When you work or volunteer at a nonprofit organization, you know the days can be hectic, and nonroutine tasks can sometimes get overlooked. If the annual requirement to file a tax return or notice with the IRS was one of those overlooked tasks, you may receive a letter revoking your organization’s federal tax-exempt status.
The revocation is automatic when your organization is required to file and fails to do so for three consecutive years. Fortunately, “automatic” does not mean permanent. In January of this year, the IRS issued streamlined procedures for reinstating your tax-exempt status.
What you need to do depends on the size of your organization and how quickly you apply for reinstatement after receiving the notice. For example, say your nonprofit has annual gross receipts of $50,000 or less and you were required (but failed) to file the annual electronic notice, Form 990-N, also called the “e-postcard.”
To request reinstatement of your tax-exempt status, you need to complete “Form 1023, Application for Recognition of Exemption,” and pay the applicable filing fee within 15 months of the revocation.
You can follow a similar procedure if your organization’s gross receipts are less than $200,000 and total assets at year-end are less than $500,000. In that case, you’ll also have to complete Form 990 for the prior years.
In both situations, if your application is approved, failure to file penalties will be waived.
The revenue procedure offers two other methods of reinstating your organization’s tax-exempt status. Please contact us if you need details.
When you’re traveling, a shortcut can be a time-saver, but taking it instead of the main route could cost you in other ways. The same is true in tax law, even when the shortcut is a safe-harbor simplification of an old rule.
An example is the new option for calculating the home office deduction on your 2013 federal income tax return. Under these safe-harbor rules, you multiply the square footage of your home office space (up to 300 square feet) by $5. The result is your deduction, up to a maximum of $1,500. Your actual deduction may be limited by your business income, and there’s no carryforward of unused amounts.
Depreciation is not allowed under the simplified rules, which means no reduction in your basis when you sell your home. In addition, if you itemize on your personal return, you can claim the full amount of your home mortgage interest and real estate taxes.
You can elect the safe-harbor for 2013 even if you used the regular method of calculating your deduction in prior years. You can also switch back in future years. Just be aware that once you make a choice for a particular year, you can’t change your decision.
While the safe-harbor calculation is simple, keep in mind your home office still has to meet the requirements for a deduction. That is, you must use the office regularly and exclusively as either your principal place of business or where you meet with customers or clients. Other rules apply if you’re an employee, or if you operate a day care or use your home for storing inventory.
The new rules offer a useful shortcut to a home office deduction. To learn whether you should choose this new route or stick with the regular way, please give us a call.
At the end of 2013, the IRS published guidance designed to help answer a question you probably consider whenever you acquire a business asset: Should you depreciate the cost over time or expense it currently?
The new guidance, referred to as capitalization and repair regulations, explains the federal income tax treatment of expenditures you make for materials and supplies, repairs and maintenance, and business property you buy, produce, or improve.
The regulations apply to all businesses, including sole proprietorships, rentals, and farms, and are generally effective beginning January 1, 2014. However, the rules may also affect your prior- and current-year tax returns. Here’s what you need to do.
- Set up procedures. Written accounting policies detailing the method and reason for classification of asset purchases will help make sure you benefit from expensing elections available in the regulations.
- Review past decisions. Look over your depreciation schedule, as well as your general ledger for past years. Make sure decisions regarding the expensing or capitalization of assets conform to the new requirements.
- File necessary forms. If you determine some assets should have been treated differently under the new rules, you may need to amend prior year returns or file “Form 3115, Application for Change in Accounting Method.”
Please give us a call to discuss how the capitalization and repair regulations will affect your business.
A few years back, outlet malls had an almost seedy reputation. They tended to be located far from upscale neighborhoods and generally offered defective or second-rate goods. Nowadays, outlet stores look a lot more like their full retail counterparts. Though outlets may not feature showpiece displays or offer wide selection, they’re popular for one main reason: perceived savings. Nevertheless, shoppers need to know the tricks of the trade.
- Quality may differ. Several studies have shown that over 80% of the products sold at factory outlets were manufactured specifically for those stores. So the blouse that’s on the rack at the outlet store may not be identical to a similar item displayed at the store’s retail establishment or on their website. At the outlet mall, leather in a purse may have been replaced with plastic; sweaters may be shorter and have fewer buttons; T-shirts may be constructed with fewer stitches and lighter fabric. Although these differences in quality may not be a deal breaker for you, it’s always prudent to know what you’re buying.
- How much is that discount, really? Using a marketing technique known as “reference pricing,” bold price tags at the outlet store may advertise a huge discount from an item’s “retail price.” Unfortunately, that “retail price” may have been concocted at the store’s recent management meeting. There’s no guarantee that merchandise at the outlet store was ever listed for that price at a retail establishment.
- Shop sales and promotions. Outlet malls have sales, too, and it makes sense to shop when items are truly discounted. Sign up for an outlet store’s mailing list to be notified about upcoming promotions. And before you buy, make sure the retail store isn’t offering an even bigger discount for your favorite item.
- Shop the off-season. Look for bargains when stores are trying to move their end-of-season inventory. Buy beach apparel in the fall, winter coats in the spring.
- Don’t be afraid to leave empty-handed. Driving a long distance to an outlet mall doesn’t necessarily justify a shopping spree. If it makes sense to buy an item, buy it. If not, wait to shop another day.
- Know the store’s return policy. Retail establishments may not take returns from outlets. Others may require price tags and receipts before accepting returns.
As always, follow the wise consumer’s tried-and-true maxim: buyer beware.
As a small business owner trying to keep shelves stocked, employees paid, and customers satisfied, why should you create a web log or “blog”? What if you’ve already got a website? What blogging pitfalls should you avoid? And, most importantly, what will a blog cost in terms of time and dollars?
- The benefits of blogging. Like a personal journal that’s posted to the Internet, a blog is simply a place for sharing ideas about your business. Easier to update than a website, a blog offers an inexpensive way to talk directly to customers via text, audio, or video. With a blog you don’t have to learn web design or hire someone to create web pages. Timely feedback from your readers can provide ideas for targeting products and services to address specific customer needs — like standing at the service counter and chatting with regular patrons. Blogging sites such as typepad.com and blogger.com are good places to visit for software tools and ideas.
- Drawbacks. Don’t expect more from a blog than it can reasonably produce. A blog is not a substitute for a website. A blog, for example, generally won’t provide the functionality to allow online purchasing, and its contribution to your bottom line may be difficult to measure. Like a magazine article, a blog is primarily a place to communicate ideas.
- Pitfalls. If you’re publishing a blog for general consumption, it should be well-written. Grammatical errors, poor punctuation, spelling mistakes — these can damage your business reputation, causing readers to question the quality of your products and services. Don’t use a blog as a forum for in-your-face sales. Its purpose is to inform, to build relationships, to connect. And don’t leave it static. Vary your blog’s content routinely by adding links to helpful resources, video interviews, and podcasts.
- Costs. Besides minimal subscription expense for a business blogging site, time will be your biggest expenditure. By allocating the task of blog updates among several employees — with final edits by a good writer — you can ensure that content stays fresh, readers remain engaged, and a single employee isn’t saddled with blogging duty. You might start by updating posts every other week, increasing your frequency later.
Like any new product or promotion, a business blog probably won’t generate revenue right away. So be patient and find a format that works well for your company.