A Tough Year & Evolving Tax Reporting Requirements Make CPA Advice More Valuable Than Ever for Nonprofits
It’s been a tough year for the nonprofit sector. While charitable giving in 2020 was up 5.1% (3.8% if adjusted for inflation) compared to 2019, it was not enough to even out the decline in resources experienced by so many nonprofits. By April 2021 (compared to February 2020), the nonprofit sector had lost nearly 800,000 jobs. A survey conducted in March 2021 by Philanthropy Massachusetts and Massachusetts Nonprofit Network found that more than 60% of respondents in the Commonwealth had a revenue loss and more than 70% turned to the Paycheck Protection Program (PPP) for help.
Pair a tough year with the complexities that come with existing and evolving tax legislation and regulations, and professional accounting advice becomes even more valuable than ever. The pandemic has led to cost-cutting efforts that run the gamut from generally necessary to uniquely innovative. Making sure you understand how new and evolving legislation and regulations affect your reporting requirements this year is one of the ways to protect your organization from future costs for correcting noncompliance.
Your organization may have reached new tax reporting thresholds this year.
According to the Associated Press, charitable giving in 2020 reached $471 billion, so many organizations may have received more revenue from charitable giving than they are accustomed to receiving in a year. Whether you are required to have an independent review or audit varies state by state, depending on the state’s laws. In Massachusetts, organizations with total gross revenue for a given fiscal year of at least $200,000 but less than $500,000 must have an independent CPA firm prepare either audited or reviewed financial statements for that year. If gross revenue is $500,000 or more, the organization must have an independent auditor prepare audited financial statements.
A significant number of nonprofit organizations received more federal funding than they are accustomed to as well. Under federal law, organizations that expend federal funding of $750,000 or more in a single year are required to have an independent CPA firm perform a Single Audit. Tax reporting requirements also depend on your organization’s role or combination of roles as a contractor, recipient, and/or subrecipient.
You will have to know how to account for your organization’s federal assistance and understand how they affect your organization’s financial statements.
Federal assistance, such as PPP loans, Employee Retention Credits, FFCRA credits, deferring payroll taxes, PRF and CRF funds, and EIDL advances and loans and state-level assistance - must all be accounted for in compliance with federal and state laws. Internally, you may need different data and more frequent financial updates to keep your board apprised of any changes that affect the organization’s financial situation. Canceled events and discontinued programs affect your functional allocation of expenses, as do expenses paid with PPP funds and one-time COVID-19-related expenses. To make decisions that will contribute to your organization’s success, your Board members need frequent updates on profit & loss data, spending and fundraising needs, and budget vs. actual comparisons.
The FASB has several Accounting Standards Updates (ASUs) affecting nonprofits in the works and ahead.
Revenue from Contracts with Customers, Fair Value Measurement Disclosure Framework, and Goodwill and Intangibles are a few of the areas in current transition. Looking ahead, leases, lease concessions, and how the changes could affect debt covenants are topics of great significance for nonprofit organizations.
My nonprofit industry team at L&H is here to serve organizations like yours. We can help you determine your requirements, account for COVID-19-related assistance, and stay compliant as legislation and regulations continue to evolve. It’s my goal to provide nonprofit services that not only help organizations stay compliant but also help them thrive. Contact me today to get started.
by Wendi Haynes, CPA
Wendi Haynes, CPA, has extensive experience providing accounting, and auditing, including single audits, and tax advisory for nonprofit organizations, including human service organizations, charitable and grant-making institutions, cemeteries, foundations, social clubs, and fraternal organizations. She serves as Livingston & Haynes’ Managing Partner and has been with the firm for over 30 years. Wendi has completed the AICPA Not-For-Profit Certificate Program I.