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Read this if your organization receives charitable donations.

Just in time for the holiday season, our team has created our own list of considerations that we would like to share—so that you don’t end up on the IRS’ naughty list!

Donor acknowledgment letters

It is important for organizations receiving gifts to consider the following guidelines, as doing some work now may save you time (and maybe a fine or two) later.

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

• Name of the organization
• Amount of cash contribution
• Description of non-cash items (but not the value)
• Statement that no goods and services were provided (assuming this is the case)
• Description and good faith estimate of the value of goods and services provided by the organization in return for the contribution

Additionally, 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.

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.

For noncash items such as cars, boats, and even airplanes that are donated there is a separate Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, which the donee organization must file. A copy of the Form 1098-C is provided to the donor and acts as acknowledgment of the gift. For more information, you can read our article on donor acknowledgments.

Gifts to employees

At the same time, many employers find themselves in a giving spirit, wishing to reward the employees for another year of hard work. While this generosity is well-intended, gifts to employees can be fraught with potential tax consequences organizations should be aware of. Here’s what you need to know about the rules on employee gifts.

First and foremost, the IRS is very clear that cash and cash equivalents (specifically gift cards) are always included as taxable income when 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.

There are, however, a few ways to make nontaxable gifts to employees. 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, like flowers, or a fruit basket, or occasional tickets for theater or sporting events.

Additionally, holiday gifts can also be nontaxable if they are in the form of a gift coupon and 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. For more information, please see our article on employee gifts.

Other year-end filing requirements

As the end of the calendar year approaches, it is also important to start thinking about Form 1099 filing requirements. There are various 1099 forms; 1099-INT to report interest income, 1099-DIV to report dividend income, 1099-NEC to report nonemployee compensation, and 1099-MISC to report other miscellaneous income, to name a few.

Form 1099-NEC reports non-employment income which is not included on a W-2. Organizations must issue 1099-NECs to payees (there are some exclusions) who receive at least $600 in non-employment income during the calendar year. A non-employee may be an independent contractor, or a person hired on a contract basis to complete work, such as a graphic designer. Payments to attorneys or CPAs for services rendered that exceed $600 for the tax year must be reported on a Form 1099-NEC. However, a 1099-MISC would be sent to an Attorney for payments of settlements. For additional questions on which 1099 form to use please contact your tax advisor.

While federal income tax is not always required to be withheld, there are some instances when it is. If a payee does not furnish their Tax Identification Number (TIN) to the organization, then the organization is required to withhold taxes on payments reported in box 1 of Form 1099-NEC. There are other instances, and the rates can differ so if you have questions, please reach out to your tax advisor. 1099 forms are due to the recipient and the IRS by January 31st.

Whether organizations are receiving gifts, giving employee gifts, or thinking about acknowledgments and other reporting we hope that by making our list and checking it twice we can save you some time to spend with your loved ones this holiday season. We wish you all a very happy and healthy holiday season!

On September 19, 2023, the Governmental Accounting Standards Board (GASB) issued an exposure draft, Disclosure and Classification of Certain Capital Assets, that would set requirements for certain types of capital assets to be identified separately in the capital asset note disclosures. 

GASB Statements No. 87, Leases, and No. 96, Subscription-Based Information Technology Arrangements, created new types of capital assets that are referred to as “right-to-use assets.” Due to these newly recognized assets, GASB is evaluating the effectiveness of the existing capital asset footnote and how to incorporate the new asset types. 

The exposure draft identifies four types of capital assets that would be required to be disclosed separately in the notes: 

• Capital assets held for sale, by major class of asset
• Lease assets reported under GASB Statement No. 87, by major class of underlying asset
• Subscription assets reported under GASB Statement No. 96
• Intangible assets other than lease assets and subscription assets, by major class of asset

The proposal includes some additional criteria for determining whether capital assets should be classified as held for sale. The expenditure draft proposes the following criteria to determine whether a capital asset should be considered as held for sale:

• The government has decided to sell the asset
• It is probable that the sale will be finalized within one year of the financial statement date

Recommendations

We recommend that your entity continue to monitor and inventory your capital assets, leased assets, subscription assets, and intangible assets to help implement this future statement. Additionally, we recommend that you evaluate whether your entity has any capital assets that may be identified as held for sale. 

The effective date of the proposed statement would be for fiscal years beginning after June 15, 2025. BerryDunn will continue to monitor the input from stakeholders during the comment period (GASB’s deadline for comments is January 5, 2024) and will continue to be a resource for your entity.

Contact our Governmental Accounting team if you have questions about the exposure draft or specific concerns for your organization. We’re here to help.

Read this if you sponsor an employee benefit plan. 

In December 2022, Congress passed the Securing a Strong Retirement Act of 2022, commonly referred to as the SECURE 2.0 Act. The SECURE 2.0 Act includes a multitude of provisions, many of which affect employer-sponsored retirement plans and individual retirement accounts. In this article, we want to specifically focus on changes to catch-up contributions for employer-sponsored retirement plans. 

Catch-up contribution parameters

Currently, salary deferral catch-up contributions are available to participants who are age 50 or older (regardless of when they turn 50 during the calendar year). For 2023, the catch-up contribution limit is $7,500; however, this amount changes annually as it is indexed to inflation. This has historically been a non-issue for plans, payroll providers, and recordkeepers, as payroll provider and recordkeeper portals have been set up to allow contributions over the normal salary deferral limit (currently $22,500) for those participants who are over age 50. These catch-up contributions have traditionally been coded the same as a participant’s regular deferrals—either traditional or Roth.

Effective dates: Roth catch-up contributions requirement

Effective January 1, 2024, catch-up contributions will be required to be made on a Roth basis for participants with wages greater than $145,000 (indexed annually for inflation) in the prior year. However, on Friday, August 25, 2023, the IRS issued Notice 2023-62, which provides a two-year administrative transition period to implement the new catch-up contribution provisions.

Specifically, until taxable years beginning after December 31, 2025, catch-up contributions to participants with wages greater than $145,000 in the prior year will not need to be designated as Roth contributions.

Note that the $145,000 limit is determined by looking at wages for social security tax purposes. That may or may not be the same definition that is used by a plan for other purposes (e.g., salary deferral and employer contributions). This may create an administrative burden for payroll providers and recordkeepers as these vendors will need to be able to differentiate between employees under and over this compensation threshold. Furthermore, for those above the threshold, software and systems will need to be set up to help ensure any catch-up contributions are properly coded as Roth contributions, for payroll and retirement plan reporting. Employees with wages of $145,000 or less may still elect to have Roth catch-up contributions, if allowed by the plan documents.

Recommendations

We recommend reaching out to payroll providers and recordkeepers today to see how they plan to approach compliance with the new provision. These conversations should not be independent of one another—it will take a concerted effort amongst plan management, payroll providers, and recordkeepers to help ensure compliance.

NOTE: There is one other change on the horizon for catch-up contributions. Beginning in 2025, the SECURE 2.0 Act creates an additional “special” catch-up limit for employees who are ages 60 to 63. This special catch-up limit will be the greater of $10,000 or 150% of the regular catch-up amount in effect for the year. This amount will also be indexed for inflation annually.

Additional changes effective in 2024

• Elimination of Required Minimum Distributions (RMDs) for Roth 401(k) and 403(b) plans
• RMDs for surviving spouses
• Student loan repayments matching contributions
• Emergency savings accounts
• Optional Rothification of catch-up contributions for high earners (as discussed above, this will be mandatory in 2026)
• Higher forced rollover limit
• Retroactively amending plan to increase benefits for prior plan year
• Waiver of early withdrawal penalties for certain distributions
• Permanent safe harbor for correcting auto-enrollment and auto-escalation failures
• Uniform rollover forms
• 403(b) hardship distributions conform to 401(k) rules
• Starter 401(k) or 403(b) plans
• Separate top-heavy tests allowed 
• SIMPLE plan updates
• Reform of family attribution rules
• Improved defined benefit plan annual funding notices
• Indexing individual retirement account (IRA) catch-up limit
• Section 529 rollovers
• Retirement savings lost and found

For more information on these changes and others going into effect in 2025, read the previous article on the SECURE 2.0 Act.

If you have questions about the SECURE 2.0 Act, catch-up contributions, or your specific situation, please contact our Employee Benefits team. We're here to help. 

Read this if you are in healthcare and interested in AI.

AI in healthcare is here. While it’s the early days and there is a lot still to figure out in terms of accuracy and risk, it’s undeniable that AI has huge potential in solving some of healthcare’s greatest challenges. 

AI to help alleviate staffing shortages

A February 2023 report to the US Senate drafted by the American Hospital Association painted a startling, though not new, picture of the healthcare staffing shortage: “The result of mounting pressures on the healthcare workforce has created a historic workforce crisis complete with real-time, short-term staffing shortages and a daunting long-range picture of an unfulfilled talent pipeline.” While this report focused on providers such as physicians and nurses, hospitals nationwide are struggling with filling positions across the board. There are just not enough people to fill the need—now and for the foreseeable future. 

AI has the potential to address this critical staffing shortage in a number of ways. The area where most people think of AI efficiencies is in administrative tasks. These, as anyone in healthcare knows, abound in the daily work. Reducing the administrative burden on clinicians means more time with patients, and more patients that can be seen. In this scenario, it’s also possible that this reduced administrative workload will reduce burnout, improve the clinician experience, potentially keep more clinicians in the field—and encourage more to join. This, in turn, can reduce recruiting and retention costs and costs associated with outsourced and travel staff. 

It has been shown that nurses can spend up to 35% of their time on data entry, documentation, and charting. Generative AI can assist in these tasks, freeing up nurses for direct patient care. 

Risks to consider: The biggest risk here is the protection of personal health information (PHI). Safeguards need to be in place to remain Health Insurance Portability and Accountability Act (HIPAA) compliant. Common AI platforms are often hosted by third-parties, or are open-source systems that require proper due diligence to help ensure that any PHI in AI systems is secured. Often, medical billing systems contain PHI that is overlooked as a risk for HIPAA compliance, but can easily result in large scale breaches. Using AI to help with such administrative tasks will save time, making sure that the correct IT controls are put in place and are frequently evaluated for operating effectiveness. 

AI to improve patient experience and outcomes

An added benefit of using AI for administrative tasks and reducing the workload on providers is that patients will have better experiences when providers have better experiences. Patients will, theoretically, have more time with their providers and more focused attention. Another way AI can help with patient experiences and outcomes is through AI diagnostic and image-interpreting tools.

With AI’s ability to sift through and analyze huge amounts of data, it can assist doctors in diagnosing patients and even predict what illnesses a patient is likely to develop—in some cases, with life-saving results. A March 2023 article in the Wall Street Journal reported that AI was able to diagnose sepsis in hospitalized patients two hours earlier on average than humans, which reduced the sepsis mortality rate by 18%.

AI is also proving to be adept at analyzing images. Using Natural Language Processing (NLP), AI can provide high-quality analysis of X-rays and MRIs, leading to precise early diagnoses. GE Healthcare reported a 30% increase in speed and enhanced image quality using this technology.

Risks to consider: As with any technology, results depend on the quality and quantity of data that is being analyzed. Patients may also feel uncomfortable being diagnosed by AI. Any diagnosis should be verified by a human and any technology should be thoroughly vetted and tested prior to use. There is a particular risk when using AI in emergency room situations, where the treating physicians may not have the patient's full medical history for backend algorithms to consider. This could result in a misdiagnosis. However, in a clinical setting, the results of AI diagnosis tools are close to the accuracy rate of a doctor (about 90%). The biggest challenge to the medical profession will be getting patients to trust the use of AI. In a study by Harvard Business Review, surveys showed that patients felt their medical conditions were unique and overwhelmingly preferred meeting with a doctor versus being diagnosed by AI.

AI and revenue cycle optimization

At BerryDunn’s Hospital Summit in October, audience members were asked where they saw AI having the greatest impact in the next five to 10 years. The top answer, with 35% of votes, was in the revenue cycle area. According to a recent article published by the Healthcare Financial Management Association, there is the potential for $9.8 billion in savings by automating revenue cycle functions. Many organizations are already using Robotic Process Automation (RPA) to aid in their revenue cycle functions. Many are now adding predictive analytics and automation using AI. 

AI tools can help revenue cycle operations in a number of ways. One example is using AI to prompt providers on when and how best to document. It can also be used in medical coding to suggest appropriate codes based on relevant clinical data. One hospital reports that they’ve saved over $1 million using AI in their revenue cycle. 

Risks to consider: As with most AI tools, the biggest risks are related to data privacy, security concerns, and concern about the accuracy of data. Like any investment an organization makes in technology, new systems need to be fully vetted and tested, and organizations must follow proper change management practices so that the new technology is properly designed and implemented. Rushing to implement AI may result in incorrect outputs and increase the organization’s risk exposure. 

The healthcare industry is already a front-runner in using AI and there’s an exciting future ahead. Risk management is key to launching any new technology and particularly AI. Organizations should prioritize the following: Inventorying all uses of AI at the organization, having clear policies and procedures in place, and doubling down on compliance.

If you have any questions about AI or your specific situation, please don’t hesitate to reach out to the BerryDunn team. We are here to help.

Read this if you are interested in artificial intelligence (AI).

Everyone is talking about AI right now. With the technology accelerating so fast, companies and individuals are struggling to figure out the impacts: Will it be helpful for businesses? Will it be harmful for employees? Will it change the way we work? 

The thought leaders at BerryDunn have been exploring the technology and ways it may benefit our clients moving forward—both for accounting services and for broader consulting services. Here are five reasons we're optimistic about the future of AI in business. 

1. AI has the potential to complete menial, time-consuming, and error-prone tasks faster and more accurately.
   BerryDunn’s Kathy Parker, Practice Leader for the firm’s Outsourced Accounting Group, recently shared her thoughts with MassCPAs, stating that “Our approach to clients has always been to act as their consultant and advisor, and AI won't change that. What we are starting to see is that AI software has the potential to reduce the manual work we do, which will free up time so we can do what we do best. I expect that AI will start to take care of things more reliably like automatic scanning, basic tax preparation, and some functions that take up a lot of staff time.” 
2. AI may free up resources so businesses can be more strategic.
   AI can help complete time-consuming tasks, saving time and staff resources to focus on more strategic initiatives. Parker is excited to think about adding more value to her clients by providing more strategic planning, benchmarking, and advisory services that will contribute to their success. She shared that “Clients are starting to recognize that AI can reduce the burden on accountants, and they're beginning to expect more from us. They don't just want our calculations, they want our expertise, and that's fantastic. Clients want to know how they compare with their competitors, and they want to know how to be proactive about their growth. They want dashboards to be able to easily see where they stand and they're looking for more sophisticated deliverables.”
3. AI could reduce the price of some services. 
   Parker also shared her view of how AI may affect prices for services such as tax and accounting. “Businesses may also expect to see a different fee schedule, given the potential reduced workload that AI could bring. Of course, that reduced workload will allow service providers to raise the bar in other, potentially more significant, areas of their business.”
4. AI could improve decision making for businesses.
   Tucker Cutter, a Senior Manager with BerryDunn’s higher education consulting team, believes that AI has the potential to significantly improve decision making for any business. His work focuses on the nexus of technology and people, helping higher ed institutions manage large-scale digital transformation projects. “I’m looking forward to seeing how AI will help us provide high quality decision-making guidance through enhanced data analysis and predictive analytics,” he shared. Once tools have been vetted and tested to prove their accuracy and reliability, AI has the potential to analyze data much faster than could be done manually by humans.
5. Clarity on the best use cases for AI will emerge.
   If you’re not inclined to be an early adopter, know that you’re not alone. Just as with any other technological revolution, there are still a lot of unknowns. It makes sense to be cautious, especially when you’re dealing with sensitive data. As the dust settles, you’ll be able to learn from the experience of early adopters about what works and what doesn’t. At BerryDunn, our consultants are keeping an eye on the technology and how it may impact processes, systems, and outcomes. 
   
   Cutter shared his approach to staying current on AI technologies so he can advise his clients, stating that “We need to understand how to use these platforms and tools as well as stay well-versed in AI/technology governance strategies. For the good of our clients, we are still responsible for keeping data strategy at the forefront even if it’s not top-of-mind for our clients.” Clarity won’t emerge overnight, but in the coming months and years, we’re confident that a healthy balance between what’s best for business and what’s best for people will be possible.