Knowing these complexities of the tax law, we want to regularly provide our clients with a summary and overview of new tax provisions as they become available so that you can make the best financial decisions for yourself, business, or family.
MPK Advisors & CPAs began with one hope in mind – that the public would truly receive what they deserve from the relationship with their CPA.
Tracking with New Tax Developments
If you haven’t already noticed, there are several new developments in tax laws for 2021 (despite all the new ones we already faced in 2020!). Here’s just a few that may impact your situation:
- Expanded Child Tax Credit:
For 2021 alone (unless Congress acts to extend this), the American Rescue Plan expanded the Child Tax Credit from $2,000 per qualifying child to $3,000 per qualifying child (ages 6-17) and to $3,600 per qualifying child (ages 0-5). Up to 50% of the total credit per child is available through advanced payments paid by the IRS during 2021. Just be sure to remember that these advanced payments reduce the credit available to you to claim against your tax due on the final tax return.
- Expanded Child and Dependent Care Credit:
Also, for 2021 alone (unless Congress acts to extend this), the American Rescue Plan expanded the child and dependent care credit from up to $3,000 in eligible expenses per child (up to $6,000 for more than one child) to up to $8,000 in eligible expenses per child (up to $16,000 for more than one child). The allowable income threshold before phase-out was pushed up from $15,000 to $125,000. This makes the credit available to more filers and in greater amounts.
- Recovery Rebate Credit
For 2021, the first two economic stimulus measures from 2020 were carried over to a third wave early in the year. The amount of this credit is worth $1,400 per filer, including $1,400 per dependent claimed on the return. The credit begins to phase out for individuals with adjusted gross income of $75,000 or more ($150,000 or more for married filing joint filers). Some received all or a portion of this as an advanced payment during the year. The amount received will be reconciled with the 2021 filed return. If you are due more, you may receive an additional credit on the return. If you were overpaid, you do not have to repay any of this.
- Other Tax Provisions
A few other noteworthy tax provisions to remember include the 0% capital gains rate up to certain income thresholds, as well as the expanded federal standard deduction. These provisions have been available in recent years, and it is important to remember them with year end tax planning. California (and many other states) do not conform to the federal standard deduction amounts, so be sure to factor this into your decision to itemize.
Tax Planning is such an important tool to minimize your overall tax burden and take advantage of strategies available. We encourage this at MPK Advisors & CPAs and look forward to meeting to discuss your unique tax situation and goals!
What’s Unique About Nonprofit Financial Statements?
If you’ve ever read a nonprofit organization’s audited financial statements, you may notice that there are some differences from the traditional for-profit balance sheet and income statement. A full set of financial statements for a nonprofit includes: the Statement of Financial Position, Statement of Activities, Statement of Cash Flows and Statement of Functional Expenses. The first three somewhat resemble for-profit financial statements with some key differences. The last, the Statement of Functional Expenses, is unique to nonprofit organizations. We can relate nonprofit financial statements to the following for-profit statements below:
If you’ve ever read a nonprofit organization’s audited financial statements, you may notice that there are some differences from the traditional for-profit balance sheet and income statement. A full set of financial statements for a nonprofit includes: the Statement of Financial Position, Statement of Activities, Statement of Cash Flows and Statement of Functional Expenses. The first three somewhat resemble for-profit financial statements with some key differences. The last, the Statement of Functional Expenses, is unique to nonprofit organizations. We can relate nonprofit financial statements to the following for-profit statements below:
The American Institute of Certified Public Accountants (AICPA), in conjunction with the Financial Accounting Standards Board (FASB), offer the key inputs to the development of nonprofit financial reporting standards. Nonprofit financial reporting standards include a unique emphasis on transparency as to the organization’s liquidity, existence of restricted funds, as well as the breakdown of funds spent on administrative, program and fundraising-related functions (which is shown in the Statement of Functional Expenses). The audience reading these statements usually includes grantors, donors, government agencies, lenders, and other key stakeholders in the community.
The Statement of Activities and Statement of Functional Expenses have the most differences from their for-profit entity counterparts. The Statement of Activities for nonprofits includes more information about the organization’s receipt and use of donor-restricted funds. Also, it includes more information about the function or purpose of the organization’s expenses. The Statement of Functional Expenses shows a breakdown of natural expense types (like salaries, benefits and supplies) across their functional uses (administrative, programs and fundraising). Overall, the goal of these differences in nonprofit financial reporting is to emphasize how the organization is using its public funds. This helps donors and grantors decide on whether to support a given organization and how they are stewarding funds.
Preparing for Your Organization's Audit
Although not every nonprofit organization requires an audit, I always recommend that you prepare as if you were going to be audited. Why, you ask? Well, for many reasons:
- To protect the staff and board from accusations of financial mismanagement
- To help ensure that donors can rely on the integrity of their gifts
- To develop fiscal policies and procedures that are written and communicated
- To setup up internal controls over financial reporting to ensure that operational and financial objectives are being met
- To facilitate continuing IRS tax compliance
- And many more!
- Gaining an understanding and internal controls review
- Substantive testing of transactions and account balances
- Limited tests of compliance with laws and regulations