Whether you are running a private foundation or a public charity, year-end is an important time. It is the perfect time to make sure the organization has fulfilled its responsibilities and to develop a plan for next year. Private foundations should be evaluating their net investment income and the 1% excise tax thresholds before year end.
For all of our Non Profit clients:
- Organizations must show on W-2 the amount of employer provided medical insurance. This was mandatory beginning in 2012.
- Small employer health insurance credit – employers with 10 or fewer full-time employees with average annual wages of not more than $25,000 may be eligible for a credit of 25% of the health insurance premiums paid for tax years beginning in 2010 to 2013.
- Compensation decisions and changes should be considered using a compensation committee (if required) or salary surveys provided for the non-profit sector.
- Review the organization’s donation acknowledgement process to ensure that appropriate receipts have been provided to donors for the year, including the value of any goods or services provided in exchange for a contribution.
For our Private Foundation clients:
- Excise tax planning –
For calendar year private foundations, the fourth quarter estimated tax payment is due December 15th. Foundations with more than $1M of taxable net investment income in any of the previous three years cannot use the prior year tax exception to avoid estimated tax penalties and must pay in based on current year tax.
1% excise tax qualification – current year charitable disbursements (grants and expenses on a cash basis) exceed the average distribution ratio for the past five years x the average FMV of the assets in the current year, the Foundation pays 1% tax instead of 2%.
1% test needs to be part of estimated tax payment calculation for any Foundation having more than $1M in taxable investment income in the past three years.
Timing of capital gains and losses – for private foundations who have incurred capital losses during 2013, these losses do not carry forward to next year, nor do they offset interest and dividend income. Consider taking gains before December 31st if you have current year losses.
- 5% minimum distribution requirements –
Foundations with undistributed income from the 2012 tax return need to make sure they distribute at least that amount in 2013 to avoid the undistributed income tax. For organizations with excess distribution carryovers from the previous five years, those can be used to meet the 5% distribution requirement for 2013.
For our Public Charity clients:
- Review public support test, especially for organizations with lower public support percentages. For organizations in their first five years, review progress towards the 1/3 public support threshold.
- Make sure you have procedures in place for the board to review the annual exempt organization return prior to filing. Plan to educate the board if necessary about the content of the return.
- Discuss the annual conflict of interest disclosures and acknowledgements from board members.