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Donor acknowledgements: We have to file what?

12.06.19

Editor’s note: read this if you work for, or are affiliated with, a charitable organization that receives donations. Even the most mature nonprofit organizations may miss one of these filings once in a while. Some items (e.g., the donor acknowledgement letter) may feel commonplace, but a refresher—especially at a particularly busy time of the year as it pertains to giving—can fend off fines.

As the holiday season is now in full swing, the season of giving is also upon us. Perhaps not surprisingly, the month of December is by far the most charitable month of the year, accounting for almost one-third of all charitable gifts made annually. And with all that giving comes the requirement of charitable organizations to provide donor acknowledgements, a formal “thank you” of the gift being received. Different gifts require differing levels of acknowledgement, and in some cases an additional IRS form (or two) may need to be filed. Doing some work now may save you time (and a fine or two) later. 

While children are currently busy making lists for Santa Claus, in the spirit of giving we present to you our list of donor acknowledgement requirements―and best practices―to help you gain control of this issue for the holiday season and beyond.

Donor acknowledgement letters

Charitable (i.e., 501(c)(3)) organizations are required to provide a donor acknowledgement letter to each donor contributing $250 or more to the organization, whether it be cash or non-cash items (i.e., publicly traded securities, real estate, artwork, vehicles, etc.) received. The letter should include the following: 

  1. Name of the organization
  2. Amount of cash contribution
  3. Description of non-cash items (but not the value) 
  4. Statement that no goods and services were provided (assuming this is the case)
  5. Description and good faith estimate of the value of goods and services provided by the organization in return for the contribution, if any
  6. Statement that goods or services provided by the organization in return for the contribution consisted entirely of intangible religious benefit, if any

It is not necessary to include either the donor’s social security number or tax identification number on the written acknowledgment and as a best practice should not be included in the letter.

In addition to including the elements above, the written acknowledgement is also required to be contemporaneous, that is, sent out in a timely fashion. According to the IRS, a donor must receive the acknowledgment by the earlier of:

  • The date on which the donor actually files his or her individual federal income tax return for the year of the contribution
  • The due date (including extensions) of the return in order to be considered contemporaneous

Quid pro quo disclosure statements

When a donor makes a payment greater than $75 to a charitable organization partly as a contribution and partly as a payment for goods and services, a disclosure statement is required to notify the donor of the value of the goods and services received in order for the donor to determine the charitable contribution component of their payment.

An example of this would be if the organization sold tickets to its annual fundraising dinner event. Assume the ticket costs $100 and at the event the ticketholder receives a dinner valued at $40. In this example, the donor’s tax deduction may not exceed $60. Because the donor’s payment (quid pro quo contribution) exceeds $75, the charitable organization must furnish a disclosure statement to the donor, even though the deductible amount doesn’t exceed $75.

It’s important to note that there are some exclusions to these requirements if the value received is considered to be de minimis (known as the Token Exception), but the value received needs to be relatively small (ex: receiving a coffee mug with a picture of the organization’s logo on it). Please consult your tax advisor for more details.

If the organization does not issue disclosure statements, the IRS can issue penalties of $10 per contribution, not to exceed $5,000 per fundraising event or mailing. An organization may be able to avoid the penalty if reasonable cause can be demonstrated.

Receiving or selling donated noncash property? Forms 8283 & 8282 may be required.

If a charitable organization receives noncash donations, it may be asked to sign Form 8283. This form is required to be filed by the donor and included with their personal income tax return. If a donor contributes noncash property (excluding publicly traded securities) valued at over $5,000, the organization will need to sign Form 8283, Section B, Part IV acknowledging receipt of the noncash item(s) received.

By signing Form 8283, the donee organization is not only acknowledging receipt, but is also affirming that if the property being received is sold, exchanged, or otherwise disposed of within three years of the original donation date, the organization will be required to file Form 8282. A copy of this form is filed with the IRS and must also be provided to the original donor. Form 8282 is not required for sales of donated publicly traded securities. The penalty for failure to file Form 8282 when required is generally $50 per form.

Cars, boats, and yes, even airplanes? That would be Form 1098-C.

An airplane? Yes, even an airplane can be donated, and the donee organization must file a separate Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, with the IRS for each contribution of a qualified vehicle that has a claimed value of more than $500. Contemporaneous written acknowledgement requirements apply here too, and Form 1098-C can act as acknowledgement for this purpose. An acknowledgment is considered contemporaneous if it is furnished to the donor no later than 30 days after the date of the contribution if you plan to use the item for a mission-related purpose, or 30 days after the date of the sale of the item to an unrelated third party.

Penalties for failure to provide contemporaneous written acknowledgement for qualified vehicles can be pretty stiff, generally calculated as a percentage of the sale price if sold, or a percentage of the claimed value if not sold. Should you have any questions or receive a request regarding any of the forms noted above, please consult your tax advisor.

As you can see, the rules around donor acknowledgements can seem a lot like Grandma’s fruitcake―complex and perhaps a bit on the nutty side. When issuing donor acknowledgements this holiday season and beyond, be sure to review the list above and check it twice. Doing so may end up keeping you off of the IRS’s naughty list!

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Read this if you are an NFP interested in being a fiscal sponsor. 

Charitable projects or startup charities awaiting their IRS determination may look for an established 501(c)(3) organization to lend their tax-exempt status and certain administrative benefits onto the project or startup so that it can receive grants and tax-deductible contributions that it would otherwise not be able to receive. That’s where you come in. Now that you have agreed to be a fiscal sponsor, what does that actually mean?

Fiscal sponsorship definition

Fiscal sponsorship is an arrangement between a 501(c)(3) public charity, the “Sponsor” and a “Project” (an organization or a group of individuals not recognized as a 501(c)(3)).

How does fiscal sponsorship work?

Fiscal sponsorship allows the Sponsor to accept funds restricted to the Project on the Project’s behalf. The Sponsor accepts the responsibility to make sure the funds are spent to achieve the Project’s goals. The Sponsor has full control and discretion of the donated funds. All revenue collected and expenses paid out are reported on the Statement of Operations of the Sponsor. The activity of the Project must be consistent and in furtherance of the Sponsor’s tax-exempt purpose. A Sponsor cannot have this type of arrangement with any Project—it must be consistent with the Sponsor’s exempt mission. 

Arrangement types

There are two common types of Fiscal Sponsorship arrangements, the Direct Model and the Grant Model

In the Direct Model the Project becomes an integrated part of the Sponsor. The Project does not have a legal identity separate from the Sponsor. Donations and grants for the Project are directly received by the Sponsor, and the use of the funds is reported on the Sponsor’s tax filings. An employer-employee relationship is formed between the Sponsor and the Project so that staff and volunteers of the Project become employees and volunteers of the Sponsor. Due to this relationship, the Sponsor is both fiscally and legally liable for all actions of the Project and thus must exercise significant control over the Project’s actions and funding to protect its tax-exempt status. 

In the Grant Model the Sponsor and the Project have a grantor-grantee relationship. The Project submits a grant request to the Sponsor detailing the project and its activities. The Sponsor approves the request and then receives funds on behalf of the Project and disperses them accordingly. The Sponsor may receive a one-time grant on behalf of the Project, or the relationship may be continual. In this model, the Sponsor is not legally liable for all actions of the Project, but is still fiscally liable for the Project’s actions. The Sponsor must still exercise enough control over the Project’s funds to ensure they are used in accordance with the grant agreement. Also, unlike the direct model, the Project is still required to comply with any tax reporting requirements required by the legal status of the Project. 

What are some advantages of Fiscal Sponsorship?

  • Projects are able to “test the waters” before deciding to be a separate independent entity.
  • Donors are able to make tax deductible charitable contributions now to a cause that is not yet recognized as a tax-exempt entity.
  • By working with an established 501(c)(3) entity the Project will have access to a larger network of donors and experience in fundraising.
  • The Project is not required to incorporate or file for their own tax-exempt status right away, saving start-up fees.
  • Fiscal Sponsors provide additional services to the Project such as administrative support, accounting, office space, grant writing and technical support which the Project may not be able to afford.

What are some disadvantages of fiscal sponsorship?

  • Depending on the model used, legal and fiscal control of the Project is held by the Sponsor creating a loss of control for the Project.
  • A Fiscal Sponsor may charge an administrative fee for use of their facilities, services, and staff.
  • Credit for the Project may fall onto the Sponsor as donations are received and controlled by the Sponsor.

Fiscal Sponsorship vs. Fiscal Agency

Fiscal Agency is an arrangement with an established charity to act as the legal Agent for a Project, but the Agent doesn’t retain discretion and control of the donated funds. The Agent is acting on behalf of the Project who ultimately has the right to control the Agent’s activities. Funds contributed to a Project with a fiscal Agent are not tax deductible to the donor. Typically the collections and disbursements made by the Sponsor are not reported on the Sponsor’s Statement of Operations, but instead are recorded through their balance sheet.

IRS criteria for a Fiscal Sponsorship

  • Grants/donations are given to a 501(c)(3) tax-exempt organization (the Sponsor) that acts as a guardian of the funds for a project that does not have 501(c)(3) status.
  • The Sponsor must use funds received for specific charitable projects that further the Sponsor’s own tax-exempt purpose.
  • The Sponsor must retain discretion and control as to the use of the funds.
  • The Sponsor must maintain records that substantiate the use of funds for appropriate 501(c)(3) purposes.
  • Typically, the Project will be short-term or the sponsored group is seeking tax-exempt status.

If criteria are not met, the IRS can deem donations as not tax-deductible.

Other items of note

  • There must be a written agreement in place.
  • The 501(c)(3) Sponsor should periodically review activities of the Project to ensure they remain consistent with their own tax-exempt mission (including internal audits of financial reports and any bank accounts of the Project).
  • The Sponsor must ensure the Project does not engage in prohibited activities (i.e. political campaign activities or conducting excessive amounts of unrelated business income activities).
  • The Sponsor must be able to clearly communicate to donors that funds earmarked for the Project are subject to their discretion and control, and cannot guarantee funds will be automatically advanced to the Project.
  • The Sponsor can also provide general and administrative support services to the Project and charge a fee (generally 5-15%) of donations made to the Project.

As you can see it is not as easy as just agreeing to be a Fiscal Sponsor. There are reporting requirements and decisions to be made to ensure that the arrangement qualifies as intended with the IRS so that neither the Project nor the Sponsor receive any unintended consequences.

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So you want to be a fiscal sponsor. Now what?

Read this if you are an employer that gives employee gifts.

The holiday season is officially in full swing! Unlike Ebenezer Scrooge, many employers are looking for ways to recognize the dedication and hard work of their employees. This gratitude often comes in the form of a holiday gift of some fashion. While this generosity is well-intended, gifts to employees can be fraught with potential tax consequences organizations should be aware of. This article will attempt to demystify the rules surrounding employee gifts to ensure organizations and their employees have a joyous holiday season.

Holiday gifts: Taxable or not?

So, are holiday gifts to employees taxable? The answer, as is so often the case with tax questions, is it depends. The IRS is very clear that cash and cash equivalents (specifically including gift cards) are always included as taxable income when they are provided by the employer, regardless of amount, with no exceptions. This means that if you plan to give your employees cash or a gift card this year, the value must be included in the employees’ wages and is subject to all payroll taxes. Bah humbug indeed!

Nontaxable gift options

There are however, a few ways to make nontaxable gifts to employees. In each instance the gift must be noncash (nor convertible to cash). IRS Publication 15 offers a variety of examples of de minimis (minimal) benefits, defined as any property or service you provide to an employee that has a minimal value, making the accounting for it unreasonable and administratively impracticable. Examples include holiday or birthday gifts with a low market value (a card and flowers, fruit baskets, a box of chocolates, etc.), or occasional tickets for theater or sporting events, among others. Again, cash and cash equivalents never qualify. The key is that the gift must be occasional or unusual in its frequency and must not be a form of disguised compensation. While de minimis benefits can be a gray area, the IRS has generally deemed items with a value exceeding $100 as too large to qualify as de minimis.

Holiday gifts can also be nontaxable if they are in the form of a gift coupon, if given for a specific item (with no redeemable cash value). A common example would be issuing a coupon to your employee for a free ham or turkey redeemable at the local grocery store. Nontaxable employee gifts can also come in the form of achievement awards, either for length of service or for safety achievements. The proverbial gold watch upon retirement is a classic example of such a gift. Here too, the award must always be tangible personal property—never cash or a cash equivalent. There are additional rules and value thresholds on any such gift. Please contact a member of your tax team to discuss these specific details further.

Whether employers are considering supplying gift cards, turkeys, or something in between, we hope all find this guidance helpful and still in the giving spirit! Coincidentally, at the end of A Christmas Carol, Ebenezer himself gives Bob Cratchit a turkey on Christmas day. Of course Mr. Scrooge would be aware of the potential tax consequences! We wish you all a very happy and healthy holiday season!

Not-for-profit resources

If you are a not-for-profit organization receiving charitable gifts, read Donor Acknowledgements: We have to file what?

Article
What employers need to know before making gifts to employees

Editor's note: read this if you are a CFO, controller, accountant, or business manager.

We auditors can be annoying, especially when we send multiple follow-up emails after being in the field for consecutive days. Over the years, we have worked with our clients to create best practices you can use to prepare for our arrival on site for year-end work. Time and time again these have proven to reduce follow-up requests and can help you and your organization get back to your day-to-day operations quickly. 

  1. Reconcile early and often to save time.
    Performing reconciliations to the general ledger for an entire year's worth of activity is a very time consuming process. Reconciling accounts on a monthly or quarterly basis will help identify potential variances or issues that need to be investigated; these potential variances and issues could be an underlying problem within the general ledger or control system that, if not addressed early, will require more time and resources at year-end. Accounts with significant activity (cash, accounts receivable, investments, fixed assets, accounts payable and accrued expenses and debt), should be reconciled on a monthly basis. Accounts with less activity (prepaids, other assets, accrued expenses, other liabilities and equity) can be reconciled on a different schedule.
  2. Scan the trial balance to avoid surprises.
    As auditors, one of the first procedures we perform is to scan the trial balance for year-over-year anomalies. This allows us to identify any significant irregularities that require immediate follow up. Does the year-over-year change make sense? Should this account be a debit balance or a credit balance? Are there any accounts with exactly the same balance as the prior year and should they have the same balance? By performing this task and answering these questions prior to year-end fieldwork, you will be able to reduce our follow up by providing explanations ahead of time or by making correcting entries in advance, if necessary. 
  3. Provide support to be proactive.
    On an annual basis, your organization may go through changes that will require you to provide us documented contractual support.  Such events may include new or a refinancing of debt, large fixed asset additions, new construction, renovations, or changes in ownership structure.  Gathering and providing the documentation for these events prior to fieldwork will help reduce auditor inquiries and will allow us to gain an understanding of the details of the transaction in advance of performing substantive audit procedures. 
  4. Utilize the schedule request to stay organized.
    Each member of your team should have a clear understanding of their role in preparing for year-end. Creating columns on the schedule request for responsibility, completion date and reviewer assigned will help maintain organization and help ensure all items are addressed and available prior to arrival of the audit team. 
  5. Be available to maximize efficiency. 
    It is important for key members of the team to be available during the scheduled time of the engagement.  Minimizing commitments outside of the audit engagement during on site fieldwork and having all year-end schedules prepared prior to our arrival will allow us to work more efficiently and effectively and help reduce follow up after fieldwork has been completed. 

Careful consideration and performance of these tasks will help your organization better prepare for the year-end audit engagement, reduce lingering auditor inquiries, and ultimately reduce the time your internal resources spend on the annual audit process. See you soon. 

Article
Save time and effort—our list of tips to prepare for year-end reporting

Read this if you are interested in GASB updates. 

The Governmental Accounting Standards Board (GASB) issued GASB Statement No. 99, Omnibus 2022 on May 9, 2022. The statement enhances comparability in accounting and financial reporting and improves the consistency of authoritative literature by addressing (1) practice issues that have been identified in previous GASB Statements, and (2) adding guidance on accounting and financial reporting for financial guarantees.

We’ve reviewed the statement in its entirety, and broken down key components for you to know. Here are the highlights.  

Accounting and financial reporting for exchange or exchange-like financial guarantees

Financial guarantees is a guarantee of an obligation of a legally separate entity or individual, including a blended or discretely presented component unit, that requires the guarantor to indemnify a third-part obligation holder under specified conditions, in an exchange or exchange-like transactions. 

An entity that extends an exchange or exchange-like financial guarantee should recognize a liability and expense related to the guarantee when qualitative factors and historical data indicate that is it more than likely not a government will be required to make a payment related to the guarantee.

Statement 99 excludes guarantees related to special assessment debt, financial guarantee contracts within the scope of Statement 53, or guarantees related to conduit debt obligations. 

Certain derivative instruments that are neither hedging derivative instruments nor investment derivative instruments

Derivative instruments that are within the scope of Statement 53, but do not meet the definition of an investment derivative instrument or the definition of a hedging derivative instrument are considered other derivative instruments. These “other derivative instruments” should now be accounted for as follows:

  1. Changes in fair value should be reported on the “resource flows statement” separately from the investment revenue classification.
  2. Information should be disclosed in the notes to financial statements separately from hedging instruments and investment derivative instruments.
  3. Governments should disclose the fair values of derivative instruments that were reclassified from hedging derivative instruments to other derivative instruments. 

Leases

If your entity has leases please review the following as Statement 99 clarifies numerous issues from Statement 87, specifically:

  • Lease terms as it relates to options to terminate and option to purchase the underlying assets, in paragraph 12 of Statement 87 has been clarified;
  • Short-term leases in paragraph 12 of Statement 87 has been clarified as it relates to an option to terminate the lease;
  • Lessee and lessor recognition and measurement for leases other than short-term leases that transfer ownership has been clarified, and
  • Lease incentives in paragraph 61 of Statement 87 has been further defined.

Public Private and Public-Public Partnerships (PPPs)

If your entity has PPPs, Statement 99 clarifies the following: 

  • PPP terms
  • Receivable for installment payments (transferor recognition)
  • Receivable for the underlying PP Asset (transferor recognition)
  • Liability for installment payments (operator recognition)
  • Deferred outflow of resources (operator recognition)

Subscription-Based Information Technology Arrangements (SBITAs)

Subscription terms and definitions have been clarified, specifically as it relates with options to terminate, short-term SBITAs, and measurement of subscription liabilities.

If your entity has SBITAs, review the provisions of each SBITA to ensure compliance with Statement 99 paragraphs 23–25.

Replacement of LIBOR

Check with your banking institutions to confirm when they have phased out of LIBOR. Confirm with your banking institutions what specifically has replaced LIBOR and update Financial Statement disclosures as needed. 

SNAP

State governments should recognize distributions of benefits from Supplemental Nutrition Assistance Program (SNAP) as a nonexchange transaction. Review Financial Statement disclosure and determine if a disclosure is needed. 

Disclosure of Nonmonetary Transactions

If you engage in one or more nonmonetary transactions during the fiscal year, you will need to disclose those transactions in the notes to the financial statements the measurement of attribute(s) applied to the assets transferred, rather than basis of accounting for those assets.

Pledges of future revenues when resources are not received by the pledging government

When blending the financial statement of a debt-issuing component unit into the financial statements of a primary government pledging revenue for the component unit’s debt, the primary government should reclassify an amount due to the component as an interfund payable and an interfund transfer out simultaneously with the recognition of the revenues that are pledged.

Focus of the government-wide financial statement

Statement 99 reiterates that there should be a total overall government-wide column within the MD&A, Statement of Net Position, and Statement of Activities. This column should exclude all fiduciary activities, including custodial funds. 

Terminology updates

No action is needed. Terminology has been updated in previous pronouncements, for terminology as it relates to Statements 63 and 53. 


Effective dates

The requirements related to the extension of the use of LIBOR, accounting for SNAP distributions, disclosures of nonmonetary transactions, pledges of future revenues by pledging governments, clarification of certain provisions in Statement 34 and terminology updates related to GASB 53 and 63 are effective upon issuance.

The requirements related to leases, PPPs, and SBITAs, are effective for fiscal years beginning after June 15, 2022.

The requirements related to financial guarantees and the classification and reporting of derivative instruments within the scope of Statement 53 are effective for fiscal years beginning after June 15, 2023.

Earlier application is encouraged and permitted for all.

If you would like more information regarding Statement 99, please contact our Audits of Governmental Component Units team. We’re here to help.

Article
Key considerations from GASB Statement No. 99 

Read this if you use QuickBooks Online.

With gas prices so high, you need to track your travel costs as closely as possible. Consider getting a tax deduction for your business mileage.

If you drive even a little for business, it’s easy to let mileage costs slide. After all, it’s a pain to keep track of your tax-deductible mileage in a little notebook and do all the calculations required. If you do rack up a lot of business miles, you probably forget to track some trips and end up losing money.

QuickBooks Online offers a much better way. Its Mileage tools include simple fill-in-the-blank records that allow you to document individual trips. You can either enter the starting point and destination and let the site calculate your mileage and deduction or enter the number of miles yourself.

If you use QuickBooks Online’s mobile app, it can track your miles automatically as you drive (as long as you have the correct settings turned on). Here’s a look at how all of this works.

Setting up 

To get started, click the Mileage link in QuickBooks Online’s toolbar. The screen that opens will eventually display a table that contains information about your trips, but you need to do a little setup first. Click the down arrow next to Add Trip in the upper right corner and select Manage vehicles. A panel will slide out from the right. Click Add vehicle.

 
You’ll need to supply information about your vehicles before you can start entering trips.

You’ll need to supply the vehicle’s year, make, and model. Do you own or lease it, and on what date was the vehicle purchased or leased and put into service? Do you want to have your annual mileage calculated by entering odometer readings or have QuickBooks Online track your business miles driven automatically? When you’re done making your selections and entering data, click Save.

Entering trip data

You can download trips as CSV files or import them from Mile IQ, but you’re probably more likely to enter them manually. Click Add Trip in the upper right corner. In the pane that opens, you’ll enter the date of the trip and either the total miles or start and end point. You’ll select the business purpose and vehicle and indicate whether it was a round trip. When you’re done, click Save. The trip will appear in the table on the opening screen, and your current possible total deduction will be in the upper left corner, along with your total business miles and total miles.

If you want to designate a trip as personal, click the box in front of the trip in that table. In the black horizontal box that appears, click the icon that looks like a little person, then click Apply. Now, the trip will appear in the Personal column and will not count toward your business tax-deductible mileage. 

When you select a trip in the Mileage table, you can mark it as personal so it’s not included in your business tax-deductible miles.

Personal trips can count, too

If you use your vehicle(s) for personal as well as business purposes, tracking some of those miles can also mean a tax deduction. For tax year 2022, you can deduct 18 cents per mile for your travel to and from medical appointments. Note: Medical mileage is only deductible if medical exceeds a certain percent of AGI. Be sure to check with the IRS yearly tax code, as they update the mileage amounts annually.

And if you do volunteer work for a qualified charitable organization, the miles you drive in service of it can be deducted at the rate of 14 cents per mile. You can also claim the cost of parking and tolls, as long as you weren’t reimbursed for any of these expenses. Obviously, the IRS wants you to keep careful records of your charitable mileage, and QuickBooks Online can provide them.

QuickBooks Online doesn’t track these deductions, but you’ll at least have a record of the miles driven.

Auto-track your miles

The easiest way to track your mileage in QuickBooks Online is by using its mobile app. You can launch this and have it record your mileage automatically as you’re driving. Versions are available for both Android and iOS, and they’re different from each other. They also have more features than the browser-based version of QuickBooks Online, like maps, rules, and easier designation of trips as business or personal.

 
The iOS version of Mileage in the QuickBooks Online app

In both versions, you’ll need to click the menu in the lower right corner after you’ve opened the QuickBooks Online app and select Mileage. Make sure Auto-Tracking is turned on. Your phone’s location services tool must be turned on, too. There are other settings that vary between the two operating systems. You can search the help system of either app to make sure you get your settings correct if the onscreen instructions aren’t clear enough.

Of course, you won’t see the fruits of your mileage deductions until you file your 2022 taxes. But you can factor these savings in as you’re doing your tax planning during the year. Please contact the Outsourced Accounting team if you’re having any trouble with QuickBooks Online’s Mileage tools, or if you have questions with other elements of the site.

Article
How QuickBooks Online helps you track mileage

Read this if you use QuickBooks Online.

You should be running reports in QuickBooks Online on a weekly—if not daily—basis. Here’s what you need to know.

You can do a lot of your accounting work in QuickBooks Online by generating reports. You can maintain your customer and vendor profiles. Create and send transactions like invoices and sales receipts, and record payments. Enter and pay bills. Create time records and coordinate projects. Track your mileage and, if you have employees, process payroll.

These activities help you document your daily financial workflow. But if you’re not using QuickBooks Online’s reports, you can’t know how individual elements of your business like sales and purchases are doing. And you don’t know how all of those individual pieces fit together to create a comprehensive picture of how your business is performing. 

QuickBooks Online’s reports are plentiful. They’re customizable. They’re easy to create. And they’re critical to your understanding of your company’s financial state. They answer the small questions, like, How many widgets do I need to order?, and the larger, all-encompassing questions like, Will my business make a profit this year?

Getting the lay of the land

Let’s look at how reports are organized in QuickBooks Online. Click Reports in the toolbar. You’ll see they are divided into three areas that you can access by clicking the labeled tabs. Standard refers to the comprehensive list of reports that QuickBooks Online offers, displayed in related groups. Custom reports are reports that you’ve customized and saved so you can use the same format later. And Management reports are very flexible, specialized reports that can be used by company owners and managers.


A partial view of the list of QuickBooks Online’s Standard reports 

Standard reports

The Standard Reports area is where you’ll do most—if not all—of your reporting work. The list of available reports is divided into 10 categories. You’re most likely to spend most of your time in just a few of them, including:

  • Favorites. You’ll be able to designate reports that you run often as Favorites and access them here, at the top of the list.
  • Who owes you. These are your receivables reports. You’ll come here when you need to know, for example, who is behind on making payments to you, how much individual customers owe you, and what billable charges and time haven’t been billed.
  • Sales and customers. What’s selling and what’s not? What have individual customers been buying? Which customers have accumulated billable time?
  • What you owe. These are your payables reports. They tell you, for example, which bills you haven’t paid, the total amount of your unpaid bills (grouped by days past due), and your balances with individual vendors.
  • Expenses and vendors. What have I purchased (grouped by vendor, product, or class)? What expenses have individual vendors incurred? Do I have any open purchase orders?

The Business Overview contains advanced financial reports that we can run and analyze for you. The same goes for the For my accountant reports. Sales tax, Employees, and Payroll will be important to you if they’re applicable for your company.

Working with individual reports


Each individual report in QuickBooks Online has three related task options.

To open any report, you just click its title. If you want more information before you do that, just hover your cursor over the label. Click the question mark to see a brief description of the report. If you want to make the report a Favorite, click the star so it turns green. And clicking the three vertical dots opens the Customize link. 

When you click the Customize link, a vertical panel slides out from the right, and the actual report is behind it, grayed out. Customization options vary from report to report. Some are quite complex, and others offer fewer options. The Sales by Customer Detail report, for example, provides a number of ways for you to modify the content of your report so it represents exactly the “slice” of data you want. So you can indicate your preferences in areas like:

  • Report period
  • Accounting method (cash or accrual)
  • Rows/columns (you can select which columns should appear and in what order, and group them by Account, Customer, Day, etc.)
  • Filter (choose the data group you want represented from several options, including Transaction Type, Product/Service, Payment Method, and Sales Rep)

Once you’ve run the report, you can click Save customization in the upper right corner and complete the fields in the window that opens. Your modification options will then be available when you click Custom reports, so you can run it again anytime with fresh data.


You can customize QuickBooks Online’s reports in a variety of ways.

We’ll go into more depth about report customization in a future article. For now, we encourage you to explore QuickBooks Online’s reports and their modification options so that you’re familiar with them and can put them to use anytime. Contact our Outsourced Accounting team if you have any questions about the site’s reports, or if you need help making your use of QuickBooks Online more effective and productive.

Article
Getting started with reports in QuickBooks Online

Read this if you use QuickBooks Online.

Are you taking on a worker who’s not an employee? QuickBooks Online includes tools for tracking and paying independent contractors.

The COVID-19 pandemic created millions of self-employed individuals and small businesses. Whether they chose to, or circumstances forced them to, these new entrepreneurs had to learn new ways to get paid and to prepare their income taxes.

If you’re thinking about taking on a contract worker, you, too, will have to educate yourself on the paperwork and processes required to comply with the IRS’ rules for his or her compensation. It’s much easier than hiring a full-time employee, but it still takes some knowledge of how QuickBooks Online handles these individuals.

You’ll also need to make certain that the person you’re hiring is indeed an independent contractor and not an employee. The IRS takes this distinction very seriously. If you’re at all unsure of your new hire’s employment status, we can help you sort it out.

Creating records for contractors

Once new contractors have accepted your offer, you’ll need to have then fill out an IRS Form W-9. You can download a copy here. Employees complete the more detailed Form W-4 so that the employer can withhold income taxes correctly, but you won’t have to withhold taxes for your contract workers. They will be responsible for calculating and paying quarterly estimated taxes and filing an IRS Form 1040 every year. 

You, though, will be responsible for sending them an IRS Form 1099-NEC (Non-Employee Compensation) every January if you paid them more than $600 during the previous year. You do not need to send a 1099-NEC to a corporation or to an LLC that is treated as a C Corp or an S Corp. 

You can complete the Vendor Information window for each independent contractor, checking the box in front of Track payments for 1099.

Using the information the contractors provide, you can create records for them in QuickBooks Online. If you don’t have a QuickBooks Payroll subscription, you can set them up as 1099 vendors. Click the Expenses tab in the toolbar and then on the Vendors tab. Click New vendor in the upper right to open the Vendor Information window. Complete the fields for the worker and be sure to check the box in front of Track payments for 1099, as shown in the partial image above.

The vendor records you create will appear in QuickBooks Online’s Vendors list (again, Expenses | Vendors). Click on one to open it. You can toggle between two tabs here. The first, Transaction List, will eventually display all your financial dealings with that contractor. Vendor Details opens the record you just created, which you can edit from this screen.

Paying contractors

When independent contractors send you invoices, you’ll return to this same screen. There are three ways you can pay them. Click the down arrow next to New Transaction in the upper right corner to see your options (or look down at the end of the row while you’re in list view). You can record the debt as a Bill if you want to pay it later (or if that’s the way you structure your recordkeeping). If you’re paying it right away, you can create an Expense or write a Check

You can choose an option from this vendor action menu to pay your independent contractors.

When you click one of these, QuickBooks Online opens a form with many of the contractors’ details already filled in. You’ll need to complete any additional fields at the top of the screen, and then either record the payment or debt under Category details or Item details, depending on how you do your bookkeeping. Either way, you’ll be able to enter the quantity and rate and/or amount and mark it billable (with a markup percentage, if you’d like) to a customer or project.

You’re probably going to want our help here, since there’s more than one way to pay independent contractors. If you subscribe to QuickBooks Payroll, you can use the service’s contractor features, which include the ability to invite your contractors to fill out their own records in QuickBooks Online. You may also want to add an account to your Chart of Accounts, and we’d want to offer guidance there. And you need to ensure that you’re classifying payments correctly, so they’ll appear in 1099 reports and 1099s themselves.

Creating records for independent contractors and paying these individuals seem like they should be simple operations. But anytime you’re dealing with payroll issues, you’re dealing with peoples’ livelihoods – and the IRS. We strongly encourage you to let us help you get this right. Contact the Outsourced Accounting team, and we’ll make sure you’re handling your worker payments with absolute accuracy.

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Hiring an independent contractor? How QuickBooks Online can help

Read this if you are a not-for-profit organization.

With springtime upon us, it may be difficult to start thinking about this upcoming fall, but that is exactly what many folks in the nonprofit sector are starting to do. The reason for this? It’s because 2022 brings with it the mid-term election cycle. While technically an off-year election, many congressional and gubernatorial races are being contested, in addition to a myriad of questions that will appear on ballots across the country. It is around this time of year we start to see many questions from clients in the nonprofit sector in the area of political campaign activities, lobbying (both direct and grassroots), and education/advocacy.

This article will discuss the three major types of activities nonprofit organizations may or may not undertake in this arena and will offer guidance to give organizations the vote of confidence they need to not run afoul of the potential pitfalls when it comes to undertaking these activities.

Political campaign activity

Political campaign activities include participating or intervening in any political campaign on behalf of (or in opposition to) any candidate for elective public office, be it at the federal, state, or local level. Examples of such activities include contributions to political campaigns as well as making public statements in favor of or in opposition to any candidate. The IRS explicitly prohibits section 501(c)(3) organizations from conducting political campaign activities, the consequence of doing so being loss of exempt status. However, other types of exempt organizations (such as 501(c)(4) organizations) are allowed to engage in such activities, so long as those activities are not the organization’s primary activity. Only Section 527 organizations may engage in political campaign activities as their primary purpose. 

Direct lobbying

Direct lobbing activities attempt to influence legislation by directly communicating with legislative members regarding specific legislation. Examples of direct lobbying include contacting members of Congress and asking them to vote for or against a specific piece of legislation.

Grassroots lobbying

Grassroots lobbying, on the other hand, attempts to influence legislation by affecting the opinions of the general public and include a call to action. Examples of grassroots lobbying include requesting members of the general public to contact their representatives to urge them to vote for or against specific legislation.  

A quick way to remember the difference:
Political = think “P” for People – advocating for or against a specific candidate 
Lobbying = think “L” for Legislation – advocating for or against a specific bill

Education/advocacy

Organizations may engage in activities designed to educate or advocate for a particular cause so long as it does not take a specific position. For example, telling members of Congress how grants helped constituents would be considered an educational activity. However, attempting to get a member of Congress to vote for or against specific piece of legislation that would affect grant funding would be considered lobbying. Another example would be educating or informing the general public about a specific piece of legislation. Organizations need to be mindful here as taking a specific position one way or the other would lend itself to the activity being deemed to be lobbying, and not merely education of the general public. There is no limit on how much education/advocacy activity a nonprofit organization may conduct.

Why does this matter?

As you can see, there is a very fine line between lobbying and education, so it is important to understand the differences so that an organization conducting educational activities does not inadvertently end up conducting lobbying activities.

Organizations exempt under Code Section 501(c)(3) can conduct only lobbying activities that are not substantial to its overall activities. A 501(c)(3) organization may risk losing its exempt status and may face excise taxes on the lobbying expenditures if it is deemed to be conducting excess lobbying, whereas section 501(c)(4), (c)(5), and (c)(6) organizations may engage in an unlimited amount of lobbying activity.

What is substantial?

Unfortunately, there is no bright line test for determining what is considered substantial versus insubstantial. As an industry standard, many practitioners have taken a position that insubstantial means five percent or less of total expenditures, but that position is not codified and could be challenged by the IRS. 

Section 501(c)(3) organizations that intend to conduct lobbying activities on a regular basis may want to consider making an election under Code Section 501(h). This election is only applicable to 501(c)(3) organizations and provides a defined amount of lobbying activity an organization may conduct without jeopardizing its exempt status or becoming subject to excise tax. The 501(h) election limit is based on total organization expenditures with a maximum allowance of $1 million for “large organizations” (defined as an organization with total expenditures over $17,000,000). 

While the 501(h) election provides some clarity as to how much lobbying activity can be conducted, it may be prohibitive for some organizations whose total expenditures greatly exceed the $17,000,000 threshold. Another item to be aware of is that the lobbying threshold applies to all members of an affiliated group combined, which means the entire group shares the maximum threshold allowed. 

Another option for those engaging in lobbying is to create a separate entity (such as a 501(c)(4) organization) which conducts all lobbying activities, insulating the 501(c)(3) organization from these activities. As previously mentioned, organizations exempt under Code Section 501(c)(4) can conduct an unlimited amount of lobbying activities but can only conduct limited political campaign activities.

What about political campaign activities?

Section 527 organizations, known as political action committees, are exempt organizations dedicated specifically to conducting political campaign activities. If a 501(c)(4), (c)(5), or (c)(6) organization makes a contribution to a 527 organization, it may be required to file a Form 1120-POL and be subject to tax at the corporate tax rate (currently a flat 21%) based on the lesser of the political campaign expenditures or the organization’s net investment income. State income taxes may also be applicable. Section 501(c)(3) organizations may not make contributions to 527 organizations. 

If your organization is considering participation in any of the above activities, we would recommend you reach out to your not-for-profit tax team for additional information. We’re here to help!

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Lobbying and politics and education, oh my!