with an emotional stake in your organization.

Time to get creative

Over the next several years, your nonprofit may need to become more creative to ensure it has sufficient financial resources. We can help you assess your current financial situation and suggest revenue-generating ideas.

Sidebar: Cost-cutting: The other side of the coin

If you lose a critical piece of your nonprofit’s funding, you might need to look for ways to offset the decline on the other side of the ledger — by reducing expenses. Possibilities include:

Staffing. Reducing staff expenses doesn’t necessarily mean layoffs. You could, for example, increase remote work, which might allow you to reduce facilities costs. You could also trim hours or employee benefits.

Facilities. For most nonprofits, rent or mortgage payments take a significant bite from their budgets. If you have multiple sites, consider consolidating them into a single location. Or ask your landlord or mortgage lender if they're willing to negotiate lower monthly payments. And if you own your facilities, think about renting out unused space.

Collaborations. Many other nonprofits are in the same situation. Consider finding one willing to share space or other resources. Or you could combine purchase orders with those of one or more other organizations to obtain lower prices or discounts from vendors.

Cash or Accrual Accounting

karona@mbkcpa.com (Katrina Arona) — Tue, 22 Jul 2025 17:02:10 GMT

Choose carefully for your small business

To manage their finances and accurately file their taxes, most small business owners must choose between two accounting methods: cash or accrual. This choice directly affects how and when you report income and expenses — and it can significantly impact your tax liability and cash flow. Here are answers to a few frequently asked questions about both methods and how to make this critical decision.

What’s the difference?

Cash accounting is the simpler method to use. It records income when cash is received and expenses when they’re paid. So, if you send an invoice in December and accept payment in January, you report the income in January.

A strategic advantage of using cash accounting is that you have greater control over the timing of income and deductions. You can delay income for the following year by delaying invoices or pulling deductions into the current year by accelerating expense payments. This also allows you to manage cash flow better when you expect a substantial expense.

In contrast, accrual accounting records income when earned and expenses when incurred — regardless of when the cash changes hands. Using the same example, income from a December invoice is reported in December, even if payment doesn’t arrive until the following year. That limits your flexibility regarding when you must recognize income or expenses for income tax purposes.

On the other hand, if your company’s accrued income tends to be less than your accrued expenses, your tax liability may be lower than it would be if you used the cash method. Using the accrual method, you may also be able to defer taxes on certain advance payments.

Can anyone use the cash method?

The Tax Cuts and Jobs Act made the cash method more accessible than it was in the past and simplified the associated requirements.

In 2025, for the purpose of choosing an accounting method, a “small business” is defined as one with average annual gross receipts of $31 million or less over the prior three years. This higher threshold allows more companies to use the simpler cash method and enjoy other associated benefits such as:

Easier inventory accounting,
Exemption from the uniform capitalization rules, and
Exemption from the business interest deduction limitation.

Some businesses are eligible for cash accounting even if their gross receipts exceed the threshold. This includes S corporations, partnerships without any C corporation partners, farming operations and certain personal service corporations. Tax shelters are ineligible for the cash method — regardless of size.

Should we switch methods?

If you’re thinking about switching accounting methods, consider factors such as:

Administrative burden. If your small business prepares its financial statements following Generally Accepted Accounting Principles, you’re required to use accrual accounting for those statements. You can still use cash accounting for tax purposes, but you’ll have to keep two sets of books, which can be burdensome.

IRS approval. Changing your accounting method typically requires filing Form 3115, “Application for Change in Accounting Method,” and getting IRS consent. This process can be complex, so consult a tax advisor to weigh the potential benefits against the effort involved.

Timing. A switch might make sense if your company is growing or downsizing, or your expense and revenue patterns undergo significant changes. Regularly evaluating your business’s direction can help you stay ahead of tax liabilities.

Before deciding what to do, step back and look at the bigger picture. Weighing the administrative burden, compliance requirements and timing considerations can help you determine whether a change would truly be beneficial.

Powerful opportunity

As a small business owner, you have a powerful opportunity to manage your tax liability and avoid some administrative headaches — simply by choosing the right accounting method.

But there’s no one-size-fits-all answer. The best approach is the one that aligns with your company’s financial patterns and strategic goals. Before making any changes, consult a qualified tax advisor to assess the best fit for your unique situation.

Choose the Right Ownership Structure when Buying a Vacation Home

karona@mbkcpa.com (Katrina Arona) — Mon, 23 Jun 2025 18:18:11 GMT

Tax Tip:

If you’re considering buying a vacation home, it’s critical to choose the right ownership structure. Your choices include a corporation, a trust, tenants in common or a limited liability company (LLC). While each structure has pros and cons, an LLC can be highly beneficial.

For example, using an LLC structure can limit (subject to certain exceptions) family members’ exposure to personal liability lawsuits associated with the property. This is especially important if you plan to rent the home when the family isn’t using it.

In addition, choosing an LLC structure for a vacation home can help simplify recordkeeping. The LLC is its own separate entity. So, all the operating funds for the home could be held in one account, making it easy to allocate the income and expenses between the LLC members.

Five Common Estate Planning Traps to Avoid

karona@mbkcpa.com (Katrina Arona) — Wed, 18 Jun 2025 13:00:15 GMT

It should surprise no one that we all need an estate plan. A well-crafted plan helps ensure, among other things, that your family will be taken care of per your wishes after you die. Contemplating one’s mortality isn’t pleasant, but it must be done to preserve your wealth and avoid adverse tax consequences. Assuming you’ve already set up an initial version of your estate plan, here are five traps to avoid:

1. You don’t understand your estate plan. This is a surprisingly common trap that many individuals fall into — even those who rely on the guidance of an experienced estate planning advisor. Knowing what you’re signing and what each document means is essential. Unfamiliarity or confusion can lead to failing to follow up with necessary actions.

You don’t have to become a legal professional; you must grasp the basic concepts. Even if you feel safe relying on your advisor, knowledge is power.

2. Your trusts aren’t adequately funded. Estate plans often include one or more trusts, such as a revocable living trust. The primary advantage of a living trust is that assets transferred to it avoid probate and remain private. However, a living trust should complement a will, not replace it.

To be effective, the trust must be funded by transferring legal ownership of assets. You must carefully follow financial institutions’ instructions when transferring securities or bank accounts. Otherwise, the assets may go through probate, which can be time-consuming, costly, and public.

3. Your assets haven’t been appropriately titled. How you own assets can make a big difference, inside and outside trusts. Suppose, for example, you own property with someone as joint tenants with rights of survivorship. Upon death, the assets will go directly to the other named person, such as your spouse.

Titling assets at the time of purchase (or transfer) is critical. However, it’s still important to periodically review these designations, just as you should your beneficiary designations.

4. Your estate plan lacks coordination between its various components. Most estate plans have several moving parts: a will, a power of attorney, trusts, retirement plan accounts and life insurance policies. Don’t look at each piece in a vacuum. Each component of your estate plan may have a different objective, but together, they should sync up to form a well-coordinated system.

5. You don’t periodically review your plan. Think of your estate plan as a “living” entity that must be nurtured. Don’t allow it to gather dust in a safe deposit box or file cabinet. Consider the impact of significant life events — such as births, deaths, marriages, divorces, or job changes or relocations — and be prepared to make changes.

The easiest way to avoid falling into this or any other trap is to work with your professional advisors, including your attorney and CPA, to

draft and review your estate plan regularly. They have the expertise to help ensure your plan will work as intended.

Three Years of Teamwork with "A Bed for Every Child"

karona@mbkcpa.com (Katrina Arona) — Fri, 13 Jun 2025 18:46:02 GMT

Friday June 13 ^th marked the firm’s third year of participating in the A Bed for Every Child program. This year’s effort was a collaborative success between three businesses; MBK, Charter Oak Financial Group, and Colebrook. Together, we built 14 beds for children in need.

The team, led by Chelsea, included, Allison, Carolyn, Cheryl, Dan, Denise, Fran, Jacob, Jimmy, Karen, Katrina, Lauren, Nick, Peter, Taylor, and Zac. As a group, their collaboration and dedication played a vital role in assembling the beds, truly reflecting the spirit of community spirit.

A Bed for Every Child is the organization behind the impactful initiative. Guided by the belief that sleep is as essential as food, water, shelter, clothing, and that every child deserves a safe space to dream. Since its inception in 2012, A Bed for Every Child, which is an initiative of the Massachusetts Coalition for the Homeless, has been dedicated to ending homelessness through proactive community engagement.

Some Stats Over the Past Year for Children in Massachusetts Who Have Been Provided a Bed:

In Massachusetts, 1 in 8 children live in poverty, and as the cost of living continues to rise, many families simply can’t afford to provide brand-new beds for their children leaving thousands to sleep on floors, couches, air mattresses, or share a bed with a relative.
Whether recovering from fires, floods, health and safety concerns, or starting over in a new home, A Bed for Every Child program served nearly 2,000 children last year—delivering complete, brand-new beds and giving each child a safe, comfortable place to sleep, and the chance to wake up rested and ready to learn.

With the help of the community, A Bed for Every Child facilitates hands-on team building activities to construct beds for children in need. The event was a resounding success, showcasing the powerful impact of how collective action can make a significant difference in the lives of those less fortunate. Our firm is proud to have contribute to a meaningful cause and looks forward to more opportunities to give back to the community.

To learn more about A Bed for Every Child’s initiatives, check out their website here .

Making a Difference, One Paw at a Time

karona@mbkcpa.com (Katrina Arona) — Thu, 12 Jun 2025 14:14:30 GMT

For the month of May, Francine Murphy and Caitlin Humphrey held a pet drive to benefit Better Together Dog Rescue located in Leverett, MA and Westfield Homeless Cat Project located in Westfield, MA. Working together and with firm-wide support, we were able to deliver over a thousand dollars of food, toys, treats, towels, carriers, leashes, and other supplies for dogs and cats to each organization. The table was filled with donations!

Better Together Dog Rescue

A dedicated team of professionals bringing change to the animal welfare field. We believe no healthy or adoptable dog should be euthanized due to lack of space. Dogs should be with their families and life circumstances should not stand in the way. To prevent dogs from being surrendered to the shelters, we will provide resources and supplies for our community members so their beloved dog can stay with them, right where they belong.

Their Goals :

Rescue and transport dogs to our location from overcrowded partner shelters.
Engage with the community through adoption and volunteer and fostering opportunities.
Provide resources to the community through our mobile dog food and supply pantry.
Collaborate with local veterinarians for low-cost or free spay/neuter, vaccinations and microchips
Crisis Foster program will provide free temporary housing for dogs of owners who are involved with domestic violence, military active leave, homelessness and sudden medical issues. Give back to our partner shelters to help stop the euthanasia of healthy and adoptable dogs.

The dog featured in the photo at the donation drop is named Rose. She is a 2-year old sweetheart looking for her forever home. Her adoption details can be found here .

Westfield Homeless Cat Project

The Westfield Homeless Cat Project provides shelter and care for abandoned and homeless cats, with the goal of finding them forever homes. We do not discriminate based on age or medical history. We do everything in our power to accommodate all animals and each situation is looked at on an individual basis.

Their Goals :

Offer homeless and surrendered cats and kittens with the care they need prior to adoption.
Provide any dental and medical care the cats may require during their stay.
Connect with veterinarians in the area to coordinate spaying or neutering, testing for FIV/FeLV, and make sure all cats are up to date on vaccinations.

Connect today by learning more about each organization ( Better Together Dog Rescue and Westfield Homeless Cat Project) and the numerous ways to get involved.

Lighting the Way: MBK Hosted the Final Leg of the Law Enforcement Torch Run for Special Olympics

karona@mbkcpa.com (Katrina Arona) — Tue, 10 Jun 2025 14:48:09 GMT

On Wednesday June 4 ^th , Meyers Brothers Kalicka, P.C. (MBK) proudly hosted a rally for the Final Leg of the Law Enforcement Torch Run for Special Olympics Massachusetts, welcoming athletes, law enforcement officers, and supporters as they carried the Flame of Hope throughout Massachusetts.

The event was held at People’s Bank headquarters, spearheaded by Lauren Foley, Senior Associate and Christopher Soderberg, A&A Supervisor of MBK. As a team they brought together employees from MBK and other businesses in People’s Bank Head Quarters to show their support for the Special Olympics athletes and law enforcement officers across the state. The torch’s arrival was met with enthusiastic cheers and heartfelt appreciation throughout the crowd.

“The Final Leg Rally is a powerful tradition that ignites more than just the Flames of Hope, we ignite the spirit of courage, determination and unity that defines the Special Olympics movement. It is a celebration of inclusion, perseverance, and the incredible achievements of these athletes; they embody resilience, determination, and compassion and redefine victory not just for themselves but for the entire world watching,” said Soderberg.

The Law Enforcement Torch Run is a worldwide movement that raises awareness to champion acceptance and inclusion for individuals with intellectual disabilities.

“We were honored to host this exceptional rally, highlighting that everyone deserves the opportunity to shine, regardless of their ability. Both the Special Olympics and the Law Enforcement Torch Run value inclusion for all, a core mission that MBK is proud to uphold,” said Foley.

MBK extends its gratitude to all who participated and is proud to support Special Olympics and the Law Enforcement.

For more information on how to get involved, visit the Special Olympics website by clicking here .

Special Estate Planning Required if an Estate Includes Firearms

karona@mbkcpa.com (Katrina Arona) — Tue, 10 Jun 2025 13:50:36 GMT

Tax Tip:

If you own one or more guns, careful estate planning is required to avoid running afoul of complex federal and state laws. Guns are unique among personal property because federal and state laws prohibit certain people from possessing firearms. Without proper planning, there’s a risk that the government will confiscate your guns or that the executor of your estate, your trustees or your beneficiaries will inadvertently commit a felony.

Given the complexity of federal and state gun laws, consider creating a gun trust. Appoint a trustee who has expertise on gun laws, safety and storage protocols.

Grow Together: Team MBK's Day at the Farm

karona@mbkcpa.com (Katrina Arona) — Fri, 06 Jun 2025 12:36:29 GMT

Meyers Brothers Kalicka, P.C. (MBK) kicked off the unofficial start to summer by giving back to the community, volunteering for the third consecutive year at one of the two Food Bank of Western Massachusetts’ farms in Hadley. In past years, MBK’s team helped with tasks such as filling sandbags to secure tarps for weed prevention, spreading compost over cardboard to build two 30-foot-long plant beds, and even constructing greenhouses that are now filled with vegetable plants.

On Friday May 30 ^th , Chris, Karen, Elise, and John beat the rain and were out in the fields planting tomato, lettuce, and basil plants. Additionally, they installed garden netting for young plant protection creating a safe growing environment from heavy winds and pests.

The Food Bank of Western Massachusetts is a not-for-profit organization bringing awareness to local food insecurity. They offer a surplus of programs to the public with the goal of reducing the number of individuals who face food insecurity in Western Massachusetts. The numerous programs that are run by the organization help provide balanced meals to individuals and families along with educating those on nutritional value. As part of their Cultivating for Community initiative, the Food Bank promotes regenerative farming practices that are good for people and the planet, emphasizing that the fresher the produce, the better the impact on the body and the environment.

A glance at what the Food Bank of Western Massachusetts Cultivating for the Community Farms initiative support:

Education: Teaches the community of volunteers and students the importance of regenerative farming, nutritional value, and the significance of local farming economy and food insecurity.
Fresh Produce Opportunities: Food Bank member food pantries and local schools can access crops from the farm since they are donated once harvested.
In 2024, over 11,000 lbs. of organic crops were donated to pantries located in Amherst, Chicopee, and Springfield.
Farm-to-school grants from the U.S. Dept. of Agriculture enables the Food Bank partnerships with local public schools, providing students with meals that include fresh locally grown vegetables.
Support for Local Agriculture: Maintaining a regenerative farm creates equity in the local farm economy through farmland leasing opportunities

This initiative is just one of the many ways the Food Bank of Western Massachusetts is working toward its mission to end hunger and food insecurity in Western Massachusetts. To learn more about the Food Bank of Western Massachusetts volunteer programs, visit their website by clicking here to view the numerous opportunities available.

Carefully Documenting Expenses is Key to Surviving the IRS Scrutiny

karona@mbkcpa.com (Katrina Arona) — Tue, 03 Jun 2025 20:09:29 GMT

If you operate a business or are starting a new one, you must keep records of your income and expenses. Specifically, you should carefully record your expenses to claim all the tax deductions you’re entitled to. And you want to ensure you can defend the amounts reported on your tax returns in case the IRS ever audits you or you wind up in the U.S. Tax Court.

Of course, there’s no one way to keep business records. However, there are strict rules regarding keeping records and proving expenses are legitimate for tax purposes. Certain expenses — such as vehicle, travel, meals and home-office costs — require special attention because they’re subject to special recordkeeping requirements or limitations. Here are two recent cases from the U.S. Tax Court to illustrate some issues.

Case 1: Profit motive is paramount

A business expense can be deducted only if the taxpayer can establish that the primary objective of the related activity was making a profit. The amount must also be substantiated and definable as an “ordinary and necessary business expense.”

In one case, a taxpayer claimed deductions that created a loss, which she used to shelter other income from tax. She engaged in various activities, including acting in the entertainment industry and selling jewelry. The IRS found that her activities weren’t for profit and disallowed her deductions.

The taxpayer took her case to the U.S. Tax Court, where she found some success. The court found that she was engaged in the business of acting during the years in question. However, she didn’t prove that all claimed expenses were ordinary and necessary business expenses. The court did allow deductions for some expenses — including headshots, casting agency fees, lessons to enhance the taxpayer’s acting skills and part of the compensation for a personal assistant. However, the court disallowed other deductions because it found insufficient evidence “to firmly establish a connection” between the expenses and the business.

In addition, the court found that the taxpayer didn’t prove that she engaged in her jewelry sales for profit. She didn’t operate it businesslike, spend sufficient time on it or seek out expertise in the jewelry industry. Therefore, all deductions related to that activity were disallowed. (TC Memo 2021-107)

Case 2: Substantiation must be sufficient

A taxpayer worked as a contract emergency room doctor at a medical center and started a business providing emergency room physicians overseas. On Schedule C of his tax return, he deducted expenses related to his home office, travel, driving, continuing education, cost of goods sold and interest. The IRS disallowed most of the deductions.

The doctor took his case to the U.S. Tax Court, where he showed charts listing his expenses but didn’t provide receipts or other substantiation showing the costs were paid. He also failed to account for the portion of expenses attributable to personal activity.

The court disallowed the deductions, stating that his charts weren’t enough and didn’t substantiate that the expenses were ordinary and necessary in his business. It noted that “even an otherwise deductible expense may be denied without sufficient substantiation.” The doctor also didn’t qualify to take home office deductions because he didn’t prove it was his principal place of business. (TC Memo 2022-1)

Mind the details

Documenting your company’s income and expenses meticulously and proactively is critical to defending your tax deductions if necessary. Work closely with your tax advisor to ensure you remember all the details.

Mindfulness and Mentorship - Steps to Building an Effective Mentorship

karona@mbkcpa.com (Katrina Arona) — Wed, 28 May 2025 15:18:45 GMT

By Chelsea Russell, CPA, MSA and Mia McDonald, MSA

Mentorship is essential in every career to help foster personal and professional growth amongst employees. These relationships are instrumental in developing the culture of your business by improving performance, increasing productivity, and encouraging continued learning. Thoughtfully and strategically pairing individuals together to build a strong and successful connection is a win all around. For both parties to obtain the most benefit out of the relationship, there are four main mental health and mindfulness practices that can be utilized; Visualization, Goal setting, Reflection, and Gratitude.

Visualization
The first key in building a strong mentor and mentee relationship is visualization. This mindfulness technique is a practice that, even when informally used, can ensure that the mentor and mentee are on the same page when it comes to what they are each looking to get out of the collaboration. The mentor and mentee must come to the table with their own intrinsic motivation and determination to succeed. Visualization can help each person regularly see their end outcome and plan out the processes that will help them get to their desired outcome. This practice can also be used to manage stress and everyday obstacles by reminding everyone that every step and obstacle is another day closer to the future and their vision.

Goal setting

While visualization builds confidence and encourages forward thinking about what the future could hold, goal setting takes the next step by making those visions tangible. Mentors can offer invaluable help and guidance in setting and measuring short and long-term goals; therefore, this should be a collaborative process. Establishing and setting goals creates purpose and provides a baseline for an ongoing supportive relationship, with measurable benchmarks to continually gauge progress. Mentorship is about sharing and building on experiences to help define and refine meaningful objectives. Therefore, a best practice to build accountability in the mentorship would be to set up monthly check-ins to measure goal progression. Goals can be fluid – as life happens and sometimes gets in the way of targets. However, having a mentor champion your goals with you, can help determine where goals can be adjusted or what additional resources may be beneficial. Throughout the mentorship, always remember to celebrate the accomplishments and benchmarks along the way, no matter how big or small.

Reflection

An important part of goal setting and personal growth is reflecting on the outcome and the journey. The mentor and mentee should have open communication and provide regular feedback in a timely manner. When goals are completed, the mentor and mentee should reflect on what went well or what could have gone better, and then determine the areas for growth. During the mentorship, each person should reflect on own progress individually and then discuss what they can do to improve or how they can provide better support for each other. Regular evaluation throughout the span of the relationship will create the most value.

Gratitude

Gratitude is something we all take for granted. As important as it is to continue looking for ways to improve, it is equally if not more important to slow down and practice regular gratitude - for each other and for the process. Being able to appreciate all the positive aspects and milestones of navigating the workforce and life, will create more joy and improve overall well-being. Expressing gratitude can be as simple as writing down what you are thankful for or telling a coworker you are thankful for their guidance and support. This practice enhances the trust, mutual respect, and open communication that guides these meaningful relationships between the mentor and mentee. When there is a sense of appreciation for each other and the process of the mentorship, each person will grow, learn, and collaborate more effectively. Every challenge encountered is a building block towards the end goal and vision - remember to be grateful for the learning opportunities provided and growth.

Achieving any success in the workplace is a measure of time, effort, and dedication. Success cannot be achieved alone; it is dependent on the help and support of others. Embracing the uncomfortable to push for new challenges and embracing ways to incorporate individuality will make any mentor and mentee relationship the most successful.

Get to Know the “Unusual” General Business Credit

karona@mbkcpa.com (Katrina Arona) — Mon, 12 May 2025 16:51:15 GMT

Tax Tip:

Generally, tax credits are more valuable than tax deductions. Unlike a deduction, which reduces a business’s taxable income, a credit reduces its tax liability dollar for dollar. Tax credits aren’t unlimited, however. For businesses, the aggregate value of tax credits may be limited by the general business credit (GBC), found in Internal Revenue Code Section 38.

The GBC isn’t a tax credit in the usual sense. Rather, it’s a collection of dozens of business-related credits scattered throughout the tax code. It consists of more than 30 individual tax credits that provide incentives for various business activities. Each credit must be claimed separately, according to its specific rules and using the relevant tax forms. Taxpayers that claim more than one credit, however, must also file Form 3800 to report the aggregate value of those credits and calculate the overall allowable credit under the GBC.

Withholding and Estimated Taxes

karona@mbkcpa.com (Katrina Arona) — Mon, 05 May 2025 16:38:34 GMT

Keep your eye on the ball to avoid over- and underpayments

Tax returns are due but once a year. However, paying taxes — through withholding from your wages, estimated tax payments, or both — is a year-round activity. That’s why reviewing your tax payments regularly throughout the year is a good idea to ensure they’re as accurate as possible.

Double-check your withholding

If all or most of your income is from wages, whether from a salary or hourly pay, your employer withholds amounts from your paychecks designed to cover your annual tax liability. However, remember that withholding amounts are estimates based on the IRS withholding tables, which approximate a typical worker’s tax liability for the year at your compensation level. Keep in mind that not all taxpayers are created equal, so to speak.

Under some circumstances, relying on the withholding tables may result in an underpayment or overpayment. To avoid this, it’s best to estimate your tax liability and, if necessary, adjust your withholding by completing a new Form W-4.

You should repeat this exercise periodically to account for changes in your income or circumstances during the year. Doing so is particularly important if you experience life changes that impact your tax liability, such as marriage, divorce, birth or adoption of a child, or a period of unemployment.

Determine whether you must pay estimated taxes

Generally, you must make estimated tax payments if you expect to owe $1,000 or more in federal taxes when you file your return. This may be the case if you earn significant income from sources that aren’t subject to withholding, such as:

Self-employment,
Pass-through income from partnerships, S corporations or limited liability companies,
Interest, dividends, capital gains or other investment income, or
Rentals or royalties.

To satisfy your estimated tax obligations, calculate your expected tax liability for the year, subtract any expected withholdings and credits, and pay the remainder in four equal installments. The first installment for 2025 estimated taxes is due by April 15, 2025. Subsequent due dates are June 16, 2025, and September 15, 2025. The final due date for 2025 is January 15, 2026.

However, you don’t have to make estimated tax payments in a given year if you meet these conditions: (1) in the prior tax year, your tax liability was zero, or you weren’t required to file a return; (2) you were a U.S. citizen or resident alien for the entire year; and (3) your prior tax year covered 12 months. All three conditions must be met.

It’s also possible to avoid estimated taxes by increasing your withholdings from wages or other income sources. (See “Behold the power of withholding” at X.)

Avoid estimated-tax penalties

The requirement to pay estimated taxes in four equal installments means you can be hit with penalties and interest if you skip or underpay an installment — even if your remaining installments cover your entire tax liability for the year. But it’s not always easy to predict your tax liability, especially if your income fluctuates. Fortunately, there are several ways to avoid penalties.

First, you won’t owe penalties if you pay at least 90% of the current year’s tax liability through withholdings and equal estimated tax installments. However, there’s still a risk that you’ll underpay your taxes if your income is higher than expected. For greater certainty, you can avoid penalties by paying 100% of your prior year’s tax liability through withholdings and equal estimated tax installments. Or pay 110% if your previous year’s adjusted gross income was more than $150,000 ($75,000 for married couples filing separately).

Finally, if your income fluctuates substantially during the year, you can use the annualized income installment method to avoid or reduce penalties. This method allows you to make unequal estimated tax payments by matching your payments to your actual income, deductions and other tax attributes during each period.

Ask for help

If you want to manage your liability, it’s best to check in on your tax situation throughout the year so you can make necessary adjustments. This applies whether your income is subject to withholding, you must pay estimated taxes or both. Don’t hesitate to ask your tax advisor for help at any time.

Sidebar: Behold the power of withholding

Are you required to pay estimated taxes to the federal government? If so, you could get penalized and owe interest if you skip or underpay just one installment. And this is true even if your remaining installments cover your entire tax liability for the year.

Taxpayers who have withholding and must pay estimated taxes on other income may have a way to mitigate the problem. If this describes your situation, you might be able to avoid or reduce a penalty by increasing your withholding to make up the difference. Unlike estimated tax payments, which can trigger underpayment penalties if they’re not paid in equal installments, withholding amounts are treated equally throughout the year — regardless of when they’re paid.

Using this strategy, you can increase withholding from your or your spouse’s wages. Alternatively, increasing withholding from your IRA or other retirement plans may be possible if you’re retired and don’t have wages from which to withhold taxes. Consult your tax advisor for assistance.

An Update to Keep an Eye On, New Audit and Review Thresholds for Non-Profits Operating in Massachusetts

karona@mbkcpa.com (Katrina Arona) — Mon, 28 Apr 2025 13:34:58 GMT

State Update

Massachusetts updated its financial reporting requirements for non-profits and public charities as part of the Economic Development Bill . In November of 2024, Governor Healy signed into law a $4 billion economic development bill that includes significant changes to the financial statement review and audit thresholds.

Review threshold: $200,000 increased to $500,000
Audit threshold: $500,000 increased to $1,000,000

Under the new law, non-profits with over $1,000,000 in gross support and revenue must continue to submit audited financial statements, while those earning between $500,000 and $1,000,000 can submit reviewed financial statements.

What does this mean for Massachusetts Non-Profit Organizations?

For Massachusetts, as of November 20, 2024 the thresholds have changed.

By raising the audit and review thresholds, Massachusetts is making it easier for smaller non-profits to comply with reporting regulations without compromising transparency. The changes will provide greater flexibility and reduce financial reporting burdens. Specifically for the following:

Fewer Organizations Will Require an Audit : Nonprofits with gross revenue between $500,000 and $1,000,000 now qualify for a review instead of a full audit, saving time and resources.
Simplified Compliance for Smaller Nonprofits : With the increased thresholds, smaller organizations (those with revenue under $500,000) are exempt from both reviews and audits, reducing administrative overhead for grassroots nonprofits.
Immediate Applicability : If your organization’s prior fiscal or calendar year financials have not yet been filed with the Massachusetts Attorney General’s Office, the updated thresholds apply immediately. This includes any filings currently in pending status.

Key Details to Consider

Evaluate: Non-profit leaders should consider assessing their financial situation to determine their reporting requirement. Since some organizations may no longer need an audit, maintaining rigorous financial controls and transparency remains crucial for donor confidence and organizational success.
Additional Guidance Available: For more information, please visit the Massachusetts Attorney General’s Guidance on Audits and Reviews .

Federal Update

The Office of Management and Budget (OMB) released an update to the Uniform Guidance back in April 2024 which took effect as of October 1 ^st 2024.

The OMB is responsible for the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Every five years, the OMB issues an update to the guidelines to address outdated or unclear items.

OMB’s latest update is directed to improve stewardship, ensure equitable access, eliminate burdensome requirements, improve oversight and funding implementation, and clarify misinterpreted sections and requirements. Revisions are to improve the accountability, transparency, accessibility, and coordination of Federal financial assistance.

Changes approved include:

Increasing the de minimis cost rate from 10% to 15%,
Emphasized plain language with clearly communicated requirements,
Modified procurement standards,
Emphasize pass through entities are responsible for subrecipient and contractor determination.

Under the new update, for fiscal years beginning on or after October 1, 2024, the single audit threshold (federal expenditures) will increase from $750,000 to $1,000,000. By raising the threshold, it will alter which federal fund recipients are required to conduct a single audit or program-specific audit. Fewer organizations will be required to undergo these audits, as the new, higher threshold would exempt entities that fall below it. Smaller organizations that receive federal funds below the threshold will benefit from the increase threshold, with reduced costs and avoiding audit oversight administrative efforts.

Note, organizations falling below the threshold might still be required to perform program-specific audits, depending on the nature of the federal funds they receive. Federal program compliance requirements remain as well.

To put the higher audit threshold in perspective, in 2022 less than 7% of the 41,368 single audits performed were between $750,000 and $1,000,000. The OMB’s goal with the new updates is to ensure proper use of federal funds and compliance with regulatory requirements while reducing a burden on small organizations.

If you have any questions or concerns about the changes and how they could impact your organization’s reporting requirements, please don’t hesitate to contact us .

Adequately Disclose Your Asset Transfers on a Gift Tax Return

karona@mbkcpa.com (Katrina Arona) — Thu, 10 Apr 2025 19:03:39 GMT

When making transfers of business interests or other assets to family members, there’s a three-year period where the IRS can challenge their values for gift tax purposes. During that time, the tax agency can claim the transfers you treated as nongifts were actually gifts or partial gifts.

The three-year statute of limitations period doesn’t begin until you “adequately disclose” the transfers to the IRS. Otherwise, the IRS, years later, can determine that you owe unpaid gift tax on the transfers and assess penalties and interest.

How do you avoid this scenario? Your gift tax return must meet the IRS’s adequate disclosure requirements. Be aware that if you decide not to disclose the transfers on a gift tax return, you must properly document the transactions. This documentation must be retained by you, the transferor, and each transferee.

Adequate disclosure requirements

In the year that you transfer an asset to a loved one, you’re generally required to file Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return,” for any gift that exceeds the annual exclusion ($18,000 for 2024 and $19,000 for 2025). The exclusion is effectively doubled for married couples.

However, it may be prudent to also file gift tax returns for nongift transfers and noncash gifts below the annual threshold. Why? Filing a gift tax return establishes the asset’s value and adequately discloses the transfer with the IRS — which starts the clock on the statute of limitations. The return must include:

A description of the transferred property and any consideration received,
The identities of, and relationships between, the transferor and each transferee,
If property is transferred to a trust, the trust’s tax identification number and a brief description of its terms (or a copy of the trust instrument),
A detailed description of the method used to value the transferred property or a qualified appraisal, and
A statement describing any position taken that’s contrary to any proposed, temporary or final tax regulations or revenue rulings published at the time of the transfer.

Additional information is required for certain transactions between related parties, such as grantor retained annuity trusts, qualified personal residence trusts, and transfers of interests in corporations or partnerships.

For transfers reported on a gift tax return as nongifts, describe the methods used to value the property or furnish an appraisal. You’ll also need to state your case as to why they’re not gifts.

Recent Tax Court ruling

Often, strict compliance with tax regulations is required. However, in Schlapfer v. Commissioner (T.C. Memo 2023-65), the U.S. Tax Court held that substantial compliance with the adequate disclosure regulations is sufficient. The disclosure must be “sufficiently detailed to alert the Commissioner and his agents as to the nature of the transaction so that the decision as to whether to select the return for audit may be a reasonably informed one.”

This decision may provide some relief to taxpayers who fail to cover all the bases when disclosing gifts. But, to avoid an IRS challenge and potential litigation, it’s advisable to follow the regs as closely as possible.

Bottom line

Even if you treat an asset transfer (such as the transfer of an asset in exchange for full and adequate consideration) as a nongift, you may want to report it on a gift tax return anyway. This extra precaution may prevent the IRS from arguing, many years later, that you made a taxable gift.

Indeed, the best way to protect your estate plan is to report all gifts or transfers on timely filed gift tax returns that satisfy the adequate disclosure requirements. The deadline for a gift tax return is April 15 of the year following the year of the transfer (adjusted for weekends and holidays). Contact your estate planning advisor for more details.

Are You Eligible for the Self-Employed Health Insurance Deduction?

karona@mbkcpa.com (Katrina Arona) — Fri, 04 Apr 2025 20:07:03 GMT

Tax Tip:

If you’re self-employed, you may be able to deduct 100% of the health insurance premiums you pay for you and your family. It makes no difference whether you purchase the insurance in your own name or your business purchases it. Keep in mind that the deduction can’t exceed the net income you earn from your business. Also, the deduction is unavailable if you’re eligible to participate in a health insurance plan subsidized by an employer of you or your spouse.

MBK Q1 Work Anniversaries: Honoring Dedication and Achievements

karona@mbkcpa.com (Katrina Arona) — Mon, 31 Mar 2025 15:11:07 GMT

At MBK, our unwavering commitment to our vision statement is the cornerstone of our success. We envision Meyers Brothers Kalicka as an employer of choice in Western Massachusetts, setting the bar for organizational culture and commitment to community, one employee at a time. Our firm is dedicated to providing our professionals with the resources and training they need to thrive in a new era of public accounting. This enables us to deliver the highest level of quality service to our clients, ensuring their continued satisfaction and success.

As we look ahead for the year of 2025, we are proud to take a moment and recognize the talent, dedication, and hard work our employees bring to MBK. We’d like to extend our congratulations to our employees who are celebrating work anniversaries in the first quarter of 2025. Your commitment and excellence to MBK has been invaluable, and your hard work does not go unnoticed.

Congratulations again to our colleagues celebrating work anniversaries in Q1 2025. Here’s to more years of shared success!

Is Your Finance Committee Up to the Task?

karona@mbkcpa.com (Katrina Arona) — Wed, 26 Mar 2025 13:23:43 GMT

When defining the responsibilities of a nonprofit’s finance committee, scanning financial reports should be the bare minimum. Your finance committee should advise your board on your organization’s financial health. An engaged finance committee shows a commitment to the nonprofit’s long-term sustainability. Here are some best practices to consider.

Finance committee responsibilities

Your organization’s staff size and budget will determine the exact parameters of finance committee member participation. But the finance committee’s fundamental duty is to communicate with the board. So it needs to work with your staff to determine the best way to convey information the board needs for sound decision-making.

Remember, not everyone understands financial statements and related jargon. Numbers require explanation and context. Therefore, the finance committee must connect the numbers to the organization’s mission, goals and strategies.

Best practices

At a minimum, ensure your finance committee has the ability to:

1. Set budget and financial planning. Before beginning the budgeting process, the committee should identify key assumptions and initiatives that will influence the process. Members and staff must discuss internal and external factors that could affect budgets over the next several years, including your strategic plan. After approval, the committee should monitor budget variances.

2. Oversee financial reporting. The committee oversees preparation and distribution of financial statements and sets expectations for your nonprofit’s staff about the level of detail, frequency and deadlines of other financial reports. It also monitors the adequacy of financial resources and allocation toward accomplishing your nonprofit’s mission. Simultaneously, the committee ensures that donor-restricted contributions are being met. Finally, it decides whether financial resources are sufficient to support expected program and operating expenses.

3. Develop internal controls. Internal controls are essential for protecting your organization’s assets. Have your finance committee work with staff and outside experts to develop effective controls and document them. It’s also up to the committee to make sure that approved controls are followed and filing deadlines are met.

4. Administer financial resources. The finance committee is responsible for establishing and confirming compliance with fiscal and related policies and procedures. Approved policies should reflect your organization’s specific circumstances, such as size and life-cycle stage. The committee should take care, though, not to overstep. It must respect the line between oversight of general policies versus actual implementation and execution of specific staff processes and procedures.

5. Oversee audits. If your organization doesn’t have a separate audit committee, the finance committee is also responsible for audits. The committee must engage and regularly interact with auditors, review audit reports and IRS Form 990 filings, present audited financial statements to the board, and propose changes to implement any auditor recommendations.

6. Create an appropriate investment policy. Even if your organization doesn’t have enough cash to support a separate investment portfolio, liquid funds need to be managed to maximize revenue. The finance committee needs to develop an appropriate investment policy and retain qualified investment advisors, when needed. A separate investment committee is advisable, though, for organizations with substantial investments, planned giving programs or endowments. And remember that fiduciary responsibility isn’t limited to finance committee members. The entire board is responsible for safeguarding your organization’s net assets.

On the road to success

An active finance committee is crucial to maintain your nonprofit’s health and reputation. The success of your finance committee depends on effective communication between the finance committee, your board and your staff.

Tax Season Tip: Submitting Information

Thu, 20 Mar 2025 16:39:37 GMT

If you work with a tax preparer, you’ll need to submit your original tax documents, whether you choose to share the physical originals or scanned copies. If the best choice for you is to submit your documents online, make sure that the scanned files you provide are completely legible. If you do not have access to a scanner and must use your phone or tablet to submit the documents, don’t reach for the Camera application yet. There are scanning tools available for both iPhone and Android devices. These scanning settings will help enhance your camera for up-close document scanning and lower the likelihood you end up with a blurry image.

Keep your documents secure

Before you get started scanning, remember to keep your documents secure. Meyers Brothers Kalicka, P.C. uses Suralink with our clients to allow secure transfer of sensitive documents. If you are a client, you can visit our client portal to upload documents that you need to share with your preparer.

Never share documents with personal or sensitive information through any public means such as social media and be wary of email scams. Ensure any emails you receive are coming from a trusted source before you click on a link, respond, or share any personal information. If you choose to share a document via email, consider using password protection on the file so that only those with whom you have shared the password may access the contents.

Scanning documents with Apple or Android

If you have an apple device such as an iPhone, iPad, or iPod touch, you can scan documents on your device straight from the Notes application. Visit Apple Support here to view simple instructions to help you get a clear scan and share your documents directly from the Notes application.

If you are using an android phone or tablet, you can always use Google Drive to scan a document to a PDF. Visit Google Support here to view instructions for scanning with the Google Drive application.

Optimize your scans to optimize your tax preparation

Ultimately, the cleaner your scans, the less likely it is your tax preparation will be delayed while your preparer waits for a clearer document. To ensure your document is legible, make sure to:

Choose a single-tone, neutral-colored, flat surface to scan your documents. Your beautiful, shiny granite countertops are likely to create problems for the camera, so choose a more monotone spot
Hold your device directly above the document. Any angles will distort the scanned image and make it easier to misinterpret
Lay your documents flat. Creases and folds will create shadows that may result in blurred text in the final scan. Smooth your paper as flat as possible before scanning to get the best results
Scan in a brightly lit room. More ambient light will help your camera capture a sharper image with more detail

Help your tax professionals help you, by sharing a sharp image the first time with applications designed to optimize your camera for a clear and sharable PDF.

Qualified Small Business Stock

karona@mbkcpa.com (Katrina Arona) — Tue, 18 Mar 2025 20:25:35 GMT

An attractive tax planning tool for business owners and their families

Under the right circumstances, qualified small business stock (QSBS) offers tax savings for business owners. Essentially, QSBS allows them (and their heirs) to sell their stock free of capital gains tax. This tax break is subject to several strict requirements, but the benefits can be substantial for those who qualify.

What’s QSBS?

QSBS was created by Internal Revenue Code Section 1202 and initially allowed qualifying taxpayers to exclude 50% of their capital gain from the sale of QSBS. That amount temporarily increased to 75% in 2009 and 100% in 2010. In 2015, Congress made the 100% exclusion permanent for QSBS acquired after September 27, 2010.

To qualify as QSBS, a U.S. C corporation must issue the stock to an individual or pass-through entity. In addition, the issuer must be:

A small business. The business’s aggregate gross assets must not exceed $50 million after August 10, 1993, or immediately after the stock is issued. If the issuer owns more than 50% of another corporation’s stock, the subsidiary’s assets are included for purposes of the gross asset test. A corporation isn’t disqualified if its assets grow beyond the threshold after issuing the stock.

An active business. The business must use at least 80% of its assets (by value) to conduct one or more qualified active businesses. In addition, no more than 10% of its assets can consist of nonbusiness real estate.

A qualified active business is any trade or business other than:

Service businesses in the following fields: health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services and brokerage services,
Banking, insurance, financing, leasing, investing and similar businesses,
Farming businesses,
Certain oil, gas and mining businesses, and
Operators of hotels, motels, restaurants and similar businesses.

Beware: The QSBS exclusion applies only to federal income tax. Some states don’t follow Sec. 1202, so state-level taxes may still apply.

Who qualifies for the tax break?

To qualify for the favorable treatment, a shareholder must not be a C corporation and must acquire the stock as part of an original issuance. In other words, the shareholder must acquire the stock directly from the corporation (or through an underwriter), not from another shareholder, in exchange for money, property (other than stock), or as compensation for services. This requirement has certain exceptions, including for stock received by gift or inheritance.

In addition, the taxpayer must hold the stock for at least five years after issuance. However, if the stock is received by gift or inheritance, the transferor’s holding period is added to the recipient’s.

If QSBS is converted into a different stock of the same corporation, the original stock’s holding period is added to the new stock’s holding period. If the stock is sold in less than five years, the taxpayer can preserve the tax benefits by rolling over the gain into another QSBS within 60 days.

This exclusion isn’t unlimited, however. The amount of QSBS gain on a particular issuer’s stock that a taxpayer may exclude each year is limited to the greater of 1) $10 million, or 2) 10 times the taxpayer’s aggregate adjusted tax basis in stock sold during the tax year.

Is it right for your business?

QSBS offers significant tax benefits, but it’s not for everyone. It’s important to weigh the advantages of tax-free capital gains against the disadvantages (including double taxation of dividends) of operating as a C corporation. Your tax advisor can help answer any questions.

Know Your Board Members

karona@mbkcpa.com (Katrina Arona) — Thu, 13 Mar 2025 12:00:02 GMT

Why background checks make good sense

A quick Google search can uncover many instances of nonprofit boards “gone bad,” where everything from misappropriation of funds, bullying or harassment has occurred. Organizations committed to keeping their boards collegial, supportive and effective need to pay particular attention during the onboarding stage. Specifically, use background checks when “hiring” board members.

Background check gap

Some nonprofits are hesitant to use background checks on board members. This reluctance is understandable but misplaced. For example, it’s true that board members usually are established community members and professionals who often are recommended by people close to the organization. But esteemed individuals are hardly immune to bad behavior. In fact, perpetrators frequently leverage their positions of trust to carry out illegal schemes.

Nonprofits also may find informing a board candidate that they’re doing a check to be awkward. Board members should support such measures, though. It’s a sign of good governance that should reassure them and other stakeholders.

Finally, as with so many matters confronting nonprofits, limited resources may be a factor. Effective background checks can be expensive and time-consuming. Smaller organizations in particular can struggle with this issue, but the reasons for their hesitation are the very reasons background checks are so important. Limited funding and staff often translate to greater reliance on board members, which in turn means the board has access to more information and greater opportunity for wrongdoing.

Keeping standards high

Here’s why performing background checks is important. Misrepresentations about education or other past achievements can raise a red flag about an individual’s integrity and character. Falsehoods can also reveal that a person isn’t qualified for a board position that requires certain credentials or experience.

Running a check may limit your liability for a board member’s misdeeds or crimes as well. It can be evidence that you conducted reasonable due diligence, thus potentially limiting any liability for the board member’s actions. Further, bringing on reputable board members can provide stability by reducing board turnover. Background checks also send a clear message about your nonprofit’s high standards and expectations.

Degrees of diligence

The depth of a board member’s background check will depend on several factors, such as your organization’s risk tolerance and the member’s anticipated role. Individuals who will have financial responsibilities and access to bank or brokerage accounts warrant more thorough checks — as do those who will work directly with your clients. This is especially critical if you serve vulnerable populations, such as children or the disabled.

At a minimum, search public records. Bear in mind, though, that these records might not reflect litigation and criminal convictions in every state. Also, don’t forget that arrests aren’t the same as convictions. Charges may have been dropped. In general, a comprehensive background check should also verify:

Employment and education,
Military service,
Driving records,
Personal and professional references, and
That they don’t appear on sex offender registries.

Regardless of your check’s scope, free online background checks aren’t recommended. The results typically are incomplete, out-of-date

and inaccurate. They may even cover the wrong person. You also shouldn’t perform your own web and social media searches. The results will likely have similar problems. You could inadvertently expose your organization to discrimination claims, too, if you find information that places an individual in a protected class. Antidiscrimination laws generally don’t apply to volunteers, but any such allegations can shine an unfavorable light on a nonprofit.

Instead, engage a qualified service that complies with the Federal Credit Report Act. The Federal Trade Commission has indicated that the law’s requirements may apply to situations where an entity uses individuals who aren’t technically employees to perform duties — including nonprofits staffed in whole, or in part, by volunteers.

Protect yourself

Background checks are no guarantee that a board member is reliable. But they should be an integral part of your nonprofit’s risk management program. And remember that background checks aren’t a one-off exercise. Update them on a regular basis — such as every two years.

Watch Out For Fake Charities

karona@mbkcpa.com (Katrina Arona) — Mon, 10 Mar 2025 13:52:22 GMT

When there’s a natural disaster or other tragic event, fake charities usually appear, ready to take advantage of your generosity and compassion for those in need. The cost of donating to an illegitimate charity can be high. Not only will your intended recipients be deprived of your donations, but you also can lose valuable tax deductions. Plus, fake charities may attempt to obtain sensitive personal and financial information they can exploit to steal your identity.

Many fake charities use names that are similar to those of legitimate charities, so it’s important to be diligent to avoid being duped. The IRS urges taxpayers to resist pressure tactics and take the time to vet charitable organizations before you donate. Consider using resources like the IRS’s Tax-Exempt Organization Search (TEOS) tool. The IRS also advises taxpayers to avoid charities that ask for donations via gift card or wire transfer. Instead, pay by credit card or check, and don’t provide your Social Security number or other unnecessary personal or financial information.

What's Your Retirement Spending Plan?

karona@mbkcpa.com (Katrina Arona) — Mon, 03 Mar 2025 20:43:38 GMT

Most people spend decades planning for retirement. They diligently set aside a portion of their hard-earned wealth in IRAs, qualified retirement plans, investments and other savings vehicles. While a solid saving strategy is critical to maintaining your current lifestyle in retirement, it’s just as important to have a well-thought-out retirement spending plan.

The amount you spend in retirement — and the order in which you withdraw funds from various taxable, tax-deferred and tax-free savings vehicles — can significantly affect your nest egg’s lasting power. Here are a few tips for developing a retirement spending plan.

Develop a budget

As you approach retirement, take stock of your savings and income sources (including Social Security) and project your expected retirement expenses. Then, create a realistic budget to determine how much you can spend each year without jeopardizing your financial health. You may have heard of the “4% rule,” which says that retirees should withdraw 4% of their savings each year, adjusted for inflation, to minimize the chances of outliving their savings.

But the rule is merely a rough guideline. It’s no substitute for a spending plan that reflects your personal circumstances. For example, do you expect your income requirements to change as you age? Does your family’s health history suggest that your life expectancy will be longer or shorter than the average?

Design a tax-wise withdrawal plan

Your retirement savings are likely spread among various taxable, tax-deferred and tax-free accounts. Withdrawing these funds in the “right” order can help minimize the taxes you’ll pay during retirement and ensure your savings last as long as possible.

According to conventional wisdom, you should withdraw money in the following order:

Taxable accounts. These may include brokerage and savings accounts. Drawing these accounts down first gives your tax-advantaged accounts as much time as possible to grow and compound. It also allows you to take advantage of lower capital gains rates in the early retirement years when your tax bracket may be lower. This may occur because you’re not yet receiving Social Security or required minimum distributions (RMDs) from IRAs and qualified plans.
Tax-deferred accounts. These accounts may include traditional IRAs, 401(k) plans and 403(b) plans. Withdrawals from these accounts generally are subject to ordinary income tax, so deferring them often provides a tax advantage.
Tax-free accounts. These accounts may include Roth IRAs, Roth 401(k)s and Roth 403(b)s. Tapping these accounts last maximizes the advantages of tax-free growth and may provide tax-free income for your heirs.

This approach is just a simple guideline, like the 4% rule described above. Depending on your personal circumstances, alternative withdrawal strategies may offer greater tax efficiency.

Pivot as needed

Under the conventional approach, it’s common to experience a sharp “tax bump” when you start withdrawing ordinary income from tax-deferred accounts, particularly if RMDs force you to withdraw more than you need. (See “Watch out for RMDs” below.)

By withdrawing some funds from your tax-deferred accounts early in retirement, you can smooth out the tax bump and reduce the impact of RMDs down the road. This can potentially reduce the overall tax impact and extend the life of your savings.

It may also make sense to depart from the conventional approach if you expect a significant gain — from the sale of real estate, for example — in a particular year. If you still need additional income that year, you may want to withdraw it from tax-free accounts to avoid pushing yourself into a higher tax bracket.

No cookie-cutter approaches

Planning for retirement is complex, and the considerations discussed are just a few examples of what you’ll need to consider. Remember that there’s no cookie-cutter approach to developing a retirement spending plan. Everyone’s circumstances are different, so it’s important to work with your financial advisor to design a plan that meets your needs in the most tax-efficient manner possible.

Sidebar: Watch out for RMDs

As you plan your strategy for withdrawing savings during retirement, be sure to consider required minimum distributions (RMDs) from traditional (as opposed to Roth) IRAs and qualified plans. The tax code requires you to begin RMDs once you reach a specified age, depending on the year you were born. For example, if you were born between 1951 and 1959, RMDs start at age 73; if you were born in 1960 or later, RMDs begin at age 75. However, you can possibly defer RMDs from certain employer plans if you continue working.

How much are you required to withdraw each year? Generally, you divide the account’s fair market value at the end of the preceding year by your life expectancy (according to IRS tables). For the year you reach the starting age, you have until April 1 of the following year to take your first RMD. After that, RMDs are required by December 31 of each year. Penalties for failure to take timely RMDs are harsh: 25% of the amount that should have been withdrawn.

To minimize taxes — and avoid being forced to withdraw more than you need from traditional IRAs and qualified plans — consider beginning withdrawals from these accounts earlier in retirement. Doing so enables you to spread taxes over a longer period and reduce the size of RMDs in the future.

Better Fundraising

karona@mbkcpa.com (Katrina Arona) — Tue, 25 Feb 2025 16:53:20 GMT

Don’t ignore state solicitation laws

Nonprofits shoulder a wide range of different compliance responsibilities. With so much to manage, the initial and ongoing requirements of applicable state charitable solicitation laws can sometimes fall through the cracks. Here’s what you need to know to avoid the potentially costly consequences of failing to follow applicable laws and regulations.

What do the laws require?

Nonprofit fundraising is the subject of intense state regulation, most often through some form of a “Solicitation of Charitable Funds Act.” According to the IRS, about 40 states have enacted such laws. The laws diverge on some points, but generally are intended to protect the public from fraud and ensure transparency in charitable fundraising.

These laws apply to nonprofits that solicit charitable contributions from state residents. The definition of “soliciting” generally means directly or indirectly requesting money, credit, property, financial assistance or some other type of value to be used for a charitable purpose. State solicitation laws typically impose two types of obligations:

1. Registration. Nonprofits may be required to register with the appropriate state authority and pay a fee. Registration is required before your organization solicits (not receives) any contributions, but states usually are lenient with late registrations if nonprofits can demonstrate a good faith reason for delays.

Registration calls for extensive information about your nonprofit’s finances and governance, such as:

Organizational purpose,
Names and addresses of officers and board members,
Place and date of organization,
Data related to your use of professional fundraisers,
Purpose of solicited contributions, and
Potential conflicts of interest.

You may also need to provide documents, such as copies of your IRS determination letter, incorporation records and bylaws; financial reports; and certification by your CEO or CFO. States often require organizations to refile registrations regularly and by specific deadlines.

2. Financial reporting. Depending on the state, nonprofits may be required to provide additional financial statements to state reporting agencies. Many states require contributions, gifts, grants and functional expenses to be reported according to the AICPA industry audit and accounting guide. Some states require contributions, gifts, grants and functional expenses to be reported according to Generally Accepted Accounting Principles.

Your organization may be exempt from such requirements, though. For example, most states exempt religious and certain educational institutions, public safety-related organizations, and parent-teacher associations that satisfy certain criteria. States may exempt organizations whose annual contributions fall below a specific threshold, as well. If you believe your organization qualifies for an exemption, you’ll need to apply for it.

Where do you file?

Nonprofits don’t need to have a physical presence in a state to be covered by its requirements. Notably, some state solicitation laws haven’t been updated to include online solicitations. It’s wise to assume, though, that the laws apply to all types of online fundraising, including crowdfunding, which can easily reach multiple states.

The National Council of Nonprofits recommends that nonprofits register in their state of incorporation, any state where they have a physical presence, and any state where they target residents or have ongoing contact with residents. You may need to closely monitor the sources of your donations to ensure you’re in compliance with all applicable state reporting requirements. Some large organizations avoid this hassle by simply registering nationwide, but that approach doesn’t necessarily make sense for every nonprofit.

Don’t go it alone

Compliance with solicitation laws isn’t just a formality. Your failure to comply can lead to substantial fines and penalties, litigation, and loss of the right to solicit. You may also incur reputational damage. Even the loss of tax-exempt status may be on the table. Please contact us for further information on how to determine and satisfy your obligations under state reporting requirements. There are third-party organizations, including some law firms, that specialize in state reporting requirements.

Sidebar: What about the Unified Registration Statement?

While looking into your solicitation obligations, you may find references to the Unified Registration Statement (URS). The URS is part of an effort organized by the National Association of State Charity Officials and the National Association of Attorneys General to standardize and simplify compliance with states’ various solicitation laws. It was intended as an alternative to individually filing all of the registration forms required by different states.

A streamlined approach certainly is appealing, especially for smaller organizations. But the URS has fallen short of the hopes of many in the charitable sector. For starters, the URS hasn’t been updated since 2014. Some states have amended their laws and regulations over the past decade, so the URS may no longer comply with applicable requirements.

Moreover, not every state accepts the URS. Those that do might have varied rules for how the URS should be submitted. They also might have additional supplementary documentation requirements. And states may not accept the URS for renewals after the initial registration. Before relying on the URS, consult with legal or applicable counsel.

In Memory: Steve Kaplan

karona@mbkcpa.com (Katrina Arona) — Mon, 24 Feb 2025 14:08:05 GMT

With heavy hearts, we share the news that our dear friend and colleague Stave Kaplan passed away recently. Our condolences are with his family, friends, and all the lives he touched.

Steve was a tireless CPA who always set a high standard for the team at Meyers Brothers Kalicka, P.C (MBK). He had a successful career in public accounting, was a partner at MBK, a member of the Mass Society of CPAs and a past board member. In his time, he earned countless awards and honors, rarely speaking of these accomplishments, preferring to focus on others rather than himself. Steve was a mentor to many and helped to implement audit engagement standards in the early days of Peer Review at MBK. Some of the policies and procedures are still in practice today. He had a great sense of humor, always enjoyed a hot cup of coffee, and will be remembered as the person who went to the post office on April 15 ^th each year to mail out last minute tax returns. Steve and his wife Sue supported numerous local charities with many volunteer hours.

Steve was a remarkable leader, mentor, friend, and colleague to all of us at MBK. His bow ties were a trademark of his style, he had a vast collection and was rarely seen without one. His memory will continue to inspire and be honored for years to come.

Steve’s obituary is available on MassLive and Steve Kaplan: An Appreciation is available on Business West

A celebration of life will be organized for summer 2025. Memorial contributions in Steve’s memory may be made to Link to Libraries , Holyoke Rotary , or a charity ofyourchoice .

BOI Injunction Lifted

karona@mbkcpa.com (Katrina Arona) — Wed, 19 Feb 2025 20:55:09 GMT

Background:

December 3, 2024 in the Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al., Judge Amos Mazzant of the United States District Court (Eastern District of Texas/Sherman Division) issued a preliminary nationwide injunction barring the enforcement of the Corporate Transparency Act (CTA).

December 23, 2024 the Nationwide Injunction is lifted and filing deadlines are reinstated. Financial Crimes Enforcement Network of the U.S. Department of Treasury (FinCEN) may again enforce the CTA. FinCEN has not extended any filing deadlines. Therefore, all reporting companies should file immediately any beneficial ownership information reports (BOIRs) that were already due, and reporting companies formed prior to 2024 should file their BOIRs by January 13, 2025 (extended from January 1, 2025).

December 27, 2024 the federal appeals court on Thursday reinstated a nationwide injuction halting enforcement of beneficial ownership information (BOI) reporting requirements, reversing an order the same court issued earlier this week. FinCEN issued an updated alert on its BOI information page , saying that companies can voluntarily submit BOI reports.

February 7, 2025 FinCEN will consider changes to the BOI reporting requirements if a court grants the government's request for a stay of a nationwide injunction in a Texas case, according to a motion filed Wednesday, February 5th. If the stay is granted, FinCEN will extend BOI filing deadlines for 30 days, the government said in its filing in Samantha Smith and Robert Means v. U.S. Department of the Treasury, No. 6:24-CV-336 (E.D. Texas 1/7/25). BOI reporting is currently voluntary, pending further legal developments. Businesses and stakeholders should stay alert for additional updates as the situation evolves.

Current Status:

February 18, 2025 A federal court lifted the last remaining nationwide injunction stopping BOI reporting requirements. FinCEN which enforces BOI requirements under the CTA said it would extend filing deadline for initial, updated, and/or corrected BOI reports to March 21. However, reporting companies that were previously given a deadline later than March 21 may file their initial BOI report by that later deadline.

Resources for consideration:

The Upsides of Delegating Tasks

karona@mbkcpa.com (Katrina Arona) — Mon, 10 Feb 2025 13:51:49 GMT

Some nonprofit executives try to control as much as they can. But micromanagement isn’t conducive to creating an effective team. If this sounds like you, there’s a better approach: delegate. By embracing delegation, you can make the job of managing a nonprofit easier and more fulfilling — for both you and your employees.

Hands off

Executives should devote their time to the projects that are the most valuable to their organization and that can best benefit from their talents. For example, public speaking engagements and meetings with major donors are probably best left to you and other upper-level executives. On the other hand, tasks that frequently recur, such as sending membership renewal notices, and jobs that require a specific skill in which you have minimal or no expertise, such as reconciling bank accounts, are prime delegation targets.

Before you delegate a task to an employee, consider the person’s main job responsibilities and experience and how they correlate with the project. At the same time, keep in mind that employees may welcome new learning opportunities to test their wings in a new area or take on greater responsibility. Before assigning new tasks, check staffers’ schedules to confirm that they actually have time to do the job well.

Be flexible

When handing off a task, be clear about goals, expectations, deadlines and details. Explain why you chose the individual and what the project means to the organization as a whole. Also let employees know if they have any latitude to bring their own methods and processes to the task. Don’t be tempted to micromanage a delegated task. Instead, try to give staffers flexibility. After all, a fresh pair of eyes might see new and better ways to accomplish the job.

However, delegation doesn’t mean dumping a project on someone and then walking away. Ultimately, you’re responsible for the task’s completion, even if you assign it to someone else. So, stay involved by monitoring the employee’s progress and providing coaching and constructive feedback as necessary.

Leverage talent

Ideally, delegation gives executives the time to leverage their specific talents to focus on mission-critical tasks. But don’t rush the process. Match each project with the staffer most capable of handling it. When done well, delegating can help your organization with improved efficiency and productivity.

BOI Reporting Update

karona@mbkcpa.com (Katrina Arona) — Thu, 06 Feb 2025 18:49:33 GMT

The Corporate Transparency Act (CTA) which took effect on January 1, 2024 required "reporting companies" in the United States to disclose information about their beneficial owners to the Treasury Department's Financial Crimes Enforcement Network (FinCEN). In May 2024, a lawsuit was filed claiming that Congress exceeded its authority under the Constitution in passing the CTA.

December 3, 2024 in the Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al., Judge Amos Mazzant of the United States District Court (Eastern District of Texas/Sherman Division) issued a preliminary nationwide injunction barring the enforcement of the Corporate Transparency Act (CTA).

December 23, 2024 the Nationwide Injunction is lifted and filing deadlines are reinstated. Financial Crimes Enforcement Network of the U.S. Department of Treasury (FinCEN) may again enforce the CTA. FinCEN has not extended any filing deadlines. Therefore, all reporting companies should file immediately any beneficial ownership information reports (BOIRs) that were already due, and reporting companies formed prior to 2024 should file their BOIRs by January 13, 2025 (extended from January 1, 2025).

Resources for consideration: FinCEN hints at BOI reporting changes in court filing

Matching Roth contributions: potential pitfalls

karona@mbkcpa.com (Katrina Arona) — Tue, 04 Feb 2025 21:04:19 GMT

The SECURE 2.0 Act added an option for employees who receive matching contributions from their employers to their 401(k) plans or other qualified plans. If your plan allows, you can choose to receive employer matches as after-tax Roth contributions. To avoid unpleasant surprises, however, assess the impact of such contributions on your tax bill. After-tax contributions increase your income for the year, but your employer may not automatically withhold the necessary extra taxes.

Suppose your salary is $150,000, and your employer makes matching contributions to your 401(k) account equal to 6% of your salary ($9,000). Assuming you’re in the 24% tax bracket, you’d end up owing an extra $2,160 in federal income tax for the year ($9,000 x 24%) if you opt to take the employer match as a Roth contribution. Plus, you might also owe extra state income tax. To avoid underpayment penalties, consider increasing your withholdings or quarterly estimated tax payments to cover the additional tax liability.

Family Matters

karona@mbkcpa.com (Katrina Arona) — Thu, 30 Jan 2025 14:45:00 GMT

U.S. citizens are subject to federal gift and estate taxes on transfers of their assets during life (via gift tax) or at death (via estate tax). However, they enjoy certain exemptions, such as exclusions and deductions. Married couples can take advantage of the unlimited marital deduction. Under this deduction, asset transfers to a spouse are generally exempt from gift and estate taxes if the spouse is a U.S. citizen.

If you or your spouse isn’t a U.S. citizen, traditional estate planning tools may not adequately minimize your gift and estate tax exposure. To avoid costly tax traps, it’s important to understand how the U.S. gift and estate tax laws apply to noncitizens.

What does “domicile” mean?

Noncitizens can become subject to U.S. gift and estate taxes if they’re domiciled in the United States. Under IRS guidelines, an individual becomes domiciled in a country “by living there, for even a brief period of time, with no definite present intention of later removing therefrom.”

Obvious factors the IRS considers in determining a person’s “present intention” are the amount of time the individual spends in the United States and his or her green card or visa status. Other factors that may come into play include the locations of the individual’s:

Business interests and residences,
Health care providers, jobs, places of worship and community ties,
Vehicle registrations and driver’s licenses,
Voter registrations,
Friends and family members.

Noncitizens who are deemed to be domiciled in the United States are subject to U.S. gift and estate taxes on transfers of their worldwide assets, much like U.S. citizens. And, like U.S. citizens, they’re eligible for the federal gift and estate tax exemption ($13.99 million for 2025, up from $13.61 million for 2024) and the annual gift tax exclusion ($19,000 per recipient for 2025, up from $18,000 per recipient for 2024).

Is the marital deduction an option?

A significant difference between U.S. citizens and noncitizens, and a potential tax trap for the unwary, is that the marital deduction isn’t available for transfers to noncitizens. There are other options, however.

For example, a spouse can make tax-free transfers to his or her noncitizen spouse up to the transferor’s unused gift and estate tax exemption. Or, he or she can make annual exclusion gifts. The annual exclusion for gifts to a noncitizen spouse is $190,000 for 2025 (up from $185,000 for 2024).

Potential tax traps for nonresident aliens?

A person who’s neither a U.S. citizen nor a U.S. domiciliary — that is, a “nonresident alien” — is subject to U.S. gift and estate taxes only on transferred assets that are “situated” in the United States. Examples include U.S. real estate and personal property located in the United States (with certain exceptions).

Intangible property — such as corporate stock, bonds or promissory notes — is deemed to be situated in the United States for estate tax purposes (but typically not for gift tax purposes) if it’s issued by a domestic corporation or by a U.S. citizen or the U.S. government.

Here’s where the potential tax trap comes into play: The exemption amount for U.S.-situated assets owned by nonresident aliens is only $60,000, compared with $13.99 million for U.S. citizens or domiciliaries in 2025.

What are the right strategies for you?

If your family’s makeup includes a noncitizen spouse, traditional estate planning strategies may not be applicable. Your estate planning advisor can help you understand your options and identify strategies for minimizing your tax liability.

* Special estate planning is necessary if you’re a non-U.S. citizen

Meyers Brothers Kalicka, P.C. Announces 2025 Promotions

karona@mbkcpa.com (Katrina Arona) — Fri, 17 Jan 2025 15:43:37 GMT

Meyers Brothers Kalicka, P.C. is proud to announce the following promotions:

Chelsea Russell, A&A Senior Manager
Ryan Sabin, Tax Senior Manager
Mallory Beauregard, A&A Supervisor
Briana Doyle, A&A Supervisor
Christopher Soderberg, A&A Supervisor
Peter Kravetz, Tax Supervisor
Francine Murphy, Tax Supervisor
Samantha Calvao, Tax Senior Associate
Andrea Latour, Tax Senior Associate
Jonathan Lemoine, A&A Senior Associate
Nicholas Mishol, A&A Senior Associate

Chelsea Russell, A&A Senior Manager

Ryan Sabin, Tax Senior Manager

Mallory, Beauregard, A&A Supervisor

Briana Doyle, A&A Supervisor

Chris Soderberg, A&A Supervisor

Peter Kravetz, Tax Supervisor

Francine Murphy, Tax Supervisor

Samantha Calvao, Tax Senior Associate

Andrea Latour, Tax Senior Associate

Jonathan Lemoine, A&A Senior Associate

Nicholas Mishol, A&A Senior Associate

Handle your IRA rollovers with care

karona@mbkcpa.com (Katrina Arona) — Thu, 16 Jan 2025 14:30:01 GMT

There are many good reasons for rolling over funds from one IRA to another — or from a 401(k) plan or other employer retirement plan to an IRA. Perhaps you wish to consolidate retirement savings into one account. Or maybe you’re moving funds from one account into another that offers more attractive investment options. Whatever the reason, care should be taken to avoid triggering unnecessary taxes and penalties.

Direct vs. indirect rollovers

Generally, there are two ways to move funds from an employer plan to an IRA or from one IRA to another: a direct transfer or an indirect rollover. With a direct rollover, you ask the plan administrator or the financial institution holding your IRA to move the money directly to another IRA in a trustee-to-trustee transfer. Because you never touch the money, direct transfers have no tax consequences. With an indirect rollover, you withdraw funds from your retirement plan or IRA and deposit them into another IRA. There’s no tax on indirect transfers if you complete the rollover within 60 days.

Direct transfers are almost always preferable. First, there’s no risk of violating the 60-day rule. While completing a rollover within 60 days seems like a simple proposition, you’d be surprised how often people miss the deadline. Plus, direct transfers aren’t subject to the one-rollover-per-year rule (see below), which often trips people up and triggers unexpected taxes and penalties.

Another drawback of indirect rollovers is that typically taxes will be withheld from your distribution. So, if you want to roll over the full amount of the distribution, you’ll need to use other funds to cover the shortfall.

For example, suppose Monica receives a $10,000 distribution from her 401(k) plan that’s eligible for a rollover. Her employer withholds 20% of the distribution ($2,000) for income taxes and pays Monica $8,000. Monica wants to roll over the full $10,000, so she withdraws $2,000 from her savings account and deposits it, along with the $8,000 check from her employer, in an IRA. If she rolls over only $8,000, she’ll owe income tax on the remaining $2,000 and may have to pay a 10% early withdrawal penalty. (No withholding is required for direct transfers.)

Common rollover mistakes

As previously noted, it’s common for people to miss the 60-day deadline for indirect rollovers, triggering unwelcome taxes and penalties. But an even more dangerous mistake is making multiple indirect rollovers in one year.

The “one-rollover-per-year” rule is trickier than it sounds. For one thing, it prohibits you from making more than one indirect rollover in any 12-month period. Many people mistakenly believe that the rule is applied on a calendar-year basis. But if you perform an indirect rollover in December of one year and another in January of the following year, you’ll violate the rule.

Another potential trap is that the rule applies on an aggregate basis. This means you can’t make more than one tax-free indirect rollover in a 12-month period, even if they involve different IRAs. For purposes of the one-rollover-per-year rule, all of your IRAs — including Simplified Employee Pension (SEP) and Savings Incentive Match Plans for Employees (SIMPLE) IRAs as well as traditional and Roth IRAs — are treated as a single IRA. However, the rule doesn’t apply to:

Rollovers from traditional IRAs to Roth IRAs (conversions),
Trustee-to-trustee transfers to another IRA,
IRA-to-plan rollovers,
Plan-to-IRA rollovers, or
Plan-to-plan rollovers.

The consequences of violating the one-rollover-per-year rule are harsh. If you receive a distribution from an IRA of previously untaxed amounts, and you performed a rollover within the preceding 12 months, you’ll have to include the distribution in your gross income. In this case you may be subject to a 10% early withdrawal penalty. What’s more, if you deposit the distributed amounts in another (or even the same) IRA, they may be treated as an excess contribution and subject to an excise tax of 6% per year until you withdraw them.

Turn to your advisor

The safest approach is to avoid indirect rollovers and use direct rollovers, which aren’t subject to the one-rollover-per-year rule. Contact your advisor if you have questions about rolling over an IRA account.

MBK Celebrates its Q4 Work Anniversaries

karona@mbkcpa.com (Katrina Arona) — Tue, 14 Jan 2025 16:49:48 GMT

In alignment with this vision, we take immense pride in recognizing the dedication and hard work of our employees, particularly those celebrating their work anniversaries. These milestones not only symbolize personal growth but also reflect the collective strength of our organization's culture and values. Each anniversary celebrated is a testament to the individual's commitment to excellence, their professional development, and their contributions to the firm's ongoing success.

Congratulations again to our colleagues who celebrated anniversaries in Q4 2024. Here's to more years of shared success!

Underpay your 2023 Taxes? Consider Filing an Amended Tax Return

karona@mbkcpa.com (Katrina Arona) — Mon, 13 Jan 2025 20:05:17 GMT

Should you file an amended income tax return for 2023? Each situation should be decided on its own merits. But there’s a general consensus that you should file an amended return immediately if you owe more tax as a result of an omission or misstatement.

If you’ve underpaid your 2023 taxes, consider filing an amended return and paying any tax due. This means paying the difference you owe and interest dating back to the original due date. Strictly speaking, penalties may be due, but you might want to consider waiting to see if the IRS sends a notice assessing penalties, and then request abatement. Conversely, if you gamble that the IRS won’t detect the error, you could be asking for trouble. The penalties for an omission or falsehood can be significant. And the statute of limitations to audit your return is generally three years (six years if you underreported income by 25% or more — or unlimited time for outright fraud).

Managing the Business Interest Deduction Limitation

karona@mbkcpa.com (Katrina Arona) — Fri, 10 Jan 2025 14:11:04 GMT

At one time, businesses were able to claim a tax deduction for most business-related interest expense. But that changed with the enactment of the Tax Cuts and Jobs Act (TCJA). The TCJA created Section 163(j), which generally limits deductions of business interest to 30% of a company’s adjusted taxable income, with certain exceptions.

If your business has significant interest expense, it’s important to understand the impact of the deduction limit on your tax bill. The good news is there are strategies to soften the tax bite.

How it works

Unless your company is exempt from Sec. 163(j), your maximum business interest deduction for the tax year equals the sum of:

30% of your company’s adjusted taxable income (ATI),
Your company’s business interest income, if any, and
Your company’s floor plan financing interest, if any.

Assuming your company doesn’t have significant business interest income or floor plan financing interest expense, the deduction limitation is roughly equal to 30% of ATI. Note that business interest income and expense doesn’t include investment interest income or expense.

Your company’s ATI is its taxable income, excluding:

Nonbusiness income, gain, deduction or loss,
Business interest income or expense,
Net operating loss deductions, and
The 20% qualified business income deduction for pass-through entities.

When Sec. 163(j) first became law, ATI was computed without regard to depreciation, amortization or depletion. But for tax years beginning after 2021, those items are subtracted in calculating ATI, shrinking business interest deductions for companies with significant depreciable assets.

Deductions disallowed under Sec. 163(j) may be carried forward indefinitely and treated as business interest expense paid or accrued in future tax years. In subsequent tax years, the carryforward amount is applied as if it were incurred in that year, and the limitation for that year will determine how much of the disallowed interest can be deducted. Note that there are special rules for applying the deduction limit to pass-through entities, such as partnerships, S corporations and limited liability companies that are treated as partnerships for tax purposes.

Small businesses are exempt from the business interest deduction limit. These are businesses whose average annual gross receipts for the preceding three tax years don’t exceed a certain threshold amount. (There is an exception if the business is treated as a “tax shelter.”) To prevent larger businesses from splitting themselves into small entities to qualify for the exemption, certain related businesses must aggregate their gross receipts for purposes of the threshold.

Strategies for avoiding the limit

To avoid the business interest deduction limit or at least reduce its impact, some real property and farming businesses can “opt out” of the limit. The former include businesses that engage in real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage.

Keep in mind that opting out of the interest deduction limit comes at a cost. If you opt out, you must reduce depreciation deductions for certain business property by using longer recovery periods. To determine whether opting out will benefit your business, you’ll need to weigh the tax benefits of unlimited interest deductions against the tax costs of lower depreciation deductions.

Another tax-reduction strategy is capitalizing interest expense. Capitalized interest isn’t treated as interest for purposes of the Sec. 163(j) deduction limit. The tax code allows businesses to capitalize certain overhead costs, including interest, related to the acquisition or production of property.

Interest capitalized to equipment or other fixed assets can be recovered over time through depreciation, while interest capitalized to inventory can be deducted as part of the cost of goods sold. Your tax advisor can crunch the numbers to determine whether this strategy would provide a tax advantage for your business.

You also may be able to mitigate the impact of the deduction limit by reducing your interest expense. For example, you might rely more on equity than debt to finance your business or simply pay down debts when possible. Or you could possibly generate interest income to offset some of your interest expense (for example, by extending credit to customers).

Weigh your options

If your company is affected by the business interest deduction limitation, consider taking available strategies for avoiding or minimizing its negative impact on your tax bill. Your tax advisor can help assess what’s right for your situation.

Sidebar: Keep an eye on Congress

Unfortunately, the business interest deduction limitation isn’t one of the many provisions of the Tax Cuts and Jobs Act that are scheduled to expire at the end of 2025. But watch for developments in Congress to repeal the limitation or alleviate its impact.

For example, the Tax Relief for American Families and Workers Act of 2024 would have retroactively extended the provision that allowed businesses to disregard depreciation, amortization and depletion in computing their ATI. This bill was passed by the House in January 2024 with bipartisan support, but has since stalled in the Senate. If enacted, this change could increase interest deductions for many businesses for tax years beginning after 2021 and before 2026.

MBK Announces Three New Hires

karona@mbkcpa.com (Katrina Arona) — Thu, 02 Jan 2025 13:00:04 GMT

Meyers Brothers Kalicka, P.C. Announces New Hires

Holyoke, MA — Meyers Brothers Kalicka, P.C. is proud to announce the following new hires:

Elise Puza, CPA as Tax Supervisor
Kevin Murray as Senior Associate
Jacob Bear as Associate

MBK hosted the EANE Finance Roundtable

karona@mbkcpa.com (Katrina Arona) — Tue, 31 Dec 2024 18:51:21 GMT

On December 13 ^th MBK Partner James Krupienski, Manager Dan Eger, and Tax Supervisor Olivia Calcasola joined EANE President Allison Ebner for a special hybrid Roundtable discussion with business leaders of the Northeast.

Team MBK gave a deep dive into what to consider post-election as we enter into 2025 with a new administration taking office. James gave a quick scope of the current ongoing coverage on the Corporate Transparency Act and Beneficial Ownership Information reporting status. Dan covered an array of tax planning topics for business owners to consider. Closing out the presentation, Olivia discussed key takeaways on the Tax Cuts and Jobs Act Update. Their collaborative presentation offered expertise to business owners on the possibilities the future may have as the new administration enters the office in Washington, D.C. Throughout the event, there were multiple stopping points where attendees could ask questions and discuss challenges and solutions.

The discussion-style format of EANE Roundtables made this event impactful because members were given an opportunity to discuss ideas relatable to specific areas of the businesses. To learn more about EANE Roundtables and membership, click here .

Succession Planning

karona@mbkcpa.com (Katrina Arona) — Mon, 30 Dec 2024 14:00:06 GMT

Succession planning is a critical component of estate planning for preserving wealth across generations, particularly for business owners and high-net-worth individuals in Western Massachusetts. It involves the strategic planning and execution of transferring leadership, business assets, and family wealth to successors. This ensures that businesses continue to thrive, and personal wealth is protected and optimally managed for future generations.

Understanding Succession Planning

At its core, succession planning is about preparing for the future. To be most effective this process needs to start early. This process involves identifying key roles within a business, determining potential successors, and implementing training and development strategies to equip these individuals for future leadership. On a personal level, it involves tax planning to find ways to minimize income and estate taxes while making sure that heirs are taken.

Ideas for Successful Succession Planning

A successful succession plan must be proactive rather than reactive. Key steps include:

Open Communication : It's essential for families and businesses to discuss intentions and expectations openly. This creates transparency and ensures that everyone is on the same page.

Identifying Successors : Choose individuals who are not only interested but are also capable of taking over responsibilities effectively. Regular evaluation and grooming of these potential leaders are crucial.

Legal and Financial Structures : Establish appropriate legal frameworks to protect assets and reduce tax liabilities. Trusts, wills, and life insurance play pivotal roles in this area.

Training and Mentorship : Potential successors should be provided with adequate training and mentorship to prepare them for future roles. Consider involving them in decision-making processes early on to gain hands-on experience.

Regular Reviews : Succession plans should be dynamic, with regular reviews to account for changing family or business circumstances, economic conditions, or legal changes.

The Role of Accounting Firms as Trusted Advisors

Many businesses or individuals first think about contacting an attorney to draft documents. While the use of a qualified attorney is essential, often it should be later in the process. More than accountants, CPAs can serve as trusted advisors. The expertise and insights that CPAs bring to the table make them invaluable allies in the succession planning process. CPAs are ideally equipped to guide individuals and businesses through the complexities of preserving wealth across generations, and then work with the attorneys that will draft the documents.

Expertise in Tax Regulations : CPAs possess an in-depth understanding of tax laws and regulations. This expertise is crucial in devising strategies to minimize tax liabilities during wealth transfer and succession planning.

Financial Acumen : Their broad financial knowledge allows CPAs to analyze and develop comprehensive financial strategies that align with both business and personal succession goals.

Objective Perspective : CPAs provide an impartial, objective viewpoint, helping families and businesses make decisions free from emotional biases or conflicts of interest.

Customization of Plans : With their detailed insight into a client’s financial health, CPAs can tailor succession plans to fit individual circumstances, ensuring that they meet specific needs and objectives.

Estate and Trust Planning : CPAs are well-versed in estate and trust planning, offering guidance on how to structure these instruments to best preserve wealth and ensure smooth asset transfer.

Business Valuation Expertise : They have the skills to conduct accurate business valuations, which is critical for determining the fair market value of a business during the succession process.

Risk Assessment and Management : CPAs can identify potential risks and develop strategies to mitigate them, ensuring a robust succession plan that can withstand unforeseen challenges.

Ongoing Support and Adaptability : Beyond initial planning, CPAs offer continuous support and can help adapt plans as financial situations, tax laws, or family dynamics change.

Relationship Building : Their ability to build trusted, long-term relationships with clients positions CPAs as invaluable resources who

understand family or business history and future aspirations deeply.

By acting as trusted advisors, they guide clients through the complexities of succession planning, providing objective advice and tailored strategies that align with both personal and business goals. They may also be able to help in mediating family discussions about succession. As experts in financial stewardship, public accounting firms provide a steady hand in navigating the intricacies of wealth preservation and transfer. By collaborating with experienced professionals, individuals and businesses can ensure a seamless transition of wealth and leadership, safeguarding their legacy for future generations.

UPDATE: Appeals Court Reinstates Injunction that Halts BOI Enforcement

karona@mbkcpa.com (Katrina Arona) — Fri, 27 Dec 2024 21:20:38 GMT

The Corporate Transparency Act (CTA) which took effect on January 1, 2024 required "reporting companies" in the United States to disclose information about their beneficial owners to the Treasury Department's Financial Crimes Enforcement Network (FinCEN). In May 2024, a lawsuit was filed claiming that Congress exceeded its authority under the Constitution in passing the CTA.

Reported, on December 3rd in the Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al., Judge Amos Mazzant of the United States District Court (Eastern District of Texas/Sherman Division) issued a preliminary nationwide injunction barring the enforcement of the Corporate Transparency Act (CTA).

Previously reported December 23rd, the Nationwide Injunction is lifted and filing deadlines are reinstated. Financial Crimes Enforcement Network of the U.S. Department of Treasury (FinCEN) may again enforce the CTA. FinCEN has not extended any filing deadlines. Therefore, all reporting companies should file immediately any beneficial ownership information reports (BOIRs) that were already due, and reporting companies formed prior to 2024 should file their BOIRs by January 13, 2025 (extended from January 1, 2025).

As of December 27th, the federal appeals court on Thursday reinstated a nationwide injuction halting enforcement of beneficial ownership information (BOI) reporting requirements, reversing an order the same court issued earlier this week. FinCEN issued an updated alert on its BOI information page , saying that companies can voluntarily submit BOI reports.

Resources for consideration: Appeals court reinstates injunction that halts BOI enforcement

The Gift of Giving

karona@mbkcpa.com (Katrina Arona) — Fri, 27 Dec 2024 17:14:19 GMT

In the spirit of the holiday season, the team at MBK has gone above and beyond to bring joy and warmth to foster kids and children in the surrounding Western Mass area. This year, the team took the initiative to make a difference in their community by partnering with Kind Squad, Inc. The Kind Squad dispersed toys to foster kids and children through the MSPCC’s Kid’s Net Program, All Our Kids, and Clinical Support Options. Led by team leader Katrina Arona, team MBK came together to provide gifts of joy for children of all ages.

The last couple of weeks in the lobby there were two collection boxes wrapped in holiday gift wrap filled with toys for all ages. Toys ranged from art supplies, board games, sports equipment, to headphones, and LED light strips for the kids entering their teenage years. On Thursday December 19 ^th , the toy donations were picked up by Allie from Clinical Support Options. She expressed her heartfelt gratitude for the firm's commitment to giving back to the community and highlighted how meaningful these donations are for the children and families they support. We want to thank everyone who participated in the drive and helped to make it a joyful holiday season for children and kids in need. With the help of the community and other organizations, the Kind Squad was able to donate to 1,857 kids and children this season.

Kind Squad, LLC

Located in Chicopee, MA unlocks kindness in the community by sharing a mission and vision to make a difference one step at a time. The Kind Squad offers support to individuals, families, foster kids, non-profits, and the community. A small act of kindness goes a long way in the eyes of the Kind Squad. Families and individuals are provided support through programs and services when they can’t get access elsewhere. Foster kids are presented with a teddy bear and art supplies when they are pulled away from a home. Non-profits are supported through assistance with food insecurity, basketball camps, rebuilding of churches, or purchasing playgrounds. In the community, the Kind Squad assists by bringing beds to fire departments and delivering food to homes and businesses post major storms. Overall, the Kind Squad unleashes kindness everywhere by simple acts.

To join the mission and vision of unleashing kindness, visit https://www.kindsquad.org/

Harvest Your Portfolio's Gains or Losses

karona@mbkcpa.com (Katrina Arona) — Fri, 27 Dec 2024 13:15:01 GMT

Before year end, assess your investment portfolio and implement year-end investment strategies that can potentially minimize your tax bill. A tried-and-true strategy is harvesting gains or losses. Keep in mind that although the value of various investments may rise or fall during the year, these gains and losses exist only on paper and aren’t “realized” until you sell.

If you’ve realized net capital gains for the year, they’ll be taxed at rates as high as 20% for long-term gains and 37% for short-term gains. You also might owe state income tax and the 3.8% net investment income tax. To avoid this tax bite, consider “harvesting” available capital losses by selling investments that have declined in value and using the losses to offset your gains — but beware of the “wash sale rule.”

NOTICE: Nationwide Injunction Lifted and Filing Deadlines Reinstated

karona@mbkcpa.com (Katrina Arona) — Tue, 24 Dec 2024 14:48:10 GMT

The Corporate Transparency Act (CTA) which took effect on January 1, 2024 required "reporting companies" in the United States to disclose information about their beneficial owners to the Treasury Department's Financial Crimes Enforcement Network (FinCEN). In May 2024, a lawsuit was filed claiming that Congress exceeded its authority under the Constitution in passing the CTA.

Previously reported, on December 3rd in the Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al., Judge Amos Mazzant of the United States District Court (Eastern District of Texas/Sherman Division) issued a preliminary nationwide injunction barring the enforcement of the Corporate Transparency Act (CTA).

As of December 23rd, the Nationwide Injunction is lifted and filing deadlines are reinstated. Financial Crimes Enforcement Network of the U.S. Department of Treasury (FinCEN) may again enforce the CTA. FinCEN has not extended any filing deadlines. Therefore, all reporting companies should file immediately any beneficial ownership information reports (BOIRs) that were already due, and reporting companies formed prior to 2024 should file their BOIRs by January 13, 2025 (extended from January 1, 2025).

Resources for consideration: Corporate Transparency Act: Nationwide Injunction Lifted and Filing Deadlines Reinstated

Charitable Giving to Donor-Advised Funds (DAFs)

karona@mbkcpa.com (Katrina Arona) — Mon, 23 Dec 2024 17:59:06 GMT

A donor-advised fund, or DAF, is defined by the IRS as “a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization . Each account is composed of contributions made by individual donors.” Funds are added to the account, and like an investment, the value will fluctuates based on the stock market. This gives donors the potential to grow their charitable giving over time. When the DAF increases in value or reports a gain, the gain is not taxable to the donor. The key benefit of investing in a DAF is that the donor does not incur taxes on the growth of their investment. This feature makes DAFs a great option for those looking to maximize their charitable contributions without the burden of additional taxes. Another benefit is that the donor can invest not only cash but also non-cash assets such as stocks, bonds, and real estate depending on the specific sponsoring organization, offering even more flexibility in how donations are made.

How Does a Donor-Advised Fund Work?

The mechanics of a donor-advised fund are relatively simple, but the possibilities for giving are vast. The money deposited and invested into a DAF must be used to donate to a certified charitable organization. The taxpayer can recommend which charitable organization will receive the donation, providing a sense of control over where their funds go. Once determined, the sponsoring organization retains final authority over whether to accept the recommendation. However, it is important to note that the taxpayer loses legal control over the funds once they are added to the account. This is an important distinction, as the fund is ultimately governed by the sponsoring organization. In other words, a DAF is a low-cost alternative to a private foundation.

How Does a Donor-Advised Fund Affect Your Tax Return?

If a taxpayer itemizes on their personal tax return (Form 1040), the DAF is a great way to increase charitable giving while simultaneously lowering taxable income. When itemizing, cash contributions made through a DAF will be deducted from the taxpayer’s taxable income. Keep in mind that there are limitations on charitable contributions including special limits on contributions to DAF’s in one tax year, so it’s important to seek advice from a CPA or accounting firm to ensure you stay within the legal guidelines and make the most of your charitable contributions.

A taxpayer can avoid selling securities or non-cash assets and reporting a capital gain by donating them directly to a DAF. By donating the securities directly to a DAF, the taxpayer can avoid the capital gains tax on the sale of securities. This can be particularly advantageous for individuals who have appreciated assets like stocks or real estate. As mentioned earlier, the fair market value of donated securities can be deducted from the donor's taxable income, up to 30% of adjusted gross income (AGI). Any amount that is limited during the year the donation is contributed to the DAF can be carried forward to future years. Any future appreciation—whether from dividends, interest, or further gains—while the securities are held within the DAF remains tax-free. Since the DAF is a tax-exempt entity, it does not pay taxes on these gains either. This makes donating appreciated securities to a DAF an effective way to maximize both charitable giving and tax savings. There is some control of itemized deductions when donating to charity as the state taxes are capped at $10,000, investing in a DAF is a good way to group donations. It will allow the donor to take a large charitable donation deduction in one year and then recommend distributions to your favorite charities over the next few years.

For corporations, charitable contributions are generally limited to 10% of the company’s taxable income for the year. In contrast, S corporations and partnerships are pass-through entities, meaning they do not pay income taxes at the corporate level. Instead, income and deductions pass through to the individual owners, who can then deduct their share of the donation on their personal tax returns based on their ownership percentage. This makes DAFs an especially attractive option for business owners who want to incorporate charitable giving into their overall tax strategy.

The Act of Giving

The most important aspect of a donor-advised fund is that it allows taxpayers to invest in charities, support growth and culture for future generations, and give back to those in need. A donor-advised fund allows for the donor to plan and track their charitable donations over time. A DAF opens doors for increased giving and provides taxpayers the opportunity to reflect on their priorities while making a difference in the lives of others.

As always, when engaging in tax planning or investing in a new fund working with an experienced financial advisor or tax professional can help you navigate more on donor-advised funds.

Holiday Hours

karona@mbkcpa.com (Katrina Arona) — Mon, 23 Dec 2024 17:40:21 GMT

The holiday season is here, and we want to take this opportunity to wish everyone a happy and safe holiday season! In observation of the holidays, MBK hours are the following:

December 24: Closing at 12:30 pm
December 25: Closed
December 31: Closing at 3:00 pm
January 1: Closed

We would like to take this opportunity to thank all our clients for their continued support throughout the year. We look forward to seeing you soon and wish you a wonderful new year!

Warm Regards,

The Entire Team at MBK!

Have you made contingency plans for your beneficiaries?

karona@mbkcpa.com (Katrina Arona) — Mon, 16 Dec 2024 20:30:00 GMT

Sometimes the best laid estate plan can go awry. This can happen if a beneficiary predeceases you. To avoid having state law dictate who receives your property, name contingent beneficiaries on retirement accounts and insurance policies. In addition, ensure that your will or trust is clear on what happens if an heir predeceases you.

Suppose you’re splitting your assets equally between your two children. If one of them dies, what happens to his or her share? If your plan (or state law) provides for assets to be distributed per capita (“by the head”), they’ll go to the surviving child, potentially disinheriting your grandchildren. In contrast, if assets are distributed per stirpes (“by the branch”), then half will go to your surviving child and the other half will go to the deceased child’s family.

Tax Cuts and Jobs Act Update

karona@mbkcpa.com (Katrina Arona) — Wed, 04 Dec 2024 19:10:44 GMT

One of the key elements of the TCJA was a reduction in the corporate tax rate from 35% to 21%. However, the tax cuts for individuals (such as the lower individual tax brackets) are set to expire after 2025. Also at stake for expiration in 2025 is the section 199A pass-through business deduction. Pass-through businesses – sole proprietorships, partnerships, and S-corporations – will no longer be able to deduct up to 20% of qualified business income (QBI) when calculating annual taxes. A new Trump administration could push for making these cuts permanent, ensuring long-term benefits for both individuals and businesses. On the campaign trail, Trump voiced his support for additional tax breaks for individuals and cutting the corporate tax rate from 21% to as low 15% - although that lower rate would apply “solely for companies that make their products in America.”

On the horizon could be possible revisions to unfavorable TCJA items, including the return of 100% depreciation and expansion of Research and Development (R&D) tax credits. Currently, under TCJA, bonus depreciation has been phasing down in annual increments of 20% since 2023. The TCJA also provides that R&D expenditures paid or incurred in taxable years beginning after December 31, 2021, are subject to capitalization over five years for research conducted within the United States and 15 years for research conducted outside the United States.

The TCJA also included numerous tax cuts geared towards individuals, including lower tax brackets, higher standard deductions, and the child tax credit. In addition to making the expiring TCJA tax cuts permanent, Trump pledged his support for eliminating federal taxes on certain types of income, such as capital gains or possibly income derived from retirement savings. He also proposed to exclude tips from income tax and payroll tax as well as overtime pay, although it is unclear whether this applies solely to income tax or to both income tax and payroll tax. Below are some additional tax proposals from the Trump campaign:

Allow the TCJA limit on the deduction for state and local taxes to expire (SALT)
Allow a deduction for interest on loans to purchase automobiles made in the U.S.
Allow a deduction for the cost of home generators in states hit by natural disasters
Expand qualifying tuition programs to cover homeschooling
Eliminate income tax on Social Security benefits
Eliminate double taxation for U.S. citizens overseas

The Trump administration’s tax proposals, including the extension or expansion of the TCJA provisions, would likely have immediate economic benefits, such as increased investment, corporate growth, and potential job creation. However, they also carry significant risks, particularly related to the federal budget. It is important to remember that nothing is certain as of right now and as these proposals move forward, it’s critical for taxpayers to keep a close eye on the legislative process. The decisions made in the coming months and years could shape the business landscape for years to come, so proactive planning and strategic tax management will be essential to navigating the changing tax environment.

Preparing for an Audit: Tips and Best Practices

karona@mbkcpa.com (Katrina Arona) — Mon, 02 Dec 2024 14:30:01 GMT

Audits are a crucial aspect of maintaining the financial health and legal compliance of any organization. Being well-prepared can turn this seemingly overwhelming process into a manageable one, saving time and money, and ensuring ongoing compliance.

Understanding Different Types of Audits

Audits come in various forms and knowing which type of audit you're facing is the first step in effective preparation. The three main types of audits are financial, operational, and compliance audits.

Financial Audits

Financial audits are the most common and focus on evaluating your organization's financial statements. The objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes an opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. During a financial audit, auditors will examine your income statements, balance sheets, cash flow statements, and other financial documents.

Operational Audits

Operational audits, on the other hand, assess the efficiency and effectiveness of your business operations. Auditors will look at your internal processes, management practices, and the overall functioning of your organization. The aim is to identify areas where improvements can be made to enhance productivity and possibly reduce costs.

Compliance Audits

Compliance audits ensure that your organization adheres to internal policies and contractual and legal regulations. These audits are particularly important for nonprofits and startups that must meet specific regulatory requirements. Auditors will review your compliance with laws, regulations, and use restrictions on federal, state, or other program funding.

The Audit Process: What to Expect

Understanding the audit process can help you prepare better and reduce anxiety. To not feel overwhelmed, here's a detailed breakdown of what to expect during an audit.

Initial Meeting

The audit process typically begins with an initial meeting between your organization and the auditors. During this meeting, the auditors will outline the scope of the audit, discuss timelines, and address any concerns you may have. This is also an opportunity for you to ask questions and clarify any doubts.

Fieldwork

During fieldwork, auditors review your documentation and conduct detailed examinations. They may visit your premises to inspect records, interview employees, and observe operations. Fieldwork can take several days or even weeks, depending on the complexity of the audit.

Reporting

After completing the fieldwork, auditors may prepare an audit report detailing their findings. The report highlights any issues, recommendations, and areas for improvement. Once the report is finalized, the auditors present the findings to your organization, and you will have the opportunity to discuss the results and seek clarification. Auditors may also deliver a complete set of financial statements with footnotes in the reporting stage.

Preparing for an Audit:

Being well-prepared is crucial for a successful audit. By adhering to these steps, you can guarantee that your organization is fully prepared for the audit process.

Assessing Audit Readiness

Begin by conducting an internal assessment to determine your audit readiness. Check your financial records, account balance reconciliations, operational procedures, and compliance with regulations. Identify any gaps or areas that need improvement. This self-assessment will give you a clear picture of where you stand and what needs to be done before the audit.

Creating an Audit Preparation Plan

Once you've assessed your audit readiness, create a detailed audit preparation plan. Outline the tasks that need to be completed, assign responsibilities, and set deadlines. A well-structured plan will help you stay organized and ensure that all necessary steps are taken to prepare for the audit.

Gathering and Organizing Documentation

Documentation is a critical aspect of any audit. Gather all relevant documents, such as financial statements, tax returns, debt agreements, invoices, contracts, and compliance records. Organize these documents systematically, either digitally or in physical folders. Having well-organized documentation will make it easier for auditors to review your records and reduce the time spent on the audit.

Technology Solutions for Audit Preparedness

In today's digital age, technology can play a significant role in streamlining the audit preparation process. Making effective use of current accounting software and document management systems can improve your audit experience.

Accounting Software

Accounting software like QuickBooks or Sage can simplify financial record-keeping and ensure that your financial statements are accurate. These platforms offer features like automated bookkeeping, expense tracking, and financial reporting, making it easier to prepare for a financial audit.

Document Management Systems

Document management systems (DMS) like Google Drive or Dropbox can help you organize and store your documentation securely. These systems allow you to create folders, share documents with auditors, and ensure that all your records are readily accessible.

Common Audit Pitfalls and How to Avoid Them

Audits can be stressful, but being aware of common pitfalls can help you avoid them and ensure a smooth process.

Lack of Organization

One of the most common pitfalls is a lack of organization. Disorganized records can lead to delays and frustration during the audit. To avoid this, maintain an organized system for storing your financial and operational documents. Regularly update your records and ensure that all documentation is readily accessible.

Incomplete Documentation

Incomplete or missing documentation is another common issue. Ensure that all required documents are complete and up-to-date. Conduct regular checks to verify that your records are accurate and comprehensive. If any documents are missing, take immediate steps to obtain or recreate them.

Poor Communication

Be transparent and cooperative throughout the audit process. Effective communication with auditors is essential for a successful audit, poor communication can lead to misunderstandings and delays. Establish clear lines of communication with your auditors and provide them with the information they need promptly.

Post-Audit Actions

The audit doesn't end with the report. Implementing the recommendations and addressing the issues identified during the audit is crucial for continuous improvement.

Reviewing Audit Findings

Carefully review the audit findings and understand the recommendations provided by the auditors. Identify the areas that need immediate attention and prioritize them based on their impact on your organization.

Implementing Changes

Develop an action plan to implement the necessary changes. Assign responsibilities, set deadlines, and monitor progress. Regularly review the implementation process to ensure that the changes are being effectively integrated into your operations.

Preparing for the Next Audit

Continuous improvement is key to audit preparedness. Use the insights gained from the audit to refine your processes and enhance your audit readiness for the future. Conduct regular internal assessments, update your documentation, and stay informed about any changes in regulations or industry standards.

Preparation is Key

Preparing for an audit can be a challenging task, but with the right approach, it can be a manageable and beneficial process for your organization. By understanding the types of audits, preparing systematically, avoiding common pitfalls, leveraging technology, and implementing post-audit actions, you can ensure a smooth and successful audit experience.

Remember, proactive audit preparation is not just about compliance; it's about continuous improvement and enhancing the overall effectiveness of your organization.

Warning to Investors: Beware the Wash Sale Rule when Harvesting Losses

karona@mbkcpa.com (Katrina Arona) — Fri, 29 Nov 2024 13:30:00 GMT

For investors, a popular year-end tax planning strategy is to “harvest” investment losses. This strategy allows you to offset investment gains plus up to $3,000 in wages or other ordinary income ($1,500 if you use married filing separately status).

However, if you plan to repurchase the same, or a substantially identical, security after selling an investment at a loss, watch out for the “wash sale” rule. If you violate this rule, you’ll lose the ability to deduct your losses.

What’s loss harvesting?

Suppose you sold a few investments earlier this year and ended up with a net capital gain. If you own some investments that have declined in value, you might consider selling them at a loss to offset the gain and reduce your tax bill. This strategy is known as “harvesting” tax losses.

After harvesting a loss for tax purposes, you may want to repurchase the same investment. Perhaps you believe that the investment has great potential to rebound in the future. Or maybe it has sentimental value. That’s where the wash sale rule comes into play.

What’s the wash sale rule?

If you sell an investment to generate a tax loss and then quickly repurchase the same investment, the IRS views the tax loss as “manufactured.” The wash sale rule is designed to avoid this perceived abuse of the tax law by disallowing a loss if you buy a “substantially identical” security within 30 days before or after you sell a security at a loss.

For example, let’s say you purchase 100 shares of a stock for $100 per share. The stock’s value plummets to only $50 per share, so you sell it, generating a $5,000 capital loss. Three weeks later, the stock’s price declines even further to $40, and you purchase 100 shares for $4,000. The second purchase violates the wash sale rule, so you aren’t permitted to claim the $5,000 loss.

What happens to the disallowed loss?

When you sell an investment for less than you paid for it, you’ve experienced a real economic loss, so disallowing that loss for tax purposes may seem unfair. However, the wash sale rule doesn’t permanently deprive you of the ability to claim the loss. It merely defers it.

When a loss is disallowed under the rule, that loss is added to your tax basis in the replacement securities, reducing your taxable gain (or increasing your deductible loss) when you sell it.

How can you avoid the wash sale rule?

There are a few ways to avoid the consequences of the wash sale rule. The simplest is to wait at least 31 days before you buy the security again. Bear in mind, though, that there’s a risk that the price will have increased by then, erasing some or all of the tax benefits.

Another option is to “double up” on your investment — that is, buy the same number of shares of the identical investment and then wait at least 31 days before selling the original investment. If the price is still less than what you paid for the original investment, you can deduct the loss while keeping the investment in your portfolio. If the price goes up, you’ll enjoy additional gains.

Yet another option is to replace the original investment with one that’s similar, but not identical (such as stock in a similar company in the same industry). One strategy that won’t work is to have a related party, such as your spouse or a corporation you control, buy the same security within 30 days before or after you sell it. The wash sale applies to such transactions as if you and your spouse (or your controlled corporation) are a single person.

Harvest with care

Harvesting investment losses can be a great way to lower your tax bill. If you take advantage of this strategy, pay close attention to your investments for the next 30 days to be sure you don’t run afoul of the wash sale rule. Contact your financial advisor for more details.

Happy Thanksgiving!

karona@mbkcpa.com (Katrina Arona) — Wed, 27 Nov 2024 12:30:00 GMT

Another year wrapping up, we want to take a moment to express our deepest gratitude for the things we have been most grateful for. To you, our valued clients, employees, and our community, thank you!

Our clients: We THANK YOU for your unwavering support throughout the years and your trust in letting us serve you. Whether you’ve been with us for years or are new to our family, we appreciate every single one of you.

Our employees: 2024 has been an extraordinary year, THANK YOU for all your contributions to make MBK a premier accounting and consulting firm. Your loyalty, your feedback, and your continued support have been invaluable, and we are so grateful to have you as part of our family.

Our community: A moment to express our deepest gratitude to you —our incredible community. THANK YOU for your support, kindness, and loyalty — it means the world to us.

Our firm will be closing early on Wednesday, November 27th at 3 p.m. and will reopen on Monday December 2nd to allow staff to celebrate the holiday with their loved ones.

Thanksgiving Food Drive to Support The Gray House

karona@mbkcpa.com (Katrina Arona) — Tue, 26 Nov 2024 15:53:28 GMT

Thanksgiving is a time of year dedicated to spreading thankfulness, gratitude, and support to individuals, families, and the expansive community. As we gather around tables with loved ones, it's important to take a moment to remember those who are less fortunate and facing food insecurity. Many individuals and families struggle with hunger during this time due to poverty or other challenges. One of the most meaningful ways to make an impact is by contributing to local food drives, whether it be by donating non-perishable food items or volunteering your time to serve at a shelter, food bank, or pantry. There are several ways you can make a difference during this time and all year long.

The importance of local food banks, pantries, or shelters is to provide individuals the access to nutritious foods. With the support of the community, these organizations are able to provide meals to individuals and families in need. Not only during this time of year but year-long they are collecting and serving the community.

Over the last couple of weeks, Keara and Mallory spearheaded a food drive to support The Gray House located in Springfield, MA. With the support of the employees at Meyers Brothers Kalicka, P.C. they were able to donate Thanksgiving food items. Monetary donations were collected along with the donations of food items that were brought in by staff members they were able to donate the following:

(11) Frozen Turkeys
(116) Jars/packets of gravy
(36) Cans of cranberry sauces
(24) Boxes of cake mixes
(24) Cans of frostings
(6) Boxes of brownie mixes
(19) Pie crusts
(54) Cans of pie fillings
(54) Boxes of rice mixes
(6) Boxes corn muffin mixes
(12) Jars of Peanut Butter

The Gray House of Springfield, Massachusetts is a non-profit organization with a mission to support neighbors facing hardships to meet their immediate and transitional needs. They are able to provide families and individuals with food, clothing, and educational services. Last Thanksgiving, they were able to provide 1,051 families with a turkey and all the sides to enjoy with their loved ones.

Through our combined efforts, we can make a meaningful difference in the lives of those who need it most. Thank you to everyone who participated and donated! Please consider getting involved with The Gray Hose and making a positive impact in our community. If you'd like to get involved but aren't sure how, please reach out and we'll help get you connected. Together, we can make a difference; Thank you for your support!

For more information about The Gray House: https://grayhouse.org

Warm Hearts, Warm Coats: MBK partners with HCS Head Start

karona@mbkcpa.com (Katrina Arona) — Thu, 21 Nov 2024 16:59:01 GMT

For the first week of November, Meyers Brothers Kalicka, P.C. collected and donated winter jackets to children affiliated with Holyoke, Chicopee, Springfield (HCS) Head Start spearheaded by Olivia Calcasola. Collectively the team donated 50 winter jackets and accessories for children between the ages of infant to six years of age.

HCS Head Start began in 1965. Today, it is a multi-service agency where families and children in the community are provided the opportunity to access educational programs. The variety of educational programs include cooking classes, money management, parenting classes, and more. With the end goal of supporting families to connect with their child’s education and their community. Since 1965, HCS Head Start has impacted more than 32 million children and families.

To learn more about HCS Head Start, visit their website: https://hcsheadstart.org/

Navigating Business-Vehicle Expense Deductions Can Be Tricky

karona@mbkcpa.com (Katrina Arona) — Mon, 18 Nov 2024 19:15:21 GMT

If you operate a business, you can generally deduct expenses for the business-related use of your personal vehicle. There are two ways to determine the portion of your overall expenses that’s attributable to your business use for the current year: 1) the actual expense method, or 2) the standard mileage rate.

The actual expense method allows you to deduct expenses attributable to business use of the vehicle, including gas, insurance, and license and registration fees. Alternatively, you can use the standard mileage rate approved by the IRS. This figure is updated annually. The rate is 67 cents per mile for 2024. If you use this method, it’s critical to keep detailed records, including the mileage for each trip and the business purpose of the travel.

Will Your Estate Plan be Challenged After Your Death?

karona@mbkcpa.com (Katrina Arona) — Wed, 13 Nov 2024 14:30:00 GMT

A key reason for creating an estate plan is gaining the peace of mind that your family will be taken care of after your death. The last thing you want is for there to be any confusion or hurt feelings over the division of your assets. That’s why it’s critical to fortify your plan against potential will contests or other challenges down the road.

Undue influence charges

It’s important to recognize that a certain level of influence over your final decisions is permissible, so long as it doesn’t rise to the level of “undue” influence. For example, there’s generally nothing wrong with a daughter who encourages her father to leave her the family vacation home. But if the father is in a vulnerable position — perhaps he’s ill or frail and the daughter is his caregiver — a court might find that he’s susceptible to undue influence and that the daughter has improperly influenced him to change his will.

There are many techniques you can use to demonstrate your lack of undue influence, including:

Choosing reliable witnesses. These should be people you expect to be available and willing to attest to your testamentary capacity and freedom from undue influence years, or even decades, down the road.

Videotaping the execution of your will. This provides an opportunity to explain the reasoning for any atypical aspects of your estate plan and will help refute claims of undue influence or lack of testamentary capacity. Be aware, however, that this technique can backfire if your discomfort with the recording process is mistaken for duress or confusion.

In addition, it can be to your benefit to have a medical practitioner conduct a mental examination or attest to your competence at, or near, the time you execute your will.

Improper execution

Never open the door for someone to contest your will on grounds that it wasn’t executed properly. Be sure to follow applicable state law to the letter.

Typically, that means signing your will in front of two witnesses and having your signature notarized. Be aware that the law varies from state to state, and an increasing number of states are permitting electronic wills.

No-contest clauses

If you have a high net worth, a no-contest clause can act as a deterrent against an estate challenge. Indeed, most, but not all, states permit the use of no-contest clauses.

In a nutshell, a no-contest clause will essentially disinherit any beneficiary who unsuccessfully challenges your will or trust. For this strategy to be effective, you must leave heirs an inheritance that’s large enough that forfeiting it would be a disincentive to bringing a challenge. An heir who receives nothing has nothing to lose by challenging your plan.

No guarantees

If your estate plan leaves any family members less of an inheritance than they expect, there’s a risk they’ll contest it. Although there’s no guaranteed way to protect your plan, these strategies can minimize the chances that a disgruntled beneficiary will challenge your will in court.

Backdoor Roth IRA: Is it the right choice for you?

karona@mbkcpa.com (Katrina Arona) — Tue, 12 Nov 2024 13:00:05 GMT

What is a backdoor Roth IRA?

A Roth IRA is a retirement account that allows individuals to contribute after-tax dollars. The contributions and earnings grow tax-free, and you can take tax-free distributions once certain requirements are met. However, not everyone is eligible to contribute directly to a Roth IRA. Eligibility to contribute to a Roth IRA is based on your modified adjusted gross income (MAGI). For 2024, the maximum contribution starts to reduce at MAGI of $146,000 for single filers and $230,000 for joint filers.

However, there is a way around the income limitation for high-income taxpayers. A backdoor Roth IRA is a strategy that allows high-income taxpayers to contribute to a Roth IRA by converting funds from a traditional IRA. This is typically done by making your annual contribution to a traditional non-deductible IRA and then immediately converting this to a Roth IRA. Doing this as soon as possible prevents earnings on your traditional IRA from being taxable on the conversion. Some financial advisors offer support in handling a backdoor Roth conversion for their clients – so reach out for help before starting the process of converting.

Nevertheless, before leaping to follow internet advice to contribute to a backdoor Roth IRA – you should consider these three things:

1. Do you already have an IRA or Roth IRA account(s)?

2. Does your current employer offer a 401(k) with a company match?

3. What is your expected income for the year?

The IRS views all of your IRAs as a single account when determining the tax you owe on distributions, including Roth IRA conversions. If your traditional IRA accounts include both pre-tax (deductible, retirement plan rollovers) and after-tax (non-deducible) contributions, the pro-rata rule dictates that your Roth conversion will be taxed proportionate to your pre- and post-tax percentages. You cannot dictate that your Roth conversion will only use after-tax funds.

For example, if you have an existing $100,000 traditional IRA and $7,000 came from non-deductible contributions, your non-taxable percentage would be 3% (or 7,000/100,000). This turns your IRA conversion of $7,000 into $6,510 of ordinary income on your tax return. Alternatively, if you do not have an existing traditional IRA or all your contributions were non-deductible, your pro-rata would be 0% and none of your IRA conversion would be considered taxable income on your return. Backdoor Roth IRAs can be valuable for the right taxpayer. However, it isn’t right for everyone.

In addition to the backdoor Roth IRAs, there are several other options to consider for retirement planning.

401(k)s & Company Matches

A 401(k) is a retirement savings plan that allows taxpayers to make contributions through their employer to a defined contribution plan. The contribution limit for 401(k)s is $23,000 in 2024 or $30,500 for those over the age of fifty. Some employers will offer a company match – typically around 3% of the employee’s salary will be contributed to your account, up to a set limit. This is the biggest benefit of a 401(k), as it is essentially free money to the taxpayer. It’s also important to note that your employer’s contribution does not count toward the annual contribution limit.

When you open a 401(k) with your employer, you can usually decide for yourself between a traditional and/or a Roth account. The difference is primarily how they are taxed. A traditional 401(k) is when the employee contributes pre-tax dollars and thus reduces their taxable income in the current year. This is beneficial for high income taxpayers – who are currently paying a premium tax rate. When the taxpayer withdraws the retirement funds – they should be in a lower tax bracket, thus the tax on the withdrawal (money contributed + earnings) should be minimal.

On the other hand, a Roth 401(k) is when the employee contributes post-tax dollars. Thus, paying the tax on the income in the current year so that it can grow tax free in your retirement account. There is no tax deduction on this type of contribution, as you reap the benefits in the future. This type of account is beneficial for taxpayers who want to shield themselves from potential increases in tax rates in the future by paying the tax now. Moreover, it is important to note employer contributions can be made to both traditional and Roth 401(k) plans no matter what option you pick.

If your employer doesn’t offer a company match, consider looking at other IRA or Roth IRA contributions. By going through a separate broker outside of your work plan, it will give you access to a larger selection of investments and help avoid administrative fees.

IRAs

Taxpayers are allowed to contribute a combined total of $7,000 to all Traditional and Roth IRA accounts in 2024, or $8,000 if you are over the age of 50. There is no employer match for contributions to either type of IRA.

Traditional IRA contributions are ideal for taxpayers who are seeking an immediate tax break, however if you are covered by an employer retirement plan, your deduction may be reduced or eliminated based on income levels. In 2024, single or head of household taxpayers who have an adjusted gross income of $87,000 or more (and are covered by a retirement through work) are not eligible for the deduction. Meanwhile, the phaseout from a full deduction to a partial deduction start at $77,001 for single or head of household. Similarly, married filing jointly taxpayers who have an adjusted gross income of $143,000 or more (and are covered by a retirement through work) – are not eligible for the deduction. The phaseout for married filing jointly starts at $123,001. However, you are still eligible to contribute to a non-deductible IRA even if your income is over the eligibility threshold.

Roth IRA contributions are ideal for taxpayers who are not eligible for the traditional IRA deduction and for those who expect to be in a higher tax bracket in the future. They are also ideal for younger investors with a long-time horizon until retirement who can really benefit from the tax-free growth. A taxpayer’s eligibility for a Roth IRA is not impacted by their 401(k) retirement through work. However, as mentioned above, there are income limitations to keep in mind.

When deciding between what savings vehicle you want to contribute to this tax year, it is important to weigh the tax advantages, eligibility and contribution limits beforehand. Talk with a financial advisor and/or your tax accountant about the best strategy to implement for your future today.

Year-End Tax Planning: What You Need to Know

karona@mbkcpa.com (Katrina Arona) — Thu, 07 Nov 2024 18:44:24 GMT

Year-End Tax Planning for 2024: Businesses

Whether or not tax increases become effective next year, the standard year-end approach of deferring income and accelerating deductions to minimize taxes will continue to produce the best results for most small businesses, as will the bunching of deductible expenses into this year or next to maximize their tax value.

If proposed tax increases do pass, however, the highest income businesses and owners may find that the opposite strategies produce better results: Pulling income into 2024 to be taxed at currently lower rates, and deferring deductible expenses until 2025, when they can be taken to offset what would be higher-taxed income. This will require careful evaluation of all relevant factors.

What’s new for businesses in 2024?

One of the most notable legislative proposals this year is the Tax Relief for American Families and Workers Act of 2024. For businesses, the bill would restore immediate expensing for U.S.-based research and development (R&D) investments, instead of amortizing such expenses over five years. Full and immediate expensing for investments in machinery, equipment, and vehicles would also be restored, and the amount of investment that small businesses could immediately write off would increase to $1.29 million.

The bill also addressed the treatment of business interest expense and bonus depreciation.

Without more legislation, bonus depreciation will fall to 60% for most qualified business property placed in service in 2024 (down from 100% in 2022 and 80% in 2023).

However more taxpayers can deduct business loan interest in 2024 as the adjusted gross income limit for small taxpayers increases to $30 million.

Depreciation and expensing

One consideration is the possibility of changes in the taxpayer’s tax rate in future years, whether based on predictions about the taxpayer’s business or about legislative changes in tax rates. For example, a possibility of sufficiently higher future rates may result in trying to defer deductions by deferring purchases of property eligible for full expensing or bonus depreciation. On the other hand, an example of a reason not to defer purchases is that the rate of bonus depreciation is phasing down to 0% in 2027.

Bonus depreciation

For 2024, a first-year bonus depreciation deduction falls to 60% of the adjusted basis of depreciable property is allowed for qualified property acquired and placed in service during the year.

For 2024, the maximum amount of section 179 property that can be expensed is $1,220,000 ($1,250,000 for 2025). That full amount is available until qualifying property placed in service during the year reaches $3,050,000 ($3,130,000 for 2025), at which point a phase out begins.

Proposed changes.

While not actually proposed legislation, a presidential candidate has discussed the idea of raising the corporate income tax rate to 28%. This adjustment would raise federal revenue but could impact the bottom line of large corporations. These companies may need to reassess their financial strategies, including cost management and investment plans, to accommodate the higher tax burden.

Net operating losses

For the 2024 tax year net operating losses (NOLs) of corporate taxpayers may not be carried back (except for farm losses, which may be carried back two years), but may be carried forward indefinitely. In addition, for the 2024 tax year, the NOL deduction is subject to an 80% of taxable income limitation (not counting the NOL or the qualified business income deduction).

A taxpayer that may have difficulty taking advantage of the full amount of an NOL carryforward this year should consider shifting income into and deductions away from this year. By doing so, the taxpayer can avoid the intervening year modifications that would apply if the NOL is not fully absorbed in 2024. This may also avoid potentially higher tax rates next year on the accelerated income and increase the tax value of deferred deductions.

Losses and shareholder or partnership basis

A shareholder can deduct its pro rata share of S corporation losses only to the extent of the total of its basis in the S corporation stock and debt. This determination is made as of the end of the S corporation tax year in which the loss occurs. Any loss or deduction that can't be used on account of this limitation can be carried forward indefinitely. If a shareholder wants to claim a 2024 S corporation loss on its own 2024 return, but the loss exceeds the basis for its S corporation stock and debt, it can still claim the loss in full by lending the S corporation more money or by making a capital contribution by the end of the S corporation's tax year (in the case of a calendar year corporation, by December 31).

Similarly, a partner's share of partnership losses is deductible only to the extent of their partnership basis as of the end of the partnership year in which the loss occurs. Basis can be increased by a capital contribution, or in some cases by the partnership itself borrowing money or by the partner taking on a larger share of the partnership's liabilities before the end of the partnership's tax year.

Year-End Tax Planning for 2024: Individuals

Whether or not tax increases become effective next year, the standard year-end approach of deferring income and accelerating deductions to minimize taxes will continue to produce the best results for all but the highest income taxpayers, as will the bunching of deductible expenses into this year or next to avoid restrictions and maximize deductions.

If proposed tax increases do pass, however, the highest income taxpayers may find that the opposite strategies produce better results: Pulling income into 2024 to be taxed at currently lower rates, and deferring deductible expenses until 2024, when they can offset what would be higher-taxed income. This will require careful evaluation of all relevant factors.

What’s new for individuals in 2024?

Penalty free withdrawals from retirement accounts. Domestic abuse victims under age 59 ½ may take up to $10,000 in penalty free withdrawals from retirement accounts. Individuals with an emergency can take a penalty free withdrawal up to $1,000 penalty free.

Increased catch-up retirement contributions. IRA catch-up contributions are indexed for inflation beginning in 2024. In 2025, the 401(k) catch up contribution amount increases from $7500 to $10,000 for workers aged 60 to 63.

Some catch-up contributions must be made to a Roth account. Beginning in 2024, taxpayers with income of $145,000 or more must make any catch-up contributions to a Roth or Roth 401(k) account.

Leftover money in a 529 plan. Leftover money in a 529 plan can be rolled over tax free into a Roth IRA. Restrictions apply.

Increased RMD age. RMD age remains age 73 in 2024 and increases gradually to age 75 in 2033

Qualified charitable distribution cap. IRA owners can transfer up to $105,000 tax free to a charity.

Filing status and dependents

When considering year-end tax planning strategies, think about your expected filing status this year and next and the number of dependents that you expect to claim in each year.

Additionally, the Massachusetts (MA) Millionaire’s tax allows an exemption of $1,000,000 for all filing statuses. For 2024, MA requires, in most situations, that the MA filing status mirror the Federal filing status. Potential MA savings for higher income earners needs to be compared with any Federal benefit of Married Filing Jointly.

Who should increase income?

A taxpayer who expects to be taxed at a higher rate next year should explore strategies to increase income this year by accelerating the recognition of income. An individual taxpayer might be in a higher tax bracket next year if:

The taxpayer is graduating from school or a training program and moving into the paid workforce.
Head-of-household or surviving spouse status ends after this year.
The taxpayer plans to get married next year and will be subject to a marriage penalty.
The taxpayer expects to be eligible for one or more credits next year (e.g., the child tax credit) that is subject to phaseout when AGI reaches specified limits and is otherwise not eligible for the credit this year.

Caution: Any decision to accelerate income from a later year into an earlier one should consider the time value of money.

Who should decrease income?

A taxpayer who expects to be subject to the same or a lower tax rate next year should consider deferring income recognition. A taxpayer might be in a lower tax bracket next year if:

The taxpayer becomes eligible for head-of-household status next year.
The taxpayer expects to have a lower income next year due to retirement, job change, or other change in circumstance.
The taxpayer is currently a child who will escape the kiddie tax next year and be in a lower bracket than their parents.

Numerous tax benefits phase out at specified income thresholds. As year-end nears, taxpayers who otherwise qualify for a tax benefit should consider strategies to reduce income this year to keep their income level below the relevant phase-out threshold.

Capital gains and losses

The appropriate year-end planning strategy for capital gains and losses depends on many factors including an individual’s taxable income, tax rate, amount of adjusted net capital gain, and whether the individual has unrealized capital losses. For high-income taxpayers, planning must also account for the 3.8% net investment income tax (NIIT).

Installment sales

An installment sale can be an effective technique for closing certain transactions this year while deferring a substantial part of the tax on the sale to later years.

Passive activity limitations

Losses generated by passive activities may only be used to offset passive activity income. Passive activity credits may be used only to offset tax on income from passive activities, with a carryover of any unused credits. In addition, the 3.8% NIIT applies to income from passive activities, but not from income generated by an activity in which the taxpayer is a material participant. Taxpayers can employ several year-end strategies for managing passive activity limitations.

Pass-through income

A key dollar threshold on the 20% deduction for pass-through income rises in 2024. Self-employeds and owners of LLCs, S corporations and other pass-throughs can deduct 20% of their qualified business income, subject to limitations for individuals with taxable incomes of more than $383,900 for joint filers and $191,950 for all others.

Itemized deductions & charitable contributions

Many taxpayers won't want to itemize because of the high basic standard deduction amounts that apply for 2024 ($29,200 for joint filers, $14,600 for singles and for marrieds filing separately, $21,900 for heads of household), and because many itemized deductions have been reduced (such as the $10,000 deduction limit on state and local taxes) or abolished (such as the miscellaneous itemized deduction and the deduction for non-disaster related personal casualty losses).

Some taxpayers may be able to work around these deduction restrictions by applying a bunching strategy to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good. For example, a taxpayer who will be able to itemize deductions this year but not next will benefit by making two years' worth of charitable contributions this year.

Individuals may deduct contributions to charitable organizations up to a certain percent of their “contribution base” (generally, AGI). Through 2025, that percentage is 60% for cash contributions and 30% for noncash contributions.

For year-end planning, it’s beneficial to review whether you have charitable contribution carryovers from a prior year. If income will decline, care should be taken to use the carryovers before they expire.

Taxpayers with low-basis, highly-appreciated stock may want to consider funding a charitable contribution with the stock. The charity can sell the stock without incurring any income tax. The donor can also claim a charitable deduction in the year the gift was handled that is equal to the fair market value without recognizing the gain, subject to limitations.

Tuition Credits

There are two credits that taxpayers can claim to offset the cost of education: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit. Both credits phase out for higher-income taxpayers.

AOTC is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. The maximum annual AOTC is $2,500 per eligible student and it is refundable up to $1,000.

The Lifetime Learning Credit is a credit up to $2000 per return for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This includes undergraduate, graduate, and professional degree courses, and courses to acquire or improve job skills. There is no limit on the number of years a taxpayer can claim this credit.

Taxpayers can claim credits for eligible expenses paid for education that begins this year or during the first three months of next year. A taxpayer who hasn’t already maximized education credits for the student this year should consider making the spring tuition payment before year-end. Conversely, if a child is expected to graduate and begin employment, delaying paying tuition might give them the benefit of a tuition credit otherwise limited by the parents income level.

Caution: If educational expenses paid and deducted in 2024 are refunded in 2025, be mindful of the tax benefit rule–the taxpayer may need to include the benefit amount in income this year, even if the student is no longer the taxpayer’s dependent.

Conclusion

It is difficult to do tax planning in anticipation of what might happen in Washington, especially with this being an election year and the great divide on tax policy between the parties. Maybe the best planning would be to plan for possible tax changes in 2025 depending not only on the party that wins the Presidential election but also on the make-up of the House and the Senate. It could well be time to accelerate gifting, accelerate income, and postpone deductions. Perhaps with optimism, you can imagine that those postponed R&D and interest deductions will give you a deduction at a higher tax rate and maybe this can lessen the pain of accepting possible increased tax rates.

Finally, remember that this article is intended to serve only as a general guideline. Your personal circumstances will likely require careful examination and should be discussed with your tax adviser.

Snuggle Up! MBK Partnered with Jammie Jingle to Donate Pajamas

karona@mbkcpa.com (Katrina Arona) — Tue, 05 Nov 2024 18:50:15 GMT

Although the weather this past month may not have felt like a fall season, Meyers Brothers Kalicka, P.C. was in the spirit of a cozy fall. For the month of October, MBK’s community service event was a pajama drive for Jammie Jingle. Allison Gaynor, an administrative assistant at the firm shared her beloved organization with MBK and spearheaded the pajama drive. For ten plus years she has run the organization and donated over 2,500 pajamas to local charities. Some of the local charities being CHD for Kids, DCF Springfield, and Ronald McDonald House of Springfield/Hartford.

Collectively, MBK donated 135 pairs of pajamas to the Jammie Jingle drive soon to be delivered to children just in time for the holiday season! For more information, contact Allison via the dedicated Facebook page for Jammie Jingle.

Five Year-End Tax Planning Strategies for a Business

karona@mbkcpa.com (Katrina Arona) — Mon, 04 Nov 2024 15:25:05 GMT

Tax planning should be a year-round endeavor, not a year-end afterthought. Many of the most effective tax strategies for businesses require months of preparation. Nevertheless, as the end of the year approaches, consider the following five last-minute strategies to minimize your taxes for 2024.

1. Time income and deductions

Income boosts your tax bill, while deductions reduce it. So, to the extent you’re able to defer income to next year and accelerate deductible expenses into this year, you can generate tax savings.

If your business is on the cash method of accounting, for example, it may be possible to defer income by postponing invoices or accelerate deductions by paying certain expenses in advance. Businesses that use the accrual method have less flexibility to control the timing of income and expenses, but they may be able to use the next two ideas to lower their tax bills.

2. Defer employee bonuses

Under certain circumstances, accrual-basis businesses can deduct bonuses awarded to employees (other than certain owners) this year even though they’re paid next year. To qualify for this treatment, bonuses must be “fixed and determinable” by the end of this year and must be paid within two-and-a-half months after the end of the tax year (by March 15 for calendar-year taxpayers).

Generally, a bonus is “fixed and determinable” if the following conditions are met:

The employee has earned the bonus by year end,
All events have occurred that require the business to pay the bonus, and
The amount can be determined with reasonable accuracy.

For example, bonuses that are contingent on an employee’s continued employment through the payment date aren’t deductible this year (with a possible exception for certain bonus pools).

3. Defer tax on advance payments

Another potential strategy for accrual-basis businesses is to defer income from certain advance payments — that is, payments this year for products or services that won’t be delivered or performed until next year. Examples include licensing fees, subscriptions, membership dues, and payments under guaranty or warranty contracts.

Advance payment income may be deferred to the extent that it’s recorded as deferred revenue on an “applicable financial statement.” Examples of an applicable financial statement include an audited financial statement or a financial statement filed with the Securities and Exchange Commission.

4. Contribute to retirement plans

If you own an interest in a pass-through business — such as a partnership, limited liability company, S corporation or sole proprietorship — an effective year-end tax planning strategy is to make additional deductible contributions to retirement plans. This applies only if you haven’t already maxed out your contributions.

Typically, these contributions must be made by the end of the year. However, certain plans, including SEP IRAs, allow you to deduct contributions made up until your tax return due date (including extensions).

5. Buy equipment

Now may a good time to take advantage of tax incentives that allow you to immediately write off some or all of the cost of eligible equipment, machinery or other fixed assets that otherwise would be capitalized and depreciated over several years. For example, you’re currently allowed to deduct up to 60% of the cost of eligible assets, including most equipment and machinery, as well as off-the-shelf computer software and certain commercial building interior improvements. The deduction limit is scheduled to drop to 40% next year and 20% in 2026. It’s scheduled to sunset in 2027, unless Congress revises the tax law.

Another option is to elect Section 179 expensing, which allows you to immediately deduct 100% of the cost of qualifying equipment and vehicles. Note that the maximum Sec. 179 deduction is $1.22 million for 2024, and the deduction is phased out once a company’s total purchases exceed a certain threshold ($3.05 million in 2024).

Keep in mind that to take advantage of these tax incentives in 2024, it’s not enough simply to purchase eligible assets by the end of the year. You must actually place them in service this year.

Review your tax circumstances

Whether these or other year-end strategies are right for you depends on your business’s particular tax circumstances. For example, if you expect your business to be in a higher tax bracket next year, you may be better off accelerating rather than deferring taxable income. Your tax advisor can help determine the best strategies for your situation.

Sidebar: Should you change your accounting method?

If your business is eligible, switching from the accrual method of accounting to the cash method may provide you with more flexibility to defer taxable income. At one time, most businesses with gross receipts exceeding $5 million were required to use the accrual method, but that threshold has increased to an inflation-adjusted $25 million. The inflation-adjusted figure for 2024 is $30 million.

If your business’s average gross receipts for the previous three years were less than $30 million, you may qualify as a “small business” that’s eligible to use the cash method. (Note: Certain businesses whose gross receipts exceed the threshold are also eligible.)

Another potential strategy is to revisit your method of accounting for inventory. The last-in, first-out (LIFO) method can provide a significant tax advantage when inventory costs increase over time. That’s because it allocates the most recent (and therefore higher) costs first, increasing the cost of goods sold and, therefore, reducing taxable income.

Maximize Your Retirement Contributions Before Year-End with These Strategies

karona@mbkcpa.com (Katrina Arona) — Fri, 01 Nov 2024 16:01:37 GMT

Maximizing your retirement contributions isn't just about hitting a number; it can have a significant impact on your financial future. As the year comes to an end, many people scramble to make last-minute contributions to their retirement accounts. But why the rush? There are several reasons to act now:

● Tax Benefits: Contributing to a traditional IRA or 401(k) can lower your taxable income for the current year.

● Employer Matches: Some employers offer matching contributions that you don't want to miss out on.

● Catch-Up Contributions: If you're 50 or older, you can take advantage of additional catch-up contributions to boost your savings.

The end of the year is an ideal time to assess your progress and take advantage of opportunities to save more. By contributing the maximum allowable amount to your retirement accounts, you can benefit from tax deductions, employer matches, and the power of compound interest. This proactive approach ensures that you're on track to meet your retirement goals.

Strategies for Boosting Retirement Savings Before Year-End

Capitalize on Catch-Up Contributions

If you're 50 or older, the IRS allows you to make catch-up contributions to your retirement accounts. For 2023, individuals can contribute an extra $7,500 to their 401(k) and an additional $1,000 to their IRA. These catch-up contributions can significantly enhance your retirement savings, especially if you started saving later in life. Make sure to take full advantage of this opportunity to bolster your retirement fund.

The Power of Tax-Advantaged Accounts

Tax-advantaged accounts like 401(k)s, IRAs, and Roth IRAs offer significant benefits for retirement savings. Contributing to these accounts can reduce your taxable income, allowing you to save more money for retirement. For instance, the maximum contribution limit for a 401(k) in 2024 is $23,000, with an additional $7,500 for those 50 and older. Similarly, the IRA contribution limit is $7,000, with an extra $1,000 for those 50 and older. By maximizing contributions to these accounts, you can enjoy tax benefits now and grow your savings tax-free for the future.

Leveraging Employer Matching Programs

Employer matching programs are one of the best ways to maximize your retirement savings. Many employers match a percentage of your contributions to your 401(k) or other retirement accounts. This is essentially free money that can significantly boost your savings. Make sure you're contributing enough to take full advantage of your employer's match, as failing to do so means leaving money on the table that could have a substantial impact on your retirement fund.

The Impact on Your Retirement

By contributing the maximum allowable amount each year, you can take full advantage of compound interest, which can significantly increase your retirement savings over time. For example, if you contribute the maximum amount to your 401(k) each year and receive employer matches, your savings may grow exponentially. Use online calculators or consult with a financial advisor to see how these contributions can impact your retirement timeline and financial security.

By seizing these opportunities to maximize your contributions before year-end, you ensure that no potential savings or benefits are lost, allowing you to secure more for your retirement than you might have otherwise achieved.

Seek Expert Advice

Financial planners agree that the year-end is a critical time for maximizing retirement contributions. According to Charles Schwab, evaluating your retirement accounts and making necessary adjustments before December 31st can have a significant impact on your tax bill and overall savings.

Maximizing your retirement contributions before year-end is a strategic move that can provide significant benefits. By taking advantage of catch-up contributions, leveraging employer matching programs, and utilizing tax-advantaged accounts, you can boost your savings and secure a comfortable retirement. Remember to review your contributions, consider a Roth conversion, and rebalance your portfolio to align with your goals. By following these strategies, you can make the most of your retirement savings and enjoy the peace of mind that comes with financial security.

AI and the Future of Accounting

karona@mbkcpa.com (Katrina Arona) — Wed, 16 Oct 2024 13:00:07 GMT

AI has the potential to fulfill the need for more accurate and streamlined financial processes. Routine tasks like data entry and generating reports can now be automated. This automation can lead to increased productivity and will also help reduce errors and lead to more accuracy across the board. AI tools can assist in the auditing process with compliance checklists, data organization and analyzing relevant financial information. AI can streamline tasks like bank reconciliations, expense tracking and transaction cataloging. Instant cross-checking eliminates tedious double and triple-checking, freeing up valuable time while also ensuring accountants can feel confident in the enhanced accuracy of their financial statement.

While the thought of AI can initially be a scary concept, it quickly becomes apparent that AI is here to help accounts become even more valuable players in the financial management world. Accountants who embrace AI and learn to utilize its capabilities can offer a wider range of insights and services to their clients. From personalized reporting to stunning graphics, AI can assist accountants with communicating key information to their clients in new and exciting ways. By adapting to AI, accountants can secure their place in the future of the profession while offering value in new areas for their clients.

AI-powered analytics can help a firm anticipate client needs by providing a glimpse into the future through predictive analytics and forecasting. The ability to process large datasets and identify patterns allows accountants to offer insights to clients that they might not have been able to in the past. AI’s powerful algorithms can help uncover patterns and anomalies to provide a new tool in fraud detection and financial analysis. AI tools can be used with tax preparation to ensure adherence to the latest regulations and standards. The list of helpful tools AI can provide the accounting profession is ever expanding and will only push the industry towards greater efficiency, accuracy and client relations.

Understanding AI also means understanding that it is not without its limitations. AI lacks sentience and self-awareness, which means it is highly dependent on the quality of its input. Accountants have learned to navigate with less-than-ideal data quality; AI has not. Poor- quality data can lead to significant inaccuracies and errors, which are problematic in the accounting industry. Outdated, unreliable and irrelevant data will lead to ineffective conclusions. It is important to remember that while AI is still an evolving technology with great potential it still has limitations to what it can achieve.

It is undeniable that the future of accounting is linked to AI-powered innovation; it is also important to note that human oversight remains as essential as ever. Being able to interpret and contextualize findings will still require human involvement. Skills like judgment, communications and ethics are additional AI limitations so accountants who might initially be intimidated should instead refocus that view as an opportunity for development and firm growth. The combination of AI-driven automation and human expertise will ensure a firm maximizes the value both of their technological gains and their extensive experience. As accounting practices integrate with AI and position themselves to not just be efficient and accurate but to be proactive strategic advisors, they will position themselves to secure a place in the future of the profession.

Are the Odds in Your Favor?

karona@mbkcpa.com (Katrina Arona) — Tue, 15 Oct 2024 14:32:07 GMT

What to know about raffles

Raffles are commonly used by nonprofit organizations as a way to raise funds. But that doesn’t mean that raffles are without challenges. IRS rules surrounding gaming apply, as do state and local laws. Not knowing the rules may come back to haunt your organization.

UBI ramifications

Nonprofits must pay income tax on unrelated business income (UBI), defined as income from a trade or business, regularly carried on, that isn’t substantially related to the organization’s exempt purpose. The IRS considers raffles to be a form of gaming, which is a trade or business. Thus, your raffle income may be subject to UBI tax.

If you routinely hold raffles, it’s possible they could be considered “regularly carried on,” and raffles likely aren’t related to your exempt purpose. In addition, losses in another unrelated trade or business can’t be used to offset UBI generated by your raffle.

But, raffle income can be exempted from UBI tax if the raffle is conducted with “substantially all” volunteer labor. The term hasn’t been formally defined, but the IRS’s unofficial guideline is that 85% or more of the labor running the raffle should be from volunteers. Keep records to document your level of volunteer support.

IRS reporting

Your nonprofit must report when the winnings are $600 or more and at least 300 times the amount of the winner’s wager (the raffle ticket price). You can deduct the wager amount when determining if the $600 threshold is met. For example, let’s say you sell $5 tickets and your winner receives $2,500. Because the winnings ($2,495) are more than $600 and more than 300 times the amount of the $5 wager, you must report the winnings to the IRS.

You should file Form W-2G, “Certain Gambling Winnings,” and give a copy to the winner to show reportable winnings along with any related income tax withheld. The winner should provide you with their name, address and Social Security number on Form W-9 or Form 5754, to include with the filing.

Income tax withholding

Your organization will need to withhold federal income tax from any winnings and remit that amount to the IRS if the proceeds (the difference between the winnings and the amount of the wager) are more than $5,000. If winnings aren’t in cash (for example, a vacation package or motor boat), the proceeds are the difference between the fair market value (FMV) of the item won and the wager amount. If the value of a noncash prize isn’t obvious, obtain a valuation before the drawing.

You must withhold 24% in tax from the winnings. Note that the 24% rate applies to the total amount of the proceeds from the wager, not just the amount that exceeds $5,000. Say that you hold a raffle with $2 tickets and the winner receives $7,000. Because the proceeds ($6,998) exceed $5,000, you must withhold $1,680 ($6,998 × 24%).

For noncash prizes valued at more than $5,000, your organization has one of two options:

1. The winner reimburses you the amount of withholding tax that you must pay to the IRS, or

2. You pay the withholding tax on behalf of the winner, calculated at 31.58% of the FMV less the wager amount.

Taxes withheld from raffle winnings must be reported on Form 945, “Annual Return of Withheld Federal Income Tax.” Include the total amount of tax withheld that you reported on all the Forms W-2G filed for the year. File by January 31 following the close of the tax reporting year. If taxes withheld are under $2,500 in total, you may remit to the IRS when filing Form 945. If they’re greater than $2,500, you must remit them electronically on a monthly or semiweekly basis, depending on the total tax.

Finally, confirm that winners furnish a correct Social Security number to your organization. Otherwise, you will usually be required to withhold 24% of raffle prizes for federal income tax backup withholding.

A winning ticket

Everyone likes the idea of raffles, but be sure you know what tax reporting may be necessary before you feature one in a fundraiser. In addition to your federal tax ramifications, it’s important to follow all state and local tax obligations. Contact us to make sure your raffle meets all the requirements.

Nonprofit Liable for Employment Taxes on Founder

karona@mbkcpa.com (Katrina Arona) — Tue, 15 Oct 2024 14:18:51 GMT

Does your nonprofit pay one or more of your officers to provide services? If so, you’ll need to consider the risks. Recently, a court found a nonprofit responsible for unpaid employment taxes on an officer’s compensation.

Close Ties

The nonprofit in question was founded by a real estate developer and author of multiple books on real estate development. In the years preceding the nonprofit’s inception in 1980, the founder held seminars on real estate development as a sole proprietor. He also served as a corporate officer of the organization from inception through the relevant time periods in the case.

The organization was inactive almost every year until 2010, when the founder developed an online real estate development course. He had complete control over it, was the only instructor and often worked more than 60 hours a week on it. The course was the organization’s only activity and tuition payments were its sole source of income.

For the tax year ending May 31, 2015, the founder signed the organization’s IRS Form 990, identifying himself as its treasurer. The nonprofit issued him a Form 1099-MISC, “Miscellaneous Income,” reporting $120,000 paid in 2014. It never filed quarterly employer tax returns specifying payments made to him as salary or wages for services provided as an employee.

After the IRS selected the nonprofit for audit, the organization asserted that the founder wasn’t (and never had been) an employee for purposes of federal employment taxes. The IRS disagreed and the nonprofit turned to the U.S. Tax Court for relief from the agency’s employee determination and the related tax bill.

Court Analysis

As the Tax Court noted, the term “employee” for tax purposes includes any officer of a corporation, unless the officer:

1. Doesn’t perform any services or only performs minor services, and

2. Neither receives, nor is entitled to receive, any direct or indirect remuneration.

An officer can operate as both an employee and an independent contractor, as long as clear distinctions are drawn between the dual roles. When an officer’s services are responsible for the entirety of the organization’s income, though, and the officer receives remuneration, that individual is classified as an employee. The founder provided services that represented the nonprofit’s entire source of income and was paid for those services.

The nonprofit nonetheless argued that the founder provided services as both an employee and an independent contractor. The only evidence of this, though, was the Form 1099-MISC and the founder’s testimony. Without other evidence, such as a written contractor agreement, the form and the “self-serving” testimony warranted little weight, the court said.

It also rejected the assertion that the minor services exception applied, finding he performed significantly more than that for the organization. He worked on all aspects of the nonprofit’s only activity and the organization paid him for those services.

Finally, the court deemed the argument that he couldn’t be an employee because the organization didn’t have the right to control him unpersuasive. The founder chose to accept both the benefits and burdens of the corporate form, including its separate tax identity. Tax law doesn’t permit a taxpayer to use his dual role as an officer and a service provider as grounds to ignore the imposition of federal employment taxes on wages.

Time for Caution

The nonprofit in this case may have been atypical in some ways, but it highlights one of the potential pitfalls when lines are blurred for officers of an organization. If you have officers providing services, let’s further discuss the proper treatment for tax purposes.

A Captive Can Reduce Your Insurance Costs...and Your Tax Bill

karona@mbkcpa.com (Katrina Arona) — Thu, 10 Oct 2024 13:00:06 GMT

In the current business environment, many companies are finding it difficult — or prohibitively expensive — to secure the insurance coverage they need. One solution that may be worth exploring is to form or join a captive insurance company.

Simply put, a captive is a licensed insurance company that’s owned and operated by the business or businesses it insures. Although a captive can be a subsidiary owned by a single parent company, a group captive is usually the most attractive option for small and midsize businesses. It allows multiple organizations to share the risks, costs and liabilities. For example, a trade association might form a captive insurance company for its members.

Under the right circumstances, a captive can provide its members with a cost-effective alternative to purchasing insurance in the commercial markets. It may also offer some significant tax benefits.

Potential risk management benefits

Although it’s possible for a captive to replace traditional commercial policies, it’s more common for members to use captive insurance to supplement existing commercial coverage, such as general liability, workers’ compensation or automobile coverage. For example, a captive might cover losses within a specified deductible or retention amount.

Benefits of captive insurance for members include:

Access to coverage that may be unavailable from traditional insurers or, if available, may come at a high cost,
The ability to tailor coverage to meet members’ specific needs and avoid paying for coverage they don’t need,
Direct access to the wholesale reinsurance market, and
Greater control over the claims review process.

In addition, members participate in underwriting profits that otherwise would go to a traditional insurance company. And they share in any investment income earned on the captive’s premium reserves.

Tax benefits

Although captive insurance shares many similarities with self-insurance, a captive that qualifies as an “insurance arrangement” for federal tax purposes enjoys some significant tax advantages. Unlike reserves set aside under a self-insurance program, premiums paid to a captive are deductible by its members. And the captive, as an insurance company, can deduct its reasonable loss reserves. So-called “microcaptives” offer additional tax benefits, although they can expect to be scrutinized by the IRS. (See “Microcaptives: Handle with care” below.)

To be considered an insurance arrangement, a captive must meet several requirements. Most important, the arrangement must achieve risk shifting and risk distribution.

Generally speaking, risk shifting means that members transfer certain risks to the captive in exchange for a reasonable premium. Risk distribution means that risks are pooled with enough other independently insured risks to minimize the possibility that actual losses will exceed expected losses. In addition, the captive must set premiums properly based on actuarial and underwriting considerations, be adequately capitalized, and be created for legitimate nontax reasons (among other requirements).

A captive can also be an effective estate planning tool. By providing family members with ownership interests in a captive, business owners can potentially transfer wealth to their heirs free of gift and estate taxes.

A formidable undertaking

Before taking action, know that forming and operating a captive isn’t a simple task. It requires owners to invest start-up capital, assume risk, comply with applicable regulations, and file state and federal tax returns. Owners must also manage the captive’s insurance business, which includes issuing policies, calculating and collecting premiums, setting aside reserves, and processing and paying claims. Many captives outsource day-to-day management activities to a captive consulting firm.

It’s also important to remember that forming a captive requires a long-term commitment. Shutting down a captive can be an expensive, time-consuming process. Despite the challenges, a captive can be an effective solution to a company’s risk management needs, under the right circumstances.

Sidebar: Microcaptives: Handle with care

A microcaptive is a captive insurance company that’s eligible for tax benefits available to “small” insurance companies. To qualify, a captive’s annual premiums can’t exceed a specified threshold ($2.8 million in 2024). In addition, it must meet the Internal Revenue Code’s diversification requirements. Among other things, this means that no single policyholder can contribute more than 20% of the captive’s annual premiums.

Small insurance companies, including eligible microcaptives, may elect to be taxed on only their net investment income. In other words, their underwriting profits escape taxation at the federal level.

The tax advantages of a microcaptive are significant. That’s because the business or businesses that own the captive may deduct their premium payments to the captive, but the captive isn’t taxed on its premium income.

However, be aware that in recent years the IRS has been scrutinizing microcaptive arrangements and challenging those it views as mere tax avoidance schemes. According to the IRS, abusive microcaptives “involve schemes that lack many of the attributes of legitimate insurance. These structures often include implausible risks, failure to match genuine business needs, and in many cases, unnecessary duplication of the taxpayer’s commercial coverages. In addition, the ‘premiums’ paid under these arrangements are often excessive, reflecting non-arm’s-length pricing.”

Should You Turn Down an Inheritance?

karona@mbkcpa.com (Katrina Arona) — Tue, 08 Oct 2024 15:22:18 GMT

Accepting money or property inherited after the death of a family member seems like a no-brainer. But there may be situations in which you should indeed look a gift horse in the mouth.

Here’s one example: You inherit your parent’s IRA, which has a balance of $500,000. Funds in an inherited IRA generally must be withdrawn within 10 years, whether you need the money or not, which will significantly increase your tax bill. Now suppose that your child is the IRA’s contingent beneficiary. If you were to reject the inheritance using a qualified disclaimer, it would go to your child. Assuming that your child is in a lower tax bracket, this strategy can substantially reduce your family’s tax bill.

Undoing an Irrevocable Life Insurance Trust

karona@mbkcpa.com (Katrina Arona) — Mon, 07 Oct 2024 19:41:52 GMT

Undoing an ILIT is possible in certain situations

Owning a life insurance policy can provide peace of mind that your family’s financial well-being will be taken care of after you’re gone. It’s generally a good idea to set up an irrevocable life insurance trust (ILIT) to hold the policy. Doing so will keep the policy’s proceeds out of your taxable estate.

But what if you have an ILIT that you no longer need? Does its irrevocable nature mean you’re stuck with it forever? Not necessarily. Much depends on the terms of the trust and your state’s applicable law.

What’s an ILIT?

An ILIT shields life insurance proceeds from estate tax because the trust, rather than the insured, owns the policy. Note, however, that under the “three-year rule,” if you transfer an existing policy to an ILIT and then die within three years, the proceeds remain taxable. That’s why it’s preferable to have the ILIT purchase a new policy, if possible, rather than transferring an existing policy to the trust.

The key to removing the policy from your taxable estate is to relinquish all “incidents of ownership.” For example, that means you’re prohibited from retaining the right to do the following:

Change beneficiaries,
Assign, surrender or cancel the policy,
Borrow against the policy’s cash value, or
Pledge the policy as security for a loan.

However, the trustee may be granted the power to do these things.

How do you undo an ILIT?

Generally, there are two reasons you might want to undo an ILIT. First, you might not need life insurance anymore. Second, you might still need life insurance but your estate isn’t large enough to trigger estate tax, and you’d like to eliminate the restrictions and expense associated with the ILIT structure. Although your ability to undo an ILIT depends on the circumstances, potential options include:

Allowing the insurance to lapse. This may be a viable option if the ILIT holds a term life insurance policy that you no longer need (and no other assets). You simply stop making contributions to the trust to cover premium payments. Technically, the ILIT continues to exist, but once the policy lapses it owns no assets. It’s possible to allow a permanent life insurance policy to lapse, but other options may be preferable, especially if the policy has a significant cash value.

Swapping the policy for cash or other assets. Many ILITs permit the grantor to retrieve a policy from an ILIT by substituting cash or other assets of equivalent value. If allowed, you may then be able to gain access to a policy’s cash value by swapping it for illiquid assets of equivalent value.

Surrendering or selling the policy. If your ILIT holds a permanent insurance policy, the trust might surrender it, which will preserve its cash value but avoid the need to continue paying premiums. Alternatively, if you’re eligible, the trust could sell the policy in a life settlement transaction.

Distributing the trust assets. Some ILITs give the trustee the discretion to distribute trust funds (including the policy’s cash value, other trust assets or possibly the policy itself) to your beneficiaries, such as your spouse or children. Typically, these distributions are limited to funds needed for “health, education, maintenance and support.”

Going to court. If the ILIT’s terms don’t permit the trustee to unwind the trust, it may be possible to obtain a court order to terminate it. For example, state law may permit a court to modify or terminate an ILIT if unanticipated circumstances require changes to achieve the trust’s purposes or if the grantor and all beneficiaries consent.

These are some, but by no means all, of the strategies that may be available to unwind an ILIT.

Talk to your advisor

If you’ve recently reviewed your estate plan and decided that an ILIT no longer meets your needs, contact your advisor or lawyer to learn about pulling the life insurance policy out of the ILIT or even unwinding the ILIT entirely. Be sure to ask about the tax implications of taking such actions.

Measuring the Financial Health of a Construction Company

karona@mbkcpa.com (Katrina Arona) — Thu, 26 Sep 2024 13:10:37 GMT

Profitability Ratios

Gross Profit Margin

The gross profit margin indicates how efficiently a construction company is managing its direct costs associated with projects. A higher gross profit margin suggests that the company is effective in controlling project costs and pricing. It is calculated as:

Gross Profit Margin = Gross Profit divided by Revenue multiplied by 100

Operating Profit Margin

Operating profit margin measures the percentage of revenue that remains after covering operating expenses, excluding interest and taxes. The operating profit margin reflects how well and how efficiently a company manages its core business operations. It is calculated as:

Operating Profit Margin = Operating Income divided by Revenue multiplied by 100

Net Profit Margin

The net profit margin shows the percentage of revenue that remains as profit after all expenses, including interest and taxes, have been deducted. A strong net profit margin indicates overall profitability and effective management of both operational and non-operational expenses. It is calculated as:

Net Profit Margin = Net Income divided by Revenue multiplied by 100

Liquidity Ratios

Current Ratio

The current ratio assesses a company's ability to meet its short-term liabilities with its short-term assets. For construction companies, which often deal with significant short-term obligations due to project timelines and payment cycles, maintaining a current ratio above 1.0 indicates that the company could pay off its liabilities if they become immediately due. It is calculated as:

Current Ratio = Current Assets divided by Current Liabilities

Quick Ratio

The quick ratio, or acid-test ratio, provides a stricter measure of liquidity by excluding inventory from current assets. Given that construction companies may have substantial inventory tied up in ongoing projects, the quick ratio offers a clearer picture of their ability to cover immediate obligations. Similar to the current ratio, a good quick ratio should be higher than 1.0. It is calculated as:

Quick Ratio = Current Assets minus Inventory divided by Current Liabilities

Solvency Ratios

Debt-to-Equity Ratio

The debt-to-equity ratio indicates the proportion of debt used to finance the company’s assets relative to shareholders’ equity. A high ratio suggests greater financial leverage and risk, while a lower ratio indicates a more conservative approach to financing. For construction companies, which often rely on substantial borrowing for project financing, monitoring this ratio is critical. Ratios higher than 2.0 can indicate that a company has taken on too much debt. It is calculated as:

Debt-to-Equity Ratio = Total Liabilities divided by Equity

Interest Coverage Ratio

The interest coverage ratio measures a company’s ability to pay interest on its debt with its earnings before interest and taxes (EBIT). A higher ratio indicates that the company comfortably covers its interest payments, reducing financial risk. For construction firms, which may have fluctuating income based on project timelines, this ratio helps assess debt sustainability. It is calculated as:

Interest Coverage Ratio = EBIT divided by Interest Expense

Efficiency Ratios

Working Capital Turnover Ratio

The working capital turnover ratio reflects how efficiently a company uses its capital to support sales and company growth. The ratio provides a company with an understanding of revenue generated for every dollar of working capital used. A high ratio indicates that the company is efficient in using its assets and liabilities to support sales, with lower ratios indicating less efficiency. However a ratio above 30.0 could signal that a company may need more working capital to continue to grow in the future. It is calculated as:

Working Capital Turnover Ratio = Total Construction Sales divided by Working Capital*

*Working Capital = Current Assets minus Current Liabilities

The equity turnover ratio, similar to the working capital turnover ratio, reflects how efficiently a company uses its value, in this case, equity, to drive construction revenue. A ratio above 15.0 may signal that a company will have trouble growing in the future. It is calculated as:

Equity Turnover Ratio = Revenue divided by Equity

Project-Specific Ratios

Work-in-Progress (WIP) Ratio

The WIP ratio assesses the proportion of work completed relative to the total contract value. This ratio helps gauge project progress and can indicate potential issues with project execution or financial planning. It is calculated as:

WIP Ratio = Work Completed to Date divided by Total Contract Value

Contract Profitability Ratio

The contract profitability ratio evaluates the profitability of individual contracts. This ratio provides insights into how well each project contributes to overall profitability, helping in assessing project management and pricing strategies. It is calculated as:

Contract Profitability Ratio = Contract Profit divided by Contract Revenue multiplied by 100

Financial ratios are indispensable tools for understanding the financial health of construction companies. No single ratio will provide an overall picture for the health of a construction company. However, looking at several key financial ratios can help investors, shareholders, and management teams make informed decisions, identify potential risks, and implement strategies to enhance financial and operation stability, both now and in the future. For construction companies, maintaining a balanced approach to managing these financial metrics is pivotal to sustaining long-term success in a competitive and often unpredictable industry.

In Support of Our Troops: A Letter of Thanks from MBK

karona@mbkcpa.com (Katrina Arona) — Mon, 23 Sep 2024 19:38:45 GMT

For the month of September, Meyers Brothers Kalicka, P.C. (MBK) took a creative approach to community service. Collectively, team MBK came together to hand-write letters for the “A Million Thanks” campaign. A Million Thanks is an organization founded in 2004 by Shauna Fleming. Originally starting off as a community service project in Orange County, California and growing into a nationwide campaign. Shauna’s goal was to write a million letters of support and appreciation to the United States military. Surpassing the original goal, A Million Thanks has since sent over seven million letters.

MBK joined the initiative and one afternoon in September, Partners, Jim and Kristi, were joined by staff including Katrina, Denise, Cindy, Chris, Justin, Peter, Chelsea, Allison, and Donna, and special guests, Hayley and Jimmy, to hand-write letters for the U.S. troops. Artistic talents were explored, and letters of gratitude were penned to the troops. Staff also brought materials home and were able to contribute by extending the opportunity to their families. Letters were then mailed to the A Million Thanks campaign to be distributed across the world to our troops.

For more details on joining the campaign of A Million Thanks you can read more about it here: https://amillionthanks.org/

What You Need to Know About New Overtime Rules

karona@mbkcpa.com (Katrina Arona) — Mon, 23 Sep 2024 14:00:03 GMT

The U.S. Department of Labor (DOL) released a new final rule in the spring of 2024 changing the salary threshold for determining whether employees are exempt from federal overtime pay requirements under the Fair Labor Standards Act (FLSA). Although the new rule took effect July 1, 2024, opponents have already filed litigation challenging it. Here’s what you need to know while the lawsuits play out.

Overtime test

The FLSA requires that employers pay nonexempt workers overtime pay at a rate of 1.5 times their regular pay rate for hours worked per week that exceed 40. Employees are exempt from the overtime requirement if they fulfill the following three tests:

1. Salary basis. The employer pays the employee a predetermined and fixed salary that isn’t subject to reduction based on variations in the quality or quantity of their work.

2. Salary level. The salary isn’t less than a specific or threshold amount.

3. Duties. The employee primarily performs executive, administrative or professional duties.

The new rule raises the threshold for the salary level in two steps. Previously, most salaried workers who earned less than $684 per week or $35,568 per year became eligible for overtime. On July 1, 2024, the threshold rose to $844 per week or $43,888 per year. On January 1, 2025, it will climb further, to $1,128 per week or $58,656 per year.

Notably, the increases employ the same methodology that the previous rule used (which could make it more likely to withstand court challenges). But that rule also is the subject of a lawsuit.

Highly compensated employees

The new rule also increases the total compensation requirement for highly compensated employees (HCEs) who are subject to a looser duties test than employees who are paid less. Now, they’re required to “customarily and regularly” perform only one of the duties of an exempt executive, administrative or professional employee, versus primarily performing such duties.

The former rule applied to HCEs who performed office or non-manual work and earned total compensation (including bonuses, commissions and certain benefits) of at least $107,432 per year. The salary threshold rose to $132,964 per year on July 1, 2024, and will go up to $151,164 on January 1, 2025.

Under the final rule, all salary thresholds will be updated every three years, based on current earnings data from the most recent available four quarters of data from the Bureau of Labor Statistics. The DOL can, however, temporarily delay a scheduled update due to unforeseen economic or other conditions.

Nonprofits’ next steps

With the future of the new rule uncertain, your organization may want to err on the side of caution. If you haven’t already done so, review your employees’ salaries to identify those whose salaries exceed the previous level but fall below the new thresholds.

For those employees who are now exempt under the new thresholds, you could increase their salaries to retain their exempt status. Other options include reducing or eliminating overtime hours or paying overtime to these employees. You also can reduce an employee’s salary to offset new overtime pay. Budget adjustments, as well as training for newly nonexempt employees about timekeeping and limits on off-the-clock hours, might be necessary.

Bear in mind that salary alone doesn’t make employees exempt — they also must satisfy the applicable duties test. An employee whose salary exceeds the threshold but doesn’t primarily engage in applicable duties is eligible for overtime pay.

Stay tuned

Litigation over the DOL’s new rule may take time to play out and a court could block the rule while the lawsuits proceed. Your nonprofit should pay close attention and seek professional advice on how to stay on the right side of the law.

Sidebar: Does it apply to your nonprofit?

The U.S. Department of Labor (DOL) has indicated that not all nonprofits are subject to the new overtime rule because they aren’t all covered by the Fair Labor Standards Act (FLSA). For example, the law doesn’t necessarily apply to employers with an annual dollar volume of sales or business less than $500,000. Also, charitable, religious, educational and similar activities generally aren’t considered in the calculation unless they compete with businesses. Only activities performed for a business purpose are included.

But a nonprofit’s employees could still be covered by the FLSA under “individual coverage,” meaning they’re involved in interstate commerce. The DOL defines such involvement broadly. It includes employees who regularly make out-of-state phone calls, handle records of interstate transactions, and travel to other states for work or produce goods that will be sent out of state (including, for example, an administrative staffer typing letters). If your organization regularly interacts with out-of-state contacts, the new overtime rule likely applies to your organization.

Newsbytes Non-Profits

karona@mbkcpa.com (Katrina Arona) — Tue, 17 Sep 2024 20:08:57 GMT

Why nonprofit CEOs are leaving

The Chronicle of Philanthropy conducted a wide-ranging survey of CEOs and found that about one-third are planning to leave their jobs within two years, with 22% likely to leave the nonprofit industry entirely. Although job satisfaction is high, 88% of the respondents describe the demands on them as “never-ending,” and almost 60% struggle with work-life balance.

According to the Chronicle , almost all of the CEOs surveyed agree that the benefits of their jobs outweigh the negatives (97%) and that they feel tremendous satisfaction in their jobs as nonprofit leaders (96%). But 90% also feel tremendous pressure to succeed, which helps explain their impending exodus. Retirement ranks as the top reason for their departures. Other leading reasons include salary and the challenge of finding resources. Notably, about 40% of respondents say their boards aren’t engaged.

Employee volunteerism on the rise

An Association of Corporate Citizenship Professionals survey reveals that employee participation in volunteer activities in the workplace increased in 2023, with companies offering a greater variety of options and time off for volunteering. In addition, in-person and virtual volunteering options have become standard in corporate volunteer programs as remote work has become more common.

Sixty-one percent of the corporate social responsibility and environmental, social and governance professionals surveyed reported greater employee participation rates. Only 14% experienced drops in participation. Companies boosted their rates by providing, among other options, increased opportunities for group volunteering (59%) and more focus on in-person volunteering opportunities (48%). Some also have added more options for individual volunteering and increased their employee engagement budgets in 2023. Almost a third of those surveyed also introduced or increased skills-based volunteering.

New ban on noncompete agreements may cover nonprofits

The Federal Trade Commission (FTC) recently issued a final rule that generally prohibits noncompete agreement with employees. The rule — which is facing court challenges — also will rescind existing noncompete agreements for most workers if it goes into effect after its September 4, 2024, effective date. Although some believe that 501(c)(3) organizations are outside the FTC’s authority because they’re not “corporations” under the FTC Act, the agency maintains that not every tax-exempt organization is beyond its jurisdiction.

The FTC contends that it has jurisdiction over “so-called nonprofit corporations, associations and all other entities if they are in fact profit-making enterprises.” In particular, it rejects the notion that all hospitals and healthcare entities claiming tax-exempt status fall outside its authority. To determine whether an organization is “profit-making,” the FTC considers 1) whether the corporation is organized for, and actually engaged in, business for only charitable purposes, and 2) whether either the corporation or its members derive a profit.

MBK Announces Two New Hires

karona@mbkcpa.com (Katrina Arona) — Tue, 10 Sep 2024 15:29:45 GMT

Meyers Brothers Kalicka, P.C. Announces Two New Hires

Holyoke, MA — Meyers Brothers Kalicka, P.C. is proud to announce the following new hires:

Allison Gaynor, Administrative Assistant
Jalaysia Isaac, A&A Associate

Office Efficiencies and Time Management

Wed, 04 Sep 2024 13:00:01 GMT

Office Workflow

The first step that should be taken is to review the workflow of your office. What inefficiencies exist from the time a patient walks in the door to when they leave? Is there a bottleneck of patients crossing paths in the hallway, or does the provider have to search to locate supplies that are continuously moved from place to place? If corrected, many of these inefficiencies can result in the physician seeing more patients throughout the course of a day.

To identify these inefficiencies, try putting yourself in the shoes of one of your patients. Come in as a patient and go through the entire process of being a patient within your practice. By looking at the flow from a different set of eyes, you may identify many areas where inefficiencies and redundancies may be eliminated, and the flow of your office can be improved.

An outside consultant may be extremely helpful in this exercise. They would be able to look at your workflow in an unbiased manner and compare what they see to models of successful practices. Additionally, this would make the best use of your time, by allowing you to continue seeing patients while this takes place.

As you review the workflow of your practice, consider also how communication takes place. After seeing a patient, do you need to track down one of your nurses or assistants to explain to them the next steps in the care of the patient? Consider the use of technology in this process. A lighting or internal messaging system could let them know that a patient is ready for discharge or that they need to have lab work scheduled - while allowing the provider to move right on to the next patient. Such a system may also allow the provider to be informed when something comes up that requires attention, without being interrupted during a patient visit.

Improving the efficiency of your practice workflow is an area where your Electronic Health Records (EHR) system may come into play. Consider meeting with your EHR vendor to see what features or functions may exist in the system that you may not be utilizing to their fullest potential. A review of this process may help eliminate unnecessary paperwork, or the need for documentation after a patient visit that could have been documented during the patient visit. You pay a lot for these systems, so it is important to make sure you are getting everything you can out of them.

Best Practices

The second step in improving the effectiveness of your time management would be to review some of your own daily tasks. When you arrive for the day, after getting your cup of coffee, make sure that you have reviewed the schedule for the day before seeing any patients. This should include a review of the reason for the visits, as well as a review of the patient’s chart. For those patients coming in for a follow-up visit, this will ensure that you have received all test results before the patient arrives, as opposed to scrambling to locate them with the patient in the room waiting to be seen. When consulting with a patient, if they bring something up that was not scheduled, and it is non-life threatening, consider requesting that they make another appointment so that you will be able to spend adequate time discussing the issue with them.

Additionally, be sure to build time into your schedule each day to catch up when you fall behind and to return emails and phone calls. Many providers work late each day and follow up on these items after everyone else has gone home for the day. The problem with this is that a patient waiting for a return phone call may call back multiple times a day until they hear from the provider. Additionally, leaving a pile of paperwork for your staff for when they return the next morning will make them stressed out for the day before they have even placed the first patient in an exam room.

Managing Patients

The one way that all providers can help to more effectively manage their own time is to better manage their patients. First, when scheduling, particularly with new patients, consider changing your policy so that all patients arrive 10-15 minutes prior to their visit. Explain to them in advance this policy so that paperwork can be completed, and your team can check weight, blood pressure and changes from the last visit before their scheduled time with the provider. Second, call patients in advance of the appointment to remind them of their visit. In this call, be sure to confirm with them the office’s policy for no shows and late arrivals.

While many providers are busy with their caseload for the day, it is easy to get behind in your daily schedule. To be the most effective and productive, however, take a step back and evaluate some of the areas discussed in this article. They are all areas where a little effort up front will lead to greater rewards at the end of the day.

Tap Your 401(k) Plan Early Without Penalty

karona@mbkcpa.com (Katrina Arona) — Tue, 03 Sep 2024 12:30:00 GMT

If you participate in a traditional employer-sponsored retirement plan, such as a 401(k) or 403(b) plan, you’re likely aware that you generally can’t withdraw the funds before age 59½. Your plan may allow early withdrawals under certain circumstances — financial hardship, for example — but in most cases these withdrawals are subject to ordinary income tax plus a 10% penalty.

There are some exceptions, however, that allow you to withdraw funds early without penalty, if your plan allows it (although you’ll still have to pay tax). One is the “rule of 55,” which allows you to take penalty-free withdrawals in the year you turn 55 (or later) if you retire early or otherwise leave your job and meet certain other requirements. Another exception allows you to avoid penalties if you leave your job and take a series of substantially equal periodic payments over your life expectancy or the joint life expectancies of you and your designated beneficiary.

Are Energy-Efficient Home Improvement Rebates Taxable?

karona@mbkcpa.com (Katrina Arona) — Thu, 29 Aug 2024 13:00:12 GMT

The Inflation Reduction Act (IRA) expanded several existing tax incentives — and created some new ones — for homeowners who “go green.” Among the new incentives are two IRA-funded Department of Energy (DOE) programs that provide rebates to homeowners who invest in certain energy-efficient home improvement and electrification projects.

When the IRA was enacted, there was some uncertainty over how these rebates would be treated for federal income tax purposes. Fortunately, the IRS has provided some answers. In Announcement 2024-19, the IRS clarified that homeowners who receive rebates aren’t required to include them in their gross income. However, they must reduce their cost basis in the property by the amount of the rebate. The IRS also explains how rebates affect the calculation of the energy-efficient home improvement credit.

What it means for homeowners

According to the IRS, home-energy rebates are treated as purchase price adjustments and, therefore, are excluded from gross income for federal tax purposes. However, that means the amount of the rebate isn’t included in the purchaser’s cost basis. A reduction in basis can potentially increase a homeowner’s taxable gain when the home is sold.

Suppose, for example, that a homeowner purchases eligible energy-efficient property with a pre-rebate price of $600 and receives a point-of-sale rebate of $500. The rebate is nontaxable, but the homeowner’s cost basis in the property is only $100.

What happens if the homeowner purchased the property earlier for $600 but later receives a $500 rebate? In that case, the homeowner also has to reduce his or her basis in the property from $600 to $100.

Note that rebate payments treated as purchase price adjustments aren’t subject to IRS information-reporting requirements (under which payors of amounts over $600 must file information returns with the IRS and furnish statements to the payee). So, the entity paying the rebate (a state or local government, for example) isn’t required to report the payment on Form 1099, even if it’s more than $600.

What it means for businesses

Sometimes rebates are paid directly to a business in connection with its sale of goods or provision of services to a purchaser. For example, a contractor may receive a rebate on energy-efficient property that it purchased for a residential remodeling project.

These rebate payments are includible in the business’s gross income. They also may be subject to information reporting.

Coordination with the energy-efficient home improvement credit

This tax credit, available under Internal Revenue Code Section 25C, had expired but was revived and expanded by the IRA. It allows homeowners to claim a credit of up to 30% of the cost of qualifying energy-efficiency improvements, residential energy property and home energy audits, subject to certain limits.

The IRS announcement clarifies that homeowners who receive rebates under one of the DOE programs and claim the Sec. 25C credit must reduce the amount of qualified expenditures used to calculate the credit by the amount of rebates they receive. The announcement provides an example: If a homeowner purchases an eligible product for $400 and receives a $100 rebate through one of the DOE programs, the homeowner may claim a 30% credit with respect to the remaining $300 of qualifying expenditures. In other words, the Sec. 25C credit would be reduced from $120 to $90.

Rebates coming soon

As of this writing, rebates aren’t yet widely available. However, many rebate programs are expected to be launched in 2024. Be sure to monitor developments in your state.

Why One Pot Trust May Be Better than Two Separate Trusts

karona@mbkcpa.com (Katrina Arona) — Thu, 22 Aug 2024 15:47:56 GMT

If you have two or more children, a “pot” trust may be right for your estate plan. Trusts can be an effective way to provide for your children. Typically, parents will create separate trusts for each child, splitting their assets into equal shares to fund each trust.

However, it’s important to keep in mind that treating your children “fairly” in your estate plan doesn’t always mean you’re treating them “equally.” This is where a pot trust can help.

Consider your children’s needs

Most parents want to avoid playing favorites, so separate trusts appeal to their sense of fairness. But “fair” and “equal” aren’t necessarily the same thing. Think about how you use your funds now. If one of your children has a specific need — whether it’s college tuition, medical care or something else — it’s likely that you’ll pay for it without feeling any pressure to spend the same amount on your other children.

View your estate plan in the same light: Fairness means providing for your children’s needs, regardless of whether you distribute your assets equally.

For example, suppose you have two children, Chase and Reece, ages 23 and 18, respectively. Chase recently graduated from college, and Reece is about to start. You’ve already spent more than $200,000 on Chase’s tuition and other college expenses. If you were to die tomorrow, and your estate plan divides your wealth equally between Chase and Reece, Chase will ultimately come out ahead. That’s because he already received the benefit of $200,000 in college expenses. Reece, on the other hand, would need to tap her trust fund to pay for college.

Turn to a pot trust

A pot trust can be a great way to continue meeting your children’s individual needs and avoid giving one child a windfall. As the name suggests, you pool assets into a single trust and give the trustee full discretionary authority to distribute the funds among your children according to their needs.

Essentially, a pot trust allows the trustee to spend your money the way you would if you were alive. If one of your children has substantial education expenses or medical bills, the trustee has the authority to cover them, even at the expense of your other children’s inheritances.

For many families, a pot trust makes sense when children are relatively young and are likely to have differing needs that can change dramatically over time. If appropriate, your plan can call for the pot trust to be divided into separate trusts for each child at some point in the future.

Think twice before naming a trustee

For a pot trust to be effective, it’s critical to choose your trustee — as well as a backup trustee — carefully. As with any type of trust, your trustee should be trustworthy and impartial and have the skills necessary to manage the trust assets. But for a pot trust, it’s particularly important for the trustee to have the ability to communicate effectively with the trust’s beneficiaries.

Because distributions depend on each beneficiary’s unique needs, the trustee must understand those needs, as well as your objectives for the trust. He or she also must be able to explain the reasoning behind his or her decisions to all the beneficiaries.

Draft with care

Using a pot trust can provide you peace of mind that you’re treating your children fairly in your estate plan. Turn to your estate planning advisor to ensure that your pot trust is properly drafted.

Stuffing the Bus with United Way of Pioneer Valley and team MBK

karona@mbkcpa.com (Katrina Arona) — Mon, 19 Aug 2024 20:51:36 GMT

Summer is nearly wrapping up as August winds down which means students are gearing up for the new school year! Meyers Brothers Kalicka, P.C. (MBK) partnered with United Way of Pioneer Valley’s annual campaign Stuff the Bus to collect school supplies for the surrounding local elementary students. United Way of Pioneer Valley has established community roots for over a 100 years. The organization is focused on providing essential resources, inclusiveness, and developing further connections within the community.

Participating for a third year, team MBK collected unopened school supplies led by champions Partner, Matt Nash and Senior Associate, Chris Soderberg. United Way of Pioneer Valley set a donation goal of stuffing 700 backpacks for elementary students. This year the firm expanded the drive to include donations for teachers’ classroom supplies. MBK donated a surplus of items to United Way of Pioneer Valley. Donations included: backpacks, notebooks, crayons, glue sticks, pencils, pens, erasers, pencil sharpeners, rulers, pencil boxes and cases, loose leaf paper, composition books, highlighters, index cards and post-it-notes. Donations were dropped off to the United Way of Pioneer Valley last Monday and will later be distributed to Hampden County, South Hadley, and Granby schools.

To learn more about United Way of Pioneer Valley Stuff the Bus, visit their website: https://www.uwpv.org/stuff-the-bus

Start Tax Planning for 2026

karona@mbkcpa.com (Katrina Arona) — Mon, 12 Aug 2024 18:57:37 GMT

Start Tax Planning for 2026

Many tax-related changes made by the Tax Cuts and Jobs Act (TCJA) are scheduled to expire at the end of 2025. Beginning in 2026, among other things, tax rates are scheduled to increase for most people, the standard deduction is set to be cut roughly in half, and the federal gift and estate tax exemption will drop to an estimated $7 million.

Even though there’s currently talk in Congress about preserving some or all of the TCJA’s tax breaks, it’s uncertain what will happen. Consult your advisor to discuss the potential impact of the elimination of these tax breaks and planning strategies to soften the blow.

Married couples: Watch out for the survivor trap

karona@mbkcpa.com (Katrina Arona) — Thu, 08 Aug 2024 21:08:01 GMT

When a spouse dies, the last thing the survivor wants to deal with is higher taxes. But that’s exactly what can happen if he or she is caught in the “survivor trap.” Fortunately, there are some strategies you can use to avoid the trap — or at least ease the pain.

Detecting the trap

Why does the survivor trap happen? Typically, it’s because the surviving spouse changes filing status from married filing jointly to single, while his or her income remains roughly the same. This situation can force the survivor into a higher tax bracket.

For example, based on the 2024 federal income tax brackets, a married couple filing jointly with $300,000 in taxable income would be in the 24% bracket. But a single filer with the same income would be in the 35% bracket. The trap may also ensnare surviving spouses if certain tax breaks enjoyed by married couples (such as higher child tax credits or educational expense deductions) are reduced or eliminated.

Additionally, the trap can affect retired couples who are subject to required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans. These RMDs can trigger significant tax liabilities and must be taken regardless of whether the recipient needs the money.

Navigating the minefield

If you’re in danger of falling into the survivor trap, consider these strategies to mitigate its impact:

Perform a Roth conversion. With proper planning, married couples can reduce or eliminate RMDs, allowing a surviving spouse to minimize his or her income. One strategy is to convert traditional IRAs into Roth IRAs, which allow for tax-free distributions. Plus, you’re not required to take RMDs from Roth accounts. Although you’ll pay tax on the converted amount at the time of the conversion, you can soften the blow by performing a series of partial conversions over several years. That way, you’ll pay the tax in more manageable installments and avoid pushing yourself into a higher tax bracket by converting the entire amount in one year.

Donate to charity. If you’re a surviving spouse who’s charitably inclined, consider making a qualified charitable distribution (QCD) from a traditional IRA. If you’re 70½ or older, you can donate up to an inflation-adjusted $100,000 per year ($105,000 for 2024) directly from an IRA to a qualified public charity. Unlike regular distributions from an IRA, QCDs are excluded from your adjusted gross income, but they still count toward your RMDs for the year.

Make the most of spousal rollovers. If you inherit an IRA from your spouse, transferring the funds to a spousal rollover IRA can provide a big tax advantage, especially if you’re significantly younger than your spouse.

For example, let’s say Frank, 82, has a large balance in his traditional IRA, so his annual RMDs are significant. He dies in 2024, leaving the IRA to his wife, Margaret, 64. Were Margaret to leave the money in the inherited IRA, the RMDs would have continued. But if she transfers the balance to a spousal rollover IRA, she can avoid the tax hit associated with the RMDs. Then the account can continue growing on a tax-deferred basis until she starts taking RMDs at age 75.

Have a plan

These are just a few examples of strategies you can use to mitigate the impact of the survivor trap. Other possibilities include harvesting capital losses to offset capital gains, increasing charitable donations to take advantage of itemized deductions, giving away income-producing assets to children or other loved ones in lower tax brackets, moving to a state with low, or no, income tax, or purchasing life insurance to cover the cost of additional taxes.

The important thing is to plan not only for retirement as a couple, but also for the possibility that one spouse will have to adjust tax strategies if his or her partner dies. Your advisor can help you choose which strategy is right for your family.

Nourishing the Community: MBK Works Together for Enrichment and Growth

karona@mbkcpa.com (Katrina Arona) — Thu, 01 Aug 2024 14:00:03 GMT

On Friday July 19, 2024, Chelsea, Mila, Nick, Justin, Chris, and Catherine took on their horticulture skills by returning to volunteer their time at the Food Bank of Western Massachusetts’ farm in Hadley. In previous years, team MBK helped construct greenhouses on the farmland which are now filled with flourishing tomato plants. Friday’s experience not only brought us closer but broadened our horizon to the agriculture world. Volunteering our time at the food bank was a rewarding way to give back to the community and support individuals in need.

Team MBK had a collaborative spirit performing farm chores. They learned how the farm uses a regenerative method for maintaining their fields. Tasks included filling sandbags that were used to hold tarps down preventing weed growth and shoveling compost to spread over cardboard creating two 30-foot-long plant beds.

The Food Bank of Western Massachusetts is an organization highlighting the importance of impacting daily lives by energizing the body with nutritious foods. Providing balanced meals to individuals who face food insecurity. They believe the fresher the produce the better it is for your body and environment, which overall ties in to sustaining the planet as well. Cultivating for Community is the Food Bank’s initiative to provide resources and knowledge on regenerative farming methods.

Some statistics that have been collected in the last year of individuals facing food insecurity:

In Massachusetts alone, 76,967 individuals (including children) face food insecurity
Of the overall Massachusetts statistic, 15.9% individuals specifically located in our surrounding community face food insecurity.
The average monthly of individuals served is 110,564 by the Food Bank and it's member programs

Seasonal recipes and classes are also provided by the Food Bank’s nutritional team. Partnering with the farmers to inspire creative meals for the summer and fall months using fresh produce harvested straight from the fields.

To learn more about the Food Bank of Western Massachusetts Cultivating for Community program, visit their website: https://www.foodbankwma.org/get-involved/food-bank-farm-cultivating-for-community/

MBK Announces Three New Hires

sstack@mbkcpa.com (Sarah Rose Stack) — Wed, 31 Jul 2024 15:25:19 GMT

Meyers Brothers Kalicka, P.C. Announces New Hires

Holyoke, MA — Meyers Brothers Kalicka, P.C. is proud to announce the following new hires:

Catherine O’Connell, A&A Associate
Katrina Arona, Marketing and Recruiting Associate
Taylor Bahn, A&A Associate

MBK Raises Money for Ukrainian Children to Attend Summer Camp

sstack@mbkcpa.com (Sarah Rose Stack) — Tue, 09 Jul 2024 19:42:09 GMT

Last spring, MBK and its clients came together to contribute supplies and food to a church in Westfield that was shipping these items to Ukraine. Senior Associate, Mila Renkas shared, "I am deeply grateful to everyone who helped during that critical time. The conflict has affected many, including my family and friends who are still enduring the ongoing war and striving to rebuild their lives after losing everything".

One person who embodies the spirit of resilience and compassion is Oksana, a close friend of Mila's since their teenage years. Oksana remains in Ukraine, dedicated to making a difference by organizing a summer camp for children affected by the war, running from July 1 to July 6. This camp provides an invaluable experience for the children, offering it completely free of charge. The funding for this project, covering the cost of food, supplies, games, and small presents for the kids, is sourced entirely from volunteers.

A family has been actively raising money within their community to support this initiative and wanted to extend this opportunity to the MBK family. The willingness to help was greatly appreciated. They aimed to raise an additional $300 for the summer camp by Thursday, June 27, and not only met their goal but exceeded it, collecting a total of $500!

This outpouring of support means a great deal. It will make a significant difference in the lives of children who have been deeply affected by the war in Ukraine. Oksana is incredibly grateful for the contributions and plans to share pictures from the camp in July to illustrate the impact of this generosity.

Thank you once again for the incredible support in making the Children's Summer Camp in Ukraine a reality. Together, it has been shown that even in the face of adversity, compassion and community spirit can bring about meaningful change.

MBK Celebrates its Q2 Work Anniversaries

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 24 Jun 2024 18:20:33 GMT

Congratulations again to our colleagues celebrating anniversaries in Q2 2024. Here's to more years of shared success!

Building Dreams: MBK builds 10 beds for "A Bed for Every Child"

sstack@mbkcpa.com (Sarah Rose Stack) — Fri, 14 Jun 2024 21:13:05 GMT

On Friday, June 14th, the firm took the initiative to close early and contribute to an important cause: building 10 beds for children in need. Despite the forecast of rain and thunderstorms, MBK set up camp beneath the building to ensure the project could proceed without any interruptions.

The team, led by Chelsea, included Dan, Taylor, Sam, Olivia, Katrina, Fran, Karen, Sarah Rose, Mia, Caitie, Lauren, Tyler, Regina, Chris, Justin, Nick, and Jeff. Their collective effort and teamwork were crucial in assembling the beds, embodying the firm's spirit of community service.

A Bed for Every Child is the organization behind this meaningful initiative. They operate under the belief that sleep is as vital as food, water, shelter, and clothing, and that every child deserves a safe space to dream. Since its inception in 2012, A Bed for Every Child, which is an initiative of the Massachusetts Coalition for the Homeless, has been dedicated to ending homelessness through proactive community engagement.

Some stats over the past year of sleeping arrangements of the children that have been provided a bed:

431 Children were sharing a bed with a sibling.
378 Children were sleeping with their parents/caretakers.
489 Toddlers needed a bed to transition into.
213 Children were sleeping on a couch night after night.
172 Children were sleeping on the floor without a mattress.
122 Children were sleeping on an air mattress.
61 Children were sleeping on a broken mattress.
58 Children were experiencing bed bugs and their mattresses had to be disposed of.

By partnering with businesses, schools, and community organizations, A Bed for Every Child facilitates hands-on team-building activities to construct beds for children in need. The event was a resounding success, demonstrating how collective efforts can make a significant difference in the lives of those less fortunate. Our firm is proud to have played a part in this initiative and looks forward to more opportunities to give back to the community.

To learn more about A Bed for Every Child, visit their website: https://www.abedforeverychild.org/

Key Tax Planning Adjustments for 2024: What You Need to Know to Protect Your Bottom Line

Wed, 12 Jun 2024 15:15:14 GMT

The bill provided for increases in the child tax credit, delayed the requirement to deduct research and experimentation expenditures over a five-year period, reinstated the depreciation and amortization add back through 2025 for purposes of calculating the business interest limitation, extended the 100% bonus depreciation through 2025, and increased the Code Sec. 179 deduction limitation, among other business-friendly provisions.

Unfortunately, the bill never addressed the bill. Due to the large number of provisions that are retroactively applicable to the 2023 tax year, and in some cases even earlier, the original hope was to get the bill passed before the start of the 2024 filing season. Since that deadline has passed, the goal would still be to get the bill passed as soon as possible to minimize the administrative burdens on the IRS. There is no current date set for a Senate vote and with this being an election year, the liklihood is slim.

As a result, planning for 2024 will not be much different than 2023 but lets summarize the few changes, primarily inflation related adjustments, effective for 2024. Pay attention to these changes because they can hurt or help your bottom line. Use this information now so you can hold on to more of your hard-earned money when it's time to file your 2024 federal income tax return (in early 2025).

Individual Taxes

Retirement Savings

Key dollar limits on workplace retirement plans and IRAs increase in 2024. The maximum 401(k) contribution is $23,000. People born before 1975 can contribute an extra $7,500. These limits also apply to 403(b)s and 457 plans.

SIMPLEs have a $16,000 cap, plus $3,500 for individuals age 50 and older.

The 2024 contribution cap for traditional IRAs and Roth IRAs is $7,000, plus $1,000 as an additional catch-up contribution for individuals age 50 and older.

The income ceilings on Roth IRA pay-ins are higher for 2024. Contributions phase out at adjusted gross incomes of $230,000 to $240,000 for joint filers and $146,000 to $161,000 for single filers.

2024 deduction phaseouts for traditional IRAs range from adjusted gross incomes of $123,000 to $143,000 for joint filers covered by 401(k)s and $77,000 to $87,000 for single filers and heads of household. If only one spouse is covered by the plan, the phaseout range for deducting pay-ins for the uncovered spouse is $230,000 to $240,000.

Adoption tax credit

The adoption credit is taken on up to $16,810 of qualified expenses in 2024. The full credit is available for a special-needs adoption even if it costs less. The credit phases out for filers with modified AGIs over $252,150 and ends at $292,150

Standard Deduction

Standard deduction amounts for 2024 have been inflation-adjusted and are higher than they were last year. For more information, see Standard Deduction 2024 Amounts and The Extra Standard Deduction for People Age 65 and Older.

The income tax brackets for individuals are much wider for 2024 because of inflation during the 2023 fiscal year. Tax rates are unchanged.

Capital gains and qualified dividends

The favorable tax rates on long-term capital gains and qualified dividends do not change. But the income thresholds to qualify for the various rates go up for 2024. The 0% tax rate applies at taxable incomes up to $94,050 for joint filers, $63,000 for heads of household and $47,025 for single filers. The 20% tax rate starts at $583,751 for joint filers, $551,351 for heads of household and $518,901 for single filers. The 15% tax rate is for filers with taxable incomes between the 0% and 20% break point.

The annual gift tax exclusion for 2024 is $18,000 per donee. That means in 2024, you can gift up to $18,000 ($36,000 if your spouse agrees) to each child, grandchild or any other person without having to file a gift tax return or tap your lifetime estate and gift tax exemption. Annual gifts over the exclusion amount will trigger filing of a gift tax return for 2024, but no gift tax will be due unless your total lifetime gifts exceed $13,610,000.

Business tax changes

Depreciation

First-year bonus depreciation isn’t as valuable in 2024. Last year, businesses could deduct 80% of the cost of new and used qualifying business assets with lives of 20 years or less. This year, the 80% write-off decreases to 60%.

But Section 179 expensing is higher. $1,220,000 of assets can be expensed in 2024.

This limit phases out dollar for dollar once more than $3,050,000 of assets are put into use in 2024.

Note that the amount of business assets expensed can’t exceed the business’s taxable income. Bonus depreciation doesn’t have this rule.

Pass-through income

Conclusion

It is difficult to do tax planning in anticipation of what might happen in Washington, especially with this being an election year and the great divide on tax policy between the parties. Maybe the best planning would be to plan for possible tax changes in 2025 depending not only on the party that wins the Presidential election but also on the mark-up of the House and the Senate. It could well be time to accelerate gifting, accelerate income and postpone deductions. Perhaps with optomisim, you can imagine that those postponed R&D and interest deductions will give you a deduction at a higher tax rate and maybe this can lessen the pain of accepting possible increased tax rates.

9 Accounting Myths Debunked

sstack@mbkcpa.com (Sarah Rose Stack) — Wed, 05 Jun 2024 15:19:15 GMT

As a business owner or nonprofit leader, the complexities of accounting can often appear intimidating. You’ve probably heard various myths and misconceptions about accounting that make you question how to manage your finances best. This article will tackle some of the most common accounting myths and provide clear, practical insights to help you make informed decisions.

Myth #1: "Accountants Are Only Needed During Tax Season"

The Reality:

Accountants are valuable assets to businesses and nonprofits year-round, not just during tax season.

Financial Planning and Analysis: Accountants assist in creating budgets, forecasting future financial performance, and analyzing financial data to help businesses make strategic decisions.
Regulatory Compliance: Accountants ensure that businesses comply with ever-changing financial laws and regulations, avoiding potential fines and legal issues.
Operational Efficiency: By reviewing internal processes, accountants can identify inefficiencies and areas where costs can be reduced, thereby improving overall business operations.

Real-World Example: Consider a small nonprofit organization that relies on donations to fund its community programs. By consulting with an accountant throughout the year, the organization created a detailed budget and financial plan that accounted for both expected and unexpected expenses. This proactive approach allowed them to identify a surplus in their funds mid-year, which they then allocated to an urgent community project. Without regular financial oversight provided by their accountant, the organization might have missed this opportunity to make a significant impact, demonstrating the value of year-round accounting support.

Myth #2: "Accounting Software Can Replace an Accountant."

The Reality:

Accounting software has undoubtedly revolutionized the way businesses manage their finances. However, it cannot fully replace the expertise of a professional accountant. Here’s why human expertise still matters:

Customization and Strategy: Accountants tailor their services to fit the unique needs of your business, offering strategic advice that software cannot provide. There is no one size fits all approach.
Error Detection: While software can automate many tasks, it can also create errors if not used correctly. Accountants can spot and correct these mistakes, ensuring the integrity of your financial data.
Tax Efficiency: An accountant's knowledge of current and projected tax laws and regulations can optimize your tax situation, potentially saving you significant amounts of money.

Insight: Many accounting software users still need guidance on how to interpret financial reports and make strategic decisions based on the data. An accountant bridges that gap.

Myth #3: "Accounting is Just About Balancing the Books."

The Reality:

Accounting encompasses much more than just tracking debits and credits. It plays a crucial role in the overall financial health and strategic planning of your business. Here's how:

Financial Analysis: Accountants analyze financial statements to provide insights into profitability, cash flow, and financial stability.
Budgeting and Forecasting: They assist in creating realistic budgets and financial forecasts, helping you plan for the future.
Regulatory Compliance: Accountants ensure that your business complies with financial regulations and industry-specific requirements, mitigating the risk of legal issues.

Example: A small retail business might use accounting data to identify trends in sales and expenses, allowing them to adjust pricing strategies or inventory levels proactively.

Myth #4: "I Don't Need to Understand Accounting, My Accountant Does It All."

The Reality:

While it’s true that your accountant handles the complexities of financial management, having a basic understanding of accounting principles can significantly benefit your business. Here's why:

Informed Decision-Making: Understanding financial statements and key metrics allows you to make more informed business decisions.
Better Collaboration: When you understand the basics of accounting, you can more effectively communicate with your accountant and work together to achieve your financial goals.
Risk Management: Awareness of financial health indicators helps you identify potential risks and take proactive measures to address them.

Tip: Consider taking a basic accounting course or attending workshops to strengthen your financial literacy. Many local business development centers offer resources tailored to small business owners and nonprofits.

Myth #5: GAAP Requires Cost Accounting

The Reality:

While GAAP (Generally Accepted Accounting Principles) does require certain accounting standards, it does not mandate the use of cost accounting specifically. Cost Accounting is generally only used for internal reporting. Here are some key points to consider:

GAAP's four tenets (materiality, conservatism, consistency, matching) generally align with lean accounting principles, except for challenges with matching in low inventory turn scenarios.
Lean accounting emphasizes materiality, focusing only on significant data, and aligns well with the conservative and consistent reporting practices of GAAP.
Matching costs with revenue can be problematic, especially with slow-paying customers, but improved inventory turns can mitigate this issue.

Tip: To overcome matching challenges, lean accounting departments should reconsider the timing of financial tasks to align better with lean manufacturing cycles.

Myth #6: We Can’t Close the Books Until ….

The Reality:

Closing the books involves finalizing all financial activities for a specific period, ensuring accuracy and completeness. A soft close allows organizations to perform preliminary reviews and adjustments, ensuring that any financial discrepancies are identified and resolved before the final close.

Close books quickly for timely decision-making; outdated information is less relevant.
A soft close provides a recent view of profit, losses, and cash flow; can be done daily.
Perform a hard close for external reporting, frequency depending on stakeholders' needs.

Tip: Regular soft closes can help identify financial issues early and prevent them from becoming major problems.

Myth No. 7: If It’s Precise, It’s Accurate

The Reality:

Precision and accuracy, though often used interchangeably, have distinct meanings in the context of financial reporting. Here's why focusing solely on precision can be misleading:

Mistakes in precise cost assignments can delay closing the books.
Business software may assign costs to many decimal places, appearing precise but not accurate.
Generally Accepted Accounting Principles (GAAP) emphasize materiality over extreme precision.

Tip: Focus on providing financial information that aids decision-making, such as cash flow, rather than overly detailed overhead costs.

Myth No. 8: Financial Reporting Should Drive Decisions

The Reality:

While financial reporting is essential for tracking your business's performance, it shouldn't be the sole driver of your decisions. Here are a few reasons why this myth falls short:

Managers may manipulate financial numbers to look better for a specific period by pulling future orders forward.
This practice causes revenue to spike at the end of reporting periods but creates voids in subsequent months.
The issue stems from incentive structures that encourage meeting short-term targets at the expense of long-term stability.

Tip: Establish balanced incentives that reward consistent performance over time, rather than short-term gains.

Myth No. 9: The Budgeting Process Controls Costs

The Reality:

While the budgeting process is designed to help manage and control costs, it is not a foolproof method. Here are some key points to consider:

Budgeting processes in large companies often become outdated quickly and add costs without creating value.
Financial analysis for future needs (e.g., capital spending, hiring) is essential, but general budgeting can lead to inaccurate forecasts and unnecessary variances.
Detailed budget forecasting can result in decisions that increase costs or reduce revenues, such as delaying beneficial equipment purchases or buying unnecessary machinery.

Tip: Focus on high-level financial analysis rather than detailed budget forecasts to make more impactful decisions and avoid unnecessary costs.

Debunking Financial Myths

Understanding these common financial myths and their realities is essential for any business owner or financial manager. By dispelling these misconceptions, we can foster better financial practices and make more informed decisions. Whether it's understanding the nuances between precision and accuracy in financial reporting, recognizing the limits of traditional budgeting processes, or appreciating the collaborative potential of accounting knowledge, each truth replaces a potentially harmful myth with practical wisdom.

As you navigate your business's financial landscape, use this knowledge to avoid common pitfalls and embrace strategies that genuinely contribute to your long-term success and stability. Knowledgeable decision-making, informed by accurate financial understanding, will ultimately lead to a more robust and resilient business.

Accounting for Change: Recent Updates to the CPA Exam

Mon, 03 Jun 2024 17:55:20 GMT

CPA Exam Discipline Sections

The first major change implemented across the nation for all test takers is effective January 1, 2024, the exam section Business Environment and Concepts was replaced, and candidates now have the freedom to choose from three discipline sections - Business Analysis and Reporting, Information Systems and Controls, or Tax Compliance and Planning. Though these new sections come with uncertainty, this will be the first time these test sections are rolled out and this change presents a unique opportunity for young professionals to specialize and bring new benefits to their firms. Choosing an area of interest can also be beneficial in expanding the “pipeline” to the profession. Individuals can select the test that they are the most confident in, enabling them to be more successful when it comes to the exam. Be it from excelling in a particular class, enjoying a certain niche of an internship, or having a general interest in one section over another, the new disciplines can help empower people when it comes to shaping their own exam and professional path.

Testing Extension for New Candidates

Since everyone’s exam path and timeline differs, another major benefit approved by the Board of Accountancy is an extension of the credit period. Instead of having to pass all four exams within eighteen months, the window is now a more generous thirty months from the score release date of the earliest passing test. This is perhaps the most highly anticipated and welcomed change to the exam. First time test takers may have months pass between their exams, given the time commitment required for studying and the significant lag in receiving exam results. Especially for those who are already working in the field, this may be exacerbated by the demands of a full-time position and networking obligations, or perhaps home-buying and family-building. All these worthy endeavors make it incredibly challenging to complete all exams in eighteen months, especially if someone were to not pass on their first try and had to retake a section. Work environments are concurrently changing, as many firms are implementing flexible work policies - acknowledging that their employees have passions and lives outside of the office that help them maintain a productive work-life balance. The longer credit period allows a similar flexibility. Extending the aggressive eighteen-month period will cater to those who may have been on the fence about taking the exam due to time constraints. It will now be more manageable for candidates to study while simultaneously working full time, taking classes, managing volunteer commitments, or helping with their families.

Credit Extensions for Existing Test Takers

There have also been concessions made for those who started the exams but did not complete all sections before January 1, 2024, which was a welcomed change. As a result of the pandemic and related challenges, candidates who passed exams between January 30, 2020 and May 11, 2023, and had their credits expire, will receive an extension to complete remaining sections through June 30, 2025. Furthermore, credits received from May 11, 2023 through December 15, 2023, will be grandfathered in in accordance with the new policy and will be valid for thirty months from the score release date of the earliest passing exam. Existing test takers who may have struggled on tests taken prior to 2024 gained an extra sense of encouragement and motivation, knowing that their credits would not expire.

These changes benefit students, whether they are at a stage of career exploration or as graduates entering the field; they also benefit professionals and CPA firms across the nation. In all these scenarios, there are plentiful opportunities for anyone looking to further their career. There are many knowledgeable and CPA-worthy individuals who can obtain their CPA designation with a little more time, and the concessions made to the exam will help encourage individuals to choose this path. Not only that, but it will help firms retain their talented employees and encourage continued growth across firm management and client engagements. As the business environment and technology rapidly change, it is important that firms and their professionals adapt and promote continuous learning. The CPA Exam modifications reflect the same sentiments and provide a tool for candidates to grow – with a more encouraging timeline to help them attain their goals in and out of the office. For further information, make sure to consult with your specific state board of accountancy.

About the Author: Mia McDonald is a Senior Associate at the Holyoke-based Accounting firm, Meyers Brothers Kalicka, P.C. She recently sat for the first of the four CPA exams.

Charitable Gift Annuities: A Versatile Planning Tool

sstack@mbkcpa.com (Sarah Rose Stack) — Fri, 31 May 2024 14:06:21 GMT

If you’re charitably inclined, a charitable gift annuity allows you to donate to charity while enjoying significant tax breaks and a lifetime income stream. And if you’re age 70½ or older, you can now transfer up to $53,000 ($106,000 for married couples) to a charitable gift annuity directly from an IRA and apply the gift toward your required minimum distributions (RMDs) for the year.

How it works

To take advantage of a charitable gift annuity, you donate cash, stock or other assets to one or more qualified charities in exchange for a guaranteed fixed income stream for life. You’ll enjoy an immediate tax deduction (subject to IRS limits) equal to the amount of your donation minus the present value of the annuity.

Typically, annuity rates are based on rates suggested by the American Council on Gift Annuities (ACGA). For example, in 2024, the ACGA recommends a rate of 5.2% for a 60-year-old recipient, 6.3% for a 70-year-old recipient and 8.1% for an 80-year-old recipient. Lower rates apply if you designate two recipients, such as you and your spouse, as joint-and-survivor annuitants. These rates are typically lower than rates on commercial annuities because charitable gift annuities are designed to preserve a significant portion of your donation for the charity.

For income tax purposes, annuity payments generally are treated as a combination of ordinary income and tax-free return of principal. If you donate appreciated property in exchange for the annuity, a portion of the payments will be taxed as capital gains.

Donating funds from an IRA

If you’re 70½ or older, you’re currently permitted to make qualified charitable distributions (QCDs), up to an inflation-adjusted $100,000 per year, directly from an IRA to a qualified public charity. For 2024, the limit is $105,000. QCDs aren’t tax deductible, but unlike other IRA distributions they’re not included in your adjusted gross income, resulting in significant tax savings. Plus, QCDs apply toward any RMDs for the year.

Now, under the SECURE 2.0 Act, you can transfer a portion ($53,000 in 2024) of your annual QCD limit to a charitable gift annuity. In addition to current tax savings, these annuities can generate a significant income stream for life (taxable as ordinary income).

But there are a couple of caveats: Unlike regular QCDs, which can be done once a year, transfers from an IRA to a charitable gift annuity are a once-in-a-lifetime proposition. Although you can split the $53,000 limit among several charitable gift annuities in a single tax year, any portion of the limit left unused at the end of the year is lost. Also, these annuities are required to pay out at a rate of at least 5%. That’s currently not a problem unless you’re under age 59, because the ACGA’s recommended rates for anyone who’s older than 58 are above 5%. But it could create issues in the future if the recommended rates fall below that threshold.

Evaluate charities carefully

Charitable gift annuities — whether funded by an IRA or other assets — can be an effective tool for satisfying your charitable goals while providing financial benefits for you (and your spouse if you’re married). Keep in mind, however, that the promise of lifetime income is only as good as the financial strength and stability of the charitable organization backing it up. So be sure to do your due diligence on the charities obligated to make the annuity payments.

Should You Hire Your Kids?

ryan@thestackgrp.com (Ryan Stack) — Thu, 16 May 2024 16:44:46 GMT

If you own a business, consider hiring your children for the summer or even part-time while school is in session. This strategy offers not only a way to teach your kids valuable work skills but also provides potential tax benefits for your family. Hiring your children can be especially advantageous if you have age-appropriate work for them to do, aligning their roles with their capabilities and interests.

For example, if your children are under 18 and your business is unincorporated, neither the business nor the kids have to pay Social Security or Medicare taxes. This exemption can result in significant tax savings, making it a financially smart decision for your business operations.

Additionally, because wages paid to your children are deductible, this strategy can reduce your family’s overall tax liability. By shifting some of the business income to your children, who are likely in a lower tax bracket, you can take advantage of the progressive nature of the tax system.

For 2024, kids won’t have to pay any federal income taxes if their earnings don’t exceed the standard deduction of $14,600. This means your children can earn a substantial amount without being subject to federal income tax, further enhancing the tax benefits of this employment strategy.

Incorporating your children into your business not only helps with tax savings but also instills a strong work ethic and practical experience in them, setting a solid foundation for their future.

Used Clean Vehicle Tax Credit: Handle with Care

sstack@mbkcpa.com (Sarah Rose Stack) — Fri, 10 May 2024 22:08:54 GMT

You’re probably familiar with the $7,500 federal tax credit for purchases of certain new electric, plug-in hybrid and fuel-cell vehicles. But did you know that there’s a tax credit available for used clean vehicles? It’s equal to 30% of the sale price, up to a maximum credit of $4,000. However, strict rules about which vehicles are eligible may make it difficult for many people to qualify for the credit.

To qualify, a vehicle must have a sale price of $25,000 or less, a model year at least two years earlier than the year you buy it, not already have been resold after August 16, 2022, and be purchased from a dealer, along with certain other technical requirements. Also, to be eligible for the credit, you must not have claimed another used clean vehicle credit in the preceding three years, and your modified adjusted gross income must not exceed $75,000 for single filers ($150,000 for joint filers). Note that these income limits are half the size of those for the new clean vehicle credit.

Handle Your Estate Planning Documents with Care

sstack@mbkcpa.com (Sarah Rose Stack) — Wed, 01 May 2024 15:17:53 GMT

If you were to unexpectedly die, would your family know where to find and access your estate planning documents? If not, you need to take the steps to ensure that they’re informed. Otherwise, your well-laid plans can be derailed.

Focus on your will

There’s a common misconception that a photocopy of your signed last will and testament is sufficient. In fact, when it comes time to implement your plan, your family and representatives will need a signed original will to accomplish that purpose. Typically, the original document will need to be filed with the county clerk and, if probate is required, with the probate court as well.

What happens if your original will isn’t found? It doesn’t necessarily mean that your will won’t be given effect, but it can be a big — and costly — obstacle.

In many states, if your original will can’t be produced, there’s a presumption that you destroyed it with the intent to revoke it. Your family may be able to obtain a court order admitting a signed photocopy, especially if all interested parties agree that it reflects your wishes. But this can be a costly, time-consuming process. And if the copy isn’t accepted, the probate court will administer your estate as if you died without a will.

Consider different storage options

To avoid these issues, be sure that your original will is stored in a safe place and that your family knows how to access it.

Storage options include:

Leaving your original will with your accountant, attorney or another trusted advisor and ensuring that your family knows how to contact him or her.
Storing your original will at home (or at the home of a trusted family member) in a waterproof, fire-resistant safe, lockbox or file cabinet and ensuring that trusted family members know the combination or have access to the keys.

In many states, it can be difficult for loved ones to open your safe deposit box, even with a valid power of attorney. It may be preferable, therefore, to keep your original will at home or with a trusted advisor or family member. If you opt for a safe deposit box, it may be a good idea to open one jointly with your spouse or another trusted family member. That way, the joint owner can immediately access the box in the event of your death or incapacity.

Provide photocopies

Original trust documents should be kept in the same place as your original will. It’s also a good idea to make several copies. Unlike a will, it’s possible to use a photocopy of a trust. Plus, it’s useful to provide a copy to the person who will become trustee and to keep a copy to consult periodically to ensure that the trust continues to meet your needs.

For powers of attorney, living wills or health care directives, originals should be stored safely. But it’s also critical for these documents to be readily accessible in the event you become incapacitated. So, for example, you might want to avoid keeping these documents in a safe deposit box, where they won’t be accessible outside of banking hours.

Consider giving copies or duplicate originals to the people authorized to make decisions on your behalf. Also consider providing copies or duplicate originals of health care documents to your physicians to keep with your medical records.

Destroy outdated files

Anytime you revise your estate plan, be sure to shred the old document. The last thing you want to happen is for your loved ones to be unsure which is the latest document. Contact your estate planning advisor to ensure you’ve covered all the bases and all your documents are updated, based on your current situation.

The Benefits of Cost Allocation

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 22 Apr 2024 15:37:55 GMT

Cost allocation can be a cumbersome task for nonprofits, especially organizations with many activities. However, the process is critical for multiple reasons, and it’s worth reviewing your cost allocation practices regularly to ensure they’re working as intended.

Why make allocations?

Cost allocation often refers to how an organization’s costs are assigned to its programmatic, administrative and fundraising activities to determine the actual costs of those activities. While it’s obvious how some costs (usually direct costs) should be allocated, indirect costs (for example, management compensation, utilities, rent and other overhead) can prove more challenging.

Proper cost allocation is important to nonprofit management. It’s a prerequisite for accurate financial statements, which enable informed decision making on a variety of matters, including budgeting, cost cutting and program evaluation.

Cost allocation also is indispensable when it comes to grant compliance. Grants often come with budgetary and expense restrictions. Proper allocation helps you ensure adherence with grant terms and conditions. It also can reduce the risk of charging the same expense to multiple grants. And, regardless of whether you deal with grant funds, cost allocation is vital for sustainable operations. Without a reliable account of your costs, you could unexpectedly fall short of the funding needed to maintain operations, forcing you to dip into reserves or other unrestricted assets.

Allocation methods

There are different methods to use to allocate expenses. For example, costs can be allocated to an activity based on the:

Proportion of total employee hours that have been spent on it,
Proportion of facility space dedicated to it, or
Usage percentage of expenses such as supplies or equipment for it.

The selected method or methods need to be reasonable. If federal funds are involved, the methodology must comply with the cost principles in the Office of Management and Budget (OMB) Uniform Guidance. Your allocations may differ depending on the reasons for allocating.

Other tips

It’s generally wise to limit the number of different methods you use to avoid confusion and make it easier to apply the methods consistently. Developing a formal written policy that supports the methodology choices and explains how and when to apply them will also aid in consistency.

Rather than allocating each cost individually, you can simplify the process by grouping costs for similar functions into cost pools. For example, pool all indirect costs related to marketing. You can then allocate the pool to different activities. Note that the allocated percentage can differ depending on the cost category. A program might, for instance, be allocated a larger percentage of rent than of fundraising expenses, based on the method of allocation.

Make sure you maintain documentation to support your computations. When allocating salaries, you might need timesheets or other time-tracking data. For square footage allocation, you’ll need up-to-date measurements for the different departments.

Finally, review your cost allocation policy at least annually and whenever your organization has any substantial changes in programming or other activities. If you determine you should change methodologies for your new circumstances, document how and why you selected a different method.

Ask for help

Whether you’re reviewing an existing cost allocation policy or choosing methodologies for the first time, a CPA with nonprofit experience can help. Your auditors can review to avoid audit adjustments later on.

SECURE 2.0 opportunities : Take advantage of 2024 and 2025 updates

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 15 Apr 2024 20:02:46 GMT

President Biden signed the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act into law in late 2022, but much of the wide-reaching retirement legislation is being phased in over time. There are some significant changes in 2024 and 2025 that may help nonprofit employers recruit and retain employees. Here’s what you need to know.

New for 2024

Several changes took effect January 1, 2024, including:

Matching for student loan repayments. Younger employees can sometimes miss out on their employers’ matching contributions to retirement plans because of their student loan obligations. SECURE 2.0 allows employees to receive matching contributions to retirement accounts based on the qualified student loan payments that they have made.

Nonprofits can make matching contributions to a 403(b) plan, 401(k) plan or SIMPLE IRA if contributions based on student loan payments are available to all match-eligible employees.

“Starter” 401(k)s. SECURE 2.0 establishes a new retirement plan known as a starter 401(k). This is a type of cash or deferred arrangement that you generally can offer as long as you don’t offer another qualified retirement plan. You’ll need to automatically enroll all employees at a deferral rate of at least 3%, but no more than 15%, of compensation. The maximum annual deferral is $6,000 (indexed for inflation) plus the annual catch-up contribution amount for participants over age 50.

You can enforce age and service requirements and employees can elect out of plan participation. Employees can elect to contribute at a different level, but employer contributions aren’t permitted.

Emergency funds . SECURE 2.0 contains multiple provisions permitting emergency access to retirement savings. For example, employers now can link an after-tax Emergency Savings Account to employees’ retirement accounts.

You can automatically enroll nonhighly compensated employees with a deferral rate of up to 3% of compensation but no more than $2,500 annually (indexed), or lower if you choose. Participants can make withdrawals tax- and penalty-free. You must allow at least one withdrawal per month, with no fee for the first four withdrawals each year.

The law also enables one annual penalty-free early withdrawal from a qualified retirement plan for “unforeseeable or immediate financial needs relating to personal or family emergency expenses.” Participants have three years to repay the early withdrawal, but no additional emergency withdrawals are allowed during the repayment period.

Roth 401(k) RMDs. Roth 401(k) plans traditionally have been subject to annual required minimum distributions (RMDs). As of the beginning of 2024, though, designated Roth 401(k) contributions aren’t subject to RMDs until the death of the participant.

New in 2025

Even more provisions kick in next year. For example, employers with 401(k) and 403(b) plans that were adopted after December 29, 2022, will be required to automatically enroll all eligible employees, with a deferral rate of at least 3% but not more than 10%. The rate will automatically increase by 1% per year, up to at least 10% and no more than 15%. Employers with 10 or fewer employees, church plans, and those that have been in business for fewer than three years are exempt from the automatic enrollment requirements.

In addition, the annual catch-up contribution limit for individuals age 60 to 63 will go up to $10,000 or 150% of the regular catch-up limit, whichever is greater. The percentage will be adjusted for inflation after 2025.

Finally, long-term part-time employees age 21 and older who work at least 500 hours per year for two consecutive years must be allowed to contribute to 401(k) and 403(b) plans. For 2024, the requirement was that part-time employees must log at least 500 hours for three consecutive years.

Don’t forget to update your documents

The numerous changes triggered by SECURE 2.0 likely mean you’ll need to amend your plan documents, if you haven’t already. You generally have until the end of 2025 to amend, but it’s never too early to get started.

Sidebar: SECURE 2.0 amps up the potential for QCDs

Qualified charitable distributions (QCDs) have been a mutually beneficial giving tool for donors and nonprofits. SECURE 2.0 boosts the advantages, possibly leading to larger gifts for your nonprofit.

Under existing law, a taxpayer can distribute up to $100,000 per year directly from an IRA to a qualified charity beginning at age 70½ ($200,000 for married couples filing jointly if both spouses are age 70½ or older). The distribution doesn’t qualify for the charitable contribution deduction, but the distribution is removed from taxable income and treated as a required minimum distribution from the IRA.

SECURE 2.0 provides for the $100,000 annual distribution limit to be indexed annually for inflation beginning in 2024, so donors can make larger QCD donations over time.

Bad Debt Deductions

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 15 Apr 2024 19:57:29 GMT

When debt is really equity

The tax code allows you to claim a deduction for business debts that have become worthless. But qualifying for the deduction may be more complicated than you think.

In a recent case, the IRS denied more than $17 million in bad debt deductions on the grounds that the advances in question represented equity rather than debt, hitting the taxpayer with millions of dollars in taxes and penalties. The U.S. Tax Court, in Allen v. Commissioner, sided with the IRS.

When is the deduction available?

The bad debt deduction is valuable because you can use it to reduce ordinary income. But keep in mind that it’s available only for business bad debts. Nonbusiness bad debts (for example, from personal loans) generate capital losses, which can be used only to offset capital gains plus up to $3,000 in ordinary income.

Generally speaking, a bad debt deduction is available if 1) you hold a bona fide debt, 2) the debt instrument or documentation isn’t a security, and 3) the debt has become worthless — that is, there’s no reasonable expectation of payment. If a debt has become partially worthless, you may be able to deduct the portion of the debt that’s uncollectible, but only if you’ve charged it off for accounting purposes during the tax year.

Debt or equity?

In Allen, the IRS and Tax Court agreed that the taxpayer’s bad debt deduction failed to meet the first requirement listed above. That’s because the worthless “loans” in the case represented equity rather than bona fide debt.

The taxpayer managed a real estate enterprise made up of several companies that he owned or controlled. In the tax years under review, he caused certain entities within his enterprise to advance millions of dollars to various related entities. The taxpayer argued that the advances were intended as bona fide loans. But the IRS determined that his “business purpose was to infuse capital into recipient companies and then redistribute those funds to himself and his related business entities as equity.”

To determine whether the advances were debt or equity, the Tax Court analyzed 13 factors as set forth in a prior case:

Names given to the certificates evidencing indebtedness,
Presence or absence of a fixed maturity date,
Also Source of principal payments,
Right to enforce payment of principal and interest,
Participation in management,
Status of the contribution in relation to regular corporate creditors,
Intent of the parties,
Thin or adequate capitalization,
Identity of interest between creditor and stockholder,
Source of interest payments,
Ability of the company to obtain loans from outside lending institutions,
Extent to which the advance was used to acquire capital assets, and
Failure of the debtor to repay on the due date or seek a postponement.

No single factor is controlling, and the factors aren’t necessarily weighted equally. Rather, the court considers each factor in the context of the specific facts and circumstances of the case.

Tax Court findings

In this case, the court found that seven of the factors (3, 4, 7, 8, 9, 10 and 11) favored equity, three (1, 2, and 5) favored debt and three (6, 12 and 13) were neutral. The court acknowledged that the purported loans were evidenced by promissory notes that identified fixed maturity dates, and that the taxpayer’s participation in management didn’t increase by virtue of the advances.

But several factors supported the conclusion that the advances were, in substance, equity infusions:

Repayment of the advances was dependent on the recipients’ sales.
Although the taxpayer had a contractual right to enforce payment, the recipients had no ability to repay the debts. So, in substance, there was no right to enforce payment.
There was no real expectation of payment, evidenced by a complete lack of interest payments and the fact that the taxpayer continued to make advances even after claiming bad debt deductions.
The recipients were thinly capitalized when they received the advances.
The interests of the purported lenders and borrowers were “significantly intertwined.”
The lack of interest payments indicated that the purported lenders were “not expecting substantial interest income and, instead, [were] more interested in future earnings.”
The recipients weren’t creditworthy at the time the advances were made and would have had trouble obtaining loans from outside lenders.

Takeaways

The Allen case is instructive for taxpayers hoping to ensure that advances (particularly to related parties) are treated as debt rather than equity. Executing appropriate loan documentation is important, but it’s not enough. It’s also critical that the borrower is creditworthy and sufficiently well capitalized to support a realistic expectation of repayment, and that the parties treat the transaction like a loan.

Sidebar: Want to avoid penalties? Show good faith

In Allen v. Commissioner (see main article), the U.S. Tax Court upheld the IRS’s imposition of significant underpayment penalties: 20% of the amount by which taxes were underpaid. Taxpayers can avoid these penalties by showing that they acted with reasonable cause and in good faith.

In determining the existence of reasonable cause and good faith, courts look at a taxpayer’s experience, education and sophistication, among other factors. They also place significant emphasis on the taxpayer’s efforts to assess the proper tax liability, including reasonable, good-faith reliance on professional advice. In Allen, there was no evidence that the taxpayer sought professional advice when he determined that the “loans” were worthless or took any other steps to assess the proper tax liability.

Deducting Business Travel Expenses: A Refresher

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 01 Apr 2024 14:55:42 GMT

During the COVID-19 pandemic, business travel nearly came to a halt. Today, it’s on the rebound, as “Zoom-fatigued” executives craving face-to-face interaction hit the road again. With more people getting out of their offices, now is a good time for a refresher on the tax deductibility of business travel expenses.

What’s your tax home?

Taxpayers are permitted to deduct their ordinary and necessary expenses of business-related travel away from their “tax home.” “Ordinary” means common and accepted in the taxpayer’s industry. “Necessary” means helpful and appropriate for the business. Expenses aren’t deductible if they’re for personal purposes, or if they’re lavish or extravagant. That doesn’t mean you can’t fly first class or stay in luxury hotels, but you’ll need to show that the expense was reasonable under the circumstances.

Your tax home isn’t necessarily the place where you maintain your family home. Rather, it refers to the city or general area where your main place of business is located. Suppose, for example, that Walter lives in Philadelphia but works in New York City five days a week, returning to Philadelphia on the weekends. Walter’s tax home is New York, so his expenses for traveling there aren’t deductible. And while travel to Philadelphia on the weekends is away from his tax home, those trips are for personal reasons, so those expenses also aren’t deductible. Special rules apply to taxpayers who have several places of business or who have no regular place of business (for example, consultants who are always on the road).

Generally, you’re considered to be traveling away from home if your duties require you to be away from your tax home for substantially longer than an ordinary day’s work and you need to get sleep or rest to meet work demands while away. This includes temporary work assignments. However, you aren’t permitted to deduct travel expenses in connection with an indefinite work assignment (that is, more than a year) or one that’s realistically expected to last more than a year.

What’s deductible?

Assuming these requirements are met, commonly deductible travel expenses include (but aren’t limited to):

Air, train or bus fare to the business destination, plus baggage fees,
Car rental expenses or the cost of using your own vehicle, plus tolls and parking,
Transportation while at the business destination, such as taxis or ride shares between the airport and hotel and to and from work locations,
Lodging and meals,
Tips paid to hotel or restaurant workers, and
Dry cleaning and laundry service.

Meal expenses are generally 50% deductible. This includes meals eaten alone while traveling for business. It also includes meals with others, if the meals are provided to a business contact, serve an ordinary and necessary business purpose, and aren’t lavish or extravagant.

Who can claim the deduction?

Self-employed people may deduct travel expenses on Schedule C. But employees currently aren’t permitted to deduct unreimbursed business expenses, including travel expenses.

However, businesses may deduct employees’ travel expenses to the extent that they provide advances or reimbursements to employees or pay the expenses directly. Advances or reimbursements are excluded from wages (and, therefore, aren’t subject to income or payroll taxes) if they’re made according to an “accountable plan.” In this case, the expenses must have a business purpose, and employees must substantiate their expenses and pay back any excess advances or reimbursements within a reasonable time.

What records should you keep?

To deduct business travel expenses, you must substantiate them with adequate records — typically, receipts, canceled checks or bills — that show the amount, date, place and nature of each expense. Receipts aren’t required for nonlodging expenses less than $75, though these expenses must still be documented in an expense report.

Keep in mind that an employer may have its own substantiation policies that are stricter than the IRS requirements. If you use your own car or a company car for business travel, you can deduct your actual costs or the standard mileage rate.

For lodging and meal and incidental expenses (M&IE) — such as small fees or tips — employers can use the alternative per-diem method to simplify expense tracking. Self-employed individuals can use this method for M&IE, but not for lodging.

Under this method, taxpayers use the federal lodging and M&IE per-diem rates for the travel destination to determine reimbursement or deduction amounts. This avoids the need to keep receipts to substantiate the actual cost. However, it’s still necessary to document the time, place and nature of the expense.

To make things even simpler, the optional high-low substantiation method allows a taxpayer to use two per-diem rates for all business travel: One for designated high-cost localities and a lower rate for all other localities. Currently, those rates are $309 and $214, respectively, and the M&IE-only rates are $74 and $64, respectively.

Turn to your advisor

The rules regarding business travel deductions can be complicated. In addition to the rules explained above, there are special rules for international travel and travel with your spouse or other family members. If you’re uncertain about the tax treatment of your travel expenses, contact your financial advisor.

SIDEBAR: Mixing business and pleasure

If you take a business trip in the United States primarily for business, but also take some time for personal activities, you’re still permitted to deduct the full cost of airfare or other transportation to and from your destination. However, other expenses, including lodging and meals, are deductible for only the business portion of your trip.

Generally, a trip is primarily for business if you spend more time on business activities than on personal activities. For example, you might travel to Las Vegas for a week, attend a trade show for five days and spend the weekend gambling or going to shows.

What if a trip is primarily for pleasure, but you conduct some business while you’re there? In that case, your travel expenses are nondeductible. However, you may write off otherwise deductible expenses for business activities during your trip.

Making Distinctions May Create Tax Savings for Owners of Rental Real Estate

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 01 Apr 2024 14:43:43 GMT

Distinctions and definitions matter in tax law. This applies to every possible tax deduction, including the 20% qualified business income (QBI) deduction. The QBI deduction is available for income from an eligible trade or business, but it isn’t available if that same property is classified as an investment. So, it’s worth considering whether your rental property meets the definition of a trade or business under IRS requirements.

Determining status

The QBI deduction is too complex to cover fully here. But, in general, it allows owners of sole proprietorships and pass-through entities (for example, partnerships, S corporations, LLCs) to deduct as much as 20% of their net business income, without the need to itemize.

Eligible owners are entitled to the full deduction so long as their taxable income doesn’t exceed an inflation-adjusted threshold (for tax year 2024, $191,950 for individuals; $389,900 for joint filers). Above the threshold, the deduction may be reduced or eliminated for businesses that perform certain services or lack sufficient W-2 wages or depreciable property.

Some other advantages of trade-or-business status include the ability to deduct losses against ordinary income and avoidance of the 3.8% net investment income tax (NIIT). However, special rules apply to rental real estate owners, who generally must qualify as “real estate professionals” to fully enjoy these benefits.

Unraveling definitions

According to the IRS, for purposes of the QBI deduction, an enterprise is a trade or business if it qualifies as such under Internal Revenue Code Section 162. That section doesn’t expressly define “trade or business” — it’s determined on a case-by-case basis based on various factors. Generally, a trade or business is an activity conducted “on a regular, continuous and substantial basis” with the aim of earning a profit.

Uncertainty over whether rental real estate qualifies, especially for taxpayers with one or two properties, prompted the IRS to issue Revenue Procedure 2019-38 to establish a safe harbor. Under the Revenue Procedure, a rental real estate enterprise (RREE) is deemed a trade or business if the taxpayer (you or a “relevant pass-through entity” in which you own an interest):

Maintains separate books and records for the enterprise,
Performs at least 250 hours of rental services per year (for an enterprise that’s at least four years old, this requirement is satisfied if you meet the 250-hour test in at least three of the last five years),
Keeps logs, time reports or other contemporaneous records detailing the services performed, and
Files a statement with his or her tax return.

The Revenue Procedure lists the types of services that count toward the 250-hour minimum and clarifies that they may be performed by the owner or by employees or contractors. It also defines an RREE as one or more rental properties held directly by the taxpayer or through disregarded entities (for example, a single-member LLC). Generally, taxpayers must either treat each rental property as a separate enterprise or treat all similar properties as a single enterprise. (Commercial and residential properties can’t be combined in the same enterprise.)

Using the safe harbor

There may be opportunities to restructure rental activities to take full advantage of the safe harbor. For example, let’s say you own a rental residential building and a rental commercial building and perform 125 hours of rental services per year for each property.

As noted, you wouldn’t be able to combine the properties in a single enterprise, so you wouldn’t pass the 250-hour test. But if you were to exchange the residential building for another commercial building for which you provide 125 hours of services, you could treat the buildings as a single enterprise and qualify for the safe harbor (provided the other requirements are met).

Be tax-savvy

Determining whether your rental real estate activities qualify for the QBI deduction is a complicated undertaking. To ensure that you make the correct distinctions, you’ll need to consult a tax professional.

Is it Time to Hire a CFO?

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 01 Apr 2024 14:36:48 GMT

Let’s face it: Most nonprofits are founded on a passionate belief in service. This doesn’t always include a passion for numbers. To fill this gap in financial expertise, nonprofits often hire chief financial officers (CFOs). But do all nonprofits — including small organizations — need one?

CFO defined

Generally, the CFO (or “director of finance”) is a senior-level position charged with oversight of an organization’s accounting and finances. This person works closely with the executive director, audit/finance committee and treasurer and serves as a business partner to program heads. In general, the CFO reports to the executive director and board of directors on the organization’s finances, analyzes investments and capital, develops budgets, and devises financial strategies.

The CFO’s role and responsibilities vary significantly depending on the organization’s size, as well as the complexity of the organization’s revenue sources. In smaller nonprofits with budgets of $1.5 million to $10 million, CFOs often have wide responsibilities — which may include accounting, human resources, facilities, legal affairs, administration and IT. Midsize organizations, with budgets running up to $40 million and fairly simple funding and programming, also may require their CFOs to cover such diverse areas.

In larger nonprofits, though, CFOs usually have a narrower focus. Their focus is on accounting and finance issues, including risk management, investments and financial reporting. CFOs of midsize organizations with diverse programs (for instance, several programs that generate revenue) or governmental funding may have a similar (narrower) focus.

Nonprofit size

Nonprofits with small budgets and straightforward operations usually assign the accounting and finance responsibilities to their executive director or outsource such functions. As your organization grows and its financial matters become more complex, a CFO may be the right answer.

Experts suggest weighing the following factors when determining whether to bring a CFO on board: 1) size of your organization, 2) complexity and types of revenue sources, 3) number of programs that require funding, and 4) strategic growth plans. Static organizations are less likely to need CFOs than nonprofits with evolving programs and long-term plans that rely on investment growth, financing and major capital expenditures.

Candidate qualifications

Your nonprofit should devote considerable effort and time to hiring a CFO with the right qualifications. At a minimum, you’ll want a person with in-depth knowledge of the reporting and accounting rules for nonprofits. A CFO who has worked only in the for-profit sector may find the differences difficult to navigate. Nonprofit CFOs also need a familiarity with funding sources, grants management and, possibly, single audit requirements.

The ideal candidate should have a certified public accountant (CPA) designation and, optimally, an MBA. In addition, the position requires strong communication skills, strategic thinking, financial reporting expertise and the creativity to deal with resource restraints. It’s useful when CFOs have experience with a wide range of functions — for example, human resources and IT — so that they can identify when outside professional expertise is needed.

Finally, you’d probably like a CFO (and every employee, for that matter) to have a genuine passion for your organization’s mission. Nothing motivates employees like dedication to the cause. And, in the case of a CFO, this makes it easier to understand that success for a nonprofit isn’t only about the bottom line.

Outsourcing alternative

Does your organization lack the size or complexity to warrant having a full-time CFO on staff, but desire the financial peace of mind the position can provide? You might consider outsourcing CFO responsibilities to an accounting firm or other service provider. Outsourcing can produce several benefits.

Specifically, outsourcing allows you to obtain cost-efficient access to top-notch expertise. Nonprofits often look to their existing staff when filling the CFO position, but your in-house accountant may not possess the requisite financial knowledge you and your organization need.

Deciding to hire a CFO

Although founders and executive directors often try to oversee all aspects of their organization, hiring a CFO to manage your nonprofit’s financials may be a better option. Contact us for more information.

Q1 Work Anniversaries: A Moment of Appreciation

sstack@mbkcpa.com (Sarah Rose Stack) — Fri, 15 Mar 2024 17:06:00 GMT

As we step into 2024, it's important to recognize the work anniversaries of our colleagues in the first quarter. Congratulations to everyone marking another year with us. Your dedication and hard work are fundamental to our firm's success. Your contributions have played a key role in our growth and the positive work environment we've built together. To those celebrating this quarter, your commitment is valued and does not go unnoticed. Looking ahead, we are excited about what we can achieve together. Thank you for your continued efforts and for being an essential part of our team.

Congratulations again to our colleagues celebrating anniversaries in Q1 2024. Here's to more years of shared success!

Simplifying Financial Reporting with Compilation Services

Fri, 15 Mar 2024 15:49:20 GMT

Navigating the intricate world of financial reporting can often seem like maneuvering through a sea of technical terminology and regulatory obligations, particularly challenging for small businesses and startups. In a landscape dominated by the need for clarity in the financial health of companies, the role of compilation services is critical. Understanding how compilation services can simplify financial reporting is not just optional knowledge—it is essential for making informed business decisions and fostering growth.

What are Compilation Services?

At their core, compilation services are a financial accounting service that collates and presents financial data without providing any form of assurance on the financial statements. They involve taking raw accounting information and organizing it into a financial statement framework that provides stakeholders with an overview of the company's financial status. Such services are typically performed by certified public accountants (CPAs) and represent a starting point for more in-depth financial analysis of the business entity.

A Simplified Approach to Financial Statements

For small businesses that may not require the formal scrutiny of a review or audit, a compilation provides the necessary organization and structure to their financial records. This, in turn, can help business owners gain a better understanding of their financial position without the sometimes burdensome costs and processes associated with more robust financial engagements.

Drawing the Line: Compilation vs. Review vs. Audit

It's important for business owners to discern the difference between the three main types of financial engagements. While a review offers limited assurance, which is slightly more in-depth, an audit provides a reasonable assurance that financial statements are free from misstatements. On the other hand, a compilation's purpose is simply to organize the data—no testing or verification is involved. The accountant does not need to verify the accuracy or completeness of the information provided.

Benefits for Small Businesses

The advantages of utilizing compilation services for small businesses and startups are numerous. These services offer a level of formality in financial reporting that can cater to the specific needs of emerging or small-scale business operations. Compilations can take the chaos out of financial records.

They transform an assortment of transactions, assets, and debts into a structured form that is easy to understand and share. This streamlining not only saves time for the business owner but also for any external parties that might need to access the financial information, such as potential investors or lenders.
Accurate and timely financial reporting is more than just good business practice—it is often a legal requirement. And when tax season rolls around, organized financial data ensures that returns are filed correctly and on time, helping small businesses avoid penalties and fees.
Clear financial statements serve as a tool for decision-making. They provide a snapshot of performance against objectives, highlight areas of strength and weakness, and offer a foundation for future planning. Business owners need reliable financial data to make informed decisions, especially in the volatile context of startups.

Why Choose Compilation Services

Business owners may wonder why they should invest in a financial service that doesn't give them formal assurance. The value lies in the benefits beyond the formal reporting itself. Due to their lower intensity of work, compilation services are generally cheaper than reviews or audits. This makes them an attractive option for small businesses that need to save costs without compromising the discipline of financial reporting.

While a compilation doesn’t provide an auditor’s opinion on financial statements, it does show that your business is proactive in organizing its financial data. For stakeholder confidence and investor trust, this proactive stance can make a world of difference.

Small businesses and startups should recognize the value of compilation services not just as a financial necessity, but as a strategic tool for growth. By streamlining data, ensuring compliance, and aiding in decision-making processes, these services simplify the often-overwhelming task of financial reporting.

For small business owners and finance professionals in Western Massachusetts, the opportunity to leverage compilation services is at their fingertips. This era of digital solutions and professional expertise means that complexities of financial reporting can be turned into digestible insights for making smart business moves. If your business is yet to explore the world of compilation services, the time to engage is now. Your agility and foresight in managing your financial reporting could be the key differentiator that sets your business on the path to success.

For more information, including a comparison chart that compares compilation, review and audit: https://us.aicpa.org/content/dam/aicpa/interestareas/privatecompaniespracticesection/qualityservicesdelivery/keepingup/downloadabledocuments/financial-statement-services-guide.pdf

MBK's Community Winter Initiative: Compassion and Action

Tue, 12 Mar 2024 14:22:37 GMT

During the winter months, the support of a community can make a big difference. Throughout the year, MBK remains steadfast in its commitment to nurturing and supporting the community. We are proud to have started 2024 off with a variety of strong community initiatives.

January: Gray House

To kick off the year, January saw our annual Coat, Hat, and Mitten Drive. The Gray House, in a heartfelt note, expressed gratitude, highlighting the impact of such contributions: "Your support helps us continue delivering essential services to our neighbors facing hardships and provides hope for a better tomorrow." The organization emphasized the range of its efforts—from creating safe environments for youth to aiding families with groceries and assisting refugees with language skills—underscoring the transformative opportunities made possible through community support.

Learn more about Gray House

February: Walking to End Homelessness

February ushered in another wave of compassion with the participation of MBK and friends in the Winter Walk, held on February 11th at the Ashley Reservoir and remotely. The event, aimed at ending homelessness in western Massachusetts, saw a collective effort that raised $450. Spearheaded by Mia and supported by the community, this marked the second year of MBK's involvement in the campaign, a testament to their enduring commitment to addressing homelessness. While no pictures captured the moment, the spirit of the walk resonated well beyond the scenic trails of Ashley Reservoir, mirrored in the swag received by participants as a memento of their contribution.

Learn more about Winter Walk

Girls on the Run: Surpassing Goals

Parallel to this, February was marked by another milestone achievement through the initiative "Girls on the Run." Spearheaded by Mia, the campaign not only met but exceeded its initial goal, raising over $500 and donating 15 pairs of sneakers to young participants. This effort, inspired by the BusinessWest Women of Impact event and the philanthropic endeavors of Amy Jamrog, underscored the community's ability to mobilize and effect change. The Jamrog Group, with the support of the community, contributed over 230 pairs of shoes, showcasing the power of collective action.

Learn more about Girls on the Run

These acts of kindness and community engagement underscore the profound impact of solidarity and support. Each coat, hat, pair of mittens, or sneakers represents more than just a physical item; they symbolize hope, care, and the belief in a better tomorrow. The endeavors of the Gray House, the Winter Walk, and Girls on the Run, bolstered by the unwavering support of individuals and groups like MBK, reflect a community's commitment to not only recognizing but addressing the needs of those around them. It is through these acts of generosity and compassion that the true spirit of community shines brightest, offering warmth and hope amidst the coldest of seasons.

SECURE 2.0 Opportunities

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 07 Mar 2024 16:02:11 GMT

New for 2024

Several changes took effect January 1, 2024, including:

Matching for student loan repayments.

Younger employees can sometimes miss out on their employers’ matching contributions to retirement plans because of their student loan obligations. SECURE 2.0 allows employees to receive matching contributions to retirement accounts based on the qualified student loan payments that they have made.

Nonprofits can make matching contributions to a 403(b) plan, 401(k) plan or SIMPLE IRA if contributions based on student loan payments are available to all match-eligible employees.

“Starter” 401(k)s.

SECURE 2.0 establishes a new retirement plan known as a starter 401(k). This is a type of cash or deferred arrangement that you generally can offer as long as you don’t offer another qualified retirement plan. You’ll need to automatically enroll all employees at a deferral rate of at least 3%, but no more than 15%, of compensation. The maximum annual deferral is $6,000 (indexed for inflation) plus the annual catch-up contribution amount for participants over age 50.

You can enforce age and service requirements and employees can elect out of plan participation. Employees can elect to contribute at a different level, but employer contributions aren’t permitted.

Emergency funds.

SECURE 2.0 contains multiple provisions permitting emergency access to retirement savings. For example, employers now can link an after-tax Emergency Savings Account to employees’ retirement accounts.

Roth 401(k) RMDs.

Roth 401(k) plans traditionally have been subject to annual required minimum distributions (RMDs). As of the beginning of 2024, though, designated Roth 401(k) contributions aren’t subject to RMDs until the death of the participant.

New in 2025

Don’t forget to update your documents

Sidebar: SECURE 2.0 amps up the potential for QCDs

Qualified charitable distributions (QCDs) have been a mutually beneficial giving tool for donors and nonprofits. SECURE 2.0 boosts the advantages, possibly leading to larger gifts for your nonprofit.

SECURE 2.0 provides for the $100,000 annual distribution limit to be indexed annually for inflation beginning in 2024, so donors can make larger QCD donations over time.

IRS Issues 7 Warning Signs of Suspicious ERC Claims

Fri, 16 Feb 2024 19:30:19 GMT

On February 13, 2024, the IRS issued IR 2024-39 to share warning signs that an ERC (Employee Retention Credit) claim may be questionable warranting further investigation. It is urging taxpayers to revisit their claims and, if questionable, take advantage of its ERC Voluntary Disclosure Program or claim withdrawal process.

Per this information release, the 7 common red flags of an incorrect ERC claim are as follows:

ERC was claimed for all quarters that the credit was available- views this as “uncommon”,
Government orders that do not qualify- OSHA communications generally do not qualify as government shut down orders. See IRS FAQ regarding qualifying government orders.
ERC was claimed on all wages paid to every employee on their payroll for a quarter. Rules changed throughout 2020 and 2021 impacting the credit eligibility calculation.
Relying on supply chain issues as the only basis for qualifying
ERC was claimed for too much of a tax period- only wages paid during the suspension period of a quarter qualify.
ERC claim was filed for a period where the business did not pay wages or did not exist during eligibility period
Relying on an ERC promoter who claim a business has nothing to lose by filing a claim.

Resolving Incorrect ERC Claims- Time Sensitive- Need to Act by 3/22/24

Any business that determines that an ERC claim was filed in error should consider the following options that are available depending on whether the ERC refund payment has been processed and the check cashed by the taxpayer.

1. ERC Voluntary Disclosure Program (ERC VDP):

This is a voluntary disclosure program that is open through March 22, 2024, that allows taxpayers to repay 80% of the payment that it received for an ERC claim that was made in error. Taxpayers apply for the program by quarter and must do so via their third party payer if one was used to file the employment tax return claiming the ineligible ERC credit.

Qualifying taxpayers must meet all of the following requirements:

The ERC claim has been processed, paid as a refund, and the check was cashed or deposited, or the credit was applied to the tax period or another tax period.
Taxpayer now thinks eligibility for that quarter is zero.
Taxpayer is not under an employment tax examination by the IRS.
Taxpayer is not under criminal investigation by the IRS.
Taxpayer has not been notified by the IRS of an intent to reverse or deny the ERC claim.

Advantages of this program include (1) retaining 20% of the claim which is not taxable as income, (2) retaining the interest paid on the original ERC refund check received (3) IRS won’t examine the ERC on employment tax returns for tax periods accepted into ERC-VDP program and (4) amended income tax return not required to reduce wages (if one was not yet filed).

Further information on how to apply for the ERC Voluntary Disclosure Program can be found at: https://www.irs.gov/coronavirus/employee-retention-credit-voluntary-disclosure-program#apply

2. Withdrawing the Employee Retention Credit Claim
Eligible taxpayers include those that submitted an ERC claim where the claim has not yet been paid, or where the refund check has not been cashed.

Per the IRS website, a taxpayer can ask to withdraw an ERC claim if all of the following apply:

The claim was made on an adjusted employment tax return (Forms 941-X, 943-X, 944-X, CT-1X).
The adjusted return was filed only to claim the ERC, and you made no other adjustments.
You want to withdraw the entire amount of your ERC claim.
The IRS has not paid your claim, or the IRS has paid your claim, but you haven’t cashed or deposited the refund check.

The procedures for requesting an ERC claim withdrawal depends on whether or not the claim is under audit and whether or not a check was issued (but not yet cashed). IRS website provides guidance on withdrawing claims depending on the taxpayer’s particular situation.

Claims that are fully withdrawn will be treated as if they were never filed and the IRS will not impose penalties or interest. Taxpayers are not however exempt from potential criminal investigation and procescution if found to have willfully filed a fraudulent ERC claim.

Potential Tax Relief: American Families and Workers Act of 2024, H.R. 7024

Wed, 07 Feb 2024 15:31:55 GMT

Individual Tax Relief:

One of the core components of this legislation includes an increase in the child tax credit, a move set to benefit families with children across the nation. This concept is further strengthened by the introduction of a refundable portion determined per child - a clear advantage for growing families.

The proposed bill introduces a single change regarding the child tax credit. Currently, the credit is $2,000 per child for taxpayers who do not exceed certain income thresholds. A portion of this credit can be refunded, up to $1,600 in 2023. The refundable portion is limited based on the number of qualifying children and the taxpayer's earned income. Under the proposed law, the refundable amount will be calculated per child, resulting in a total refundable amount. This change applies to the 2023-2025 tax years. Additionally, the maximum amount of the refundable credit will be increased to $1,800 for 2023, $1,900 for 2024, and $2,000 for 2025. The overall child tax credit will also be adjusted for inflation from 2024 onwards.

Notably missing from this legislation was a provision that addresses an aspect of the state and local tax deduction, which was capped at $10,000 by the Tax Cuts and Jobs Act in 2017. The $10,000 cap applies to taxpayers filing either single or married filing jointly. Advocates were hoping for a provision to increase the married filing joint cap to be twice the single cap and eliminate that marriage penaly.

Business Tax Relief:

In a bid to support the innovative spirit of America, the Act also includes provisions to delay the requirement to capitalize and amortize research and experimentation expenditures. This is further bolstered by an extension of the 100-percent bonus depreciation for properties in service prior to January 1, 2026.

For the hardworking business sector, the Act provides an increase in the Code Sec. 179 deduction limitation and expense limitation for property put into service post-2023.

Research and Experimental Expenses: Under current law, domestic research and experimental expenditures incurred in tax years starting after December 31, 2021 must be amortized over five years. Previously, these expenses could be immediately deducted in the year they were paid or incurred. Research or experiment costs outside the U.S. are deductible over a 15-year period.

The proposed law would postpone the application of this rule for research and experimental costs related to domestic activities until tax years starting after December 31, 2025. There will be no change for activities outside the U.S. The bill includes transitional rules for research credits and accounting changes.

Observation : H.R. 7024 provides that a taxpayer can reflect the retroactive application of Section 174 expensing via a change in method of accounting with either a one-year Section 481(a) adjustment or an elective two-year Section 481(a) adjustment. Alternatively, eligible taxpayers generally would be permitted to amend their first tax year beginning on or after January 1, 2022, to reflect current expensing of eligible Section 174 expenditures. Due to the late passage of this bill, businesses may want to consider applying for an extension of time to file their returns so they can analyze which of the three options is most beneficial for them.

Business Interest Limitation: Under current tax law, prior to 2022, the calculation of adjusted taxable income for the business interest expense limitation (Code Sec. 163(j)) excluded deductions for interest, taxes, depreciation, amortization, or depletion (EBITDA). However, starting from 2022, only deductions for interest and taxes were considered, excluding depreciation, amortization, and depletion. The new law would reintroduce depreciation, amortization, and depletion for tax years starting after December 31, 2023, and before January 1, 2026. Additionally, taxpayers can choose to include depreciation, amortization, and depletion for tax years beginning after 2021 and before 2024.

Observation : H.R. 7024 provides that a taxpayer can reflect the retroactive application of using IBITDA to calculate the interest limitation. The bill does not provide as much information on how to effect the retroactive elction as it does with Section 174. Taxpayers with large limitation in 2022 may find it advantageous to amend their returns for this retroactive adoption. It is also unclear if you can elect to provide the provision for 2023 without amending 2022.

For the hardworking business sector, the Act provides an increase in the Code Sec. 179 deduction limitation and expense limitation for property put into service post-2023.

Bonus Depreciation: The most recent change, under the Tax Cuts and Jobs Act of 2017, allowed for immediate expensing of qualified property placed in service between September 17, 2017 and January 1, 2023 ("100-percent bonus depreciation"). Starting in 2023, the first-year depreciation gradually reduces (80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026), until it is eliminated for property placed in service in 2027. The proposed bill extends 100-percent bonus depreciation for property placed in service before January 1, 2026 (January 1, 2027 for longer production period property and certain aircraft). In 2026 and 2027, the 20% and 0% bonus depreciation rates would continue to apply.
Increased 179 Deduction: Under current law, businesses can choose to expense certain qualifying property instead of depreciating it. This includes tangible personal property, off-the-shelf computer software, and qualified real property used in the active conduct of a trade or business. The deduction is limited to an inflation-adjusted amount. In 2024, the deduction is capped at $1.22 million, reduced dollar-for-dollar by expenses exceeding $3.05 million.

Employee Retention Credit

The Employee Retention Tax Credit (ERTC) was established in March 2020 during the COVID-19 pandemic. The purpose of the credit was to provide businesses with a credit against certain payroll taxes if they retained employees during lockdowns that may have impacted their income. The American Rescue Plan Act of 2021 extended the credit and expanded its scope to include Medicare taxes and dropped the precentage threshold for revenue decrease establishing eligibility for the credit. Taxpayers were able to make ERTC claims until April 15, 2025, despite the expiration of the period for which the credit can be claimed.

The IRS has identified fraudulent claims made by taxpayers, often unknowingly, facilitated by third-party processors ("COVID-ERTC promoters") who boldly advertised on the television and plagued businesses will calls implying almost any business qualified due to facts and circumstances. To address this issue, the IRS temporarily suspended the acceptance of new claims in late 2023 while investigating potential instances of fraud in its backlog. Additionally, an amnesty program was established for taxpayers to voluntarily withdraw unqualified claims or repay the credit without penalty.

The proposed bill aims to combat fraudulent claims by increasing penalties for COVID-ERTC promoters, extending the limitations period on assessments of ERTC claims to six years, and imposing reporting requirements on COVID-ERTC promoters similar to promoters of listed transactions. Notably, the bill sets January 31, 2024, as the deadline for making ERTC claims.

Other:

In an effort to reduce compliance burdens on businesses, the Act raises the filing threshold for Form 1099-NEC and 1099-MISC from $600 to $1,000 for payments post-December 31, 2023. The $1,000 will be adjusted for inflation.

In Summary

In essence, the Tax Relief for American Families and Workers Act of 2024 acts is a comprehensive package, addressing varied aspects of the American economic landscape with a keen eye on relief and progression. These changes aim to promote economic growth, support independent contractors and businesses, and address housing affordability concerns. While the House's passage of the Tax Relief for American Families and Workers Act of 2024 marks a significant milestone, it's important to keep a vigilant eye on the upcoming Senate proceedings, as the Act still requires approval there before becoming law.

How to Manage Cloud Costs

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 01 Feb 2024 21:25:40 GMT

If you’re sometimes surprised by the bills your business receives for its cloud usage, you’re not alone. More than two-thirds — 70% — of respondents to a recent survey by Vega Cloud Services indicated they’d been surprised by their cloud bills at least six times over the preceding year. About 65% of respondents had set a goal of reducing cloud spending for the year. Reaching this goal can be challenging, however. Cloud bills can run to dozens of pages, making them difficult to decipher.

Steps to take

Is there anything your business can do to better understand and reduce cloud costs? Here are some steps you can take to help your organization control its cloud spending — and get a handle on cloud operations, costs and value:

Discuss cloud costs with managers and employees . Paying attention to any expense is a first step to reducing it. Without this conversation, business unit leaders and employees may have little understanding of how their cloud usage is impacting the company’s bottom line. It helps to reiterate that reducing costs, particularly for capacity or features that aren’t needed, frees resources for other initiatives.

Budget for and track cloud usage. You need to understand how much your business is paying for cloud services and confirm that your investments are supporting productive business initiatives. Allocate cloud costs according to a metric relevant to your business, such as by product lines, customers, projects and/or teams.

Some allocations, such as cloud cost by product line, should allow you to compare, at least roughly, the expense to the revenue generated. This also will help you better understand how cloud services are contributing to your business’s performance. Other metrics, like cloud cost per team or department, may not be directly tied to revenue. However, these measures can help in evaluating how efficiently different departments are using the cloud.

In addition, by breaking cloud costs into the various services your business is using, such as storage and networking, you’ll also be able to identify opportunities to save. For instance, you might shift some data to less expensive storage options.

Adjust usage as business fluctuates. Companies often adjust cloud usage upward to respond to increases in demand, but neglect to adjust when business slows. Autoscaling tools can help your organization optimize its use of cloud services by streamlining and automatically adjusting your use of the resources to reflect changes in traffic.

Apply procurement controls . Just as they should for any significant purchase, business units should present solid justifications for their cloud use. Where possible, negotiate vendor agreements that provide some flexibility in meeting usage commitments. If your volume warrants it, consider using more than one cloud provider. This allows you to choose the services from each that best fit your operations and budget.

Watch for features and uses that aren’t needed. For example, you may find duplicate and unneeded data sets residing in your cloud storage. Eliminating the duplicate data — deduplication, as it’s sometimes known — can cut costs. Also look for services that were needed at one time but no longer are, such as storage tied to a server that’s no longer used.

Additional steps

In addition, when possible, reserve cloud capacity. By committing in advance, you often can access capacity at a lower cost than is possible if you wait until the last minute. And leverage visibility tools, which can provide visibility into your cloud operations and expense. These can help you control costs and boost efficiency.

Finally, establish a cloud governance model. Developing governance policies to guide cloud operations can help your organization better manage its use of cloud resources, enhance security and improve cloud operations.

A dynamic process

Because cloud operations will change as your business evolves, managing cloud expenses should be a dynamic, ongoing process. Regularly fine-tuning your cloud management efforts will help your business use its cloud resources efficiently and effectively. Your accounting professional can help you evaluate and manage your business’s cloud spending to ensure it’s helping to drive performance.

Preparing Your Business for 2023 Tax Filing

Mon, 29 Jan 2024 16:19:59 GMT

As you pull together your documents to share with your accountant for 2023 tax preparation, there are many potential deductions and credits that may be relevant for your business for your upcoming filing.

2023 Business Tax Update:

Download Presentation

SECURE 2.0 expanded the foundation of the 2019 SECURE Act which sought to increase individuals’ retirement savings. 2022 changes included a start-up costs credit, expanding 401(k) auto enrollment and raising the age for required minimum distributions.
Meals and entertainment – Beginning January 1, 2023 the temporary 100% meals deduction has now dropped back down to 50%. We also discuss providing proper substantiation for entertainment expenses including the time and place of the expense as well as the business purpose.
Depreciation and useful tips – consider the differences between depreciation methods and which makes more sense for your property, plus miscellaneous tips to maximize your 2023 deductions for year-end.
Pass Through Entity Tax (PTE Tax) has been enacted in 36 states and proposed in 3 more. Find out what changes may affect your filings in 2023, and for Connecticut entities, learn more about changes to PTET effective in 2024.
Research and expenses – be sure you are aware of any required capitalization on specified research and experimental expenditures (SREs) and which expenditures count toward this designation
The IRS Dirty Dozen for 2023 include phishing, fake charities, and scammers aggressively pitching large refunds related to ERC claims. Ensure you are being careful to follow tax advice that aligns with IRS standards from a trusted licensed accountant, and be wary of strange or unexpected requests for personal information and tax forms.
ERC Changes – the IRS created a withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.
Corporate Punch List and MBK Resources – we’ve compiled a quick overview of preliminary to-dos and follow-up planning items as a reminder about our 2023 Tax Filing page which includes an easy to use contact form, resources, and the latest news in taxation. This page will be available for quick reference throughout tax season.

If you have any questions about the presentation, please contact your advisor or reach out to us directly.

Corporate Transparency Act

Sat, 20 Jan 2024 16:22:09 GMT

Effective January 1, 2024, the new Beneficial Ownership reporting requirements went into effect for many existing and newly formed businesses. These new reporting requirements are part of the recently passed Corporate Transparency Act of 2021 (CTA) and will be enforced by the Financial Crimes and Enforcement Network of the US Treasury (FinCEN).

This new reporting requirement will be centered around providing information on individuals who own or control a company. Any Company that must report on beneficial owners is considered a Reporting Company. For any Reporting Company, reporting may begin as early as 30 days from when the Company was created, and is dependent on the date your Company was created or registered. It is important to note that there are currently 23 exemptions from the reporting requirements.

We highly recommend that you contact your Corporate Attorney regarding potential filing requirements as soon as possible. At this time, accounting firms are strongly being advised not to complete a Beneficial Ownership Information Filing, as this is a legal filing and could be considered the unlicensed practice of law.

More information and a series of FAQ’s can be found on the FinCen website at: https://www.fincen.gov/boi

Take Credit for Business Building Renovations

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 11 Jan 2024 19:38:26 GMT

Is your small business looking to downsize to new digs now that you have more employees working remotely? Or have you returned full-time to your existing business premises? In either case, you may find that some renovations are needed to bring the place up to code. If your business makes specific accommodations for disabled individuals, you may qualify for a sizable tax credit. In fact, the disabled access credit may essentially cut the costs of some renovations in half. Here’s a look at how it works.

Basic rules

A qualified small business is eligible for the disabled access credit for making its business premises more accessible to disabled individuals. For eligible expenses made this year, the credit will be claimed as part of the general business credit on your 2024 return.

For these purposes, a qualified small business must have had gross receipts of $1 million or less for the preceding tax year or no more than 30 full-time employees (the IRS defines a full-time employee as someone who worked at least 30 hours per week for 20 or more weeks during the year). The nonrefundable credit may be carried back for one year and forward for up to 20 years.

How much is the credit? It’s equal to 50% of the first $10,000 of qualified expenses (technically, the first $250 of expenses is excluded, but the credit actually applies to the first $10,250 of expenses). Therefore, the maximum credit is $5,000. If you qualify, your business can cut $5,000 right off the top of its tax bill.

What types of expenses are covered? It’s not just ramps and guardrails. An expense qualifies for the credit if it is incurred to satisfy requirements imposed by the Americans with Disabilities Act (ADA). For instance, a small business may claim the credit for the following costs:

Removing architectural, communication, physical or transportation barriers that prevent a business from being accessible to disabled individuals,
Providing qualified interpreters or other effective methods of making orally delivered materials available to hearing-impaired individuals,
Providing qualified readers, taped texts and other effective methods of making visually delivered materials available to visually impaired individuals,
Acquiring or modifying equipment or devices for disabled individuals, and
Providing other similar services, modifications, materials or equipment.

A win-win

It’s important to note that these modifications don’t have to be for the exclusive benefit of disabled individuals — the improvements can also help out others. And there’s no limit on the number of times you can claim the credit. In other words, your business may be in line for the disabled access credit this year, even if it claimed it in a prior tax year. To maximize the credit, confer first with your professional tax advisors to determine the best course of action for your business.

MBK is Proud to Announce the Promotion of Matthew Nash, CPA to Partner

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 04 Jan 2024 16:53:31 GMT

Meyers Brothers Kalicka, P.C. is proud to announce the promotion of Matthew Nash, CPA , to Partner. Since joining the firm in 2011, Matt has been an integral part of the team, focusing on audit, review, and compilation engagements and playing a pivotal role in the Commercial, Not-for-Profit Audit, and Pension engagement teams. Partner, Howard Cheney, shared “We are so very proud of Matt’s professional accomplishments and we look forward to his contributions to the firm as a member of our partner group”.

MBK's Gift-Giving: Bringing Joy to Holyoke Families

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 21 Dec 2023 20:31:13 GMT

In the spirit of the holiday season, the team at MBK has gone above and beyond to bring smiles and warmth to the families of Holyoke. This year, they took the initiative to make a difference in their community by adopting two deserving families through the Holyoke Boys and Girls Club. Led by team leaders Chelsea Russell and Mia McDonald, Team MBK came together to provide gifts, toys, and clothing to six children ranging from ages 5 to 15.

When you entered the lobby of the firm for the past few weeks, you would have seen a tree adorned with ornaments, each representing a child from the Holyoke Boys and Girls Club. These ornaments held essential information: the child's age, gender, and interests. MBK's employees fulfilled these wishes, some going the extra mile by completing entire wishlists.The result was a diverse array of gifts, from the latest Nike Dunks to games and clothing. In addition, they also rallied together to raise nearly $500. These funds, enabled them to send each family home with full-size bags of gifts, toys, and clothes for every child. With leftover donations, they purchased $200 in Walmart gift cards. These gift cards were used to purchase presents for one additional child, which were the rest was donated to the families. This process embodied the true spirit of the holiday season, reminding us all that the essence of the season lies in giving back and making a meaningful impact in the lives of others.

Holyoke Boys and Girls Club: A Beacon of Hope

The Holyoke Boys and Girls Club (HBGC) is a dedicated community-based organization in Holyoke, Massachusetts, with a mission to empower young people, especially those from disadvantaged backgrounds, to reach their full potential through education, character development, and leadership programs. To support HBGC, you can make financial contributions, volunteer your time and skills, explore corporate partnerships, attend their fundraising events, spread awareness, offer in-kind donations, or enroll your children as members to provide them with a safe and enriching environment for growth. Visit their website for more details on how to get involved and make a positive impact on the lives of Holyoke's youth.

Financial Tax Planning 2023

Wed, 13 Dec 2023 19:55:04 GMT

Securities Sales

Traditionally, investors time sales of assets like securities at year-end to maximize tax advantages. For starters, capital gains and losses offset each other. If you show an excess loss for the year, you can then offset up to $3,000 of ordinary income before any remainder is carried over to the next year. Long-term capital gains from sales of securities owned longer than one year are taxed at a maximum rate of 15% or 20% for high-income investors. Conversely, short-term capital gains are taxed at ordinary income rates reaching as high as 37% in 2023.

YEAR-END MOVE: Review your portfolio. Depending on your situation, you may want to harvest capital losses to offset gains, especially high-taxed short-term gains, or realize capital gains that will be partially or wholly absorbed by losses.

Be aware of even more favorable tax treatment for certain long-term capital gains. Notably, a 0% rate applies to taxpayers below certain income levels, such as young children. Furthermore, some taxpayers who ultimately pay ordinary income tax at higher rates due to their investments may qualify for the 0% tax rate on a portion of their long-term capital gains.

However, watch out for the “wash sale rule.” If you sell securities at a loss and reacquire substantially identical securities within 30 days of the sale, the tax loss is disallowed. A simple way to avoid this adverse result is to wait at least 31 days to reacquire substantially identical securities.

Note: A disallowed loss increases your basis for the securities you acquire and could reduce taxable gain on a future sale.

Net Investment Income Tax

When you review your portfolio (see above), do not forget to account for the 3.8% “net investment income tax” (NIIT). The NIIT applies to the lesser of “net investment income” (NII) or the amount by which MAGI for the year exceeds $200,000 for single filers or $250,000 for joint filers. (These thresholds are not indexed for inflation.) The definition of NII includes interest, dividends, capital gains and income from passive activities, but not Social Security benefits, tax-exempt interest and distributions from qualified retirement plans and IRAs.

You may consider investing in municipal bonds (“munis”). The interest income generated by munis does not count as NII, nor is it included in the MAGI calculation. Similarly, if you turn a passive activity into an active business, the resulting income may be exempt from the NII tax.

Tip: When you add the NII tax to your regular tax, you could be paying an effective 40.8% tax rate at the federal level alone. Factor this into your investment decisions.

Required Minimum Distributions

For starters, you must begin “required minimum distributions” (RMDs) from qualified retirement plans and IRAs after reaching a specified age. After the SECURE Act raised the age threshold from 70½ to 72, SECURE 2.0 bumped it up again to 73, beginning in 2023 (scheduled to increase to 75 in 2033). The amount of the RMD is based on IRS life expectancy tables and your account balance at the end of last year.

YEAR-END MOVE: Assess your obligations. If you can postpone RMDs still longer, you can continue to benefit from tax-deferred growth. Otherwise, make arrangements to receive RMDs before January 1, 2024 to avoid any penalties.

Conversely, if you are still working and do not own 5% or more of a business with a qualified plan, you can postpone RMDs from that plan until your retirement. This “still working exception” does not apply to RMDs from IRAs or qualified plans of other employers.

Previously, the penalty for failing to take timely RMDs was equal to 50% of the shortfall. SECURE 2.0 reduces it to 25%, beginning in 2023 (10% if corrected in a timely fashion).

Tip: Under the initial SECURE Act, you are generally required to take RMDs from recently inherited accounts over a ten-year period (although previous inheritances are exempted). These rules are complex, so consult with your tax advisor regarding your situation. .

Estate and Gift Taxes

During the last decade, the unified estate and gift tax exclusion has gradually increased, while the top estate rate has not budged. For example, the exclusion for 2023 is $12.92 million, the highest it has ever been. (It is scheduled to revert to $5 million, plus inflation indexing, after 2025.)

YEAR-END MOVE: Reflect this generous tax law provision in your overall estate plan. For instance, your plan may involve various techniques, including bypass trusts, that maximize the benefits of the estate and gift tax exemption. The following table shows the exemption and top estate tax rate for the last ten years.

In addition, you can give gifts to family members that qualify for the annual gift tax exclusion. For 2023, there is no gift tax liability on gifts of up to $17,000 per recipient (up from $16,000 in 2022). You do not even have to file a gift tax return. Moreover, the limit is doubled to $34,000 for joint gifts by a married couple, but a gift tax return is required in that case.

Tip: You may “double up” again by giving gifts in both December and January that qualify for the annual gift tax exclusion for 2023 and 2024, respectively.

Miscellaneous

Contribute up to $22,500 to a 401(k) in 2023 ($30,000 if you are age 50 or older). If you clear the 2023 Social Security wage base of $160,200 and promptly allocate the payroll tax savings to a 401(k), you can increase your deferral without any further reduction in your take-home pay. Note: SECURE 2.0 further enhances catch-up contributions for older employees after 2023.
If you rent out your vacation home, keep your personal use within the tax law boundaries. No loss is allowed if personal use exceeds the greater of 14 days or 10% of the rental period.
Consider a qualified charitable distribution (QCD). If you are age 70½ or older, you can transfer up to $100,000 of IRA funds directly to charity, free of tax (but not deductible). SECURE 2.0 authorizes a one-time transfer of up to $50,000 to a charitable remainder trust (CRT) or charitable gift annuity (CGA) as part of a QCD.

Business Tax Planning 2023

Wed, 13 Dec 2023 19:46:00 GMT

Depreciation-Based Deductions

As the year draws to a close, a business may benefit from one or more of three depreciation-based tax breaks: (1) the Section 179 deduction; (2) first-year “bonus” depreciation; and (3) regular depreciation.

YEAR-END MOVE: Place qualified property in service before the end of the year. If your business does not start using the property before 2024, it is not eligible for these tax breaks.

Section 179 deduction: Under Section 179 of the tax code, a business may currently deduct the cost of qualified property placed in service during the year. The maximum annual deduction for 2023 is $1.16 million provided your total purchases of property do not exceed $2.89 million..

Be aware that the Section 179 deduction cannot exceed the taxable income from all your business activities this year. This rule could limit your deduction for 2023.

First-year bonus depreciation: The first-year bonus depreciation applicable percentage for 2023 is 80% and is scheduled to drop to 60% in 2024.

Qualified Retirement Plans

The new SECURE 2.0 law includes a number of provisions affecting employers with qualified retirement plans.

YEAR-END MOVE: Position your business to maximize available tax benefits and avoid potential problems. Consider the following key changes of particular interest.

For 401(k) plans adopted after 2024, an employer must provide automatic enrollment to employees. Certain small companies and start-ups are exempt.

Beginning in 2023, employers with 50 or fewer employees can qualify for a credit equal to 100% of their contributions to a new retirement plan, up to $1,000 per employee, phased out over five years. The 100% credit is reduced for a business with 51 to 100 employees. This tax break is in addition to an enhanced credit for plan start-up costs.
Beginning in 2024, employers may automatically provide employees with emergency access to accounts of up to 3% of their salary, capped at $2,500.
An employer may elect to make matching contributions to an employee’s retirement plan account based on student loan obligations, beginning in 2024.
The new law shortens the eligibility requirement for part-time workers from three years to two years, beginning in 2023, among other modifications.
Any catch-up contributions to 401(k) plans must be made to Roth-type accounts for employees earning more than $145,000 a year (indexed for inflation).

Tip: This last provision was initially scheduled to take effect in 2024, but a new IRS ruling just delayed it for two years to 2026.

Employee Bonuses

Generally, employee bonuses are deductible in the year that they are paid. For instance, you must dole out bonuses before January 1, 2024, to deduct those bonuses on your company’s 2023 return. However, there’s a special rule for accrual-basis companies. In this case, the bonuses are currently deductible if they are paid within 2½ months of the close of the tax year.

YEAR-END MOVE: If your company qualifies, determine bonus amounts before year-end. As a result, the bonuses can be deducted on the company’s 2023 return as long as they are paid by March 15, 2024. Keep detailed corporate minutes to support the deductions.

This special deduction rule does not apply to bonuses paid to majority shareholders of a C corporation or certain owners of an S corporation or a personal service corporation.

Tip: Note that the bonuses are taxable to employees in the year in which they receive them—2024. Thus, the employees benefit from tax deferral for a year even if the company claims a current deduction.

Miscellaneous

Stock the shelves with routine supplies (especially if they are in high demand). If you buy the supplies in 2023, they are deductible this year even if they are not used until 2024.
Maximize the qualified business interest (QBI) deduction for pass-through entities and self-employed individuals. Note that special rules apply if you are in a “specified service trade or business” (SSTB). See your professional tax advisor for more details.
If you buy a heavy-duty SUV or van for business, you may claim a first-year Section 179 deduction of up to $28,900. The luxury car limits do not apply to certain heavy-duty vehicles.

Individual Tax Planning 2023

Wed, 13 Dec 2023 19:38:32 GMT

Itemized Deductions

When you file your personal 2023 tax return, you must choose between the standard deduction and itemized deductions. The standard deduction for 2023 is $13,850 for single filers and $27,700 for joint filers. (An additional $1,850 standard deduction is allowed for a taxpayer age 65 or older.)

YEAR-END MOVE: If you come out ahead by itemizing, you may want to accelerate certain deductible expenses into 2023. For example, consider the following possibilities.

Donate cash or property to a qualified charitable organization.
Pay deductible mortgage interest if it otherwise makes sense for your situation. Currently, this includes interest on acquisition debt of up to $750,000 for your principal residence and one other home, combined.
Make state and local tax (SALT) payments up to the annual SALT deduction limit of $10,000.

Charitable Donations

The tax law allows you to deduct charitable donations within generous limits if you meet certain recordkeeping requirements.

YEAR-END MOVE: Step up charitable gift-giving before January 1. As long as you make a donation in 2023, it is deductible in 2023, even if you charge it in 2023 and pay it in 2024.

f you make monetary contributions, your deduction is limited to 60% of your AGI. Any excess above the 60%-of-AGI limit may be carried over for up to five years.
If you donate appreciated property held longer than one year (i.e., it would qualify for long-term capital gain treatment if sold), you can generally deduct an amount equal to the property’s fair market value (FMV) on the donation date, up to 30% of your AGI. But the deduction for short-term capital gain property is limited to your initial cost.

Tip: Any excess above the 30%-of-AGI limit may be carried over for up to five years.

Higher Education Credits

The tax law provides tax breaks to parents of children in college, subject to certain limits. This often includes a choice between one of two higher education credits.

YEAR-END MOVE: When appropriate, pay qualified expenses for next semester by the end of this year. Generally, the costs will be eligible for a credit in 2023, even if the semester does not begin until 2024.

Typically, you can claim either the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC), but not both. The maximum AOTC of $2,500 is available for qualified expenses for four years of study for each student, while the maximum $2,000 LLC is claimed on a per-family basis for all years of study. Thus, the AOTC is usually preferable to the LLC.

Both credits are phased out based on your MAGI. The phase-out for each credit occurs between $80,000 and $90,000 of MAGI for single filers and between $160,000 and $180,000 of MAGI for joint filers.

Tip: The list of qualified expenses includes tuition, books, fees, equipment, computers, etc., but not room and board.

Miscellaneous

Install energy-saving devices at home that result in either of two residential credits. For example, you may be able to claim a credit for installing solar panels. Generally, each credit equals 30% of the cost of qualified expenses, subject to certain limits.
Avoid an estimated tax penalty by qualifying for a safe-harbor exception. Generally, a penalty will not be imposed if you pay 90% of your current year’s tax liability or 100% of your prior year’s tax liability (110% if your AGI exceeded $150,000).
Empty out flexible spending accounts (FSAs) for healthcare or dependent care expenses if you will forfeit unused funds under the “use-it-or-lose it” rule. However, your employer’s plan may provide a carryover to 2024 of up to $610 of unused funds or a 2½-month grace period.

Meyers Brothers Kalicka, P.C. Announces Strategic Expansion with the Inclusion of J.M. O'Brien & Co., P.C.

sstack@mbkcpa.com (Sarah Rose Stack) — Wed, 13 Dec 2023 15:27:28 GMT

Strategic Growth: Enhanced Service and Expertise

Bringing J.M. O'Brien & Co. to MBK signifies a strategic move towards growth and expansion in the accounting industry of Western Massachusetts. MBK stands to benefit from the influx of new talent and a broader resource pool, enriching the firm's already substantial depth of resources. The merger is particularly advantageous for MBK's tax services, which will be able to leverage J.M. O'Brien's extensive expertise to enhance its range of tax-related services. "I had the pleasure of working with Jay for almost ten years when we both were at the former Coopers & Lybrand (now PWC) in Springfield. I am very excited to work with him again. This prior experience with him gives me great confidence in the quality of his team," said Partner, Kris Houghton .

Leadership and staff from both firms have already started to unite, fostering camaraderie at various mixers and the annual tax training sessions, indicating that the integration of the two entities is set to be a smooth transition. Partner Kristi Reale shared, “This partnership is rooted in a shared culture and similar client base, ensuring a seamless integration of J.M. O'Brien into MBK's operations”. Jay O’Brien echoed this sentiment, “Having known and worked with members of MBK over the years, we collectively bring a great resource of professional experience, a depth of professional knowledge in many aspects of servicing our client base and potential clients”. With the added depth of knowledge and resources, MBK is well-positioned to offer a broader range of specialized services, including advanced tax planning and compliance, audit and assurance services, and business consulting.

Commitment to the Future

Looking ahead, MBK is better equipped than ever to serve the evolving needs of its clients for generations to come. “This move will allow MBK to increase our depth of resources within the firm, adding to the value of service that we strive to provide our clients. Both firms are built around the core values of people, culture, community and service, making the addition of the J.M. O’Brien staff a great fit and addition to the MBK team,” said Senior Manager, Matt Nash.

Further, the integration underscores MBK's dedication to ensuring stability and succession planning. Partner Jim Krupienski shared, “Celebrating our 75th anniversary, succession is always at front of mind at MBK. Not only will this alliance help to solidify the succession for the team and clients of JOB but allow MBK to strengthen its own team and resources for future success”. Rudy D’Agostino , Partner added, “At MBK, our goal is to remain independent and ensure that the next generation of leaders are being developed to continue as a local independent firm offering a full array of services to businesses and individuals. The addition of team members from JM O’Brien will assist in our succession process over the next 5 to 7 years”.

This strategic move signifies MBK's largest scale of expansion since the pivotal merger of 2004, marking a significant milestone in the firm's trajectory towards continued growth and excellence. Partner, Howard Cheney stated, “I’m really looking forward to adding their experience and expertise to our team and building upon the reputation that Jay has developed over his years in practice with his firm”. MBK steadfastly upholds its enduring mission that has distinguished the firm for 75 years: to offer unwavering depth and quality in its team for every client, to consistently deliver superior work products, and to apply its extensive experience to effectively address the accounting and financial objectives of its clients.

Welcome New Staff to MBK

Clients of JM O’Brien should contact the team leader that they work with or contact Reception@mbkcpa.com with any questions.

John O'Brien: jobrien@mbkcpa.com

Ann Marie Rome: arome@mbkcpa.com

Ryan Sabin: rsabin@mbkcpa.c om

Kathleen Macy: kmacy@mbkcpa.com

Caitlin Humphrey: chumphrey@mbkcpa.com

Marilyn Kelleher: mkelleher@mbkcpa.com

Mary Ann Fedor: mfedor@mbkcpa.com

Jonathan Lemoine: jlemoine@mbkcpa.com

Cynthia Wage: cwage@mbkcpa.com

Jeffrey Atkins Jr. jatkins@mbkcpa.com

Understanding Internal Controls: Why Nonprofits Need Both Preventative and Detective Policies

Mon, 04 Dec 2023 21:46:58 GMT

The median loss for nonprofits that fell victim to fraud was $60,000, according to the Association of Certified Fraud Examiners’ (ACFE) Occupational Fraud 2022: A Report to the Nations. The average loss for nonprofits was $851,000. Such losses could prove devastating for many organizations. But with strong internal controls to prevent and detect fraudulent activity, organizations can reduce this risk.

The ACFE report found that almost 30% of the victim organizations lacked adequate internal controls to prevent fraud from occurring. In addition to minimizing fraud, comprehensive internal controls also help ensure accurate accounting records and financial statements. And strong internal controls are essential for compliance with relevant laws, regulations and grant requirements.

4 critical measures

Your organization should have a mix of preventative and detective controls. The most effective internal controls include:

Segregation of duties. No individual should have control over more than one phase of a financial transaction or function. That means individuals with access to assets shouldn’t be responsible for accounting for those assets. Nor should an individual have the ability to both initiate and approve a transaction, such as paying a vendor invoice. Don’t let staff members who receive checks also deposit them. Finally, don’t allow employees who write checks then also be responsible for reconciling monthly bank statements.

Segregation of duties is among the most vital of internal controls. But it can be challenging to segregate duties for nonprofits with few staff or that have shifted to remote work arrangements. Consider assigning some duties to board members and trusted volunteers and/or consider outsourcing functions such as payroll and accounts payable. Also consider using cloud solutions to overcome hurdles related to employees working remotely.
Controls over credit cards. Credit cards have become increasingly common in nonprofits, but they come with the risk of unauthorized usage. If you find it necessary to give credit cards to employees, board members or volunteers, take steps to reduce related risks. Start by limiting the number of cards in use.

Require a receipt for each purchase, along with documentation of the business purpose. Require someone who isn’t an authorized card user to scrutinize card statements and supporting documentation every month for unusual or questionable activity. Depending on the issuer, you may be able to set limits on the types or amounts of purchases. It’s also advisable to enforce real consequences for unauthorized usage, such as revoking card privileges or termination.
Regular financial statement reviews. It’s customary for nonprofit boards or audit committees to review financial statements annually or semi-annually. But the ACFE study confirms that the longer fraud goes undetected, the greater the financial loss for the victim organization.

Your organization’s leaders should review financial statements at least quarterly, if not monthly. They should also receive regular budget reports, showing variances between budget and actual figures, as significant variations can indicate potential fraud.
Job rotation/mandatory vacation. According to the ACFE study, job rotation/mandatory vacation is associated with at least a 50% reduction in the median loss and median duration of fraud schemes. Not surprisingly, unwillingness to share duties and refusal to take vacation are some of the red flags for fraud scheme.

For example, scams involving receivables often require perpetrators to be in the office to cover their tracks. So rotating job duties and requiring employees to take regular vacations can act as both a preventative and a detective control.

Level of internal controls may vary

Controls such as segregation of duties are advisable for every organization, but additional policies may be more or less appropriate depending on your nonprofit’s particular risks and circumstances. We can help you determine and establish the right internal controls to reduce fraud risk.

Beyond internal controls

Internal controls are largely about reducing the opportunity for would-be fraudsters. But opportunity is only one side of the “fraud triangle” that extensive research has shown generally must exist for fraud to occur. The other two sides of the triangle are:

Motive. This sometimes is referred to as “pressure.” The pressure could be professional — for example, a perpetrator might fudge some numbers due to pressure from management or the board to meet certain growth targets. It also may be personal, such as the need to maintain a high standard of living or pay off debt from credit cards, medical bills, gambling or some other addiction.
Rationalization. Fraud perpetrators must be able to rationalize or justify their misconduct to themselves. Most people who commit occupational fraud are first-time offenders who don’t consider themselves criminals, just people caught up in circumstances they can’t control. They might make unauthorized credit card charges thinking, “I’ll pay it back later,” or record overtime hours they didn’t actually work, reasoning “Everyone else does it, why shouldn’t I?”

Should Married Couples Ever File Separate Tax Returns?

Mon, 04 Dec 2023 21:33:54 GMT

Most married couples assume they should file joint income tax returns, and usually, that’s the right choice. But under certain circumstances, there may be benefits to filing separate returns.

Bear in mind that the differences between married filing jointly and married filing separately (MFS) can be complicated. Switching from one status to the other may increase some tax breaks while reducing others. So, it’s important to analyze the numbers before determining which status is best for you. With that in mind, here are some situations in which it may be advantageous to file separately rather than jointly.

A spouse has unreimbursed medical expenses

Unreimbursed medical expenses are deductible as an itemized deduction to the extent they exceed 7.5% of adjusted gross income (AGI). If one spouse has significant unreimbursed medical expenses and relatively low income, filing separately may result in a substantially larger medical expense deduction.

Note that when filing separately, both spouses must itemize, or both must claim the standard deduction. So, this strategy only works if the spouses’ combined deductions are greater than the standard deduction for joint filers.

A spouse has QBI

Eligible business owners are entitled to deduct up to 20% of their qualified business income (QBI) from sole proprietorships or pass-through entities (partnerships, limited liability companies and S corporations). For certain types of businesses (including “specified service businesses”), the QBI deduction is phased out for owners whose taxable income exceeds certain thresholds. For 2023, the deduction is reduced for these businesses once income reaches $182,100 for single and MFS filers or $362,400 for joint filers. It’s eliminated once income reaches $232,100 for single and MFS filers or $462,400 for joint filers.

Here’s how filing separately can pay off. Let’s say Judy and Burt are married and their taxable income on a joint return is $500,000 for 2023. Judy’s sole source of income is $150,000 in QBI from a specified service business. If the couple files jointly, the QBI deduction is lost because their income is over the $462,400 threshold. But if they file separately, Judy will be entitled to the full 20% deduction because her income is below the $182,100 threshold for MFS filers.

A spouse has a student loan repayment plan

With income-driven plans, the borrower pays a certain percentage of income for a specified term after which the remaining student loan balance may be forgiven. For married borrowers, some of these plans will base loan payments on the borrower’s individual income if the spouses file separate returns.

Do your homework

Under the right circumstances, filing separate returns can generate significant tax savings for married couples. To determine whether this is the right strategy for you, consider the overall impact of MFS status on your combined tax liability.

Filing separately may save taxes in one area, but it may cost you in others. For example, separate filers can’t claim certain education credits, child and dependent care credits, or student loan interest deductions. Ask your tax advisor to calculate your tax liability for both joint and separate returns to see which approach produces the best outcome.

The IRS “Dirty Dozen for 2023”

Mon, 04 Dec 2023 18:07:02 GMT

Each year, the IRS releases its "Dirty Dozen" list of common scams and schemes that taxpayers should be aware of.

The 2023 list includes:

Employee Retention Credit claims: Scammers aggressively pitch large refunds related to the Employee Retention Credit, often using false information and identity theft tactics.
Phishing and smishing: Fake communications that appear to be from legitimate tax or financial organizations, including the IRS, are used to lure victims into providing personal and financial information.
Online account help from third-party scammers: Swindlers pose as helpful third parties offering to assist in creating IRS online accounts, aiming to steal personal information.
False Fuel Tax Credit claims: Fraudulent claims for fuel tax credits, meant for specific off-highway business uses, are promoted to inflate refunds.
Fake charities: Scammers set up bogus charities, particularly during crises or disasters, to exploit public generosity and steal money and personal information.
Unscrupulous tax return preparers: Some tax preparers may be shady, charging fees based on refund size, or refusing to sign returns they prepare ("ghost" preparers).
Social media: Fraudulent form filing and bad advice: Misinformation circulated on social media involving common tax documents, encouraging submission of false information for refunds.
Spearphishing and cybersecurity for tax professionals: Tailored phishing attempts targeting tax professionals to steal client data and commit identity theft.
Offer in Compromise mills: Misleading promotions of Offers in Compromise to individuals who do not qualify, often costing them money.
Schemes aimed at high-income filers: Including misuse of Charitable Remainder Annuity Trusts and monetized installment sales for tax avoidance.
Bogus tax avoidance strategies: This includes micro-captive insurance arrangements and syndicated conservation easements that lack attributes of legitimate insurance or inflate tax deductions.
Schemes with international elements: Attempts to hide assets in offshore accounts and digital assets, misuse of Maltese individual retirement arrangements, and Puerto Rican and foreign captive insurance schemes that lack legitimacy.

The IRS emphasizes that taxpayers are legally responsible for what's on their tax returns and advises consulting with reputable tax professionals.

For more information visit the IRS News Release here.

Honoring Longevity and Excellence: Fall / Winter 2023

Mon, 04 Dec 2023 15:56:04 GMT

Congratulating Our Employees on Their Work Anniversaries: Fall/Winter 2023

We would like to extend our warmest congratulations to our employees who are celebrating work anniversaries in Fall 2023. Your commitment and dedication to MBK have been invaluable, and your hard work does not go unnoticed. Meyers Brothers Kalicka, P.C. recognizes that at the core of our ability to implement on our mission and vision, is our people. The contributions from our employees enable us to better serve our clients, our community and each other. We celebrate your loyalty, diligence, and enthusiasm for contributing to the success of the firm!

Elliot: 44 years with MBK

Elliot, who has been with MBK since 1979, focuses on audit, compilation and review. A licensed health insurance broker and a CPA licensed in Massachusetts, he is a member of the Massachusetts Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Elliot holds a B.S. in Business Administration from the University of Massachusetts, Amherst, and an M.S. in Taxation from the University of Hartford. Elliot serves as financial secretary for the Independent City of Homes Association, treasurer for the City of Homes Cemetery Association and is the past Treasurer of Longmeadow Wrestling Booster Club.

Cheryl: 28 years with MBK

Cheryl, who has been with MBK since 1995, focuses on consolidated multi-state tax returns. A CPA licensed in Massachusetts, she is a member of the Massachusetts Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Cheryl holds a B.S. in Business Administration from Westfield State University and an M.S. in Taxation from Bentley University. Cheryl is a former treasurer and board member for Rebuilding Together, Springfield, and a former treasurer for the March of Dimes Western Division.

Debra: 23 years with MBK

Deb, who has been with MBK since 2000, focuses on taxation. A CPA licensed in Massachusetts, she is a member of the Massachusetts Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Deb holds a B.S. in Business Administration from Stonehill College. She previously served as Vice-Chair for the Springfield Technical Community College Board of Trustees.

Jim: 19 years with MBK

Jim prides himself on providing clarity for his clients on complicated and technical matters. For him, it’s about giving his clients the information and understanding they need to make good business decisions. Jim’s wide range of experience and expertise allows him to make it easy to keep his clients focused on strategy, long-term planning and proactive problem solving. He takes care of the technical details so his clients can take care of their business. Read more about Jim.

Dan: 18 years with MBK

Dan has been with Meyers Brothers Kalicka, P.C. (MBK) since 2005, working primarily with large companies and corporations as well as with high net-worth individuals. He has over 20 years of accounting experience handling many of the most complicated tax-preparations in these areas, including multi-state tax-preparation. His extensive experience makes him a valuable resource to clients for technical and operational support.

He leads the tax intern program at MBK which has resulted in numerous hires in the firm. He states, “Mentorship is so important, because individual success benefits not only the individual, but also our clients who are the cornerstone of everything that we do.” Dan holds a Bachelor of Science, Accounting from American International College. Dan is member of the Massachusetts Society of Certified Public Accountants and the American Institute of Certified Public Accountants.

Tony: 17 years with MBK

Tony, who has been with MBK since 2006, focuses on for-profit audits, compilation and review. A CPA licensed in Massachusetts, he is a member of the Massachusetts Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Tony holds a B.S. in Business Administration from Fordham. Tony also serves as treasurer for the Veritas Prep Charter School Board of Trustees.

Kara: 12 years with MBK

Kara is a licensed certified public accountant in Massachusetts and has been with Meyers Brothers Kalicka, P.C. since 2011. “I strive to be a trusted advisor for my clients. I want my clients to feel like they are my top priority and that begins with being available and responsive. I’ve had many clients for close to 10 years, and when I go to their offices, I feel like one of them. I value the relationships that I have nurtured with them over the years,” she reflected.

She holds a Bachelor of Accountancy from Roger Williams University and a Master of Accountancy from Western New England University. She is a member of the Massachusetts Society of Certified Public Accountants (MSCPA) and CPAmerica. Kara serves on the audit committee for the United Way of Hampshire County.

Fran: 10 years with MBK

Fran joined MBK in 2013, with significant tax preparation experience and a special focus in tax preparation for not-for-profit organizations and individuals. She will be taking on a larger leadership role with the firm’s tax-exempt clients, preparing larger 990 returns, and reviewing smaller tax-exempt clients. She also assists with tax planning & tax projection projects for a wide breadth of clients and prepares more complex corporate consolidated returns.

She is a member of the Massachusetts Society of Certified Public Accountants (MSCPA). Fran holds an associate degree in accounting from Holyoke Community College and is currently enrolled in a bachelor's degree program at Westfield State University. Fran resides in Easthampton with her husband, two daughters, and her dog where she enjoys spending with her family, reading, crocheting, and crafting.

Peter: 4 years with MBK

Peter joined the tax department at Meyers Brothers Kalicka, P.C. in 2019 after spending 13 years in public accounting with Lester Halpern P.C. and Whittlesey P.C. where he has experience providing both audit and tax services in a variety of industries including not-for-profit, medical, manufacturing, IT and restaurants. Peter received his Master of Science in Accounting from Western New England College, and his Bachelor of Business Administration from the University of Massachusetts, Amherst. Peter is a certified public accountant in Massachusetts and a member of the American Institute of Certified Public Accountants (AICPA) and the Massachusetts Society of Certified Public Accountants (MSCPA). Peter also volunteers as the treasurer on the board of directors for the Pioneer Valley Symphony.

Samantha: 2 year with MBK

Sam works as a paraprofessional at Meyers Brothers Kalicka, P.C. She received her associate degree in accounting from Holyoke Community College and is a candidate to receive her bachelor’s degree in accounting from the University of Southern New Hampshire in Summer of 2022. Sam, who has deep roots in Western Massachusetts, was also recently awarded the PwC, LLP Scholarship by the Massachusetts Society of Certified Public Accountants.

Olivia Calcasola: 2 year with MBK

Olivia is an associate in the taxation department at Meyers Brothers Kalicka, P.C. (MBK). Prior to MBK, she worked for two years as a senior corporate tax associate for a Boston-based firm. Olivia brings a strong sense of service to MBK, with the view that great customer service stems from complete understanding of the clients’ needs and wants, inside and out. Olivia holds a Bachelor of Science and a Master of Science in Accounting from the University of Massachusetts, Amherst.

Karen: 1 year with MBK

Karen is an associate in the audit and accounting department at Meyers Brothers Kalicka, P.C. (MBK). She brings her experience in the nonprofit field to her work in public accounting with MBK and approaches customer service with a positive attitude, clear communication, and creative problem solving. Karen’s strong teamwork and commitment to continued learning and growth makes her an asset on each of her engagements. She holds a Master of Science in Accounting (MSA) from Merrimack College and a Master of Business Administration (MBA) from Clark University. Karen serves as Treasurer on the Board of Directors of the Northampton Parents Center and resides in Florence with her two children where she enjoys spending her leisure time in the outdoors.

Thanksgiving Banquet at Springfield Rescue Mission

Thu, 30 Nov 2023 21:32:30 GMT

Last Wednesday, ahead of the Thanksgiving holiday, The Springfield Rescue Mission spent the day serving up hot Thanksgiving meals to area residents in need. Meals were served in an on-site banquet, through a drive-through service and delivered to community members. The staff at MBK came together for a Thanksgiving drive and we are proud to have been able to help support The Springfield Rescue Mission for this year's banquet.

Homelessness and food insecurity have been on the rise in recent years and CEO Kevin Ramsdell says they've seen an increase in demand at the Springfield Rescue Mission. The organization works year-round to provide food to members of our community who are facing hunger.

Right now, The rescue mission is looking to put on a traditional Christmas dinner and anticipates preparing 800 and 1,200 meals for Christmas breakfast and dinner. They will also be collecting presents to give out to the children who in to The Springfield Rescue Mission on Christmas.

It's not just the holidays that the rescue mission needs donations for, though. The Springfield Rescue Mission also holds meals each week for the community. Those in need of food need help year round, and the rescue mission is always accepting donations of items like bread, cheese, meats, toiletries or monetary donations to allow the mission to purchase immediate needs.

To learn more about how you can get involved this holiday season and into the future, you can visit The Springfield Rescue Mission's website here .

Giving Tuesday: Giving Back to our Community

Mon, 27 Nov 2023 21:03:16 GMT

Tuesday, November 28th is Giving Tuesday, a day to find ways to give back to your community in whatever ways you can, whether it’s bringing a smile to a neighbor’s face, or sharing some of your resources with an organization close to your heart. This Thanksgiving we’d like to remind you to consider what ways you may be able to give back to your community in this giving season.

Throughout the year, MBK finds ways to give back to our community with our financial expertise, time, and monetary donations. Over the past year we have created new connections to not-for-profit organizations and continued our support of many others. Please consider supporting some of the many causes and organizations we hold dear.

Friday Charities

Every pay day staff participate to collect money for a different charity. The organizations we collectively supported in 2023 include:

Taking time our for our community

Over the past year we have continued some established connections and joined with some new friends from an inaugural Winter Walk in Western Massachusetts to raise awareness and funds for the homeless to a supply drive for local students starting a new school year. Below you can find links to support some of the various organizations we supported with supplies and volunteer hours.

Sponsorships and more

In addition to the many activities, drives, and fundraising Fridays our staff participates in, MBK has also supported over 75 organizations through sponsorship over the past year.

We succeed when our community succeeds. We are committed to giving back to the communities we are so fortunate to be a part of and this giving season, we hope you'll find a way to give some of your own resources back in whatever ways you can!

Substantiating Business Expenses: A Primer

Mon, 20 Nov 2023 21:02:46 GMT

Businesses can generally deduct their “ordinary and necessary” business expenses. But even if an expense is legitimate, it’s not deductible unless it’s adequately substantiated. Typically, substantiation requires proof of payment and evidence showing the character and deductibility of the expenditure. Proof of payment may include canceled checks, bank statements, credit card statements or invoices marked “paid.” You can establish the character and deductibility of an expense with items such as sales slips, invoices, receipts, payment acknowledgements and check registers. A canceled check may also suffice if it indicates the nature of the expense.

If a business is unable to fully substantiate an expense, the courts have some leeway to approximate deduction amounts, provided the business presents sufficient evidence to support an estimate. This approach isn’t available, however, for expenses that are subject to heightened substantiation requirements.

Strict requirements

The tax code imposes stricter substantiation requirements for some expenses, including business travel, business meals, business gifts and expenses related to “listed property,” such as passenger automobiles. To substantiate these expenses, a business must keep “adequate records” — or “sufficient evidence corroborating the taxpayer’s own statement” — establishing:

The amount of the expense,
The time and place the expense was incurred,
The business purpose of the expense, and
If applicable, the business relationship with the person or persons receiving the benefit (e.g., a meal or a gift).

Examples of adequate records include contemporaneous logs, diaries, account books, trip sheets and expense statements.

Case in point

A recent U.S. Tax Court case — Wolpert v. Commissioner — illustrates the dangers of failing to substantiate business expenses. In that case, the court disallowed a consultant’s vehicle and travel expenses because he failed to adequately substantiate those expenses with contemporaneous records or other corroborative evidence. The court noted that to deduct vehicle expenses, a taxpayer must substantiate the amount of the expense (or, alternatively, use the standard mileage rate), the business and total mileage, and the date and purpose of each business use. Although the taxpayer provided mileage logs and calendars documenting some of this information, it was unclear whether these records were maintained contemporaneously or prepared after the fact. Moreover, even assuming they were contemporaneous, they failed to state the business purpose of each trip or the vehicle’s total mileage.

With regard to travel expenses, the taxpayer failed to provide adequate records or sufficient corroborative evidence establishing travel dates, destinations, business purpose or the number of days spent on business.

Don’t lose your deductions

To avoid disallowance of your legitimate costs of doing business, be sure your business has processes in place to substantiate those expenses. Keeping contemporaneous records can be challenging, but technology can help. There are a variety of smartphone applications and other programs that will track and categorize expenses or mileage, store digital receipts, and synchronize expenses with your accounting system.

Nonprofit Employment Returns to Pre-COVID-19 Levels

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 13 Nov 2023 18:25:57 GMT

Three years after the onset of the COVID-19 pandemic, the nonprofit sector in the United States has shown a significant recovery in terms of employment. The Nonprofit Employment Data Project at George Mason University, which continued the work previously conducted by the Johns Hopkins University – Nonprofit Economic Data Project (JHU-NED), provides insights into this recovery.

Extent of Job Loss and Recovery : The nonprofit sector experienced substantial job losses at the height of the pandemic. In May 2020, it was estimated that about 1.64 million jobs were lost, amounting to a 13.2% reduction in the nonprofit workforce. However, as of October 2022, the sector not only recovered these losses but also added new employment in the final months of the year. By December 2022, the nonprofit workforce had approximately 107,000 more jobs than in 2017, marking an increase of 0.86%.
Distribution of Recovery Across Subsectors : The recovery in employment has not been evenly distributed across various nonprofit verticals. Sectors like health care services, social assistance, and educational services saw significant increases in staffing levels compared to 2017, with health care services leading with a 15.4% increase. Conversely, sectors such as arts, entertainment, and recreation, as well as religious, grantmaking, civic, and professional organizations, have not regained their pre-pandemic staffing levels. For instance, arts and entertainment nonprofits have only reached 88.2% of their 2017 staffing levels.
Challenges Faced by Certain Nonprofit Subgroups: Some subgroups within the nonprofit sector have faced unique challenges, particularly in staffing. Religious organizations, for instance, have experienced longer job vacancies, especially in digital marketing and IT positions. Smaller markets have also seen greater talent gaps compared to more populated areas. This suggests a complex landscape where some nonprofit subgroups continue to struggle with employment issues.
Variability within Sectors : Even within specific sectors, there is variability in recovery. For example, in the health care sector, nonprofits providing ambulatory health care services saw a significant increase in staff levels, while hospitals had only a minimal uptick, and nursing and residential care facilities reported a shortfall in staffing levels. By the end of 2022, there was a noticeable difference in employment numbers across various subsectors within health care, education, and social assistance compared to arts, entertainment, and other areas.
Basis of Estimates and Uncertainties : The estimates provided by the George Mason University researchers were based on the assumption that nonprofit employment trends kept pace with the overall private economy. However, this assumption may not fully capture the unique challenges and dynamics faced by nonprofits, particularly in a competitive employment market. This suggests that while the overall figures indicate recovery, the actual scenario might be more nuanced and complex.

In summary, the nonprofit sector in the U.S. has shown resilience and recovery in employment levels since the COVID-19 pandemic, with significant variations across different subsectors and unique challenges still present in certain areas.

How An Energy-Efficient Building Tax Deduction Could Pay Off For Nonprofits

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 13 Nov 2023 18:25:55 GMT

Much of the Inflation Reduction Act signed into law in late 2022 contains provisions intended to combat climate change, largely through tax incentives. Such tax breaks aren’t usually relevant to the work of nonprofits. But if your organization is constructing new facilities or adding improvements, the Act’s changes to one tax deduction could benefit your organization.

Tax break becomes permanent

IRS Section 179D deduction for energy-efficient commercial buildings was made permanent by the Consolidated Appropriations Act of 2021. At that time, the deduction generally was available only to the owners of commercial properties and certain residential properties. Government entities with qualifying buildings could use the deduction by assigning it to qualified “designers.”

A qualified designer creates technical specifications for the installation of energy-efficient commercial building property. Installation, repair or maintenance of such property isn’t sufficient to qualify. Designers include architects, engineers, contractors, environmental consultants and energy services providers.

New rules

To qualify for the deduction before the Act, a taxpayer had to establish a 50% reduction in energy and power costs. The maximum deduction was $1.88 per square foot (adjusted for inflation). This meant it was worth as much as 63 cents per square foot for each of three eligible systems: HVAC and hot water, interior lighting, and building envelope. Taxpayers could claim the deduction once per property.

Under the Act and beginning in 2023, the qualification threshold drops to 25% energy savings. The base deduction amount is 50 cents per square foot, but a “bonus deduction” could substantially increase the deduction. To qualify for this bonus (up to $2.50 per square foot), projects must satisfy prevailing wage and apprenticeship requirements. The deduction amount also increases as energy savings exceed 25% — up to $5 per square foot for projects that also meet the labor requirements. And the credit can be taken on a specific building every three years.

Benefit for nonprofits

How do these changes help nonprofits? The Act now permits all tax-exempt entities, not just governmental entities, to allocate their deductions to qualified designers. This could reduce your organization’s costs on construction projects that incorporate sustainable materials. You may already have prioritized the use of such materials because it aligns with your mission and values or simply to cut future utility expenses.

Let’s say you plan to build a 40,000-square-foot, LEED-certified building and to meet the labor requirements. You’ll have $200,000 in tax deductions to allocate to qualified architects, engineers and other construction professionals. You can allocate the entire deduction to a single designer or make proportional allocations to multiple designers. That can help you negotiate a better overall price on the project than you would if you weren’t able to allocate.

The exact deduction amount will be determined through a “Section 179D study” obtained by the designer. The study is performed by a qualified contractor or professional engineer. Among other things, this third party will have to make a site visit to your property to confirm that it has met or will meet energy savings requirements. You’ll also need to sign an allocation letter that includes the following:

The cost of the energy-efficient property (including labor),
The date the property is placed in service,
The amount of the Sec. 179D deduction allocated to the designer, and
A declaration that the information presented in the letter is true and complete to the best of your knowledge and belief.

Note that you can’t seek, accept or solicit payments from a designer in exchange for providing an allocation letter. Nor can you require a designer to pay you a portion of the deduction’s value. Both of these practices would constitute an illegal kickback.

Cover your bases

Your preferred architect, engineer or other type of qualified designer may not have experience working on a project involving the allocation of the Sec. 179D deduction. We can help ensure you jump through all of the necessary hoops and negotiate deals that reflect the value of the deduction.

Sidebar: Do you qualify for cash refunds for tax credits?

In addition to expanding availability of the IRS Section 179D tax deduction (see main article), the Inflation Reduction Act makes another major change to energy-related tax incentives that could help nonprofits save money. It allows eligible organizations to receive certain tax credits — which otherwise would be of little use to nonprofits that pay no income tax — as direct payments from the IRS.

Nonprofits now may elect to receive a variety of credits as cash payments, including the following:

Investment Tax Credit,
Production Tax Credit,
Credit for Qualified Commercial Clean Vehicles,
Advanced Manufacturing Production Credit,
Alternative Fuel Refueling Property Credit,
Credit for Carbon Oxide Sequestration,
Zero-Emission Nuclear Power Production Credit,
Credit for Production of Clean Hydrogen,
Clean Fuel Production Credit, and
Advanced Energy Project Credit.

The IRS will make the credit payments after an eligible nonprofit files its return for the applicable year.

Massachusetts’ $1 Billion Tax Relief Package Aims To Create A Positive Impact On The State's Economy

Mon, 13 Nov 2023 17:30:05 GMT

Governor Maura T. Healey recently signed into law Massachusetts' first tax cuts in over 20 years on 10/4/2023. This $1 billion package encompasses several crucial proposals that Governor Healey initially presented in her tax cuts proposal in March. Notably, the expanded Child and Family Tax Credit now stands as the most generous in the nation. Additionally, there are increases to the Rental Deduction, Senior Circuit Breaker Tax Credit, Housing Development Incentive Program (HDIP), and adjustments to the Estate Tax and Short Term Capital Gains, addressing areas where Massachusetts deviates from the norm in the tax code. These changes signify a significant milestone for Massachusetts, fostering a more equitable and progressive tax landscape.

The Conference Committee's plan is to offer responsible tax relief to the residents and businesses of Massachusetts, enhancing the affordability, equity, and competitiveness of the Commonwealth. The anticipated impact for fiscal year 2024 amounts to $561.3 million, with a budget impact of $519.3 million. Upon full implementation in fiscal year 2027, the estimated impact will reach $1.02 billion, with a significant on-budget impact of $969.3 million. These provisions aim to create a positive and transformative impact on the economy and fiscal landscape of Massachusetts.

In a press release given by Governor Healey, provisions of the tax cuts package were shared and included:

Child and Family Tax Credit – Eliminates two-dependent cap and increases credit from $180 per dependent child, disabled adult, or senior to $310 for 2023 and to $440 on a permanent basis, starting in 2024. An estimated 565,000 families will benefit, and this will be the most generous universal child and dependent tax credit in the county.
Earned Income Tax Credit (EITC) – increases credit from 30% to 40% of the federal credit
Estate Tax – increases threshold from $1 million to $2 million with a credit that mitigates cliff effect
Short-Term Capital Gains – reduces rate from 12% to 8.5%
Rental Deduction – increases cap from $3,000 to $4,000
Senior Circuit Breaker Tax Credit – doubles credit, indexed to inflation, which equates to an increase from $1,200 to $2,400
Single Sales Factor – shifts from three-factor apportionment system based on business’s share of sales, payroll, and property to apportionment based solely on sales
Low-Income Housing Tax Credit (LIHTC) – increases annual program cap from $40 million to $60 million
Housing Development Incentive Program (HDIP) – increases annual program cap from $10 million to $57 million in 2023, and thereafter to $30 million annually
Student Loan Repayment Assistance – exempts employer assistance for student loan repayment from taxable income
Dairy Tax Credit – increases annual program cap from $6 million to $8 million
Cider Tax Rate – applies lower tax rates to a broadened class of beverages
Lead Paint Abatement Credit – doubles credit to $3,000 for full abatement and $1,000 for partial abatement
Title V (Septic) Tax Credit – triples maximum credit to $18,000, increases percentage of eligible expenses from 40% to 60%; and allows taxpayers to claim up to $4,000 in any year, versus $1,500 in current law
Deductible Commuter Transit Benefits – adds public transit fares, RTA fares and bicycle expenses to deductible commuter expenses
Apprenticeship Tax Credit – expands eligible occupations
Municipal Affordable Housing Property Tax Exemption – permits municipalities to adopt local property tax exemption for affordable real estate
Property Tax Liability Reduction for Senior Volunteer Services – permits municipalities to increase the maximum property tax abatement available to seniors who perform volunteer services from $1,500 to $2,000
Stabilization Fund Cap – increases the cap on Stabilization Fund deposit from 15% to 25.5% of budgeted revenues

In the upcoming weeks, Governor Healey and Lieutenant Governor Driscoll will embark on a series of visits to communities throughout the state of Massachusetts. Their purpose is to ensure that all residents are well-informed about the forthcoming savings that await them. This Thursday, they will be in Gardner and Haverhill, rejoicing in the tax cuts that will benefit children and families.

For more information about how this bill may affect your tax planning and responsibilities, contact your advisor.

Staying on the Cutting Edge of Finance: Technological Advances and Outsourced Accounting

Thu, 09 Nov 2023 17:17:31 GMT

By: Olivia Calcasola and Samantha Calvao

As a business owner or non-profit executive, maintaining financial affairs is paramount to your long-term success. Knowing what resources are available to your organization and keeping abreast of the innovations in technology can make a significant impact on day-to-day operations, affecting your staff’s daily functions and your bottom line. Technological advances such as cloud-based software and artificial intelligence (AI) have proliferated in recent years as financial service providers find ways to leverage technology to fulfill basic needs and free up staff from data entry and reporting for more strategic work.

Outsourced accounting

Most organizations maintain at least one person on staff responsible for financial management. From bookkeeper to chief financial officer, there are many roles to be met depending on the size of your enterprise. While some businesses exclusively handle accounting in-house, there are many benefits to outsourcing accounting with a financial firm.

Outsourced accounting is when a business hires a third party (outside of their company) to fulfill the accounting and finance function of the organization. Outsourced accountants can handle all or some of their clients’ finance functions including bookkeeping, payroll, financial reports, management accounting, tax, accounts payable, accounts receivable, collections, and other accounting services such as audits and valuations.

Bringing in a third party to handle some or all of the financial management of your organization can offer valuable benefits.

Saving on cost: Hiring an in-house accounting team can become a significant drain on resources, especially for smaller organizations. Every person on staff will include up-front costs for recruiting in addition to the recurring cost of maintaining staff including wages, employer-sponsored benefits and office space and materials.
Saving on time: While quality and meticulous financial management is an essential pillar to every successful endeavor, for most executives, this work takes away time better spent on the vision and purpose of your enterprise. Not to mention, if finances are being handled by an individual whose own expertise is not in finance, even more time than is necessary may be devoted to your financial operations with the best of intentions to ensure sound financial decisions are being made.
Ensuring up-to-date expertise: When your organization is just starting off, outsourcing your accounting can help you get off on the right foot knowing your entity is organized well based on your immediate needs and goals. For established businesses, working with outsourced accounts keeps you current on the latest changes to financial opportunities and requirements. Accounting service providers are continually improving their abilities and certifications to stay competitive in the market and continue to offer value to their clients. Top accounting firms have greater access to training and courses and are continuously discussing new accounting trends. Working with a firm that is dedicated to staying on top of changes to the financial sector allows you peace of mind, knowing you have access to a team of people with a variety of skills and knowledge.

Cloud-based software: automation and easy access

Regardless of whether you have chosen to handle accounting entirely in-house or seek out third-party assistance, your organization may find opportunity for greater efficiency by upgrading to cloud-based accounting.

Cloud accounting allows you and your trusted financial professionals to handle basic accounting tasks like maintaining books using software that saves your data on an offsite server. It can offer flexibility and to-the-minute accuracy that is unrivaled by traditional on-premises systems.

Access from anywhere: Cloud accounting allows you and your team flexibility to access your financial information from anywhere so long as you have an internet connection and proper login credentials. This allows for multiple individuals, staff or outsourced accountants alike, to access and update your financial data from anywhere. As data automatically saves, all users are always viewing the most up to date version of your books.
Data Security: By moving your organization’s financial data to the cloud, your accounts and records are backed up on multiple remote servers, reducing the risk of data loss due to disasters that storage in your onsite servers may entail.
Automation: Allowing users to free up more time for strategic work, cloud-based software have the capability to automate many of the most time consuming and tedious tasks for maintaining the books such as posting transactions to the correct ledger in real time, produce recurring invoices and import bank and credit card transactions.

Automated accounting and the possibilities offered by artificial intelligence

As computer capability rapidly expands, many financial tasks can increasingly be automated without human intervention, from account reconciliation to preparing financial statements. As artificial intelligence (AI) is becoming more advanced, more options are becoming available for financial staff to be freed up to handle more analytic and strategic work. AI has the potential to free up a significant amount of time with the capability to perform quantitative calculations exponentially faster and more accurately than a human. AI may also assist with catching accounting errors and fraud with the ability to seek and find patterns in large datasets that may be difficult to catch with the human eye. As more research and development is created in machine learning, natural language processing, and AI’s application to accounting, we are likely to see a trend toward more and more of the data entry and basic reporting and analysis automated by computer systems, freeing up professionals to focus on creative problem solving and interpretation.

Choosing the right solutions for you

When considering the best financial solutions for your organization there are a variety of factors to take into consideration including the financial costs upfront and long-term as well as potential to integrate into rapidly growing technological efficiencies. It is essential to be aware of what resources and technologies are available as solutions for you right now and consider what your needs are in the present as well as any goals for future growth.

If you’ve been in business for decades, switching your accounting systems may seem overwhelming but can be well worth the time and cost savings to make the transition. Reach out to a trusted financial firm for assistance in finding the solution that will work best for your needs.

Paws for a Cause with MBK

sstack@mbkcpa.com (Sarah Rose Stack) — Tue, 07 Nov 2023 17:39:31 GMT

For the month of October, Francine Murphy & Chelsea Russell held a pet drive to benefit Better Together Dog Rescue located in Belchertown, MA and Berkshire Humane Society l ocated in Pittsfield, MA. Working together and with firm-wide help, we were able to deliver food, toys, treats, and other supplies for dogs & cats to each facility – an entire table full of donations!

To bring some fun & excitement towards the cause, we also held a pet costume contest where MBK employees posted pictures of their pets in their Halloween costumes to share with the firm and any guests who came to the office. Costumes ranged from pumpkins & witches to superhero pups & princesses with a dinosaur and teddy bear in the mix, too! And, let’s not forget about the cowboy cop and coffee & donut costumes!

Better Together Dog Rescue

Our Goals:

Rescue and transport dogs to our location from overcrowded partner shelters.
Engage with the community through adoption and volunteer and fostering opportunities.
Provide resources to the community through our mobile dog food and supply pantry.
Collaborate with local veterinarians for low-cost or free spay/neuter, vaccinations and microchips
Crisis Foster program will provide free temporary housing for dogs of owners who are involved with domestic violence, military active leave, homelessness and sudden medical issues. Give back to our partner shelters to help stop the euthanasia of healthy and adoptable dogs.

Berkshire Humane Society

A private, open-admission animal shelter, Berkshire Humane Society is proud to be The Place for Your Compassion.

Our Mission

Our mission is to ensure the compassionate care, treatment and placement of companion animals, while promoting and improving the welfare of all animals through education and outreach.

Our Vision
Compassionate and responsible care for all animals.

Our Values

Compassion and empathy in all we do
Accountable and transparent in all we do
Respect and dignity for every being without judgement
Excellence in service, advocacy and teamwork

Watch Out for Accumulated Earnings Tax

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 06 Nov 2023 18:51:18 GMT

Corporations have an incentive to retain earnings, rather than distribute them to shareholders, to avoid, or at least delay, double taxation. The accumulated earnings tax (AET) is designed to discourage that practice. If the IRS concludes that a corporation is retaining unreasonably high levels of earnings, then it may assess the AET — a 20% penalty tax on the corporation’s accumulated taxable income.

To determine a corporation’s accumulated taxable income, a CPA takes the corporation’s taxable income, subtracts dividends paid and an accumulated earnings credit, and makes certain other adjustments. The accumulated earnings credit allows corporations to accumulate up to $250,000 in earnings ($150,000 for certain service corporations) without fear of triggering the AET.

If a corporation has accumulated taxable income, the IRS may impose AET if it finds that the corporation is retaining, rather than distributing, earnings beyond the “reasonable needs of the business.” To avoid the tax, a corporation should be prepared to explain and document its need to retain earnings for working capital, business expansion, equipment purchases or other purposes.

Two Emergency Options for Retirement Plan Participants

Mon, 06 Nov 2023 18:47:52 GMT

Obviously, qualified plans such as 401(k)s are meant to help individuals save for retirement in a tax-advantaged manner. But, under dire circumstances, you may have no choice except to tap into your nest egg early.

Doing so may result in additional income tax liability and penalties. However, the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act, which was signed into law in late 2022, provides not one, but two options if you find yourself in an emergency situation.

Background information: Employer-sponsored 401(k) plan

With an employer-sponsored 401(k) plan, participants can defer a percentage of their salaries to a separate account on a pretax basis, subject to annual limits. For 2023, you can sock away as much as $22,500. Even better, if you’re age 50 or older, you can kick in an extra “catch-up contribution” of $7,500, for a grand total of $30,000. SECURE 2.0 adds a special catch-up contribution for employees ages 60 to 63, but this provision won’t take effect until 2025.

To top things off, an employer often adds “matching contributions” on behalf of employees up to a stated percentage of compensation. There’s no tax due on any of the contributions or earnings until withdrawals are made. That usually occurs in retirement when the participant may be in a lower tax bracket.

Note that distributions from a 401(k) account are taxed at ordinary income rates currently reaching as high as 37%. Further, if you make a withdrawal before age 59½, you’re hit with a 10% penalty in addition to the regular tax, unless a special exception applies.

Emergency expenses

SECURE 2.0 provides tax relief to 401(k) participants facing emergency expenses in two possible ways:

Sidecar accounts. Beginning in 2024, employers may allow participants to withdraw funds from a special emergency savings account (ESA). Contributions to the accounts are made on an after-tax basis, meaning that there is no deduction allowed. The maximum annual amount allowed for this “sidecar account” is capped at $2,500 annually. Employees may be automatically enrolled at up to 3% of their compensation, subject to the $2,500 annual cap, though they can opt out.

Participants can take up to one ESA withdrawal per month. Withdrawals are tax-free and penalty-free. Note that contributions to ESAs are eligible for matching contributions just like regular 401(k) deferrals. This means that if a participant is otherwise eligible for a matching contribution, the match won’t be lost simply because the participant is choosing to contribute to the ESA. However, any matching contributions must be made to the regular 401(k) account, not to the ESA.
Unforeseen financial needs. Beginning in 2024, participants can make penalty-free 401(k) plan withdrawals — in addition to the amount of any eligible withdrawals from the ESA — of up to $1,000 per year for unforeseeable or immediate needs for personal or family emergencies. Note that withdrawals from a traditional 401(k) are not free of income tax. The employer can accept the employee’s written certification that such a need exists, but there’s a catch: If you make a withdrawal for this purpose, you may not make another “unforeseen financial need” withdrawal for three years, unless you’ve repaid the amount that was previously withdrawn. Keep in mind, also, that though these withdrawals are not subject to a penalty, they are, unlike the withdrawals from the sidecar account mentioned above, subject to any income tax that would otherwise apply.

Get ready

If you participate in your employer’s qualified retirement plan, SECURE 2.0 provides the comfort of knowing that you’ll soon be able to access funds in an emergency without being penalized by the IRS. For more information about either option, contact your CPA.

The Massachusetts Attorney General is Going Paperless: How to File Your Forms Online

Fri, 27 Oct 2023 15:14:51 GMT

Submitting Annual Filings

Charities with an AG Number must now prepare and submit their annual filings (Form PC and attachments) through the AGO's online Charity Portal. The process involves creating a free Charity Portal account, which is linked to individual email addresses. Filers will then use their accounts to complete the online Form PC, provide electronic signatures, and make necessary payments. For those organizations using a CPA firm to prepare their annual filings, the preparation of the MA PC will need to be coordinated with them as they can no longer use their tax software to satisfy the annual filing.

What Can You Do with the Online Charity Portal?

Initial Charity Registration: First-time registrants can use the portal to submit their initial charity registration electronically.
Annual Filings (Forms PC): Charities are required to submit their Annual Filings, including Forms PC and any necessary attachments, through the portal. These filings are due 4.5 months after the charity's fiscal year end; an automatic 6 month extension is available for organizations that are in compliance with the MA AGO.
Payments: The portal also facilitates payments for both initial charity registration and annual filings.
PDF Document Submission: Charities can upload through the portal PDFs of certain documents such as financial statements (if required), address updates and revised governing documents.
Note: The portal does not interact with existing tax software so information that could potentially be automatically pulled from the 990 is not an option and must be re-entered or separately uploaded where appropriate.
A draft of the MA PC annual filing can be saved and can be shared for others to review.
The MA PC can now be electronically signed via the portal which will make completing this step much easier to coordinate.

It's important to note that starting from September 1, 2023, the AGO will exclusively accept charitable registration and annual filings through the Charity Portal, discontinuing the acceptance of paper submissions.

What Cannot Be Submitted via the Online Charity Portal?

Certain types of filings and requests should be sent via email to the designated addresses:

Fundraiser Filings: Send these via email to professionalfundraiser@mass.gov
Dissolution Requests: Forward dissolution requests to charities@mass.gov
Notices of Asset Disposition: Notices like 8A(c) Notices and Beede Notices should also be sent to charities@mass.gov
Probate Notices: For probate notices, use charitiesprobate@mass.gov

Getting Started on the Online Charity Portal

To get started with the Online Charity Portal, new users can refer to the provided resources:

Access the Charity Portal here .
Refer to the Charity Portal instruction manual here .
Read the FAQ document here.

Additionally, there are short training videos available to support users in navigating the portal, covering various aspects like submitting a charity registration, creating an account, starting a Form PC, obtaining signatures, and making payments. If you still require assistance after reviewing these resources, you can contact CharitiesPortal@mass.gov for further guidance.

Registering with the AGO for the First Time

Organizations that have never filed with the Attorney General's Office and do not have an assigned Attorney General Account Number (AG Number) can follow these steps:

Submit the Registration eForm, available here.
Upload supporting documents such as Articles of Organization or Trust Instrument, Bylaws, and an IRS determination letter (if available).
Await an email reply from the AGO, which will contain your AG Number if the registration is approved.
Follow the emailed instructions to finalize your registration and make any required payments through the Charity Portal.

Once your registration is complete, you will receive a Certificate of Solicitation if requested.

In conclusion, paper filing of the MA PC is no longer allowed as of September 1, 2023. Instead, all charitable submissions must be made through the MA AGO portal, marking a transition away from paper-based submissions. The switch to online filing will most likely take longer in this initial year as organizations and CPA firms learn to navigate this new portal system and all it entails.

Understanding Internal Controls: Why Nonprofits Need Both Preventative and Detective Policies

Mon, 23 Oct 2023 18:54:07 GMT

The median loss for nonprofits that fell victim to fraud was $60,000, according to the Association of Certified Fraud Examiners’ (ACFE) Occupational Fraud 2022: A Report to the Nations . The average loss for nonprofits was $851,000. Such losses could prove devastating for many organizations. But with strong internal controls to prevent and detect fraudulent activity, organizations can reduce this risk.

4 critical measures

Segregation of duties. No individual should have control over more than one phase of a financial transaction or function. That means individuals with access to assets shouldn’t be responsible for accounting for those assets. Nor should an individual have the ability to both initiate and approve a transaction, such as paying a vendor invoice. Don’t let staff members who receive checks also deposit them. Finally, don’t allow employees who write checks then also be responsible for reconciling monthly bank statements.

Segregation of duties is among the most vital of internal controls. But it can be challenging to segregate duties for nonprofits with few staff or that have shifted to remote work arrangements. Consider assigning some duties to board members and trusted volunteers and/or consider outsourcing functions such as payroll and accounts payable. Also consider using cloud solutions to overcome hurdles related to employees working remotely.
Controls over credit cards. Credit cards have become increasingly common in nonprofits, but they come with the risk of unauthorized usage. If you find it necessary to give credit cards to employees, board members or volunteers, take steps to reduce related risks. Start by limiting the number of cards in use.
Require a receipt for each purchase, along with documentation of the business purpose. Require someone who isn’t an authorized card user to scrutinize card statements and supporting documentation every month for unusual or questionable activity. Depending on the issuer, you may be able to set limits on the types or amounts of purchases. It’s also advisable to enforce real consequences for unauthorized usage, such as revoking card privileges or termination.
Regular financial statement reviews. It’s customary for nonprofit boards or audit committees to review financial statements annually or semi-annually. But the ACFE study confirms that the longer fraud goes undetected, the greater the financial loss for the victim organization.
Your organization’s leaders should review financial statements at least quarterly, if not monthly. They should also receive regular budget reports, showing variances between budget and actual figures, as significant variations can indicate potential fraud.
Job rotation/mandatory vacation. According to the ACFE study, job rotation/mandatory vacation is associated with at least a 50% reduction in the median loss and median duration of fraud schemes. Not surprisingly, unwillingness to share duties and refusal to take vacation are some of the red flags for fraud schemes.
For example, scams involving receivables often require perpetrators to be in the office to cover their tracks. So rotating job duties and requiring employees to take regular vacations can act as both a preventative and a detective control.

Level of internal controls may vary

Beyond internal controls

Motive. This sometimes is referred to as “pressure.” The pressure could be professional — for example, a perpetrator might fudge some numbers due to pressure from management or the board to meet certain growth targets. It also may be personal, such as the need to maintain a high standard of living or pay off debt from credit cards, medical bills, gambling or some other addiction.

Rationalization. Fraud perpetrators must be able to rationalize or justify their misconduct to themselves. Most people who commit occupational fraud are first-time offenders who don’t consider themselves criminals, just people caught up in circumstances they can’t control. They might make unauthorized credit card charges thinking, “I’ll pay it back later,” or record overtime hours they didn’t actually work, reasoning “Everyone else does it, why shouldn’t I?”

How to increase flexibility when using Flexible Spending Accounts

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 23 Oct 2023 14:48:17 GMT

Do you have a Flexible Spending Account (FSA) you use to pay health care or dependent care expenses? Typically, you have to empty the account before the end of the year or forfeit any remaining funds. But your employer may provide one of two ways to avoid this “use-it-or-lose-it” rule.

How they work

Generally, you can contribute to an FSA on a pretax basis through regular withholding of pay. As a result, you save both income taxes and payroll taxes. In addition, your employer saves on its share of payroll taxes. An FSA can be set up for health care or dependent care expenses, as follows:

Health care . This type of account generally may be used to pay for expenses that would qualify as deductible medical expenses, such as doctor and dentist visits and prescription drugs. The annual contribution limit of $2,500 is inflation-indexed to $3,050 for 2023.

Dependent care. The funds in this type of account may be used to pay qualified expenses associated with caring for under-age-13 children or dependents who are physically or mentally incapable of self-care. Dependent care FSA funds can be used to cover costs for day care centers, nursery schools, babysitters and summer day camp (but not overnight camp). The annual limit for contributions, which isn’t indexed for inflation, is $5,000.

With either type of FSA, if you make withdrawals from the account to pay for qualified expenses, the distributions are exempt from tax.

What has changed

In the past, you had to forfeit all the funds remaining in your account at year end — with no exceptions. This was often difficult to manage due to the unpredictable nature of health care and dependent care expenses. But the use-it-or-lose-it rule has been relaxed. Employers now may offer one of two choices to FSA participants:

Grace period. An employer can provide participating employees with a 2½-month grace period. In other words, employees have until March 15, 2024, for the 2023 plan year to use any remaining funds in an FSA. If an amount still remains after the grace period ends, it’s forfeited.
Carryover of funds. Alternatively, an employer may allow FSA participants to carry over up to $500 of unused funds to the next year. This amount is indexed to $610 in 2023. Accordingly, any amount above the $610 limit is forfeited. For example, if you had $1,000 left in the account, you would lose $390.

It’s important to note that employers can offer the grace period or the carryover. But they can’t offer both options.

Take full advantage

Size up your personal situation to make sure you take full advantage of either the grace period or carryover if your employer allows it. Otherwise, do your best to drain your account before January 1. For example, you might schedule a dental cleaning or physical exam in December that can be paid for with FSA dollars.

MBK's Link to Libraries Day at the Firm

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 05 Oct 2023 19:58:17 GMT

MBK recently collaborated with Link to Libraries (LTL) to partake in a dedicated day aimed at fostering a love for reading among young children. The event, appropriately named "Link to Libraries Day," united MBK staff members who undertook the mission of collecting and preparing books for local children's home libraries.

Link to Libraries is an organization deeply committed to enhancing literacy rates and promoting access to books for children. Their "Reading Any Place" (RAP) program centers on providing books to young readers, guided by the belief that every child deserves the opportunity to explore the world through literature. With a mission to cultivate a lifelong passion for reading, LTL operates across Massachusetts and Connecticut, making a positive impact on numerous young lives.

The collaboration between MBK and LTL commenced with a visit to the Link to Libraries warehouse, where the team meticulously curated a substantial collection of books. These carefully selected books, tailored to engage young readers, were intended to grace the home libraries of local children.

The dedicated MBK team, including Sandy, Danny, Mia, Fran, Peter, Chris, and Karen, affixed Link to Libraries labels on each book. This not only identified the books as part of the LTL program but also added a personal touch, indicating they were thoughtfully chosen for young readers. The team successfully unpacked and labeled six boxes of books, totaling approximately 800. Each book was carefully prepared to bring joy and knowledge to young book enthusiasts. Finally, Chelsea graciously delivered the labeled books to Link to Libraries in the afternoon. This initiative ensures that local children, who may have lacked access to a diverse collection, can now benefit from these invaluable resources.

MBK's commitment to fostering a reading culture aligns with Link to Libraries' values of community engagement and giving back. By participating in Link to Libraries Day, MBK contributed to a meaningful cause and showcased the power of collective action in local communities.The collaboration between MBK and Link to Libraries demonstrates that individuals and businesses can create a ripple effect of positive change in the lives of young children. As these books reach eager readers, the enduring partnership between MBK and Link to Libraries will continue to brighten the futures of numerous local children, one book at a time.

To learn more about Link to Libraries and their impactful programs, visit Link to Libraries Programs and About Link to Libraries .

MBK's Tax and Accounting Internship Program: Preparing Students for the Real World

sstack@mbkcpa.com (Sarah Rose Stack) — Wed, 04 Oct 2023 16:55:28 GMT

As the recruiting season for internships comes into its final weeks, Meyers Brothers Kalicka, P.C. (MBK) is gearing up to welcome its next batch of interns for their Tax and Accounting Internship Program. With an emphasis on hands-on experience and practical training, this paid internship has been a stepping stone for many aspiring accountants and tax professionals.

At MBK, interns are not treated as coffee runners or file organizers. Instead, they are given the opportunity to immerse themselves in the role similar to one of an Associate Level Accountant and learn from experienced professionals in a real-world setting. This unique approach sets MBK's internship program apart from others in the industry and has been a driving force behind its success. The program is designed to provide interns with exposure to all aspects of public accounting, including tax preparation, audit procedures, and client interactions. This well-rounded training not only helps students gain a better understanding of the profession but also prepares them for their future careers.

MBK's commitment to developing future talent is evident in the level of training and job development provided to interns. They are given access to the same resources and opportunities as our Associate level professionals, allowing them to hone their skills and gain valuable experience in a supportive environment. Moreover, the internship program at MBK is not just focused on technical knowledge but also emphasizes soft skills such as communication, teamwork, and time management. These skills are crucial for success in the accounting industry and are often overlooked in traditional internship programs. Many former interns have gone on to become full-time employees at MBK, with some even reaching senior level positions. This speaks volumes about the effectiveness of the program and its ability to prepare students for the real world.

As we head into the final few weeks of recruiting for our Tax and Accounting Internship Program, we are excited to soon welcome a new group of interns who will join us in our mission to provide exceptional client service. We are confident that they will not only benefit from the program but also make meaningful contributions to our firm.

If you are interested in a Spring Tax Internship or a Summer Accounting Internship , get your application in ASAP.

MBK Proudly Announces Successful Peer Review Acceptance by the Massachusetts Peer Review Committee

sstack@mbkcpa.com (Sarah Rose Stack) — Wed, 20 Sep 2023 15:58:47 GMT

Meyers Brothers Kalicka P.C. (MBK) is pleased to share that the Massachusetts Peer Review Committee has accepted the report on our most recent System Review. This accomplishment underscores our commitment to upholding the highest standards of excellence and quality for the assurance services we provide. The acceptance of our peer review report is a testament to the dedication and hard work of our team, and we are excited to detail the significance of this achievement.

Peer Review: A Mark of Professionalism

Peer reviews are an integral part of the accounting profession, serving as a rigorous evaluation process that assesses the quality of an accounting firm's practices and procedures. These reviews are conducted by independent, qualified individuals or firms who are peers within the profession. The primary goal of a peer review is to ensure that the accounting firm is adhering to professional standards and guidelines while maintaining a high level of quality control.

MBK's Commitment to Excellence

At MBK, we have always placed a premium on excellence, ethics, and professionalism. Our commitment to delivering top-notch accounting and financial services is unwavering. The successful acceptance of our peer review report by the Massachusetts Peer Review Committee reaffirms our dedication to these core values.

Key Benefits of Peer Review Acceptance

Credibility: Acceptance of our peer review report by the Massachusetts Peer Review Committee enhances our firm's credibility. Clients, partners, and stakeholders can rely on the fact that our practices meet or exceed industry standards.
Quality Assurance: Peer reviews act as a continuous improvement tool. They help us identify areas where we excel and areas where we can enhance our services, ensuring that our clients receive the best possible support.

Competitive Edge: Successfully passing a peer review sets us apart from competitors. It highlights our dedication to excellence and can attract clients seeking a trustworthy and reliable accounting partner.

The Road Ahead

This achievement reflects our dedication to professionalism, quality, and client satisfaction. As we look to the future, we remain committed to upholding these values and providing the highest level of service to our clients, partners, and the community.

Tax Law Changes Impacting Businesses and Individuals Reporting on Schedule C

Mon, 18 Sep 2023 15:57:10 GMT

by: Daniel Eger and Cindy Gonzalez

In the dynamic landscape of tax laws, staying informed about changes that affect both businesses and individuals reporting their income and expenses on Schedule C is of paramount importance. In recent years, several noteworthy adjustments have been made, significantly impacting the way deductions are calculated, particularly for expenses like Section 179 deductions, bonus depreciation, and meals and entertainment. Here, we delve into these pivotal changes:

Section 179 Deduction Limits

One of the cornerstones of tax planning for businesses has been the Section 179 deduction. This deduction enables businesses to write off the cost of qualifying property and equipment in the year they are placed in service, rather than depreciating them over time. In 2023, the Section 179 deduction limit has been raised to a generous $1,160,100 for property used 50% or more for business purposes. This marks an increase of $80,000 from the previous year (2022). This change empowers businesses to invest in capital assets and equipment while enjoying substantial tax savings.

Meals Deductions

The tax treatment of meals expenses has witnessed a notable transformation, with implications for businesses and individuals alike. During the height of the COVID-19 pandemic in 2021 and 2022, the IRS allowed a temporary 100% deduction for such expenses to provide economic relief and support the struggling hospitality industry. These deductions were permissible based on specific rules, which can be found here .

However, starting in 2023, there has been a shift in the deductibility of meal expenses. Any deductible meal is now subject to a 50% deduction under the guidelines outlined in Publication 463, available here . This change underscores the need for businesses and individuals to carefully document and categorize their expenses and adhere to the new rules governing these deductions.

Interest Rate Changes Effective October 1st, 2023

Starting on October 1st, 2023, significant adjustments will be made to interest rates for tax payments. Corporations will experience a slightly different rate structure than individuals. For overpayments exceeding $10,000, the interest rate on the excess amount will be reduced to 5.5%. In contrast, large corporate underpayments, representing taxes owed but not fully paid, will incur a higher 10% interest rate.

These adjustments in interest rates aim to ensure fairness and compliance within the tax payment system for both individuals and corporations. For detailed information and further reference, please visit the official IRS website.

Changes to Bonus Depreciation

The window of opportunity for fully benefiting from one of the Tax Cuts and Jobs Act's (TCJA) most significant provisions is closing rapidly. This provision allows for a 100% bonus depreciation on a broad range of assets categorized as "qualified property." Initially set to expire at the close of 2019, the TCJA extended these bonus depreciation rules for assets placed in service after September 27, 2017, and before January 1, 2023, increasing the deductible amount to 100%. However, unless there are changes in the law, this bonus percentage is set to gradually decrease over the next few years, ultimately phasing out entirely:

2022: 100%
2023: 80%
2024: 60%
2025: 40%
2026: 20%
2027: 0%

Stay Informed

The evolving landscape of tax laws necessitates vigilant awareness and proactive tax planning for businesses and individuals who report on Schedule C. The changes to Section 179 deductions, the phasing out of bonus depreciation, and the modifications to meals and entertainment deductions can have a significant impact on tax liabilities. As such, seeking guidance from tax professionals and staying informed about these changes is crucial for optimizing tax strategies and ensuring compliance with the latest IRS regulations.

Tax Law Changes and News for Individuals

Mon, 18 Sep 2023 15:50:47 GMT

Authors: Daniel Eger and Cindy Gonzalez

In 2023, several significant adjustments have been made to tax laws that individuals should be aware of. These changes encompass a wide range of topics, from energy credits to retirement contributions, interest rates, and tax brackets. Let's delve into some of the key changes that may impact your financial planning.

Residential Energy Credits

For individuals looking to reduce their environmental footprint and lower their tax liabilities, residential energy credits are worth exploring. These credits aim to incentivize the adoption of clean and energy-efficient technologies in homes. A notable change for 2023 is the Clean Vehicle credits, which are now effective after April 18th. These credits apply to new, used, or commercial vehicles, with qualifying requirements for sellers, dealers, and manufacturers. To learn more about these credits, you can visit the IRS website and review the frequently asked questions provided here .

Interest Rate Changes for 4th Quarter Payments

Starting on October 1st, 2023, significant adjustments will be made to interest rates for tax payments. In cases of overpayments, where individuals have paid more than the amount owed, the interest rate will be set at 8%. In instances of underpayments, where taxes owed have not been fully paid, individuals will be subject to an 8% interest rate. Detailed information can be found on the IRS website .

Retirement Savings Contributions

In an effort to help individuals save for their retirement, the IRS has raised the contribution limits for 401(k) and IRA plans in 2023. If you contribute to a 401(k) or 403(b), you can now put in up to $22,500 a year, an increase from $20,500. Those aged 50 or older can make an additional catch-up contribution of $7,500. Similarly, traditional and Roth IRA contributors can now contribute up to $6,500 (up from $6,000), with an extra $1,000 catch-up contribution available for those aged 50 and older.

Enhanced IRA Contribution Limits

Traditionally, there have always been strict constraints on contributions to both traditional and Roth IRAs. For the majority of individuals, the contribution ceiling stood at $6,000. However, for those aged 50 and above, there was the opportunity to contribute an additional $1,000 as catch-up contributions, bringing the total to $7,000.

The exciting news for 2023 is a boost in these limits by $500, allowing Americans to now contribute up to $6,500 to their IRA. For individuals aged 50 and older, this figure escalates to $7,500.

Increased Contributions to Employer-Sponsored Retirement Plans

Following a similar upward trajectory, the contribution limits for employer-sponsored retirement plans have also experienced a positive adjustment. In 2022, the threshold for employee contributions stood at $20,500. However, in 2023, this limit has risen by $2,000, providing a new maximum of $22,500. For those eligible for catch-up contributions, the prospects for bolstering retirement savings have become even more enticing, with an elevated contribution limit of $30,000.

It's important to note that if you participate in multiple workplace retirement plans, the limitations encompass all salary deferrals and total contributions across these plans. Contributions made to other types of accounts, such as an IRA, remain separate and do not impact these thresholds. These enhanced contribution limits offer individuals and employees greater flexibility and opportunities to secure their financial future.

Health Savings Account (HSA) Contribution Limits

Health Savings Accounts (HSAs) have become increasingly popular for managing medical expenses and as an investment vehicle. In 2023, individuals will be allowed to contribute an additional $200 per year to their HSAs, raising the maximum contribution limit to $3,850. For families, the threshold for coverage will also increase by $450, reaching a maximum of $7,750 for the fiscal year. Keep in mind that you must meet the minimum deductibles to qualify for an HSA plan, which are $1,500 for individuals and $3,000 for families.

Tax Brackets for 2023

Lastly, it's essential to be aware of the changes in tax brackets for 2023. While there are still seven tax rates ranging from 10% to 37%, the income thresholds for these brackets have been adjusted upward by about 7% from 2022. This adjustment reflects the impact of record-high inflation, potentially placing some individuals in a lower tax bracket than in previous years.

These changes underscore the importance of staying informed about tax law updates to make informed financial decisions and optimize your tax planning strategy. Be sure to consult with a tax professional or financial advisor to understand how these changes may affect your unique financial situation.

MBK honored as Regional Leader in Accounting Today

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 11 Sep 2023 20:04:37 GMT

Holyoke, MA – Meyers Brothers Kalicka, P.C. has been recognized as a regional leader in the Accounting Today’s Top 100 Listing.

Each year, Accounting Today conducts a comprehensive assessment of the largest practices in tax and accounting across ten major geographic regions in the United States. Leveraging a plethora of benchmarking data, they meticulously evaluate firms' growth strategies, service offerings, and specialized client niches. Meyers Brothers Kalicka, P.C. earned distinction as a top-tier firm within the New England region.

James Krupienski, CPA , a Partner at the firm, shared his profound commitment to Western Massachusetts, emphasizing, "MBK remains unwaveringly dedicated to unlocking the full potential of Western Massachusetts. We take immense pride in seeing our local dedication acknowledged on a national level. Our devoted team consistently excels in delivering exceptional service to our clients, all the while offering invaluable resources and invaluable insights to local business leaders and decision-makers. Our connection to the local community is important to us; it holds significant value, making us even better at what we do for our clients”.

Meyers Brothers Kalicka, P.C. stands as the largest independently owned and operated CPA firm in Western Massachusetts. As a member of CPAmerica, one of the world's largest networks of independent CPA and consulting firms, they offer a spectrum of services encompassing business strategy expertise, tax, and accounting services. Their primary focus lies in serving closely held businesses and high net worth individuals, with notable concentrations in sectors such as healthcare, employee benefits, real estate, construction, manufacturing, and not-for-profit organizations.

Hiring Bookkeepers for Your Company: The Key to Financial Success

sstack@mbkcpa.com (Sarah Rose Stack) — Wed, 06 Sep 2023 15:37:05 GMT

Hiring bookkeepers for your company is a pivotal decision that can significantly impact your financial stability, compliance with regulations, and overall business success. These professionals play a crucial role in managing your financial records, enabling informed decision-making, and ensuring your company's long-term prosperity. In this article, we'll explore the importance of hiring bookkeepers and offer guidance on finding the right fit for your organization.

The Role of a Bookkeeper:

A bookkeeper's primary responsibility is to maintain accurate financial records, track income and expenses, reconcile accounts, and produce financial reports. They are the guardians of your financial data, ensuring it is organized, up-to-date, and compliant with tax regulations. Here's why their role is so vital:

Financial Clarity: Bookkeepers provide real-time insights into your company's financial health, helping you make informed decisions and plan for the future. 
Compliance: They ensure your financial records adhere to tax laws and regulations, reducing the risk of audits or penalties. 
Time Savings: By handling routine financial tasks, bookkeepers free up your time to focus on core business activities. 
Cost Efficiency: Mistakes in financial management can be costly. A skilled bookkeeper helps prevent errors that could result in financial losses.

Steps to Hiring the Right Bookkeeper:

Define Your Needs: Begin by determining what specific tasks and responsibilities you want your bookkeeper to handle. Clarify whether you need someone with industry-specific expertise or proficiency in particular software. 
Create a Detailed Job Description: Develop a comprehensive job description outlining the qualifications, responsibilities, and expectations for the role. Be clear about the level of experience and educational background required. 
Recruitment Channels: Utilize job boards, professional networks, and recruitment agencies to find potential candidates. Seek referrals from colleagues, as word-of-mouth recommendations can lead to highly qualified individuals. 
Resume Screening: Carefully review resumes and applications, looking for relevant education, certifications, and experience in bookkeeping and financial management.

Structured Interviews: Conduct structured interviews to assess technical skills, problem-solving abilities, and compatibility with your company culture. Ask candidates about their familiarity with accounting software and their approach to handling financial challenges. (See below for suggested questions to ask during the interview)
Reference Checks: Contact references provided by the candidates to gain insights into their work ethic, reliability, and performance in previous roles. This step can validate the information on their resumes. 
Work Samples or Tests: Consider asking candidates to complete a bookkeeping-related task or provide work samples to evaluate their practical skills. 
Cultural Fit: Assess whether the candidate aligns with your company's values and culture. A bookkeeper who shares your company's vision is more likely to contribute positively. 
Continuous Learning: Look for candidates committed to staying updated on changes in accounting practices and tax regulations. Continuous learning ensures your bookkeeper remains effective and compliant. 
Compensation and Benefits: Offer a competitive compensation package to attract top talent. Consider benefits such as health insurance, retirement plans, and professional development opportunities. 
Onboarding and Training: After hiring, provide thorough onboarding and training to familiarize the new bookkeeper with your company's processes and expectations.

Interview Questions to Assess Expertise and Knowledge:

Interviewing potential bookkeepers is a critical step in the process of selecting the right financial professional for your organization. The questions you ask during the interview can provide invaluable insights into a candidate's qualifications, expertise, and fit for the role. In this section, we will guide you through the art of asking the right questions to assess a bookkeeper's knowledge, skills, and suitability for your specific financial needs. By crafting thoughtful and targeted inquiries, you can uncover the candidates who not only possess the technical proficiency required but also align with your company's values and goals, ultimately ensuring a harmonious and productive partnership in managing your financial affairs.

General Accounting Knowledge:

Can you explain the basic principles of accounting?
What accounting software are you proficient in?
How do you ensure accuracy and completeness in financial records?

Financial Statements:

Can you describe the components of a balance sheet?
What is the purpose of an income statement (profit and loss statement)?
How are cash flow statements used in financial analysis?

Bookkeeping Software:

Which bookkeeping software have you used in the past, and how proficient are you with them (e.g., QuickBooks, Xero, FreshBooks)?
Have you worked with cloud-based accounting software, and what are its advantages?

Bank Reconciliation:

How do you reconcile bank statements with company records?
What steps do you take when you discover discrepancies in bank reconciliations?

Accounts Payable and Receivable:

Can you explain the accounts payable process, from invoice receipt to payment?
How do you manage accounts receivable, including following up on overdue invoices?

Taxation and Compliance:

What is your understanding of tax regulations related to the industry or business you're applying to?
How do you ensure compliance with tax laws and regulations in your bookkeeping activities?

Financial Reporting:

How often should financial reports be generated, and what information should they include?
Have you prepared financial reports for management or external stakeholders, and if so, what kind?

Record-Keeping and Documentation:

What methods do you use to maintain organized financial records and documentation?
How do you ensure the security and confidentiality of financial data?

Problem-Solving:

Can you describe a challenging bookkeeping issue you've encountered in a previous role and how you resolved it?
How do you handle discrepancies or errors in financial records?

Communication Skills:

How do you communicate financial information to non-financial team members or clients?
Can you provide an example of a time when you effectively explained financial data to someone without a financial background?

Continuous Learning:

How do you stay updated with changes in accounting standards, tax laws, and financial regulations?
Have you pursued any additional certifications or training in accounting or bookkeeping?

Teamwork and Collaboration:

How do you collaborate with other departments (e.g., sales, operations) to ensure accurate financial records?
Can you describe your experience working as part of a finance or accounting team?

Time Management and Prioritization:

How do you manage multiple tasks and deadlines in a fast-paced environment?
Can you provide an example of a time when you had to prioritize urgent financial tasks?

Accuracy and Attention to Detail:

How do you ensure the accuracy and completeness of financial data and reports?
What methods or tools do you use to catch errors in your work?

Conclusion:

Hiring a bookkeeper is an investment in your company's financial stability and future growth. These professionals are the backbone of your financial operations, providing essential support to help your business thrive. By following a systematic hiring process and seeking candidates with the right skills, experience, and cultural fit, you can ensure that your bookkeeper becomes a valuable asset to your organization.

Supporting Students This Fall: MBK Stuffs the Bus

sstack@mbkcpa.com (Sarah Rose Stack) — Tue, 22 Aug 2023 17:36:22 GMT

As the back-to-school season approaches, many students and families eagerly prepare for the upcoming academic year. However, for some, the burden of acquiring essential school supplies can pose a significant challenge. MBK teamed up with United Way of Pioneer Valley to help "Stuff the Bus" and bring school supplies to students who are homeless or in need.

Stuff the Bus aims to alleviate the financial strain on families by ensuring that every student has access to the tools they need to succeed in their studies. The event's highlights showcase the remarkable commitment and dedication of the community to supporting education and the future success of students.

Overflowing Generosity

Stuff the Bus, led by team leaders Matt Nash and Chris Soderberg, garnered an overflowing table of physical donations and also raised a significant amount of funds. A total of $375 was collected, which was strategically allocated to purchase 350 items from Staples. This approach ensured that the donated funds were utilized efficiently to obtain a diverse range of school supplies, from notebooks and pens to calculators and backpacks. The list of items was designed to cater to the specific needs of students across different grade levels.

Gratitude in Action: Filling the Gap

Chris and Olivia delivered the collected school supplies to United Way Pioneer Valley (UWPV), on behalf of MBK. The UWPV team expressed their sincere gratitude for the donation, recognizing the significant impact it would have on students' lives as they embark on a new school year.

The fundraiser's success yielded a surplus of donated school supplies beyond what was initially anticipated. Rather than letting these resources go to waste, MBK is committed to help distribute the surplus supplies to schools and families in need, ensuring that the generosity of the community extended far beyond the event itself. Congratulations to Matt, Chris and the entire team at MBK for their efforts to support students in Western Massachusetts.

About United Way of Pioneer Valley's Stuff the Bus:

"Stuff the Bus is our annual program to bring school supplies to students who are homeless. We work with every public school district in Hampden County, South Hadley, and Granby to make sure all youth in need receive a backpack filled with all the supplies they need for the school year. For the upcoming school year, we expect to donate roughly 1400 backpacks holding pencils, paper, pens, art supplies, and more. We are glad to accept donations of school supplies for the backpacks, and they can be provided at these locations":

Main office:
1441 Main Street, Suite 147, Springfield, MA 01103

Chicopee Cupboard:
2 26 Exchange Street, Chicopee, MA 01013
Tuesdays, 9am-12pm
Wednesdays, 3:30-5:30pm
Thursdays, 11am-1pm

Priority items:

Notebooks, composition books, notebook filler paper, index cards, crayons, erasers, pencil sharpeners, and highlighters.

Other items:

• Colored Pencils

• Crayons

• Markers

• Highlighters

• Glue sticks

• Hand held pencil sharpeners

• Pencil cases

• Composition books

• Three ring binders (1”)

• Loose leaf notebook paper

• Index cards

• Pocket folders

• Spiral Notebooks

• Rulers

• Pencil top erasers

Honoring Longevity and Excellence: Summer 2023

sstack@mbkcpa.com (Sarah Rose Stack) — Tue, 15 Aug 2023 19:37:54 GMT

Congratulating Our Employees on Their Work Anniversaries: Summer 2023

We would like to extend our warmest congratulations to our employees who are celebrating work anniversaries in Summer 2023. Your commitment and dedication to MBK have been invaluable, and your hard work does not go unnoticed. Meyers Brothers Kalicka, P.C. recognizes that at the core of our ability to implement on our mission and vision, is our people. The contributions from our employees enable us to better serve our clients, our community and each other. We celebrate your loyalty, diligence, and enthusiasm for contributing to the success of the firm!

Joanne: 36 years with MBK

Joanne, who has been with Meyers Brothers Kalicka, P.C. since 1987, focuses on employee benefit plan audits, audits, compilations and reviews. She is a member of the Massachusetts Society of Certified Public Accountants. Joanne holds a bachelor’s degree in business management/accounting from Westfield State University. Joanne serves as Treasurer of Twin Oaks Condominium Association and is past treasurer of the Springfield Boys and Girls' Club Family Center.

Howard: 35 years with MBK

Howard leads the Firm’s accounting and auditing practice with over 30 years of experience in the public accounting profession. He also serves as the Firm’s liaison with the Government Audit Quality Center at the American Institute of Certified Public Accountants (AICPA). Howard is the partner in charge of the Firm’s accounting and auditing division. Howard’s professional style draws on a work ethic instilled at a young age, experience as a manager and Director in MBK’s largest division, and a genuine interest in and concern for his clients’ businesses. A good listener with an unerringly calm demeanor, Howard makes clients’ concerns his own and works in partnership with them to address issues that are broader than simple debits and credits. Read More about Howard .

Donna: 35 years with MBK

Donna, who has been with MBK since 1988, focuses on not-for-profit, HUD and real estate entities, audits, compilation and review. A CPA licensed in Massachusetts, she is a member of the Massachusetts Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Donna holds a B.A. in Business Administration from Westfield State University. Donna serves as a board member and treasurer of Martin Luther King Jr. Family Services.

Rudy: 28 years with MBK

Rudy is an accomplished CPA with a wealth of financial skill and experience, but what Rudy brings to the table doesn’t end with financial statements and tax returns. Clients get real value from their relationship with Rudy when they turn to him for guidance on planning and business strategy. Rudy helps organizations by listening, understanding needs and using every available resource to help clients overcome obstacles and recognize and seize opportunities. Read more about Rudy.

Joe: 26 years with MBK

Joe, who has been with MBK since 1999, focuses on employee benefits, audits, compilation and review. A CPA licensed in Massachusetts, he is a member of the Massachusetts Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Joe holds a B.S. in Business Administration from Western New England College

Terri: 23 years with MBK

Terri, who has been with MBK since 2000, focuses on tax research and fiduciary taxation (trusts and estates). A CPA licensed in Massachusetts, she is a member of the Massachusetts Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Terri holds a B.S. in Business Administration from Westfield State University and an M.S. in Taxation from the University of Hartford.

Matt: 12 years with MBK

Matt has been with Meyers Brothers Kalicka, P.C. since 2011 and focuses on audit, review and compilation engagements. He is a key leader on the Commercial, Not-for-Profit Audit, and Pension engagement teams. Matt is presently a senior manager leading engagement teams on a day-to-day basis, working directly with clients ensuring the approach is accomplished in an efficient manner.

Matt holds a Bachelor of Science in Business Administration from Nichols College and a Master of Business Administration from Elms College. He is a member of the American Institute of Certified Public Accountants (AICPA) and Massachusetts Society of Certified Public Accountants (MSCPA) and has been a certified public accountant in Massachusetts for the past three years. Matt is a board member and Treasurer for Springfield School Volunteers where he also serves on the investment and finance committee. He is also a Ronald McDonald House Golf Tournament committee member.

Chelsea: 7 years with MBK

Chelsea began her career with Meyers Brothers Kalicka, P.C. as an intern in 2015 and has been working full time in the Accounting and Audit Department since June 2016. In her role as Manager, Chelsea is a key player in the Accounting and Auditing department and primarily focuses on Not-for-Profit, Commercial, and Employee Benefit Plan engagements.

She received a Bachelor’s in Accounting from Westfield State University and her Master of Science in accounting from Bay Path University. Chelsea is licensed as a certified public accountant in Massachusetts. Chelsea is a member of the Massachusetts Society of Certified Public Accountants (MassCPA’s) and the American Institute of Certified Public Accountants (AICPA). She also co-leads the firm’s community outreach program.

Briana: 5 years with MBK

Briana started working at Meyers Brothers Kalicka, P.C. in 2018. As a member of the firm’s audit department, she works on employee benefit plans, not-for-profits, HUD, and commercial engagements. She prides herself in providing exceptional customer service to clients. She states, “I always make it a priority to be available for questions and be responsive by offering solutions to help our clients’ organizations succeed.”

Briana holds a Bachelor of Science in Business Administration and Master of Science in Accounting from Nichols College. She is a member of the Massachusetts Society of Certified Public Accountants and the American Institute of Certified Public Accountants.

Corey: 4 years with MBK

Corey joined Meyers Brothers Kalicka, P.C. in 2019 after spending five years as a public accountant in New York. She is a leader within our NFP division, working primarily on audits of Not-for-Profit organizations and multifamily housing entities.

Corey received her Master of Science in Accounting from the University at Albany and her Bachelor of Science from The College of Saint Rose in Albany. She is a member of the American Institute of Certified Public Accountants (AICPA) as well as the Massachusetts Society of Certified Public Accountants (MSCPA) and is a certified public accountant in the states of Massachusetts and New York. She is also a member of the Massachusetts Society of Certified Public Accountants and the American Institute of Certified Public Accountants.

Mallory: 3 years with MBK

Mallory began her career with Meyers Brothers Kalicka, P.C. as an intern in January 2020 and has been working full time as an accounting and audit associate since July 2020. In her role as an associate, Mallory works on a diverse range of engagements including not-for-profit, commercial, review and compilation, and employee benefit plan engagements. She believes that friendly and timely communication is essential to providing quality customer service.

Mallory is a member of the American Institute of Certified Public Accountants (AICPA) and the Massachusetts Society of Certified Public Accountants (MSCPA). She received a Bachelor of Business Administration in Accounting from the University of Massachusetts, Amherst and is currently studying for her Masters of Business Administration at the University of Massachusetts, Lowell.

Danny: 2 years with MBK

Danny Krasin is a member of the accounting and audit department at Meyers Brothers Kalicka, P.C. (MBK). Danny started his career in private accounting and transitioned to public accounting in 2018. In his role as an associate, Danny will focus on a vast array of audit engagements including not-for-profit, commercial, employee benefit plans, and HUD engagements. His approach to customer service is to exceed client expectations by listening closely to their problems and needs to find the best possible solution to efficiently solve their problems and ensure happiness with our service. Danny received his bachelor’s degree in accounting from American International College in 2015 and his Master of Science in Accounting with a concentration in Taxation from Southern New Hampshire University in 2019.

Colleen: 1 year with MBK

Colleen has practiced public accounting since 1989 and holds valuable experience in both public accounting and corporate firms. She brings practical solutions and a commonsense approach to her work and seeks to develop relationship with each of her clients while ensuring timely responses to her clients’ needs. Colleen holds a bachelor’s degree from American International College and sits on the Board of Directors of the Colburn Keenan Foundation. Colleen resides in Granville and enjoys spending her free time gardening or exercising while listening to an audio book.

Christine: 1 year with MBK

Chris joined Meyers Brothers Kalicka, P.C. (MBK) in 2022 with over 25 years of experience in general accounting, cost accounting, auditing and tax in both public accounting and corporate firms. Her experience has made her a strategic partner in helping companies grow and developing solutions to the challenges they face. She seeks to understand and exceed each client’s expectations to ensure every client receives the service they deserve. Chris holds a Master of Science in Accounting from Northern Illinois University and is a certified public accountant in the state of Massachusetts. She is a member of the American Institute of Certified Public Accountants (AICPA) and the Massachusetts Society of Certified Public Accountants (MSCPA). Chris enjoys spending her free time hiking and traveling with her husband and three sons.

Taylor: 1 year with MBK

Taylor is an associate at Meyers Brothers Kalicka, P.C. (MBK) in the audit and accounting department. She has worked in public accounting since January 2021 working mainly with individual tax returns. She looks forward to expanding her experience as an audit associate. Taylor treats clients and colleagues with respect and strives to be as helpful as possible in her role on the team. She holds a Bachelor of Business Administration, concentrating in Accounting. When she is not at work, she enjoys outdoor activities, such as kayaking, hiking, and sightseeing. She resides in Chicopee, MA with her parents and two sisters.

Nick: 1 year with MBK

Nick Mishol is a member of the audit and accounting department at Meyers Brothers Kalicka, P.C. (MBK). He recognizes the most important aspects to a client relationship are communication and the willingness to listen, be transparent, and be persistent. It is necessary to understand the expectations coming from both sides of the relationship while maintaining communication and being comfortable reaching out to one another. Nick received his Bachelor of Business Administration in Accounting from the Isenberg School of Management at University of Massachusetts, Amherst and holds an Associate in Science of Business Administration from Holyoke Community College. Nick has practiced public accounting since June 2022. Having recently graduated, he looks forward to apply his teamwork and competitive spirit acquired from an athletic upbringing with a large family to his work, seeking to provide his best work at all times alongside his colleagues and clients. Nick resides in Longmeadow, MA with his siblings and parents.

Olivia Freeman: 1 year with MBK

Olivia joined Meyers Brothers Kalicka, P.C. (MBK) as an administrative assistant in 2022. She brings an attitude of efficiency, hard work, ambition and care to the team at MBK, seeking to make clients feel comfortable and cared for by the firm. Residing in Longmeadow, in her free time, she enjoys spending quality time with family and friends, being active, and trying out new foods!

A Bed for Every Child: Making Dreams Come True For Kids in Massachusetts

sstack@mbkcpa.com (Sarah Rose Stack) — Tue, 01 Aug 2023 19:52:04 GMT

In a world where far too many children go without a fundamental need like a proper bed to sleep on, a group of compassionate individuals came together to make a real difference in the lives of those less fortunate. We want to extend our heartfelt congratulations to Chelsea, Dan, Colleen, Carolyn, Fran, Lauren, Chris, Danny, and Joanne for their incredible participation in the "A Bed for Every Child" community service initiative. Their selfless efforts and determination have made a significant impact on the lives of children in need.

About The Organization:

The "A Bed for Every Child" initiative, launched in 2012 by the Massachusetts Coalition for the Homeless, embodies a mission that resonates with the essence of human compassion. It firmly believes that sleep is as vital as food, water, shelter, and clothing, and every child deserves a safe space to dream. By fostering a hands-on approach to team building, this initiative collaborates with businesses, schools, and community organizations to build beds for underprivileged children.

Over the past year, the statistics of sleeping arrangements for children who have received beds through this initiative are both alarming and heartbreaking. Hundreds of children were forced to share beds with siblings or sleep with their parents and caretakers, depriving them of the space and comfort they deserve. Many toddlers were in dire need of a bed to facilitate a smooth transition into the next phase of their lives. Others were left with no choice but to sleep on couches, floors without mattresses, broken mattresses, or even air mattresses. The harsh reality for some was the unfortunate presence of bed bugs, necessitating the disposal of their already inadequate mattresses.

More Specifically, last year, A Bed for Every Child provided nearly 2000 children with brand new twin beds and other materials.

431 Children were sharing a bed with a sibling.
378 Children were sleeping with their parents/caretakers.
489 Toddlers needed a bed to transition into.
213 Children were sleeping on a couch night after night.
172 Children were sleeping on the floor without a mattress.
122 Children were sleeping on an air mattress.
61 Children were sleeping on a broken mattress.
58 Children were experiencing bed bugs and their mattresses had to be disposed of.

Due to the generosity and support of so many, families have been given access to this life-changing resource. Congratulations to the team for their dedication to build 5 beds and donate an additional 5 bed kits. If you would like to learn more about how to help or request a bed from this nonprofit organization in Massachusetts, visit their website: www.abedforeverychild.org

Update: Supply Chain Disruption and the Employee Retention Tax Credit

Fri, 28 Jul 2023 16:19:12 GMT

The IRS Office of Chief Counsel has issued a memorandum to clarify the potential applicability of the Employee Retention Tax Credit (ERTC) to businesses that navigated supply chain disruptions. To ensure more accurate and substantiated claims, the memorandum analyzes five different scenarios with supply chain challenges and how those scenarios align with the statutory provisions of COVID-19-related ERTCs. Supply chain disruptions were not included in the statutory language of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act); rather, they were first addressed in Question 12 of Notice 2021-20. The memorandum outlines specific circumstances in which a supply chain disruption could potentially qualify an employer for the ERTC. A supply chain disruption must result in a full or partial suspension of the employer's business to meet the eligibility criteria for the credit. A mere disruption is insufficient to qualify for the ERTC. AM 2023-05.

To read about the 5 different scenarios and the law as it pertains to this issue, please read the official memo given by the IRS.

Making a Difference at Ruth's House: MBK Donation and How You Can Help

sstack@mbkcpa.com (Sarah Rose Stack) — Tue, 11 Jul 2023 15:40:39 GMT

Ruth’s House is an assisted living residence for seniors who value their independence but may need assistance with day-to-day living activities.

" JGS Lifecare relies on the generosity of people to help us fulfill our promise to care for those facing the challenges of aging and rehabilitation. Thanks to your financial support, our residents, patients and clients from many different backgrounds live together and thrive in a nurturing, compassionate environment that meets their individual needs. We offers several ways to give. Please help keep JGS Lifecare that special place that they call home, and continue more than a century of honoring our mothers and fathers."

As we move into summer, they became aware of restocking needs at Ruth House. Kristi and Chelsea organized a massive donation drive, encouraging MBK employees to make donations including:

Hand and body lotion
Body wash for women and men
Aveeno, Nivea and like creams and lotions for skin care
Shampoo for men and women.
Efferdent for cleaning mouth items
Cereve Cream
Body wash like Dove or generic brand
Bandaids
Hair brushes men / women
Men's deodorant
Women's deodorant
Ladies briefs size large (not bikini)
Men's briefs size large and xtra large
Depends xtra large men / women
Depends large men and women
Small bag hard candies
Gift cards to CVS, Dollar Store in East Longmeadow and Big Y- as the residents go weekly for shopping trips.

Last week, the team dropped off a heaping donation to Ruth's House and looks forward to continuing to support the organization in the future. Congrats to Chelsea, Kristi and the team at MBK for a successful supply drive. If you would like to give to Ruth's House, visit their website.

Steer clear of these 5 estate planning pitfalls

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 10 Jul 2023 17:27:25 GMT

Most people recognize the need for an estate plan. Among many other things, your plan can help ensure your family will be taken care of per your wishes after your death. While it’s not pleasant to contemplate your own mortality, if you’re ready to begin the process of drafting your plan, keep these five pitfalls in mind.

You don’t understand your estate plan
Surprisingly, this pitfall is at the root of many estate planning debacles, despite the guidance of an experienced estate planning advisor. Simply signing documents without knowing what you’re signing, or what they mean, could cause problems. This is especially true if you don’t follow up with actions you’re supposed to take.

You don’t have to be a legal expert, but it’s important to grasp the basic concepts. Even though you can rely on your advisor, knowledge is power.
You don’t properly fund trusts
Frequently, an estate plan will include one or more trusts, including a revocable living trust. The main benefit of a living trust is that assets transferred to the trust don’t have to be probated and exposed to public inspection. It’s generally recommended that such a trust be used only as a complement to a will, not as a replacement.

However, the trust must be funded with assets, meaning that legal ownership of the assets must be transferred to the trust. For example, if you’re transferring securities or bank accounts, you should follow the directions provided by the financial institutions. Otherwise, the assets must be probated.
You don’t properly title assets
Both inside and outside of trusts, the manner in which you own assets can make a big difference. For instance, if you own property as joint tenants with rights of survivorship, the assets will go directly to the other named person, such as your spouse, on your death.

Titling assets at the time of purchase (or transfer) is critical. But you also should review these designations periodically, just as you should your beneficiary designations.
You don’t coordinate different plan aspects
Typically, an estate plan has several moving parts, including a will, a power of attorney, trusts, retirement plan accounts and life insurance policies. Don’t look at each piece in a vacuum.

Individually, each aspect may have different objectives. But, together, the components should sync to form a well-coordinated plan.
You don’t review the plan
Think of your estate plan as a “living” entity that must be nourished and sustained. Don’t allow it to gather dust in a safe deposit box or file cabinet. Consider the impact of major life events such as births, deaths, marriages, divorces, or job changes and relocations, just to name a few.

The easiest way to avoid problems regarding your estate plan is to have a qualified estate planning advisor draft it for you. He or she has the expertise to help ensure that your plan will work as intended after you’re gone.

Are New Business Start-up Costs Deductible?

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 26 Jun 2023 15:18:12 GMT

If you started a new business during the COVID-19 pandemic, you’re not alone. According to U.S. Census Bureau data, from 2019 to 2022 new business applications increased by 44%.

Many of these businesses were formed by people who found themselves unemployed in the early months of the pandemic or by entrepreneurs who saw business opportunities in the remote working environment. Although the surge has leveled off a bit, the current rate of new business creation remains substantially higher than before the pandemic.

Starting a new business isn’t cheap, and many expenses are incurred long before the business officially opens. Here are answers to frequently asked questions about deducting start-up costs for federal income tax purposes.

What are start-up costs?

Start-up costs include those incurred:

In connection with creating an active trade or business, and
In investigating the creation or acquisition of an active trade or business.

Generally, start-up costs are capital expenses that can’t be recovered until you sell or otherwise dispose of the business — although the cost of certain assets may be recovered through depreciation. However, you can elect to deduct up to $5,000 in eligible start-up costs after the business is up and running and amortize any remaining start-up costs over 180 months (15 years).

Note that the $5,000 deduction is reduced dollar-for-dollar (but not below zero) to the extent that your total start-up costs exceed $50,000. For example, if you have $53,000 in eligible start-up costs, you can deduct $2,000 in the year the business goes active. The remaining $51,000 must be amortized over 15 years. If your eligible start-up costs are $55,000 or more, you must amortize the full amount.

What can be deducted or amortized?

Start-up costs qualify for deduction/amortization if they’d be currently deductible as business expenses by an active business and are paid or incurred before your business becomes active. Eligible costs include amounts paid for:

Researching potential markets, products, labor supplies and transportation facilities,
Advertising the opening of your business,
Wages for employees being trained, as well as for instructors,
Travel and related expenses for finding customers, suppliers and distributors, and
Fees for consultants or other professional services.

Eligible start-up costs don’t include interest expense, taxes, or research and experimental costs (although these costs may be recovered under separate tax code provisions). Also, if you’re acquiring an existing business, deductible/amortizable start-up costs are limited to costs associated with a general business search or with a preliminary investigation of a target business to decide whether to purchase it. Costs incurred in connection with purchasing a specific business are capital expenses.

Keep in mind that expenses that wouldn’t otherwise be currently deductible by an active business — such as the cost of real estate, equipment, furniture or other depreciable assets — aren’t considered start-up costs.

When can you take the deduction?

You can deduct start-up costs on your tax return for the year in which the business becomes active. Amortization begins in the month the business becomes active.

Under current rules, the election to deduct/amortize start-up costs is deemed to be made automatically. However, you can affirmatively opt out and elect to capitalize these expenses.

Are organizational costs deductible?

The costs associated with organizing a corporation or partnership aren’t considered start-up costs. However, similar rules apply.

Indeed, you can elect to deduct up to $5,000 in qualifying organizational costs in the year your business becomes active, reduced to the extent your total organizational costs exceed $50,000. As with start-up costs, nondeductible organizational costs may be amortized over 180 months.

What if you’re unsuccessful?

If you fail to acquire or launch a business, investigative costs associated with evaluating investment options or identifying potential targets are considered nondeductible personal expenses. Costs associated with starting or acquiring a specific business, however, may be deducted as capital losses.

Get a head start

If you’re starting a new business, learn which start-up costs are deductible or amortizable. That way, you’ll be ready to claim those costs once your business opens its doors. Your tax advisor can help with the details.

Renting to Friends? Handle with Care

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 26 Jun 2023 14:56:43 GMT

The IRS has specific rules for renting property to family members and friends, which can affect your taxes. Ult imately, understanding these rules and strategies can help you maximize your deductions and reduce your taxable rental income.

Ordinarily, you’re entitled to deduct the expenses of owning and operating a rental property. You may even be able to claim a loss if those expenses exceed your rental income (subject to certain limitations).

However, if you rent a property to a family member or friend for less than fair market rent, the IRS will consider the property to be a personal residence rather than a rental property. As such, you’ll still have to report the rental income on your tax return, but you’ll lose many of the deductions associated with rental properties. (Although depending on your circumstances, you may still be able to deduct some or all of your mortgage interest and property taxes.)

Personal Property or Rental Property?

The IRS generally considers a property to be a personal residence if it is rented to a family member or friend at less than fair market rent. In other words, the rental income must be commensurate with what you would receive from someone unrelated to you. If you’re charging your tenant substantially less than market rent, then the IRS may consider the property a personal residence. In this case, your deductions will be limited to mortgage interest and property taxes, depending on your circumstances.

The type of lease agreement you have with your tenant can also affect how the IRS treats the rental income. If you have a long-term lease agreement or an option to purchase agreement in place, then the IRS may consider the property a rental property even if you’re charging below market rent. In these cases, you will generally be entitled to the same deductions as any other landlord.

Finally, it's important to keep good records of all rental income and expenses related to your rental properties. This includes tracking payments from tenants, receipts for repairs or improvements made to the property, and any other expenses related to rental properties. Keeping accurate records can help you maximize your deductions and minimize your taxable rental income.

In conclusion, understanding the IRS’s rules for renting to family members or friends is essential for any landlord looking to minimize their taxable rental income. Knowing when a property is considered a personal residence or a rental property, and which expenses can be deducted regardless of the tenant’s identity, can help you maximize your deductions and reduce your tax burden. Keeping accurate records of all rental income and related expenses is also important in helping to ensure that you pay the least amount of taxes possible. And of course, it's important to talk with your advisor to strategize for your situation.

Form 5500 Count Methodology Changes

Tue, 30 May 2023 17:16:38 GMT

Old Rule:

Before January 1, 2023, the participant count included both active employees eligible to participate and terminated vested employees with balances still in the plan. Using this calculation method, plans needed to include all employees currently employed and eligible for the plan regardless of whether they were participating in the plan. Under the old rule, an audit was required for a plan with 100 or more of both active employees eligible to participate and terminated vested employees with account balances. Even if a plan had less than 100 participant accounts with balances, an audit could still be required due to the eligible and not participating employees.

New Rule:

Effective January 1, 2023, plan sponsors will only need to consider participants (active and terminated) with account balances when calculating the number of participants at the beginning of the plan year. This means that those active employees eligible to participate who have never contributed to the plan and/or received employer contributions will not be counted. As a result, some plans might be able to file as a small plan.

What’s Next?

Plan sponsors should be aware of these changes and review their plan counts closely with their third-party administrators under this new methodology for the 2023 plan year. Plans with less than 100 plan account balances as of January 1, 2023 (for calendar year end plans) will not need an audit even if they previously did under the old rules.

What does this mean for plans that are hovering around the 100 account balance mark during 2023? If your plan has 100 or more participant account balances on January 1, 2023 (calendar year end plans), an audit is still required for 2023 but there are some steps that can be taken to reduce plan participants for January 1, 2024 (next plan audit measurement date for calendar year end plans). Plan sponsors should be reviewing terminated employees with participant account balances of $5,000 or less. The plan sponsor should review with their third-party administrator the existing plan provision that allows the plan to force out terminated participants with balances of $5,000 or less. This plan provision could be utilized to reduce the participants with balances which could potentially remove the audit requirement in the future.

Women in Business - A Better Team, A Better Company, A Better Society

Tue, 30 May 2023 17:08:23 GMT

by Samantha Calvao and Olivia Calcasola

Over the last few decades, there have been significant changes in terms of growth and representation for women in the world of business. Women are bringing new ideas and creativity to the industry as they have become more powerful and influential. Although we have seen vast improvements, women are still being overlooked for promotional opportunities and leadership positions. The reality is you can’t ignore the bottom line - companies with greater gender diversity among leaders are more profitable.

A Diverse Workplace Promotes Success

It is widely recognized that a fair and productive workplace requires gender balance. Research clearly shows that having a diverse team, with both men and women in leadership roles, can help support the professional growth of all employees. Women and men should be hired at comparable and consistent rates, compensated equally, and given the same opportunities in the workplace, including access to materials, promotions, and salary. Further, having female senior leaders reduces gender discrimination in hiring, promoting, and retaining employees. As a result, a business has a better chance of attracting and retaining the best employees. However, this is often not always the case in our current society.

A workplace that is represented by employees with similar backgrounds can be comfortable and less confrontational. When consistent issues arise, having a team with similar problem-solving abilities can make it nearly impossible to produce a creative resolution. Men and women inevitably have different strengths and weaknesses - from life experiences to culture. When put together we challenge each other to think differently and breed innovation. Not only is it crucial to internally promote this work ethic, but businesses will also have the opportunity to attract various clientele.

Power Skills

Although technical skills are highly valued in businesses, soft skills such as communication, multitasking, empathy, and self-awareness are fundamental to career success. Research shows from various reports, such as the World Economic Forum's Future of Jobs Report that “Women tend to be better at using these skills (i.e., “soft skills”) than men”. In addition, men's and women's brains are fundamentally wired differently. Generally, men are wired to take action while women tend to be better suited to problem-solving. When having a business, you want to be able to have both types of leaders. Transparency, intelligence, empathy, and creativity are qualities that rate relatively high on a measure of what makes a strong leader, according to a Pew Research Center study. Women ranked higher in almost all categories than men, giving them a competitive advantage. In order to achieve a thriving workplace men and women can both learn from each other. We can acknowledge that individuals from diverse backgrounds, including gender expression, bring valuable and distinct viewpoints to the workplace.

Financial Performance

For-profit organizations make no effort to conceal their top priority. A company's success is ultimately determined by its profitability, which can be affected by the level of gender equality. Studies indicate that companies that prioritize gender diversity tend to experience an increase in their revenue. Additionally, better performance and greater representation go hand in hand. Companies with more female leaders are prone to outperform those with fewer. In turn, these businesses had a higher likelihood of outperforming others with even fewer or no female executives. The organizations with the highest levels of gender diversity are significantly more likely to outperform those with the lowest levels.

As women in business, unfortunately, we are still underrepresented in the workplace. The explanations given by female executives for leaving their firms are telling. Women in leadership positions are equally as ambitious as males, but they frequently encounter obstacles that make it difficult for them to advance. They are more likely to encounter microaggressions that are demeaning, such as having their judgment questioned. A company could miss out on a sizable talent pool with special qualities that only female employees can bring to the table if it is eliminated or ignored.

In Conclusion

The truth is that men and women both bring unique skills and approaches to the table, which can be incredibly beneficial for any organization. Companies should also strive to have a balance of genders in their senior positions to maximize collective potential, foster creativity, and reduce the damaging effects of gender stereotyping in the workplace.

Overall, encouraging diversity in the workplace and giving women equal opportunities will benefit not only businesses but also society as a whole. With more female executives and leaders, there could be a dramatic shift in how we approach problem-solving and innovation. Companies run the danger of losing the next generation of female leaders in addition to their present female leaders if they do not act. Young women are ambitious and place greater value on working in a fair, encouraging, and inclusive environment. Our generation will not tolerate less and are prepared to leave for better opportunities.

Honoring Longevity and Excellence: Spring 2023

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 18 May 2023 18:55:15 GMT

Congratulating Our Employees on Their Work Anniversaries: Spring 2023

We would like to extend our warmest congratulations to our employees who are celebrating work anniversaries in Spring 2023. Your commitment and dedication to MBK have been invaluable, and your hard work does not go unnoticed. Meyers Brothers Kalicka, P.C. recognizes that at the core of our ability to implement on our mission and vision, is our people. The contributions from our employees enable us to better serve our clients, our community and each other. We celebrate your loyalty, diligence, and enthusiasm for contributing to the success of the firm!

Kristi: 22 years with MBK.

Kristi has been a pillar of leadership for MBK throughout the years. In addition to leading the way in taxation, advisory and valuation - she has also recently taken on the administrative and IT departments. She does it all with grit and grace. This milestone is a testament to her dedication, hard work, and unwavering commitment. Her contributions have undoubtedly played a significant role in the success and growth of our organization. We are grateful for her expertise, professionalism, and the positive impact he has on our team. Here's to celebrating Kristi's remarkable journey and to many more years of accomplishments together.

David: 50 years with MBK

David's commitment, passion, and expertise have been instrumental in shaping our organization's success over the decades. His tireless efforts, outstanding leadership, and invaluable contributions have left an indelible mark on our team and the industry as a whole.

Throughout his illustrious career, David has consistently demonstrated unwavering loyalty, resilience, and a true passion for our company's mission. His extensive knowledge and expertise have not only helped us navigate challenges but have also set the standards for excellence and professionalism.

Congrats to Manager, Chelsea Russell for being named to this year's 40 Under Forty List

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 01 May 2023 18:05:23 GMT

MBK is proud to congratulate our very own Chelsea Russell for being named to this year's prestigious 40 Under Forty list!

The 40 Under Forty list recognizes the most accomplished young professionals across various industries, and we are thrilled that Chelsea has been selected as one of this year's honorees. This is a well-deserved honor, and we are delighted to see her hard work and dedication recognized. Chelsea has been an integral part of our team since joining us in 2015. Her contributions to the firm have been invaluable, and her passion for delivering exceptional results to our clients is truly inspiring. She consistently demonstrates a strong work ethic, attention to detail, and a commitment to excellence that sets her apart.

Beyond her professional accomplishments, Chelsea is passionate about civic involvement. On her own initiative she has undertaken several community assistance projects that highlight her commitment to our local community and Western Massachusetts as a whole. These efforts include projects that have supported Habitat for Humanity, the Food Bank of Western Mass., Springfield Day Nursery, the Dakin Animal Shelter, Mental Health Association of Springfield, and the Open Pantry. Chelsea often develops these initiatives, works with her peers to bring the programs to life and encourages participation throughout our Firm. In this role, she serves as an ambassador for our Firm and displays her forward-thinking leadership style.

We are confident that Chelsea's inclusion in the 40 Under Forty list is just the beginning of a long and successful career. We look forward to seeing her continue to excel and make a positive impact both within our firm and in the wider business community.

Read the Full BusinessWest Article Here

IRS Set to Deactivate Foundations' Electronic Payment Accounts

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 24 Apr 2023 19:15:14 GMT

IRS set to deactivate foundations’ electronic payment accounts

The NonProfit Times recently reported that the IRS is shutting down the Electronic Federal Tax Payment System (EFTPS) accounts of certain private foundations. Private foundations with more than $500 in excise tax liability are required to use the EFTPS to make their tax payments. But for security purposes, the agency is deactivating accounts that haven’t been used for 18 months. According to the Times, the IRS hasn’t alerted any foundations at risk of having their accounts deactivated before doing so.

Private foundations should verify that their EFTPS accounts are active sooner rather than later. Deactivated accounts require re-enrollment as the prior accounts won’t be re-opened — they’ve been purged from the system. On re-enrollment, organizations will be mailed personal identification numbers (PINs). Those that wait until their payment deadlines to re-enroll may find they don’t receive their PINs in time to submit their payments via EFTPS by the applicable due date.

How Microsoft is expanding support for nonprofits

Microsoft is expanding its nonprofit technology offerings to public libraries and public museums. Eligible organizations can obtain discounts for cloud solutions like Microsoft 365 and Office 365 (including Teams, Outlook, Excel and PowerPoint), Azure (for project management), Dynamics 365 (for relationship management), Power Apps (for building and sharing apps) and Surface devices. They’ll have access to on-premises licenses for computer labs and other public access devices, too.

Libraries and museums will also be eligible for grants that cover the cost of Microsoft 365, Azure and Dynamics. In addition, Microsoft Advertising is offering a $3,000 monthly grant to help all nonprofits reach new visitors, donors and volunteers. The grants apply to the company’s owned-and-operated digital search and native advertising platforms such as Bing.

Donation option at checkout stresses retail purchasers

A study published in the Journal of Business Research calls into question the common belief that consumers feel good about making charitable donations as they pay at stores or restaurants. The study finds that many people experience negative feelings in these situations — including feeling “pressured,” “annoyed” and “concerned about being judged.” Only about 20% of the words participants in the study chose to describe their feelings about so-called “checkout charity” were positive, such as “nice” or “compassionate.”

The researchers found that checkout solicitations induce customer anxiety, in part due to the pressure to make a hasty decision. Although the anxiety can drop in “solicitation episodes” where customers agree to donate, this occurs only when the request is made by an employee, as opposed to requests from self-checkout technologies like kiosks. While the study was intended to caution retailers, nonprofits also should consider the potential negative consequences of checkout solicitations.

New Tax Benefits for Retirement Savers

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 24 Apr 2023 19:15:07 GMT

SECURE 2.0

New tax benefits for retirement savers

The benefits of setting aside funds in tax-advantaged accounts just got even better. The long-awaited SECURE 2.0 Act, enacted at the end of 2022, expands on the improvements made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act). Now you can save more and save longer for retirement, at a lower tax cost. Here are the highlights of the new law.

Saving more

Notably, the law contains provisions that enhance catch-up and matching contributions. Catch-up contributions are designed to help older retirement savers who didn’t set aside enough money earlier in their careers. For example, in 2023, you can contribute up to $22,500 to a 401(k) or similar employer-sponsored plan (up from $20,500 in 2022). Plus — if you’re 50 or older — you can make a catch-up contribution of up to $7,500 (up from $6,500 in 2022). For IRAs, the maximum contribution is $6,500 (up from $6,000 in 2022) plus a $1,000 catch-up contribution.

Under SECURE 2.0, starting next year, the catch-up amount for IRAs, which has stalled at $1,000 for many years, will be adjusted for inflation. In addition, starting in 2025, participants in 401(k) and similar plans who are 60 through 63 will be allowed to make catch-up contributions up to $10,000 (adjusted for inflation) or 150% of the regular catch-up amount, whichever is greater. Using the 2023 numbers for purposes of illustration, that would equate to a catch-up contribution of up to $11,250 ($7,500 x 150%).

Beware: Starting in 2024, catch-up contributions by highly compensated participants in employer plans will be required to make those contributions to a Roth account. In other words, these participants won’t be allowed to make catch-up contributions on a pre-tax basis. For purposes of this limitation, a highly compensated participant is one who earned more than an inflation-adjusted $145,000 from the plan sponsor in the previous year.

SECURE 2.0 also makes improvements to employer matching contributions. If permitted by the plan, employees may: 1) receive matching contributions in a Roth account, and 2) starting in 2024, treat certain student loan payments as contributions for matching purposes. This second provision allows employees to receive employer matches without having to decide between contributing to their retirement accounts and paying down student debt.

Saving longer

From a tax perspective, the longer you leave funds in an IRA or employer-sponsored retirement plan, the better. That’s because they continue to grow tax-deferred (or tax-free in the case of a Roth account), allowing your savings to multiply more quickly. Plus, for tax-deferred accounts, such as traditional IRAs or non-Roth employer plans, the longer you wait to withdraw the funds, the more likely you are to be in a lower tax bracket.

SECURE 2.0 allows you to save longer by increasing the age at which you must begin taking required minimum distributions (RMDs) from IRAs and employer-sponsored qualified retirement plan accounts. You may recall that the SECURE Act increased the RMD starting age from 70½ to 72, for taxpayers who turn 70½ after December 31, 2019. SECURE 2.0 raises the RMD starting age even further, first to 73 (for taxpayers who turn 72 after December 31, 2022) and later to 75 (for taxpayers who turn 73 after December 31, 2032). The following table shows the applicable RMD starting age according to your date of birth.

If your 72nd birthday is in 2023, you may have previously scheduled a distribution for this year based on prior law (which would have required an RMD by April 1, 2024). However, SECURE 2.0 gives you a one-year reprieve: Your first RMD won’t be due until April 1, 2025.

Other notable changes include:

Reducing the penalty for a missed RMD from 50% to 25% of the amount that should have been withdrawn, and to 10% for taxpayers who correct the mistake on a timely basis, and
Eliminating RMDs, beginning in 2024, for Roth accounts in employer-sponsored plans.

Saving for college

Section 529 college savings plans are a great tool. But if you don’t need all the funds for qualified educational expenses, withdrawals are subject to taxes and penalties.

SECURE 2.0 allows you to roll over unused 529 plan funds, tax- and penalty-free, into a Roth IRA for the same beneficiary. Rollovers are subject to annual limits on IRA contributions and a lifetime cap of $35,000 per beneficiary. In addition, the 529 plan must be at least 15 years old, and rollovers can’t be made from funds contributed within the previous five years (or earnings on those contributions).

Revisit your plan

These are just a few of the many tax benefits offered by SECURE 2.0. Your tax advisor can review your plan to ensure that you’re making the most of these benefits and maximizing your retirement savings.

Sidebar: Technical corrections required

It’s common for complex laws to contain mistakes, and SECURE 2.0 is no exception. As a result of apparent drafting errors in the law, there’s some ambiguity over when the starting age for required minimum distributions increases to 75. Although it seems clear that Congress intended it to apply to people who reach age 73 after December 31, 2032, the law says it applies to “an individual who attains age 74 after December 31, 2032.” Another apparent drafting error prohibits any catch-up contributions to employer-sponsored plans in 2024.

Congress is expected to make technical corrections to these provisions to ensure that the law works as intended. As of this writing, no corrections have been made. Contact your tax advisor for the latest developments.

Tax Tips: QCDs Expanded, Renting to Family and Friends, and ESAs

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 06 Apr 2023 14:54:53 GMT

QCDs expanded

A qualified charitable distribution (QCD) is a powerful tool for achieving your philanthropic objectives in the most tax-efficient way possible, if you’re age 70½ or older and charitably inclined. Ordinarily, to deduct a charitable gift, you must itemize deductions and the gift must not exceed a certain percentage of your adjusted gross income. A QCD allows you to bypass those restrictions by transferring up to $100,000 per year — tax-free — directly from your IRA to a qualified public charity. And a QCD counts toward your required minimum distribution (RMD).

Now, under SECURE 2.0, you have a one-time opportunity to make a QCD of up to $50,000 to a charitable gift annuity or charitable remainder trust for the benefit of you or your spouse. Not only do you enjoy the substantial tax advantages of a QCD, but you also create an income stream for life.

Renting to family and friends: Handle with care

ESAs for employees

Starting in 2024, employers can set up emergency savings accounts (ESAs) for non-highly-compensated employees that are linked to a 401(k) or similar plan, under SECURE 2.0. ESA balances are capped at $2,500 and may only accept employee contributions. (These contributions count for purposes of employer matching contributions to the linked plan.) Contributions — up to 3% of salary — must be made on an after-tax basis (similar to a Roth account) and the funds must be available for withdrawal at least once per month. Withdrawals from ESAs are tax- and penalty-free.

The difference between an audit, a review, and a compilation

sstack@mbkcpa.com (Sarah Rose Stack) — Wed, 05 Apr 2023 17:29:16 GMT

This article will explore the differences between an audit, a review, and a compilation. Audits, reviews, and compilations are three important services that help businesses and organizations make informed decisions about their finances. We will discuss each of these services in detail to provide clarity on what makes them unique from one another. Finally, we'll look at when it might be most beneficial to use one over the other. With this knowledge, business owners and managers can choose the most beneficial service for their needs.

What are Audits, Reviews, and Compilations?

An audit is the most comprehensive type of assurance service and requires the auditor to express an opinion on a Company’s financial statements prepared in accordance with Generally Accepted Accounting Practices (GAAP). Audits are typically required as a result of financing, Investor, or governmental requirements. Typically, during an audit, an independent auditor evaluates a Company’s internal accounting system and its financial records. The auditor will then issue a report containing the findings of their audit.

For an Audit, the objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes an opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists.

A review is a more limited assurance service and involves the accountant performing analytical procedures on financial statements to get a general understanding of the Company’s finances. An important difference between an audit and a review is that an audit provides more reasonable assurance, whereas a review does not and the accountant does not express an opinion. Reviews primarily include applying analytical procedures to management’s financial data and making inquiries of a Company's management. A review is also a potential requirement if the Company has financing.

For a Review, the auditor’s responsibility is to conduct the review engagement in accordance with Statements and Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for the reporting whether the auditor is aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America.

Compilation involves compiling a Company’s financial information into general-purpose financial statements, such as balance sheets and income statements. A compilation may also involve helping clients plan their budgets or other documents they may be required to report. While compilations are less expensive than audits and reviews, they provide no assurance since no opinion is expressed on the financial statements or other documents.

For a Compilation, the auditor will have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. We did not audit or review the financial statements nor were we required to perform any procedures to verify the accuracy or completeness of the information provided by management. We do not express an opinion, a conclusion, nor provide any form of assurance on these financial statements.

Comparing audit, review, and compilation:

One way to think about the three services is to think in terms of small (compilations), medium (reviews), and large (audits). In general, the three services tend to differ based on the scale of required procedures, time to complete the engagement, and level of detail.

Assurance Level. Audits offer the most assurance that a client's financial statements are free from material misstatements, while reviews provide a limited level of assurance, and compilations provide no assurance.
Dependence on Management. For every type of service, the auditor begins with the general ledger account balances provided by management. An audit involves comprehensive confirmation of some of this data. A review consists of minimal testing of supplied information while a compilation is mainly dependent on provided facts and figures from management.
Internal controls. An audit includes understanding some of the Company’s internal controls; reviews and compilations do not involve any testing. For an audit, an understanding of internal control relevant to the audit is obtained in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. Accordingly, no such opinion is expressed.
Hours to Complete the Work. An audit entails a substantial amount of hours because of the required audit procedures that need to be completed. Conversely, reviews necessitate much fewer hours, while the task related to compilations is comparatively minimal.
Cost. Accountants typically bill by the hour or the size of the engagement. Therefore, you can expect to pay the most for an audit because they entail more time, procedures, and information. Compilations require the least amount of time and reviews tend to land somewhere in the middle.

How to Choose an Audit, Review, or Compilation

When it comes to choosing between an audit, review, or compilation, business owners and managers should first consider the level of assurance they need. An audit provides the most comprehensive level of assurance, while a review offers an intermediary level of assurance. A compilation is the least expensive option but also provides no assurance since no opinion is expressed on the financial statements or documents. For businesses that need the highest level of assurance, an audit is the best choice. For those who only need minimal assurance and have tight budgets, a compilation may be sufficient. Those in between can opt for reviews to balance their needs with cost considerations. Depending on your Company’s situation, an audit may be required which makes the decision simple. Ultimately, it is important to consider all factors before making a decision.

In conclusion, it is important for businesses to know which service best suits their needs, and which service may be required, in order to get the most benefit out of their financial statement preparation.

Client Reminder: Get Your Documents in to Avoid an Extension

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 27 Mar 2023 18:41:53 GMT

Client Notice: Get Your Documents in to File Your Taxes on Time

The filing deadline for Individual Tax Returns, Form 1040, is April 18th for federal returns and most state returns.

This is a friendly reminder to our clients to send in your documents so that we can file your taxes as soon as possible. Waiting until the last minute creates a scenario where our practitioners may have other scheduling conflicts and are unable to accommodate an extremely compressed filing period for a high number of clients.

If we do not receive your tax documents by March 27th, we may be forced to file an extension due to staffing restrictions. As a reminder, if you have a first-quarter estimate due, its due date remains Monday, April 18th.

MBK offers a variety of options for getting your documents to us. You can mail them, drop them off at our reception desk, or log in to our Client Portal to send them electronically.

Important Deadlines and Reminders:

If you plan to go on extension, please send us a note ASAP, so that we can process your extension right away. Do not wait until the due date to extend your return, if possible. Even if you may owe, the extension can still be prepared in advance for you to pay at the due date of the return.
If you are missing only an item or two, send us that information with a note explaining what is missing. We can start preparing the return and you can submit the missing information when you receive it.
Even if you think you will owe taxes with the filing, we can prepare the return earlier, but the payment can be made on the due date. The same holds true for extensions. There is no need to hold on sending us the backup documentation.
When sending in documents, either supply the originals or a scanned / pdf copy, not a picture of the documents (especially when emailing it).

MBK offers a variety of options for getting your documents to us. You can mail them, drop them off at our reception desk, or log in to our Client Portal to send them electronically.

Sending Us Your Information

Our firm utilizes a scanning format for information storage; therefore, we are requesting the following when sending in your information:

Return your tax organizer (if you have one), with your documents because it greatly enhances our scanned documentation for preparation efficiency and when resolving questions in the future.
Any information that you are completing in the organizer, please use a black pen to write in that information.
Send in your original tax forms, such as Forms W-2, K-1s, 1099, or 1098. Try not to staple items together (if it is not already done so), as all documents are scanned in-house.
Consider sending us a summary of your real estate taxes, medical expenses, and contributions, if possible. We do not need the accompanying backup documents.

Electronic Filing

Our firm is required to electronically file all federal, Massachusetts and Connecticut income tax returns. Once your return is completed, we will return your original documentation. Your copy of the tax return and Form 8879, IRS e-file Signature Authorization, along with any state authorization forms required will be sent electronically via SafeSendReturns or mailed - if needed. These authorization forms must be signed by you and your spouse, if a joint return, and returned to MBK. These forms should be returned promptly, and this does not affect the due date for any payments due. If we do not receive the signed EFile authorization forms prior to April 10th, as a courtesy to you, we will be automatically e-filing your returns. If you DO NOT wish for us to e-file your returns, you will need to contact our office and notify us of that desire prior to April 10th in writing.

Electronic Filing Refund Options

You can either receive a paper check in the mail or have the refund amount directly deposited into your bank account. The taxing authorities indicate that direct deposit decreases your wait of receiving the refund. If you choose the direct deposit option, please provide us with a voided check (or copy) if we do not have this information on file from previous years (or if your information has changed from the previous year).

Electronic Filing Payment Options*

Payments may be made by either mailing Form 1040-V, Payment Voucher, with a check to the Internal Revenue Service by April 15th, or by authorizing a direct debit from your bank account. If you choose a direct debit, the money will be withdrawn from your bank account on April 15th. The withdrawal occurs on April 15th regardless of the date the return is accepted, unless you indicate otherwise. Please note that it is important to have those funds available in your bank account on April 15th. Also, you will need to provide us with a voided check (or copy) if we do not have this information on file from previous years. Please remember that Meyers Brothers Kalicka, P.C. will not be keeping any supporting documents - they will be returned to you. You should retain the documents, canceled checks, and any other data that support your income and deductions.

We request that you make every effort to submit all of your information no later than March 27th to avoid the need for an extension. If we do not have your information by this date, you will most likely need to go on extension.

Thank you for your time in this matter. We look forward to serving you throughout the tax season!

VERY TRULY YOURS,

MEYERS BROTHERS KALICKA, P.C.

SECURE 2.0 New Tax Benefits for Retirement Savers

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 27 Mar 2023 18:34:40 GMT

Saving more

Saving longer

Other notable changes include:

Reducing the penalty for a missed RMD from 50% to 25% of the amount that should have been withdrawn, and to 10% for taxpayers who correct the mistake on a timely basis, and
Eliminating RMDs, beginning in 2024, for Roth accounts in employer-sponsored plans.

Saving for college

Section 529 college savings plans are a great tool. But if you don’t need all the funds for qualified educational expenses, withdrawals are subject to taxes and penalties.

Revisit your plan

Sidebar: Technical corrections required

7 Tasks for a Successful Nonprofit Finance Committee

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 20 Mar 2023 19:43:03 GMT

A nonprofit’s finance committee oversees and keeps its board of directors apprised of the organization’s overall financial health. This should be more than simply scanning financial reports. An active finance committee is crucial to maintain a nonprofit’s health and reputation. The success of your finance committee depends on your board, staff and committee members understanding the committee’s duties.

Finance committee responsibilities

Although the exact parameters of committee member participation will vary based on factors such as staff size and organizational budget, the finance committee generally should be involved in the following:

Communicating with the board. The committee works with staff to determine the best way to convey information the board needs for sound decision-making. Not everyone understands financial statements and related jargon. Numbers require explanation and context; the committee must connect them to the organization’s mission, goals and strategies.
Budgeting and financial planning. Before beginning the budgeting process, the committee should identify key assumptions and initiatives that will influence the process. Members and staff must discuss internal and external factors that could affect budgets over the next several years, including your organization’s strategic plan. After approval, the committee monitors variances from the budget.
Financial reporting. The committee oversees the preparation and distribution of financial statements and sets expectations for the nonprofit’s staff about the level of detail, frequency and deadlines of other financial reports. The committee monitors the adequacy of the organization’s financial resources and the allocation toward accomplishing its mission. Simultaneously, the committee ensures that donor-restricted contributions are being met. Additionally, the committee decides whether resources are sufficient to support expected program and operating expenses.
Developing internal controls. Internal controls are essential for protecting your organization’s assets. Have your finance committee work with staff to develop effective controls and policies and document them in a manual. It’s also up to the committee to make sure that approved controls are followed and filing deadlines are met.
Administering financial resources. The finance committee establishes and confirms compliance with fiscal and related policies and procedures. Approved policies should reflect your organization’s specific circumstances, such as size and life-cycle stage, rather than just general “best practices.” The committee should take care, though, not to overstep. It must respect the line between the oversight of overall policies versus the actual implementation and execution of specific staff processes and procedures.
Overseeing audits. If your organization doesn’t have a separate audit committee, the finance committee is also responsible for the audit. The committee must engage and regularly interact with the auditors, review the auditors’ report and IRS Form 990, present the audited financial statements to the board, and propose changes to implement any auditor recommendations.
Creating an appropriate investment policy. Even if your organization doesn’t have enough cash to support a separate investment portfolio, liquid funds need to be managed to maximize revenue. This means it falls to the finance committee to develop an appropriate investment policy and retain qualified investment advisors, when needed. A separate investment committee is advisable, though, for organizations with substantial investments, planned giving programs or endowments. And remember that fiduciary responsibility isn’t limited to the committee’s members. The entire board has the duty to safeguard your organization’s net assets.

The payoff

When a nonprofit has a vital and engaged finance committee, it sends a strong signal to stakeholders — namely, that the organization is committed to responsible stewardship of its financial resources and long-term sustainability. When your finance committee takes an active and strategic role in oversight and planning, the payoff will likely be robust financial governance and higher satisfaction levels of committee members.

MBK Helps to Build a Prom: Donates Prom Items for Teens

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 20 Mar 2023 19:38:44 GMT

Build a Prom, For Everyone

Recently, MBK became aware of an initiative to collect gowns, suits, shoes, and accessories for students who are attending prom. The prices of prom have skyrocketed, making it an inaccessible night for many teens in the area. On average, tickets will set you back around $50-$120 per individual and gowns cost a minimum of $300 with some even reaching as high as $700! The Opera House Players and The Stack Group teamed up to collect as many items as possible and host a "shopping day", where teens could come and pick what they liked, try-on different items and take what they need, at no cost to them.

The team at MBK, led by Sarah Rose Stack, collected over 40 gowns, $150, and 4 tote bags filled with brand new accessories! The items were dropped off at OHP to add to their collection and be set up for the big day. From the moment the event opened until 30 minutes after it closed - there was a constant flow of teens and their families coming through to pick out their prom-wear. As people entered, they were handed sparkling cider in a champaign flute and walked into a beautifully decorated space with music playing, and volunteers ready to help them "shop".

Sarah Rose said, “With inflation affecting more families than ever, many teens will not attend their prom simply because they don’t have anything to wear, or because they didn’t have a choice in what to wear. By giving teens an opportunity to choose a dress or suit that they love, they can have the same try-on experience as their peers and pick something that they are proud to wear,” Stack said.

Many thanks to the team at MBK, and all who donated for making this event a massive success. We hope everyone has a fun, memorable and safe prom this year!

New Accounting Standards Impact Business Leases for 2022. Here’s What You Need to Know.

Thu, 16 Mar 2023 14:55:58 GMT

What is ASC 842?

This standard intends to provide visibility on a company’s capital needs and obligations, improve consistency in financial statement presentation, provide enhanced disclosures to the readers of the financial statements, and improve the comparability of lease practices across entities and industries.

Under the new standard, lessees are required to account operating leases with terms longer than 12 months on the balance sheet, resulting in the recognition of a right-of-use asset and the corresponding liability. Under the previous standard, ASC 840, the only leases that were required to be accounted for on the balance sheet were capital leases, which are now referred to as finance leases under ASC 842. Prior to ASC 842, operating leases only required disclosure in the notes to the financial statements.

Lessor accounting practices remain largely unchanged from ASC 840 to 842.

What Qualifies as a Lease Under ASC 842?

To better understand the new lease standard, you have to first understand the definition of a lease. A lease is defined as the contract, or part of a contract, that conveys the right to control the use of an identified property, plant or equipment for a period of time in exchange for consideration. To simplify this definition, a lease is a physical asset that a company has the right to direct the use of for economic benefit. The most common examples of leases are office space, machinery, vehicles, equipment, and land.

What Steps Should Companies Take to Prepare?

To prepare for adoption of this standard, companies first need to account for all their existing leases and thoroughly review the contracts to determine whether they include an operating or a finance lease.

Do you have an Operating Lease or Finance Lease?

If the lease meets any of the following criteria, it will be classified as a finance lease.

Does the lease transfer ownership at the end of the lease term?
Does the lease grant the lessee a right to purchase option that is lessee is reasonably certain to exercise?
Is the lease term for the major part of the economic life of the underlying asset?
Does the present value of the sum of lease payment and any residual value guaranteed by the lessee not reflected in the lease payments equal or exceed substantially all of the underlying asset’s fair value?
And finally, is the underlying asset of such a specialized nature that it expected not to have an alternative use to the lessor at the lessor at the lease term end?

If the answer to all five of those questions is no, then the lease qualifies as an operating lease.

Lease Details:

After concluding on the lease type, it is time to dig into the lease details.

When does the lease start?
When does the lease end?
Are there early termination or renewal options?
Are there variable expenses related to the lease?
What is the monthly cost of the lease?

The answer to all these questions is integral to the calculation of the asset and liability to be included in the financial statements. Once the total future lease obligation has been calculated, the obligation will be presently valued using one of three discount rate options. The newly recognized right-of-use asset and liability will then be amortized over the life of the lease, based on the lease type. For income statement purposes, operating leases will continue to be classified as lease expense, and finance leases will be split between amortization expense and interest expense.

Transition Methods

As part of the initial adoption of the new lease standard, there are certain practical expedients that can be adopted to help make the transition easier. Companies are not required to assess existing lease classifications. Existing operating leases with terms extending beyond 12 months will be included on the balance sheet effective January 1, 2022, the date of required adoption. Existing capital leases will continue to be included with property, plant, and equipment, and will be amortized over the remaining life of the lease.

Financial Statement Disclosure Impacts

Aside from the impact on the balance sheet, the standard will also provide enhanced disclosures in the notes to the financial statements. The required disclosure will include qualitative and quantitative disclosures, including descriptions of the existing leases, disclosure of lease expenses as included in the income statement, cash paid for leases during the current year, new right-of-use assets obtained through operating and finance leases, weighted average of discount rate used to present value the lease obligation, and the maturity analysis disclosing the future obligations to be paid.

In Conclusion

The new lease standard is expected to have the biggest impact on those companies with a large volume of real estate leases that have previously only been required to be disclosed in the footnotes to the financial statements. The overall expectation is that most companies with leases will see some impact related to the adoption of the new standard. Because the new standard has a balance sheet impact, it is recommended that all companies review any financial covenants, and proactively work with financial institutions to consider whether amendments to covenants may be required.

There are many intricacies within the new lease standard, and it will be a learning process for all of those involved in preparing their company’s financial statements. The best thing that a company can do is take the time to make sure that they fully understand how each lease is written, and to have an open dialogue with their CPA.

Is your Cybersecurity up to Snuff?

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 16 Mar 2023 14:48:06 GMT

The sudden and unexpected shift to remote work in 2020 made clear that many nonprofits have vulnerabilities that cybercriminals could leverage to steal data or disrupt operations. Your organization’s employees may or may not be back in the office, but the risks are ongoing. Here’s what you need to know about the most crucial components of effective cybersecurity for nonprofits.

Culture of security

When cybersecurity is recognized as a top priority throughout an organization, the odds of being victimized drop dramatically. It only takes one employee to click on a risky link in a phishing email (see ”Know your cyberattacks,” below) or fail to update software to expose the entire organization. So you need everyone to be on board. Employees who see best practices routinely implemented are more likely to duplicate those practices and less likely to fall prey.

As with so many things, the tone starts at the top. If organizational leaders are exempt from measures required of others (for example, regular training or password protocols), employees notice and might take their own compliance less seriously. To create a pervasive commitment to cybersecurity, all policies, practices and procedures must apply to everyone.

Restricted access

You should grant data access solely on a “need-to-know” basis. Too many nonprofits allow access to employees or volunteers who don’t actually require access to do their jobs. These people may all be trustworthy on their own, but each one represents an avenue to data that a cybercriminal could compromise.

In shared file systems, take advantage of permission settings to limit access, review permissions monthly or at least quarterly, and remember to shut off permissions when employees or volunteers are no longer with your organization. Require authorized users to use multifactor authentication and set up alerts for when these users are logging in from unfamiliar devices or unusual geographic areas.

Incident response planning

Even with comprehensive, up-to-date cybersecurity policies and tools, no organization is immune from cybercrimes. Formulating an incident response is essential to minimizing the repercussions of a successful attack. You don’t want to be scrambling for the right response in the heat of the moment.

Consider establishing an incident response team (IRT) to develop a detailed written plan for handling attacks. Ideally, your IRT will be cross-disciplinary, with representatives from areas including management, IT, human resources, finance/accounting, marketing/communications, and member or client services. Each area should assume specific roles and responsibilities in the event of an attack. It’s best to have two representatives from each area to improve the odds that someone will be available to respond if an incident occurs.

Annual risk assessments

Cybercriminals don’t rest on their laurels — they’re constantly ferreting out new vulnerabilities and devising new tactics for exploiting them. So don’t assume the cybersecurity protections you put in place last year are still up to the task. Whether conducted by an internal IT employee or a third-party expert, your organization should undergo an annual cybersecurity risk assessment.

At the most basic level, every assessment should determine the data you currently possess and collect, how you store it, whether you truly need it, and how you dispose of it. In addition, identify all parties that have access to your data (for example, vendors) so you can evaluate whether they use appropriate security protection. Once you’ve determined the risks, weigh the likelihood of each risk actually occurring and the likely consequences. These evaluations can guide you in adopting additional steps to mitigate risk.

Assign responsibility

In today’s environment of evolving risks, every nonprofit needs to formally assign responsibility for cybersecurity. If you lack the resources to employ a full-time cyberofficer on staff or your IT employees are overstretched, you might want to outsource the job. Balancing the upfront costs against the potential ramifications of a breach should make clear that you can’t afford not to.

Know your cyberattacks

You’re not alone if you get confused by the various descriptions of cybercriminals’ schemes. Here are some of the most relevant for nonprofits:

Phishing. This generally refers to schemes where cybercriminals trick victims into providing personal information (including login credentials) or clicking on links in emails or texts that infect computers with malware. Many iterations exist, with more emerging.
Malware . Malicious software encompasses a variety of viruses, including ransomware and spyware. It’s often unleashed when an employee clicks on a phishing link, resulting in malware installation. Ransomware can block access to critical data and could shut down a system completely, requiring the organization to pay a ransom to regain access. Spyware allows the transfer of data to the criminals.
Denial-of-service (DOS) attack . DOS attackers overwhelm a victim’s servers, networks or system, eating up their resources and bandwidth. As a result, servers and networks aren’t available for their intended users. Visitors may not be able to reach the organization’s website, or employees might be unable to do their work.

Friends of the Homeless Supply Drive is a Success

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 27 Feb 2023 20:26:29 GMT

Thank you to everyone who contributed donations to the Friends of the Homeless Shelter supply drive this month. Together, the firm collected an impressive number of toiletries and other essentials, including deodorant, toothbrushes and toothpaste, bars of soap, hand warmers, socks, shampoo, tissues, and more.

Team leaders Chelsea and Karen were challenged to locate warm winter items on the shelves of local retail stores, but eventually succeeded! Monetary donations from the employees at MBK allowed them to purchase over 100 disposable hand/toe warmers, 18 winter hats, 9 sets of warm winter gloves/mittens, and 15 travel-size refillable bottles that can be used for shampoo, conditioner, or other liquid soap.

The staff at FOH were blown away with our donations (or perhaps that was the wind) when they dropped off the haul of boxes and bags. The blustery weather this week is a clear reminder that winter is not over yet. It is certain that the guests at FOH will still need these cold weather items in the weeks to come.

To learn more about FOH: https://www.csoinc.org/

Charge it! Nonprofits and credit card issues

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 27 Feb 2023 16:02:28 GMT

Credit cards are a common part of doing day-to-day business for most nonprofits these days. Donors typically use credit cards to make contributions, whether one-offs or recurring, and employees often rely on the cards when procuring supplies and services or traveling on behalf of their organizations. Some nonprofits have, or have considered, so-called “affinity cards” as a way of increasing revenue. Here are some things to think about if your organization finds itself in any of these circumstances.

Taxability of credit card rewards

Credit card rewards — including points, miles and gift cards — generally aren’t considered taxable income by the IRS, especially if they come with a spending requirement. But some exceptions apply, and they could arise if your employees charge expenses for the organization.

For example, if an employee uses a personal card to pay a business expense, and you reimburse the staffer, a cash-back reward on the charge might be taxable income for the employee. If your employees have “corporate” cards and you allow them to keep related rewards for their personal use, the IRS considers the rewards to be taxable income to the employees. Your employees should check with their accountants in these situations, so they don’t trip up at income tax time.

Deductibility of donated rewards

Credit card rewards can also come up in the context of contributions. You may have donors who wish to direct their miles or points to your organization. But they might expect tax benefits they won’t actually receive.

As previously stated, the IRS generally doesn’t treat such rewards as taxable income. The flip side is that the IRS also doesn’t allow taxpayers to claim a charitable deduction for donating rewards. Your donors could, however, get a deduction if they redeem their rewards for cash and then donate the cash.

Treatment of recurring donations as subscriptions

In the fall of 2022, Mastercard implemented a new rule for recurring payments. Among other things, the rule requires businesses with such subscription arrangements to send Mastercard members an email or other electronic communication with opt-out information every time a payment is charged.

Mastercard initially indicated that it would treat recurring donations as subscriptions subject to the new requirements, with the rules beginning to apply to nonprofits on March 22, 2023. The company has since retreated on that stance. While the requirements remain recommended “best practices” for nonprofits, an organization will be required to comply only if its recurring donation program experiences an “excessive” number of chargebacks or consumer complaints for four consecutive months.

Affinity card debate

Nonprofit affinity credit cards — charity-branded cards where the organization receives a percentage of a cardholder’s purchases — have come under criticism in recent years. For starters, the contribution percentage often is quite small. Moreover, if improperly structured, these arrangements could result in unrelated business income tax for the nonprofit.

But the cards can have benefits beyond just the bottom-line contribution revenue. They can, for example, increase engagement with supporters. They also might provide a low-cost marketing benefit, creating awareness and opportunities for users to talk up the organization when they use their cards at checkout. And affinity cards give prospective supporters who don’t want to have to think about it or who otherwise wouldn’t donate an easy way to show support.

We can help

Have questions about the tax or operational implications of various credit card uses at your organization? Give us a call.

How to choose a trustee for your estate

Fri, 24 Feb 2023 20:49:51 GMT

Your estate plan is key to ensuring your assets will be distributed according to your wishes when you die. One of the most significant aspects of your estate plan, however, isn’t to whom the assets will be distributed but who will oversee their distribution. The trustee you choose will play a significant role in managing all of the financial aspects of your estate after your death, so it’s wise to consider this decision carefully.

Individual or professional?

Your first decision in choosing a trustee is whether you’ll designate an individual or a professional (such as an attorney or accountant) trustee. Many people reflexively choose an individual — such as a close friend, spouse or other family member — because they think someone who’s close to them will be best equipped for the responsibility. However, this isn’t always the case, especially with large, complicated estates.

Also, the trustee is responsible for ensuring that all estate planning documents, including your last will and testament, are executed objectively and without bias. The personal feelings of close friends and family members may make it hard for them to accomplish this.

If there isn’t a close friend or family member who you believe is capable of handling trustee duties faithfully and objectively, you could designate a professional trustee instead. You’ll benefit from professional investment management and estate settlement experience while also minimizing the potential impact that family dynamics and emotions could play in the fulfillment of your wishes.

Your professional trustee will be subject to strict fiduciary regulations that ensure decisions are made in the best interests of your estate — not any particular individual or beneficiary. By designating a professional trustee, you can be assured that your estate plan will be executed objectively and unemotionally.

What are the fees involved?

Many bank trust departments and trust companies provide professional trustee services. In addition to handling estate settlement, they may offer other professional services such as investment, financial and tax advice. In addition, they can usually tap into a network of other professionals that can be helpful in the estate settlement process.

Of course, professional trustees charge a fee for their services that typically ranges between 1% and 2.5% of the value of the estate’s assets annually, depending on the size of the estate. So, cost should be a factor in deciding whether to designate an individual or a professional trustee.

If yours is a small and relatively simple estate, and you have a close friend or family member who’s both equipped and willing to serve as trustee, this could be your best option. However, if your estate is large and complex, or you don’t have any good options for designating an individual trustee, you could be better off designating a professional trustee.

There’s a third “hybrid” option: You could designate both a professional trustee and an individual who’d share estate settlement responsibilities and serve as co-trustees together. While there’s potential for this to lead to conflict, if you carefully allocate responsibilities, it could be a way to ensure that you have the best of both worlds. For example, the trustee could handle the more complicated administrative and investment duties while the individual trustee takes care of simpler routine tasks such as paying outstanding bills and taxes.

Make the right choice

One of the best gifts you can provide your heirs is the certainty that any assets left to them will be distributed properly and fairly. The right trustee is essential to ensure your estate will continue to be well-managed into the foreseeable future. We can help you determine the best trustee option for your situation.

Is your cybersecurity up to snuff?

Fri, 24 Feb 2023 20:25:42 GMT

Culture of security

Restricted access

Incident response planning

Annual risk assessments

Assign responsibility

Sidebar: Know your cyberattacks

You’re not alone if you get confused by the various descriptions of cybercriminals’ schemes. Here are some of the most relevant for nonprofits:

Phishing. This generally refers to schemes where cybercriminals trick victims into providing personal information (including login credentials) or clicking on links in emails or texts that infect computers with malware. Many iterations exist, with more emerging.

Malware. Malicious software encompasses a variety of viruses, including ransomware and spyware. It’s often unleashed when an employee clicks on a phishing link, resulting in malware installation. Ransomware can block access to critical data and could shut down a system completely, requiring the organization to pay a ransom to regain access. Spyware allows the transfer of data to the criminals.

Denial-of-service (DOS) attack. DOS attackers overwhelm a victim’s servers, networks or system, eating up their resources and bandwidth. As a result, servers and networks aren’t available for their intended users. Visitors may not be able to reach the organization’s website, or employees might be unable to do their work.

Honoring Longevity and Excellence: February 2023

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 16 Feb 2023 19:57:34 GMT

Congratulating Our Employees on Their Work Anniversaries: February 2023

We would like to extend our warmest congratulations to our employees who are celebrating work anniversaries this month. Your commitment and dedication to MBK have been invaluable, and your hard work does not go unnoticed. Meyers Brothers Kalicka, P.C. recognizes that at the core of our ability to implement on our mission and vision, is our people. The contributions from our employees enable us to better serve our clients, our community and each other.

We celebrate your loyalty, diligence, and enthusiasm for contributing to the success of the firm!

MBK Walks in the Inaugural Winter Walk in Western Mass

Mon, 13 Feb 2023 18:53:05 GMT

Team MBK – Consisting of Mia M. Ian C. Kris H. Keara M walked in person at the in the inaugural Winter Walk in Western MA. Team MBK even had a few remote teammates – Chelsea R & her dog, Donna R & Joanne H. join in on the event by walking in their hometowns that morning.

The Winter Walk is 2 mile walk through the streets of Springfield during the coldest month of the year to raise awareness and funds to end homelessness within our community. It was supported by local organizations that work on preventing, supporting and caring of our homeless community everyday including Mental Health Association (MHA), Center for Human Development (CHD), Clinical & Support Options/ Friends of the Homeless (CSO), Providence Ministries, Springfield Health Services for the Homeless, and Western Massachusetts Network to End Homelessness.

The walk set off at 9:30am at Court Square in Springfield after we listened to speeches from event leaders and a short video. The walk was completed by 11am when we returned to the Square with music from co-pilots to march us in.

The winter walk will continue to fundraise until the end of February so if you would like to support their six partners there is still time! 100% of funds raised by participants goes directly back to them and their work with our homeless community!

For more information about the Winter Walk: https://winterwalk.org/westernma

The IRS Warns Against Improper Employee Retention Claims

sstack@mbkcpa.com (Sarah Rose Stack) — Fri, 03 Feb 2023 20:27:45 GMT

The IRS has issued a warning to employers about the potential for third-party companies exploiting the Employee Retention Credit, urging them to be cautious when engaging in such activities when they may not qualify. Unfortunately, there are a few unscrupulous third parties that are making incorrect claims regarding taxpayers' eligibility and the calculation of the credit.

What is the ERC?

The Employee Retention Credit (ERC) is a refundable tax credit against certain employment taxes for an eligible employer whose business has been financially impacted by coronavirus. This credit was created as part of the CARES Act and then amended in The Consolidated Appropriations Act of 2021 (the “Act”) and the American Rescue Plan to help employers retain employees and cover payroll expenses.

Who is eligible?

All private sector employers, regardless of size, that carry on a trade or business during the calendar year 2020, including tax-exempt organizations may be eligible employers for purposes of claiming the ERC. The IRS has clarified that self-employed individuals are not eligible to claim the ERC against their own self-employment taxes, nor are household employers able to claim the credit with respect to their household employees.

To be eligible for the ERC, employers must have:

Experienced a complete or partial closure of operations as a result of orders from an official governmental entity prohibiting business, travel, or group gatherings in response to the COVID-19 pandemic during 2020 and/or the initial three quarters of 2021.
Experienced a major decrease in gross receipts during 2020 and the first three quarters of 2021, or
Qualified as a recovery startup business for the third or fourth quarters of 2021.
Experienced a notable disruption to their business operations as a result of COVID-19

What should employers be aware of?

The IRS warns employers that making false claims for the Employee Retention Credit (ERC) can result in significant penalties.

Employers should beware of third parties promoting improper ERC claims. If a third party is offering a credit that seems too good to be true, or encourages an employer to make false claims for the credit, it might result in taxpayers being required to repay the credit along with penalties and interest. Employers should also be aware that they may not claim both the ERC and credits provided under other sections of the CARES Act, such as those provided for Paid Sick or Family Leave on the same wages.

Be Cautious

In conclusion, employers should take extra precautions when claiming the Employee Retention Credit and should be suspicious of any third-party offers that seem too good to be true. If you have questions about eligibility, calculations, or the process, you should contact us or consult with your advisor.

For more information and regulations surrounding the ERC, employers should contact the IRS or review their website.

Section 179D: Congress Enhances Tax Deduction for Energy-Efficient Buildings

Mon, 30 Jan 2023 20:47:50 GMT

The Inflation Reduction Act (IRA) significantly enhanced the Section 179D deduction for energy-efficient commercial building improvements placed in service after 2022. Among other things, the IRA nearly tripled the maximum deduction to $5 per square foot under certain circumstances and made it easier for improvements to qualify for the deduction. The IRA also expanded eligibility for the deduction to include real estate investment trusts (REITs) as well as designers of buildings owned by nonprofit organizations, religious organizations, tribal organizations, and nonprofit schools or universities.

Deduction basics

For more than 15 years, the Sec. 179D deduction has allowed owners of new or existing commercial buildings to deduct the cost of certain improvements. The deduction is also available to tenants who make improvements and to certain designers (such as architects or engineers) of government-owned buildings. Originally, the maximum deduction was $1.80 per square foot, but legislation passed in 2020 called for that amount to be adjusted for inflation. In 2022, the maximum deduction was $1.88 per square foot.

The Sec. 179D deduction is available for new construction as well as additions to or renovations of commercial buildings of any size. (Multifamily residential rental buildings that are at least four stories above grade also qualify.) Eligible improvements include depreciable property installed as part of a building’s interior lighting system, HVAC and hot water systems, or the building envelope.

Previously, to be eligible, an improvement had to be part of a plan designed to reduce annual energy and power costs by at least 50% relative to applicable industry standards, as certified by an independent contractor or licensed engineer. Partial deductions (up to 63 cents per square foot) were also available for improvements to any one of the previously mentioned building systems that achieved certain energy savings.

IRA enhancements

The IRA makes it easier to qualify for the deduction by reducing the minimum required energy savings from 50% to 25%. It also eliminates partial deductions. Instead, the base deduction is calculated using a sliding scale, ranging from 50 cents per square foot for improvements that achieve 25% energy savings to $1 per square foot for improvements that achieve 50% energy savings.

Projects that meet specific prevailing wage and apprenticeship requirements are eligible for bonus deductions. Such deductions range from $2.50 per square foot for improvements that achieve 25% energy savings to $5 per square foot for improvements that achieve 50% energy savings.

In another big change, the IRA allows taxpayers to claim a Sec. 179D deduction for the same building as often as every three years (four years in some cases). Previously, the $1.88 per square foot maximum was a lifetime cap.

Previous improvements

If you believe you’re eligible for Sec. 179D deductions for energy-efficient improvements made in previous years, it might not be too late to claim them. One option is to amend your return for the tax year in which the improvements were made. Generally, you have three years from the date the original return was filed to file an amended return.

Another option, which doesn’t require an amended return, is to file Form 3115, “Application for Change in Accounting Method,” to claim catch-up deductions in the current tax year. This option is available only for building owners or tenants, not designers. Keep in mind that if you claim Sec. 179D deductions for previous years, they’ll be based on the version of Sec. 179D that was in effect when the improvement was placed in service.

Energy efficiency pays off

Investing in making a building greener can pay off, not only in reduced energy costs, but also in valuable tax deductions. Contact your tax advisor for more information.

Consider the Use of an ILIT to Avoid Estate Tax

Mon, 30 Jan 2023 20:31:33 GMT

Holding a life insurance policy can provide peace of mind if you have concerns about your loved ones’ financial well-being after your death. Whether you “hold” the policy or a trust holds the policy can result in different tax outcomes. In short, if you’re left holding the policy at death, its proceeds will be included in your taxable estate and may be subject to estate taxes. To avoid this result, consider creating an irrevocable life insurance trust (ILIT) to hold the policy.

Learn the basics

Life insurance proceeds will be included in your estate if you possess any “incidents of ownership.” This goes beyond mere ownership of the policy. If you have the right to amend the policy — say, by changing beneficiaries — or you can borrow against the cash value, it’s treated as an incident of ownership.

A common method for avoiding these estate tax complications is to use an ILIT. This may be accomplished by setting up the trust as the owner of the policy when the coverage is purchased or by transferring an existing policy to the trust.

For starters, the trust must be “irrevocable,” as the name states. In other words, you must relinquish any control over the ILIT, such as the right to revise beneficiaries or revoke the trust. You shouldn’t be the trustee of the ILIT that owns insurance on your life. Generally, such an arrangement will be treated as an incident of ownership. You can, however, name another family member or a knowledgeable professional as the trustee.

Typically, you’ll designate the ILIT as the primary beneficiary of the policy. Upon your death, the proceeds are deposited into the ILIT and held for distributions to the trust’s beneficiaries. In most cases, this will be your spouse, children, grandchildren or other family members.

Beware the pitfalls

There are a few pitfalls to watch out for when transferring an insurance policy to an ILIT. For example, if you transfer an existing policy to the ILIT and die within three years of the transfer, the proceeds will be included in your taxable estate. One way to avoid this is to have the ILIT purchase the policy on your life and then fund the trust with enough money over time to pay the premiums.

Note that the ILIT must be funded so the trust is able to pay the premiums on the policy. Choose a separate bank account to be used for this purpose.

Preserve your wealth

Life insurance is a powerful estate planning tool. It creates an instant source of wealth and liquidity to meet your family’s financial needs after you’re gone. To shield its proceeds from estate taxes, thus ensuring more money for your loved ones, consider transferring your policy to an ILIT. Your estate planning advisor can help with this process.

Navigating Inflation: Chart a Course for Success

Mon, 30 Jan 2023 20:20:06 GMT

With prices jumping more than 8% over the past year or so, it’s not surprising that a majority of small business owners recently said they’re concerned about the impact of inflation. That’s according to the September 2022 MetLife and U.S. Chamber of Commerce Small Business Index. Inflation certainly presents challenges, yet you can act to help your business survive — and possibly even thrive — during these volatile economic times.

How to stay afloat

Here are some steps that can help your business stay solvent:

Act prudently, but swiftly. Given the typically temporary nature of inflation, it can be tempting to assume it won’t be a challenge in a few months. Although waiting may be a good strategy in some cases, not taking action may lead to even more difficult decisions — say, cutting workers’ hours rather than reducing salary increases.

Review inflation’s impact by product line. This will help you determine if changes to your product mix are warranted. For instance, it may make sense to boost production of an item that appeals to customers who are budget-conscious.

Identify opportunities to save. While it’s always important to watch for extraneous expenses, it becomes even more necessary when prices are rising. If raw material prices jump, consider whether it makes sense to use other suppliers. When possible, get multiple bids for items like insurance and phone contracts. Can you reduce packaging, saving both money and natural resources? If your cash flow and space can handle it, consider stocking up on supplies, thus mitigating the impact of future price increases. Also review longer-term expenses. If more employees are working remotely, you might be able to reduce office space, or explore relocating to lower-cost regions of the country.

Review staffing. This doesn’t necessarily mean cutting headcount. You might be able to take less drastic steps first. These might include putting a freeze on hiring and salary increases and limiting overtime. You may want to invest a modest amount to cross-train employees. They can then handle additional functions, which may allow you to hold off on additional hires or minimize overtime.

Check your credit. Interest rates may continue to rise, so you’ll want to determine if it makes sense to secure a loan or a line of credit sooner rather than later. Having funds available can provide breathing room and allow you to take advantage of opportunities, like investing in automation solutions.

Keep employees in the loop. Especially in an uncertain economy, employees tend to worry about their jobs. Keeping quiet about the company’s outlook may exacerbate this stress and cut into productivity. By sharing your outlook for the company to some extent, you can calm fears. Plus, letting employees know how their work can contribute to the company’s ability to navigate the current challenges may spark ideas that can boost performance. For example, they may come up with ways to cut expenses.

Consider investing in technology. Solutions that boost productivity and efficiency can blunt the impact of inflation. Technology that improves the customer experience may boost customer loyalty — a key attribute when customers may be skittish about spending.

Review prices. Refusing to consider price increases during an inflationary period can put your business at risk. While few customers welcome price increases, many understand the need for them. You’ll want to communicate with clients before making changes, so they can adjust their own budgets.

Monitor cash flow. Watch accounts receivable and reach out if you see clients significantly falling behind. If they continue to struggle to pay their bills, you may need to decide whether you can afford to continue working with them.

How to prudently leverage opportunity

An inflationary period can offer opportunity, as some products and markets tend to do well in this environment. For instance, you might be able to gain market share by targeting affluent customers who aren’t as impacted by higher prices.

The optimal combination of steps will vary by company. Your accounting professional can work with you to identify the actions most likely to help your organization withstand an inflationary environment and stay profitable over the long haul.

Get Ready for Tax Season

sstack@mbkcpa.com (Sarah Rose Stack) — Tue, 24 Jan 2023 16:05:25 GMT

Tax season is officially among us. With the right steps and proactive planning, you can take control of your taxes and ensure that everything is filed correctly and on time. The 2022 tax filing is currently set to complete with the normal deadlines, so be sure to get your taxes in order before the filing deadlines, April 18th for federal returns and Massachusetts returns.

How will you file your 2022 taxes?

Will you be preparing your return yourself, or will you hire someone to file on your behalf? Have a plan in place now, so you know what required information you need to have at hand, and what you expect to pay for completion of all needed forms. If you will be using a new tax preparer for 2022, they will ask for a copy of your prior year return in addition to all relevant documents for your 2022 tax filing.

The IRS also offers a Free File program if your income is below $73,000. Go to IRS.gov or see the IRS2Go app to see your options. You may also qualify for local tax assistance through programs like Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE).

How to assist your tax preparer in preparing your return

Make this tax season smooth by getting your paperwork organized early. The sooner you file, the sooner you can put 2022 in the past and focus on a great outlook for 2023.

Records are key, and documentation is paramount, things to think about when getting ready. Make a note of changes to your life – Births, marriage, age milestones (dependents, seniors); amd changes to your financial situation, large raise, retirement, etc.

Below is a list the most common required forms and items to gather, as well as a few other things for you to consider as you prepare for filing your 2022 tax return. Please note that this list is not exhaustive because everyone's tax situation is different.

Documentation of Income:

W-2 - Wages, Salaries and Tips
W-2G – Gambling Winnings
1099-Int & 1099-OID – Interest income statements
1099-DIV – Dividend income statements
1099-B – Capital Gains – sales of stock, land, and other items
1099-G – Certain Government Payments
Statement of State Tax Refunds
Unemployment Benefits
1099-Misc – Miscellaneous Income
1099-NEC – Independent contractor income
1099-S – Sale of Real Estate (home)
1099-R – Retirement Income
1099-SSA – Social Security income
K-1 – Income from Partnerships(1065), Trusts (1041) and S-Corporations (1120S)

Itemized Deductions:

Medical expenses - out of pocket (limited to 7.5% of Adjusted Gross Income)
Medical insurance (paid with post-tax dollars)
Long term care insurance
Prescription medicine and drugs
Hospital expenses
Long-term care expenses (in-home nurse, nursing home etc.)
Doctors and dentist payments
Eyeglasses and contacts
Miles traveled for medical purposes
State and Local taxes you paid (Limited to $10,000)
State withholding from your W-2
Real estate taxes paid
Estimated state tax payments and amount paid with prior year return
Personal property (excise)
Interest you Paid
1098-Misc – Mortgage Interest Statement
Interest paid to private party for home purchase
Qualified investment interest
Points paid on purchase of principal residence
Points paid to refinance (amortized over life of loan)
Mortgage insurance premiums
Gifts to Charity
Cash and check receipts from qualified organization
Non-cash items need a summary list and responsible gift calculation (IRS tables). If the gift is valued more than $5,000 a written appraisal is required.
Donation and acknowledgement letters (over $250)
Gifts of stocks – you need the market value on the date of gift

Additional Adjustments:

1098-T – Tuition Statement
Educator expenses (Up to $300)
1098-E - Student Loan Interest Deduction
5498 HSA – Health Savings Account contributions
1099-SA - Distributions from HSA
Qualified Child and Dependent Care Expenses
Verify any estimated tax payments (does not include taxes withheld)

Other considerations

Use your resources

The Interactive Tax Assistant (ITA) is an IRS online tool (IRS.gov) to help you get answers to several tax law items. ITA can help you determine what income is taxable, which deductions are allowed, filing status, who can be claimed as a dependent, and available tax credits. You can also visit https://www.mbkcpa.com/2022-tax-filing to find more resources for assistance with your 2022 tax filing including blogs on the latest changes and links to useful IRS and state resources.

Be vigilant

Be especially careful during this time of year to protect yourself against those trying to defraud or scam you. The IRS will NEVER call you directly unless you are already in litigation with them. They will not initiate contact by email, text, or social media. The IRS will contact you by US mail. However, you still need to be wary of items received by mail. Anything requesting your social security number, or any credit card information is a dead giveaway for scam identification. Watch out for websites and social media attempts that request money or personal information. You can check the IRS.gov website to research any notice you receive or any concerns you may have. You can also contact your tax practitioner for assistance.

What if you have been compromised?

Contact IRS Identity Protection Specialized Unit (800-908-4490)
File Form 14039 Identity Theft Affidavit
Paper file your return

In addition, we recommend you take further steps with agencies outside the IRS:

Report incidents of identity theft to the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.
File a report with the local police.
Contact the fraud departments of the three major credit bureaus:
Equifax – www.equifax.com, 800-525-6285
Experian – www.experian.com, 888-397-3742
TransUnion – www.transunion.com, 800-680-7289
Close any accounts that have been tampered with or opened fraudulently.

Identity Protection PIN (IP PIN)

If you are a confirmed identity theft victim, the IRS will mail you a notice with your IP PIN each year. You need this number to electronically file your tax return.

File with confidence

Make this tax season smooth by getting your paperwork organized early and letting your tax preparer know about any changes to your life or financial situation. The sooner you file, the sooner you can put 2021 in the past and focus on a great outlook for 2022.

SECURE 2.0 Act of 2022 Introduces New Rules and Incentives to Promote Retirement Plans

Tue, 24 Jan 2023 15:22:39 GMT

The 2019 legislation included changes that affected traditional 401(k)s and IRAs, such as expanded eligibility for opening a Roth IRA, new requirements for minimum distributions from retirement accounts, and incentives for small businesses to offer retirement plans. The law also included provisions to benefit those who are retired or disabled, such as increasing the age at which a person must begin taking required minimum distributions from 70.5 to 72.

The commonly referred to SECURE 2.0 Act (the Consolidated Appropriations Act of 2023 / HR 2617) was signed into law on December 29, 2022. The SECURE Act 2.0 ("The Act") bolsters the benefits offered in 2019's version, making it more enticing for employers to provide retirement plans and improve employees' retirement prospects along the way.

We've summarized some of the provisions, but keep in mind that The Act includes over 90 provisions that potentially affect retirement savings plans.

Mandatory Automatic Enrollment

Effective for plans beginning after December 31, 2024, new 401(k) and 403(b) plans must automatically enroll employees when eligible. Automatic deferrals start at between 3% and 10% of compensation, increasing by 1% each year, to a maximum of at least 10%, but no more than 15% of compensation. Participants can still opt out.

Automatic Escalation

Beginning in 2025, for new retirement plans started after December 29, 2022, contribution percentages must automatically increase by one percent on the first day of each plan year following the completion of a year of service until the contribution reaches at least 10%, but no more than 15%, of eligible wages. Governmental organizations, churches, and businesses with 10 employees or less as well as employers in business for three years or fewer are exempt from this policy.

Expanded Eligibility for Long-Term, Part-Time Employees

Under current law, employees with at least 1,000 hours of service in a 12-month period or 500 service hours in a three-consecutive-year period must be eligible to participate in the employer’s qualified retirement plan. SECURE 2.0 reduces that three-year rule to two years for plan years beginning after December 31, 2024.

Increase in Catch-Up Limits

Effective after tax year 2024, SECURE 2.0 provides a notable rise in the amount of contributions for those aged between 60 to 63. Generally, the additional catch-up limit for most plans is $10,000 and only $5,000 for SIMPLE plans. These amounts are subject to inflation adjustment just like the normal catch-up contributions.

Furthermore, those over 50 years of age are eligible for increased contribution limits on their retirement plans (known as “catch-up contributions”). For 2023, the maximum catch-up contribution amount has been set to $7,500 for most retirement plans and will be subject to inflation adjustments.

Rothification of Catch-Up Contributions for High Earners

For plans that permit catch-up contribution, and are being made by a High earners ($145,000 in paid wages from the employer sponsoring the plan the preceding year, indexed to inflation) can no longer enjoy the privilege of tax-deferred catch-up contributions as their contribution need to be characterized as designated Roth contributions

Treatment of Student Loan Payments for Matching Contributions

Starting in 2024, student loan payments can be treated as part of your retirement contribution to qualify for employer-matched contributions in a workplace retirement account. Employers will have the flexibility to provide contributions to their retirement plan for employees who are paying off student loans instead of saving for retirement.

Emergency Savings Accounts

Starting in 2024, retirement plans will have the option of providing "emergency savings accounts" which allow non-high paid employees to make after-tax Roth contributions to a savings account within their own retirement plan. Employers may automatically opt employees into these accounts at no more than three percent of eligible wages. Employees can opt out of participation. No further contributions can be made if the savings account has reached $2,500 (indexed), or a lesser limit established by the employer. The Department of Labor and/or the Treasury Department may issue guidance on these provisions.

Withdrawals for Certain Emergency Expenses

Penalty-free distributions are allowed for “unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses” up to $1,000. Only 1 distribution may be made every 3 years or one per year if the distribution is repaid within three years. Penalty-free withdrawals are also allowed for small amounts for individuals who need the funds in cases of domestic abuse or terminal illness.

Federal Contribution Match

Starting in 2027, low-income employees can gain access to a federal matching contribution of up to $2,000 each year that will be deposited into their retirement savings account. The matching contribution is 50 percent of the contributions, but it decreases according to income. For example, married taxpayers filing jointly between $41,000 and $71,000 and single taxpayers between $20,500-$35500.

Required Minimum Distributions (RMDs)

Beginning January 1, 2023, the age for required minimum distribution from an IRA is increased to the age 73. Starting in 2033, the RMD age will be 75. (IRA owners turning age 72 in 2023 would not be required to take RMDs in 2023.) Furthermore, the penalty for not taking your RMD has been decreased from 50% of what was required to be withdrawn to 25%, and even further down to 10% if corrected within two years.

Facilitation of Error Corrections

The Act expands the self-corrections system, allowing more types of errors to be fixed internally without having to amend returns in the Employee Plans Compliance Resolution System.

Immediate Incentives for Participation

At this moment, employers use matching contributions as a means to motivate employees to save for their retirement. Beginning in 2023, employers can incentivize employees with gifts cards or other small monetary rewards to increase engagement, although any financial rewards should be small and cannot come from retirement plan assets.

In summary, the SECURE Act 2.0 provides many new benefits and opportunities to save for retirement. It allows employers to offer more flexible contributions and encourages employees with incentives to become engaged in their own financial health. With reduced penalties and expanded self-correction rules, this act gives Americans more control over their retirement savings, allowing them to become better prepared for their future. As always, it's important to consult with your advisor for advice as guidance and changes to provisions are expected, and everyone's situation is unique.

Minimize the risks to your volunteers

sstack@mbkcpa.com (Sarah Rose Stack) — Tue, 24 Jan 2023 15:00:30 GMT

Minimize the risks to your volunteers

For many volunteers, possible legal and tax liabilities that may result from their service to your organization would never cross their minds. And it’s usually not a big consideration for nonprofit organizations either. But failing to review possible ways your volunteers can become subject to either legal or tax liabilities can put your volunteers and your organization at risk. Let’s take a closer look.

Legal liabilities

Volunteers face a real risk of being sued for their actions (or inactions) while performing services for your organization. The risk is particularly significant with nonprofits that provide medical services or work with vulnerable populations. But even such simple tasks as driving can result in litigation.

The federal Volunteer Protection Act of 1997 offers some degree of defense for volunteers acting within the scope of their responsibilities. Many states have passed similar laws to shield volunteers. But the liability can vary significantly from state to state, with different limits, conditions and exceptions. For example, Alabama provides broad coverage in the absence of “willful or wanton misconduct.” Michigan, on the other hand, protects volunteer directors and officers only if the nonprofit expressly assumes liability for claims in its articles of incorporation.

Volunteer protection laws, however, don’t preempt the need for appropriate insurance coverage. In fact, some state laws explicitly require nonprofits to carry insurance to limit volunteer liability.

Reducing risk

To minimize risk, organizations should carry comprehensive general liability insurance that specifically covers volunteers, as well as directors and officers liability insurance. If volunteers will operate vehicles for your organization, check whether your auto insurance covers them. Add them as additional insureds, if necessary. Larger organizations might consider amending their bylaws to include a broad indemnification clause for volunteers when the claims against them exceed insurance limits.

Also consider implementing processes and procedures to control the risks of harm or injury caused by volunteers. For instance, you should devote time upfront to screen and train volunteers appropriately, and restrict certain client-facing activities to employees.

Tax liabilities

The possibility that federal or state taxing authorities might come after people because of their volunteer activities doesn’t necessarily spring to mind as an obvious risk. But it can happen. For example, you could inadvertently create taxable income for your volunteers if you provide them benefits such as services or compensation beyond reimbursements for actual out-of-pocket expenses incurred. Reimbursements that exceed actual expenses are considered taxable.

If your volunteers sometimes need to cover costs with their own money (such as picking up supplies for an event), inform them beforehand — in writing and verbally — that they must provide receipts of their spending on the organization’s behalf. This may seem burdensome to people just trying to do some good, so explain that it’s for their own protection as well as that of the organization.

Protect your most valuable assets

Volunteers contribute critical services, freeing up employees to work on other vital matters, and rank among most nonprofits’ most valuable assets. That’s why it’s important to take steps to minimize their risk of tax or legal liabilities. Start by talking with both your legal and insurance advisors to ensure you’re covering your volunteers.

What method should you use to deduct business vehicle expenses?

sstack@mbkcpa.com (Sarah Rose Stack) — Tue, 24 Jan 2023 14:55:55 GMT

What method should you use to deduct business vehicle expenses?

Do you use your personal vehicle — say, a passenger car, van or pickup truck — for business driving? If you do, you can generally deduct expenses attributable to the use of the vehicle, just like one that’s owned by the business. But there may be numerous twists and turns along the way.

Significantly, you can deduct only the portion of your overall expenses that’s attributable to your business use. Strict record keeping is important. There are two ways to arrive at a deduction for the current year — the actual expense method or the standard mileage rate.

Using the actual expense method

As its name implies, the actual expense method allows you to deduct actual expenses attributable to business use of the vehicle, including gas, oil, tires, insurance, repairs, licenses and registration fees. Also, you may claim a sizeable depreciation deduction for the vehicle, based on the percentage of business use. For instance, if you use a passenger car 80% for business purposes, you’re entitled to a depreciation deduction of 80% of the allowable amount.

However, be aware that annual depreciation deductions are limited by special “luxury car” rules (though recent legislation authorized 100% first-year bonus depreciation in addition to other allowable depreciation). For 2022, an $8,000 bonus depreciation can be tacked onto regular depreciation, for a maximum total of $19,200 based on 100% business use.

Notably, if you use the actual expense method, you must account for every single expense as well as maintain detailed records for every business trip. This includes a contemporaneous log listing mileage for each business trip, the date of the trip, the destination, the names and relationships of the business parties involved, and the business purpose of the travel. That’s a lot of record keeping!

Using the standard mileage rate

Alternatively, you can use the standard mileage rate approved by the IRS. This figure is updated on an annual basis. Initially, the IRS set the rate for 2022 at 58.5 cents per business mile traveled (plus business-related tolls and parking fees). But then, due to rising gas prices, it raised the rate to 62.5 cents per business mile for the last six months of the year. (As of this writing, the rate for 2023 hadn’t been announced yet.)

If you use this method, you don’t have to account for all your actual expenses, but you still must keep records of the mileage for each business trip, the date, the destinations, the names and relationships of the business parties, and the business purpose of the travel.

Finally, the standard mileage rate isn’t available if you:

Use five or more cars at a time (for example, fleet operations),
Claimed an accelerated depreciation deduction for the vehicle in the past,
Claimed a Section 179 deduction for the vehicle in the past,
Claimed actual expenses after 1997 for a vehicle that’s leased, or
Are a rural mail carrier who has received a qualified reimbursement.

The actual expense method will often produce a bigger deduction, especially if you drive relatively few business miles during the year, because you benefit from the depreciation allowance based on business use. But you must keep all the records needed support your claims. (See “A dollar-and-sense example” below.)

End of the road

Admittedly, it’s a hassle to keep all the extra records required to claim deductions under the actual expense method, but it may be worthwhile. Conversely, you may prefer the convenience of the standard mileage rate. We can provide the guidance you need.

A dollar-and-sense example

Various factors come into play when you compare the actual expense method with the standard mileage rate method for a new vehicle, but this simplified example will give you a good idea of how things may work out.

Suppose you typically drive 1,000 business miles per month in your personal car, or 12,000 miles for the entire year. Factoring in the cost of the vehicle and your percentage of business use, let’s say that your total depreciation allowance for 2022 is $17,000.

Based on a conservative estimate, you figure out the cost of driving the car, including all the expenses stated above, is 50 cents a mile. In addition, you incur $500 in business-related parking fees and tolls during the year.

Here’s how it breaks down in 2022 under each method.

The actual expense method. Using this method, you can deduct $6,500 for business mileage and parking fees (12,000 miles x 50 cents per mile + $500), plus $17,000 in depreciation, for a total of $23,500.
Standard mileage rate. With this rate, your deduction is limited to $7,760, calculated as $3,510 (58.5 cents x 6,000 miles) plus $3,750 (62.5 cents x 6,000 miles) plus $500.

In other words, you come out a whopping $12,740 ahead if you use the actual expense method ($20,500 - $7,760). Of course, the figures for your situation will vary, but the numbers generally favor the actual expense method.

Note that you can usually switch from using the standard mileage rate in previous years to the actual expense method in the current year, but not the other way around. So, you may start using the actual expense method on your 2022 return if you can support your claims.

Honoring Longevity and Excellence: January 2023

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 16 Jan 2023 18:32:13 GMT

Congratulating Our Employees on Their Work Anniversaries: January 2023

We celebrate your loyalty, diligence, and enthusiasm for contributing to the success of the firm!

Remote Audits: The New Normal

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 16 Jan 2023 18:13:16 GMT

What to expect in a remote audit

During the early phase of the COVID-19 pandemic, audit firms and their clients scrambled to adapt to performing remote audits. Although the pandemic’s grip has loosened, some firms are continuing to conduct remote audits — and they could stick with this approach for the long term. Here’s what you need to know to make the process as efficient and painless as possible.

Initial meeting is critical

As in the past, your relevant staff will meet with the audit team to discuss, among other things, significant occurrences during the audit period and any challenges facing your organization. This is also when expectations and timelines should be set. For example, will your employees involved in the audit be working remotely or in the office? When do they need to be available? What kind of lead times are required? What are the due dates for schedules and other audit work papers?

To reduce delays, you also should establish your communication preferences, including the frequency of video conferences and the means and timing of when the auditors should relay open items and other requests.

Assumptions may require revision

COVID-19 and the rocky economy of the past few years have likely disrupted many aspects of your operations. With that in mind, don’t be surprised if your auditors approach the audit almost like the audit of a new client.

In particular, you might find that assumptions that previously garnered little scrutiny — because they might have been reasonable for years — get more attention. Auditors must determine whether historical assumptions are still valid in light of recent events and conditions.

Internal control issues may have changed

When organizations moved to remote work in 2020, some were better prepared than others. Those that hadn’t yet shifted to a primarily digitized environment (from documentation to invoice approval and bill payment) should have adopted new controls as they made the shift. But the rushed nature of the transition could have left some gaps. This may be particularly true if you were short-handed and required employees to wear multiple hats.

Requisite testing of these controls could prove more difficult in a remote environment. You may need to consult with your auditors to determine how best to test the design and implementation of your controls, because it might not be possible to observe them in real time. Will it suffice to have an employee walk the auditors through over a video feed? Or will the auditors require live feeds so they can get a truer picture of how things are done, rather than a more selective view presented by an employee?

Fraud is a stronger focus

The unusual circumstances of the past few years have created a variety of new fraud risks. For example, employees who were facing big bills or felt like they were doing more than their fair share of work may have had an easier time rationalizing embezzlement. And gaps in internal controls might have provided greater opportunities for those inclined to perpetrate fraud.

For these reasons, your auditors may pay more attention than they traditionally have to changes in key employees, third parties who have access to your systems and other points of potential vulnerability.

Generalizations won’t cut it

The effects of the pandemic on nonprofits’ financials have been far-reaching and well documented. They include significant declines in revenue, higher expenses, below-average returns on investments and budget deficits. Internally, you and your staff likely understand such variances as simply “due to COVID-19.”

That likely won’t satisfy your auditors, though. They’ll quantify variances and expect detailed explanations from you, with supporting documentation. The sooner you prepare these, the quicker the audit will go.

Longer but more structured

Change is always difficult, especially in something as inherently fraught as your audit. But remote audits, with their more streamlined structure, ultimately can make the process less time-consuming and stressful for your staff. In fact, you may find you prefer remote audits yourself.

Sidebar: Leverage technology for a better audit experience

Many nonprofits, particularly those with smaller budgets, tend to lag behind the curve when it comes to technology. But making technological investments can lead to more efficient operations and less burdensome audits, remote or otherwise.

Remote audits will prove very difficult for organizations that aren’t equipped with high-quality hardware and software for tasks like video conferencing, screen sharing, file sharing and document scanning. Email alone won’t cut it. Neither the auditor nor your staff will enjoy dealing with prolonged strings of emails when questions need to be answered and documentation provided.

It's also worth exploring migrating to a cloud-based general ledger. This can facilitate easy access for both remote employees and auditors. And adopting automated accounts payable can reduce human error, strengthen internal controls and cut costs.

New Law Upgrades Home Energy Credits

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 16 Jan 2023 18:07:17 GMT

The new Inflation Reduction Act (IRA), signed in August of 2022, rewards homeowners for going green. Now you may qualify for either or both of two enhanced tax credits: the “residential clean energy credit” (previously the energy-efficient property credit) and the “energy-efficient home improvement credit” (previously the “nonbusiness energy property credit”).

Let’s cut to the chase — here’s a brief overview of what you need to know.

Residential clean energy credit

The IRA extends this credit, which was previously scheduled to expire after 2023, through 2034. Currently, the residential clean energy credit is available for installing solar panels or other equipment to harness renewable energy sources like wind, geothermal, biomass or fuel cell energy.

Besides the extension, the IRA also increases the credit amount. Under prior law, the credit was set to decline to 23% in 2023 before it disappeared completely in 2024. Instead, the new law boosts the credit to 30% from 2022 to 2032 before it drops to 26% for 2033 and then 22% for 2034. The credit expires after 2034, barring any further legislative action by Congress. Note also that specific special rules may apply. For example, the credit for fuel cell equipment is limited to $500 for each one-half kilowatt of capacity.

Energy-efficient home improvement credit

The IRA also makes changes to the energy-efficient home improvement credit for making energy-saving installations. Technically, the credit expired after 2021. The basic credit was 10% of qualified expenses, but dollar caps applied to certain specific items. Also, there was a lifetime limit of $500 on the credit.

In addition to reviving the credit for 2022, the IRA boosts the credit amount to 30%, beginning in 2023. It expands eligibility to certain biomass stoves and boilers, electric panels, and related equipment and home energy audits, but eliminates eligibility for roofing and air-circulating fans.

Notably, the IRA replaces the $500 lifetime limit with a $1,200 annual limit, providing far more flexibility to homeowners. Finally, it modifies the dollar caps for some items as follows:

$150 for home energy audits,
$250 for each exterior door ($500 total),
$600 for exterior windows and skylights, central air conditioners, electric panels and certain related equipment, natural gas, propane or oil water heaters, natural gas, propane or oil furnaces or hot water boilers, and
$2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers (this supersedes the usual $1,200 annual limit).

Beginning in 2025, homeowners must include the manufacturer’s product identification numbers on their tax returns. The revamped credit can be claimed through 2032.

Meyers Brothers Kalicka, P.C. Announces 2023 Promotions

Thu, 05 Jan 2023 19:24:16 GMT

Meyers Brothers Kalicka, P.C. is proud to announce the following promotions:

Samantha Calvao, Associate
Andrea Latour, Associate
Mallory Beauregard, Senior Associate
Olivia Calcasola, Senior Associate
Lauren Foley, Senior Associate
Keara Moulton, Senior Associate
Kelly Moulton, Senior Associate
Francine Murphy, Senior Associate
Sarah Rose Stack, Director of Marketing & Recruiting

Samantha Calvao, Associate

Andrea Latour, Associate

Mallory, Beauregard, Senior Associate

Olivia Calcasola, Senior Associate

Lauren Foley, Senior Associate

Keara Moulton, Senior Associate

Kelly Moulton, Senior Associate

Francine Murphy, Senior Associate

Sarah Rose Stack, Director of Marketing and Recruiting

Tips for Navigating a Tough Labor Market

Thu, 05 Jan 2023 14:00:02 GMT

Employers in all sectors are facing a tight job market. Posted positions may remain empty for months, and some employees seem to have few qualms about jumping ship, due in part to changes in worker expectations. But the situation doesn’t have to be dire for savvy nonprofits willing to adapt to the current circumstances.

The nonprofit advantage

The so-called Great Resignation has seen millions of people voluntarily leave their jobs, presumably for greener pastures. According to the U.S. Bureau of Labor Statistics, the “quit rate” hit record highs in November and December 2021, at 3% of total employment — about 4.4 million individuals per month. The number has since fallen but not by much: The 2.7% quit rate in July 2022 translated to about 4.2 million individuals.

In other words, many talented people have been looking for new positions. The promising news for nonprofits is that a number of these individuals, especially younger workers, left their prior jobs because they crave work that’s more meaningful to them. Nonprofits — with their mission-based focus — have a natural competitive advantage in this area.

Ways to seize the opportunity

Your nonprofit can be proactive about leveraging this advantage. Here’s how:

Emphasize your mission. Leading with your mission will attract job candidates who share your values. Your mission-related outcomes and impacts will likewise affect them, so don’t be shy about including outcome statistics in your recruitment materials and talking them up during interviews.
Be explicit, too, about how an applicant’s work would contribute to your mission. Explain how they may be able to make a tangible and positive difference in their community. Perhaps include testimonials from current employees and some of the constituents you serve.
Rethink how work gets done. The pandemic has made clear that the old ways aren’t the only ways to achieve your mission. To appeal to the employees who have grown wary or tired of traditional approaches, think about how you can shake things up. Start by reviewing your long-standing procedures and practices (including meetings) to determine which are truly productive and which are simply “how it’s always been.”
Moreover, it’s time to value employees for their contributions. Focus more on the value they add, rather than when, where or how they do their work. This allows you to offer the flexibility that so many employees — especially women, who have long accounted for the majority of the nonprofit workforce — are prioritizing.
Walk the walk on culture. Talk about the role of workplace culture is nothing new, but it has seemed to increase recently. The “Me Too” movement, COVID-19 and racial justice protests prompted many organizations to respond with related policies and statements. But actions speak louder than words, as employees will tell you.
Demonstrate your commitment to your employees and their well-being by, for example, advocating employee self-care and work-life balance. Encourage them to take the time off they’re entitled to. Create channels for transparent two-way communication, giving employees the opportunity to voice concerns and ideas without fear of negative consequences. Asking employees about what they value is the first step to keeping them satisfied and onboard.

Be the greener pasture

The changing labor landscape has many employers scrambling, but it could work out to your advantage. Recognizing the signals employees are sending and responding appropriately could help you attract high-quality employees whose values align with those of your organization.

Timely Tax Tips for Individuals, Estates, and Businesses

Wed, 04 Jan 2023 14:00:00 GMT

Now may be the time for a Roth conversion

If you’ve watched the value of your retirement accounts shrink in recent months, there may be a silver lining: It’s an ideal time to convert your IRA or 401(k) plan into a Roth account. Roth IRAs and Roth 401(k)s offer many attractive benefits, including tax-free withdrawals of earnings and contributions and no required minimum distributions when you reach age 72. When you convert a traditional account into a Roth account, the amount you convert is fully or partially taxable in the year of conversion. But doing a conversion when the value of your account has dipped generally minimizes the overall tax hit.

Rising interest rates boost interest in certain estate planning vehicles

High interest rates favor certain estate planning vehicles over others. For example, charitable remainder annuity trusts (CRATs) are more effective when interest rates are high. Why? Because their performance is tied to an IRS-prescribed interest rate called the Section 7520 rate. A CRAT pays the donor income for life or a term up to 20 years, after which its remaining assets are given to charity. When you contribute assets to a CRAT, you’re entitled to a charitable income tax deduction (subject to applicable limits) equal to the present value of the charity’s remainder interest. A higher Sec. 7520 rate equates with a higher value for the remainder interest — and a bigger tax deduction.

Qualified personal residence trusts (QPRTs) also perform better as interest rates increase. On the other hand, grantor retained annuity trusts (GRATs), charitable lead annuity trusts (CLATs) and intentionally defective grantor trusts (IDGTs) tend to do better when interest rates are low.

Sales tax nexus inquiry letters: Handle with care

Most states impose sales tax collection obligations on out-of-state businesses that have a nexus, or connection, with the state. Nexus may be based on 1) a physical presence in the state (brick-and-mortar outlets, for example) or 2) an economic presence in the state (usually based on a particular sales level).

In an effort to determine whether out-of-state businesses are subject to their sales tax laws, many states send out “nexus inquiry letters” to businesses they believe may have a nexus with the state. If your business receives one of these letters — which are often in the form of a questionnaire — handle your response carefully. Typically, these questionnaires consist primarily of yes/no questions that can make it difficult to convey the nuances of your company’s activities in the state. To avoid inadvertently triggering further inquiry or even a sales tax audit, consult your tax advisor before responding. Consider preparing a letter describing your activities in lieu of the questionnaire, if permitted.

How to Make a Family Vacation Home Work for You

Tue, 03 Jan 2023 16:08:42 GMT

When you buy a vacation home for your family or with other family members, you’re likely imagining the relaxing and fun times you’ll have there. How to structure its ownership is probably one of the last things on your mind. But to keep the good times flowing, you’ll need to make sure that the ownership structure you choose, whether it’s a corporation, a trust, tenants in common (TIC) or a limited liability company (LLC), will serve you well going forward.

Though each structure has its pros and cons, an LLC might offer the most benefits.

Advantages of an LLC

One of the main benefits of structuring vacation home ownership as an LLC is that it will (subject to certain exceptions) limit family members’ exposure to personal liability lawsuits associated with the property. This is especially important if you plan to rent out the home when the family isn’t using it.

For example, let’s say that a guest slips while walking on the pool deck of a beach house and suffers a serious head injury. The guest successfully sues the vacation home owner and receives a six-figure award settlement. With an LLC, the owners’ personal exposure usually would be limited to the vacation home itself. The owners’ other assets, such as their main residence and investment portfolio, couldn’t be attached by the tenant.

Another big benefit is the avoidance of probate when a vacation home owner dies. If the vacation home is owned outright, instead of through an ownership interest in the LLC, most likely the estate will need to be probated. This could be particularly burdensome if the vacation property is in a state different from the one in which the owner’s primary residence is located.

Also, if you are the sole member of the LLC, and it is treated as a “disregarded entity” for tax purposes, your heirs would be eligible for a step-up in cost basis to the home’s fair market value upon your death, just as they would if the property had been owned outright. The increased basis, of course, can reduce capital gains taxes when the home is sold.

Other benefits

Often, families wish to keep ownership of a vacation home in the family over the long term. With an LLC, transfer restrictions can be included in the operating agreement that prevent the individual co-owners from selling their interest in the home to nonfamily members. Restrictions also can be placed on selling ownership interests to owners’ former spouses, the use of the home by nonfamily members, and transfers of ownership interest among family members.

Choosing an LLC as the ownership structure for a vacation home also can help simplify recordkeeping. The LLC is its own separate entity. So, all of the operating funds for the home could be held in one account, making it easy to allocate the income and expenses between the LLC members.

Finally, because ownership interests in an LLC represent the personal property of family members, intrafamily transfers of these interests don’t involve the conveyance of real property. Therefore, these transfers won’t result in real property transfer taxes and fees or affect title insurance policies and rights.

Getting it right

You want owning your vacation home to be as carefree as possible. Though every situation is different, structuring ownership as an LLC may offer a variety of benefits. However, it’s critical to obtain professional advice.

Holiday Hours

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 22 Dec 2022 15:48:07 GMT

The holiday season is here, and we want to take this opportunity to wish everyone a happy and safe holiday season! In observation of the holidays, MBK will be closing on the following dates.

December 23: Closing at 3pm
December 26: Closed
December 30: Closed
January 2: Closed

We would like to take this opportunity to thank all our clients for their continued support throughout the year. We look forward to seeing you soon and wish you a wonderful new year!

Sincerely,

The Entire Team at MBK!

MBK Adopts 2 Families for the Holidays

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 22 Dec 2022 15:21:59 GMT

MBK held a toy drive to support the HCS HeadStart's Christmas Campaign. HCS is a multi-service agency that provides education services and support for low-income and at-risk families in Western Mass.

As part of their campaign, MBK ‘adopted’ two families (families of 3 and 4) and fulfilled their Christmas wish lists. Led by team leader, Olivia Calcasola, employees at MBK donated toys and raised over $400. Altogether, the team was able to provide multiple toys for each child and donate a $75 gift card for each family.

Olivia and Chelsea delivered the donation and met with HeadStart’s CEO, Nicole who expressed her gratitude for the firm’s generosity. We want to thank everyone who participated and helped to make this holiday season a little brighter for families in need.

HCS HeadStart Inc.’s Mission:

Holyoke • Chicopee • Springfield Head Start, Inc. is committed to providing low-income children and their families with a Beacon of Hope and source of support for a brighter future. We strive to do so by providing high quality comprehensive child development services to enrolled children and empowering families to achieve stability in their home environment.

For more information about the organization or to get involved, visit https:// hcsheadstart.org

Fast write-offs for start-up costs

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 22 Dec 2022 15:06:41 GMT

Are you embarking on a new small business venture? It can be expensive to launch a business today, but you may be able to deduct some start-up costs in the first year of operation. The trick is to get the business up and running before the end of the year.

A special break

Normally, a business can deduct its “ordinary and necessary” expenses. But start-up costs are generally amortized over a period of 180 months, beginning with the month in which the business opens. So, if you’re starting a new business, there generally is no instant tax gratification.

Fortunately, a start-up business may be able take advantage of a special tax law break. If your business qualifies, it can deduct up to $5,000 of its start-up costs and $5,000 of its organizational costs in the first year it’s open for business.

To be open typically means that your business has started offering goods or services in exchange for payment. In other words, simply hanging an “open” sign on a store’s front window isn’t enough.

Because this break is intended for small businesses, the $5,000 current deduction is phased out on a dollar-for-dollar basis for costs above $50,000. Therefore, if start-up costs for the year are, for example, $52,500, you can deduct only $2,500. If costs exceed $55,000, your write-off is zero.

The fine points

Start-up costs are the expenses of starting the business. They include expenses related to making deposits on utilities and space, creating a business website, engaging in marketing and promotional activities, creating studies and surveys, and paying certain travel costs.

Organizational costs are the expenses connected with organizing a corporation, partnership or limited liability company (LLC). They include state incorporation fees and fees associated with creating legal documents and other legal and accounting services.

Some expenses aren’t deductible or amortizable as start-up costs. These include, for example, costs connected with obtaining necessary licenses, purchasing a specific business, paying interest and taxes, research and experimental expenses, and individual business owner expenses. However, these costs may be deductible as other types of expenses.

What happens if your business launch fizzles out? Qualified start-up costs are characterized as capital expenditures and may be deducted in the year the business fails. Similarly, those expenses are deductible if the business is sold before the end of the amortization period. If all the technical rules are met, the business owner may qualify for a loss.

The final word

If you want to claim the current deduction for the 2022 tax year, your business must have opened before January 1, 2023. Other special rules relating to start-up costs may come into play. Consult your business and tax advisors for guidance.

Tax Event Recap

sstack@mbkcpa.com (Sarah Rose Stack) — Fri, 16 Dec 2022 19:32:34 GMT

We want to extend a warm thank you to all who attended the Hybrid Tax Event on December 15th. We had a fantastic turnout and we appreciate you taking the time out of your busy schedules to join us.

At the event, we discussed individual taxation, business taxation, and the Employee Retention Credit. The presentation also included tips for getting your documents in order and resources available to you at MBK. Don't forget to visit our 2022 tax landing page for more updates, resources, and current information on this year's tax season.

While the session was not recorded, we are happy to make the presentation available for download. Please remember, that these slides are for educational purposes only and do not constitute advisory. You should consult your accountant or CPA with any questions about your specific situation.

Download the 2022 Tax Filing Presentation

We hope that the information we provided was useful and that you gained valuable insight into the taxation landscape. If you have any questions or need help, please don’t hesitate to contact us. We’d be more than happy to assist you in any way we can.

Again, thank you for joining us at the Hybrid Tax Event and we look forward to seeing you at future events.

Get Ready to File 2022 Taxes

Wed, 14 Dec 2022 16:48:59 GMT

By: Daniel Eger & Shannon Shainwald

It is that time again already, time to file your taxes and close out 2022!

Over the last few years, we have all witnessed rapid changes to how we do business and live. Tax season has been no different and has seen many changes to tax law and deadlines. The 2022 tax season is set to complete with the normal deadlines, so be sure to get your taxes in order before the filing deadlines, April 17 ^th for federal returns, and April 18 ^th for Massachusetts returns.

What’s new on your 2022 tax return?

New changes to tax law for 2022 individual filing are not as hefty as in prior years, but there are still some changes that may make a difference on your return. Some items have reverted to pre-COVID levels.

Charitable contributions are once again limited to 60% of your AGI and appreciated property is limited to 30% AGI. (Prior year was 100%)

Charitable deductions for nonitemized filers are gone (was allowed for 2020 & 2021)

The expanded Child Tax Credit is back down to $2,000 per qualified dependent

Advance credit payments are gone for 2022

Medical Deductions are allowed once 7.5% of your AGI has been reached (and you are itemizing).

Mortgage insurance premiums are no longer deductible

Additionally, tax credits and their income phase out limits have been altered, increased for inflation or to higher brackets or remain the same since the credit was set up, check the current rules and instruction to see if you qualify.

Cryptocurrency has been a hot topic in recent years and continues to rise in popularity. Please be aware that there are tax implications on your cryptocurrency investments especially if invested into the ones that filed for bankruptcy recently. Speak with a trusted tax preparer to make sure your investments are accounted for properly on your return.

Preparing your return

Will you be preparing your return yourself, or will you hire someone to file on your behalf? Have a plan in place now, so you know what required information you need to have at hand, and what you expect to pay for completion of all needed forms. If you will be using a new tax preparer for 2022, they will ask for a copy of your prior year return in addition to all relevant documents for your 2022 tax filing.

Other considerations

Use your resources

The Interactive Tax Assist (ITA) is an IRS online tool (IRS.gov) to help you get answers to several tax law items. ITA can help you determine what income is taxable, which deductions are allowed, filing status, who can be claimed as a dependent, and available tax credits. You can also visit http://www.mbkcpa.com/2022-tax-filing to find more resources for assistance with your 2022 tax filing including blogs on the latest changes and links to useful IRS and state resources.

Be vigilant

What if you have been compromised?

Contact IRS Identity Protection Specialized Unit (800-908-4490)
File Form 14039 Identity Theft Affidavit
Paper file your return

In addition, we recommend you take further steps with agencies outside the IRS:

Report incidents of identity theft to the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.
File a report with the local police.
Contact the fraud departments of the three major credit bureaus:
Equifax – www.equifax.com, 800-525-6285
Experian – www.experian.com, 888-397-3742
TransUnion – www.transunion.com, 800-680-7289
Close any accounts that have been tampered with or opened fraudulently.

Identity Protection PIN (IP PIN)

If you are a confirmed identity theft victim, the IRS will mail you a notice with your IP PIN each year. You need this number to electronically file your tax return.

Getting your paperwork in order

Get your paperwork in order early to ease the stress of tax season. Below is a list the most common required forms and items to gather, as well as a few other things for you to consider as you prepare for filing your 2021 tax return. Please note that this list is not exhaustive because everyone's tax situation is different.

Make a note of changes to your life

Did you welcome a child to your family this past year? Get married? Will one of your children be claiming themselves for 2022? Or, if you have experienced the unfortunate passing of your spouse or dependents, changes to your family will affect your return. Make sure you have all the necessary documentation in order, and you know how it will be handled for your return.

Documentation of income:

W-2 - Wages, Salaries and Tips
W-2G – Gambling Winnings
1099-Int & 1099-OID – Interest income statements
1099-DIV – Dividend income statements
1099-B – Capital Gains – sales of stock, land, and other items
1099-G – Certain Government Payments
Statement of State Tax Refunds
Unemployment Benefits
1099-Misc – Miscellaneous Income
1099-NEC – Independent contractor income
1099-S – Sale of Real Estate (home)
1099-R – Retirement Income
1099-SSA – Social Security income
K-1 – Income from Partnerships, Trusts and S-Corporations
1099-K – Payment Card and Third Party Network Transactions

Documentation for deductions:

If you think all your deductions for Schedule A will not add up to more than $12,550 for single, $18,800 for head of household or $25,100 for married filing jointly, save your time and plan to take the standard deduction.

Itemized deductions:

Medical expenses - out of pocket (limited to 7.5% of Adjusted Gross Income)
Medical insurance (paid with post-tax dollars)
Long term care insurance
Prescription medicine and drugs
Hospital expenses
Long-term care expenses (in-home nurse, nursing home etc.)
Doctors and dentist payments
Eyeglasses and contacts
Miles traveled for medical purposes
State and Local taxes you paid (Limited to $10,000)
State withholding from your W-2
Real estate taxes paid
Estimated state tax payments and amount paid with prior year return
Personal property (excise)
Interest you Paid
1098-Misc – Mortgage Interest Statement
Interest paid to private party for home purchase
Qualified investment interest
Points paid on purchase of principal residence
Points paid to refinance (amortized over life of loan)
Mortgage insurance premiums
Gifts to Charity
Cash and check receipts from qualified organization
Non-cash items need a summary list and responsible gift calculation (IRS tables). If the gift is valued more than $5,000 a written appraisal is required.
Donation and acknowledgement letters (over $250)
Gifts of stocks – you need the market value on the date of gift

Additional adjustments:

1098-T – Tuition Statement
Educator expenses (Up to $250)
1098-E - Student Loan Interest Deduction
5498 HSA – Health Savings Account contributions
1099-SA - Distributions from HSA
Qualified Child and Dependent Care Expenses
Verify any estimated tax payments (does not include taxes withheld)

File with confidence

Make this tax season smooth by getting your paperwork organized early and letting your tax preparer know about any changes to your life or financial situation. The sooner you file, the sooner you can put 2022 in the past and focus on a great outlook for 2023.

2022 Hybrid Tax Event

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 05 Dec 2022 22:46:33 GMT

You're Invited: 2022 Hybrid Tax Event

Tax season is here, and though it might seem daunting, we're here to help make it more manageable. MBK will hold its annual client tax update meeting on Thursday, December 15th from 8:30 a.m. - 10:30 a.m.

Partner Kris Houghton, along with Dan Eger, Colleen Berndt, and Sarah Rose Stack, will lead the event and touch on a broad scope of topics regarding recent updates for individuals, businesses, and investors. The goal of the event is to help you get your documents in order for filing taxes and advise you on how to best utilize MBK's resources. Tax season can be more tolerable when you are more prepared, informed, and organized!

To Attend In-Person, RSVP

To reserve your spot in-person for the hybrid tax event, please fill out this form or send an email to sstack@mbkcpa.com . Spots will be set aside for guests on a first come, first serve basis. Coffee, tea, muffins, and bagels will be provided. Your in-person spot will be confirmed with an email.

To Attend Online, Register Online

We have an unlimited number of seats available for attendees who wish to attend online.

To join us online, please register in advance.

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MBK Proudly Supports Local Food Pantries

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 21 Nov 2022 19:29:55 GMT

This Thanksgiving, it's important to remember those less fortunate than us who are struggling with food insecurity due to poverty and other circumstances. One of the best ways to help people in need is by supporting local food pantries and volunteering your time or resources.

Food pantries provide access to nutritious meals for families in need, allowing them to put food on the table when they otherwise might not be able to. They also provide a sense of dignity and empowerment for those who use them, allowing them to choose their own meals instead of relying on pre-packaged donations or government assistance.

Supporting your local food pantry is an important way to make a difference in your community. Whether it's by donating money or food, volunteering your time to help stock shelves, or helping to spread the word about its services, any contribution can benefit those in need. Not only will you be doing a great service for some of our most vulnerable neighbors, but you'll also be raising awareness and inspiring others to do the same.

This month, the firm participated in several initiatives to raise money, food, and awareness for local food organizations. Below is a recap and information on how you can get involved.

Lorraine's Soup Kitchen & Pantry

Sam, Eric B., Ian, Keara, Mallory, Matt, Chris, and Nick volunteered on 11/8 and 11/11 at Lorraine’s Soup Kitchen in Chicopee during dinner hours to help stock the food pantry shelves and make bags of shelf-stable food for their mobile pantry unit. The unit makes 16 stops around the Chicopee Area and unloads food from pallets they received from the Western Mass Food Bank. We learned that peanut butter is in huge demand (they typically go through 30+ jars a day) and the pantry had none, which meant we couldn’t put together one of the pre-made food bags for their mobile unit. If you are looking to get involved, you can donate food, time, or supplies.

Lorraine’s Soup Kitchen & Pantry, Inc. exists to be a resource of food security for anyone in need. We strive to reduce the risk and effects that food insecurity has on families and individuals by investing in those we serve through collaboration with our community partners to educate and raise awareness.
For more information: https://www.lorrainessoupkitchen.com/donate/

Parish Cupboard

On Friday the 18th, Mallory and Keara went food shopping with $585 that was raised by the employees at MBK to support the Parish Cupboard. Altogether, they were able to buy 11 Turkeys and over 500 boxes/cans of Thanksgiving-related food such as veggies, dessert items, soups, gravy & stuffing. The food donation was dropped off at the West Springfield Parish Cupboard location where their kitchen manager, Bill Cawthra, helped to unload the jeep which was piled high with food.

The Parish Cupboard provides meals and groceries to individuals and families in need throughout West Springfield, Agawam, and its surrounding communities.
For more information: https://theparishcupboard.org/

The Food Bank of Western Massachusetts

The MBK team helped put out lawn signs for the Food Bank of Massachusetts’ event, Monte’s March, to end hunger. The event was held Monday and Tuesday (11/21 - 11/22) with a goal to raise $500,000. Reaching this goal will allow them to provide 5,500 meals per day for an entire year!

Since 1982, The Food Bank of Western Massachusetts has been feeding our neighbors in need and leading the community to end hunger. We distribute food to our members in Berkshire, Franklin, Hampden and Hampshire counties.

Through our combined efforts, we can make a meaningful difference in the lives of those who need it most. Thank you to everyone who participated and donated! Please consider getting involved with these amazing organizations that are making a positive impact in our community.
For more information: https://www.foodbankwma.org/

If you'd like to get involved but aren't sure how, please reach out and we'll help get you connected. Together, we can make a difference; Thank you for your support!

Sincerely,

The MBK Team

Happy Thanksgiving

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 21 Nov 2022 18:08:12 GMT

During this season of gratitude, we have been reflecting on the things that we are most grateful for.

To our clients - We thank you for your loyalty throughout the years and your trust in us to serve you. We extend our greatest gratitude to you and your families this Thanksgiving!

To our employees - thank all of you for your continued contributions to make MBK a premier accounting and consulting firm. Without your commitment, creativity, trust, and dedication, we would not be who we are today. We are truly thankful for the great team here who are our family.

To our community - We live here, we work here, and we thrive here. We are grateful to be part of the strong community that is Western Massachusetts and beyond.

To celebrate the Thanksgiving holiday, MBK will close on Wednesday, 11/23 at 12pm, and reopen on Monday, 11/28. We hope everyone has a relaxing, happy, healthy & safe Thanksgiving weekend with their loved ones.

Happy Thanksgiving!

Massachusetts Millionaire's Tax

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 21 Nov 2022 17:45:36 GMT

Massachusetts Voters Approve the "Millionaire's Tax"

Last week, Massachusetts voters approved a constitutional amendment, commonly referred to as the Fair Share Amendment or the Millionaire's Tax, to add a 4% surtax on income over $1 million. We are still waiting for more information from the Department of Revenue. In the meantime, we want to share what we know so far.

This additional income tax will be in effect starting from January 1, 2023. You will report it on your 2023 income tax return which is due in April 2024.
Only the taxable income that exceeds $1,000,000 is subject to the additional 4%. For example, if your Massachusetts taxable income is $1,500,000 then $1,000,000 will be subject to tax at 5% and $500,000 will be subject to tax at 9% (5% + the additional 4%).
The $1,000,000 taxable income threshold will be increased every year to keep up with inflation.
This is a tax on income, not the value of your assets. For example, if your 401(k) or IRA has a value over $1,000,000, you will not be taxed on that amount. However, if you take distributions from those assets that cause your taxable income to exceed $1,000,000, then the surtax will apply to the income in excess of $1,000,000.

It is important to contact your trusted advisors and CPAs. A proactive tax planning strategy can help to mitigate the impact of this new 4% surtax on income greater than $1,000,000.

2022 Year-End Tax Planning

Wed, 16 Nov 2022 19:08:14 GMT

Business Tax Planning

Depreciation-Based Deductions

As we head into year-end, a business may benefit from one or more of three depreciation-based tax breaks: (1) the Section 179 deduction; (2) first-year “bonus” depreciation; and (3) regular depreciation. In consideration of this, consider the following:

Place qualified property in service before the end of the year. If your business does not start using the property before 2023, it is not eligible for these tax breaks.

Section 179 deduction: Under Section 179 of the tax code, a business may “expense” (i.e., currently deduct) the cost of qualified property placed in service anytime during the year. The maximum annual deduction for 2022 is $1.08 million and is phased out on a dollar-for-dollar basis when total additions exceed $2.70 million. Be aware that the Section 179 deduction cannot exceed the taxable income. This could limit your deduction for 2022.

First-year bonus depreciation: The TCJA authorized a 100% first-year bonus depreciation deduction through 2022. This includes used, as well as new, property. Be aware that most states do not allow this special bonus depreciation.

Regular depreciation: If any remaining acquisition cost remains, the balance may be deducted over time under the Modified Accelerated Cost Recovery System (MACRS).

If you buy a heavy-duty SUV or van for business, you may claim a first-year Section 179 deduction of up to $25,000. The “luxury car” limits do not apply to certain heavy-duty vehicles.

The first-year bonus depreciation deduction is scheduled to phase out over five years, beginning in 2023. Take full advantage while you can.

Business Meals

Previously, a business could deduct 50% of the cost of its qualified business entertainment expenses. However, the deduction for entertainment costs, including strictly social meals was eliminated by the TCJA, beginning in 2018.

The ARPA doubles the usual 50% deduction for allowable meals to 100% for food and beverages provided by restaurants in 2021 and 2022. This tax break is not expected to be extended.

Business Repairs

As more remote workers return to your regular workplace, the business may need to fix up the place. While expenses spent on making repairs are currently deductible, the cost of improvements to business property must be capitalized.

When appropriate, complete minor repairs before the end of the year. The deductions can offset taxable income in 2022.

As a rule of thumb, a repair keeps property in efficient operating condition while an improvement prolongs the life of the property, enhances its value or adapts it to a different use. For example, fixing a broken window is a repair, but the addition of a new wing to a business building is treated as an improvement.

State Income Taxes

Many states, including MA, have enacted so call "work-arounds" whereby flow-through entities such as Subchapter S Corporations and partnerships can elect to pay the state tax at the entity level on behalf of the shareholders. The benefit comes from reduced federal taxable income flowing to the shareholder which serves to circumvent the $10,000 cap for state and local taxes when calculating itemized deduction, which is discussed later. Most states do not give a dollar for dollar credit for the tax paid by the entity but the federal tax benefit is typically larger than the reduced state credit.

The actual benefit will vary for each shareholder or parter and should be reviewed to determine the actual savings. If deemed to be beneficial don't miss any deadlines for electing to pay these taxes.

Miscellaneous

Stock up on routine supplies (especially if they are in high demand). If you buy the supplies in 2022, they are deductible in 2022—even if they are not used until 2023.

If you accrue in 2022 but pay year-end bonuses to employees in 2023, the amounts are generally deductible by an accrual basis company in 2022 and taxable to the employees in 2023. A calendar-year company operating on the accrual basis may be able to deduct bonuses paid as late as March 15, 2023, on its 2022 return.

Keep records of collection efforts (e.g., phone calls, emails and dunning letters) to prove debts are worthless. This may allow you to claim a bad debt deduction.

Individual Tax Planning

Itemized Deductions

Due to several related provisions in the TCJA, generally effective for 2018 through 2025, more individuals are claiming the standard deduction in lieu of itemizing deductions.

Make a quick analysis of your situation. Depending on the results, you may decide to accelerate certain expenses into 2022 or postpone them to 2023.

For instance, you may want to “bunch” charitable donations in a year you expect to itemize deductions. (There is more on charitable deductions below.) Similarly, you might reschedule physician or dentist visits to provide the maximum medical deduction. The deduction for those expenses is limited to the excess above 7.5% of your adjusted gross income (AGI). If you do not have a reasonable shot at deducting medical and dental expenses in 2022, you might as well postpone non-emergency expenses to 2023.

Note that the TCJA made other significant changes to itemized deductions. This includes a $10,000 annual cap on deductions for state and local tax (SALT) payments and suspension of the deduction for casualty and theft losses (except for qualified disaster-area losses). Since a repeal or modification of this cap is unlikely for 2022, wait to pay state estimates or real estate taxes until January 2023 if they are not due in December.

The standard deduction for 2022 is generally $12,950 for single filers and $25,900 for joint filers.

Charitable Donations

If you still expect to itemize deductions in 2022, you may benefit from contributions to qualified charitable organizations made within generous tax law limits.

Consider stepping up your charitable gift-giving at year-end. As long as you make a donation in 2022, it is deductible on your 2022 return—even if you charge the donation by credit card as late as December 31.

Note that the deduction limit for monetary contributions was increased to 100% of AGI for 2021, but the limit reverted to 60% of AGI for 2022. Nevertheless, this still provides plenty of flexibility for most taxpayers. Any excess may be carried over for up to five years.

Furthermore, if you donate appreciated property held longer than one year (i.e., it would qualify for long-term capital gain treatment if sold), you can generally deduct an amount equal to the property’s fair market value (FMV). But the deduction for short-term capital gain property is limited to your initial cost. Your annual deduction for property donations generally cannot exceed 30% of your AGI. As with monetary contributions, any excess may be carried over for up to five years.

The CARES Act established a maximum deduction of $300 for charitable donations by non-itemizers in 2020. The special deduction was then extended to 2021 and doubled to $600 for joint filers. As of this writing, this tax break is not available in 2022.

Electric Vehicle Credits

The IRA green lights tax credits for purchasing electric vehicles (EVs) and plug-in hybrids over the next few years. But certain taxpayers will not qualify. Map out your plans accordingly.

Notably, the IRA includes the following changes.

The credit cannot be claimed by a single filer with a modified adjusted gross income (MAGI) above $150,000 or an MAGI of $300,000 for joint filers.

The credit is not available for most passenger vehicles that cost more than $55,000; $80,000 for vans, sports utility vehicles (SUVs) and pickup trucks.

The vehicle must be powered by batteries whose materials are sourced from the U.S. or its free trade partners and must be assembled in North America.

The current threshold of 200,000 vehicles sold by a manufacturer is eliminated.

In addition, the IRA authorizes a credit of up to $4,000 for used vehicles if you are a single filer with an MAGI of no more than $75,000; $150,000 for joint filers.

Residential Energy Credits

The IRA generally enhances the residential energy credits that are currently available to homeowners.

Under the new law, you may benefit from two types of residential energy credits.

The 30% “residential clean energy credit” can generally be claimed for installing solar panels or other equipment to harness renewable energy like wind, geothermal energy and biomass fuel. This credit, which was scheduled to phase out and end after 2023, is preserved at 30% from 2022 through 2032 before phasing out.
The 30% “nonbusiness energy property credit” can generally be claimed for up to $1,200 of the cost of installing energy-efficient exterior windows, skylights, exterior doors, water heaters and other qualified items through 2032 before phasing out. For 2022, the credit remains at 10% with a maximum of $500.

Miscellaneous

Pay a child’s college tuition for the upcoming semester. The amount paid in 2022 may qualify for one of two higher education credits, subject to phase-outs based on your MAGI.

Avoid an estimated tax penalty by qualifying for a safe-harbor exception. Generally, a penalty will not be imposed if you pay 90% of your current year’s tax liability or 100% of your prior year’s tax liability (110% if your AGI exceeded $150,000).

Minimize kiddie tax problem by having your child invest in tax-deferred or tax-exempt securities. For 2022, unearned income above $2,300 that is received by a dependent child under age 19 (or under age 24 if a full-time student) is taxed at the top tax rate of the parents.

Empty out flexible spending accounts (FSAs) for healthcare or dependent care expenses if you will forfeit unused funds under the “use-it-or-lose it” rule. However, your employer’s plan may provide a carryover to 2023 or a 2½-month grace period.

Make home improvements that qualify for mortgage interest deductions as acquisition debt. This includes loans made to substantially improve your principal residence or one other home. Note that the TCJA suspended deductions for home equity debt for 2018 through 2025.

If you own property damaged in a federal disaster area in 2022, you may qualify for quick casualty loss relief by filing an amended 2021 return. The TCJA suspended the deduction for casualty losses for 2018 through 2025, but retained a current deduction for disaster-area losses.

Financial Tax Planning

Capital Gains and Losses

Frequently, investors “time” sales of assets like securities at year-end to produce optimal tax results. It is important to understand the basic tax rules.

For starters, capital gains and losses offset each other. If you show an excess loss for the year, it offsets up to $3,000 of ordinary income before being carried over to the next year. Long-term capital gains from sales of securities owned longer than one year are taxed at a maximum rate of 15% or 20% for certain high-income investors. Conversely, short-term capital gains are taxed at ordinary income rates reaching as high as 37% in 2022.

Review your investment portfolio. If it makes sense, you may harvest capital losses to offset gains realized earlier in the year or cherry-pick capital gains that will be partially or wholly absorbed by prior losses.

Net Investment Income Tax

Investors should account for the 3.8% tax that applies to the lesser of “net investment income” (NII) or the amount by which MAGI for the year exceeds $200,000 for single filers or $250,000 for joint filers. The definition of NII includes interest, dividends, capital gains and income from passive activities, but not Social Security benefits, tax-exempt interest and distributions from qualified retirement plans and IRAs.

Make an estimate of your potential liability for 2022. Depending on the results, you may be able to reduce the tax on NII or avoid it altogether.

Required Minimum Distributions

As a general rule, you must receive “required minimum distributions” (RMDs) from qualified retirement plans and IRAs after reaching age 72 (recently raised from age 70½). The amount of the distribution is based on IRS life expectancy tables and your account balance at the end of last year.

Arrange to receive RMDs before December 31. Otherwise, you will have to pay a stiff tax penalty equal to 50% of the required amount (less any amount you have received) in addition to your regular tax liability.

Do not procrastinate if you have not arranged RMDs for 2022 yet. It may take some time for your financial institution to accommodate these transactions.

Conversely, if you are still working and do not own 5% or more of the business employing you, you can postpone RMDs from an employer’s qualified plan until your retirement. This “still working exception” does not apply to RMDs from IRAs or qualified plans of employers for whom you no longer work.

Installment Sales

Normally, when you sell real estate at a gain, you must pay tax on the full amount of the capital gain in the year of the sale.

If you sell it under an arrangement qualifying as an installment sale, the taxable portion of each payment is based on the “gross profit ratio.” Gross profit ratio is determined by dividing the gross profit from the real estate sale by the price.

Not only does the installment sale technique defer some of the tax due on a real estate deal, it will often reduce your overall tax liability if you are a high-income taxpayer. Reason: By spreading out the taxable gain over several years, you may pay tax on a greater portion of the gain at the 15% capital gain rate as opposed to the 20% rate.

If it suits your purposes (e.g., you have a low tax year), you may “elect out” of installment sale treatment when you file your return.

Estate and Gift Taxes

During the last decade, the unified estate and gift tax exclusion has gradually increased, while the top estate rate has not budged. For example, the exclusion for 2022 is $12.06 million, the highest it has ever been. (It is scheduled to revert to $5 million, plus inflation indexing, in 2026.)

In addition, you can give gifts to family members that qualify for the annual gift tax exclusion. For 2022, there is no gift tax liability on gifts of up to $16,000 per recipient (up from $15,000 in 2021). The limit is $32,000 for a joint gift by a married couple.

You may “double up” by giving gifts in both December and January that qualify for the annual gift tax exclusion for 2022 and 2023, respectively. The IRS recently announced that the limit for 2023 is $17,000 per recipient.

Miscellaneous

Watch out for the “wash sale” rule that disallows losses from a securities sale if you reacquire substantially identical securities within 30 days. Wait at least 31 days to buy them back.

Contribute up to $20,500 to a 401(k) in 2022 ($27,000 if you are age 50 or older). If you clear the 2022 Social Security wage base of $147,000 and promptly allocate the payroll tax savings to a 401(k), you can increase your deferral without any further reduction in your take-home pay.

Weigh the benefits of a Roth IRA conversion, especially if this will be a low-tax year. Although the conversion is subject to current tax, you generally can receive tax-free distributions in retirement, unlike taxable distributions from a traditional IRA.

Skip this year’s RMD if you recently inherited an IRA and are required to empty out the account within ten years. Under new IRS guidance, there is no penalty if you fail to take RMDs for 2021 or 2022. The IRS will issue final regulations soon.

If you rent out your vacation home, keep your personal use within the tax law boundaries. No loss is allowed if personal use exceeds 14 days or 10% of the rental period.

Consider a qualified charitable distribution (QCD). If you are age 70½ or older, you can transfer up to $100,000 of IRA funds directly to a charity. Although the contribution is not deductible, the QCD is exempt from tax. This may improve your overall tax picture.

Conclusion

Finally, remember that these ideas are intended to serve only as a general guideline. Your personal circumstances will likely require careful examination. Consult with your tax adviser.

Year-End Tax Planning Tips for Investors

Tue, 08 Nov 2022 15:36:07 GMT

Savvy investors know that taxes can have a big impact on their returns. And while tax considerations should generally take a back seat to sound investment strategies, as you review your investment options think about moves that can slash your tax bill. Here are a few ideas to consider as we approach the end of 2022.

Harvest losses (or gains)

Before year’s end, take inventory of the capital gains and losses you’ve recognized so far. If you expect to end the year with a net capital gain, consider “harvesting” losses by selling some investments that have declined in value and using those losses to offset the gain and reduce your taxable income.

What if you expect to end the year with a net capital loss? In that case, you might consider harvesting some gains from which the loss can be deducted. This strategy enables you to sell one or more investments that have appreciated in value without triggering capital gains tax.

You should, however, avoid offsetting your entire net capital loss. Why? Because you can use up to $3,000 in net capital loss to offset ordinary income, such as salary or interest ($1,500 if married filing separately). Any excess is carried forward and deducted from capital gains or ordinary income (up to the applicable limit) in future years. So, if you harvest gains to offset a net capital loss, try to preserve $3,000 of that loss to offset ordinary income, which is generally taxed at higher rates than capital gains.

Beware the wash sale rule

If you harvest losses or gains, you may be tempted to immediately buy back the investment to keep your portfolio’s asset allocation intact. That way, you enjoy the tax benefits of recognizing the loss or gain without actually giving up the investment. This can be an effective strategy, but be sure to plan carefully to avoid violating the “wash sale” rule.

Under the rule, if you sell a stock or other security at a loss and purchase a substantially identical security within 30 days before or after the sale, the loss deduction is disallowed. To avoid this result, wait at least 31 days before you buy back the investment (though an unexpected price increase can wipe out the tax benefits). Or buy an investment that’s similar, but not substantially identical. Keep in mind that the wash sale rule applies only to investments sold at a loss, not to those sold at a gain.

Donate appreciated assets to charity

If you’re charitably inclined, consider donating long-term appreciated assets — such as stocks, bonds or real estate you’ve held for more than one year — to charity. You’ll avoid tax on the gains you would have realized had you sold the assets, while enjoying a charitable deduction equal to the assets’ fair market value (subject to certain limitations and assuming you itemize deductions).

Avoid year-end mutual fund investments

Mutual funds typically distribute accumulated dividends and capital gains near the end of the year. There’s a common misconception that investing in a fund just before a distribution gives you access to free money.

On the contrary, because the value of your shares is immediately reduced by the amount of the distribution, you’ll essentially pay income tax on the distribution without receiving any benefit. If you instead invest after the distribution, you’ll be in the same financial position, but without the added tax liability.

Maximize contributions to traditional IRAs and retirement plans

If you haven’t maxed out your deductible or pretax contributions to traditional IRAs, 401(k) plans or other tax-advantaged retirement accounts, don’t miss this opportunity to reduce this year’s taxable income while building your nest egg. Far too many taxpayers fail to take advantage of their annual retirement contribution limits and miss out on reducing their taxable income.

Contributions to 401(k)s or similar employer plans generally must be made by December 31. But you can take a 2022 deduction for traditional IRA contributions made as late as April 18, 2023.

Strike a balance

Effective financial planning requires a balanced approach that considers both tax efficiency and sound investment principles. Your tax and investment advisors can help you strike a balance between the two.

Consider PO Financing to Help Your Business Grow

Fri, 04 Nov 2022 14:33:33 GMT

An increase in purchase orders is a positive development for most businesses — proof that customers are interested in, and buying, their products. At the same time, rising sales can prompt a cash crunch. Some companies, especially smaller, growing firms, may lack enough cash to pay their suppliers and fill new orders — often because they’re waiting to be paid for previous sales. This is where purchase order financing, often referred to as “PO financing,” can help.

How it works

Most businesses that use PO financing sell finished, assembled goods, rather than raw materials or services. They typically sell to other businesses or government agencies. In PO financing, the purchase order(s) act as collateral for a loan.

Here’s one example: Suppose you receive an $80,000 purchase order from a customer for 100 widgets, but you lack the inventory to fill it. You connect with your supplier to determine the cost to get 100 widgets. Your supplier says it will be $50,000. But you don’t have $50,000 cash in hand.

So, you apply to a lender — typically, a specialist in purchase order financing — who reviews your application. Assuming the lender accepts your application, it then offers to cover some or all of the costs of filling the order.

PO financing generally applies only to the cost to fill the order — in this case, the $50,000 the supplier is requesting. The funding company says it will advance 80% of the $50,000, or $40,000, to your supplier, at a fee of 3% per month. Your business must cover the remaining $10,000 the supplier needs to fill the order.

The financing company sends $40,000 to the supplier, and your business sends the other $10,000. The supplier manufactures the goods and sends them directly to your customer. You invoice the customer for $80,000 and also send the invoice to the PO financing company.

In 30 days, the customer pays the financing company $80,000, or the amount of the invoice. The financing firm deducts its fee of $1,200 ($40,000 multiplied by 3%) along with the $40,000 it’s already sent to the supplier. It then sends your company the $38,800 that remains.

Pros and cons

On the positive side, PO financing can help businesses accept orders they might otherwise have to decline. This can be particularly helpful to businesses that are growing quickly, as well as to those whose sales are seasonal, leading to periods in which working capital is tight.

Also, because PO financing companies tend to look at the creditworthiness of your customers and suppliers, it can be easier to qualify for this type of financing than for other types of funding.

On the flip side, PO financing can be expensive. Generally, the longer your customer takes to pay, the higher your financing fee will be. Some lenders offer PO financing only on larger orders.

In addition, in many PO financing transactions, your supplier ships directly to your customer, and your customer pays the financing company. As a result, your customer will become aware of your need for financing.

Due diligence

If you think PO financing might be right for your business, you’ll need to find the right lender. First check a candidate company’s experience both with this type of financing and with your industry. Then find out, among other information, its usual financing fees, the portion of the purchase order it typically finances and what happens if your customer fails to pay.

You’ll also want to know how the financing company will pay your supplier. Many use a letter of credit, which typically states that payment will be made once specific provisions are met. For instance, a provision might state that the financing company must receive verification that the products have been shipped before it will pay.

Determining what’s best for your business

Is PO financing a viable funding option for your business? It’s important to carefully assess all the pros and cons and thoroughly vet the PO financing company before you go forward. Your accounting professional can help you weigh the risks and rewards and determine the best financing methods to keep your growing business profitable.

Make the Most of the General Business Credit

Fri, 04 Nov 2022 14:32:56 GMT

Tax credits are far more valuable than tax deductions. Unlike a deduction, which reduces a business’s taxable income, a credit reduces the business’s tax liability dollar for dollar. Tax credits aren’t unlimited, however. For businesses, the aggregate value of tax credits may be limited by the general business credit (GBC), found in Internal Revenue Code Section 38. Taxpayers should familiarize themselves with the GBC so they can understand the value of their business credits and identify tax-saving opportunities.

How it works

The GBC isn’t a tax credit in the usual sense. Rather, it’s a collection of dozens of business-related credits scattered throughout the tax code. (See “What’s included in the GBC?”) Each credit must be claimed separately, according to its specific rules and using the relevant tax forms. Taxpayers that claim more than one credit, however, must also file Form 3800 to report the aggregate value of those credits and calculate the overall allowable credit under the GBC.

The GBC limits total credits in a given year to the excess (if any) of a taxpayer’s net income tax over the greater of:

The tentative alternative minimum tax (AMT) for the year, or
25% of the amount by which the taxpayer’s net regular tax liability exceeds $25,000.

For purposes of calculating the GBC, “net income tax” is the sum of the taxpayer’s regular tax liability and AMT liability, reduced by certain non-GBC credits. “Net regular tax liability” is regular tax liability reduced by certain credits.

The GBC limit essentially prevents taxpayers from using credits to avoid AMT. In recent years, that hasn’t been an issue for C corporations, since the Tax Cuts and Jobs Act repealed the corporate AMT. Although the recently enacted Inflation Reduction Act established a new corporate minimum tax for corporations with “book profits” over $1 billion for tax years beginning after December 31, 2022, it generally doesn’t limit the GBC. For individual taxpayers — such as sole proprietors, partners and S corporation shareholders — AMT may limit their use of the GBC.

Treatment of unused credits

If the limits prevent a taxpayer from using all of the GBC, the unused credit may be carried back one year and then, if unused credit remains, carried forward up to 20 years. In a given year, the GBC is used in the following order:

Carryforwards to that year, starting with the oldest ones,
GBC earned in that year, and
The carryback to that year.

These ordering rules essentially apply a first-in, first-out (FIFO) approach that minimizes the risk that unused credits will expire. Still, taxpayers with a large surplus of credits may risk losing credits that can’t be used within the 20-year carryforward period. Fortunately, the tax code provides some relief for taxpayers in this position.

Deduction for unused credits

To prevent taxpayers from “double-dipping,” the tax code generally doesn’t permit them to claim a tax credit and a tax deduction based on the same expenses. Thus, in the year that a GBC is generated, taxpayers generally must treat a portion of its expenses (equal to the amount of the credit) as nondeductible.

In many cases, when a credit is lost, Section 196 allows the lost credit amount to be claimed as a deduction. If the credit is lost because the 20-year carryforward period expires, the taxpayer may claim the deduction in the following tax year. If it’s lost because the taxpayer dies or ceases to exist, the deduction may be claimed for the year of death or cessation.

The Sec. 196 deduction may provide a tax-saving opportunity for C corporations contemplating a sale. It’s common for buyers to acquire a company’s stock and then make an election to treat the transaction as a deemed asset sale for tax purposes. But this can trigger substantial taxable gains for the seller. If the seller has significant unused GBCs, it may be able to use a Sec. 196 deduction to offset some or all of those gains (because the selling corporation ceases to exist).

Secure the credits you deserve

Determining GBCs for a given year, and calculating applicable limits, can be complicated. Be sure to work with your tax advisor to make the most of these valuable credits.

What’s included in the GBC?

A general business credit (GBC) consists of more than 30 individual tax credits that provide incentives for a variety of business activities. Examples include:

Investment credit,
Research credit,
Work opportunity credit,
Disabled access credit,
Employer-provided child care facilities and services credit,
Small employer health insurance credit,
Credit for small employer pension plan startup costs,
Employer credit for paid family and medical leave,
Credit for employer Social Security and Medicare taxes paid on certain employee tips,
New energy-efficient home credit,
Alcohol fuels credit,
Low-income housing credit,
Empowerment zone employment credit,
Renewable electricity production credit,
Orphan drug credit, and
A portion of the credits for alternative motor vehicles, alternative fuel vehicle refueling property and new qualified plug-in electric drive motor vehicles.

An Evening of Community Connections

Thu, 03 Nov 2022 20:37:27 GMT

MBK’s Young Professionals Host a Networking Night for Emerging Leaders in Western Mass

This past month, Meyers Brothers Kalicka, P.C. hosted our second Networking Night for Emerging Leaders with professionals in attendance from all around Western Massachusetts. It was a pleasure to host this lively and engaging group of people for an evening of complimentary drinks by Tin Bridge Brewery, filling food from the Log Cabin food truck, lawn games, and trivia with MBK’s own Ian Coddington!

This event has been a wonderful opportunity to make new connections and renew acquaintances after the past couple of years of distanced work and limited social opportunities. MBK is happy to have been able to provide this opportunity for our broader business community to come together and enjoy an evening of relaxed fun.

Thank you to everyone who joined us. We look forward to growing the connections created and hope to see you again next year!

MBK makes and donates 64 pink scarves for Rays of Hope

sstack@mbkcpa.com (Sarah Rose Stack) — Tue, 04 Oct 2022 14:52:31 GMT

MBK participated in collecting pink scarves throughout the month of September to deliver to The Richard Salter Storrs Library for the Rays of Hope Pink Scarf Drive! Breast cancer survivors who stop by the Pink Hope Survivors Tent at the 2022 Rays of Hope Walk and Run Toward the Cure for Breast Cancer will be able to pick “whichever scarf ‘speaks’ to them” from among the donated pink scarves, Storrs outreach and programming librarian, Evelyn Pratt, explained to The Republican.

The team, dedicated their monthly craft night led by Donna Roundy to creating scarves for the drive. Altogether, they created and collected 64 scarves which were donated to the library for their drive. Congrats to all who participated on a job well done!

Gifts That Give Back

Tue, 04 Oct 2022 13:07:36 GMT

Evaluate the tax benefits of individual and trust charitable donations

Congratulations! You’ve made the decision to donate to your favorite charity. Now you need to decide: Should you donate assets held in a trust or those that you hold individually? There are several factors to consider, such as determining the tax benefits of making individual asset donations vs. donating trust property and understanding the circumstances under which donations by a trust are deductible.

Individual asset donations

Generally, you’re permitted to deduct charitable donations for income tax purposes only if you itemize. Itemized charitable deductions for cash gifts to public charities generally are limited to 50% of adjusted gross income (AGI), while cash gifts to private foundations are limited to 30% of AGI. The Tax Cuts and Jobs Act increased the limit for cash gifts to public charities to 60% through 2025.

Noncash donations generally are limited to 30% of AGI for donations to public charities and 20% for donations to private foundations. If you donate appreciated long-term capital gain property to a public charity, you’re generally entitled to deduct its full fair market value. But with the exception of publicly traded stock, deductions for similar donations to private foundations are limited to your cost basis in the property. Deductions for ordinary income property (including short-term capital gain property) are limited to your cost basis, regardless of the recipient.

Trust donations

The discussion that follows focuses on nongrantor trusts. Because grantor trusts are essentially ignored for income tax purposes, charitable donations by such trusts are treated as if they were made directly by the grantor, subject to the rules applicable to individual asset donations. Also, this article doesn’t discuss trusts that are specifically designed for charitable purposes, such as charitable remainder trusts or charitable lead trusts.

Making charitable donations from a nongrantor trust may have several advantages over individual donations, including the abilities to 1) claim a charitable deduction even if you don’t itemize deductions on your individual income tax return, and 2) deduct donations to foreign charities. And a trust can deduct up to 100% of its gross taxable income, free of the AGI-based percentage limitations previously discussed.

In addition, trust deductions can be more valuable than individual deductions because the highest tax rates for trust income kick in at much lower income levels. For example, in 2022, trusts reach the highest (37%) tax bracket at only $13,450 of income.

If you’re contemplating a charitable donation from a trust, there are a few caveats to keep in mind:

The trust instrument must authorize charitable donations.
The donation must be made from (that is, traceable to) the trust’s gross taxable income. This includes donations of property acquired with such income, but not property that was contributed to the trust.
Unlike certain individual charitable donations, deductions for noncash donations by a trust generally are limited to the asset’s cost basis.

Special rules apply to trusts that own interests in partnerships or S corporations, as well as to certain older trusts (generally, those created on or before October 9, 1969).

Talk to your advisor

For many individuals, charitable giving is a major aspect of their overall estate plans. Deciding whether to make an individual asset donation or a donation of trust assets can be tricky. If income limits or restrictions on itemized deductions have hampered your ability to deduct charitable donations, consider making donations from a trust. Your estate planning advisor can walk you through the options and help you understand the income and estate tax consequences.

Year-End Tax Planning for Business

Mon, 03 Oct 2022 13:39:19 GMT

Flexibility can be a virtue

For most businesses, year-end tax planning involves a delicate balancing act, and the more flexibility that is built into the plan, the better. That’s because the tax code is in a constant state of flux, which makes it challenging to identify the most effective strategies.

For example, a general rule of tax planning says that you should defer income to next year and accelerate deductible expenses into this year to minimize your tax bill. But if Congress sharply increases tax rates effective next year, you may be better off doing the opposite: accelerating income and deferring expenses to take advantage of this year’s lower tax rate.

Another tax-planning strategy that may make sense to reconsider is maximizing depreciation-related tax breaks.

Bonus depreciation and Section 179 expensing

For many businesses, an effective strategy for generating tax deductions to reduce this year’s tax bill is to invest in needed machinery, equipment or building improvements and place them in service by the end of the year. Often, these assets are eligible for 100% bonus depreciation or the Sec. 179 expensing election, allowing you to fully deduct the cost up front rather than depreciating it over a period of years or decades.

Most new and used machinery and equipment qualifies for 100% bonus depreciation or immediate expensing. In addition, many interior improvements to commercial buildings are eligible for bonus depreciation as qualified improvement property (QIP). (See “Can your business deduct the cost of interior improvements?” at X.)

A couple of things to keep in mind: First, Sec. 179 deductions in a given year are currently capped at $1.08 million and the deduction is gradually phased out when a taxpayer’s qualifying expenditures exceed $2.7 million. (Both limits are annually adjusted for inflation.) Second, 100% bonus depreciation is scheduled to be phased out after this year. The deduction generally will be reduced to 80% for property placed in service in 2023, 60% in 2024, 40% in 2025 and 20% in 2026. After 2026, bonus depreciation will be eliminated absent Congressional action.

Not right for everyone

Bonus depreciation and Sec. 179 expensing can do wonders for your company’s tax bill and cash flow, but claiming them isn’t always the best strategy. It’s important to look at your overall tax situation to see whether you’d be better off using regular depreciation rules to spread the deductions over several years. For example, it may be advantageous to forgo bonus depreciation or Sec. 179 expensing if:

You expect your tax rate to go up in the future. The benefit of a deduction is that it reduces your taxable income and, therefore, your tax liability. The higher your marginal tax rate, the greater the amount of tax avoided.

If you believe your tax rate will increase in the near future — either because you expect to be in a higher tax bracket or you think Congress will raise tax rates — you may be better off deducting less (or investing in less) now. In this instance, you can claim larger depreciation deductions in future years when tax rates may be higher, thus making deductions more valuable.
You’re improving the interior of a building that you plan to sell. If you’ve made a significant investment in QIP in a building you plan to sell, claiming bonus depreciation may set a dangerous tax trap. Why? Because your profits on the sale, to the extent they’re attributable to bonus depreciation or any Sec. 179 deductions you’ve claimed, will be treated as “recaptured” depreciation taxable at ordinary income tax rates as high as 37%.

In contrast, if you deduct the cost of QIP under regular depreciation rules — typically, on a straight-line basis over 15 years — then any long-term gain attributable to such depreciation will be taxable at a top rate of 25% when the building is sold.
You’re eligible for the qualified business income (QBI) deduction. The QBI deduction, sometimes referred to as the “pass-through” deduction, currently allows certain sole proprietors and owners of partnerships, limited liability companies and other pass-through entities to deduct up to 20% of their QBI. Among other restrictions, the deduction is capped at 20% of taxable income (excluding net capital gains).

Because bonus depreciation or Sec. 179 expensing reduces your taxable income, it may also reduce your QBI deduction. So, before claiming these deductions, be sure to weigh their potential benefits against the potential tax cost of a reduced QBI deduction.

Look at the big picture

As you can see, there isn’t one right year-end tax strategy for every business. Your tax advisor can help you look at your overall tax picture and examine how various tax benefits interact with each other to determine the optimal tax-planning strategies for your business.

Can your business deduct the cost of interior improvements?

If your business is planning interior renovations, there may be a tax advantage to completing them by the end of this year. Interior improvements properly classified as qualified improvement property (QIP) are eligible for bonus depreciation, which currently allows you to deduct 100% of the cost up front. After 2022, however, bonus depreciation deductions are scheduled to be gradually reduced and then eliminated after 2026.

QIP includes most improvements to the interior of an existing nonresidential building, such as drywall, ceilings, interior lighting, fixtures, interior doors, interior HVAC components, fire protection, mechanical, electrical and plumbing. It doesn’t include improvements to elevators, escalators or the building’s internal structural framework, nor does it include enlargement of the building.

QIP became eligible for bonus depreciation in 2018, so if you made qualifying improvements since that time, you may have an opportunity to recover deductions you missed and claim a tax refund.

Implementing a More Modern Cost Accounting Approach in Healthcare Organizations

Thu, 29 Sep 2022 19:42:25 GMT

Implementing a more modern cost accounting approach will help healthcare organizations improve their bottom line and better serve their patients

One of the biggest challenges in cost accounting is accurately capturing all of the costs associated with patient care. These costs can include everything from the cost of medications and supplies, overhead, and the cost of labor. Additionally, cost accounting must take into account both direct and indirect costs. Direct costs are those that can be easily traced back to a specific patient or procedure, while indirect costs exist across the entire organization and cannot be directly linked to any one patient or procedure.

Organizations must also consider cost accounting when making decisions about billing and reimbursement. In order to set billing rates that reflect the true cost of care, cost accounting must be as accurate and up-to-date as possible. The pandemic has made this even more challenging with many new factors such as the cost of pre-visit COVID-19 testing.

There are several reasons why a more modern cost accounting approach is needed in healthcare post-COVID-19. First, the pandemic has resulted in a significant increase in the number of patients requiring care, while delivering care has slowed down. This has put a strain on resources and has made it more difficult for healthcare organizations to keep track of their costs in a timely manner.

Second, the pandemic has forced healthcare organizations to rapidly adapt their operations. For example, the pandemic has resulted in an increase in the cost of some supplies and medications. Specifically, personal protective equipment (PPE) is now in high demand and can be quite expensive. This has made it difficult to accurately track costs using traditional cost accounting methods, where more time and resources are needed to fully capture all costs.

Third, the pandemic has highlighted the need for better decision-making about resource allocation. Cost accounting can help managers to make informed decisions about where to allocate resources in a time of crisis.

Finally, the pandemic has resulted in a change in the way that patients receive care such as the seismic increase in the use of telemedicine. With more patients being treated at home, there is a need for a cost accounting approach that takes into account the cost of care delivered outside of the traditional setting.

All of these factors have created a need for a more modern cost accounting approach that can adapt to the changing landscape of healthcare. Cost accounting software that is designed specifically for healthcare entities can help organizations to track and manage their costs more accurately. Such software can provide real-time cost data, which is essential in today’s rapidly changing healthcare environment. Additionally, more relevant software can be used to create cost models that can help organizations to make better pricing and reimbursement decisions.

The bottom line is that a more modern cost accounting approach is essential for healthcare organizations in the post-COVID-19 world to more accurately track their costs and make informed decisions about pricing and reimbursement. Going about this can be done in a few simple steps.

Understand cost: The first step is to understand the cost drivers of care. Aim to identify the total cost of treatment. The cost of care should be examined in order to understand the costs within the entire treatment process.
Identify cost drivers: The second step is to identify the cost drivers of care. Once cost drivers are understood, healthcare organizations can allocate cost appropriately and make informed decisions about where to allocate resources. To identify cost drivers, ask questions such as: What are the major cost components? What is the cost per unit of care? How do cost vary by patient population?
Allocate cost: The third step is to allocate cost based on clinical and business value, particularly with indirect costs. When cost is allocated based on value, decision makers can make informed choices about where to allocate resources.
Analyze cost: Finally, healthcare organizations must analyze cost data to identify trends and improve cost management. Cost data can also help decision makers understand which cost-saving measures are working and which are not, and how to appropriately bill for their services.

Adopting a more modern cost accounting approach is essential for healthcare organizations to accurately reflect the true cost of care post-COVID-19. This will help improve decision making, better serve patients, and ultimately, improve the bottom line.

Meyers Brothers Kalicka, P.C. Named Best Accounting Firm in 2023 Reader Raves

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 12 Sep 2022 16:46:25 GMT

Best Accounting Firm, Reader Raves 2023

Meyers Brothers Kalicka, P.C. is proud to accept the 2023 Reader Raves Award for Best Accounting Firm presented by The Republican and MassLive! “Republican and MassLive readers have a greater appreciation of the businesses and organizations they know and love more than ever before, due in part to the restrictions that were in place during the pandemic," said Mark French, advertising director for the Republican.

Sound advice, strong relationships, and empathy are critical to the success of individuals, businesses and organizations; especially in recent years. We are grateful to the clients, colleagues, and friends of MBK who took the time to vote for us. Your vote of confidence is greatly appreciated and we look forward to continuing to serve Western Massachusetts and beyond with accounting services and advisory for many years to come. On behalf of the partner group and the entire firm, thank you and congratulations to all the winners!

Stuffing the Bus with United Way of Pioneer Valley for 2022

Fri, 09 Sep 2022 16:33:56 GMT

As the summer draws to a close and school buses rejoin the morning commuter fray, United Way of Pioneer Valley once again rallied their local partners, including Meyers Brothers Kalicka, P.C., to gather school supplies for their annual Stuff the Bus Drive. United Way explains, “Stuff the Bus is our annual program to bring school supplies to students who are homeless. We work with every public school district in Hampden County, South Hadley, and Granby to make sure all youth in need receive a backpack filled with all the supplies they need for the school year. For the upcoming school year, we expect to donate roughly 1400 backpacks holding pencils, paper, pens, art supplies, and more.”

At MBK, our staff contributed approximately 500 items including notebooks, folders, filler paper, erasers, sharpeners, composition books, index cards, pencils, highlighters, crayons, markers, binders, rulers, notecards, erasers, and colored pencils. While some items were directly contributed by our staff, Chelsea Russell, Matt Nash, and Eric Pinsoneault were able to purchase 376 items on behalf of the staff from a cash pool to help ensure United Way’s priority items were in good supply.

Although the Stuff the Bus Drive for the start of the school year has wrapped up, more help is always welcome. United Way of Pioneer Valley accepts donations of school supplies and monetary donations year round. You can learn more about how to donate at https://www.uwpv.org/stuff-the-bus

For more information on Stuff the Bus, contact:

Jennifer Kinsman

Skipping the Generation-Skipping Transfer Tax

Tue, 06 Sep 2022 14:35:02 GMT

How can you best preserve wealth for your heirs? If your children are well off and your estate is large enough that estate taxes are a concern, you may be inclined to bequeath more assets directly to your grandchildren as part of your estate plan. In effect, this gives Uncle Sam one less bite at the tax apple because those assets won’t be included in the taxable estates of your children, right?

Not exactly. Under the generation-skipping transfer (GST) tax, an additional tax (on top of estate tax) may be imposed on gifts and bequests that skip a generation. So, you can’t automatically avoid adverse tax consequences simply by bypassing your children. But with proper planning, you may be able to sidestep the GST tax — or at least minimize it.

Current tax environment

Generally, assets that are inherited by nonspouse beneficiaries are subject to federal estate tax. But estate tax liability is often reduced or eliminated through the lifetime gift and estate tax exemption. (Transfers to a U.S. citizen spouse are shielded by the unlimited marital deduction.)

Effective in 2018, the Tax Cuts and Jobs Act (TCJA) doubled the exemption from $5 million to $10 million, subject to inflation indexing. It is $12.06 million for 2022. But the exemption is scheduled to revert to $5 million, plus inflation indexing, in 2026. Of course, Congress could change the law again before then, but that’s where we stand now.

At the same time, the TCJA preserved a top federal estate tax rate of 40%. For example, if the estate eventually is taxed on $5 million, the resulting estate tax is $2 million.

Therefore, wealthy individuals still may be searching for ways to minimize estate tax on transfers to heirs, including making gifts or bequests to grandchildren. Unfortunately, the GST tax stands in their way.

How the GST tax works

Essentially, the GST tax applies to transfers to related individuals who are more than one generation away — such as grandchildren or great-grandchildren — and unrelated individuals, like family friends, who are more than 37½ years younger. All these designated beneficiaries are referred to as “skip persons.”

Furthermore, you can’t dodge this potential tax pitfall simply by transferring assets to a trust and naming your descendants as the ultimate trust beneficiaries. For these purposes, all of the trust beneficiaries are treated as skip persons — even the trust is considered a skip person in certain circumstances.

Similarly, a trust termination generally results in imposition of the GST tax. This occurs when an interest in a trust terminates — unless only nonskip persons are receiving the trust assets and no skip persons have a right to receive the assets after the termination.

Special exception: In the event their parents have predeceased them, grandchildren effectively move up the line in the place of their parents. Because transfers to them technically are no longer skipping a generation, the GST tax doesn’t apply anymore. But such transfers are still exposed to regular federal estate tax.

How to avoid GST tax problems

Just as with regular estate tax, your family may benefit from a GST tax exemption. The exemption moves in lockstep with the estate tax exemption. Accordingly, the GST tax exemption for 2022 is $12.06 million. It’s also scheduled to drop to $5 million, plus inflation indexing, in 2026.

Note that these figures are effectively doubled for joint filers. So, a married couple can shield up to $24.12 million from the GST tax in 2022 — a hefty figure.

Also, be aware that you can currently gift up to $16,000 per person per year, including a grandchild or other descendant, under the annual exclusion without triggering any gift or GST tax liability. This exclusion is also indexed for inflation, but only in $1,000 increments. (For 2022, it was increased from the 2021 amount of $15,000.)

Gifts made to skip persons, directly or through a trust, are referred to as “direct skips.” If GST tax is paid rather than having the lifetime exemption applied, the direct skip is turned into an “indirect skip.” Generally, the tax must be paid on Form 709 for the year the gift is made.

Seek professional advice

The GST tax situation is complex — this brief article only provides an overview. In addition, you may face state tax complications, because many jurisdictions have their own version of a GST tax. Best approach: Seek guidance for your particular situation from an experienced professional.

Sidebar: 3 strategies to minimize GST tax

Even if your situation triggers the generation-skipping transfer (GST) tax, you can take steps to avoid or minimize it. For instance, you can:

Maximize use of the GST tax exemption. The current $12.06 million exemption ($24.12 million for a married couple) provides a lot of protection from the GST tax.
Use the annual gift tax exclusion to shield from GST tax gifts of up to $16,000. Employ this technique before tapping into the GST tax exemption.
Take advantage of the ability to use trusts within the rules. Also, rely on the exception for predeceased parents, when appropriate.

Coordinate these three strategies as part of your overall estate plan.

Tips for Individual Taxpayers to Consider

Fri, 02 Sep 2022 17:02:54 GMT

Now is a good time to check your FSA balance

If your employer provides you with a flexible spending account (FSA) for health care expenses, it’s a good idea to check your account balance. Also, familiarize yourself with the terms of your employer’s plan to see if it allows you to carry over some of your account balance (up to $500) to next year or offers a grace period (up to 2½ months) to spend the funds.

If some or all of your FSA balance will be forfeited at the end of the year, try to spend as much as possible on covered expenses by December 31. You can use FSA funds for a wide range of health care expenses, including over-the-counter medications, menstrual supplies, heating pads, orthopedic shoe inserts, certain skincare products, and masks and other COVID-19-related supplies.

Can you rely on IRS-issued FAQs?

IRS penalties for noncompliance with tax laws or regulations can be harsh, but in many cases it’s possible to avoid them by showing “reasonable cause” for a particular tax position. Recently, the IRS announced that taxpayers may now assert reliance on IRS-issued frequently asked questions (FAQs) in demonstrating reasonable cause. The FAQs are posted at IRS.gov.

To avoid penalties, you’ll still need to show that reliance on a particular FAQ was reasonable and in good faith. But the new policy may make it easier for many taxpayers to obtain penalty relief.

A Roth IRA for your child isn’t as strange as it sounds

Roth IRAs can be a great way to teach your kids about saving and financial responsibility, while giving them a big head start on retirement planning. And because a child’s tax rate is likely to be astronomically higher when it’s time to withdraw the funds, the advantage of tax-free distributions is significant.

To be eligible, your child must have earned income that equals or exceeds the contributions to the Roth IRA. But the contributions don’t have to come from the child’s earnings; anyone can contribute to the child’s account.

A Roth IRA can provide your child with a nice supplement to his or her other retirement savings. Consider this example: John opens a $1,000 Roth IRA for his daughter, Daisy, when she’s 15 and contributes $50 per month until she turns 25. Daisy continues the $50 per month contributions for another 10 years, until her income reaches a level that disqualifies her from making Roth IRA contributions. Assuming a 7% rate of return, by the time Daisy retires 30 years later, the account will have grown to nearly $250,000.

What You Need to Know About Bank Covenants

Mon, 29 Aug 2022 18:27:02 GMT

This article will help you understand:

What are covenants and why are they required
How covenants might affect your business
Managing your covenants

Using debt can be an effective way to expand your business, and by understanding the intricacies of bank covenants, you can make better decisions as a business owner

What are covenants? Why do you need covenants?

Simply put, a covenant is a restriction. When a bank or financial institution underwrites a loan or issues a line of credit to a business, they take on a certain amount of risk.

How likely is the business going to pay timely?
Will the business pay back the loan?
How volatile is the company's industry?
What is the collateral for the potential loan?

These are all questions lenders will ask and need to understand before issuing a loan. To protect their investment, the financing may require financial covenants. First, there are positive covenants, for example you are required to have up to date insurance coverage and meet certain ratios. It might sound odd to call these positive, but these are items the bank wants to ensure you have in place to help protect the business.

Negative covenants act in the opposite way. Often times, the bank does not want the Company taking on other debt obligations, without the Bank prior approval or until the most recent debt is paid off. In addition, negative covenants are often structured to look at a Company's solvency and not violating financial metrics. These are built into the financing to protect the bank, but also to protect the Company and the business owner.

Some of the most common financial ratios and metrics that banks look at for assessing a loan are-

How covenants might affect your business

So you have met with a lender, gone through the approval process and have your new loan right in front of you. Are you ready to sign it? Make sure you review any financing agreements or amendments with your attorney and accountant. Depending on the type of loan, it could require a compilation, review or audit level financial prepared by a CPA. Financial-preparation ranges in complexity, the more complex, the more intrusive, and costly. Going from a review level

financial statement to audited financial statements could double your accounting fees that you already pay. This could come as an unwanted surprise if you are not ready for it.

There are changes on the horizon. As bankers look at new loan agreements or new amendments to current loans, be aware do the adoption of the new Accounting Lease standard the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases, as amended by subsequent ASUs. Companies are not required to implement the new standard until years beginning after December 15, 2021 (effective for fiscal years ending December 31, 2022). This new standard could impact the definition or calculation of specific covenants.

Managing your Covenants

Covenants are not something to wait until the end of the year to evaluate and determine the Companies overall position of compliance with the negative and positive covenants. If you find yourself in a situation of continuously failing your covenants, your overall relationship with a bank might be impacted. To help alleviate this, a Company should conduct tax planning and/or obtaining advice during the year.

Debt is a great tool in a business owner's toolbelt to grow their business. By understanding the restrictions, or covenants that a lender might use, you can make a more informed decision about if debt financing is right for you. You also might use a professional to plan around your new debt to foster a healthy relationship with the bank. Strong creditors lead to happy lenders, which leads to better business for everyone.

Should Long-Term Care Insurance Be Part of Your Financial Plan?

Wed, 17 Aug 2022 17:37:19 GMT

If the COVID-19 pandemic taught us anything, it’s that health crises, though difficult to predict, are inevitable. This is true on the personal front as well as in the society at large. We can’t know what health issues await us, but it’s pretty certain that if we live long enough, we’ll need some form of long-term care — for ourselves or for members of our families.

To ensure we aren’t caught without the needed resources in the event of a catastrophic, long-term health event, it’s important to consider how such expenses will be paid for now, before the need arises. One option is long-term care (LTC) insurance.

What the policies do

LTC insurance policies help pay for the cost of long-term nursing care and assistance with activities of daily living (ADLs), such as eating and bathing. Many policies cover care provided in the home or at an assisted living facility or nursing home, although some policies restrict coverage to only licensed facilities. Without this coverage, you’d likely need to pay these bills out of pocket.

Medicare or health insurance policies generally cover such expenses only if they’re temporary — that is, during a period over which you’re continuing to improve, such as recovering from surgery or a stroke. Once you’ve plateaued and are unlikely to improve further, health insurance or Medicare coverage typically ends.

That’s when LTC insurance may take over. But you need to balance the value of LTC insurance benefits with the cost of premiums, which can run several thousand dollars annually.

A variety of factors

Whether LTC insurance is right for you will depend on a variety of factors, such as your net worth and your estate planning goals. If you’ve built up substantial savings and investments, you may prefer to rely on them as a potential source of LTC funding rather than paying premiums for insurance you might never use.

If you’ve socked away less and also want to have something left for your heirs after you’re gone, LTC insurance might be a good solution. But it will be effective only if your premiums are reasonable.

If you determine LTC insurance may be right for you, keep in mind that the younger you are when you purchase a policy, the lower the premiums typically will be. And, the chance of being declined for a policy increases with age. Having certain health conditions, such as Parkinson’s disease, can make it more difficult, or impossible, for you to obtain an LTC policy. If you can still get coverage, it likely will be much more expensive.

So, buying earlier in life may make sense. But you must keep in mind that you’ll potentially be paying premiums over a much longer period. You can often trim premium costs by choosing a shorter benefit period or a longer elimination period.

Consult an expert

As you see from this brief summary, LTC insurance is complex and there are many factors to consider. It’s important that any policy you purchase fits into your financial plan and doesn’t drain resources you’ll need for other purposes. Your financial advisor can help you determine the best policy for your specific needs.

Is Your Business Getting the Credits It Deserves?

Tue, 16 Aug 2022 14:53:43 GMT

It’s a challenging time to grow a business. So, any help you can get in the form of tax credits, tax exemptions, grants, low-cost financing and other incentives can make a big difference. Unfortunately, these incentives often go unclaimed. Why? In most cases, businesses have to ask for them — either by claiming benefits on a tax return or negotiating with a state or local government — and that means they have to know about them.

The credits and incentives available to businesses are too numerous to mention — plus, they vary from state to state, locality to locality and even year to year. But the work involved in identifying and claiming these incentives can pay off, especially in today’s competitive environment. Let’s examine two types of incentives available — statutory and discretionary — and outline some potential benefits.

1. Statutory incentives

Some incentives — such as federal or state tax credits or exemptions — are available “as of right.” In other words, if your business meets the requirements set forth in the statute or regulation, you just need to claim the benefits on a timely filed tax return to receive them.

State and federal tax credits and exemptions are usually designed to provide incentives for businesses to engage in certain activities or to invest in certain economically distressed areas. Examples include:

State and federal R&D tax credits. Too often, businesses don’t claim valuable R&D tax credits because they assume they’re not eligible. There’s a common misconception that these credits are only for scientific or technological research by large pharmaceutical, biotech, software and aerospace companies. In reality, these credits may be available to any business that invests in developing new products or techniques, improving processes, or even developing software for internal use. The potential benefits can be significant. The federal credit for “increasing research activities,” for example, is generally equal to 20% of the amount by which qualified research expenditures exceed a base amount derived from a business’s historical R&D expenditures.

Businesses may overlook the R&D credit because they’re small or unprofitable, and don’t think the credit would benefit them. But the credit is available to businesses of any size. And even companies with no income tax liability may benefit by claiming R&D credits. For one thing, these credits may be carried forward to offset taxable income in future years. Plus, eligible start-up companies can claim the federal R&D credit against up to $250,000 in employer-paid payroll taxes.

Work Opportunity Tax Credit (WOTC). The WOTC is a federal credit, ranging from $2,400 to $9,600 per eligible new hire from certain disadvantaged groups. Examples include convicted felons, welfare recipients, veterans and workers with disabilities. To qualify for the credit, you must complete certain paperwork and take additional other steps before extending a job offer. Many states offer similar credits.

Empowerment zone incentives. Certain incentives are available to companies that operate in federally designated, economically distressed “empowerment zones.” Tax credits may be worth up to $3,000 for each employee who works and resides within the zone.

Industry-based and investment credits. Many states and other jurisdictions offer tax credits and other incentives to attract certain types of businesses, such as manufacturing or film and television production. States and other jurisdictions may also offer investment tax credits for capital investments within their borders.

2. Discretionary incentives

Discretionary tax breaks, on the other hand, must be negotiated with government representatives. Typically, these incentives are intended to persuade a business to stay in, or relocate to, a certain state or locality.

To secure these incentives, therefore, a business must convince the government entity that it’ll create jobs, generate tax revenues, stimulate economic development or otherwise benefit the jurisdiction. Discretionary incentives may include income and payroll tax credits, property tax abatements, sales tax exemptions, and utility rate reductions.

Don’t leave money on the table

These are just a few examples of the many tax credits and other incentives available to businesses. Every year, billions of dollars go unclaimed because businesses are unaware of tax credits and incentives or erroneously believe they’re ineligible. Your tax advisors can help ensure that your business receives all the tax breaks it deserves.

Sidebar: Don’t lose out on sales tax exemptions

States with sales taxes (which is most of them) provide exemptions for certain purchases. Common exemptions include:

Purchases by retailers (from a manufacturer or distributor, for example) for the purpose of resale,
Purchases by manufacturers of equipment, raw materials or components used in the manufacturing process,
Purchases by specific tax-exempt entities, such as nonprofit organizations, charitable or educational institutions, or government entities, and
Certain purchases by agricultural businesses, such as farming equipment and fuel, feed, seeds, fertilizer, and chemical sprays.

Businesses should familiarize themselves with the exemptions available in the states where they do business, determine whether they qualify and satisfy any requirements for claiming an exemption. For example, they might need to present the seller with a resale or exemption certificate.

Announcing Five New Hires at Meyers Brothers Kalicka, P.C.

Thu, 11 Aug 2022 17:46:24 GMT

Please join us in welcoming the latest additions to the staff at Meyers Brothers Kalicka, P.C. Bringing their experience and fresh perspective to each department, we are happy to have Christine Shea, David Lawson, Nicholas Mishol, Taylor Sawicki, and Olivia Freeman join the firm.

Christine L. Shea, CPA, MSA

Manager

David A. Lawson, MSA

Tax Supervisor

Nicholas R. Mishol

Associate

Taylor N. Sawicki

Associate

Olivia N. Freeman

Administrative Assistant

Cash It In! Save Tax With Qualified Small Business Stock

Fri, 05 Aug 2022 12:50:37 GMT

Are you looking to inject cash into your small corporation? Or do you have your eyes on another promising venture? If you acquire qualified small business stock (QSBS), you can enjoy a tax exclusion on 100% of your capital gain when you sell the stock down the road.

Basic rules

To qualify for the QSBS tax break, the following requirements must be met:

The issuing corporation must be a C corporation,
The stock must have been issued after August 10, 1993,
The stock can’t be acquired in exchange for other stock,
At least 80% of the corporation’s assets must be used in the active conduct of a qualified trade or business, and
The corporation can’t have more than $50 million in assets when the stock is issued.

Also be aware that some businesses are ineligible, such as those involving real estate or personal services (for example, law, health and financial services).

If you sell QSBS after a holding period of five years, you may exclude from tax 100% of the realized gain, within certain limits. But the amount of gain taken into account for a QSBS sale in a particular year is limited to $10 million and can’t exceed 10 times the basis of QSBS stock sold during the year.

Dollars-and-cents example

Assume you invest $1 million in QSBS issued by your small corporation on June 1, 2022. If you hold the stock until at least June 2, 2027, you can sell your QSBS for up to $10 million without owing any capital gains tax.

Let’s say that you sell the QSBS after five years for $5 million. When you subtract your initial $1 million investment, you’ll pocket a $4 million capital gain, completely exempt from tax.

That’s a plan

If you wish to sell QSBS before five years are up, you can defer any tax by rolling over the proceeds into new QSBS within 60 days.

Finally, be aware that the QSBS gain exclusion was previously limited to 75%, and, before that, 50%. A return to 50% has been proposed — under specific circumstances relating to a taxpayer’s adjusted gross income. So, you may want to move quickly if this tax-saving strategy might make sense for you.

Taking Advantage of the Community Advantage Loan Program

Wed, 03 Aug 2022 13:20:15 GMT

If your business operates in what’s known as an underserved area and could benefit from additional capital, the Community Advantage Loan Program, an initiative of the Small Business Administration, may be able to help. While the program had been slated to expire this year, it recently was extended to September 30, 2024. In addition, the maximum loan amount increased from $250,000 to $350,000, while the top unsecured loan amount jumped from $25,000 to $50,000.

Does your business qualify?

Many Community Advantage borrowers are small business owners and entrepreneurs working in underserved markets who are considering expansion, or need working capital or inventory. They’ve generally been in business for less than three years and don’t qualify for traditional financing. While potential borrowers must demonstrate creditworthiness and the viability of their business ideas, loan qualification generally isn’t impacted by their balance sheets or, for smaller loans, collateral.

As of this writing, the maximum interest rate on Community Advantage loans will vary based on the amount of your loan, but will range from prime plus 4.5% to 6.5%. Loan maturities are based on the use of the proceeds and your business’s ability to repay, but generally are a maximum of 10 years for working capital and 25 years for real estate. In some cases, revolving loans are allowed.

How can you access Community Advantage loans?

Like many SBA loans, Community Advantage loans are available through specific lenders. These include Certified Development Companies (CDCs), microloan program intermediaries, Intermediary Lending Pilot (ILP) program intermediaries, and nonfederally regulated Community Development Financial Institutions (CDFIs) that are certified by the U.S. Treasury.

At least 60% of lenders’ Community Advantage portfolios need to be in underserved markets. Just what is an underserved market? Examples include:

Low-to-moderate-income (LMI) communities,
Businesses in which more than half of the full-time workforce is low-income or resides in LMI census areas,
Businesses in business for no more than two years,
Businesses in rural areas, and
Veteran-owned businesses.

While each lender will have its own policies, the SBA does have some requirements that typically come into play whenever it’s extending credit. Borrowers generally must be for-profit, operate legally and do business in the United States. The owner needs to have invested time and money into his or her business.

Like applicants for some other SBA loans, businesses seeking Community Advantage loans need to complete SBA Form 1919, Borrower Information Form , and SBA Form 2449, the Community Advantage Addendum . Some borrowers may need to complete additional forms.

What is the SBA’s role?

The SBA guarantees a portion of each Community Advantage loan — the amount will vary with the size of the loan. Turnaround time within the SBA for loan approvals is typically between five and 10 days. This is in addition to the time the lender requires.

Along with the interest charged, the SBA typically charges servicing and guaranty fees that vary based on the loan amount and repayment terms. However, these fees are waived for loans approved in 2022. (The lender may charge additional fees.)

What is your lender’s role?

While all SBA loans require a personal guarantee from owners of 20% or more of the business, if your loan is $50,000 or less, the lender isn’t required to take collateral. For larger Community Advantage loans, your lender needs to follow the collateral policies and procedures it’s established for other, similarly sized, non-SBA-guaranteed commercial loans.

Your lender will need to place a first lien on the assets that are financed with the loan proceeds, as well as against your fixed assets, including real estate, until the loan is fully secured. In some cases, the lender is not required to use real estate as collateral.

Is it right for you?

Community Advantage loans can make sense for many businesses. Your accounting professional can help you determine if one would be a good source of funding for your business.

Tax Tips for Single Filers and Families

Tue, 02 Aug 2022 16:36:19 GMT

HSAs can be powerful retirement saving tools

Health Savings Accounts (HSAs) are designed as tax-advantaged savings vehicles for funding uninsured health care expenses. But for those in relatively good health, they also may serve as an attractive retirement savings vehicle. Briefly, HSAs are available to people covered by a high-deductible health plan. Contributions to an HSA are tax deductible, and withdrawals used to pay for qualified unreimbursed medical expenses are tax-free.

You can make tax-deductible contributions to an HSA and take tax-free withdrawals to pay for uninsured medical expenses. For 2022, a “high deductible” plan is one with a deductible of $1,400 or more for individual coverage or $2,800 or more for family coverage. In addition, annual out-of-pocket expenses must not exceed $7,050 for individual coverage or $14,100 for family coverage.

This year, you can contribute up to $3,650 to an HSA — $7,300 if you have family coverage — plus an additional $1,000 if you’ll be 55 or older by the end of the year. If you’re fortunate enough not to need all of the funds in the account for medical expenses, they’ll continue to grow on a tax-deferred basis, providing a valuable supplement to your other retirement accounts.

Married filing separately: Is it ever a good idea?

For most married couples, filing jointly results in the lowest tax bill, especially when one spouse earns much more than the other. Suppose one spouse has $250,000 in taxable W-2 income and the other has $50,000 in taxable W-2 income. Presuming that the couple doesn’t itemize and they have no charitable contributions, if they file a joint return their tax liability is approximately $55,000. Filing separately would increase their total tax liability by more than $8,500. If their taxable W-2 incomes are $150,000 each, however, their combined tax liability would be the same, regardless of filing status.

In some cases, there may be advantages to filing separately. An example is when one spouse has excessive medical expenses. Medical expenses are deductible only to the extent that they exceed 7.5% of adjusted gross income (AGI). By filing separately, that spouse can reduce his or her AGI, boosting the deduction for medical expenses. Of course, to determine whether this strategy will work, you’ll need to weigh the tax benefits of the increased deduction against the tax increase (if any) resulting from filing separate returns.

How to Benefit From the Home Sale Gain Exclusion

Tue, 19 Jul 2022 15:00:53 GMT

With home prices at record highs in some parts of the country and many people looking to make career or lifestyle changes, you may be considering downsizing or moving to another location. If so, you could be in line for a large tax break when you sell your home. In fact, you might be able to pocket up to a half million dollars in gain from the sale of your principal residence without owing any federal income tax.

How it works

Under federal tax law, you may be able to exclude from tax up to $250,000 of gain — $500,000 if you’re married filing jointly — on the sale of your home. To qualify, you must have owned and used the home as your principal residence for at least two of the five years prior to the sale.

There’s no definitive definition of “principal residence” in the tax code. Generally, your principal residence is the place where you hang your hat most of the time and where you’ve established legal residency for other purposes. It doesn’t have to be a house or condominium — a trailer or a boat may even qualify — but the exclusion can’t be claimed for a second home. This may change your living habits.

For instance, if you spend seven months at a winter home in a warm climate and five months at a summer home, the winter home is considered to be your principal residence. So if you want to sell your summer home, you may first want to spend enough additional time there that it can qualify as your principal residence.

Here are several other key points about the home sale gain exclusion:

Under the two-out-of-five-year rule, the years don’t have to be consecutive. Furthermore, you can meet the use and ownership requirements in different tax years.
If you file a joint return, the maximum exclusion is available if 1) either spouse meets the ownership test, 2) each spouse meets the use test, and 3) neither spouse has elected the exclusion within the last two years. This is particularly significant if you’ve recently divorced or remarried.
To meet the use test, you must physically occupy the home, but short absences don’t count against you. Conversely, a longer absence, such as a one-year sabbatical by a college professor, doesn’t contribute to the time the home is used as your principal residence.
If the home has been used for business rental or use — including use of a home office for which you’ve claimed a tax deduction — you must recapture depreciation deductions attributable to the period after May 6, 1997. The recaptured income is taxable at a maximum rate of 25%.

The exclusion isn’t allowed if you sold another qualified principal residence within the last two years. Finally, you may qualify for a partial home sale gain exclusion under certain conditions.

Partial exclusions

Even if you don’t meet the two-out-of-five-year rule, you may be eligible for a partial exclusion if you sell the home due to certain unforeseen circumstances including:

Death,
Divorce,
Loss of employment,
Job change reducing ability to pay for the home,
Multiple births from the same pregnancy,
Damage from a disaster, and
Taking of property.

If none of these exceptions apply, the IRS will examine the facts and circumstances of the case. The partial exclusion is equal to the available exclusion amount ($250,000 or $500,000, depending on your filing status) multiplied by the percentage of time for which you met the requirements.

Example: You and your spouse have owned and used a home as your principal residence for the last nine months. Due to a debilitating illness, you’re forced to move, so you sell the home at a $200,000 gain. In this scenario, you may salvage a partial exclusion.

The applicable percentage is 37.5% (9 months divided by 24 months). When you multiply $500,000 by 37.5%, you arrive at $187,500. Accordingly, you can exclude from tax $187,500 of the gain. Only the remaining $12,500 is taxable as a capital gain.

Short-term capital gains are taxable at ordinary income rates topping out at 37%. But the long-term capital gains rate, which applies to gain on a home owned longer than one year, is generally 15% or 20%, depending on your annual income.

Get is right

The home sale gain exclusion can be worth some effort to ensure you meet the requirements. If you have any questions regarding whether your circumstances will enable you to benefit from this tax break, don’t hesitate to contact us.

Sidebar: Improvements matter

The amount of gain from a home sale is the difference between the sales price and your adjusted basis. Typically, your adjusted basis is the amount paid for the home plus the cost of any home improvements. Therefore, it’s especially important to keep detailed records of improvements that could increase your basis.

For example, say that you’re a single filer who purchased your principal residence for $500,000. In the last five years, you’ve spent $100,000 remodeling your kitchen and bathrooms. Now you’re selling the home for $800,000. With the $100,000 increase to your basis, your gain is $200,000 ($800,000 - $600,000) rather than $300,000 ($800,000 - $500,000). Assuming that you otherwise qualify, your entire gain is excluded from tax.

Are You Making the Most of Your 401(K) Plan?

Fri, 15 Jul 2022 15:12:40 GMT

If your employer offers a 401(k) plan, you probably know that one of the best ways to save for retirement is to max out your contributions each year. In 2022, for example, you can defer up to $20,500 in pretax salary to a 401(k) plan ($27,000 if you’re 50 or older). And if your employer offers matching contributions, you probably also understand the benefits of contributing at least enough to qualify for the maximum employer match. If you don’t, you’re leaving free money on the table.

What you may not know is that the timing of your contributions can have an impact on your eligibility for matching contributions. For example, if you “front-load” contributions — that is, max them out early in the year rather than spread them evenly over the entire year — you risk losing a significant amount of matching contributions, depending on the terms of your plan.

Front-loading advantage

If your plan allows it, front-loading can be a smart investment strategy because the markets generally appreciate in value over time. So, the earlier you contribute to a retirement plan, the more time those funds are in the market, thus creating the possibility of greater returns in the long run.

Of course, when it comes to investing there are no guarantees, and there are times when the markets go down. If you max out your 401(k) contributions by the end of April and the market crashes in June, you may discover that your returns for that year are lower than if you’d spread your contributions over the year.

Despite this risk, people who front-load their contributions tend to enjoy greater long-term returns. But front-loading can backfire — in dramatic fashion — if your employer matches contributions based on your compensation each pay period rather than your annual salary.

Maximizing matching contributions

The employer match is a powerful tool for boosting the returns on your 401(k) account. But the method of determining matching contributions can vary significantly from plan to plan. A common approach is to match contributions up to a certain percentage of your compensation for each pay period.

Under this approach, front-loading contributions may cause you to miss out on a substantial amount of free money. Here’s an example:

Michelle’s salary is $240,000 per year, paid over 24 pay periods ($10,000 per pay period). She front-loads her 401(k) contributions, deferring 20% of her salary, or $2,000 per pay period. Her employer offers dollar-for-dollar matching contributions, up to 5% of income — in this case, $500 — in each pay period.

In 2022, Michelle reaches the $20,500 contribution limit by her 11th paycheck in the middle of June, with matching contributions totaling $5,500. Because Michelle has maxed out her contributions, she stops making contributions in mid-June, and receives no matching contributions for the rest of the year.

Suppose, instead, that Michelle deferred 9% of her salary ($900 per pay period) to the 401(k) plan. In that case, she wouldn’t reach the contribution limit until her 23rd paycheck in mid-December, and would receive $11,500 (23 x $500) in matching contributions. That’s an additional $6,000 in pretax contributions each year, plus tax-deferred earnings on those amounts. That can give your retirement nest egg a significant boost over 10 or 20 years. In most cases, these additional savings will eclipse the benefits of front-loading contributions.

Know your plan

To make the most of your 401(k) contributions, be sure to understand your plan’s terms. If matching contributions are determined for each pay period, then front-loading will likely cost you money. But if your plan allows you to receive a match based on your contributions for the year, then front-loading may provide an advantage.

Data Analytics: Using Technology to Meet Your Nonprofit’s Goals

Thu, 14 Jul 2022 12:25:52 GMT

In today’s technologically advanced world, data rules. But simply having highly relevant information will be of little use if your board of directors, management and staff don’t know what to do with it.

So how can your organization harness the power of data? You can use it in day-to-day decision making and strategic planning, of course. But you can also use data to provide your stakeholders, donors and volunteers with up-to-date information about your fundraising, programming and outreach.

What is it?

Data analytics is the science of collecting and analyzing sets of data to develop useful insights, connections and patterns that can lead to more informed decision making. It produces metrics — for example, outcomes vs. efforts, program efficacy and membership renewal — that can reflect past and current performance. And that information, in turn, can predict and guide future performance. The data analytics process incorporates statistics, computer programming and operations research.

Data can come from both internal and external sources. Internal sources include your organization’s databases of detailed information on donors, beneficiaries or members. External data may be obtained from government databases, social media and other organizations, both nonprofit and for-profit.

What are the advantages?

There are several potential advantages of data analytics for nonprofits. The process can help an organization:

Validate trends,
Uncover root causes of problems, and
Take a holistic view of performance.

Done right, data analytics allows management to zero in on your organization’s primary objectives and improve performance in a cost-efficient way.

For example, data analytics can serve a dual purpose when it comes to fundraising. First, it may provide a way to illustrate accomplishments for potential donors who demand evidence of program effectiveness. And second, analysis of certain data may make it easier to target those individuals most likely to contribute.

Initiatives to streamline operations or cut costs have the potential to stir up political or emotional waters, but data analytics facilitates fact-based discussions and planning. The ability to predict outcomes, for example, can support sensitive programming decisions by considering data from various perspectives, such as at-risk populations; funding restrictions; past financial and operational performance; offerings available from other organizations; and grant-maker priorities.

What should be considered before purchasing?

Excited about data analytics? If so, it’s important not to put the cart before the horse by purchasing costly data analytics software and then trying to decide how to use the information it produces.

While new technology may be a good idea, your organization’s informational needs should dictate what you buy. Thousands of potential performance metrics can be produced. That means you must take time to determine which financial and operational metrics you want to track, now and down the road. Which of your nonprofit’s programs are the most important? Which metrics matter most to stakeholders and can truly drive decisions? How can you actually use the information?

You also need to ensure that the technology solution you choose complies with any applicable privacy and security regulations, as well as your organization’s ethical standards. Security considerations are particularly important if you opt for a solution that resides in the cloud, rather than installed software.

Additionally, you should determine how well the technology solutions you’re considering can integrate with your other applications and data. If software can’t access or process vital data, it likely will be a poor investment.

Organization buy-in

It may be a good time to get started on a full program, or to revisit your current use of data and metrics. But remember, having a data analytics program is only as good as the people who use it. If your leadership and staff don’t understand how to use it, that’s money wasted. Take the time to educate everyone about the capabilities of data analytics and follow up to be sure it’s being used effectively.

Is an Educational Assistance Program Right for You, Your Business, and Your Employees?

Tue, 12 Jul 2022 13:30:09 GMT

To qualify as an educational assistance program, the plan must be written, accessible to all employees and spell out what the money can be used for. The business can either directly pay the educational institution or student loan servicer on behalf of the employee or they can pay the employee directly and then potentially request a receipt of employee payments if their specific written plan requires it. If the total payments for educational assistance are under $5,250, the employee will not be taxed on this additional benefit. However, if the payments for tuition and loan assistance exceed $5,250, the employee would then pay taxes on the overage as it would now be included in box 1 of their W-2.

Recently, we had a local business reach out to inquire about the potential implementation of an education assistance program that takes advantage of this expansion of Section 127. One of their key questions was “is this something you think we should offer to employees, knowing that we handle payroll in-house using QuickBooks?” Ease of implementation to process this pre-tax contribution will vary with the type of QuickBooks product the business uses (i.e.: desktop or online). QuickBooks payroll will need to be set up to accept and track the payments by going through the CARES Act section to check off the applicable pay items to include. With this expansion available through 2025, your employees can benefit from it for 3+ years if your bookkeeper can adapt your program to your payroll system now.

This fringe benefit does mean that employees who receive this money will not be able to claim any of the tax-free education expenses (the amount received under $5,250) as the basis for another deduction or credit on their 1040 tax return. This includes the Lifetime Learning Credit and Student Loan Interest Deduction. However, the Lifetime Learning Credit is limited to a maximum of $2,000 per return and is non-refundable. In other words, the employee could use the credit to pay any tax owed, but they wouldn’t receive any of the tax credit back as a refund. This credit is also phased out completely if the employee has an adjusted gross income over $69,000 as a single filer or $138,000 if married filing jointly. Moreover, the Student Loan Interest Deduction is limited to $2,500, and is eliminated by a phaseout if their adjusted gross income is over $85,000. With the income limits in place on the credits and deductions currently available to individual students and student loan borrowers, this expansion to Section 127 has the potential to benefit a broader base of employees than the credits and deductions.

If you have any questions about how this might affect your educational assistance program or any other programs, deductions or credits please feel free to reach out for detailed tax advice.

MBK Joins OneHolyoke CDC to #KeepItClean2K22

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 11 Jul 2022 18:22:05 GMT

#KeepItClean2K22

Manager, Chelsea Russell , organized a team of volunteers from MBK to join OneHolyoke CDC for a day of cleaning as part of their initiative to clean Holyoke's streets. Ian, Mia, Carolyn and Cheryl joined the Director of Community Engagement and Resident Services, Nayroby Rosa-Soriano; Executive Director, Mike Moriarty; City Councilor, Tessa Murphy-Romboletti; Mayor of Holyoke, Joshua Garcia and a group of volunteers to clean about 2 miles of streets in Holyoke. Together, they filled ten bags of trash.

“This was such a great experience because it is easy to see your progress and the physical difference you can make in even such a short time! It was wonderful to help inspire others to go out and keep their communities clean with OneHolyoke as well” - MBK Volunteer

About Keep It Clean 2K22

OneHolyoke CDC is kicking off its citywide KeepItClean2K22 campaign, an initiative to clean Holyoke’s streets, at the Flats Community Building, 43 N. Canal Street on Earth Day, April 22nd 2022 at 10am.

OneHolyoke Community Development Corporation a nonprofit organization, will be hosting a cleaning campaign event at the Flats Community Building, 43 N. Canal Street in Holyoke, every fourth Saturday of the month, through September.

OneHolyoke will host one clean-up at Flats Community Building per month, with an additional three to four cleanups a month from our partners. Holyoke organizations are encouraged to volunteer to host their own cleaning events. We will also participate in cleaning events throughout the city hosted by other Holyoke Organizations.

The goal of #KeepItClean2K22 is to promote weekly neighborhood clean ups through fall with an end of the year city wide cleanup event.

How to Succeed in Hiring Gen Z

Thu, 07 Jul 2022 14:51:25 GMT

By: Kelly Moulton and Mia McDonald

In the midst of the “Great Resignation”, employers are desperate to hire new staff. Insider Intelligence reports that in 2022, approximately 20.2% of the US population will be made up of Generation Z, meaning employers will increasingly need to turn to this group to fill roles. Born between the years of 1997 and 2012 and sometimes coined as “screenagers” for their attachment to mobile devices and upbringing in a digital environment, the strengths and weaknesses of Gen Z, as well as what they have to offer to the workforce, differ significantly from previous generations in some ways, but mirror their predecessors in other ways. Edward Segal, in his Forbes publication, “How and Why Managing Gen Z Employees Can Be Challenging For Companies”, discussed the challenges Gen Z applicants present to employers. Among those, noted several executives, are a lack of discipline and patience as well as the need to develop a work ethic.

Gen Z is not unique in facing broad generational criticisms. Baby Boomers and Millennials can all relate to the struggle of being defined by their generation. But just like prior generations, Generation Z is diverse in their composition, their motivations, and their beliefs. Working to understand each of these components can help to generate success for both employers and Gen Z employees, and increase Gen Z commitment to the employer. Raised in different decades and growing up utilizing different technologies, it can be a challenge to integrate intergenerational individuals employed in the same workplace. But with the influx of young workers entering the market, employers need to continue to learn and adapt so they can obtain and retain the best applicant, just as they require their new hires to adapt, learn, and grow within their role.

A great way to help acclimate new hires to the community and culture of the workplace is to integrate them into a working team of established professionals who can help ease their introduction. This is a strategy that we both experienced when we started at Meyers Brothers Kalicka. MBK created a space where both of us could work directly and collaboratively with a team of other young professionals, allowing us to quickly meet and bond with coworkers in various specialties. This made for a welcoming, and less intimidating, entrance into the firm and the demands of public accounting in particular. This strategy also provides a broad base of different people to go to with questions, it improves motivation and accountability, and fosters a teamwork-driven environment.

Another important consideration is that many Gen Z workers entering the employment market have just completed school during a global pandemic. This has fostered adaptability to different styles of working and learning, as many recent graduates were required to manage their own time and resources with remote education. Employers should try to mirror this and offer similar flexible work hours and locations. They need to ask themselves – are we truly devoted to our employees maintaining work-life balance? Taking this nontraditional approach can, in turn, allow employees to pursue other interests and certifications. Generation Z is very aware of the importance of mental healthcare and often seek out employers that understand and support a balance between their work and personal pursuits, from time with friends and family, to higher education or community events. Allowing more flexibility for staff ultimately makes for a happier work environment and more productive, connected employees.

Employers can successfully integrate and take advantage of the strengths of Gen Z new hires if they take a multi-faceted and individualized approach. This can be encompassed with the collaborative work environment, as well as flexible work hours and locations arranged to accommodate the needs of each individual. Employers need to allow for independence – showing that they trust and value contributions – while also setting clear expectations and providing consistent feedback to foster growth. This will create a sense of empowerment, that will be a vital trait for these future leaders. For this more hybrid, flexible strategy to work effectively, communication is essential. Whether it be a quick phone call, email updates, or regular in person check ins, setting standards for communication will help to keep everyone on the same page.

It is important to understand that there is not a “cookie-cutter” approach that will work – employers should not try to generalize a strategy for all young applicants. Perhaps the most important thing employers can do is set aside preconceived notions about the generation, and instead look at each candidate as an individual. They should consider the ways in which each individual learns best, as well as the specific projects assigned. What is the overarching goal of the project and what is the key take-away that can be taught? Where can we allow for flexibility to best accommodate their needs and set them up for success?

For Gen Z applicants, it is important to remember that what is valued most by employers is a positive attitude, and a willingness to learn. Beyond this, new hires and even current employees should always look for ways that they can pull down tasks from higher-ups - offering time to check in and help on any available tasks will show initiative and generate more respect. Employ your strengths in digital communication and technology but be open-minded and use your first few years to further diversify and learn as much as you can from those around you. Immerse yourself in your environment and seek out opportunities to bond with your coworkers and make connections. Networking not just outside of your company but within it as well will help hires be able to work well with a variety of people and grow invaluable interpersonal skills that cannot be taught in a textbook.

With compromises in attitude and an appreciation for change and development from everyone in a workplace, employers will be able to reap the benefits of the upcoming generation of workers and future leaders.

Nail Down Installment Sale Tax Breaks

Fri, 24 Jun 2022 14:05:06 GMT

Do you own investment or commercial real estate you’re planning to sell this year? If the property has appreciated in value since you acquired it — as is usually the case — and you’ve been claiming depreciation deductions, you could owe a hefty tax on the transaction. Let’s look at one strategy that may help solve the dilemma.

The installment plan

By arranging an installment sale of the property, you can spread out the tax over time, thereby reducing the overall tax bite. At the same time, the buyer gets more time to foot the bill, potentially making the opportunity more attractive.

It’s important to note that the property must be investment or commercial property to qualify for the installment sale tax break. This won’t work if you’re selling your principal residence. Also, you must receive at least one payment in a tax year after the year of the sale. For instance, if you sell the property in June 2022, and you receive half of the money in June and the other half in January 2023, you’re in the clear.

In addition, installment sale treatment isn’t available for property sold by a “dealer” (a person who regularly sells this type of property on the installment basis). Nor does it apply to an installment sale of farmland.

Three key tax advantages

Although you must wait to receive some of the money you’re owed, there are at least three tax advantages of being patient:

Low-taxed capital gain. With an installment sale of real estate, the gain is taxed as tax-favored long-term gain if you’ve owned the property for longer than one year. Currently, the long-term capital gain rate is 15% — or 20% for high-income individuals.
Tax deferral. Instead of paying tax on the entire gain in one year, you’re only taxed on a portion of your gain. The remainder of the tax is spread out over the years that payments are actually received. The taxable portion of each payment is based on the “gross profit ratio.” This is derived by dividing the gross profit from the real estate sale by the price. There is, however, an important caveat: The amount of gain that is attributable to depreciation recapture is taxed in the year of sale, without regard to how much is received as an installment payment that year.

So, for instance, suppose the commercial building you acquired ten years ago has an adjusted basis of $1.2 million, after considering $400,000 of depreciation. You arrange to sell the building in 2022 for $3 million, with the buyer paying three annual installments of $1 million each. Because your gross profit is $1.8 million ($3 million - $1.2 million), the taxable percentage of each installment received is 60% ($1.8 million divided by $3 million). Therefore, when you report the sale on your 2022 return, you owe tax on only $600,000 of the gain (60% of $1 million). For 2022, $400,000 is taxed as recapture of depreciation with the remainder being taxed as long-term capital gain. The installment payments in 2023 and 2024 also will yield a taxable amount of $600,000 a year — although the full amount will be taxed as long-term capital gain.
Reduced tax liability. Because your gain from an installment sale is spread over several years, you may benefit from the capital gain structure. For simplicity, assume you arrange a five-year installment sale where $50,000 of the gain is taxed at the 15% rate each year instead of the 20% rate. As a result, you save $2,500 ($50,000 x 5%) each year for a total savings of $12,500 ($2,500 x 5).

Other tax issues

Tax law contains some potential tax traps when property is sold on an installment basis. For example, depreciation must be recaptured as ordinary income if it exceeds the amount available under the straight-line method and interest must be paid on certain installment agreements above $5 million.

Sales to “related parties” are prohibited if tax avoidance is the principal purpose. Also, if a related party disposes of the property within two years, either by resale or some other method, the remaining tax is immediately due. Note that a business entity in which you have a controlling interest also is considered a related party.

Be strategic

The installment sale tax break isn’t the right strategy in every situation. You can elect to bypass the installment sale tax break if it better suits your needs. (See “Should you elect out?” below.) As always, the best strategy is to rely on your professional tax advisor for guidance.

Sidebar: Should you elect out?

Installment sale reporting is automatic, but you can choose to “elect out” of installment sale treatment on your tax return. Why would you do that? Maybe you expect 2022 to be a low-tax year and the following years to be high-tax years. Or perhaps you have capital losses or suspended passive losses that will offset the tax on an installment sale gain.

In these situations, you’ll likely come out ahead by reporting all your gain in the year of the sale instead of spreading it out over time. Remember: You don’t have to decide until you file your tax return for the year of the sale.

New Accounting Rule Could Bring Change to Nonprofits’ Financial Statements

Thu, 23 Jun 2022 13:10:50 GMT

A new accounting standard from the Financial Accounting Standards Board (FASB) appears on its face to apply only to financial institutions. But it could affect nonprofits that adhere to Generally Accepted Accounting Principles (GAAP). Among other things, Accounting Standards Update (ASU) No. 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, requires earlier reporting of credit losses on receivables, loans and other financial assets. It also expands the range of information considered in determining expected credit losses. The standard takes effect in 2023, so it’s smart to review the details as soon as possible.

Current rule

Under the existing “incurred loss” standard, organizations recognize a credit loss only after a loss event has occurred or is probable. Before that point is reached, nonprofits record an allowance based on historical events. For example, based on previous experience, you might record an allowance for doubtful receivables in anticipation of future losses on them.

Critics have complained that this largely backward-looking model restricts an organization’s ability to record expected credit losses that don’t yet meet the “probable” threshold. In response, the FASB launched a project to better align the financial reporting on credit losses with the need of financial statement users for forward-looking information.

New requirements

After considering various models for reporting expected credit losses, the FASB settled on the “current expected credit loss” (CECL) model. This model measures and reports expected losses over the contractual life of the asset — generally starting at the initial recognition of the asset. The measurement of expected credit losses will be based on relevant information not just about past events, including historical experience and current conditions, but also the “reasonable and supportable” forecasts that affect collectability of the reported amount.

Several types of assets often held by nonprofits fall under the new ASU. They include:

Trade receivables (generally, amounts billed for goods or services, such as merchandise, tuition, fees, membership dues and special event income),
Held-to-maturity debt securities in an investment portfolio,
Notes receivable and other loan commitments, and
Lease receivables.

The ASU excludes promises to give, loans and receivables between entities under common control, and defined contribution employee benefit plan loans.

Some specifics

The ASU doesn’t prescribe a method for estimating specific credit losses. Rather, it allows nonprofits to exercise judgment to determine which method is appropriate for their circumstances, including the nature of their financial assets. It also permits organizations to continue to use many of the loss estimation techniques currently employed, including loss rate methods, probability of default methods, discount cash flow methods and aging schedules. But the inputs used with those techniques will change to incorporate the full amount of expected credit losses and the use of reasonable and supportable forecasts.

In addition, under CECL, credit impairment is recognized as an allowance for credit losses, not as a direct write-down of the financial asset. The ASU doesn’t establish a threshold for recognizing an impairment allowance, though, so organizations also must measure expected losses on assets with a low risk of loss. That means trade receivables that are current or not yet due will have an allowance. Under the current rule, such receivables might not require an allowance.

Act now

The new FASB standard will take effect for most nonprofits in 2023, although early application is permitted. To begin preparing for implementation of the CECL model, your nonprofit will need to review all of your financial assets to identify those within the standard’s scope and determine the method you’ll use to estimate expected losses. We can help.

Midyear Tax Planning Discussions that your 2022 Return Will Thank You For

Wed, 22 Jun 2022 14:40:57 GMT

As a small business owner, tax planning should be a key part of your overall financial strategy. By taking advantage of tax breaks and deductions, you can minimize your tax liability and keep more money in your pocket. Here are nine strategies you should consider:

Review your tax liability for the current year
Take a look at your tax situation for the current year and estimate how much tax you will owe. This will help you determine if you need to make any changes to your withholdings or estimated tax payments.
Consider a tax status change
Your entity type not only impacts how you are protected under the law but it also affects how you are taxed. If you’ve outgrown your current business structure, or if you previously set up a structure that wasn’t the best fit for your business, you can elect to change your structure. Each entity type has its own benefits and drawbacks, so it is important to make sure you have a full picture before committing to your decision.
Amortization of Research and Experimental R&E expenditures
Due to law changes, companies are no longer allowed to fully deduct their R&E expenses. Instead, these expenses are amortized over a period, based on where their services are provided. Classification of expenses as R&E should be renewed.
Review expired provisions
Some of the tax relief provisions in 2021 the American Rescue Plan Act (ARPA) were carried over into 2022 by the Build Back Better Act. Principal among them are ARPA’s increases and expansion of the child tax credit, including its monthly advance payments, which have now ended as of the December 2021 payment. The Build Back Better Act was signed into law this past March 11th and included a renewal of that provision for 2022. Beyond those expiring provisions, a number of pre-ARPA "extender" items lapsed at the end of 2021, such as the treatment of premiums for certain qualified mortgage insurance as qualified residence interest and multiple energy and fuel credits.
Review the new limit on state and local tax deductions
For individual taxpayers, one of the biggest potential changes being lobbied is the possible restoration of the deduction for state and local taxes (SALT). If this proposal becomes law, it could have a major impact on your tax bill. As such, it's important to think about how you would adjust your tax planning if the SALT deduction is restored or remains limited. Additionally, there are a number of other proposed changes to the tax code that could impact individuals, so it's important to stay up-to-date on the latest developments and plan accordingly.
Consider the Qualified Business Income (QBI) Deduction
The qualified business income (QBI) deduction, which provides pass-through business owners a deduction worth up to 20% of their share of the business's qualified income. However, this deduction is subject to a number of rules and limitations. For example, owners of specified service trades or businesses (SSTBs) are not eligible for the deduction if their income is too high. SSTBs generally include any service-based business, such as a law firm or medical practice, where the business depends on its employees' or owners' reputation or skill. If a business is eligible for a QBI deduction, owners should carefully weigh salary vs. flow through income.
Budget for larger charitable donations
Finally, if you're thinking of making a charitable donation, recently you may not have benefited as much from the deduction for your donation as you have in the past. Since the TCJA nearly doubled the standard deduction started effective 2018 and capped the SALT deduction, fewer people itemize their deductions on their tax return. As a result, the tax benefits of charitable donations have been limited to those who itemize their deductions. If the SALT cap is increased or eliminated, the deduction for charitable contributions could be more beneficial. If you are considering more significant contributions, gifting appreciated stuck to qualified charities offers great benefits. You will get a tax deduction for the fair market value and not be taxed on the unrealized gain.
Remember, meals and entertainment is still 100% deductible
For 2021 and 2022 only, businesses can generally deduct the full cost of business-related food and beverages purchased from a restaurant. (The limit is usually 50% of the cost.)
Review your accounting methods and records
It’s a great time to look at the books, and make a plan to adjust anything that should be changed while also planning for the future. Many times, unexpected changes come up that can impact your business and individual taxes that you may not have even considered. For example, will you have any major life changes, such as getting married or having a baby? Buying a house? Leasing a business vehicle? Hiring more employees? Relocating your business? Spending more than usual on talent acquisition? Investing or accepting cryptocurrency? These changes can have a significant impact on your tax liability.

No matter what changes are ultimately enacted into law, the key to successful tax planning is staying informed and being proactive. By taking the time to understand the potential implications of proposed changes and making strategic decisions now, you can help ensure a smooth tax season for yourself and your business in 2022.

Business Succession and Estate Planning Go Hand-in-Hand

Thu, 16 Jun 2022 13:16:15 GMT

If you’re a business owner, your company likely is your most valuable asset. Thus, addressing it in your estate plan is critical if, for example, you die unexpectedly or become disabled. Your plan can also help provide a smooth transition of the business to your children or other family members after you retire.

Draft key documents

A comprehensive estate plan should be supported by a core of several key documents. For starters, a basic will divides up your assets, including your business interests, among designated beneficiaries, as well as meeting other objectives. Without a will or having assets otherwise titled, your business and other assets will be distributed under the prevailing laws in your state, regardless of your wishes.

In addition, adopt a power of attorney for someone to manage your affairs in the event you become incapacitated. This “attorney-in-fact” can conduct business transactions. The power of attorney should be complemented by health care directives providing guidance if you can’t make medical decisions for yourself.

Customize your estate plan to accommodate your business needs. For instance, in some states, a spouse won’t be able to access business assets without court approval. To avoid this result, you might place assets in a trust you’ve established as legal owner.

Use tax breaks to your advantage

If you own significant business assets, consider maximizing the federal estate tax breaks currently on the books. This includes the use of the unlimited marital deduction and the generous federal gift and estate tax exemption. For 2022, the exemption shields assets valued up to $12.06 million.

Be aware that certain states also impose their own state or inheritance tax. Inheritance tax paid by family members, such as your children, comes out of their own pockets — not the estate’s.

Fortunately, you can minimize taxes on both the federal and state levels by using multiple trusts or setting up a family limited partnership (FLP). With a tax-favored FLP, the assets are removed from your taxable estate, and limited partner interests can be gifted to loved ones, often at a discounted value. Finally, be aware of tax consequences for ultimate distributions of retirement plan accounts to designated beneficiaries.

Think about a plan of succession

Many business owners dream of the day they can transfer ownership to their children, who will continue to run the operation when the owner retires. A succession plan can provide a smooth transition of power and be used in the event of an unexpected death of an owner.

Typically, a succession plan will outline the structure of the business going forward and prepare for the eventual sale of the business. Make sure that the plan is memorialized in writing. Identify training opportunities and special compensation arrangements for your successors. One section of the plan should include all the financial details reflecting assets, liabilities and current value. This section may need to be updated periodically, as a business’s financial condition and value may change over time.

Coordinate your succession plan document with your will and the other estate planning documents discussed above.

Avoid potential family conflicts

It’s not unusual for a family to face internal challenges and struggles as the entrepreneur reaches retirement age. Unfortunately, leaving one sibling out in the cold while another is anointed to run the business can create hard feelings. Or giving someone a secondary role may cause conflicts.

A common estate planning strategy is to attempt to “even things out.” For example, say for simplicity that you own a business valued at $5 million and you have $5 million in other assets. You’ve named one of two children to succeed you as the business owner. In this case, you can give the successor child the $5 million in business assets and leave the remaining $5 million in assets to the other child.

Here’s to a smooth transition

There’s no universal plan for family business succession. What’s right depends on your particular circumstances and goals. But one thing is certain: To ensure that your business survives after you’re gone, your estate plan must address the estate tax impact of transferring your ownership interests to the next generation. Your estate planning advisor can help shape a plan to meet your unique circumstances.

How to Hit the Jackpot with the QBI Deduction

Wed, 15 Jun 2022 15:11:23 GMT

QBI may sound like the name of a TV quiz show. But it’s actually the acronym for “qualified business income” and can trigger a tax deduction for some small business owners. The QBI deduction, authorized by the Tax Cuts and Jobs Act (TCJA), went into effect in 2018.

How it works

The QBI deduction is available to owners of pass-through entities — such as S corporations, partnerships and limited liability companies — as well as self-employed individuals. The maximum deduction is equal to 20% of QBI. Generally, QBI refers to your net profit, excluding capital gains and losses, dividends and interest income, employee compensation, and guaranteed payments to partners.

Notably, the QBI deduction is subject to a phaseout based on your income. If your total taxable income is below the lowest threshold, you’re entitled to the full 20% deduction. For 2022, this threshold is $170,050 for single filers and $340,100 for joint filers.

But things get tricky if your income exceeds either threshold. In that case, your ability to claim the QBI deduction depends on the nature of your business.

Specifically, the rules are different for regular business owners of pass-through entities and sole proprietors and those who are in “specified service trades or businesses” (SSTBs). This covers most business people who provide personal services to the public like physicians, attorneys, financial planners and accountants (but engineers and architects are excluded). This group forfeits the QBI deduction entirely if income exceeds another set of limits. For 2022, these thresholds are $220,050 for single filers and $440,100 for joint filers.

If your income falls between the thresholds stated above, your QBI deduction is reduced, regardless of whether you’re in an SSTB or not. For taxpayers who are in an SSTB, the deduction is phased out until it disappears at the upper income threshold. For other taxpayers, the deduction is limited to the lesser of 20% of QBI or the greater of 1) 50% of the wages paid to employees on W-2s, or 2) 25% of wages plus 2.5% of the unadjusted basis of the qualified property owned by the business.

Available for a limited time

The QBI deduction will expire after 2025, absent further legislative action. Also, the deduction can be claimed whether or not you itemize. Obtain guidance from your professional tax advisor to determine the best strategy for your personal situation.

Ways to Diversify Your Revenue Streams

Tue, 14 Jun 2022 14:46:09 GMT

Many nonprofits learned the importance of revenue diversification the hard way over the past two years. Unexpected reductions, or even elimination, of certain revenue streams had them scrambling to meet increased demand — or simply to stay afloat. So how can your organization achieve the greater financial stability that typically comes through diversification?

The case for multiple streams

Perhaps the most prominent argument in favor of revenue diversification boils down to “hedging your bets.” Your organization could lose a large grant, a recession might dampen individual donations or government funding priorities could shift. But if you have other incoming revenue, it can minimize the disruptions while you look for ways to fill the gap.

Multiple revenue streams also can provide organizations with greater autonomy. If your nonprofit is overly reliant on a single funding source, it may have no choice but to accept certain constraints (for example, donor-imposed restrictions) that come with that funding. And expanding revenue streams can expand your nonprofit’s network of connections. Connecting with a community foundation or major gift donor could give you access to people and entities with similar interests and means.

Additional streams to consider

If your organization determines that diversification is a good strategy (see “Watch your step” below), you have several options, including:

Adding new income-generating products or services. Think about service fees or product sales that can generate earned income. One of the easiest solutions is to charge a fee for services you already offer. Say you provide tutoring for low-income students. You could charge students from wealthier families for the same service. You also could offer fee-based lectures or seminars related to your mission, live or online.

Branded merchandise is a common revenue source. The possibilities are wide, from t-shirts, mugs and hats to items buyers can use to actually advance your cause. An environmental organization, for example, might sell reusable hemp bags or water bottles.

Bear in mind that you could end up subject to unrelated business income tax (UBIT) if your new product or service line isn’t substantially related to your tax-exempt purpose. Your CPA can help you factor that into the equation.
Broadening your targets for contributions. There’s no overstating the value of individual donors, but organizations can get complacent about their donor base. Don’t just rely on your loyal donors — work to grow your overall donor base. That said, those loyal donors also are potential targets for major gifts. Research your regular supporters to determine if they have the wealth and philanthropic interests to make significant gifts. If so, start paying more attention to nurturing those relationships.
Teaming up with corporations. Corporations can shore up your revenues in several ways, from large-scale funding to small, project-based support. You could join forces with a company for a cause-related marketing campaign, with the corporation donating a percentage of the resulting sales. Perhaps a company would agree to a matching program.

Or a corporation could make in-kind donations. And don’t overlook other types of contributions such as corporations that encourage their employees to volunteer.
Ramping up your grant applications. Pursuing grants takes time and resources, things some organizations don’t have in excess these days. But, with such an abundance of grants out there, it’s hard to ignore this revenue stream — especially as funders may be relaxing some of their requirements in the wake of the pandemic.

In the survey “Foundations Respond to Crisis: Lasting Change?” recently conducted by the Center for Effective Philanthropy (CEP), foundation leaders signaled that they plan to continue to reduce administrative burdens for grantees, such as grant application and reporting requirements. They also plan to increase unrestricted funding.

Exercise patience

Adding one or more revenue streams isn’t an overnight process. It will take planning and preparation. You might, for example, need to establish new accounting processes and controls. In the long run, though, it can prove more than worthwhile. Just make sure you check with your tax advisor about potential UBIT issues.

Sidebar: Watch your step

For all its benefits, revenue diversification isn’t necessarily right for every nonprofit. Potential downsides exist, and each organization must assess whether the benefits outweigh the costs in their circumstances.

For example, it generally takes some time to get a new revenue stream up and running. Is your organization able to weather the associated costs without offsetting revenues? A new revenue stream also may have ongoing administrative costs that may concern some stakeholders who are sensitive to such expenses. Alternatively, keeping a lid on overall administration costs might require diverting resources from other programs or revenue streams.

Additional revenue streams could have the unwanted effect of “crowding out” private donations. Prospective donors who see that your nonprofit has landed new grants or government contracts may feel that their donations might not impact the organization and will instead donate to other groups.

Choosing an Entity Type: What is Right for Your Business?

Fri, 10 Jun 2022 16:19:40 GMT

When you start a new business there are many decisions to be made, but one of the first and most important is what form of legal entity your business will take. The entity type you choose will have lasting effects including how you are protected under the law and affected by income tax regulations, so it is important to have clear reasons for your decision and think long-term when making your choice.

This decision is likely to be influenced by how you choose to organize your operations and whether you intend to work on your own or in conjunction with others, but this cannot and should not be the only deciding factor for your entity type. You should also be considering how you expect your business to run in the future and what changes you expect to make in the coming years.

There are five basic forms of business organizations, sole proprietorship, partnership, limited liability company (LLC) or partnership (LLP), C corporation, and S corporation.

Sole Proprietorship

A sole proprietorship is typically a business owned and operated by one individual or often, a married couple . It is a business that is unincorporated and not considered a legal entity but is instead an extension of the individual who owns it. The owner has possession of all business assets and is directly responsible for all business debts and liabilities. All income and losses are reported on the owner’s Form 1040.

Since this business type does not require any specific legal organization outside of the usual licenses and permits that may be required to operate, it is the simplest form of business.

Partnership

A partnership is a legal entity that has rights and responsibilities of its own under the law. It can sign contracts and borrow money. A partnership can take two legal forms, general or limited.

In a general partnership, two or more individuals join to run the business and each individual has ownership of company assets, authority in running the business and responsibility for liabilities. How partners share authority, share profits and losses, and hold responsibility for liabilities may all be modified by a partnership agreement. However, regardless of the agreement, creditors may pursue the personal assets of any of the partners to settle debts owed by the partnership in most cases. A partnership agreement is not required, but it is a good idea to create and maintain one to make sure there is clarity in the responsibilities and obligations of partners.

In a limited partnership, one or more general partners are responsible for running the business and are liable for partnership debts while one or more limited partners contribute capital and share in the profits or losses of the business, but do not share in the running of the business or responsibility for partnership debts.

A partnership typically does not pay income tax, but instead must file an annual information return (Form 1065) reporting income, gains, losses, and deductions. The business passes through profits or losses to its partners who each report their share of the partnership’s income or loss on their individual tax return using a Schedule K-1 provided by the partnership’s return.

Limited Liability Company (LLC) or Partnership (LLP)

An LLC or LLP is an unincorporated organization of two or more persons permitted to be formed by the laws of the state to enter business transactions. This entity is formed to provide a business entity that can protect its members from personal liability for debts and obligations of the business. Usually an LLC/LLP is classified as a partnership for federal filing, but it can elect to be taxed as a C corporation and could elect S corporation treatment.

C Corporation

A C corporation is a separate legal entity formed under the authority of state law with essentially all the legal rights of an individual which is entirely responsible for its own debts. Usually, the owners or shareholders of a C corporation are protected from the liabilities of the entity although small C corporations may be required by creditors to provide personal guarantees from the principal owners to receive credit. A C corporation must adopt and file articles of incorporation and by-laws which govern its rights and obligations to its shareholders, directors, and officers.

A C corporation must file income tax returns and pay taxes on its income to both the IRS and any states in which it does business. The elections made in a corporation’s initial tax returns can have significant impact on how the business is taxed in the future, so it is important to ensure you seek the advice of business-oriented accountants in addition to competent legal counsel while setting up a corporation.

The legal protection afforded the owners of a corporation can far outweigh the additional expense of starting and administering a C corporation. Incorporating a business allows for several other advantages such as the ease of bringing in additional capital through the sale of equity or allowing an individual to sell or transfer their interest in the business. It also provides for business continuity when the original owners choose to retire or sell their interest.

S Corporation

An S corporation is a corporation that could be a C corporation or even a single member LLC but has elected for S corporation tax treatment. This change in entity type comes with significant differences. Unlike a C corporation, the income or loss generated by the S corporation flows through to the shareholders. Any income is taxed on the individual federal tax return and any loss is deductible to the extent of basis for the individual . However S corporations potentially still could be taxed directly at a state level. In addition, this change in status changes the treatment of fringe benefits for shareholders of more than two percent. One pitfall to S corporation status is that otherwise tax-free benefits to the shareholders are taxable to them as compensation, ensuring the deduction at the corporate level.

Electing to file as an S corporation may help save on taxes if the individual rates are lower than the corporate rates. It also avoids double taxation upon sale of corporate assets or if the corporation is liquidated. This status can also help avoid some excessive compensation problems by taking additional S corporation distributions over reasonable compensation while retaining limited liability for shareholders. However, this status can introduce some limitations that may not make it worthwhile for a corporation including limiting the number of shareholders to 100, only one class of stock available, shareholders must be U.S. resident individuals, the entity must use a calendar year end (with few exceptions), and more.

Make an informed choice

Each entity type has its own benefits and drawbacks, so it is important to make sure you have a full picture before committing to your decision. Talk with a tax advisor with expertise in business entities as well as experienced legal counsel to make sure your long-term vision for your company matches up with the entity type you plan to move forward with.

IRS Tightens Documentation Requirements for Refund Claims

Tue, 17 May 2022 18:05:28 GMT

Research credits

In recent guidance, the IRS has imposed strict new documentation requirements on businesses that file refund claims for federal research credits. These tax breaks are often referred to as “research and development,” “R&D” or “research and experimentation” credits.

Currently, businesses may claim the research credit on an originally filed return or an amended return. The new requirements apply to the latter, although it’s possible that the IRS will attempt to enhance the documentation requirements for originally filed returns down the road.

Overview of the credit

While the research credit and related regulations are complex, in a nutshell, they allow a business to claim a credit for a portion of its increased expenses attributable to qualified research activities (QRAs). Generally, QRAs are activities that:

Are incurred in connection with the taxpayer’s trade or business,
Strive to discover information that’s technological in nature,
Relate to a new or improved business component, such as a product, process, computer software, technique, formula or invention, and
Are part of a process of experimentation.

Historically, a business claiming the research credit — whether on an originally filed return or an amended return — didn’t need to include specific documentation with its filing. Rather, the business was required to “retain records in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible for the credit.”

New requirements

The new guidance is based on the specificity requirement in the IRS regulations. Under this requirement, a taxpayer claiming a refund must “set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof.” Accordingly, for a research credit refund claim to be valid, a taxpayer must, at a minimum, follow these three steps:

Identify all business components to which its research credit claim relates for that year.
For each business component, identify all research activities performed, all individuals who performed each research activity and all the information each individual sought to discover.
Provide the total qualified employee wage expenses, total qualified supply expenses and total qualified contract research expenses for the claim year (for example, using Form 6765, “Credit for Increasing Research Activities”).

This is a significant departure from previous guidance. Previously, businesses had to retain records to substantiate the research credit, but they weren’t required to include such documentation with their amended returns. Not only does the new guidance place additional burdens on businesses filing refund claims for the research credit, but it also increases the risk that the credit will be denied.

Suppose, for example, that a business files a refund claim shortly before the statute of limitations expires (generally, three years after the original filing or two years after the tax was paid, whichever is later). If the IRS rejects the claim for failure to meet the new documentation requirements, the business will lose the opportunity to refile its claim to supply the missing information.

Temporary relief

The new requirements apply to refund claims postmarked after January 10, 2022. During a one-year transition period that runs through January 9, 2023, the guidance provides some relief for taxpayers that file deficient claims.

These taxpayers will receive a letter from the IRS detailing the missing information and providing them with 45 days to “perfect” the filing. So long as the initial refund claim was filed on a timely basis, a claim that’s perfected within this 45-day period will also be considered timely, even if the statute of limitations has expired.

Get your papers in order

If you plan to file an amended return to claim the research credit, familiarize yourself with the new documentation requirements and be sure you have all the information to include with your return. Once the transition period ends, there will be no do-overs. Contact your tax advisor for assistance.

Sidebar: What’s happening with research expense deductions?

Traditionally, there have been two distinct tax benefits for businesses that conduct research: the research credit and the deduction for research expenses. Previously, businesses had the option of deducting these expenses immediately in the year they’re paid or incurred. But under the Tax Cuts and Jobs Act (TCJA), starting this year, most research expenditures must be capitalized and amortized over at least five years (15 years for research conducted outside the United States).

This requirement will affect not only the deductibility of research expenses but also the value of the research credit. Be aware, however, that legislation pending in Congress would delay the requirement until 2026. Stay tuned.

Tax Tips to Keep in Mind

Mon, 16 May 2022 13:56:00 GMT

How closely held business owners can defer estate taxes

Depending on the size of your closely held business, estate taxes can be a significant burden when you pass ownership from one generation to the next. Fortunately, the tax code provides some relief, allowing eligible estates to defer the payment of certain estate taxes for up to 14 years. To qualify, several conditions must be met:

The deceased must have been a U.S. citizen or resident at the time of his or her death,
The deceased’s business must have been closely held — that is, it was either 1) a sole proprietorship, or 2) an interest in a partnership, limited liability company or corporation that meets certain ownership requirements,
The business must be engaged in an active trade or business (as opposed to holding passive investments), and
The value of the deceased’s interest in the business must be more than 35% of his or her adjusted gross estate.

If your estate qualifies, the executor may elect to defer the portion of estate tax that’s attributable to the closely held business interest for up to 14 years. The estate pays interest only for four years and then pays 10 annual installments of principal and interest.

Alternative IRA investments: Handle with care

Most people use their IRAs to hold stocks, bonds and mutual funds. But some people opt to place their IRA funds in alternative investments — such as real estate, closely held business interests, precious metals or cryptocurrencies — in an effort to boost their returns. To do so, your IRA custodian must permit such investments, or you must open a “self-directed” IRA.

Alternative investments can be risky, so consult your tax advisor to avoid potential tax traps. For example, if the IRS concludes that an IRA investment involves self-dealing or prohibited transactions with related persons or entities, you may immediately be subject to taxes and penalties on your entire account balance.

In a recent case, the Tax Court held that a couple wasn’t permitted to invest IRA assets in gold and silver coins stored in a safe in their home. Because they had complete, unfettered control over the coins and were free to use them in any way they chose, the value of the coins was treated as a taxable distribution.

Increased annual gift tax exclusion for 2022

For the first time in several years, the IRS has raised the annual gift tax exclusion, from $15,000 to $16,000 per recipient, effective January 1, 2022. If you regularly make annual exclusion gifts to children or grandchildren, or contribute to trusts or college savings plans for their benefit, consider increasing the amounts of those gifts.

How Long Should a Small Business Keep Records? | MBK

Mon, 16 May 2022 12:00:00 GMT

Tax Records

While it may be tempting to clear out the clutter and shred old business tax records, tax returns and business documents, it's important to know what to keep and for how long. Although actual tax returns should be kept permanently (including canceled checks from tax payments), the supporting documentation from previous years should be kept until the chance of an audit passes.

Generally speaking, you should keep any tax return and supporting documentation until the statute of limitations expires. For most taxpayers, this means keeping records for at least three years. However, there are some situations where you should keep records for longer. For example, if you file a claim for a loss carryback, you'll need to have records from the previous year on hand. The same is true if you're self-employed or have income from rental properties; in these cases, you should keep records for at least seven years. If you record depreciation expense on capital assets, invoices and any other purchase agreements should be maintained for at least seven years after that asset is sold. No limit exists if you failed to file or filed a fraudulent return. As such, it is wise to keep business tax records for at least seven years after a return is filed. Ultimately, it's up to you to decide how long to keep tax records, but it's always better to err on the side of caution.

Accounting Systems

Audit reports and financial statements from accountants, trial balances, general ledgers, bank statements, journal entries, cash books, charts of accounts, check registers, subsidiary ledgers, and investment sales and purchases should be kept permanently. Other records, such as payable and receivable ledgers, bank reconciliations, bank statements, and cash and charge slips, and any other supporting documents should be retained for seven years.

For certain assets (residences, real estate, stocks, etc.), all statements, invoices, and purchase documents that substantiate cost should be kept, typically for seven years after the asset is sold. Depreciation schedules and asset-inventory records should be kept permanently.

Corporate Records

For any small business, it is important to retain certain corporate records. This ensures that the business is in compliance with annual reports, articles of incorporation, stock ownership and transfers, bylaws, capital-stock certificates, dividend registers, canceled dividend checks, and business licenses and permits. By keeping these records up to date and in a safe place, the small business can avoid costly penalties or legal action. Additionally, having accurate and complete records can help the small business to keep track of its finances and make informed decisions about its future.

Employee Records

As a small business owner, you are responsible for keeping accurate records for all of your employees. This includes maintaining accurate records of their hours worked, as well as their compensation and benefits. Employment tax records should be kept for the duration of each employee’s tenure with your company. In the event that an employee is terminated, their records should be kept for at least three years. This will ensure that you have all the necessary documentation in the event of a dispute. Furthermore, keeping accurate records will help to protect your business in the event of an audit. The IRS has strict guidelines regarding the retention of employee records, and failure to comply can result in significant penalties.

Here is a guideline of the specific types of employment tax records that should be kept:

Keep Permanently:

W-2 forms
Payroll tax returns and;
Retirement plan agreements

Keep For 10 Years:

Workers' compensation benefits;
Employee-withholding-exemption certificates; and
Payroll tax records

Keep for 7 Years:

Payroll checks
Payroll records
Time reports;
Attendance records;
Medical benefits; and
Commission reports

Keep for 3 Years:

Contractor information upon completion of contract; and
Tip Substantiation

Insurance Policies

Copies of all current insurance policies should be maintained in separate files and kept for 10 years after the policies expire. Insurance claim paperwork should be maintained permanently.

Legal Documents

While some documents should be kept permanently, others can be disposed of after a certain amount of time has passed. For example, documents such as bills of sale, permits, licenses, contracts, deeds and titles, mortgages, and stock and bond records should be kept permanently. However, canceled leases and notes receivable can be kept for 10 years after cancellation. In general, it is important to keep track of any documents that might have legal or financial implications. Consulting with an attorney or accountant can help you to determine which documents need to be kept and for how long.

Storage of Documents

To save time and space, consider an electronic storage system to file your data. The IRS has accepted electronic supporting documentation for several years. All requirements that apply to hard-copy books and records also apply to electronic storage systems that maintain tax books and records. The electronic storage system must index, store, preserve, retrieve, and reproduce the electronically stored books and records in a legible format. All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS.

With the threat of identity theft, it is also good practice to shred all of the records you no longer need, especially those with personal information. Shredders are an inexpensive means of destroying small amounts of information. However, a personal shredding service should be considered with a large volume of shredding.

The suggested retention periods shown above are not offered as a final authority, but as a guide to determine your needs. If you have any unusual circumstances or wish to delve further into record-retention rules and regulations for a specific industry, you should consult with your CPA, attorney, or other industry professional. This is especially important if you plan on destroying any important legal, business, or financial paperwork.

Trust the Experts

As you can see, there are many factors to consider when determining how long to keep your business tax records. The best thing to do is speak with an accountant or tax professional who can help you create a record retention plan that fits your specific business and filing requirements.

Meyers Brothers Kalicka is a leading CPA firm in Massachusetts since 1948. We have the expertise to handle all of your tax, accounting, and business needs. We are a full-service firm offering a wide range of services, including auditing, tax preparation, estate planning, and more. Our team of experienced professionals is ready to work with you to achieve your financial goals.

The Latest in Not-for-Profit News

Fri, 13 May 2022 15:14:32 GMT

Study finds positive signs for the future of nonprofits

The past two years have been challenging for nonprofits, but the “2022 Nonprofit Technology Trends Report,” sponsored by Sage Intacct (a provider of cloud financial management), found encouraging signs for the future. For example, more than twice as many of the more than 900 nonprofit leaders surveyed (44%) saw more of a revenue increase in 2021 than in 2020 (21%). Of those organizations with higher revenues, 34% enjoyed increases of more than 25%. And giving was higher across all types of funders — individuals, corporations and governments.

Moreover, both individual and government funding seems to have rebounded in 2021. Thirty-five percent of respondents reported that individual giving rose, and 37% said corporate giving increased. Only 13% of organizations predicted a drop in revenue for the current year, compared to 36% in 2021. Of those forecasting a reduction, 72% expected a decrease of less than 25%.

A Golden Girl’s legacy to nonprofits

The loss of actress Betty White in December 2021 generated more than just waves of admiration and grief. It also kicked off a fundraising boom for a wide variety of charitable organizations. White was well known as an advocate for animals, leading to a posthumous surge in giving to several animal-related organizations that she was involved with, including the Greater Los Angeles Zoo Association (GLAZA).

According to The Nonprofit Times, the Columbus Zoo and Aquarium’s Partners in Conservation made a grant of $40,000 to the Gorilla Doctors, which protects gorillas in East Central Africa, in White’s honor. In addition, a viral social media campaign (#bettywhitechallenge) encouraged $5 donations to animal rescues or shelters in observance of what would have been White’s 100 ^th birthday in January of this year. Even before that day, numerous rescues and shelters reported receiving thousands of dollars in her memory.

Why more nonprofit employees qualify for loan forgiveness

The U.S. Department of Education (DOE) has revamped the Public Service Loan Forgiveness (PSLF) program that’s intended to provide debt relief to student borrowers who go into public service, including some nonprofit employees. The DOE says its overhaul will result in more than 550,000 borrowers with consolidated loans seeing an increase in payments that qualify toward eligibility for forgiveness. The average borrower will receive another two years of progress toward forgiveness.

Among other significant changes, the DOE is providing a temporary opportunity for borrowers to get credit for all prior payments they’ve made, even those that wouldn’t otherwise count toward PSLF. Any prior payments made while working for a qualifying employer will count, regardless of loan type or repayment plan. To receive these benefits, borrowers will have to submit a PSLF form by October 31, 2022. More information can be found at https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service .

Innovation Can Help Your Business Thrive

Wed, 04 May 2022 16:08:55 GMT

The COVID-19 pandemic has been a major blow to large parts of the economy. Although many businesses have managed to survive in these volatile and unpredictable conditions, some may be teetering on the edge of financial stress. In difficult economic times, business as usual may not be sufficient to sustain profitability. That’s where innovation comes in.

How can you promote innovation in your company?

It’s sometimes assumed that innovation requires limitless resources or is solely the province of those in technical or research roles. But developing an innovative business culture typically has more to do with allowing — even encouraging — employees to explore ideas and make mistakes. For instance, it’s a good idea to encourage employees to look for problems to solve and questions to answer.

Ideas can come from customers, suppliers, data and partners, among others. For example, what problems do customers talk about? Equally important, what problems are customers not discussing, or perhaps not even aware of? Customer suggestions can be excellent sources of new ideas. Encourage employees to observe and engage in conversations with their customers — whether they are paying clients or the departments they support within the company — and watch for ways to improve goods and services.

Another strategy is to boost innovation from all parts of the organization. It’s not just the IT or research departments that can come up with new ideas. Every group, from accounts payable to human resources, can come up with ways to innovate.

Why not hold brainstorming sessions? Innovation is rarely a straight shot. Outrageous, seemingly unworkable ideas may be the genesis of concepts that ultimately prove both viable and profitable. Employees need to be confident they can suggest ideas without fear of ridicule. One way is through brainstorming. The goal is to help employees become comfortable considering even wacky ideas, without censoring themselves or others.

Working across departments is also key. People tend to feel comfortable with co-workers they’ve known a while. At the same time, outsiders often provide another perspective. They can help employees question their assumptions and view accepted wisdom from different angles. In pursuing innovation, it often helps to assemble teams that include both colleagues who’ve worked together before and those who are newer to the group.

How can you celebrate breakthroughs?

A big win — an innovation that turns an industry upside down — can change a company by granting it a commanding place in the market. This in turn enables the company to charge more for products and attract bright, eager employees.

Although every innovation isn’t necessarily a blockbuster, each breakthrough can be celebrated. Steady improvements in processes, products and services can boost your bottom line and employee morale. In the long run, small improvements also may serve as catalysts for more revolutionary innovation down the line.

How can you create the right atmosphere?

Companies striving for innovation need structures that foster it. It’s important to build policies that promote research and development. For example, performance reviews should incorporate measures of innovation.

Employees also need time and space in which to develop ideas. If possible, schedule periods of time in which they can shift from their daily responsibilities to focus on generating new processes and projects. In addition, your budget should account for innovation costs.

Keep going

There’s no guarantee that every new idea will lead to profitable solutions for your business. But even if and when the current unprecedented economic conditions stabilize, it makes sense to continually re-evaluate and re-imagine your business operations to ensure they’re still serving your company’s financial interests going forward.

Providing a Helping Hand to Christina’s House

Wed, 04 May 2022 15:51:25 GMT

This past month, the staff at MBK pulled together much needed household supplies to deliver to Christina’s House, a ministry located in Springfield who provide education, support, and transitional housing to women and their children who are homeless or near homeless. Supplies gathered by our staff included necessities requested by Christina’s house including towel sets, juice boxes, toilet paper, laundry detergent, Tupperware sets and more.

Christina’s House seeks to provide immediate assistance to women who have no place to call home and feel safe. The ministry was established in 2012 by Executive Director, Shannon Mumblo. Their first home opened in 2014 and a second location was opened in 2020. Their program takes a holistic approach to providing their program families with the support they need to achieve self-sufficiency including long-term support after their families transition out of Christina’s House.

For more information about Christina’s House or to donate, visit www.christinashouse.org

Pumping Up Tax Breaks for Company Gyms

Wed, 04 May 2022 15:49:10 GMT

The COVID-19 pandemic has caused many employers to rethink the way they’re using their physical premises. For instance, if your business now has fewer workers coming regularly to the office, you may want to develop different uses of the space to better accommodate operations.

One idea is to carve out a space where employees can work out or exercise. Besides creating goodwill and improving morale, this can result in a big tax pay-off. As long as specific requirements are met, the value of an on-site athletic facility is tax-free to participating employees, and your company can generally deduct the related costs.

The details

This statutory exemption has been on the books for years, but keep in mind that there are plenty of twists and turns to contend with. Generally, the value of fringe benefits constitutes taxable income to employees, except in situations where a specific tax code provision exempts the benefit from tax. The exemption for employer-provided athletic facilities applies to eligible employees as well as their spouses and dependent children. For example, if the teenaged child of a business owner works out at the company gym, the value of the use is tax-free.

You, as an employer, can write off the cost of renovations and administrative costs as well as other related expenses, such as insurance and maintenance fees.

For these purposes, an “employee” is someone who is:

Currently employed,
An ex-employee who has retired or left the job due to disability,
The widow or widower of an employee who passed away or retired due to a disability,
A partner performing services in a partnership, or
A leased employee in certain situations.

The facility must be “substantially used” by employees, their spouses and their dependent children. In other words, the facility can’t be available to the general public or outsiders who pay to belong.

In addition, the facility must be located in a physical space that is operated by, and owned or leased by, the business. That doesn’t mean it has to be part of your main office (although that’s frequently the case). For example, the business may rent a storage facility or annex nearby as a workout room and still qualify. But you’re not allowed to set up a gym in your personal residence or rent a space or pool at a hotel.

Finally, you can’t deny access to eligible employees who want to participate. Use of the facility can’t be limited to just the top brass.

Other options

Offering gym memberships to employees instead of building an on-site facility also promotes better health and creates a benefit to them, but the value is taxable to participants as compensation. Find the approach that works out best for your company.

Planning to Unretire? What to Consider Before Re-entering the Workplace

Mon, 02 May 2022 14:40:51 GMT

For many people, retiring from regular work is the ultimate goal. But for some retired people, “unretiring” can offer camaraderie, mental stimulation and a healthier bank account. If you’re retired and considering returning to work — or you’ve already found a new job — you’re not alone. A September 2021 survey by ResumeBuilder.com found more than one-third of retirees were considering returning to work, while 20% had been asked by their former employers to return. But before making the leap, you’ll want to understand how it can impact your Social Security benefits and Medicare coverage.

Factors to consider

Social Security. You can work during retirement and still receive Social Security benefits. But if you haven’t reached normal retirement age, which varies based on your date of birth, and you earn more than the annual earnings limit, your benefits will be reduced.

Typically, your benefits will be cut by half of the amount that you exceed the limit. So, if you earn $29,560 in 2022, or $10,000 more than the annual retirement earnings test limit, Social Security will cut your benefits by $5,000. This calculation changes in the year you reach full retirement age. After you reach normal retirement age, your monthly benefit will be increased to account for the months in which benefits were withheld.

In addition, your Social Security benefits may be taxed if your income is above a certain level. For instance, if you’re single, and one-half of your Social Security benefits plus your wages, pension and most other income tops $25,000, part of your benefits may be taxable.

Medicare. If you head back to work after you’re eligible for Medicare, should you keep it? Can you? The answers aren’t straightforward.

Most people need to sign up for Medicare during the three months before they turn 65 and through the three months after. Miss this window and you may face ongoing penalties when you eventually enroll.

However, that can change if you have other qualifying or creditable insurance through your (or your spouse’s) employer. “Creditable” generally means the coverage is expected to pay on average as much as the standard Medicare prescription drug coverage.

If you decide to keep Medicare while working after age 65, note that coverage under Part A (hospital insurance) and Part B (generally, medical services) can vary with the size of the company. If your (or your spouse’s) employer has fewer than 20 employees, Medicare typically covers any services first, and your job-based insurance pays second. As a result, you’ll typically want to consider keeping Medicare coverage. On the other hand, if your employer has 20 or more employees, the company’s insurance typically pays first for coverage, with Medicare second.

After you again stop working, you’ll typically have eight months to enroll in Medicare Part A and Part B. However, you’ll have only two months to enroll in Part C and D. (Part C, or Medicare Advantage, is a Medicare-approved alternative from a private company for Part A, Part B, and often Part D; Part D is drug coverage). Again, missing these deadlines can mean penalties.

If you have Medigap coverage and drop it, you may find it more difficult re-enroll later, especially if you have a pre-existing condition. As its name suggests, Medigap helps fill gaps in original Medicare. It’s sold by private companies. And if you enroll in your employer’s group health plan and it includes a health savings plan, you can’t contribute to the HSA if you remain on any part of Medicare.

Get good advice

Unretiring can make sense for many people. At the same time, it’s essential to understand how it might affect your Social Security benefits and Medicare coverage. Your accounting professional can help you determine this — and help you arrive at the best decision for you.

HireNow: New Massachusetts Grant Program Aims to Address Hiring Challenges

Mon, 02 May 2022 14:13:28 GMT

With 200,000 open jobs available across the Commonwealth of Massachusetts, the Baker-Polito administration announced the HireNow program to help Massachusetts employers fill available roles. Currently, unfilled job postings are up 20% compared to pre-pandemic data, while over 85,000 workers are not currently participating in the labor market.

The HireNow program provides eligible employers with a $4,000 per employee grant of flexible funds which may be used for hiring costs such as training expenses or as signing bonuses for new employees.

Any Massachusetts employer (excluding federal, state, and municipal gocernment) is eligible for this grant program so long as they have not been de-barred by the state and they are in good standing with the Department of Revenue and the Department of Unemployment Assistance. There are eligibility requirements for those hired as well as limits on compensation. Following an employee’s hire and a 60-day retention period, employers will have the opportunity to submit a final application for funding.

"We are excited to add HireNow to our growing number of grant programs that aim to close job and equity gaps across the Commonwealth," said Labor and Workforce Development Secretary Rosalin Acosta. "We hope these funds will encourage employers to expand their hiring strategy to include those with potential for learning and growing on the job, over a direct-skills match, as this will widen the candidate pool and help both jobseekers and businesses."

Visit Mass.Gov/HireNow to learn more about the program and to pre-register.

Are You Currently Hosting or Considering to Host on Third-Party Sites?

Thu, 21 Apr 2022 16:55:31 GMT

Renting your property on third-party vacation sites: Understand the tax benefits and implications before listing your property.

Benefits to renting out a room or vacation property

With the rise of the sharing economy, more and more people are renting out their homes on platforms like Airbnb and VRBO. Third-party sites like these can offer a variety of advantages. First, you can reach a large audience of potential renters. Both sites have millions of users, so you'll be able to find people from all over the world who are interested in staying in your rental. Second, you can set your own price and terms. You're in control of how much you charge and what kind of rental agreement you want to have with your guests. Finally, renting through a third-party site can be a great way to earn extra income. With careful planning, you can make sure that your rental property is profitable.

What is taxable and what is not

When you're renting out your property, it's important to know what income is taxable and what is not. Generally, any money that you receive from renting your property is considered taxable income. This includes rent, cleaning fees, and any other fees that you charge your guests. However, there are some exceptions. For example, if you rent out your property for less than 14 days per year, the income is not considered taxable. Additionally, if you use your rental property for personal use part of the time, you may only have to pay taxes on the portion of the income that comes from renting it out.

Here are some of the most frequently asked questions related to taxes and your Airbnb and Vrbo rentals

Do I have to pay taxes on rental income?

If you rent out your vacation home, spare room or apartment for more than 14 days a year, you are required to pay taxes on the rental income. This includes all income you collect from rent, cleaning fees and any other additional fees.

How much tax will I have to pay?

The exact amount of tax you owe will depend on a number of factors, including the location of your rental property and the amount of income you earn. In most cases, you will be required to pay federal, state, and local taxes on your rental income.

State and local taxes on rental income vary depending on the location of your rental property.

What expenses can I write off?

People who rent out their homes on Airbnb and VRBO can write off a number of expenses on their taxes. These expenses can include the cost of repairs, cleaning, and furnishings. You will need to allocate rental and personal use in order to write off the expenses. In addition, rental property owners can deduct the costs of advertising and paying fees to the rental platforms. However, it is important to keep detailed records of all expenses in order to maximize the tax benefits. For example, receipts for repairs should be kept in order to prove that the expense was incurred. By carefully tracking their expenses, Airbnb and VRBO hosts can ensure that they take advantage of all the available tax benefits.

Do I need to collect occupancy tax?

The answer depends on the laws in your area, but in general, if you're renting out a room or portion of your home for less than 30 days at a time, you are likely required to collect and remit occupancy taxes. These taxes, which are also sometimes called lodging taxes or tourism taxes, are typically imposed by state or local governments in order to generate revenue from visitors. They can range from a few percent to over 10% of the rental rate, so it's important to be aware of the laws in your area before listing your property. (Massachusetts state room occupancy excise tax rate is 5.7%).

One of the benefits to renting your property through a third-party site, is that they may have an automated feature which determines which taxes are applicable for your listing, collects and pays occupancy taxes on your behalf. Always check to see if this setting is available and if you need to opt in for it to be activated.

Am I considered self-employed if I have rental income?

Unlike wages from a job or a business, rental income isn't considered to be earned income. Instead, it's considered to be passive income by the IRS, and therefore is not subject to self-employment tax.

Will third-party rental sites provide me with a tax form?

There are a few factors that will determine if you will receive a tax form from your third-party site. The 1099-K form is used to report income from transactions that are processed through a third party. This includes credit card payments, PayPal payments, and other forms of electronic payments. The form will report the total amount of income that you received from Airbnb or VRBO during the year, as well as the total number of transactions.

Third-party sites, such as Airbnb and Vrbo, typically will provide you with form 1099-K if you meet certain thresholds such as:

Processed more than $20,000 in gross rental income through the platform, and
Have 200 or more transactions during the year.

** Note that these are only general guidelines, and you may still receive a 1099-K form even if you don't meet both of these criteria.

Maximize Your Tax Benefits on Your Rental Property.

If you are a property owner, it is important to understand the tax benefits that come with owning rental properties. It’s important to speak with a tax professional so that you can get the most benefit from your rental properties and ensure that you are taking advantage of all available tax breaks.

4 Best Practices to Prepare for Your Year-end Audit

Thu, 07 Apr 2022 15:38:17 GMT

Have a Planning Meeting
t’s never too early to start reaching out to your auditor. Having a planning meeting with your auditor a month before your organization’s year-end is encouraged. This meeting will serve many purposes, such as, reminding everyone of specific due dates, discussing significant activity over the last year, and deciding on a start date for the audit based on your readiness.
Establish a Timeline
Once you and your auditor have discussed due dates and a start date for the audit, you should start preparing for the audit early by asking for your auditor’s data request list. Review the list with your auditors, ask for what items are priority for testing purposes, and establish an internal due date for your team. As you and your team start preparing information for the audit, have regular check-ins with your auditor as you approach each due date and the start of the audit.
Reconcile All Significant Trial Balance Accounts
Prior to starting the audit, all significant trial balance accounts should be reconciled, and you should double check that the supporting documentation agrees to the trial balance accounts. This is a great opportunity to make sure you have the necessary internal control procedures in place and may present an opportunity for improvement. To prevent a delay in the audit, the earlier you can start your year-end closing process and reconciliation of accounts, the sooner you can review the audit support for potential errors before handing documents over to the auditors.
Compliance requirements
The level of compliance requirements you have to adhere to depends on the funding your organization receives (State, Federal, Grants, or Donations). A best practice would be to review your funding sources and determine the compliance requirements needed well ahead of the annual audit. Depending on where your funding is coming from can dictate the level of compliance requirements you have to adhere to. For example, if you receive federal funding or federal funding passed through the state, this could require additional audit testing to be performed and additional time incurred by the auditor. It’s best to review all funding sources on a regular basis and communicate any changes with your auditors.

Once you invest your time and try these best practices, you’ll be able to develop your own processes throughout the year, keep the information organized and be ready for your next audit.

Corporations: Watch out for the PHC tax

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 07 Apr 2022 15:06:06 GMT

Since the Tax Cuts and Jobs Act reduced the top federal corporate income tax rate to 21%, an increasing number of business owners are contemplating establishing their businesses as C corporations or switching their pass-through entities to C corporation status. Previously, corporate income was taxed at graduated rates ranging from 15% to 35%.

Entity choice is a complex decision that involves consideration of several financial, tax and legal factors. One factor that shouldn’t be overlooked is a closely held C corporation’s potential liability for the personal holding company (PHC) tax.

Double taxation

A 21% tax rate is attractive, especially when you consider that owners of pass-through entities — partnerships, S corporations and LLCs — are currently taxed on their shares of business income at individual rates as high as 37%. But for a true apples-to-apples comparison, take into account pass-through owners’ effective tax rates (which may be substantially lower than 37%) as well as the potential impact of double taxation.

A C corporation’s income is subject to two levels of tax: 1) at the corporate level at the 21% rate, and 2) at the individual shareholder level when that income is distributed. Qualified dividends are currently taxed at rates up to 20%.

One way to avoid, or at least defer, double taxation, is to hold earnings in the corporation rather than distribute them to shareholders as dividends. But if a corporation is considered a PHC, doing so can trigger the PHC tax. Even if a corporation isn’t a PHC, retaining earnings can result in accumulated earnings taxes (AET). (See “Is your corporation subject to AET?” below.)

Tax Prep

The PHC tax was originally created to prevent individuals from using C corporations to shelter passive income. But despite its name, the tax isn’t limited to corporations that hold only passive investments. Even active businesses can be ensnared by the tax if they meet the requirements.

A PHC is a C corporation that meets two tests:

Ownership . At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is held, directly or indirectly, by or for five or fewer individuals.
Income. At least 60% of its adjusted ordinary gross income (AOGI) for the tax year is PHC income — that is, dividends, interest, rents, certain royalties, income from certain personal service contracts and other primarily passive income.

Some corporations are excluded from the definition of PHC, including tax-exempt entities, banks, life insurance companies and foreign corporations.

If a corporation is a PHC, the tax applies at a flat 20% rate — in addition to regular corporate income tax — to its undistributed PHC income. Note that PHC income for purposes of the income test and undistributed PHC income are two different concepts. The latter calculation starts with the corporation’s taxable income. Then adjustments are made for certain taxes paid, charitable contributions, net capital gains, dividends paid and other items.

Potential Workarounds

If your corporation meets the definition of a PHC in a given year, you can use several possible strategies to avoid the tax. One option is to increase the number of shareholders. For example, if you give or sell stock to others, it may be possible to reduce the holdings of the top five shareholders to less than 50%. Keep in mind, however, that the “constructive ownership” rules treat stock owned by certain related individuals or entities as owned by you.

Another strategy is to boost ordinary income — for example, by accelerating business income from next year into this year — so that PHC income drops below 60% of AOGI. Likewise, you could defer PHC income to next year or reduce investments that generate PHC income.

Finally, you could reduce or eliminate undistributed PHC income by paying dividends to shareholders. Of course, this option triggers double taxation. But that’s usually preferable to paying the PHC tax, which can result in triple taxation when PHC income is ultimately distributed.

Monitor your PHC status

The applicability of the PHC tax is reassessed annually. So, it’s a good idea to monitor your corporation’s ownership, income mix and accumulated earnings to determine your liability. Even if you’ve never been subject to the tax before, an economic recession or other events can cause your business income to decline in relation to investment or other passive income. If this happens, it can increase your potential exposure to the dreaded PHC tax.

The Department of Labor Announces the Increasing of Minimum Wages for Federal Contractors

Thu, 24 Mar 2022 13:33:47 GMT

January 31, 2022, is the effective date for the federal minimum wage to be increased to $15 per hour. Below is a side-by-side comparison chart of the changes from 2015 to the 2022 update.

Note: All areas are in force except for the “Recreational Service Contracts on Federal Land”. There is an appeal pending in the Tenth Circuit U.S. Court of Appeals.

The Department of Labor has issued a Field Assistance Bulletin (FAB) on this Executive Order. In this document, the contract types affected by this change are identified and identifies the workers that are covered by the Executive Order. The FAB further explains the notification, subcontractor, and bookkeeping requirements as well as anti-retaliation information.

Click here to visit the FAB.

For the complete Executive Order, fact sheets and other resources: https://www.dol.gov/agencies/whd/government-contracts/eo14026

Look Before You Leap: Nonprofits and Grants

sstack@mbkcpa.com (Sarah Rose Stack) — Wed, 23 Mar 2022 18:18:24 GMT

Factors to consider before accepting a grant

Most nonprofits look to government and/or foundation grants to help finance their programs. These grants are fundamental in expanding an organization’s reach. But you may find it difficult to quantify all the costs and benefits associated with a potential grant. If your nonprofit doesn’t do its research before accepting grant funds, it could cause problems down the road.

What are the risks?

By its very nature, the nonprofit industry has long been resource-challenged. And the COVID-19 pandemic has increased financial uncertainty for many nonprofits. Under such ongoing financial pressures, you can’t afford to ignore offers of support. Yet you also should avoid blindly accepting grants — doing so could leave you shouldering excessive administrative burdens, cost inefficiencies and lost opportunities.

Smaller or newer nonprofits aren’t the only ones at risk of such unexpected consequences. You might think that larger, more mature organizations would have formal grant evaluation processes in place. But that’s not always the case.

Further, as an organization grows, it has significantly more opportunities to expand the scope of its programming. This expansion can open the door to more grants, including some that are outside of the organization’s expertise and experience. The organization could end up accepting a grant with requirements that need to be fulfilled and struggles that weren’t anticipated.

What are the administrative requirements?

Even small grants can bring sizable administrative burdens. For example, you could be caught off guard by the reporting requirements that come with a small grant. You might not have staff with the requisite reporting experience, or you may lack the processes and controls to collect necessary data. Government funds passed through to your nonprofit often carry the requirements that are associated with the original funding, which can be extensive.

Grants that go outside of your organization’s original mission can pose problems, too. Not only might the grant not consider your learning curve and additional costs, you might also face IRS scrutiny regarding your exempt status. In addition, new grants from either federal or foundation sources may have explicit administrative requirements your organization must satisfy. This can create unforeseen inefficiencies that undermine the grant’s face value.

What about the costs?

As the saying goes, there’s no such thing as free money. To start, your nonprofit might incur expenses to complete a program that may not be allowable or reimbursable under the grant. As part of your initial grant research, be sure to calculate all these costs against the original grant amount to determine its ultimate benefit to your organization.

Then if you decide to go ahead with the grant, analyze any lost opportunity considerations. For unreimbursed costs associated with new grants, consider how else your organization could spend that money. Also think about how the grant affects staffing. For example, do you have staff resources in place or will you need to hire additional staff? Could you get more mission-related bang for your buck if you spent funds on an existing program as opposed to a new program?

Quantifying the benefit of a new grant or program can be equally (or more) challenging than identifying its costs. You should evaluate every program to quantify its impact on your organization’s mission. This will allow you to answer critical questions when evaluating a potential grant, such as: Are there existing programs that can be expanded using the same funds to yield a greater benefit to your organization’s mission?

Avoid unpleasant surprises

Government agency and private foundation grants are among the most important funding sources for many nonprofits. But accepting grants without performing the necessary due diligence can backfire in costly and time-consuming ways.

Are You Ready for New Lease Accounting Rules?

sstack@mbkcpa.com (Sarah Rose Stack) — Wed, 23 Mar 2022 18:01:00 GMT

After a COVID-related delay, the new accounting standard for leases takes effect for all organizations (including nonprofits) that haven’t yet adopted it for calendar year 2022 (and fiscal years thereafter). The Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), applies to all entities (both lessees and lessors) that lease assets such as real estate, vehicles and equipment. The new rules are codified in FASB Accounting Standards Codification (ASC) 842. Here’s an overview of what you need to know.

New accounting treatment

ASU 2016-02 is the first change to the accounting rules for leases in more than 30 years. Until now, the proper accounting for a lease depended on whether it was a capital lease (now known as a finance lease) or an operating lease.

Capital leases, such as a lease of a piece of equipment for most of its useful life, were reported as assets and liabilities on a nonprofit’s statement of financial position. Operating leases, such as a lease of office space for a shorter term, were recognized on a lessee’s financial statements as rent expense with required disclosures.

Under ASC 842, lessees must recognize assets and liabilities for all leases for terms of more than 12 months — whether the leases are finance or operating. You will need to report the right to use the leased asset as an asset on the statement of financial position, with the obligation to pay rent (reduced to its present value) to be reported as a liability.

The category of lease comes into play when determining the proper way to recognize, measure and present a lessee’s expenses and cash flows. For nonprofits:

Finance leases. On the statement of activities, amortize leased assets that you have the right to use separately from recording interest on the lease liability. For the statement of cash flows, classify repayments of the principal portion of the lease liability in financing activities. Classify payments of interest on the lease liability and variable lease payments in operating activities on the statement of cash flows.
Operating leases. Recognize a single total lease cost, allocating the cost across the lease term, typically on a straight-line basis. Classify cash payments made in operating activities on the statement of cash flows.

The new accounting rules also require additional disclosures about leases, including information about variable payments and options to renew or terminate. The accounting can become even more complicated with “embedded” contracts — or contracts with both lease and service or supply components (for example, a building lease that includes maintenance or security services). ASC 842 requires organizations to separate lease components from nonlease components. The portion of a contract payment that’s related to nonlease components is excluded from the measurement of lease assets and liabilities, unless the available practical expedient is elected.

Implications for your organization

The new standard could affect nonprofits in multiple ways. Most obviously, you’ll need to adjust your accounting and financial reporting processes and procedures to ensure compliance. The first step is to identify all your leases so you can properly categorize them. You’ll also need processes to collect the necessary information on new leases going forward.

It’s important to understand the potential effects of changes in your accounting and financial statements. For example, you should reach out to any lenders and similar stakeholders to determine if the changes might affect debt covenants or other significant metrics that influence their decisions.

The new rules could affect your future lease negotiations, too. Your previous priorities may change in light of the new reporting requirements. You might, for instance, benefit from lower fixed rent and higher variable costs because you generally can exclude variable lease payments when measuring lease assets and lease liabilities.

Don’t delay

With ASC 842 effective for most organizations in 2022, you need to prepare now. There are numerous expedients available to both lessees and lessors to ease the transition to the new standard. We will be happy to discuss the necessary processes and procedures needed to comply with the new requirements.

MBK Links Up with Full Gospel Church to Send Supplies to the Ukraine

sstack@mbkcpa.com (Sarah Rose Stack) — Fri, 18 Mar 2022 20:15:38 GMT

As you know, the war that has escalated on Ukraine has affected many people in unimaginable ways. Senior Associate, Mila Renkas who has several family members and friends who are directly impacted, helped MBK to organize a drive to donate goods and money. She asked that we share that the support of everyone has meant so much to her. Checking in and being willing to help in any way possible has helped her to get through this and she appreciates it very much.

The team at MBK collected enough supplies to fill three trucks with clothing, food supplies, and medical supplies. We also want to thank a few of our clients who noticed the pile of goods in our lobby and returned after their tax appointments to drop off contributions.

Additionally, $665 was collected and donated to help the organization offset the cost to ship goods. It's important that these organizations have funds to ship supplies via air so that items can be received quickly, as normal shipping methods can take up to 6 weeks to make its way to the country.

If you would like to donate. items can be dropped off at Full Gospel Church located at 110 Union Street in Westfield. You can also donate funds directly through their website: https://www.fullgospelchurch.org/

Food Supplies Needed:
(Please no canned goods or heavy items)

Instant meals (Ramen noodles, dry cereal, granola, oatmeal, mac-n-cheese, etc.)
Baby formula, food
Energy / protein bars
Dried fruit
Peanut butter
Nonperishable food

Other Supplies Needed:

(Clothes/Sweaters/Coats/Blankets can be used or gently used)

Blankets
Sleeping bags
Socks
Thermos
Hats, scarves, gloves
Sweaters
Shirts
Pants
Warm clothing
Bandages
First aid kits
Antiseptics (hydrogen peroxide)
Rubbing alcohol
Over-the-counter medicines (Pain reliever, allergy, digestive support etc.)
Diapers
Feminine products

Thank you in advance for helping in any way that you can.

Don't Sleep on the Dependent Care Credit

sstack@mbkcpa.com (Sarah Rose Stack) — Mon, 14 Mar 2022 17:02:51 GMT

There’s good tax news — and bad tax news — for parents who pay someone to watch their young children while they are at work. Under the American Rescue Plan Act (ARPA), the dependent care credit for qualified expense was generally enhanced, providing bigger tax savings on 2021 returns. But the revamped credit is completely phased out for some high-income taxpayers. (Under current tax law, the enhanced dependent care credit expires in 2022. But Congress could extend or modify the credit again. We’ll continue to monitor developments.)

How did the credit evolve?

Before 2021, the credit was available for the childcare costs incurred to enable you (and your spouse if married) to be gainfully employed, with the percentage depending on your adjusted gross income (AGI). The maximum 35% was gradually reduced, but not below 20%, by one percentage point for each $2,000 (or fraction thereof) of your AGI exceeding $15,000. For example, if a parent’s AGI was $25,000, the credit was equal to 30% of qualified expenses. After your AGI exceeded the $43,000-of-AGI mark, the credit was equal to 20% of your qualified expenses.

The credit could be claimed for the first $3,000 of qualified expenses of caring for a child under age 13 or $6,000 for two or more under-age-13 children. Therefore, if you had an AGI of $100,000 and paid $10,000 in qualified childcare costs for two children, the maximum credit allowed was $1,200 (20% of $6,000).

But ARPA upped the ante for parents paying for childcare, effective for 2021. Specifically, the new law includes the following provisions:

The credit is fully refundable (previously, it was nonrefundable). So, you can benefit completely even if the credit results in a refund on your 2021 return.
The maximum credit percentage jumps to 50% of your qualified expenses, and the limit for qualified expenses increases to $8,000 for one qualified child and $16,000 for two or more children. Accordingly, the maximum credit for 2021 is $4,000 for one child, or $8,000 for two or more children.
The credit percentage structure is modified. For 2021, the credit is gradually reduced if your AGI exceeds $125,000 until it bottoms out at 20% for an AGI above $183,000, but not above $400,000. Thus, the maximum credit for taxpayers in this range is $1,600 for one child or $3,200 for two or more children — still a pretty good deal.

If your AGI exceeds $400,000, though, the credit is further reduced until it disappears completely for an AGI above $438,000. These taxpayers get no tax benefit from dependent care

Ins and outs

For the most part, the basic rules for the dependent care tax credit remain the same as they were before ARPA. You may even qualify for a bigger credit than you think.

Typically, the credit is associated with out-of-home expenses of parents who drop off their kids on their way to work at a daycare center or nursery school. However, some in-home costs also may qualify for the credit. For example, you may claim for amounts paid to a babysitter who comes to your home, even if the babysitter is a close relative like a parent or aunt or uncle. But the relative can’t be someone who is your tax dependent (such as a teenaged child you pay to watch a younger sibling).

On the negative side, qualified expenses for a married couple can’t exceed the lower of earned income or the annual earnings of the lower-paid spouse. For example, if one spouse earns $5,000 a year working part-time, and the couple pays $10,000 annually to a babysitter to watch the kids, the qualified expenses available for the credit are limited to $5,000 — not $10,000.

Further, if one spouse has zero earned income, you generally can’t claim any credit. However, if the spouse is either a full-time student or is disabled, the spouse is treated as having monthly earnings of $250 for one qualified child or $500 per month for two or more children. Thus, the maximum amount of qualified expenses for the year is $3,000 for one child or $6,000 for two or more children.

Tax credit vs. deduction

It’s important to keep in mind that the tax credit is a dollar-for-dollar reduction of your tax bill and is therefore more valuable than a deduction. We’ll provide updates on this enhanced tax break if there are any significant developments.

MBK Delivers Supplies and Gift Cards to the YWCA of Western Mass

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 03 Mar 2022 22:17:38 GMT

The YWCA has 60 families living in their congregate care facilities and for their community-based program they serve hundreds of women and children monthly who are survivors of sexual assault, domestic violence, human trafficking and stalking. The community based programs provide services such as therapy, group counseling, economic empowerment classes, help obtaining housing, supervised visitation, and so much more to families in Western Massachusetts.

The staff at MBK collected and donated supplies including toiletries, underwear for women and children, new socks, baby wipes, baby bottles, laundry detergent, toothbrushes, soaps to benefit the YWCA of Western Massachusetts. In addition to supplies, funds were collected to donate gift cards for families in temporary housing to use at the grocery store.

Team leaders Chelsea and Keara visited the YWCA in Springfield to deliver three fully packed bags of supplies and $385 of Big Y giftcards on behalf of the firm. Thank you to all who donated to this local cause!

The YWCA offers many ways to get and stay involved. You can learn more about how to donate time, money and/or supplies by visiting their website. https://www.ywworks.org

“The YWCA provides safe places for women and children in crisis. It offers women counseling, job training, child-care, and health and fitness. The YWCA also offers job training to people ages 16-21 who are out of school. The YWCA of Western Massachusetts operates 16 programs at several sites, including Westfield, Holyoke, Northampton, and Springfield. The YWCA also operates an 11-acre campus at 1 Clough Street in Springfield that provides shelter to battered women and their children in a modern facility with state-of-the-art computerized security.”

How Can You Improve Pay Equity in Your Company?

Thu, 03 Mar 2022 21:10:14 GMT

Providing the same compensation to workers who perform the same or similar jobs — while accounting for differences in experience and tenure — is both required by law and good business. Here are some steps that can help you assess and, if necessary, improve, pay equity within your organization.

A primer

The federal Equal Pay Act requires employers to provide men and women with equal pay for equal work in the same establishment. The jobs don’t need to be identical, but should be “substantially equal.” Moreover, it’s not job titles, but job content — including skill, effort and responsibility — that determine whether jobs are substantially equal.

Many states have enacted their own equal pay laws, some of which are more stringent than the federal legislation. California, for example, requires employers to pay employees the same wage rates for “substantially similar work,” a larger umbrella than “same or similar jobs.”

Some other countries have also introduced laws around pay equity. The United Kingdom, for instance, requires some public companies to annually disclose the ratio of their chief executive officers’ pay to the lower, median and upper quartile of their employees’ pay.

In addition to preventing legal woes, pay equity offers bottom-line benefits. A company’s commitment to equitable pay can boost employee morale and performance, while reducing the risk of lawsuits and negative publicity.

An audit

So how can your company uncover pay disparities, identify the drivers behind them and develop ways to address them? Undergo a pay equity audit. Although the process can be quite involved, it’s typically worth the effort.

First, assemble representatives from multiple departments — including human resources, legal, and finance or accounting — to collect data on employee compensation, job classifications and demographics. This cross-section of participants also will help ensure buy-in across the organization.

The next step is determining how to group employees. That is, which employees will be considered to have substantially similar roles and, thus, should fall within the same pay range?

Some number crunching will come into play. For smaller employee groups, an analysis of, for instance, differences in median pay between groups of employees may be enough to identify any unwarranted disparities. With larger groups, you may have to conduct more rigorous statistical analyses. For example, regression analysis can help control for variables, such as employees’ experience levels, when examining disparities.

A correction

To help correct any instances of pay inequity that can’t be traced to legitimate factors:

Consider using only initials or random ID numbers during early screenings of job candidates. Minimizing the ability to distinguish candidates by ethnicity or gender can reduce the likelihood any biases influence hiring and compensation decisions.

Refrain from asking candidates their pay histories. Women and people of color are more likely to have been paid less in their previous positions. Using historical compensation to set their current salaries only compounds pay disparities.

Try to use objective criteria when recruiting, hiring, compensating, evaluating and promoting workers. Implement standard pay ranges that reflect each position’s value to the organization.

Limit managers’ ability to singlehandedly adjust pay for specific individuals. Such one-off decisions can lead to pay inequities.

Help managers understand pay equity. Training will help them understand how best to develop a culture that embraces pay equity.

Communicate with employees. Let employees know how you set compensation and reassure them that they can discuss pay with their co-workers without fear of retaliation. More transparency tends to foster greater pay equity.

A process

Developing and sustaining a culture with accompanying processes that promote pay equity is an important, ongoing process. Your accounting professional can help your organization work toward this goal.

The Pros and Cons of Retirement Plan Rollovers

Thu, 03 Mar 2022 20:52:34 GMT

In this volatile economy, some sectors are looking better than ever while others are still struggling. Accordingly, many employees are reassessing their careers and seeking new employment in more lucrative industries. If you’re changing jobs, it’s important to understand the ins and outs of transferring from one retirement plan to another to ensure you don’t diminish your savings or unnecessarily owe taxes because of the transition.

Engage in growth strategies

To avoid unfavorable tax consequences and penalties, you can choose from several options that will allow your money to continue to grow. For instance, you can leave the funds in your former employer’s plan. If you have at least $5,000 in your account, you typically can keep the money in the plan. Note that, if you have between $1,000 and $5,000 in your account and don’t elect to receive the money or roll it over to another account, the plan administrator may deposit your money in an IRA. If your balance is less than $1,000, the administrator may pay it to you — typically, after withholding 20% for income taxes. You can still roll over these funds.

The advantage of keeping your current plan is that you don’t have to make any changes or decisions. But there are downsides to this approach. For example, you’ll need to continue tracking this account in addition to the account with your new employer as well as any others you own. And it won’t make sense to remain in a plan if it has limited investment choices or high fees.

If your new employer offers a retirement plan and accepts rollover contributions — that is, contributions from another plan — you may want to move your funds there. Doing so reduces the number of accounts you’ll need to track over the long term. It’s also possible the investment options in the new plan will better fit your needs than your previous plan did. Review the investment choices and fees.

Finally, you can roll the funds into either an existing or newly opened IRA. These accounts often offer more investment options at a lower cost than many employer-sponsored retirement plans. However, be aware that IRAs have restrictions that employer-sponsored plans, such as 401(k) plans, don’t. For instance, you can’t take a loan from an IRA.

Avoid rollover mistakes

Assuming you move your funds to an employer-sponsored retirement account or an IRA, you’ll want to follow the rules that govern rollovers. A mistake could cause you to owe taxes or a penalty. If you decide to roll over the account, here are two options:

A direct rollover (sometimes called a trustee-to-trustee transfer). You can ask your former employer’s plan administrator to directly move the money in your retirement account to another one. He or she may issue a check payable to the new account without withholding any money for taxes.
A 60-day rollover. Your former employer’s plan pays out the plan balance to you. To avoid owing taxes on that balance, you’ll need to deposit it in a retirement account or IRA within 60 days. (Note that, though the 60-day rule is fairly strict, and if you miss the deadline there could be some relatively dire tax implications, in some situations there is a bit of flexibility.) But your distribution will be subject to 20% withholding, even if you plan to roll over the funds — and you can do only one of these in a rolling 12-month period.

If you want to roll over the entire retirement plan balance, you’ll need to find another source of money to make up for the amount withheld. If you don’t, you’ll owe taxes and possibly a penalty on the amount withheld, because it will be considered a distribution.

Choose the best strategy for you

Getting a new job can feel like a fresh start, but it’s important to your long-term financial health to retain the money you’ve already saved for retirement while in your old position. Why not consult your accounting professional to ensure you’re making the best choice regarding your employer-sponsored retirement accounts?

Upcoming Tax Event in Partnership with Mental Health Association

Wed, 02 Mar 2022 17:32:45 GMT

If you are a Shared Living provider or are considering becoming one, get your tax-related questions ready and join us next week on Zoom! Meyers Brothers Kalicka, P.C. will be hosting a virtual event in partnership with MHA (Mental Health Association) on Thursday March 17, 2022 at 12:00 p.m. to 1:00 p.m.

Please RSVP to jcollins@mhainc.org if you plan to join.

Zoom information:

Meeting ID on Zoom: 755 8128 9170

Passcode: 6mS63X

This is a free, hour-long event with tax associates Fran Murphy and Rachel Curry. Fran and Rachel have both been with MBK for ten years and bring a wealth of knowledge to our clients in not-for-profit, individual, and closely-held business tax preparation. This event will allow participants the opportunity to learn about what services the state compensates Shared Living providers for and whether and how this information should be listed on a tax return.

Shared Living program

MHA’s Shared Living program places for individuals served by the Massachusetts Department of Developmental Services with families willing to welcome them into their home with the help of a tax-free stipend between $30,000 to $45,000 paid annually by the state. This program provides an alternative to group home living for individuals under the care of the department. Designated care providers support an individual they are matched with in their daily living including cooking meals, ensuring the individual is taking any medications, providing transport to appointments, and helping the individual work toward specific goals. MHA is currently seeking providers.

About MHA

MHA (Mental Health Association) helps people live their best life. We provide access to therapies for emotional health and wellness; services for substance use recovery, developmental disabilities and acquired brain injury; services for housing and residential programming, and more. With respect, integrity and compassion, MHA provides each individual served with person-driven programming to foster independence, community engagement, wellness and recovery.

Helping Western Mass Thrive: 2021 Thought Leadership Awards

Wed, 02 Mar 2022 17:21:05 GMT

At Meyers Brothers Kalicka, P.C., our mission is to provide knowledge and resources to our clients, colleagues and community that enable them to grow and thrive in Western Massachusetts. As a part of our constant work toward this mission, the staff at MBK works hard to make sure our community is informed on the latest changes that may affect their accounting experience. To wrap up 2021, we recognized the staff that have stepped up to keep our community informed with our Thought Leadership Awards.

A thought leader is someone who uses their expertise and skills to provide valuable guidance and insight into their industry. Thought leaders cultivate their knowledge with a finger on the pulse in their industry and share their insights with a thoughtful approach that educates and adds value to both their industry and community. It is important to us to make sure that we are actively participating in and contributing to education on business and personal finance and providing a shoulder for our clients and the broader community to lean on for articulate and clear guidance from an industry that can often be complicated and difficult to understand.

We awarded the following staff for their contributions to thought leadership in 2021, helping our community navigate challenging financial laws and regulations with ease:

Staying on Top of Collections

Mon, 28 Feb 2022 19:17:40 GMT

In an uncertain economy, your business will take all the customers it can get. But what if some of those customers aren’t reliable when it comes to paying their bills? In that case, it might be better not to have them as customers at all. That’s why it’s important to be aware of the signs that a prospective customer could be a payment risk. And, if payment issues do arise, you must act quickly to head off trouble.

Red flags

To reduce the risk of future collections problems, watch out for these warning signs before you take on a new customer:

Anonymous clients. Some prospective customers don’t seem to exist anywhere other than, say, a vague email address. This is a sign to move cautiously. It’s not too much to expect that even start-up businesses have some sort of online presence, a true location, and a working email address and phone number.

Empty assurances. Sometimes potential clients ask that work on their product or service start immediately, but without providing assurances that payment will be forthcoming. In some industries, it might be common practice for suppliers to provide goods or services and follow up with invoices later.

When that’s not the case, however, consider the lack of credible assurances to be a warning sign. That’s especially true if a prospective customer is vague on the budget for a project.

Future earnings as payment. Customers who promise some portion of future earnings as payment may be legitimate. But, before you begin work, nail down the terms and decide if the potential reward compensates for the risk.

How realistic are the visions of success? And what happens if, despite everyone’s best efforts, the new idea never takes off?

If you’re skeptical you’ll be able to collect from a customer, it’s wise to ask for a retainer or deposit up front before starting a project. You can also request progress payments while the project is in process.

Unfortunately, sometimes red flags don’t come to light until you’ve accepted a new customer. For example, a client who regularly nitpicks most elements of a project may keep it from ever getting off the ground. While clients have a right to expect the level of quality promised at the outset of a project, those who seem to continually search for reasons to criticize products or services may be using their purported dissatisfaction to avoid paying for their purchase.

Positive actions

Even business owners who pride themselves on distinguishing good prospects from bad don’t always get it right. The following steps can help:

Politely but firmly follow up. A tactful email can provide a gentle nudge when an invoice is overdue. For example: “It looks like Invoice #1000, dated November 1, 2021, for $500 (for 25 widgets you purchased), may have been overlooked. In case it was lost, I’m resending it.”

This message lets customers know that you’re aware of the payment due, yet offers them the benefit of the doubt. Most people want to operate ethically, and even prompt payers make mistakes from time to time.

Move to a phone call. If your follow-up email(s) aren’t generating a response, a polite phone call should get the client’s attention. Many people find it harder to ignore or say “no” to someone in an actual conversation, as opposed to an email.

Try the customer’s accounts payable staff or business manager. If previous efforts aren’t working, a shift to the accounts payable or business manager may be more fruitful. But remain courteous. It’s possible that the invoice truly is lost or is stuck on someone’s desk. And this may be the first time the person learns of the payment delay.

Recognize the signs

Of course, maintaining good relationships with customers is always good business — unless and until they fail to pay you. If that happens, you’ll need to be proactive about the situation.

Many customers just need a friendly reminder (or two!) and are happy to pay up. With others, more serious action may be required — up to and including legal action. Try to avoid that by recognizing warning signs early and taking appropriate steps to get things back on track.

Hiring Veterans May Lower Your Payroll Taxes

Mon, 28 Feb 2022 19:05:16 GMT

Employers often overlook a federal tax break available to organizations that hire new employees from certain groups who have traditionally faced obstacles to hiring. While the Work Opportunity Tax Credit (WOTC) is more limited for nonprofits, it nonetheless presents payroll tax-saving opportunities that can prove especially valuable for organizations that are ramping up hiring.

Potential savings

To qualify for the WOTC, for-profit employers must hire people who belong to one or more of 10 “target groups.” These groups include the formerly incarcerated and individuals with disabilities. Tax-exempt organizations, however, can claim the credit only for hiring “qualified veterans” who began work for their organization after 2020 and before 2026.

The amount of the WOTC generally equals 40% of up to $6,000 of wages paid to qualified new employees in their first year of employment who work at least 400 hours. But as much as $24,000 in wages can be taken into account when determining the credit for veterans with service-connected disabilities who have been unemployed more than six months. This means your organization could claim a credit of $9,600 for each qualified employee. Lower wage levels can be considered for other types of qualified veterans.

Nonprofit employers of all sizes can claim the credit, and there’s no cap on the number of qualified veterans for whom you can claim the credit. The credit is limited only by the amount of employer Social Security tax owed on the wages paid to all employees for the tax period in which you claim the credit.

Nuts and bolts

Local job centers or state workforce agencies can help you find qualified veterans. American Job Centers, for example, host job fairs, perform skills assessments, help employers recruit employees and provide support to employees transitioning to new jobs. The Veterans

Administration and related agencies are additional sources of qualified veteran job applicants.

Some applicants might be pre-certified as belonging to a qualified veteran group. Pre-certification can prove helpful, but it isn’t required for an employer to hire or claim the WOTC. For new hires who aren’t pre-certified, you must obtain certification that they’re qualified veterans from the state workforce agency on or before the first day of work. You also have the option of completing a pre-screening notice (IRS Form 8850, “Pre-Screening Notice and Certification Request for Work Opportunity Credit”) on or before the day you make the job offer.

Submit the notice to the state workforce agency to request certification within 28 days of when the employee begins work. New hires must work at least 120 hours before you can claim the WOTC. Once you have the certification, you can claim the credit against your Social Security tax liability by filing Form 5884-C, “Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.” You should file the form after you’ve filed the related employment tax return for the relevant tax period.

The IRS advises against reducing your required payroll tax deposits based on any anticipated WOTC (or any tax credits). The credit doesn’t affect the Social Security tax liability you report on your employment tax return.

Bottom line

If your organization doesn’t prioritize applicants who are veterans, you might want to consider it going forward. Not only can it help further your mission, but the potential tax savings could be significant.

It’s All in the Family: Tax Breaks that May Benefit Parents and Children

Tue, 15 Feb 2022 14:52:35 GMT

Federal tax law already included many family-friendly provisions before some 2020 and 2021 legislation enhanced several tax breaks that benefit parents and children. What’s more, lawmakers might extend or enhance certain provisions. (Check with your tax advisor for the latest information.) With that in mind, here are some tax-saving opportunities that you may be able to take advantage of on your 2021 income tax return.

Economic stimulus payments

As the COVID-19 pandemic unfolded, the federal government approved not one, not two, but three rounds of Economic Impact Payments (EIPs) to qualified recipients. Best of all, you don’t owe a penny of federal income tax on any payments you’ve received.

The third EIP, with a maximum of $1,400 per qualified recipient, is phased out for single filers with an adjusted gross income (AGI) of $75,000 to $80,000; $150,000 to $160,000 for joint filers.

Icing on the cake: You’re entitled to an EIP of up to $1,400 for each qualified dependent, which might include children in college or elderly relatives. If you haven’t received the full amount you’re entitled to, you can claim the shortfall on your 2021 return.

Child Tax Credit

The Child Tax Credit (CTC) was already a good deal for qualified families, but it’s even better on 2021 returns under the American Rescue Plan Act (ARPA), signed into law in March 2021. Specifically:

The maximum credit jumps from $2,000 to $3,000 for a qualifying child ($3,600 for qualifying children under age six),
The definition of a qualifying child expands to include children under age 18 (up from age 17),
The credit is fully refundable (previously, only $1,400 was refundable), and
The IRS generally made advance CTC payments to those who didn’t opt out of this arrangement (but advance payments will result in a reduced tax break on your 2021 return).

Finally, be aware that the increased CTC (i.e., the additional $1,000 or $1,600 per child) begins to phase out at a lower modified adjusted gross income (MAGI) than the first $2,000 of the CTC — at $75,000 of AGI for single filers and $150,000 for joint filers. So, some taxpayers will be eligible for a portion or all of the first $2,000 of the CTC but not for the additional amount.

Higher education credits

Generally, parents paying children’s college expenses can choose between one of two higher education credits, subject to phaseouts:

American Opportunity Tax Credit (AOTC). The maximum annual AOTC of $2,500 is available for up to four years of study for each student in the family. For example, if you have two kids in college, the maximum AOTC is $5,000.
Lifetime Learning Credit (LLC). The maximum LLC is $2,000. Also, unlike the AOTC, the LLC applies to each taxpayer. So, for two children in school, the maximum credit is $2,000. On the plus side, the LLC is available for all years of study — not just four years.

Previously, the LLC was phased out at lower dollar levels than the AOTC, but December 2020’s Consolidated Appropriations Act equalized things. For 2021, the phaseout ranges are between $80,000 and $90,000 of MAGI for single filers, and $160,000 and $180,000 for joint filers. If your income is too high for you to be eligible for a higher education credit, your child might qualify.

Dependent care credit

Tax law provides a credit for costs incurred for caring for children under the age of 13 while you (and your spouse, if married) work. Previously, the maximum credit for a couple with an AGI above $43,000 was 20% for the first $3,000 of qualified expenses for one child, $6,000 for two or more children.

The ARPA enhances the credit on 2021 returns as follows:

The maximum credit percentage increases to 50% (up from a previous high of 35%),
The limit on qualified expenses increases to $8,000 for one child or $16,000 for two or more children, and
The credit becomes fully refundable.

However, the higher credit percentage is gradually reduced if your AGI exceeds $125,000. It falls to 20% if your AGI exceeds $183,000. And, if your AGI exceeds $400,000, the credit is further reduced until it completely disappears for an AGI above $438,000.

Get good tax advice

These are just a few ways your family can save taxes on 2021 returns — but there may be more, depending on your particular situation. The main point is that it’s important to be aware of the possible benefits, and to discuss them with your professional tax advisor.

Sidebar: Did you adopt in 2021?

For 2021, parents can claim a maximum credit of $14,440 for qualified expenses incurred to adopt an eligible child. An eligible child is one who is under age 18 or is physically or mentally incapable of self-care.

But the credit begins to phase out in 2021 for taxpayers with a modified adjusted gross income (MAGI) above $216,660. If your MAGI is $256,600, you aren’t entitled to any credit.

Generally, the credit is available for the year that qualified expenses are paid or incurred. However, if the adoption isn’t finalized by the end of the year, the credit may be claimed in a subsequent year.

Honoring Longevity and Excellence

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 10 Feb 2022 18:29:36 GMT

Congratulations to our 2021 Longevity Award Winners

Each year, Meyers Brothers Kalicka, P.C. recognizes the commitment and dedication of our employees with Longevity awards. We know that at the core of our ability to implement on our mission and vision, is our people. The contributions from our employees enable us to better serve our clients, our community and each other.

There is excellence that comes from longevity, and we salute you all!

5-Year Longevity Awards:

10-Year Longevity Awards:

15- Year Longevity Award

20- Year Longevity Award

35- Year Longevity Award

Driving the Company Car: When do Employees Owe Taxes?

Thu, 10 Feb 2022 14:25:52 GMT

If your company provides vehicles for employee use, make sure you are properly accounting for any personal use of the car employees may perform while in possession of the vehicle, as this use may count toward taxable employee compensation and benefits on your tax returns.

When a company-owned vehicle is used for business purposes, it is not considered taxable income because it is required for the employee to do their job. However, when an employee uses a company car for personal reasons, that use may be taxable. It is important for you as the business owner, to know when you and your employees owe taxes, and when the use is not taxed.

Personal use of a company vehicle is considered a noncash fringe benefit, so the value of the vehicle usage for personal reasons must be included in the employee’s income, and tax must be withheld. This value will need to be reported on the employee’s W-2.

What use is personal use?

Personal use of a company vehicle includes activities that are not work related such as running personal errands or using the car while on vacation. It also includes commuting to and from work as well as use by a non-employee such as their spouse or dependents.

When is personal use exempt from taxation?

There are some cases where personal use of a vehicle is not considered taxable income. Some of the exceptions to personal use tax include:

De minimis fringe benefits – the employee uses the vehicle for infrequent and brief personal trips making it unreasonable to track their personal use
Qualified non-personal use vehicles – the vehicle’s design makes it unlikely it would be used for personal use such as a school bus, hearse, construction vehicle, or fire truck
Demonstration vehicles – a vehicle that is used by a full-time automobile salesperson. This benefit is very restricted, so be sure your employee’s use qualifies for this exemption. To qualify, the personal use may only fall within the greater of 75 miles from the dealership or the actual distance of the employee’s commute, it may not be used for vacation trips, it may not be driven by anyone aside from that employee, and the employee may not store any personal items in the vehicle

Substantiation requirements

Vehicles are considered “listed property” under IRC Section 280F. This designation means that separate records must be maintained for business and personal vehicle use. If the employee does not maintain and provide records documenting business and personal mileage separately, the entire value of the vehicle use, including the business use, is considered wages to the employee.

How to determine the value

The determined value of use must be reported at least once each year as income to the employee. The value of personal use of a company car can be determined in a few ways:

General valuation rule – the general valuation rule is most used. Under this rule, the vehicle is valued at fair market value (FMV). The value is determined based on how much the employee would pay a third party to lease the same or similar vehicle under the same or similar terms
Cents-per-mile rule – this rule may only be used to determine value if the vehicle is driven a minimum of 10,000 miles annually and the determined FMV cannot be greater than $51,100. To determine cents-per-mile, the IRS standard mileage rate is multiplied by the number of personal miles driven
Commuting rule – the commuting rule can be used for employees who drive or carpool with other employees in a vehicle owned or leased by the company. It is calculated by multiplying the distance of each one-way commute by $1.50. If multiple employees carpool, this benefit calculation applies to all employees in the carpool. This method can only be used if you require the employee to commute in this vehicle. A written policy must be established and followed stating that the only personal use this vehicle is limited to the commute and de minimis personal use such as an occasional stop for a personal errand while commuting. In addition, automobiles being used by control employees do not qualify for this value rule
Lease value rule – this method can be used to determine personal use value to be taxed as the annual lease value. The annual lease value is determined using Table 3-1 in IRS Publication 15-B and multiplying the percentage of personal use on the vehicle for the year by the determined annual lease value to arrive at the value of the benefit received. Note that this table includes value for maintenance and insurance, but NOT fuel. If the employer pays for gas, the personal use value must be calculated separately

The circumstances under which you can use each method to value the personal use of a vehicle have many restrictions such as consistency requirements. Check with your tax advisor before deciding on a valuation method for your employees and vehicles to ensure you are using the appropriate method for each situation. While the same valuation method does not need to be used for all company vehicles, if the same employees make use of the same car, the same valuation method must be used for each employee using that car.

Remember to only value the personal use of the vehicle when determining the value of the fringe benefit to your employees. The business use of the vehicle should be excluded as it is not considered taxable income for the employee.

Paying the benefit and withholding taxes

While the benefit is immediately received by the employee when a vehicle is used for personal use, it must be “paid” to the employee at least once annually, although you may choose any frequency that makes sense for your organization. For the purposes of tax withholding, use the non-cash fringe benefit rules.

Make sure your employees keep detailed records of mileage, trip purpose, etc. Clear and accurate records are essential to define what tax is owed for the personal use in addition to providing back-up for any inquiries into wage and tax reporting.

For more information about personal use of a company vehicle, you can view Publication 15-B . Discuss each employee’s personal use in detail with your tax preparer to ensure you are selecting the appropriate personal use value method for each case, and properly reporting and withholding taxes

Parking "Relief" for Businesses in Rural, Remote or Industrial Locations

Wed, 09 Feb 2022 19:14:09 GMT

Authors: Kristina Drzal Houghton & Carolyn Bourgoin

Final regulations have been issued related to deductions for parking expenses. The major change provided by the regulations deal with businesses that provide parking to their employees in rural, industrial, or remote areas where the fair market value of the parking is considered to be negligible. These businesses will now have a zero disallowance for parking-related expenses. Employers not meeting an exception to the parking expense disallowance may need to revisit their current parking valuation methodology to consider modifications and clarifications incorporated into the final regulations.

Related to the deduction

Refresher: An employer is denied a deduction for the expense of a qualified transportation fringe which includes qualified parking that it provides to its employees free of charge. Nondeductible parking expenses include amounts an employer pays to third party operators for employee parking as well as expenses an employer incurs for providing employee parking on facilities it owns or leases. The nondeductible amount of parking expense obtained from a third party operator is generally the employer's annual cost paid for the parking. Employers who own or lease parking facilities or parking lots that they make available to employees can determine the expense disallowance using a general rule, or any one of three alternative "simplified" methodologies -qualified parking limit methodology, primary use methodology, and the cost per space methodology. These methods were available under the proposed regulations and were retained by the final regulations with some minor modifications. Also still available under the final regulations is the general public exception to the nondeductibility of parking expenses.

Main modifications provided in final regulations:

The rural exception highlighted above. In this situation, the parking provided has a fair market value of zero as an individual (i.e. non-employee) would not ordinarily pay to park there.
The final regulations attempts to reduce administrative burdens for taxpayers subject to the parking expense limitations. The final regulations extend the 5% optional rule for allocating certain mixed parking expenses to the general rule. The regulations also clarify that taxpayers may choose between the 5% optional rule or any reasonable method to allocate eligible mixed costs.
For parking utilized by customers and employees, the final regulations provide relief for determining employee usage of parking spaces. In light of the COVID-19 pandemic, the final regulations allow employers located in a federally declared disaster area to opt to use a typical business day as one from the tax year prior to the date the taxpayer's operations were impacted by the disaster. Alternatively, a business can choose to define a typical business day during the months of the tax year in which the disaster occurred by reference to a typical business day during the same months of the tax year immediately preceding the tax year in which the disaster first occurred.

The above summary highlights only some of the changes in the final qualified transportation fringe benefit regulations. There were other modifications and clarifications provided in these regulations that will need to be considered in calculating the expense disallowance under the various methodologies. You should discuss possible changes with your tax adviser.

Tax planning for 2022: Reporting Payments from Third-Party Apps

Tue, 08 Feb 2022 20:13:51 GMT

If you receive commercial payments through payment applications like Venmo, Cash App, or PayPal, you are likely to receive a Form 1099 from these entities for 2022, whether you run a small business, or a side gig. As a part of the American Rescue Plan passed in March 2021, the de minimis reporting exception for third party network transactions has changed effective for transactions beginning January 1, 2022.

For 2022 activity, these third-party apps will be required to furnish 1099-K forms to businesses who receive payments through their services in January 2023 (and yearly thereafter). This change will give the IRS more information about the potential of taxable business transactions that are transpiring on these applications and provide extra documentation for your business income.

Change to the de minimis exception for reporting

In prior years (including the 2021 tax year), the de minimis exception for these transactions meant that payment apps were only required to report payments to businesses if their payments received for the year exceeded $20,000 and they exceeded 200 transactions. This does not mean that businesses were not required to report this income, only that the payment apps were not required to furnish the information to the IRS.

Beginning in the 2022 tax year, apps like Venmo will be required to file 1099-K forms for all business payees that receive over $600 in total payments for the year. This change is significant for both the payment app and for those who do business through these third-party services.

Who is affected?

This change to reporting requirements does not change tax law or add a new tax. Instead, it increases the burden on payment applications to report commercial transactions made through their app to the IRS.

Individual use of the app for personal, non-taxable use will remain unchanged. You will not need to report transactions such as money received from a family member to pay their portion of a shared restaurant bill, or money received from a friend as a gift.

Keep clear records

With these changes in reporting, you may be more likely to receive a letter from the IRS regarding a flagged transaction. You should be careful to keep clear records of all deposits/income and the way it was received to avoid difficulty in responding to inquiries. Be sure to keep a clear paper trail that details all your deposits and income such as bank statements, invoices, and receipts.

If you have been receiving commercial payments through a one of these services to an account that you also use for personal reasons, consider creating a separate account to ensure your business income is properly tracked and to avoid difficulty with the IRS when it comes time to file your tax return. Make sure that each of your accounts is properly identified as a personal or business account.

If you have questions about how this change will affect your tax planning for 2022, you can review the IRS page General FAQs on Payment Card and Third Party Network Transactions and reach out to your tax advisor with any questions you may need clarified.

Funds Are Still Available for the Massachusetts COVID-19 Temporary Emergency Paid Sick Leave Program

Mon, 07 Feb 2022 21:38:26 GMT

COVID-19 cases remain high in the state of Massachusetts following the holiday season in conjunction with the introduction of the Omicron variant. Massachusetts COVID-19 Emergency Paid Sick Leave is still available to Massachusetts businesses and their employees.

The Emergency Paid Sick Leave Act, effective beginning May 28, 2021 was extended to April 1, 2022 or until the $75 million in program funds is fully depleted, whichever comes first. This means that all public and private employers in Massachusetts (except the U.S. government) are required to make paid leave time available to employees through this date if they are unable to work due to COVID-19.

Since funds remain available, make sure that you and your employees are making use of the assistance available to you while undergoing COVID-19 treatment, recovery and vaccination.

Overview of the basics

Employees may be eligible for up to 40 hours of paid leave through the funds available from the state of Massachusetts. However, the number of hours an employee is eligible for depends on the number of hours they normally work each week.

Employees may benefit from these funds for the following reasons:

Self-isolating and caring for oneself because of the employee’s COVID-19 diagnosis.
Seeking or obtaining a medical diagnosis, care or treatment for COVID-19 symptoms.
Obtaining immunization related to COVID-19 or recovering from an injury, disability, illness or condition related to such immunization.
Caring for a family member who is self-isolating due to a COVID-19 diagnosis.
Caring for a family member who needs medical diagnosis, care or treatment for COVID-19 symptoms.
Caring for a family member who is obtaining an immunization related to COVID-19 or is recovering from an injury, disability, illness, or condition related to such immunization.
Complying with a quarantine order from a public official, health authority, the employer or a healthcare provider.
An inability to telework due to COVID-19 because they have been diagnosed with COVID-19, and the symptoms inhibit their ability to telework.

Employees are entitled to full wage replacement up to an $850 cap. This cap includes the cost of employee benefits which employers are required to maintain. It is advisable for employers to calculate the hourly cost of benefits when calculating a reimbursement request to the state.

Employee protections:

Employers may not require employees to use other employer-provided paid leave before using the COVID-19 paid leave
Employers may not retaliate against employees for using leave, nor can they require that the employee find a replacement to cover their work as a condition of taking leave
Employers must maintain the benefits available to employees while on leave including sick leave, vacation leave, group life insurance, health insurance and pensions

Keep the notice of rights posted

Be sure to keep a copy of the notice of rights available to employees in a conspicuous location in addition to providing a copy to all employees as is required for all notices of employment rights provided by the Commonwealth of Massachusetts.

Keeping a record

As with all matters in business, it is important to keep a written record of all leave requests in employee files. Employers should provide a written request for leave form and keep the completed copy within each requestor’s personnel file along with any medical documentation provided by the employee.

This form should include:

Employee name
Dates for which leave is requested and taken
A statement of the eligible reason for which the leave is being taken
Test results (self-test, or test given by a health professional)
If test results are not available, a statement that the employee is unable to work because of the given reason can be provided.

Make sure that medical information is securely stored according to state and federal confidentiality law and this information is never released to a third party without express consent from the employee.

Applying for reimbursement

Until April 1, 2022 or funds are depleted, employers may submit applications for reimbursement of COVID-19 emergency paid sick leave using the MassTaxConnect website. The Massachusetts Department of Revenue shared a helpful video guiding you through the application process on Youtube if you need assistance navigating the website.

You can also visit the FAQ page on the COVID-19 Temporary Emergency Paid Sick Leave Program at Mass.gov for more answers to any questions you may have.

Cryptocurrency Journeys Can Be Risky, Rewarding, and Have Unknown Tax Implications

Thu, 03 Feb 2022 18:53:08 GMT

Authors: Brendan Cawley, Ian Coddington, Anthony Romei, and Lauren Foley

While cryptocurrency has been around since 2008, its popularity has soared over the past two years as people dove into new interests during the pandemic. Whether you used your time in lockdown to learn how to bake banana bread or mine dogecoins, it’s important to note that the latter may have come with some tax implications. If you dipped your toes in the virtual currency waters, you may now be wondering – how will my transactions during the year affect my tax return? Our goal is to give some basic insight into the crypto market, Decentralized (“DeFi”) finance , and how the transactions along your cryptocurrency journey can affect your tax return this year and beyond

What is Cryptocurrency?

The IRS currently views cryptocurrency as a type of virtual currency. Virtual currency, such as Bitcoin, Ether, Roblox and v-bucks to name a few, is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, and a medium of exchange.

Cryptocurrency uses cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain. The blockchain technology allows participants to confirm transactions without the need for central clearing authority.

With that in mind, Decentralized Finance (DeFi) has quickly become the hottest in blockchain technology, but it comes with its own uniquely complicated and confusing tax situations. And, if learning how to navigate cryptocurrency and DeFi wasn’t complex enough, you have to do so with very little IRS guidance.

What is Decentralized Finance / DeFi?

When you think of centralized finance, you might think of banks, such as Bank of America or JPMorgan which traditionally offer savings, lending, and investment options for their customers. Services often come with fees and can result in delays to accessing or withdrawing funds.

By using blockchain technology, users can validate transactions from peer to peer within a matter of seconds. Transactions can take place all around the world across computer networks without the need of a central authority. This is where DeFi comes in, where users can engage in contracts for lending, borrowing, and other financial services at the click of a button. These contracts are created through algorithms, rather than underwritten by a loan officer. Additionally, fees associated with central banks and the delay in completing certain transactions are no longer an issue.

There are several popular DeFi platforms, such as UniSwap, PancakeSwap, Fantom, Aave, and SushiSwap, to name a few. These platforms offer different services to consumers: staking, liquidity pools, yield farming, along with traditional lending and borrowing. Investors who have gotten in at the initial stages have been seeing massive returns on their investments. Services, such as yield farming and liquidity pools, lock in cryptocurrency assets to facilitate blockchain transactions and pay participants rewards in the form of cryptocurrency. However, the IRS has not determined specific guidance on the treatment of specific transactions within the DeFi space.

Consumers and investors are tempted to participate in the Defi market by varying annual percentage yields (APY) of 3-15%, sometimes even more. This is a far cry from the 0.01% APY that you might get in your local bank’s saving account or the 1% APY in a certificate of deposit. The riskiness involved in these transactions as well as the potential tax implications might scare off some investors, but with a $114B market cap in 2022, there are plenty more who are ready to enter the DeFi space.

How Complicated Can It Get?

With the DeFi foundation laid, let’s color the conversation through a real-life example with some surprising complexities. If exploring the world of DeFi, it is unlikely to venture far without hearing about OlympusDAO. What is OlympusDAO? It is a decentralized reserve currency protocol based on the OHM token.

Hopefully, this example will illustrate just how quickly crypto can get complicated.

Participants seek returns through staking and bonding strategies. “Stakers” stake their OHM tokens into a pool with other likeminded individuals. Those OHM tokens are then put to work on the blockchain and earn rewards in the form of more OHM. Alternatively, those choosing to engage in the bonding strategy provide liquidity in the form of other crypto assets or DAI tokens to the Olympus Treasury. These assets are the necessary backing for new OHM minted and help to provide stability to the value of OHM. To compensate the participants for bonding, the protocol makes OHM available for purchase at a discount after a vesting period.

Now suppose the staking option sounds appetizing. You open your account, you ensure you have sufficient funds, and you navigate to a centralized exchange in search of OHM. Oh no…. OHM is not currently traded on a centralized exchange. So, what do you do? You take a deep breath and turn to google. Quickly, you will recognize that OHM can only be purchased through a decentralized exchange (DEX) and you need the appropriate cryptocurrency, Ethereum (ETH), to participate. You purchase ETH on the centralized exchange for USD, which is a nontaxable event. With the ETH in hand (in your crypto wallet), you navigate to a DEX such as SushiSwap, and exchange ETH for OHM. This exchange is a capital event and gain/loss should be calculated. The cost basis of the newly acquired OHM should consider this gain or loss. OHM can now be staked on OlympusDAO in exchange for sOHM (“staked” OHM). When OHM becomes sOHM, there is an argument to say this is a property exchange and taxable again as capital gain/loss. The sOHM earns more sOHM over time which is ordinary income upon receipt. Eventually, you might decide to cash out your sOHM. When sOHM is exchanged back to OHM, a taxable exchange has occurred again. Finally, you convert your new pool of OHM back to ETH, which as you likely guessed is taxable as capital gain/loss.

While this example is considered fairly simple and common, this journey alone noted 5 different taxable events. Keep in mind the software currently available often struggles to appropriately track the tax basis of your crypto property and ordinary income received through each of the steps. Furthermore, trading fees can be challenging to track. When preparing for the 2021 filing season, please consider reaching out to a qualified CPA.

Now What?

The landscape of cryptocurrency and digital assets is evolving daily. The variety of investment options continues to expand, as does the number of investors. As you consider joining the cryptocurrency marketplace, there are a few things to keep in mind.

First and foremost, investors should consider investing in cryptocurrency tracking software. Subscriptions vary in price and quality. Providers are racing to improve their systems and close the reporting gaps for Defi, NFTs, and play-to-earn. Staying apprised of new developments in this space is key for taxpayers as the IRS increases oversight for cryptocurrency. Starting in 2023, the IRS will require that 1099-Bs are issued to taxpayers who invest in cryptocurrency. These forms will capture the proceeds and cost basis from the cryptocurrency investments. Taxpayers should be mindful of tracking these items independently to ensure accuracy.

The IRS is already issuing an increased number of notices to taxpayers who are known or suspected to invest in cryptocurrency. These notices typically are numbered 6174, 6174-A and 6173. Only notice 6173 requires a response but each notice indicates that the IRS is watching the taxpayer for cryptocurrency investments. In addition, the IRS requires that Form 8300 be filed by a taxpayer who receives more than $10,000 in digital assets starting after 1/1/2023. Failure to report these details could result in civil penalties or felony charges.

Finally, please remember that the IRS’s definition of cryptocurrency and digital assets could change dramatically in coming years. In fact, as of this past week, there has been a new court case that resulted in a decision that contradicts the IRS’s previous position on staking rewards. Additionally, while cryptocurrency is currently viewed as property, if the IRS recharacterizes these investments as securities, then that could result in significant tax implications. For example, cryptocurrency is currently not subject to wash sale rules presently due to its classification as property. This is an ever-evolving environment and requires prudence.

While some trends at the beginning of the pandemic such as whipped coffee and banana bread seemed to dim their lights, the cryptocurrency market is continuing to blaze new trails. It's important to work with a qualified tax preparer to navigate the complex tax situations that come with entering the cryptocurrency marketplace.

**This material is not intended to serve as tax or finance advice. You should obtain any appropriate professional advice relevant to your particular circumstances by consulting an advisor.

Not-for-Profit News

Thu, 03 Feb 2022 18:50:02 GMT

403(b) plan participation climbs

Participation in 403(b) retirement plans inched upward during the COVID-19 pandemic, from 76.6% in 2019 to 77.2% in 2020 — the highest level since tracking began in 2008. The bump is partly due to the spread of automatic enrollment, according to the annual 2021 403(b) Plan Survey from the Plan Sponsor Council of America (PSCA). Automatic enrollment has jumped 50% over the past five years. Of the nearly 400 nonprofits surveyed, 29% now offer it. Also, more than half of those automatically escalate the default deferral percentage over time.

While 403(b) plans traditionally only offered annuity products, more than half continue to offer annuities as an option for guaranteed income in retirement, versus 17% of 401(k) plans. The survey also found that nonprofits are taking the lead on certain types of retirement plan features. For example, 38% of nonprofits provide access to environmental, social and governance (ESG) investment options, compared to almost 3% of 401(k) plans.

What to know about the growth of impact investing

The number of affluent households — those with a net worth of $1 million or more (excluding primary residence) and/or an annual income of $200,000 — where donors participated in impact investing nearly doubled in 2020 (13%) compared with 2017 (7%). Minorities and younger individuals were the most likely to participate in impact investing to help achieve various societal benefits.

These findings come from The 2021 Bank of America Study of Philanthropy: Charitable Giving by Affluent Households. The study, released in September 2021, is the eighth in the series of biennial studies conducted by the Indiana University Lilly Family School of Philanthropy.

About 60% of the donors said this form of investing was made on top of their existing charitable giving, while 36% indicated impact investing replaces some of their charitable giving. Only 5% of these donors said impact investing was in lieu of other charitable giving.

How the Great Recession affected household giving

The share of American households that donated to charity in 2018 dropped below 50% for the first time since the Philanthropy Panel Study (PPS) began tracking the figure. Only 49.6% of U.S. households donated that year, down from just over 66% when the PPS launched in 2000.

The Indiana University Lilly Family School of Philanthropy’s The Giving Environment: Understanding Pre-Pandemic Trends in Charitable Giving, released in July 2021, reports that the giving rate in 2018 had fallen across most socio-demographic groups — including by age, income, race and level of education. Religious causes suffered the greatest reductions. The study notes that most of the decline in giving occurred after the Great Recession of 2008, but only about one-third of the drop in donating can be attributed to changes in income and wealth. Moreover, the trends didn’t reverse or even slow when the economy recovered.

Online Event: Get Ready for Tax Filing 2021

sstack@mbkcpa.com (Sarah Rose Stack) — Thu, 27 Jan 2022 17:55:56 GMT

Special Online Event to Get Ready for 2021 Tax Filing

It's the most wonderful time of the year, tax time! It's no secret that the past two filing seasons have been hugely unusual. The good news is that all signs are pointing to a normal 2021 tax filing season, including deadlines. Meyers Brothers Kalicka, P.C. is hosting a free online session for our clients and community to help people get organized and prepared for a smooth tax filing season.

Join us for an online session on February 4, 2022 at 9:00 a.m. This event will feature our Tax Supervisors- Dan Eger and Brenden Cawley, with Partner and Director of Taxation, Kris Houghton.

Topics will include:

What's new on your 2021 tax return
Cryptocurrency
Individual tax
Business tax
Next steps and checklists
Q&A

Being organized and prepared for filing can make the process easier and more efficient. Join the session for tips on how to make tax season smoother so that you can file with confidence.

Pre-Registration is Required to Join

Date: Friday, February 4, 2022

Time: 9:00 a .m. - 10:30 a.m.

Pre-registration is required to attend:

https://us06web.zoom.us/meeting/register/tZMrcOGtpjwtE9TN9hOIkLpGpNTJo_sH1wkd

After registering, you will receive a confirmation email containing information about joining the meeting.

Speaker Line-Up

Meyers Brothers Kalicka, P.C. Announces Promotions

Wed, 26 Jan 2022 14:59:31 GMT

Meyers Brothers Kalicka, P.C. is proud to announce the following promotions:

Christopher Soderberg, Senior Associate
Ian Coddington, Senior Associate
Briana Doyle, Senior Associate
Daniel Eger, Tax Supervisor
Brenden Cawley, Tax Supervisor
Corey Jenkins, Manager
Chelsea Russell, Manager
Eric Pinsoneault, Manager
Kara Graves, Senior Manager
Matthew Nash, Senior Manager

Christopher Soderberg, Senior Associate

Ian Coddington, Senior Associate

Briana Doyle, Senior Associate

Daniel Eger, Tax Supervisor

Brendan Cawley, Tax Supervisor

Corey Jenkins, Manager

Chelsea Russell, Manager

Eric Pinsoneault, Manager

Kara Graves, Senior Manager

Matthew Nash, Senior Manager

Deduct Your Charitable Donations for 2021 with the Standard Deduction

Wed, 26 Jan 2022 14:43:24 GMT

If you are among the 9 out of 10 taxpayers who file for the standard deduction on your individual income tax return, you may qualify for extra tax savings on your 2021 return with the charitable giving deduction for 2021.

Normally, only those taxpayers who itemize can take deductions for charitable giving. However, in 2020 the Coronavirus Aid, Relief, and Economic Security (CARES) Act allowed taxpayers to take up to $300 in deductions for qualified charitable giving without itemizing their returns. The Taxpayer Certainty and Disaster Tax Relief (TCDTR) Act of 2020 extends this extra deduction allowance through the end of 2021 and doubles the maximum deductible charitable giving for couples who are married filing jointly to $600. Deductions lower your taxable income and may help to reduce your total federal tax burden for the year.

Qualifying contributions

The maximum of $300 (or $600 for married filing jointly) in charitable donations allowed for individuals to deduct without itemizing applies specifically to cash donations to most charitable organizations. These donations include contributions made through cash, credit, debit, and check as well as out-of-pocket expenses connected to volunteer work that were not reimbursed.

Make sure that the charitable organizations that you donated to are recognized by the IRS as charitable organization if you want your donation to qualify for the deduction. To check if your donation qualifies, use the IRS Tax Exempt Organization Search Tool .

Contributions that don’t qualify

Not all charitable giving can be applied to this deduction. There are specific types of charitable organizations that do not qualify. The following contributions do not count toward the deduction:

Gifts to supporting organizations
Contributions to establish or maintain donor advised funds
Cash contributions carried forward from prior years
Contributions to most private foundations
Contributions to charitable remainder trusts
Non-cash contributions such as value of volunteer service, household items, or other property

Keep in mind that these limitations are specifically on this special deduction for filers who take the standard deduction. If you do choose to itemize your return, noncash donations you made, may qualify for a deduction on your itemized return. Talk with your tax preparer if you are considering itemizing your return to get help making the most advantageous decision for your 2021 tax filing.

Keep a record

As with any other item on your taxes, it is important to keep clear records of the donations you claim toward the charitable deduction. This may be in the form of a written acknowledgement from the organization, or a bank statement showing the payment to the organization. The record must include the date of the transaction, the total amount, and the name of the organization. For a full list of qualifying records, you can review IRS Publication 526 .

If you made charitable contributions this year that may qualify toward a deduction, be sure to share your donation records with your tax preparer and reduce what you owe for 2021.

A Sharper Image: Scanning Documents with Your Phone or Tablet

Tue, 25 Jan 2022 20:48:41 GMT

Keep your documents secure

Scanning documents with Apple or Android

Optimize your scans to optimize your tax preparation

Ultimately, the cleaner your scans, the less likely it is your tax preparation will be delayed while your preparer waits for a clearer document. To ensure your document is legible, make sure to:

Choose a single-tone, neutral-colored, flat surface to scan your documents. Your beautiful, shiny granite countertops are likely to create problems for the camera, so choose a more monotone spot
Hold your device directly above the document. Any angles will distort the scanned image and make it easier to misinterpret
Lay your documents flat. Creases and folds will create shadows that may result in blurred text in the final scan. Smooth your paper as flat as possible before scanning to get the best results
Scan in a brightly lit room. More ambient light will help your camera capture a sharper image with more detail

Help your tax professionals help you, by sharing a sharp image the first time with applications designed to optimize your camera for a clear and sharable PDF.

Get Ready to File 2021 Taxes

Tue, 25 Jan 2022 17:18:59 GMT

By: Daniel Eger & Shannon Shainwald

It’s that time again already, time to file your taxes and close out 2021!

Over the past two years we have all witnessed rapid changes to how we do business and live. Tax season has been no different and has seen many changes to tax law and deadlines. Unlike the past two years, the 2022 tax season is currently set to complete with the normal deadlines, so be sure to get your taxes in order before the filing deadlines, April 18th for federal returns, and April 19th for Massachusetts returns.

What’s new on your 2021 tax return?

New changes to tax law for 2021 individual filing are not as hefty as in prior years, but there are still some changes that may make a difference on your return.

Watch out for letters from the IRS. Letter 6419 will reflect the child tax credit advance payments if you received any in 2021. The child tax credit is also higher and includes 17-year-old children in 2021 so be sure you know which of your dependents qualify and for how much. Letter 6475 will reflect the third stimulus payment if you qualified to receive one. Letter 4869C will share your Identity Protection PIN for your 2021 return if you have opted into the program or have dealt with fraudulent returns in the past.

The charitable deduction is once again available for up to $300 to those taking the standard deduction and was expanded to allow up to $600 for those who are married filing jointly in 2021.

For itemized returns, the annual charitable deduction limit for monetary donations is equal to 100% of your adjusted gross income (AGI) for 2021, which means you can remove all taxable income with your donations.

Cryptocurrency has risen in popularity over the past year. Please be aware that there are tax implications on your cryptocurrency investments. Speak with a trusted tax preparer to make sure your investments are accounted for properly on your return.

Preparing your return

Will you be preparing your return yourself, or will you hire someone to file on your behalf? Have a plan in place now, so you know what required information you need to have at hand, and what you expect to pay for completion of all needed forms. If you will be using a new tax preparer for 2021, they will ask for a copy of your prior year return in addition to all relevant documents for your 2021 tax filing.

The IRS also offers a Free File program if your income is below $72,000. Go to IRS.gov or see the IRS2Go app to see your options. You may also qualify for local tax assistance through programs like Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE).

Other considerations

Use your resources

The Interactive Tax Assistant (ITA) is an IRS online tool (IRS.gov) to help you get answers to several tax law items. ITA can help you determine what income is taxable, which deductions are allowed, filing status, who can be claimed as a dependent, and available tax credits. You can also visit www.mbkcpa.com/2021-tax-filing to find more resources for assistance with your 2021 tax filing including blogs on the latest changes and links to useful IRS and state resources.

Be vigilant

What if you have been compromised?

Contact IRS Identity Protection Specialized Unit (800-908-4490)
File Form 14039 Identity Theft Affidavit
Paper file your return

In addition, we recommend you take further steps with agencies outside the IRS:

Report incidents of identity theft to the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.
File a report with the local police.
Contact the fraud departments of the three major credit bureaus:
Equifax – www.equifax.com, 800-525-6285
Experian – www.experian.com, 888-397-3742
TransUnion – www.transunion.com, 800-680-7289
Close any accounts that have been tampered with or opened fraudulently.

Identity Protection PIN (IP PIN)

If you are a confirmed identity theft victim, the IRS will mail you a notice with your IP PIN each year. You need this number to electronically file your tax return.

Getting your paperwork in order

Make a note of changes to your life

Did you welcome a child to your family this past year? Get married? Will one of your children be claiming themselves for 2021? Or, if you’ve experienced the unfortunate passing of your spouse or dependents, changes to your family will affect your return. Make sure you have all the necessary documentation in order, and you know how it will be handled for your return.

Documentation of income:

W-2 - Wages, Salaries and Tips
W-2G – Gambling Winnings
1099-Int & 1099-OID – Interest income statements
1099-DIV – Dividend income statements
1099-B – Capital Gains – sales of stock, land, and other items
1099-G – Certain Government Payments
Statement of State Tax Refunds
Unemployment Benefits
1099-Misc – Miscellaneous Income
1099-NEC – Independent contractor income
1099-S – Sale of Real Estate (home)
1099-R – Retirement Income
1099-SSA – Social Security income
K-1 – Income from Partnerships, Trusts and S-Corporations

Documentation for deductions:

Itemized deductions:

Medical expenses - out of pocket (limited to 7.5% of Adjusted Gross Income)
Medical insurance (paid with post-tax dollars)
Long term care insurance
Prescription medicine and drugs
Hospital expenses
Long-term care expenses (in-home nurse, nursing home etc.)
Doctors and dentist payments
Eyeglasses and contacts
Miles traveled for medical purposes
State and Local taxes you paid (Limited to $10,000)
State withholding from your W-2
Real estate taxes paid
Estimated state tax payments and amount paid with prior year return
Personal property (excise)
Interest you Paid
1098-Misc – Mortgage Interest Statement
Interest paid to private party for home purchase
Qualified investment interest
Points paid on purchase of principal residence
Points paid to refinance (amortized over life of loan)
Mortgage insurance premiums
Gifts to Charity
Cash and check receipts from qualified organization
Non-cash items need a summary list and responsible gift calculation (IRS tables). If the gift is valued more than $5,000 a written appraisal is required.
Donation and acknowledgement letters (over $250)
Gifts of stocks – you need the market value on the date of gift

Additional adjustments:

1098-T – Tuition Statement
Educator expenses (Up to $250)
1098-E - Student Loan Interest Deduction
5498 HSA – Health Savings Account contributions
1099-SA - Distributions from HSA
Qualified Child and Dependent Care Expenses
Verify any estimated tax payments (does not include taxes withheld)

File with confidence

The Child Tax Credit Advance and What it Means for Your 2021 Tax Return

Thu, 20 Jan 2022 20:56:01 GMT

Since July 2021, many parents across the U.S. have been receiving monthly payments as high as $300 per child from the IRS. These payments were created in the American Rescue Plan passed in early 2021 designed to provide economic relief to low- and moderate-income taxpayers. For now, the changes made to the C hild Tax Credi t only apply to the 2021 tax year, although it remains to be seen if these changes will be applied to future tax years.

The child tax credit you know

The Child Tax Credit (CTC) has maintained its regular requirements for filers:

Children claimed must be related to you or have lived with you for at least six months of the year
Children claimed must be a U.S. citizen, national, or resident alien and must have a Social Security Number (SSN)
Child name, DOB, and SSN must be included on the return
Children must be claimed as a dependent on your return
The CTC phases out incrementally if adjusted gross income (AGI) is over $400,000 for joint filers or $200,000 for head of household filers. The credit is reduced by $50 for each $1,000 in AGI over these limits

In past years, including 2020, the CTC could be claimed only for children ages 16 and under for a maximum of $2,000 per child, depending on household income. In addition, to claim the credit, families had to meet a minimum earned income of $2,500 for the year. There was also a limit on how much of the credit was refundable in prior years. For lower-income individuals with children, up to $1600 of the total $2,000 credit could be refunded.

The child tax credit for 2021

For 2021 many of the barriers to the credit for lower-income families have been removed, while additional caps were added for adjusted gross income (AGI) to target the relief toward lower-income Americans. This means that high-income families are less likely to see a significant financial benefit from the 2021 changes aside from the monthly payments.

For the 2021 tax year, the following changes were made:

Children age 5 and under can be claimed for a maximum benefit of $3,600
Children ages 6 to 17 can be claimed for a maximum benefit of $3,000. This brings the age for eligible children up from 16 in prior years
Six monthly advance payments beginning in July 2021 were made to taxpayers who claimed the credit on their 2020 return (or if they did not file in 2020, based off their 2019 return). These payments were made to total half of the predicted eligible amount for the year
The CTC is fully refundable , unlike in prior years when there was a cap on how much of the credit could be paid out as a refund
No minimum income requirement , allowing taxpayers with very low or no income to still claim the credit
Additional income caps were added:
The full CTC can be claimed by married couples filing jointly with income under $150,000, and head of household filers with income under $112,500
Families whose income exceeds these maximums can still claim the regular $2,000 credit if they are married filing jointly with income under $400,000, or head of household filers with income under $200,000. Additionally, these families can claim a portion of the enhanced credit based on the difference between their AGI and the limit on their filing status. The amount of the enhanced credit is reduced by $50 for each $1,000 in AGI over these limits. This reduction only applies to the enhanced credit and will not cut into the original $2,000 credit which is still adjusted based on how much the filers’ AGI exceeds the original income limits.

What does this mean for your 2021 tax return?

Whether you received advance payments of the 2021 Child Tax Credit, or you did not receive payments but you qualify for the credit or a portion of the credit in 2021, you can still claim it on your 2021 tax return.

Calculating your qualified credit

The CTC does not count as income, despite the advance payments, so long as you qualify for the credit on your 2021 return. It will not affect your eligibility for income-based government programs such as the Supplemental Nutrition Assistance Program ( SNAP ) and will not affect your gross income. Instead, the advance payments must be reconciled against the total credit due to you on your 2021 return.

By January 31, 2022, the IRS will mail out a notice of the amount of advance CTC payments you received in 2021. This notice should be kept with your tax records to help you file your return. Advance payments totaling half of your estimated qualified credit were sent out monthly beginning in July. This means that if you qualified for a total credit of $3,600 in 2020, you should have received six monthly payments of $300. When you file your return, you will need to reconcile all the advance payments you received with your total qualified credit. If the amount you received in advance payments was less than the total you are qualified for, you can claim the excess due to you on your return. If the payments exceeded the total amount due to you, you may need to pay a portion back to the IRS depending on your income.

Overpayments and repayment protection amount

Families with lower income will not need to pay back any overpayment for 2021, while higher income families who have received an overpayment will need to calculate how much of the overpayment is due back to the IRS. This means that head of household filers with an AGI of $50,000 or less and joint filers with an AGI of $60,000 or less will not be required to pay back any overpayment. However, filers with income over $100,000 for head of household returns, or $120,000 for joint returns will be required to repay the entirety of the overpayment.

For those with AGIs that fall in between these amounts, you will need to calculate your “repayment protection amount”. This is calculated by multiplying $2,000 by the number of children the IRS used to calculate your advance payments with minus the number of children used to claim the credit on your 2021 return. A percentage of the excess credit received beyond the repayment protection amount must be repaid to the IRS.

Overpayments that are protected from repayment to the IRS must be reported as additional income on your 2021 return.

Special circumstances

Since the CTC was allocated to taxpayers based on 2020 tax returns, you may have received payments that you do not actually qualify for in 2021. For example, many divorced couples who share custody of their children claim the children as dependents on their separate returns in alternating years. In this case, you may have received advance payments for a credit that your ex-spouse (and not you) will be claiming for 2021. In this case, the individual who mistakenly received the advance payments will need to follow the repayment rules outlined above, while the individual who will be claiming the credit is still fully qualified to receive the full amount of the CTC.

Filing your 2021 tax return

While there is still discussion of extending these changes to the Child Tax Credit into future years, for now these rules only apply to the 2021 tax year. For most taxpayers, the credit will be simple to calculate on your 2021 return so long as you retain the documentation provided by the IRS over the course of the roll-out of the advance payments and following the close of the tax year. If you are having trouble understanding how the credit will apply to your specific circumstances, reach out to a trusted tax advisor to get clarity on the finer details of this credit.

Don’t Let Fraud Prevention Slide

Wed, 19 Jan 2022 16:02:05 GMT

The ongoing pandemic has strained many nonprofits, forcing them to cut corners to survive. But fraud prevention is one critical area you can’t afford to overlook, even just for the short term. If anything, antifraud measures are more important than ever.

Vulnerabilities of nonprofits

The Association of Certified Fraud Examiners’ (ACFE’s) study, Report to the Nations: 2020 Global Study on Occupational Fraud and Abuse , notes that nonprofits can be more susceptible to fraud than for-profit businesses. Even in normal circumstances, they typically have fewer resources available to help prevent and recover from a fraud loss.

Experts often refer to the “fraud triangle:” three factors that must be present for fraud to occur — opportunity, motive and rationalization. Current conditions exacerbate the odds that these factors exist in your organization.

For example, if you’ve had to cut staff, you may find it difficult to segregate duties so that accounting and finance functions are properly divided among staff. That can translate to greater opportunities to commit fraud. Employees may be motivated to pursue fraud schemes because of personal financial problems created by the pandemic. And they might rationalize such actions because they feel overworked and underpaid.

4 essential steps for prevention

Several measures can help nonprofits of all sizes combat the risk of fraud:

Create fraud-reporting mechanisms. Year after year, the ACFE finds that organizations with hotlines detect frauds more quickly than those without (12 months vs. 18 months). Moreover, in the most recent report, organizations without hotlines suffered a median loss nearly double the median loss for those with hotlines ($198,000 vs. $100,000).

It’s worth noting that the preferred mechanism seems to be shifting. While the previous two ACFE reports found that telephone hotlines were the most popular reporting method with whistleblowers, email and web-based reporting both were as popular in 2020. Thus, you should think about offering multiple reporting channels.
Conduct training. Employees at all levels — and possibly volunteers — should undergo regular antifraud training. The training should explain the types of behaviors that constitute fraud and the consequences for the organization and its mission. It should cover all your fraud-related policies (for example, conflicts of interest and whistleblower policies) and the availability of a fraud-reporting mechanism. The ACFE has found that training boosts the likelihood of detection via tip.

Discussion of a zero-tolerance policy also can serve as a deterrent, assuming you walk the talk when fraud occurs. Nonprofit organizations should consider pressing criminal charges against perpetrators to send a message to employees and other stakeholders.
Take a proactive stance toward detection. Don’t be passive, waiting for red flags to pop up before you act. For example, the ACFE recommends using data analytics to search for anomalies that can suggest fraud. It also suggests that managers regularly review internal controls, processes, and accounts or transactions in their areas for adherence to the organization’s policies and expectations.

In addition, management should make these reviews known to all. That may deter potential bad actors and also sets the tone, showing that the threat of fraud is taken seriously. Comprehensive fraud risk assessments, ideally performed by an independent party, are advisable as well.
Fortify internal controls. The ACFE report identifies the three most common control weaknesses for nonprofits. The lack of internal controls ranks at the top, followed by lack of management review and override of existing controls. Several such controls are worth implementing, although some may be easier than others.

Your nonprofit should routinely reconcile its assets and liabilities accounts, as well as reviewing bank and other third-party statements. Job rotation and mandatory vacations can make it more challenging for an employee to carry out a long-term scam. Authorizations (or perhaps two-party authorizations) for access to specific accounts should be required for certain transactions.

Cheaper in the long run

Some of these measures may seem unduly burdensome or unnecessarily pricey. However, the possible long-term costs of fraud, both financial and reputational, far outweigh those concerns.

Sidebar: Nonprofit fraud by the numbers

The Association of Certified Fraud Examiners’ latest report on occupational fraud drills down into fraud in the nonprofit sector. The study includes 191 nonprofit cases, with a median loss of $75,000 and an average loss of $639,000.

Frauds perpetrated by executives (39% of the cases) had a median loss of $250,000. Manager or supervisor schemes (35%) clocked in with a $95,000 median loss. Those committed by staff (23%) had a median loss of $21,000. Frauds committed by those at the highest levels of an organization, profit or nonprofit, often come with the highest price tags, as those individuals tend to have greater opportunity and the ability to override internal controls.

While asset misappropriation is the most common type of scheme across industries, corruption accounted for most nonprofit fraud cases (41%). Corruption includes offenses such as bribery, conflicts of interest and extortion. Billing (30%) and expense reimbursement (23%) fraud rounded out the top three schemes.

4 Best Practices for Successful Virtual Events

Mon, 17 Jan 2022 20:28:27 GMT

Virtual events were supposed to be a short-term replacement for traditional fundraisers. But, almost two years after the first COVID-19 lockdowns, plenty of nonprofits still rely on them. The good news is that some overall best practices have emerged from the pandemic. Here are some ways your nonprofit can make the most of your next virtual event.

1. Prioritize donations over registration revenues

Even the best-run virtual event can’t duplicate the glitz and glamour of, say, an annual ball. Moreover, the costs of virtual events are far lower. The ticket price, if any, should reflect these realities. That doesn’t mean the revenue opportunities necessarily have to suffer, though.

By offering an affordable admission fee, you can encourage greater overall generosity. For example, you may attract people who would normally be turned off by a high admission fee but are willing to pay a lower fee and then make donations on top of that. Your registration should include the option to obtain certain perks for an additional donation, anything from branded merchandise or early access to an online auction catalog to exclusive panel discussions.

2. Revamp your format

Attendees likely will be sitting in front of a computer or phone in solitude during the event. Many people are “Zoomed-out” at this point, and their attention spans are shorter. So single sessions shouldn’t run more than an hour, including audience Q-and-As, and you should provide intermissions between sessions, if applicable. You also might consider holding a series of virtual events, rather than a one-time, multi-session event. One potential benefit? Higher sponsor interest.

Whether you go with a one-time event or a series of sessions, consider using breakout sessions to connect with your attendees. The networking and connections that happen in smaller groups at in-person fundraisers can take place in chat rooms, too. Digital breakouts let people get to know each other and share ideas, while also preempting potential tedium.

3. Don’t neglect tech

We’ve all heard about or experienced some virtual meeting “fails” by now. You get audio but no video, video or sound of horrible quality, attendees dropping in and out, or similar snafus.

As the event organizer, you need to invest in top-notch technology. Cameras, microphones and streaming software designed for live streaming are essential. Provide remote speakers and moderators with tip sheets that explain everything they need to know about camera setup, lighting, sound and how to access the event. A “dress rehearsal” is always advisable.

4. Opportunities don’t end with the event

The conclusion of the live event isn’t the end of opportunities. Of course, you always should follow up with attendees afterward. But the feedback on what worked for them and what didn’t is especially valuable for novel situations such as virtual events. You also can give attendees a limited window of time to view the event again, with a link on the screen enabling further donations.

Event recordings can be leveraged to generate additional interest, too. Posting video clips or recaps can draw in even more people. The ongoing exposure will make sponsors happy and could result in more donations.

Here to stay

Virtual events will probably remain a part of fundraising efforts for many nonprofits long after things “return to normal.” The practices outlined above can help you maximize your results and avoid common pitfalls.

Does it Make Sense to Outsource Your Payroll?

Mon, 17 Jan 2022 20:28:24 GMT

Ensuring your employees are paid on time and for the right amounts, while also complying with the myriad regulations that govern wages and employment taxes, is critical to any business. It’s also often time-consuming and complicated — and requires specific expertise — particularly around taxes. Along with the many regulations that govern paying employees, you need to safeguard all employees’ confidential information.

To make sure all the bases are covered, you might want to hire a payroll service provider to capably take on these responsibilities. Here’s a look at what to consider.

What does outside expertise bring to the table?

While it’s true that handling payroll internally often makes sense when a business has just a handful of employees in one location, once an organization grows larger or has employees scattered across state or country borders, it may be time to consider engaging an expert to handle this function.

Payroll service providers often bring several attributes that many companies find difficult to replicate internally, such as knowledge of payroll regulations. They also typically have the ability to handle related functions, like managing workers’ compensation claims. Most are adept at managing the software and other technology typically used to handle payroll. And some offer additional services, like employee benefits management.

What should you look for?

When considering whether to work with a payroll services provider, you’ll want to evaluate a number of attributes, including:

What payroll payment options, like direct deposit, are available,
What other services the provider offers (such as handling unemployment claims or tracking paid time off),
Whether the technology is up to date — if it seems lagging, that may mean the provider’s processes are manual and unlikely to offer the operational improvement you’re seeking,
How helpful and informative the reporting options are,
How easily navigable the user interface is (for example, does the provider offer a self-service online portal your employees can use to update their information?),
How the provider safeguards sensitive employee information, and
What support — whether phone, email or online chat — the provider offers.

To decide whether a particular payroll services provider is a good fit for your business, keep in mind the size and location(s) of your current workforce and how your employee base is likely to change over the next several years. You also might want to consider the number of states or countries for which you need payroll services, how complex the computer integration is likely to be, and whether the provider has experience with organizations of your general size and within your industry. Ideally, the provider you select will be able to manage your payroll function both today and as your organization grows.

In addition, you have the option to have the provider assume all payroll-related functions, or just a portion of them. For instance, you may ask it to manage payroll only for employees outside your home state or country.

What are the costs?

Of course, outsourcing payroll comes with a hard dollar cost. Often, this includes some mix of a fee for each payroll check, a monthly charge, and separate fees for quarter- and year-end tax-filing reports.

Moreover, even when you engage a payroll services provider, you, as the employer, are “ultimately responsible for the deposit and payment of federal tax liabilities,” according to the IRS. If the payroll service provider fails to make required federal tax payments, for instance, the IRS may assess penalties and interest on your business’s account. This is why the IRS “strongly recommends” businesses keep their own addresses as the addresses of record with the agency.

In the right hands

Outsourcing payroll often means access to experts, which reduces the likelihood of mistakes in the long run. Your accounting professional can help you determine if it makes sense for your business to outsource your payroll.