Tag Archives: Independent Contractor

Year End IRS Charity News and Updates

As we get ready to roll into another year I thought I’d post a few items from the IRS and others about year end issues. I wrote about recording donation received in a prior year before, but it is worth a reminder as I always get a few of those questions.

Before the IRS updates, including the 2012 Mileage rates, I thought I would share the The Johns Hopkins Center for Civil Society Studies’ 11 Intriguing Discoveries of 2011. I really like the work that the Center does bringing together news and trends about the nonprofit sector. Check out the list and sign up to see what they bring us for 2012.

IRS Announces 2012 Standard Mileage Rates

Beginning on Jan. 1, 2012, the standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes for the use of a car (also vans, pickups or panel trucks) will be:

  • 55.5 cents per mile for business miles driven
  • 23 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile. The standard mileage rates are based on an annual study of the fixed and variable costs of operating an automobile. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Updated IRS Publication

An updated edition of Publication 557, Tax-Exempt Status for Your Organization is now available on IRS.gov. It provides an overview of the rules and procedures that apply to organizations that seek tax exempt status. Both for existing charities and start ups, I think it is a must read on how to stay compliant with the IRS.

Don’t Overlook the Small Business Health Care Tax Credit

If you are a nonprofit who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 25 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify. For more information see the Small Business Health Care Tax Credit.

Reinstatement of Exemption After Automatic Revocation

Is your nonprofit on the list of organizations revoked for failure to file a required 990 for three consecutive years?  If so, does the organization want its tax-exempt status reinstated?  Learn all about automatic revocation of exemption and how to apply for reinstatement on IRS.gov.

Organizations seeking reinstatement must file an application for exemption and pay a user fee regardless of whether it was required to file an application previously.  Certain small organizations who were eligible to file the Form 990-N for 2007, 2008 and 2009 and who file for reinstatement before December 31, 2012 may qualify for a reduced user fee of $100 under a transitional relief program. Consult Notice 2011-43 to see if your organization may qualify for a reduced user fee. You can also, see this IRS video to learn about reinstatement.

Nonprofits Not Required to File an Application for Exemption Still Have Annual Filing Requirement

Certain organizations do not have to apply for tax exemption but still have a filing requirement. These include section 501(c)(3) organizations whose gross receipts in each taxable year are normally not more than $5,000 as well as organizations exempt under other Code Sections, such as 501(c)(4).

Most small tax-exempt organizations, other than churches and certain church-related organizations, whose gross receipts are normally $50,000 or less for tax years ending on or after December 31, 2010 ($25,000 before December 31, 2010) have an annual reporting requirement.  For tax years beginning after December 31, 2007, organizations are required to file an annual electronic notice, Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required To File Form 990 or 990-EZ.

If you have never filed, please contact Customer Account Services at 1-877-829-5500 (a toll-free number) and ask that an account be established for the organization to allow filing of the e-Postcard.

Voluntary Worker Classification Settlement Program; Past Payroll Tax Relief Provided to Employers Who Reclassify Their Workers

The IRS launched a new program that will enable many employers to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers. This new program will allow employers the opportunity to get into compliance by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit.

The new Voluntary Classification Settlement Program (VCSP) is designed to increase tax compliance and reduce burden for employers by providing greater certainty for employers, workers and the government. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. The VCSP is available to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees. Click here for more details.

Stayed tuned for more and have a great 2012!


Continuing to Serve Nonprofits

Many of you in the South Sound region may have heard that my recent employer, The Nonprofit Center, is winding down. Myself and former staff member Christine Garst (cbgarst@gmail.com) will continue to provide the accounting and bookkeeping services that we did at The Nonprofit Center. One of our main goals is to provide continuity of services for former Center clients. If you have any questions please feel free to contact myself or Christine and we will be happy to answer them. I look forward to being able to provide the services I enjoy doing to the South Sound nonprofit community.

Employee Classification

Answers HereA little of this, and a little of that today; employee classification issues and two Q&A’s: payroll and capitalization issues.

Exempt vs. Nonexempt, Independent Contractor vs. Employee

I came across what I think is an interesting piece, The workplace violations feds will be investigating this year.  Not surprisingly there is an increase in funding for the Wage and Hour Division, specifically to look and exempt vs. non-exempt employee classification.  Another popular item to look at is the misclassification of employees vs. independent contractors.

Why are these areas of interest to look at?  Two reasons I can think of off hand, with the first being to protect workers.  Exempt vs. non-exempt, independent contractor vs. employee, all of those are very specific designations with differing employer responsibilities.  Putting someone in the wrong bucket may violate an individual’s rights.  The second reason is that the IRS wants to make sure it is getting all that it is due from the employer or individual in the form of payroll and income tax.  Even part 5 of the updated form 990 asks more questions about payroll and withholding amounts.

Misclassification of employees has always been a big compliance problem for nonprofits and forprofits alike.  I have heard more than once someone tell me, “No one would sue us, we’re a nonprofit.”  If that was ever true, it is true no longer.  Any employee, no matter what the sector, who feels unfairly treated may sue their employer.  To help mitigate lawsuits, as well as unwanted attention from state and federal regulators I encourage all nonprofit employers to make sure the folks they are paying are classified correctly.  For starter the IRS has a nice pdf on Independent Contrator issues, and other resources here.  A good primer on exempt and nonexempt issues can be found here.

Questions and Answers: Payroll

I just started doing bookkeeping for a non profit. I have to set up payroll and payroll takes but I’m not sure where to start. Do I have to notify the IRS?  How about my state taxes?

Are you using a payroll company? I would strongly recommend you do. There are plenty of companies out there. They usually handle all the forms and take all the responsibility in case anything goes wrong. Payroll is one of the few things I have intentionally avoided learning about as it is so cheap to outsource it, it is pretty much a commodity at this point.  I recommend comparing the price and services they offer.  Do they offer a time tracking system?  Do they integrate with your accounting software?  Do you have the option of doing it all on-line?

Questions and Answers: Capitalization

We received $30,000 to be used to replace part of our building. The cost to do this was $40,000. What amount should be capitalized – the entire $40,000 or the  $10,000 that we had to come up with?

The entire cost of the repair should be capitalized. Regardless of how it was paid for the cost was $40,000.00.