Tarbell & Co., P.L.C.

Some nonprofit leaders mistakenly believe that board member independence is only about addressing conflicts of interest. But when evaluating board member independence, the IRS looks at factors such as whether the nonprofit compensated board members as employees or paid them more than $10,000 as independent contractors. It also considers whether the nonprofit has been involved in certain types of financial transactions with the board members or their close family members. To avoid conflicts and the appearance of poor governance, make sure a majority of your board members are independent. Learn more here: https://bit.ly/3kyyaK7

For businesses to stay operational and attain profitability, liquidity is key. The good news is that working capital management is a tried-and-true way to tackle this challenge. Working capital is a metric (current assets minus current liabilities) that measures liquidity. Regularly calculating it can help you and your leadership team determine, among other things, whether you have enough current assets to cover current obligations. The amount of working capital your company needs is known as its working capital requirement. To optimize your working capital requirement, focus primarily on three key areas: 1) accounts receivable, 2) accounts payable and 3) inventory. Learn more here: https://bit.ly/3kyyaK7

Without a credit card use policy, you could have trouble responding satisfactorily if a staffer misuses your organization’s card. You may also have a hard time recovering funds lost as a result of improper charges. So it’s important to craft a policy explicitly stating that employees can’t use a work-issued card for personal expenses. The policy also should prohibit cash advances and electronic cash transfers and require staffers to seek manager preapproval for charges. Lay out repercussions for violations, for example termination and pursuit of criminal prosecution. Learn more here: https://bit.ly/3kyyaK7

Qualified charitable distributions (QCDs) have been beneficial for donors age 70½ or older and nonprofits for almost 20 years. Enhancements in the SECURE 2.0 Act have made QCDs even more appealing, but you may need to educate your supporters about them. QCD annual limits have increased (to $105,000 in 2024) and are now indexed for inflation. What’s more, taxpayers can now make a one-time $53,000 (in 2024) QCD through a split-interest entity that creates an income stream for themselves. If donors are subject to required minimum distributions (RMDs), QCDs can count toward a year’s RMD. Learn more here: https://bit.ly/3kyyaK7

When it comes to investment income, nonprofits must comply with complex rules. For example, although much investment income, dividends, interest, rents and annuities aren’t subject to unrelated business income tax (UBIT), income from debt-financed property generally is. Income produced from such property usually is taxable in the same percentage as the debt is to the property’s full acquisition cost. However, some debt-financed property income isn’t typically taxable, such as property related to your exempt purpose, property used in certain activities and real property covered by the neighborhood land rule. Learn more here: https://bit.ly/3kyyaK7

The team at Tarbell & Company got out of the office for a day and got our hands dirty with Sleep in Heavenly Peace as a part of the Iowa Society of CPAs 's September Month of Service last Thursday. Sleep In Heavenly Peace is a national organization with a local chapter in Des Moines that builds and provides beds to children in the Des Moines Metro area who are otherwise without. For more information on the organization, click the following link: https://bit.ly/4afUVvz #IowaCPAsVol24

Budgeting is essential for businesses. Here are six key elements of a budget and some best practices to consider: 1) Current overview; compose an up-to-date description of your business, its market and impactful economic factors. 2) Budget rationale; explain how the budget supports your mission, vision and goals. 3) Line items; be sure you’re including all expenditures. 4) Performance metrics; clarify how you’ll determine whether you’re making, breaking or beating the budget. 5) Supporting appendices; discuss whether to include additional information. 6) Executive summary; this brief introduction can prove helpful to internal users, as well as lenders and investors. Learn more here: https://bit.ly/3kyyaK7

Your not-for-profit’s new board members and staffers may not necessarily know the differences between for-profit and nonprofit accounting systems, particularly if they come from a corporate background. One area of significant variation is financial reporting. For example, for-profit companies prepare balance sheets to express their owners’ equity and nonprofits produce statements of financial position that account for assets, liabilities and prior earnings. And while for-profits create income statements, nonprofits prepare statements of activities. Learn more here: https://bit.ly/3kyyaK7

Restricted gifts to nonprofits require greater care than unrestricted ones. If a donor attaches strings to a gift, your staffers should follow procedures designed to ensure the restrictions are honored. For example, staffers must properly label these gifts and record expenditures associated with them in a spreadsheet or track them as individual funds in the general ledger. You may need to decline some restricted gifts because they’ll be more trouble than they’re worth. To avoid such situations, take every opportunity to encourage donors to make unrestricted gifts. Learn more here: https://bit.ly/3kyyaK7

For many business owners, choosing a successor is a difficult task. What’s worse, many owners’ initial picks for successor can turn out to be dubious choices. If you find yourself in this situation, don’t panic. First, discuss the matter with objective parties such as your professional advisors and trusted family members or colleagues. If you then decide to stick with your successor, talk about your concerns with the individual and look for ways to address what’s troubling you. If you determine that you must pick someone new, tell your initial successor as soon as possible and explain why. Then, review and improve your succession planning process to avoid making the same mistake twice. Learn more here: https://bit.ly/3kyyaK7