Featured: <span>Non Profit</span>

Back to industry updates

Federal and state grants can fund cameras, guards, locks, and reinforced doors. For many nonprofits, that support is now part of what it takes to keep their doors open.

Across the country, traditional community spaces have replaced their open doors with concrete bollards, reinforced entry doors, and camera surveillance. As terrorism threats rise, nonprofits are being forced into defense mode. Many depend on support from the federal government’s Nonprofit Security Grant Program (NSGP) to meet basic security needs.

While nonprofits trade their welcoming spirit for defensive armor, a more profound question emerges: What happens to a community when its primary identity is defined by its vulnerability?

The Anatomy of a Hardened Target

The NSGP is a federal grant program administered by the Department of Homeland Security (DHS) and Federal Emergency Management Agency (FEMA). It assists eligible nonprofit organizations with a higher risk of terrorism or hate crimes in strengthening security at their facilities. The grant is designed to help nonprofits harden their “soft targets.”

“Target hardening” refers to the physical strengthening of a building or site to make it more difficult to penetrate, damage, or attack. It is a security strategy that focuses on creating physical obstacles to deter or delay an intruder.

NSGP funds are allocated for physical tools of defense:

Access Control: High-security locks, gates, and biometric systems
Surveillance: CCTV cameras and 24/7 monitoring hubs
Target Hardening: Blast-resistant windows, reinforced doors, and steel bollards to prevent vehicular ramming
Personnel: Contracted security guards to patrol hallways and entrances.

A nonprofit may apply for, and potentially receive, both federal and state grants— allowing for significant security upgrades. New York offers two key security funding streams. The Nonprofit Security Grant Program (NPSE) focuses on funding health, safety, and security p

The 2025 Funding Freeze: A Bureaucratic Chokepoint

Despite the clear need for funding, 2025 was a year of administrative volatility. In early 2025, the federal government issued a freeze on homeland security grant drawdowns, leaving many nonprofits in a state of “frozen” security. This move, intended for administrative review, effectively stalled organizations that may have already been awarded funds and planned construction or new security staff hiring.

For Fiscal Year 2025, the NSGP program allocated , divided between urban-area nonprofits in high-risk cities and state-level nonprofits outside those areas.

Recent wrangling between Republicans and Democrats over the 2026 spending bill, and their fractious fighting over ICE and homeland security funding, brought Congress to a standstill. It left the Department of Homeland Security (DHS), and its umbrella agency FEMA, in a record-breaking shutdown for nearly three months. Congress has only just passed the FY 2026 spending bill and reopened the DHS. During the shutdown, FEMA was unable to review and award FY 2025 NSGP funds— and the FY 2026 application cycle hasn’t even started yet.

As soon as the President signs off on the factitious 2026 spending bill and DHS is back up and running, nonprofits should expect a compressed timeline; from bill signing to application, the window could be as little as a few weeks.

The Cash Flow Challenge

For nonprofits, a significant challenge in utilizing federal security funding is that costs are reimbursed only after an organization has purchased or implemented the security feature. Nonprofits must have sufficient cash flow, or borrow funds, to meet expenses until reimbursement kicks in. The Hebrew Free Loan Society is one organization that answers that need by offering Security Infrastructure Loans for eligible, NY-area, Jewish communal organizations to support security planning, training, equipment, and infrastructure improvements.

While reimbursement is usually effectuated within a reasonable timeframe, the same can’t be said for the application process. NYSED is still processing reimbursement applications from schools in New York that submitted for NPSE reimbursement in 2024. Processing of federal grants is also backlogged by several years. In a March 17 roundtable focusing on security challenges facing houses of worship in Davie, Fla., Rep. Debbie Wasserman Schultz (D-Fla.) told local institutions that are only now receiving grants approved in 2023 and 2024, while another was waiting for award funds from as far back as 2022.

Saving Lives

In March 2026, Temple Israel in Michigan, one of the largest synagogues in the U.S. and home to a 140-child preschool, became the kind of target these grants are meant to protect. An armed attacker drove his truck into the building while students were inside. The synagogue’s in-house security team stopped him, killing him in an exchange of gunfire.

In an attack in July 2023 at the Margolin Hebrew Academy in Memphis, an armed man attempted to breach the school, but the physical hardening measures, funded by the NSGP, held firm. The assailant was stopped by high-security access control doors that prevented a potential tragedy before it could begin. Without that hardware, the outcome could have been a massacre.

While these cases show the power of proactive defense, in May 2025, the limitations of physical hardening were revealed at the Capital Jewish Museum in Washington, D.C.

Two Israeli Embassy employees, a couple soon to be engaged, were gunned down on the sidewalk after just leaving a Young Diplomats Reception at the museum. The suspect fired approximately twenty rounds with a semi-automatic handgun while shouting “Free Palestine”.

This highlights the “security gap” that exists between a hardened building and the public street. While the museum is a nonprofit that qualifies for and maintained security resources, the physical measures were confined to the building itself. Most disturbingly, after the shooting, the perpetrator simply walked into the museum. The internal security staff failed to recognize him as the shooter, although eyewitnesses reported that he looked “distressed.” He was even given a drink of water by a staff member before he identified himself as the killer.

This tragedy serves as a grim reminder that even with funding and personnel, “hardening” of the interior of the building can be circumvented by a shooter who targets the transition between an enclosed facility and the world beyond.

Protected or Policed?

When a nonprofit must prove its “high-risk” status to receive funding, its identity begins to shift. It is no longer defined by the mission it stands for, but by the violence it has learned to anticipate. That’s the real price tag, and it’s expensive.

The fact that we need nearly half a billion dollars in annual funding just to keep people from being murdered in their sacred or charitable spaces is a scorching indictment of our social fabric.

But the greater tragedy might be the “frozen” state of our communities, both bureaucratically and emotionally, behind bulletproof glass and steel gates. We have traded the “open door” for the “monitored entryway,” and in doing so, we have paid a price that no government grant can ever truly cover.

This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

Back to industry updates

Trump Accounts (IRC §530A) create a new lane for families: a tax-advantaged, IRA-style account for kids that can be funded before the child has earned income.

Previously, parents who wanted to open a growth account for their child had three options:

For tax-free growth, money had to be earmarked for education, usually through a 529 plan or a Coverdell ESA.

For a real retirement wrapper, an IRA could be used, but the child would need earned income.

Parents who wanted flexibility were back to taxable options, usually with a UTMA or UGMA, which had the “hand the keys to an 18 or 21-year-old” problem.

Trump Accounts add a fourth lane: a child-owned wealth wrapper that doesn’t require earned income, with rules that keep the money invested—not spent—during the minor years.

Program timeline

Pilot Program: Children born in 2025–2028

The pilot program is a one-time $1,000 seed deposit funded by the U.S. Treasury. It is available for eligible U.S. citizen children born in 2025 through 2028 with a valid Social Security number (SSN) at the time of election.

The deposit will be made after July 4, 2026, after the account is properly elected and activated. In order to receive the funding, the person opening the account must be eligible to claim the child as a dependent for that tax year.

The $1,000 deposit doesn’t count towards the annual $5,000 contribution limit.

It is not taxed when deposited, but it is taxable when withdrawn.

If the money is withdrawn before age 59½, it can also trigger the 10% early-withdrawal penalty unless an exception applies.

Separate from the federal $1,000 pilot, some private donors have announced additional seed funding through Trump Accounts. The most prominent example is the Michael & Susan Dell pledge, described as an additional $250 per child for up to 25 million children age 10 and under in zip codes with median income below $150,000, generally aimed at children not eligible for the federal $1,000 pilot. If the Dell funding is delivered through Trump Accounts, it would run through the IRS framework for qualified general contributions. It is not yet clear how the Dell pledge will fit into that framework.

Pre-funding window: before July 4, 2026

Prior to July 4, 2026, contributions are not permitted. During this period, families can establish the account through trumpaccounts.gov or by filing Form 4547. The election is made by an authorized individual, typically a legal guardian first, then a parent, then an adult sibling, then a grandparent. The online flow is extremely straightforward; each submission allows you to enroll up to two children, and families can submit the form again to enroll additional children.

The prefunding period is a good time to discuss with your employer if they offer a Section 128 Trump Account contribution program, and to set up contribution-source tracking for later tax reporting.

Program launch: July 4, 2026

Contributions can begin.

Pilot deposits and program funding can start flowing once the account is opened.

Account Lifecycle

Growth Period: Birth through 18

This is the IRS-defined childhood restriction phase.

The timing is calendar-based: the growth period ends on December 31 of the year before the child turns 18, and restrictions lift on January 1 of the year the child turns 18— not on the child’s birthday.

The account is owned by the child, but while the child is a minor, the person who filed Form 4547 serves as the responsible party and manages the account, along with its investments. The investment menu is intentionally narrow, and includes broad, low-cost U.S. equity index mutual funds or ETFs, with strict fee/structure limits (including an expense cap generally set at 0.10%) and no leverage or borrowing-type features.

At launch, the accounts are held with the Treasury’s designated trustee (to be announced). During the growth period, the entire balance can be transferred to another institution that offers Trump Accounts through a trustee-to-trustee transfer.

How contributions work:

During the growth period, money can be deposited through several lanes:

the $1,000 pilot (if eligible)

qualified general contributions (program/community funding)

Section 128 employer contributions

qualified rollovers from another Trump Account

other contributions (parents, grandparents, or anyone else).

Family contributions are not deductible. The only up-front tax break is employer funding through a §128 program, which can be excluded from the employee’s income (up to $2,500 per employee per year) and still count toward the child’s $5,000 annual cap.

Qualified general contributions (outside funding):

Qualified general contributions are deposits made by governments and charities under the IRS framework for program or community funding.

The IRS limits these deposits to a defined qualified class of children who are in the growth period. In the initial rollout, the qualified class can be only one of the following:

all beneficiaries in the growth period

beneficiaries in the growth period who live in one or more specified states (including D.C.)

beneficiaries in the growth period who were born in one or more specified calendar years.

No additional eligibility criteria can be imposed beyond the qualified class.

These deposits do not count toward the $5,000 annual limit, and they generally do not create basis. It is not yet clear how the Dell pledge will fit into this framework.

Annual limits:

There is a $5,000 per child per year contribution limit. This applies to typical contributions and Section 128 employer contributions. The $5,000 limit is indexed for inflation after 2027. The seed funding, qualified general contributions, and qualified rollovers do not count toward that annual limit.

Employer funding (Section 128):

Employer contributions can be excluded from the employee’s income up to $2,500 per year per employee (not per account). Those employer dollars still count toward the child’s $5,000 annual cap.

Employers can also run contributions through a Section 125 cafeteria plan when the money is directed to a specific dependent’s Trump Account. In that structure, the salary-reduction amount reduces FICA wages, saving payroll taxes for both the employer and the employee.

Withdrawals:

Distributions are generally not allowed during the growth period. There are no hardship withdrawals, and the trustee is not permitted to close the account and distribute the funds to the child. The permitted exceptions are narrow: rollovers to another Trump Account, a limited disability-account rollover window, refunds of excess contributions, and distributions after death.

Basis:

Basis is the portion of the account that represents after-tax contributions. Since basis was already taxed, it comes out tax-free when money is withdrawn, while everything above basis is generally taxable. In a Trump Account, contributions from the pilot, qualified general, and employer program dollars generally do not create basis. Other contributions—such as parent deposits—generally do create basis. Qualified rollovers carry over the original basis.

ABLE Rollover:

During the calendar year when the child turns 17, there is a narrow rollover window for certain rollovers to specific accounts for people with disabilities.

After the growth period: 18 through retirement age

This phase begins on January 1 of the year the child turns 18. From this point forward, the account follows traditional IRA rules. The growth-period investment restrictions fall away, and any new contributions follow the normal IRA requirements, including earned income and annual contribution limits.

Withdrawals are taxable as ordinary income to the extent they represent earnings. Withdrawals before age 59½ incur a 10% early-withdrawal penalty unless an exception applies. The most relevant penalty-free exceptions are qualified higher-education expenses and a first-time home purchase (within the statutory limit). Penalty-free does not mean tax-free—these withdrawals can still be taxable.

If the account includes after-tax “other contributions,” that after-tax amount is the account’s basis. Basis is recovered prorata under the IRA rules, and Trump Account basis is tracked separately from other IRAs.

After age 59½, the 10% penalty generally falls away. Much later in life, required minimum distribution rules apply at the applicable age under then-current law.

When it comes to making financial plans for a child, the core decisions still include education funding in a 529 strategy, and flexibility/control with taxable accounts or trusts. What changes in 2026 is a child-owned, tax-advantaged wealth bucket that can be funded before earned income—and, for some families, an employer-funded lane that can create real payroll-tax savings.

Back to industry updates

When David came home with the news that he had gotten a raise, his wife felt just as relieved as he did. That feeling did not last. Within weeks, the family lost access to SNAP and Medicaid. The raise did increase their pay, but it was nowhere near enough to replace what those programs had been covering.

For many working families, earning more does not always mean getting ahead. In a benefits system built around hard eligibility cutoffs, even a modest increase in income can trigger losses that outweigh the gain.

The cost of replacing lost benefits has risen. Healthcare, housing, education, and other core household expenses have become harder to absorb, especially in Orthodox communities with their unique financial needs and expenses. The loss of benefits is landing on families that often have less room than ever to take on new costs.

For millions across the United States, an increase in earnings triggers a unique and counterintuitive reality: a “benefits cliff” where more sometimes balances out to less.

Result: Benefits Cliff

The benefits cliff occurs when a small increase in income makes a household ineligible for public assistance programs. Families rely on these programs, such as the Supplemental Nutrition Assistance Program (SNAP) for food, Medicaid for healthcare, and housing subsidies to meet their basic needs. Eligibility thresholds for these programs are set at levels that are aimed at supporting the vulnerable and below poverty-line population. But they don’t always account for the actual cost of living. This is especially true for the religious Jewish community, where basic expenses like higher food costs and the necessity of private religious education are not considered in the standard support equation.

When income rises above these thresholds, benefits are often reduced or eliminated, and the consequences extend beyond benefits. Fear of falling off the benefits cliff discourages families from working more hours, going after better jobs, or accepting raises because they know that, perversely, moving ahead can actually set them back. Losing Medicaid alone can saddle a household with tens of thousands of dollars in new insurance costs, and losing SNAP can double a family’s monthly food bill. In a system that doesn’t reward progress, many families rationally choose to stay safe.

Rising Dependance on Medicaid

Over the last decade, Medicaid enrollment has risen from about 66 million people in 2015 to over 91 million in 2023. Although enrollment declined after pandemic-era protections expired and states resumed disenrolling ineligible members, 2025 levels remain well above pre-pandemic figures — reflecting a long-term upward shift in the share of Americans relying on the program for health coverage.

This sustained growth is heavily driven by state-level expansions under the Affordable Care Act, with states like North Carolina and Missouri recently opening eligibility to nearly all low-income adults. However, the transition has been rocky due to Medicaid churn, with millions of eligible individuals—particularly children—losing coverage due to “procedural” reasons, like missing paperwork, rather than a genuine change in income.

The increased reliance on Medicaid also reflects deeper demographic and economic shifts. Out-of-pocket costs in the private market have risen faster than household income over the last five years, with more “working poor” families finding employer-sponsored plans unaffordable. Currently, nearly two-thirds of adult Medicaid enrollees are employed in jobs that offer little to no health benefits, pushing the program to act as a critical safety net for the labor force. Participation among those eligible has climbed from 76.5% a decade ago to over 86% today. Medicaid has shifted from being a temporary fix to acting as a mainstay of health coverage for a broad segment of the population, making the benefits cliff even steeper.

Programs like Medicaid also shape how support is delivered at the school level. In many districts, when a large enough share of students relies on public health or nutrition assistance, schools can provide free lunches to all students, regardless of individual family income. When even a small number of families lose eligibility due to modest earnings gains, that balance can quickly shift. Schools may lose the ability to offer universal meals, reintroducing costs that affect every family—not just those who crossed an income threshold. For working parents, this can mean higher household food expenses and greater reliance on community support. The ripple effects of the benefits cliff now extend well beyond individual households and reshape access to support across entire classrooms and communities.

Combined, these factors lead many families to turn toward their local charities for help. In the Jewish community, where expenses are higher than average, studies show economic hardship rates as high as 67%. Nonprofits have become a major backbone and serve as a community support system. By providing emergency food, rent support, and childcare scholarships, charities have become a form of “gap aid” for families who are not quite impoverished, but not fully on their feet. Organizations like UJA and Tomchei Shabbos provide millions of pounds of food to tens of thousands of families, serving as critical gap support for those who fall outside traditional assistance thresholds.

Building Stability That Lasts

A 2024 Tulane/Rosov study found that benefits cliffs remain a significant driver of economic vulnerability among American Jewish families. More than a policy problem, the benefits cliff is a daily challenge that keeps families stuck. Fortunately, communities have recognized the need and already have a strong communal infrastructure to build on.

As long as eligibility cutoffs remain sharply defined, community‑rooted solutions have proven to be the most effective way to bridge the gaps the system leaves behind. By bolstering the services they already offer, organizations can help smooth out a system that, in practice, punishes advancement. By expanding services to help families navigate benefits like bridge loans, accessible food pantries, and financial coaching, communities can foster lasting stability rather than the dependency that current systems often encourage.

Jewish nonprofits and the funders who support them should direct philanthropic dollars toward helping families achieve independence from public assistance, thereby reducing financial hardship in their communities. By drawing on the Jewish community’s many strengths, nonprofits can create coordinated, practical solutions that help families move out of poverty without being pulled back down by the very systems meant to support them.

Back to industry updates

For nearly two decades, New York’s Consumer Directed Personal Assistance Program (CDPAP) was a model of how government and community could work together. Established in 1995 and expanded under the state’s 1115 waiver, CDPAP empowered more than 250,000 New Yorkers with chronic illnesses or disabilities to hire, train, and supervise their own caregivers—often family members or close friends—while Medicaid covered the cost.

Behind the scenes, over 600 fiscal intermediaries (FIs) handled payroll, taxes, benefits, and compliance. The program created tens of thousands of jobs, kept care local and personal, and gave vulnerable populations unprecedented control over their daily lives.

Then, in May 2023, reform arrived. CDPAP had grown quickly—from roughly $1 billion in 2013 to more than $12 billion by 2023—and state officials began to question whether the structure was sustainable. Reports of fraudulent billing and improper enrollments, some involving millions of dollars, intensified pressure to act. The FY 2024–2025 budget introduced a seismic shift: CDPAP would be consolidated under “one or more” statewide FIs by April 2025.

In the fall of 2024, Public Partnerships LLC (PPL) was selected as the sole statewide contractor and everyone in the program was required to reenroll. However, non-registered consumers temporarily lost payroll processing for several months in early 2025 until they moved to PPL. By November 2025, roughly 93% of consumers had transitioned to PPL. The remainder either were reassigned to traditional personal care services or remained under short-term court extensions.

The reform also negatively affected all of the agencies and employees supporting CDPAP. Legacy FIs saw their authorization codes deactivated, their software and leases rendered useless, and their compliance teams dismantled almost overnight.

Behind the headlines, caregivers and consumers bore the brunt of the transition. Tens of thousands of families faced temporary interruptions in payroll, reenrollment paperwork, and the loss of familiar coordinators. While eligibility and authorized hours largely remained intact, the administrative chaos hit hardest in rural and non-English-speaking communities.

Some improvements followed—wage increases, premium assistance, and new benefits—but the loss of local relationships left a mark. The personal touch that once defined CDPAP gave way to a centralized platform.

Dozens of small agencies shuttered. Others tried to pivot to new service lines or merged with larger players. Only a few—particularly union-affiliated FIs backed by major networks—managed to adapt, aided by new wage floors exceeding $20 per hour in New York City. While a coalition of FIs filed suit over unannounced rate cuts, the verdict was that the consolidation was legal and final.

The Fragility of Government-Centric Business Models

Once reform began, the transition exposed the fragility of an entire industry. In a matter of months, over $12 billion of annual program revenue was effectively reallocated away from more than 600 fiscal intermediaries to a single statewide administratorleaving thousands of people jobless and owners high and dry.

CDPAP is not an isolated case. It is a clear example of a broader category: policy-dependent business models, where a company’s revenue is largely derived from a single government program or regulatory framework. When the government is both client and regulator, stability lasts only as long as political priorities remain aligned. Currently, multiple healthcare sectors are in business models depending on a single government player.

ABA businesses are highly dependent on reimbursement policy across both Medicaid and commercial insurance. While Medicaid often represents a significant portion of revenue, commercial insurers—subject to state mandates, utilization management, and authorization controls—also play a critical role. For example, some states provide ABA coverage to children under 21 through Medicaid Early and Periodic Screening, Diagnostic, and Treatment benefit. An ABA business operating in a state without this limit is likely to have a significant client base of people over 21 years of age. If the state imposes the age limit, then a clinic’s patient base or service hours can drop immediately, similar to what happened with CDPAP.

Skilled nursing facilities (SNFs) are also typically heavily dependent on government reimbursement, especially through Medicare and Medicaid. For example, a reduction of even 2% to 3% in the SNF Prospective Payment System can significantly affect SNF margins. Additionally, policies that affect minimum hours per resident per day (HPRD) and registered nurse staffing requirements, such as the CMS minimum staffing requirements for nursing homes, can require facilities to hire more nurses or reduce margins if rates do not rise in conjunction.

How Health Care Sectors Can Proactively Diversify

No company can eliminate policy risk entirely. Other health care sectors that are built on the scaffolding of policy should learn from the lessons of CDPAP and take proactive measures now to reduce risk. But leaders in regulated sectors can mitigate it by planning and building for adaptability if the day arrives that the policy supporting the program changes.

Run “What If” Scenarios

Private businesses should continually evaluate their business by running “what if” scenarios and asking the hard questions. If the rule changes tomorrow, what survives? If the answer is “nothing,” the business isn’t truly independent—it’s subsidized. With these questions, businesses can identify weaknesses in the business model and target areas to focus on for risk reduction.

Diversify Revenue

When an entire business is built on government contracts, the time to diversify is now. Because CDPAP served Medicaid exclusively, private-pay expansion would have required new billing systems, pricing models, and marketing infrastructure, making it too late to diversify once the policy changed.

Policy-based businesses can increase the odds of longevity by proactively looking for other revenue sources before disruption. Instead of relying only on the government, they aim for at least 20% to 30% of revenue from nongovernmental or commercial contracts. Businesses should evaluate their current areas of expertise and resources to identify services marketable to the private sector.

For example, ABA companies, which typically rely heavily on government funding streams, such as Medicaid, school districts, and state agencies, can expand into adjacent behavioral health services. By using current expertise in speech therapy, occupational therapy, and mental health counseling, these companies can offer these as stand-alone services. Other revenue sources may include private-pay coaching programs for parents or social skills groups for teens and young adults. With this approach, ABA companies can evolve into comprehensive multidisciplinary development centers.

Design for Agility

Because businesses built on government policies typically have all of the processes designed specifically for that government program, it’s almost impossible for the company to quickly shift direction. By building modular systems and flexible financing, the company can quickly pivot when funding streams shift without rebuilding every operational process.

For example, a SNF largely dependent on Medicaid contracts is at high risk for disruption due to policy changes. To create agility, facilities can develop formal partnerships with hospitals to provide post-acute care bundles, hospital step-down programs, rapid discharge units, and transitional care programs. This allows the organization to capture revenue across the entire post-acute care continuum, not just from inpatient beds. By also designing processes for payment and billing that work for health care systems and private-pay options, the facilities can quickly expand these diversified income streams.

Avoiding a Blindside Due to Policy Changes

Many of the organizations affected by the CDPAP reform felt like the changes were sudden and out of the blue. In addition to widespread fraud and investigations, the New York Legislature was in discussions about reform for several years. Even though lawmakers held hearings about the program and discussed consolidation of fiscal intermediaries, businesses not closely monitoring the policy and program may have missed these signals.

Policy-based businesses should create processes for tracking any potential changes or increasing attention to related policies, similar to the attention put on financial metrics. For example, businesses should follow all related legislative sessions and read all Medicaid bulletins related to their industry. Additionally, businesses should monitor fraud reports and investigations because reform often follows increased scrutiny.

While policy-based businesses are often lucrative while at the same time providing a valuable service, leaders must proactively prepare for government changes that disrupt their business. By taking proactive action, especially creating diverse revenue streams—businesses can prepare for the inevitable shift that happens. Instead of being blindsided by disruption, businesses can adapt quickly, make targeted adjustments, and continue advancing their mission.

Back to industry updates

Chinese auctions and raffles are a go-to fundraising tool for many nonprofits, combining excitement with high donor engagement. But what seems like a simple charitable event can carry hidden legal and tax obligations, including the often misunderstood “no purchase necessary” requirement.

Are your events following the rules, or could a simple mistake lead to costly consequences?

Promotional Devices

Fundraising games come in different flavors: Games of Skill, Games of Chance, and Sweepstakes.

Games of Skill select winners based on an entrant’s performance. Common campaigns using games of skill include trivia contests, writing contests, and sports competitions, where winners are determined by ability rather than chance. Because the outcome depends on performance, these contests are generally exempt from gaming laws—although fairness and transparency are a must to avoid raising red flags. State or local laws regulating games of skill may also apply. For example, in NY, Interactive Fantasy Sports are a game of skill but still must register and comply with specific laws.

Games of Chance are defined by three components: consideration, i.e., paying for your ticket; random drawing, i.e. win by a lucky draw; and a winning prize. If all three elements are present, the game legally functions as a game of chance and is generally subject to state gaming laws. The states that allow for-profit entities to conduct gaming generally limit it to small areas, such as Atlantic City. Most states allow charities to utilize gaming; however, complying with all the regulations can be burdensome, especially if you want to operate online games or conduct games in multiple states.

So how does an organization woo donors, offer a high-energy promotion, and raise funds without triggering gaming rules?

The answer for many organizations is Sweepstakes.

Sweepstakes are also chance-based and can be utilized by both for-profit and nonprofit entities. The key distinction between a game of chance and a sweepstakes lies in eliminating “consideration” by offering a free entry option, commonly called an Alternate Method of Entry (AMOE).

The Alternate Method of Entry is the “get-out-of-jail-free card” that most clearly differentiates a sweepstake from a game of chance. It is also the area most often overlooked. Many organizations will just write, “no purchase necessary” and never provide an actual AMOE.

Sweepstakes must have official rules, and usually include:

No purchase necessary
Clear eligibility criteria
Timing of the promotion
Instructions for entering, including the AMOE
Winning odds
Description of prizes and values, and
Method of determining winners.

There may be additional federal or state requirements. For example, if you send out sweepstakes using the US postal service, you will be subject to the Deceptive Mail Prevention and Enforcement Act, which has its own unique requirements.

Most states do not require registration or bonding; however, New York does require it when the total value of prizes exceeds $5,000. They also require filing a list of winners with the state after the event is over.

A sweepstakes structure avoids unintended classification as a game of chance and therefore circumvents many state restrictions. Bottom line: Done right, the sweepstakes option is a nonprofit’s preferred fundraising device.

Regulatory and Tax Context

From a federal perspective, an important consideration for nonprofits is unrelated business taxable income (UBTI). Under IRS § 512 and 513 and Treasury regulations, if a tax-exempt charity (§ 501(c)(3)) conducts a trade or business that is regularly carried on and is not substantially related to its exempt purpose, the net income may be subject to tax (see IRS Publication 598).

Gaming income can fall into this category if it is recurring or structured as a business activity, rather than serving the charity’s mission. If, for example, a nonprofit hospital runs weekly raffles to raise money for patient programs, offering prizes of high-end electronics, the funds raised will be taxable.

Prize winners also have obligations. Their winnings are generally taxable, and charities may need to issue Form W-2G for games of chance, 1099-MISC for sweepstakes, and in some cases may withhold taxes. Sweepstakes organizers must comply with tax reporting obligations. For sweepstakes organizers, compliance with federal, state, and sometimes local tax reporting obligations are also binding.

Organizations take note: Study and implement all legal requirements carefully before unleashing your creativity on new and exciting fundraising initiatives.

Key Takeaways

To see success, fundraising requires creativity—and a heavy dose of compliance. While many options exist, sweepstakes take the lead as a powerful tool that excites donors and draws in funding, a win-win for nonprofits. Staying on top of tax, prize, and state requirements can keep campaigns smooth, legal, and mission-driven, which allows nonprofits to spend less time on paperwork and red tape and more time on making an impact.

Back to industry updates

In multi-site ABA organizations, a five-point swing in utilization can separate a clinic that’s stable from one that’s quietly slipping. But when it’s time to confirm that number, you often can’t. Operations says utilization is fine. Payroll says overtime is climbing. Finance says cash is lagging. You can’t tell if the clinic has a delivery problem, a staffing problem, or a billing problem—so you default to guesswork.

This dynamic becomes common once organizations move beyond a single location. Most ABA providers have already tightened the basics: scheduling discipline, supervision standards, intake controls, and conversion expectations. Those processes exist.

The challenge at scale is consistency.

Once you have multiple clinics (often added at different times, with different teams and habits), “the same process” starts to mean different things in practice. One location assigns clients by where they’re seen, another by where they’re staffed. One team tracks utilization against scheduled hours, another against authorized hours. Those variations don’t feel dramatic day to day, but they change the math.

Two clinics can run nearly identical operations and still report different utilization, productivity, and cost per hour simply because definitions diverge between systems.

Part of the issue is that the data you need to answer basic operating questions live in different places: CentralReach for authorizations and session delivery, Paycom for payroll and labor costs, and your accounting/billing system for claims, adjustments, and cash. Each system has its own identifiers and timing, so the same KPI can shift depending on whether you’re using service dates, pay periods, or posting dates.

To bridge the gap, teams often export data into spreadsheets. Over time, reporting becomes a manual reconciliation exercise. By the time inconsistencies are identified, the operational impact has already occurred—authorizations nearing expiration, claims aging, labor costs exceeding delivered hours.

The organization spends more time debating the number than managing it.

What Needs to Change

At scale, performance depends on aligning systems around a single operating model.

That means defining hierarchies that match how leadership runs the business:

Enterprise → Region → Clinic
BCBA → Therapist → Client
Payor → Service Line → Authorization

It also means defining key metrics once and applying them consistently.

For example, if utilization is defined as converted hours divided by authorized hours, the model must explicitly address:

Partial weeks
Overlapping authorizations
Inactive clients
Retroactive adjustments

Without documented rules, utilization becomes situational.

Integration has to happen before reporting. Service delivery, payroll costs, and billing data must connect at the data level so dashboards are not dependent on manual stitching.

Exception handling should be built into the reporting model itself, including sessions delivered outside authorization dates, duplicate or overlapping authorizations, delivered hours that exceed remaining authorized balances, supervision gaps, and missing pay rates or clinic assignments.

These start as edge cases, but in multi-site environments, they become routine.

What Integrated Reporting Enables

When systems are aligned, leadership can see the full operating chain:

Authorization → Scheduled → Delivered → Billed → Collected → Labor Cost

Business intelligence tools like Power BI can then present a single set of KPIs across clinics, provider roles, payors, and time periods—without redefining metrics in separate spreadsheets.

The impact is practical:

Earlier detection of underutilization
Visibility into authorization risk before expirations
Identification of unbilled or underbilled services
Accurate cost per delivered hour—including PTO, training, travel, overtime, and supervision overhead
Clean comparisons across clinics without manual adjustments

Most importantly, leadership discussions shift from “Which number is correct?” to “What are we going to do about it?”

***

In early-stage growth, expansion drives results. In multi-site organizations, operating control drives results.

The competitive advantage is not simply adding another location. It is being able to answer, at any moment, how authorized hours are converting, what it truly costs to deliver them, and where breakdowns are forming before they reach the P&L.

That level of clarity does not happen by accident. It requires deliberate alignment of practice management, payroll, and finance—shared definitions, connected data, and reporting that reflects how the business is actually managed.

Organizations that invest in that connective layer shorten decision cycles, reduce margin drift, and give leadership a reliable operating view across clinics. Those that do not remain dependent on reconciliation and post-hoc analysis.

At scale, the difference is not the dashboard. It is the control behind it.

Back to industry updates

How Changing Multifamily Starts and Market Pressure
are Reshaping the U.S. Housing Investment Landscape

Rising housing costs and constrained homeownership are driving a structural shift toward rental housing in the U.S. In this white paper, Roth&Co will examine how affordability pressures and reduced starts in multifamily construction will impact investment and development over the coming year.

The core question: Is the multifamily vehicle a sustainable structural response to housing demand, or a short-term trend?

Read our analysis in the full report:

Download Report

Back to industry updates

As part of President Trump’s One Big Beautiful Bill Act (OBBBA), Congress enacted Internal Revenue Code §25F, creating a new federal income tax credit for individuals who contribute to Scholarship Granting Organizations (SGOs). The statute is intended to encourage private donations to support elementary and secondary education scholarships, while establishing baseline requirements for how those funds may be raised and used.

The statute itself establishes the credit amount, defines who may claim it, and sets high-level requirements for SGOs. However, Congress intentionally left many operational questions unanswered. The law does not explain, in practical terms, how states are expected to approve SGOs, how SGOs should demonstrate compliance, how multi-state organizations should operate, or how certain financial tests should be calculated year to year.

Treasury and the IRS addressed those open questions through Notice 2025-70.

Core Statutory Requirements Applicable to SGOs

Under §25F, an organization may qualify as an SGO only if it meets several core conditions. In broad terms, an SGO must be a tax-exempt public charity, must award scholarships to multiple students at more than one school, and must use the overwhelming majority of its funds for qualified education expenses.

The statute also requires that SGOs avoid donor control over individual awards, verify student eligibility based on income, and refrain from awarding scholarships to certain insiders or major contributors. In addition, SGOs must be identified and listed by a state that voluntarily elects to participate in the federal program.

The statute does not explain how these requirements should be administered in practice, including how states should verify compliance, what documentation SGOs must provide, how financial thresholds should be measured, or how existing nonprofit structures should be treated.

Treasury’s Interpretive Framework Under Notice 2025-70

Notice 2025-70 sets forth Treasury’s preliminary interpretations of the statute and requests public comment before regulations are proposed.

In several areas, Treasury’s approach reflects a preference for formal verification, state-level oversight, and detailed tracking. Treasury interprets the statute as requiring states to independently confirm that each listed SGO satisfies every federal requirement, rather than relying on representations from the organizations themselves. Treasury also proposes broad interpretations of financial tests, such as treating all organizational income as subject to the ninety-percent scholarship spending rule.

These interpretations are not expressly dictated by the statute and, as written, would, in Roth&Co’s view, impose additional administrative and operational requirements on SGOs beyond those explicitly described in §25F.

Roth&Co submitted comments in response to Notice 2025-70 to address these concerns and to advocate on behalf of the nonprofit organizations, donors, and communities that would be directly affected by the proposed interpretations and that Roth represents. The comments are intended to ensure that the final regulations reflect both the statutory framework Congress enacted and the practical realities faced by SGOs and the families they serve.

At a high level, Roth’s comments emphasize three main themes:

Treasury should enforce the statutory requirements Congress enacted without adding procedural hurdles not found in the statute.
Statutory ambiguities should be interpreted consistently with existing charitable law and IRS practice.
The rules should preserve sufficient flexibility for smaller, newer, or multi-purpose nonprofit organizations to participate in the program.

The sections below examine Treasury’s proposed interpretations of each issue and explain Roth’s specific comments on each point. Our full comments to Treasury can be read here:

Download

I. State Certification and Oversight of SGOs

Treasury’s Proposal

Treasury interprets §25F as requiring states to verify that each organization listed as an SGO satisfies all statutory requirements. Notice 2025-70 states that SGO self-certifications alone are insufficient, and anticipates that states will adopt policies and procedures to independently confirm compliance.

Roth’s Comment

Roth&Co supports the requirement that states submit complete lists of all SGOs that meet the federal requirements, rather than allowing states to selectively approve organizations. However, Roth cautions that Treasury’s approach could create administrative burdens that exceed those imposed on other charitable organizations.

Roth recommended that SGO compliance be demonstrated through affidavits or certifications made under penalties of perjury, supported by basic documentation such as proof of tax-exempt status and governing documents. This approach mirrors existing IRS practices for scholarship programs and other nonprofit compliance regimes.

Definition of “Located in the State”

Treasury’s Question

The statute requires that SGOs be “located in the State,” but does not define the term. Treasury asks how “located” should be interpreted and whether authorization to operate in a state should be sufficient.

Roth’s Comment

Roth recommended that an SGO be treated as “located in the State” if it is properly registered to do business in the state and complies with applicable charitable solicitation and regulatory requirements. This interpretation aligns with established federal tax practice and avoids imposing a physical presence requirement not stated in the statute.

II. The 90%Scholarship Expenditure Requirement

Treasury’s Interpretation

Section 25F requires an SGO to spend at least ninety percent of its income on scholarships. Treasury proposes interpreting “income” to include all income of the organization, including unrelated business income, rather than limiting the calculation to qualified contributions.

Roth’s Comment

Roth explained that interpreting “income” as including all organizational receipts would create significant operational challenges, particularly for new or multi-purpose nonprofits. Under Treasury’s approach, SGOs could be required to segregate administrative funding, form separate legal entities, or curtail existing scholarship programs.

Roth recommended interpreting “income” to mean qualified scholarship contributions and suggested allowing multi-year averaging or transitional relief during early years of operation.

III. Interaction Between Federal and State Scholarship Tax Credits

Treasury’s Rule

Notice 2025-70 explains that the federal §25F credit must be reduced by the amount of any state tax credit allowed for the same contribution.

Roth’s Comment

Roth noted that many states offer partial tax credits for scholarship contributions. Roth recommended that the federal credit remain available for the portion of a contribution not offset by a state credit and that reductions be based on credits actually claimed, rather than credits merely available under state law.

IV. Treatment of Multi-state SGOs

Treasury’s Proposal

Treasury anticipates requiring multi-state SGOs to ask donors to designate the state in which their contribution is intended to be used and is considering whether core statutory requirements should be applied on a state-by-state basis.

Roth’s Comment

Roth explained that applying these requirements separately by state would significantly increase administrative complexity without advancing the statute’s purpose. Roth recommended applying spending thresholds, student counts, and similar requirements on an organization-wide basis, and not on a state-by-state basis, provided that scholarship funds are used only in states where the SGO is properly listed.

V. Definition and Treatment of Disqualified Persons

Treasury’s Consideration

Treasury is considering whether to modify the definition of a “substantial contributor” for purposes of determining disqualified persons, potentially lowering the threshold to a percentage-only test.

Roth’s Comment

Roth cautioned that removing the existing dollar threshold could cause most or all donors to many small SGOs to become disqualified persons. Roth recommended retaining the current standard derived from private foundation rules, which requires both a dollar threshold and a percentage test.

VI. Reporting and Recordkeeping Obligations

Treasury’s Proposal

Treasury anticipates imposing reporting and recordkeeping requirements on SGOs, potentially including donor identification information and detailed data on scholarship recipients.

Roth’s Comment

Roth urged Treasury to balance the IRS’s need for information with donor privacy and administrative burden. Roth pointed out that the tax benefit associated with an SGO contribution is not greater than the benefit associated with a $10,000 charitable contribution by a taxpayer in the highest marginal tax bracket. Roth recommended aligning reporting requirements with existing charitable contribution standards, rather than imposing heightened requirements disproportionate to the tax benefit involved.

VII. Application of the Credit Limitation to Joint Filers

Roth’s Comment

Roth requested clarification that the $1,700 credit limitation applies per taxpayer and not per return, meaning married couples filing jointly should be eligible for a combined $3,400 credit. Roth noted that the statute refers to taxpayers rather than tax returns and requested explicit guidance to avoid inconsistent application.

***

While §25F establishes clear substantive guardrails for Scholarship Granting Organizations, it leaves meaningful discretion as to how those requirements are administered. Several interpretations described in Notice 2025-70 would, if adopted, materially narrow participation in the program beyond what Congress enacted. Roth&Co’s comments urge Treasury to implement the statute in a manner consistent with existing nonprofit law and IRS practice, preserving flexibility for SGOs while maintaining appropriate oversight as the program moves toward full implementation.

Back to industry updates

The ABA industry is growing fast, but that doesn’t mean all ABA businesses are healthy.

Plenty of owners have full caseloads and constant referrals, yet still lie awake wondering how they’re going to make payroll, pass an audit, or keep staff from leaving.

Good clinical work is the price of entry. On its own, it doesn’t protect from bad contracts, sloppy billing, or nonstop turnover. When ABA practices wobble or fail, the root causes usually fall into four areas: people, compliance, money, and growth.

Let’s take a better look at these four pivotal factors to see where some ABA practices fall short, and how stronger practices do things differently.

Team Performance: Retaining the Right People

Staffing is usually the primary constraint in an ABA practice. When turnover is high, you lose more than headcount. You lose supervision capacity, continuity for families, and any chance at a predictable schedule. Under pressure, owners hire whoever is available and watch quality and morale erode.

David “Schatzy” Schatzkamer, who works with new and growing ABA practices, sees the same pattern repeatedly:

“Having the right people in the right positions is crucial. Don’t wing it. If you don’t have the right people and processes in place, at the end of the day, you’re inviting chaos.”

In day-to-day operations, that “chaos” looks like last-minute cancellations, plans not implemented as written, supervisors spending most of their time putting out fires, and parents quietly looking for another provider. Over time, it turns into complaints, negative reviews, audit findings, and stalled growth.

Getting out of that pattern is mostly about doing the basics consistently. Roles need to be defined clearly—BCBA, RBT, scheduling, billing—so work is assigned purposefully rather than by default. Turnover and vacancy times should be tracked so you can see when a position is a chronic problem rather than an isolated event. Professional development needs to be tangible: real supervision, meaningful CEU support, and a visible path forward. Burnout must be managed with clear expectations around caseload and travel, not only with “thank you” messages. And someone must own the HR function: onboarding, credential tracking, performance reviews, and the difficult conversations that keep standards real.

If the team is not stable, nothing else will be stable. Better systems and reports can help, but they cannot compensate for a revolving door.

Compliance & Risk Management: Reducing Avoidable Headaches

Compliance problems in ABA rarely arrive as one big event. They accumulate quietly in the background: licenses that expired last month, plans that weren’t updated on time, progress notes that don’t match what was billed, and consents or signatures that no one can access quickly.

Any one of these can delay payment or trigger recoupments. Taken together, they give payers and regulators a reason to look more closely.

Charlene Kurth is COO of Office Puzzle, a platform many ABA practices use for documentation, scheduling, and billing. She sees a common root cause:

“Many teams juggle multiple systems or rely on manual processes, which makes for errors and gaps in information. We see clinicians spending too much time on paperwork; it’s become a persistent challenge across the industry.”

The goal is not more forms; it’s fewer surprises.

In practice, that means having one reliable way to track licenses, certifications, and renewal dates, with clear responsibility for keeping them current. It means setting specific expectations for documentation— what belongs in each note, how soon it must be completed, and what happens when it isn’t—and enforcing those standards consistently. It means using HIPAA-compliant systems for scheduling, notes, billing, and data storage, rather than relying on personal email accounts or scattered spreadsheets that are hard to defend under scrutiny.

It also means doing some internal review before a payer or regulator does it for you: periodic chart reviews, pre-billing checks, and spot audits on high-risk items like time overlaps and units billed. Some practices run everything through a single platform like Office Puzzle; others use a set of tools that work together. The specific stack matters less than the answer to a simple question:

If a payer or regulator showed up tomorrow and asked you to show what you did, why you did it, and why you billed for it, could you pull that together quickly, without panic?

If the honest answer is “not really,” the issue isn’t only paperwork- it is unresolved compliance risk.

Financial Management: Turning Activity into Cash

Most ABA practices don’t struggle because they have a lack of demand. They struggle because they don’t convert that demand into cash at the right speed and margin.

Common problems include not delivering all the hours that have been authorized, billing that is late or inconsistent, and a lack of clarity around which services, locations, or contracts are profitable.

Schatzy puts it very plainly:

“When a client gets approved for six hours of services, and you’re only delivering three, that’s a real problem. Billing’s already tight while you wait on reimbursements, and all of it just squeezes your cash flow — the same cash you need to make payroll.”

Those missing hours are not abstract. They represent lost revenue, slower client progress, and often deeper scheduling or staffing issues.

On top of that, many owners start with DIY accounting or ask an office manager to handle the books “when there’s time.” That may work early on, but as the practice grows, it often leads to financial reports that are incomplete, late, or both. By the time a cash crunch is obvious, the range of options is less than ideal.

A more durable approach is to treat the numbers as instruments, not tax inputs. A few metrics tend to matter across practices:

Revenue per billable hour shows whether you are fully realizing the value of the hours you are authorized for, at your contracted rates.
Gross margin, often targeted around 30–40%, shows what is left after direct labor and related costs to cover everything else and still produce a surplus.
EBITDA, commonly in the 10–20% range for a healthy operation, shows whether the core business is profitable before owner-specific items and financing. Staff utilization, often in the 70–85% range, shows how much of clinicians’ time is truly billable versus being absorbed by travel, admin, or gaps in scheduling.
Denial rates and A/R collection time show whether you are getting paid what you bill and how long that cash is tied up.

None of these numbers have to be perfect, but they do have to be consistent, timely, and visible.

Whether you manage this in-house or with accountants who understand ABA, some basics don’t change: close the books on a regular schedule, review the same set of KPIs every month, and treat large swings as red flags to investigate, not as background noise. If you find yourself surprised by your own cash position more than once, the financial system is not doing its job.

Growth & Business Strategy: Expanding Without Breaking the System

“Growth” sounds positive. In practice, adding clients, services, locations, or payers puts pressure on the same three key factors:- staff, systems, and cash. If these are not strong, growth tends to magnify existing issues instead of solving them.

Before saying yes to the next opportunity, it helps to ask a few direct questions:

Who are you genuinely well-positioned to serve? Age, diagnosis, intensity of need, setting, and geography all matter. A practice that tries to be “for everyone” often ends up stretched thin where it matters most.
Which payers and contracts are worth it? Low reimbursement combined with a heavy administrative burden can be a losing proposition, even if the volume looks attractive on paper. Some contracts are better declined than accepted.
Where do referrals really come from? In many markets, pediatricians, schools, and parent networks drive more volume than advertising. Relationships and reputation often matter more than marketing efforts.

Some practices grow by acquiring other clinics; others build one location at a time. In both cases, a concentrated payer mix—with only a few payers dominating the book of business—creates risk if rates or rules change. New services and new locations also consume cash before they contribute meaningfully to the bottom line. If the existing operation isn’t consistently profitable and reasonably predictable, expansion tends to accelerate financial strain.

A more disciplined sequence is to stabilize one site first, with staffing and compliance under control, and financials you trust. Then use that site’s real data to model what it will cost and how long it will take for a second or third site to reach breakeven. Finally, pressure-test your systems: scheduling, billing, supervision, and reporting should be able to handle a significant increase in volume without turning into a series of manual workarounds.

Telehealth and home-based care follow the same logic. They can solve problems with accessibility and travel, but they introduce their own supervision, logistics, and technology challenges. The core question doesn’t change: do you have the people, systems, and cash to add this element to your practice without destabilizing what already works? If the answer is “not yet,” the work at hand is to strengthen the practice’s core, not push harder towards growth.

Pulling It Together

Seen through these four lenses—people, compliance, money, and growth—the solvency of an ABA practice becomes easier to assess honestly.

If your calendar is full but staff are exhausted and frequently thinking about leaving, the main issue is people. If you dread a provider audit on your documentation, the issue is compliance. If the only time you see a clear picture of your numbers is in tax season, the issue is financial visibility. If “growth” mainly shows up as more stress on the same leadership team, the issue is strategy and capacity.

There is no single perfect model. But the practices that stay healthy over the long term tend to share a few habits: they look at these areas regularly, they are willing to see what is actually happening in their own operations, and address problems when they are still small, instead of waiting for them to become existential.

Back to industry updates

Charitable giving is about to get more expensive.

For individual taxpayers who give regularly, 2025 is a critical year-end. Beginning in 2026, a mix of expiring provisions, new limits, and revived deduction rules will materially affect the tax benefits of charitable giving.

The good news is that these rules are well defined. With thoughtful planning, donors can still give generously while protecting the tax benefits they intend to claim. The key is understanding how timing, income thresholds, and the type of assets donated interact under the new framework.

Why 2025 May Be the “Last Best” Year to Accelerate Gifts

For many taxpayers, charitable giving follows a predictable annual rhythm: donations are typically made late in the year, in similar annual amounts, and are usually funded with cash. That approach has worked well under the current rules, which allows itemizing taxpayers to deduct charitable contributions without a minimum threshold and subjects them only to standard adjusted gross income (AGI) percentage limits.

Starting in 2026, charitable deductions will be subject to new limits. Only contributions above a minimum amount will be deductible, and higher-income taxpayers will face further reductions to itemized deductions. Without careful planning, some charitable gifts may no longer deliver the expected tax benefit.

Against that backdrop, 2025 presents a unique opportunity. Taxpayers who expect to give regularly in future years may benefit from accelerating a portion of those gifts into 2025, when the full amount remains deductible under existing rules. Acceleration does not necessarily mean giving more over a lifetime. Instead, it may involve shifting the timing of gifts that would otherwise be made in 2026 or later.

For example, a donor who typically gives $20,000 each year might consider contributing $40,000 in 2025 and skipping or reducing gifts in 2026. In the right circumstances, that approach can preserve deductions that might otherwise be partially disallowed under the new rules.

Cash Gifts and AGI Limits: What Stays the Same and What Changes

One point of continuity is the treatment of cash gifts made to public charities. The 60% of AGI limitation for cash contributions has been made permanent. This means that, in any given year, a taxpayer can still deduct cash gifts up to 60% of their AGI, with excess amounts eligible for carryforward. However, starting in 2026, although the percentage limit remains in place, a minimum threshold will apply. This means that charitable contributions must exceed a minimum contribution amount before any portion of their charitable giving becomes deductible.

The New 0.5% Income Floor Starting in 2026

Beginning in 2026, individual taxpayers will only be allowed to deduct charitable contributions to the extent that those contributions exceed 0.5% of their income, creating a “floor” similar to those that apply to certain other itemized deductions.

Importantly, the floor amount itself does not automatically carry forward. In most cases, the portion of contributions that fall below the 0.5% threshold is permanently lost for tax purposes.

For example, a taxpayer with $200,000 of income will have a charitable floor of $1,000. Only charitable contributions above that amount will be deductible. A $900 donation would generate no charitable deduction at all. A $5,000 donation would result in a $4,000 deduction.

This change disproportionately affects moderate and consistent donors who give meaningful amounts each year but do not exceed other percentage limits. Understanding when the floor is lost and when it may be preserved is critical.

Carryforward Mechanics: When Deductions Are Lost and When They Are Saved

To understand how the new floor interacts with carryforward rules, consider two simplified examples.

Example 1: Floor Amount Lost

In 2026, Alice earns $200,000 and donates $10,000 in cash to public charities. Her 0.5% floor is $1,000.

Total contributions: $10,000
Less floor: $1,000
Deductible amount: $9,000

Because Alice’s $10,000 gift does not exceed any AGI percentage limits, there is no carryforward. The $1,000 floor amount is permanently lost and cannot be deducted in a later year.

Example 2: Floor Amount Preserved Through Carryforward

Now assume Alice earns $200,000 but donates $140,000 in cash to public charities in 2026. Her charitable deduction is subject to both the new 0.5% income floor and the 60% of AGI limit for cash gifts.

The 0.5% floor equals $1,000.
The 60% AGI limit allows a maximum deduction of $120,000.

After applying the $1,000 floor, Alice may deduct $119,000 of her contributions in 2026. The remaining $21,000 carries forward to future years. This carryforward consists of $20,000 that exceeds the AGI percentage limit, plus the $1,000 floor amount that could not be deducted in the current year.

Because Alice’s total contributions exceed the AGI limit, the floor amount is not lost. Instead, it becomes part of her carryforward and may be deductible in a later year, subject to the applicable charitable deduction rules.

The distinction matters. Taxpayers who give large amounts relative to their income may be less affected by the floor than those whose giving is substantial but not high enough to exceed percentage limits.

Why Asset Mix Matters More Than Ever

The type of property donated has always mattered for charitable planning, but the new rules amplify those differences. Cash gifts are subject to higher AGI limits than gifts of appreciated assets such as publicly traded stock, which are generally limited to 30% of AGI.

These differing limits interact with the new floor and ordering rules in ways that can change outcomes.

For example, a taxpayer who donates appreciated stock equal to 30% of AGI may generate carryforwards more easily than a taxpayer who donates the same economic value in cash. That carryforward can help preserve deductions that would otherwise be lost to the floor.

Conversely, a donor who gives only cash and stays comfortably below the 60% limit may lose the floor amount each year starting in 2026.

Year-end decisions about what to give can therefore be as important as decisions about how much to give. In some cases, contributing appreciated assets rather than cash may improve both tax efficiency and long-term planning flexibility.

High-Income Itemizers and the Return of the Itemized Deduction Haircut

High-income taxpayers face another challenge beginning in 2026 with the return of the overall limitation on itemized deductions under Internal Revenue Code (IRC) Section 68. This rule reduces the total amount of itemized deductions available to taxpayers in the highest income brackets.

For purposes of the itemized deduction limitation under IRC §68, a high-income taxpayer is one whose adjusted gross income (AGI) exceeds the statutory threshold for that year.

For these taxpayers, itemized deductions, including charitable contributions, can be reduced by up to approximately 5.4%. Importantly, the portion of charitable deductions disallowed under this rule is generally not eligible for carryforward.

In practical terms, this means that even after navigating the 0.5% floor and AGI limits, high-income donors may still permanently lose a portion of their charitable deduction.

By way of illustration, assume a high-income taxpayer otherwise qualifies for $100,000 of itemized deductions, including charitable contributions. Under the IRC §68 limitation, those deductions are reduced by approximately 5.4%.

Calculation:

$100,000 × 5.4% = $5,400

$100,000 − $5,400 = $94,600

The $5,400 of itemized deductions are permanently disallowed, leaving $94,600 deductible. Unlike other charitable deduction limitations, the disallowed $5,400 generally cannot be carried forward, meaning that even fully substantiated charitable contributions may lose a portion of their tax benefit for high-income taxpayers.

Section 68 makes pre-2026 planning particularly important for taxpayers who expect to remain in the top tax brackets and who routinely itemize deductions.

Standard Deduction Taxpayers and the Return of the Above-the-Line Charitable Deduction

Not all taxpayers itemize, and for those who claim the standard deduction, charitable planning looks different. Beginning in 2026, an above-the-line charitable deduction returns for non-itemizers.

Under this provision, taxpayers who do not itemize may deduct up to $2,000 of charitable contributions on a joint return, or $1,000 for all other filers. This deduction reduces income directly and is available regardless of whether total itemized deductions exceed the standard deduction.

However, there are important limitations. Contributions must be made in cash to qualifying public charities. Donations to donor-advised funds are not eligible. While the dollar amounts are modest, the deduction provides a meaningful incentive for smaller donors who otherwise receive no tax benefit for their giving.

For non-itemizers, year-end planning may involve ensuring that qualifying cash gifts are made directly to eligible charities and that expectations around deductibility are realistic.

Bringing It Together: A Year-End Planning Example

Consider David and Rebecca, a married couple filing jointly with $300,000 of AGI. They typically donate $15,000 in cash each year and itemize deductions.

Scenario A: No Planning, 2026 Rules Apply

Income: $300,000
Charitable gifts: $15,000
0.5% floor: $1,500
Deductible amount: $13,500

They lose $1,500 of deductions permanently. If the rules limiting itemized deductions apply, they may lose an additional portion of their charitable deduction.

Scenario B: Accelerated Giving in 2025

Instead, David and Rebecca donate $30,000 in 2025 and skip charitable gifts in 2026.

2025 deduction: full $30,000 (subject only to existing AGI limits)
2026 deduction: $0, but no floor loss

By accelerating gifts, they preserve deductions that would otherwise be partially lost under the new regime, without increasing their overall level of generosity.

A Positive Path Forward for Charitable Giving

The rules are becoming more complicated, but charitable giving itself has not lost its value. What has changed is the need to plan more carefully.

For donors who understand how timing, income thresholds, and asset selection interact, there are still meaningful opportunities to give generously and efficiently. With proper planning, donors can move forward knowing their charitable goals and tax strategies remain aligned—and that their generosity continues to make a difference.

Back to industry updates

It started with a simple act of generosity. David clicked “Donate” on a familiar nonprofit’s website, entered his credit card details, and hit “Submit.” Moments later, his inbox filled with fraud alerts—his card had been compromised. The organization he wanted to help had inadvertently exposed him to financial risk.

In today’s digital age, nonprofits rely heavily on online donations to fuel their missions. But this convenience comes with serious responsibilities. Every nonprofit is entrusted with sensitive personal and financial information, and the cost of neglecting that trust goes far beyond dollars—it can destroy reputations, alienate donors, and invite legal fallout.

Is donor data security a top priority for your nonprofit? Here’s why it should be.

The Dangers: More Than Just Numbers

Nonprofits are especially vulnerable to cyberattacks. Unlike corporations with large IT budgets and security teams, many charities operate on a lean budget, relying on staff or volunteers with limited technical expertise. That makes them prime targets for cybercriminals.

These organizations manage a surprising volume of valuable data—names, addresses, donation histories, and sometimes even Social Security numbers or government IDs. For online donations, credit card and bank details may briefly pass through their systems. For bad actors, this information is gold.

The Liability: Legal, Financial, and Regulatory Risks

A donor data breach isn’t just a tech issue—it’s a liability nightmare.

The Gramm-Leach-Bliley Act (GLBA)

This 1999 law allowed commercial and investment banks to merge, and created Fed-supervised holding companies. Originally designed for financial institutions, GLBA now also impacts many nonprofits—especially those managing donor-advised funds, student loans, or community aid. Even charitable missions can involve sensitive financial data, making compliance essential.

To understand GLBA, it helps to break down its three core components:

1. The Financial Privacy Rule

This rule governs how personal financial information is collected, used, and shared. Nonprofits must clearly communicate their privacy practices to donors and clients—usually through written or online notices. These disclosures should explain what data is collected, how it’s used, and with whom it’s shared. Transparency here builds trust and fulfills the first step of compliance.

2. The Safeguards Rule

This rule requires an up-to-date, written plan to protect sensitive data. Nonprofits must:

Designate one or more individuals to coordinate their information security program

Identify and assess risks to customer data

Design and implement safeguards, such as encryption, access controls, and regular system testing

Train staff and volunteers to handle data responsibly

Continuously monitor and adjust security measures as threats evolve

Even small nonprofits can meet these requirements with scalable measures, such as affordable cloud-based tools or outsourced IT management.

3. The Pretexting Rule

Pretexting refers to attempting to gain access to data under false pretenses—like impersonating a donor or vendor. This rule requires staff to be trained to recognize and prevent such social engineering attacks. Nonprofits should establish internal verification protocols and encourage staff to question suspicious requests, even if they appear legitimate.

Vendor and Partner Compliance

GLBA also extends to the vendors with whom a nonprofit works. If a nonprofit relies on payment processors, accountants, or CRM providers, it must ensure that they meet strong data protection standards. Contracts should define security expectations and outline response procedures in the event of a breach.

Failure to comply risks penalties and, worse, loss of donor trust. Even if GLBA doesn’t strictly apply, following its standards signals transparency and accountability. Strong privacy policies, vendor oversight, and staff training all reinforce credibility.

Beyond GLBA: A Web of Compliance

Nonprofits must also navigate PCI DSS (for online donations), GDPR (for EU donors or students), and state laws such as CCPA (California) and the SHIELD Act (New York). A single breach can trigger multiple regulatory obligations, and reputational damage that can linger for years.

Regulation	Applies To	Primary Focus	Key Nonprofit Obligation
PCI DSS	Organizations processing payment card transactions	Payment card data security	Use PCI-compliant processors; never store cardholder data locally
GDPR	Organizations processing personal data of EU individuals	Personal data privacy and consent	Obtain consent, allow deletion requests, disclose data use
CCPA	Organizations collecting or storing data of California residents	Consumer rights and transparency	Provide data access and opt-out options
SHIELD Act	Organizations collecting or storing data of New York residents	Data breach prevention and reporting	Maintain reasonable safeguards and notify affected parties

Noncompliance can trigger fines, lawsuits, or forced audits. Donors affected by data exposure can sue, and several nonprofits have already faced class actions. Many also discover too late that standard liability insurance doesn’t cover cyber incidents; separate cyber-liability policies are a must.

How a Breach Erodes Trust: Damage Beyond Dollars

Nonprofit relationships are built on trust. When donors give, they’re entrusting not just their money, but their personal information.

A breach can undo that in days. Headlines scare off supporters, donors pull back, and partners reconsider their involvement. Rebuilding confidence can take years—if at all. Even minor incidents can cripple smaller organizations where relationships are everything.

How to Avoid the Dangers and Stay in Compliance

The risks are real, but protection doesn’t have to be overwhelming. Focused, consistent practices go a long way:

Use PCI-compliant payment systems so credit card data never touches your servers

Collect only what’s necessary and securely delete old records

Limit access strictly to those who need it and review permissions regularly

Adopt strong security hygiene: multi-factor authentication, strong passwords, encryption in transit and at rest

Audit twice yearly to find weak spots and confirm safeguards

Be transparent with donors: publish clear privacy policies and offer opt-outs or data deletion

Train your team: awareness of phishing and fraud is your first defense

When these habits are embedded into daily operations, compliance becomes second nature and donor trust follows.

It’s More Than Managing Money

Protecting donor data isn’t just about avoiding penalties. It’s an ethical obligation and part of your mission’s integrity. Every nonprofit owes donors a duty of care not just for their dollars, but for their data. Protecting donor data protects the mission itself.

Back to industry updates

The One Big Beautiful Bill Act (OBBBA) introduces sweeping changes to Medicaid policy, with major implications for long-term care providers. While the headline is the $911 billion in projected federal spending cuts, the reality for providers is more nuanced. Some will face operational challenges; others may find themselves in a position to adapt and emerge more agile. Most will need to do both.

Medicaid Coverage and Eligibility

Much of the public focus on OBBBA has been on the estimated 4.8 million able-bodied adults who could lose Medicaid coverage under the bill’s new work requirements. While this has triggered alarming headlines, what’s often missing is the nuance: many of these individuals may gain coverage through other means—employer-sponsored insurance, ACA exchanges, or existing state-level programs. The number who will be permanently uninsured remains unknown.

For long-term care providers, the concern is limited. The population subject to work requirements doesn’t significantly overlap with LTC residents, who are typically elderly, disabled, or dual-eligible for Medicare and Medicaid. These populations are categorically exempt. So, while the Medicaid landscape is shifting, most LTC facilities won’t see their core census dramatically affected.

The broader Medicaid funding changes could still have some indirect, and even positive impacts. As recent reporting notes, cuts to hospital funding may lead to earlier hospital discharges and potentially increase skilled nursing admissions, at least temporarily. Although these admissions may come with greater clinical complexity, they may ultimately boost SNF census.

Administrative fallout may emerge in other ways. States under budget strain may respond to federal funding reductions with rate cuts or narrower coverage scopes and introduce new layers of complexity. This could mean more eligibility churn and delayed approvals for reimbursements.

To prepare, LTC operators should quantify exposure. What percentage of your census relies on Medicaid? How sensitive is your reimbursement to state rate changes? Are supplemental payments at risk? Build operational resilience now: invest in tools to track eligibility status, train staff to manage redeterminations, and model revenue impacts under various funding and enrollment scenarios.

The Quiet Rebuild of Medicaid Financing

Beyond eligibility and coverage, OBBBA introduces structural changes to how Medicaid is funded, changes that will require states to reassess and potentially redesign key components of their fiscal strategy.

OBBBA’s shift in the provider tax safe harbor—from 6% down to 3.5%—places direct limits on how states can structure provider taxes without incurring federal penalties. Under current rules, states can collect taxes from healthcare providers such as hospitals, nursing homes, and managed care organizations, and use those funds to draw down federal Medicaid matching dollars. The “safe harbor” provision exempts provider taxes from detailed federal review as long as they remain below a set threshold. Dropping this tightens the boundary, limiting how aggressively states can use provider taxes to generate matching funds before facing federal scrutiny.

This is especially disruptive in states like Nevada and Illinois, where provider taxes are engineered into the Medicaid financing system to boost reimbursement rates or fund supplemental payments. Reducing the allowable tax rate could blow holes in state Medicaid budgets and jeopardize funding streams that many providers rely on—particularly performance-based payments, rate add-ons, or enhanced funding pools.

As the safe harbor shrinks, states under pressure will need to revise how they tax providers or cut back on supplemental Medicaid payments. This could mean lower rates, fewer incentive programs, or more aggressive cost-shifting. Providers that understand their exposure can anticipate the impact. Those who engage early with their associations and state policymakers may help shape the new frameworks.

  Tax and Timing: A Window for Strategic Moves

Despite the backlash, OBBBA includes some of the clearest pro-business provisions in recent legislation affecting business and healthcare alike. These targeted advantages, while easy to overlook in the noise, offer real strategic value to providers positioned to act, especially for providers who have room to move quickly.

For providers able to invest, OBBBA offers a meaningful set of incentives. Bonus depreciation allows immediate expensing of qualifying assets rather than spreading costs over years, while expanded Section 179 caps increase the dollar limits for immediate deductions, making capital upgrades cheaper. More generous interest deductions support borrowing for facility expansion or renovation.

Pair this with the temporary delay of federal staffing mandates—now postponed to 2034— which would have required costly hiring and compliance measures, and providers may now find a rare window to modernize, restructure, or grow while the regulatory pressure temporarily eases.

The Strategy Isn’t Avoidance. It’s Engagement.

What OBBBA requires from providers isn’t simply compliance; it’s active engagement. Understand your state’s funding model, participate in rulemaking, forecast revenue impacts under multiple scenarios, and rebuild your operating model so it doesn’t rely on yesterday’s Medicaid logic.

This is not the moment for panic or complacency. It is the time to assess with clarity—run the numbers, consult with policy and finance teams, and understand what these reforms mean in practical terms for your operations. Providers who engage thoughtfully and early will be better positioned to adapt—and possibly lead— in the new environment.

Back to industry updates

Most people don’t enjoy asking for money—asking feels awkward. So don’t rely on courage or charisma; rely on method. Behavioral design—clear framing, smart timing, and low-friction paths—turns dread into a predictable decision flow. With the right strategies, rooted in behavioral science, a nonprofit can turn asking for funds into one of its greatest strengths.

Why People Give: The Psychology

Giving isn’t just a whim—it’s the end result of a whole series of thoughts, feelings, and decisions. Psychologists have mapped out this process in detail. There are three models that explain how donors’ attitudes shape the way they give:

The Hierarchy of Effects lays out the steps a donor takes, from first learning about your organization to making a gift.

Functional Attitude Theory explores the motivations and needs that drive a donor’s decision.

The Multi-Attribute Model explains how, after a person decides why they want to give, they decide which organization deserves their support.

Understanding these models reveals where potential donors might get stuck, how to move them toward action, and why they may choose to support your organization over another.

Hierarchy of Effects – The Donor’s Journey

The Hierarchy of Effects model breaks down a donor’s journey into clear, sequential steps:

Awareness: The donor needs to know your organization exists.

Knowledge: They want a clear sense of your mission and impact.

Liking: They develop an emotional connection to your work.

Preference: They start to choose your cause over others.

Conviction: The belief forms that their gift will truly make a difference.

Action: All of this leads to the actual donation.

At each stage, different strategies are effective. A compelling video or strong branding sparks initial awareness, while clear impact metrics help build trust. Stories from beneficiaries foster connection, and a distinctive hook sets you apart. Tangible results reinforce donor confidence, and a simple, mobile-friendly giving platform makes it effortless to take action.

In real life, it might look like this:

David first hears about your nonprofit when a friend shares a campaign post online (awareness). Curious, he visits your website and reads your mission statement and recent success stories (knowledge). He watches a short video of a family that your organization helped and starts to feel a real connection to the cause (liking). Over the next few weeks, he notices himself thinking of your organization first when he considers giving (preference). Your newsletter shares data and stories that convince him that his gift will make a difference (conviction). When he clicks a “Give Now” link and makes a donation in under a minute, he’s crossed the final step (action).

 Functional Attitude Theory – Why They Care

After understanding how people make giving decisions, the next question is why they give at all. Functional Attitude Theory answers this by showing that a single act of giving can be motivated by a range of needs—practical, personal, or emotional.

The theory identifies four main functions that can drive a gift, depending on what’s most important to the donor at that moment. Sometimes people give because they want results—they’re looking for clear, tangible outcomes, such as, “Your $100 trains a teacher, impacting 50 students.” Other times, giving is about expressing identity and values. For those donors, a campaign claiming, “Empower every child to reach their potential,” feels personal.

There are also moments when people donate to feel like they’re doing the right thing or protecting something important. They’ll respond to affirming language, such as, “Your support creates lasting change.” And sometimes, it’s all about transparency and hard numbers. “Every $1 invested yields $4 in community benefits,” really resonates with those who want to know exactly where and how far their money can go.

Multi-Attribute Attitude Models: How the Donor Chooses You

Of course, motivation is only part of the story. Once a person decides why they want to give, there’s still the question of who will earn their support.

Even when the heart says yes, the mind still runs the numbers. Donors use a mental scorecard to weigh what they know about an organization against what matters most to them. Psychologists call this a multi-attribute model, and one of the best-known is the Fishbein Model.

Each donor values different factors—organizational efficiency, transparency, alignment with personal values, or innovation. The same person might care about efficiency in one case and about mission and values in another. The key is for the organization to match its message to what matters most to its audience. Some organizations segment communications for different groups; others pick a primary motivator based on their supporters’ top concerns. One nonprofit can appeal to donors with different priorities by how it frames its message. For instance, a clean water organization might highlight “94% of funds go directly to water projects” to reach data-driven supporters, while telling the story of a transformed village for those motivated by values.

The Science of Successful Fundraising

Putting these ideas into practice means mapping your donor base—figuring out what drives your people, and how they decide where to give. Build campaigns that speak directly to those motivations. Where you can, segment your communications and tailor the message to match what matters to each group.

Fundraising doesn’t have to be a shot in the dark. Use behavioral science to create more targeted campaigns, speak to your donors’ real motivations, and build trust that actually leads to action.

Back to industry updates

Updated 8/13/25 to reflect provisions in the final bill.

The One Big Beautiful Act (OBBA) is a game-changer in many ways. Several provisions stand out as noteworthy for the nonprofit sector and have drawn attention from both nonprofit entities and taxpayers. While headlines focus on corporate tax cuts and changes to individual brackets, the nonprofit sector —particularly for schools and charities—could experience ripple effects that may impact revenue streams and reshape fundraising strategies.

The legislation addresses two significant areas for the nonprofit industry: education funding systems and charitable tax deductions.

Who will be the winners — or losers — when these tax changes are implemented? Below is a summary of the most relevant provisions impacting the nonprofit and charitable sectors and our thoughts on how they may play out.

Education and Scholarship Programs

Tax Credit for Contributions to Scholarship Organizations

The bill establishes a new non-refundable federal tax credit of up to $1,700 for individuals who donate to qualified Scholarship Granting Organizations (SGOs) in states that opt into the program.

To be eligible, SGOs must be 501(c)(3) nonprofits (not private foundations) and meet strict operational and reporting requirements, including allocating at least 90% of revenue to scholarships and ensuring scholarships go to at least 10 students per year. States must also designate eligible SGOs and submit them to the federal government.

Winners:

Individual donors benefit from a dollar-for-dollar federal tax credit—up to $1,700 per return—when giving to SGOs in participating states. The credit can be carried forward for up to five years if unused. Education-focused nonprofits that qualify as SGOs may see increased donations, especially in states that opt in. Most important to taxpayers, families receiving scholarships gain access to broader K–12 education options, with scholarships becoming tax-free starting in 2027.

Losers:

Non-education nonprofits may face increased competition for charitable dollars, as donors shift giving to SGOs to maximize tax savings. Donors in non-participating states cannot claim the credit unless they give to SGOs in states that have opted in, creating potential disparities in who benefits.

Tariffs Bite, But Push for Domestic Supply Gains Momentum

Friedman’s story is one of many playing out nationwide as compounding pharmacies grapple with new U.S. trade policies. In early 2025, President Donald Trump announced his intentions to impose sweeping tariffs on pharmaceutical imports to pressure drugmakers into moving production stateside. That threat quickly got the attention of Big Pharma. By March, Merck had opened a $1 billion vaccine plant in North Carolina. Eli Lilly announced plans to invest at least $27 billion to build four new U.S. manufacturing plants, and Pfizer said it might shift overseas production into its American factories. Merck committed to spending $8 billion domestically by 2028.

For compounders on the ground, these investments offer a glimmer of future relief. Over 80% of APIs used in U.S. drugs currently come from facilities in China and India, a reliance that leaves compounders vulnerable. “We’ve been uncomfortably dependent on overseas suppliers for years – COVID-19 made that clear,” Friedman says. Industry groups like the American Hospital Association have warned that blanket tariffs could inadvertently “jeopardize the availability of vital medications” if not carefully calibrated.

Friedman acknowledges the short-term pain: “When shipping and ingredient costs spike, we can’t immediately pass that on to patients or hospitals.” Long-term, though, he sees potential gain. The tariff-induced urgency is reinforcing calls to diversify and domesticate the drug supply chain. In Congressional hearings on chronic drug shortages this year, hospital leaders urged lawmakers to “identify essential drugs needing more domestic manufacturing capacity.”

For compounders like Indigo Health, such moves could be game changers. “If Pfizer starts making key ingredients here, we’d gladly buy American,” Friedman says. The caveat: it will take time for those new facilities to come online. In the interim, outsourcing facilities must navigate a tightrope, balancing higher import costs against fixed healthcare reimbursement rates.

A Regulatory Labyrinth — and Hopes for Reform in Washington

On a busy morning in Queens, New York, Samantha Koegel fields phone calls at ARX Specialty Pharmacy, a 503A facility she helps run as COO. ARX serves patients, compounding everything from custom hormone therapies to preservative-free topicals.

Koegel has witnessed regulations steadily mounting barriers for compounders. “Every time we turn around, there’s a new requirement,” she sighs. A prime example: The FDA recently ended its “interim” category for new bulk substances, preventing 503A pharmacies from using ingredients not yet formally approved. “If a patient needs something not on the FDA’s shortlist, our hands are tied for years.”

Now, however, she sees opportunity. With Trump’s administration prioritizing deregulation and Robert F. Kennedy Jr., leading HHS, Koegel feels unexpectedly optimistic. “I never thought I’d be cheering for an FDA shake-up like this,” she laughs. Her optimism is well-founded. Only days after our conversation, President Trump signed an Executive Order to reduce approval times for U.S. drug manufacturing plants by cutting “duplicative and unnecessary” requirements, streamlining reviews, and providing early support to manufacturers.

“Imagine if the FDA worked with us to fill drug gaps instead of boxing us out,” Koegel says, pointing to the current record of 323 active shortages. She recalls how, during COVID-19, the FDA temporarily allowed compounders to supply critical medications to hospitals. “Why not create an Emergency Authorization pathway for compounded drugs during shortages? With faster approvals or equipment funding, we could triple our output – that’s huge for supply resilience.”

The PBM Squeeze: Long-Term Care’s Unseen Cost Crisis

Even as tariffs and regulations dominate headlines, many pharmacists insist another force has a bigger impact: pharmacy benefit managers, or PBMs — the powerful middlemen who negotiate drug prices and reimbursements. “To be blunt, PBMs are the primary cost drivers in our world, not tariffs,” says John Maguire (a pseudonym), CEO of a large LTC pharmacy in the Midwest who requested anonymity.

Maguire’s critique comes down to basic math. An average long-term care pharmacy spends over $15 in labor and specialized packaging per prescription, but Medicare Part D plans — managed by PBMs — often pay only very low dispensing fees. “We lose money on most generics we dispense because the PBMs price generics too low,” he notes. According to the Senior Care Pharmacy Coalition, the Part D payment model is “broken,” forcing LTC pharmacies to fill prescriptions below cost while allowing PBMs to reap profits.

From his vantage point, tariffs on foreign APIs are a minor factor. The larger problem, Maguire argues, is that a handful of PBMs dominate the market, dictating terms to manufacturers, pharmacies, and payers alike. A recent Federal Trade Commission report highlighted that the six largest PBMs control nearly 95% of all U.S. prescriptions. “That’s basically oligopoly power,” Maguire says. “They decide how much we get paid for a medication, and we have zero say.”

Maguire welcomes Washington’s increasing scrutiny of PBMs, with lawmakers targeting practices like spread pricing and hidden rebate schemes. “It’s heartening to see Congress and the FTC finally shine a light on this,” he says, ranking PBM reform above even tariff relief in importance.

Despite his PBM concerns, Maguire finds hope elsewhere. “I’ll give credit where it’s due — companies like Lilly, Pfizer, and Merck pumping billions into U.S. facilities is a smart move,” he says. He believes domestic production will reduce supply disruptions that lead to price spikes. “When Big Pharma actually does something right — like bringing manufacturing back home — it deserves praise. But we need a system that passes those benefits along.”

Toward a Resilient Future

As America’s compounding pharmacies navigate these converging pressures, three solutions emerge from industry leaders: domestic manufacturing incentives to strengthen supply chains, streamlined regulatory frameworks that maintain safety while enabling swift responses to shortages, and meaningful PBM reforms to ensure sustainable economics.

The cautious optimism of these professionals stems from seeing their concerns finally acknowledged at the highest levels. With a president pushing for American pharmaceutical production, an HHS secretary challenging industry influence, and a Congress attentive to both patient costs and pharmacy viability, the pieces for meaningful reform appear to be aligning.

The narrative of America’s compounders in 2025 is one of friction yielding to hope. As Samantha Koegel aptly puts it: “The system is finally acknowledging what’s broken. Now we have a chance to fix it — to create a pharmacy supply chain that’s more local, a regulatory system that’s more agile, and a market that’s actually fair.” The road ahead remains uncertain, with tariffs, regulatory promises, and PBM oversight hanging in the balance. Yet for the first time in years, these specialized pharmacies can envision a path forward — one where resilience and innovation outweigh the longstanding burdens of foreign dependence, regulatory rigidity, and middleman economics.

Back to industry updates

CMS’s unrealistic and contentious ‘Final Mandate’ governing nursing home staffing policies has been vacated by a US District Court judge.

A year ago, with the blessings of the Biden administration, the Centers for Medicare & Medicaid Services (CMS) finalized a staffing mandate that threw healthcare entities and nursing home owners into a frenzy. Fast forward to April 7, 2025, and a US District Court vacated the onerous federal mandate that held nursing home and healthcare facilities in a chokehold. The ruling concluded that CMS had exceeded its statutory authority by imposing federal staffing minimums at nursing homes—an important win for regulatory balance.

The mandate called for a minimum of 3.48 hours per resident per day (HPRD) of total staffing, allocating specific hourly requirements for registered nurses (RN) and nurse aides. It would have been phased in over three years, with rural communities getting an additional two-year grace period. But even with this phased-in approach, many in the industry argued that the requirements were logistically and financially impossible to meet.

Industry leaders fought the mandate tooth and nail. They maintained that they hadn’t yet recovered from the trials of COVID and were already burdened with severe, country-wide staffing shortages, specifically for nurses and support staff. They argued that the mandate’s staffing standards were unfeasible and threatened to shut down nursing homes and displace hundreds of thousands of residents in the process.

The American Health Care Association and the National Center for Assisted Living, an industry group, released an analysis citing the potential need to hire an estimated 102,000 nurses and nursing aides across the industry should they be forced to comply with the staffing regulations. To add insult to injury, the mandate did not provide financial support for recruitment or training for any of this potential additional staff—essentially mandating the impossible without offering a single tool to get it done.

“This unrealistic staffing mandate threatened to close nursing homes and displace vulnerable seniors.”

Clif Porter, CEO of the American Health Care Association/National Center for Assisted Living

US District Court Judge Matthew Kacsmaryk, a Trump appointee, stated in his ruling that, while the policy was “rooted in laudable goals, the Final Rule still must be consistent with Congress’s statutes.” This was a charitable statement as the staffing mandate was never broadly supported—even among healthcare advocates or lawmakers on either side of the aisle.

It faced bipartisan opposition in Congress back in 2023, with bills in both chambers trying to block the rule. Nearly 100 House members wrote to then-Health Secretary Xavier Becerra, urging him to reconsider the proposed rule. Lawmakers from rural states were especially opposed, as meeting the mandate’s minimum staffing requirements would have been particularly challenging, if not impossible, in underserved areas.

“It’s a major victory for seniors, their families, and certainly for us in rural America. I think this decision safeguards access to care. I also think it paves the way for a more thoughtful approach, one that enhances quality, supports caregivers and ensures the sustainability of rural providers.”

Good Samaritan Society, President and CEO Nate Schema

With a Republican majority in both chambers of Congress and some rural Democrats’ disagreement with the rule, it is unlikely that the staffing mandate will be reinstated through legislation anytime soon. But, in today’s highly litigious environment, there are proponents of the staffing rule—including unions, consumer groups, and some prominent Democrats in Congress—that may urge the Health and Human Services (HHS) to appeal the court’s decision or explore alternative regulatory approaches.

For now though, many in the healthcare industry are relieved. The termination of the staffing mandate acknowledges their realities on the ground and validates the issues they are struggling with. Providers are already under immense pressure, balancing the rising costs of care, workforce shortages, and the expectation of delivering high-quality services. This ruling brings some breathing room to healthcare entities that have been doing their best to stay viable while maintaining integrity and quality standards of care.

Back to industry updates

Autism rates are skyrocketing across the country, reshaping the healthcare industry’s landscape for families, insurers, and providers. Does this surge in the autistic population make the ABA space a surefire investment opportunity? We believe there is great potential in this space, however, like any industry, a successful ABA agency comes with its own unique challenges and operational demands. To navigate these challenges and ensure long-term success, ABA agencies must focus on key performance indicators that drive both operational efficiency and profitability.

Escalating Demand

Applied Behavior Analysis or ABA has become widely known as the go-to therapy for treating individuals with autism spectrum disorders (ASD). Historically, insurers excluded ABA therapies, classifying them as educational rather than as medical services. However, the 2013 release of The Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition (DSM-5) significantly broadened the definition of autism and today, Medicaid and most insurance plans are mandated under the 2014 Affordable Care Act (ACA) and state law to provide coverage for autism treatment, including ABA therapy.

In a study issued in October of 2024, the journal JAMA Network Open reported that data gathered from over 12 million patients enrolled in major U.S. health care systems determined that between 2011 and 2022 the number of people diagnosed with autism climbed to a shocking 175%. Autism rates stand highest among the very young; according to calculations issued by the U.S. Centers for Disease Control and Prevention, about 1 in 36 children were diagnosed with ASD in 2020.

Do the math – this could translate to an estimated 2.9 million autistic individuals by 2034.

Key performance indicators

Revenue per Client, Therapist Utilization Rate, and Accounts Receivable Turnover are essential key performance indicators. They provide measurable data that enables an agency to monitor cash flow, improve billing efficiency, and maximize revenue. They can help reduce delays in payments, thereby reducing a business’ working capital requirements and enabling appropriate cash flow. These metrics also serve to reflect whether an agency’s performance holds value to a potential investor.

Consider this fictional case scenario:

All-Smiles ABA Center is a friendly place and prides itself on its dedicated and professional staff.

The Accounts Receivables representative is often sick and behind in billing. She manages the agency’s finances by documenting when cash comes in and out, without keeping track of the revenue or expenses for each specific service or the date they are provided.

All-Smiles’ warmhearted therapists will often spend extra time with patients and understand occasional no-shows. The administrative staff is always ready to delay documentation until the client is comfortable with its services.

At the request of its clientele, the agency heavily promotes social skills groups, even though these sessions are reimbursed at much lower rates than direct one-on-one therapy. The majority of the agency’s clients are on Medicaid, which provides lower reimbursement rates, but the agency values its relationships and doesn’t want to make clients feel unwanted by focusing on a more diversified mix.

Accounts Receivable Turnover – All-Smiles billing and receivables processes are underperforming. Agencies must be able to consistently submit accurate and timely claims, in compliance with payor requirements to minimize rejected claims and payment delays. Timely collections are crucial to ensure that funds are available for salaries, and administrative and operational costs. Important metrics for accounts receivables include tracking average days in accounts receivable, collection rates by payor, and percentage of overdue accounts.

Therapist Utilization Rate – Compassionate and dedicated therapists may enhance services – but unbilled time translates directly into lost income. clients whose services earn lower reimbursements, or who take up extra, unbilled, therapy time are bringing in less revenue than it costs to serve them. Tracking an agency’s percentage of billable hours against total hours worked, the average caseload per therapist, and therapists’ cancellation rates maximizes therapist productivity and ensures operational efficiency. All-Smiles would also be wise to assess their client base and focus on clients with more robust coverage that yields reimbursements at higher rates.

Revenue per Client: Understanding how much revenue each client generates is essential in order to evaluate profitability, identify inefficiencies in billing, and ensure the business remains financially sustainable. Tracking revenue by service type helps the company assess which services yield the most profit. All-Smiles accounting and billing processes are so poor that it does not realize that its social skills sessions generate low revenues relative to therapist’s time. As a result, it fails to expand on therapy services or train additional staff and misses opportunities to boost profitability. Because All-Smiles operates on a cash basis and never reviews revenue and direct expenses on a date of service level, they are unable to properly track AR and know its accurate revenue, bad debt, and trends.

By analyzing the information revealed by these KPIs, an agency can track its revenues, scrutinize its performance, and use the data to create its own unique competitive advantage in the industry. It can evaluate profitability and identify opportunities to improve.

Working with our clients in the ABA space has proven that profitability in this industry is less about the volume of clients served and more about operational excellence and strategic management. For existing healthcare entities, the burgeoning autistic population offers promising opportunities to extend services and take advantage of this explosive growth. Established ABA agencies would be wise to analyze these key performance indicators to recognize red flags, maximize their returns, and set a value on their entity to attract potential investors.

Back to industry updates

What Constitutes Self-Dealing?

In our previous article, we discussed excess benefit transactions and how they affect public charities. In these transactions, a nonprofit “insider” receives compensation or benefits that exceed the fair market value. In this article, we’ll focus on the rules that apply to private foundations. While many of the same rules apply to both public charities and private foundations, private foundations face additional restrictions—one of the most significant being the prohibition against self-dealing.

What is Self-Dealing?

The IRS has strict rules about self-dealing transactions in private foundations. Self-dealing occurs when a private foundation engages in a transaction with certain individuals or entities, called “disqualified persons,” that benefits them personally. These transactions can lead to severe financial penalties for the foundation and those involved.

Who is a “Disqualified Person”?

The IRS defines a disqualified person as someone who holds a significant position within the private foundation. Specifically, a disqualified person includes:

Substantial donors to the foundation.
Foundation managers, including officers, directors, and trustees.
Family members of the above individuals.
Individuals or entities who own more than 20% of any business that contributes to or benefits from the foundation.

Additionally, disqualified persons also include:

Corporations or partnerships where any of the above individuals holds more than 35% of the voting power.
Trusts or estates where these individuals hold more than 35% of the beneficial interest.

Disqualified persons also include government officials and others who have significant control over the foundation.

Why Does This Matter?

If a disqualified person owns more than the permitted percentage of a business, they may incur an excise tax on the excess holdings. The private foundation generally has a 90-day period to reduce these excess holdings through divestment, with potential extensions under specific circumstances.

What Transactions are Considered Self-Dealing?

A disqualified person cannot engage in certain transactions with the private foundation as they may be considered acts of self-dealing. These include:

Selling, exchanging, or leasing foundation property.
Lending money or extending credit to or from the foundation.
Furnishing goods, services, or facilities to the foundation, with few exceptions (e.g., interest-free loans).
Paying compensation or covering expenses for disqualified persons.

Additionally, the IRS treats transfers of foundation income or assets for the benefit of disqualified persons as self-dealing. This can even apply to certain government officials or transactions between entities controlled by the private foundation.

What Are the Consequences of Self-Dealing?

The IRS has very strong penalties for engaging in self-dealing. Under Internal Revenue Code Section 4941, a disqualified person involved in self-dealing is subject to a minimum 10% excise tax on the amount involved in the transaction. Foundation managers (such as officers, directors, or trustees) who knowingly participate in self-dealing face a 5% excise tax on the transaction amount.

It’s important to note that participation in self-dealing is not limited to actively engaging in the transaction. Failure to act or speak up when required—such as remaining silent or not intervening when there’s a clear duty to prevent self-dealing—can also result in penalties.

If the violation isn’t corrected, the IRS imposes a 200% excise tax on the amount involved for the disqualified person. Additionally, if foundation managers fail to take corrective action, they face an additional 50% excise tax on the amount involved in the self-dealing transaction.

Are There Exceptions?

There are a few exceptions to these self-dealing rules. For instance, payments made to disqualified persons are not considered self-dealing if they are for reasonable and necessary services that help the foundation carry out its exempt purposes. However, the IRS closely scrutinizes what constitutes “reasonable and necessary,” so it’s essential for foundations to carefully document and justify such payments.

Final Thoughts

When managing a private foundation, it’s crucial to avoid casual transactions and approach relationships with insiders carefully. Engaging in self-dealing or violating IRS rules can result in serious financial penalties and damage to the foundation’s reputation. To ensure compliance with the law, always consult with a tax professional or accountant before engaging in any potentially questionable transactions.

Non-profit organizations are always on the lookout for new and innovative ways to raise funds to support their mission. Accepting donations of appreciated stock is a game-changing strategy that deserves a place in every non-profit’s toolbox.

Fundraising managers may wonder, “Stocks? Isn’t that more of an investor thing?”, and they would be correct. However, accepting donations of stock or securities offers much more than an investment opportunity. It’s a tax-saving strategy that results in a win-win-win for the non-profit, its donors, and the causes it supports.

This material has been prepared for informational purposes only and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

Back to industry updates

The Medicare Advantage Plan is an alternative to traditional Medicare that allows eligible participants to access their benefits through private insurance plans within Medicare. Medicare Advantage (MA) Plans have become an increasingly popular choice for participants because of the lower rates and added benefits offered. But for the skilled nursing homes responsible for delivering the services covered by MA plans, the fallout is far more unfavorable. Will MA plans irreparably damage the SNF industry?

Skilled nursing facilities generally receive lower reimbursement rates under MA plans than under traditional Medicare. The Federal government, through CMS, pays MA plans a fixed, or ‘capitated’, monthly amount per beneficiary – a per person, per month rate to cover health care services for each individual participant. Because the payments are fixed, there is the inherent risk that costs for a participant will exceed the capitated payment. If there’s a deficit, the SNF has to absorb it.

Managed care reduces the average revenue per patient day, but the staffing and administrative requirements to deliver the same level of care remain the same. The result? Tighter profit margins resulting from the shortfall put pressure on facilities to control expenses and avoid providing excess services. To effectively tackle this challenge, my colleague, Shulem Rosenbaum CPA/ABV, partner with Roth&Co’s Advisory division, shares that “SNFs must rethink their cost structures. Many SNFs have historically relied on a per-patient-day (PPD) variable cost model, where expenses fluctuate with occupancy and patient demand. This approach leaves facilities exposed to the instability of fixed or inconsistent reimbursement rates frequently seen with Medicare Advantage.”

One of our clients, a long-time SNF operator with over 50 facilities, shared his perspective about how MA plans have disrupted the financial landscape for skilled nursing facilities. “We’re left juggling to meet patient needs while navigating a system that doesn’t account for the real costs of care. It’s a challenge to stay financially viable.” The numbers prove him right. According to calculations made by Zimmet Healthcare, the dollar amount of SNF Medicare reimbursements lost this year to MA comes to over $10 billion nationally, with Pennsylvania losing almost $500 million and New York out by $634 million.

While SNFs revenues will always be restricted by federal and state requirements, there are ways to alleviate concerns about MA reimbursement and reduce volatility through strategic initiatives. SNF’s can maximize their revenues by building strong relationships with MA plan providers to negotiate better reimbursement rates or value-based contracts. They can work to reduce their reliance on MA plans and improve profitability by diversifying their patient base and attracting more self-pay and private insurance patients. As with any business operation, they can optimize efficiency by streamlining administrative practices, integrate technology, and brainstorm for additional cost-saving measures that won’t compromise the quality of care.

“A compelling solution is to adopt a fixed-expense model that reduces reliance on operational leverage,” Rosenbaum adds. “By reassessing and standardizing specific cost centers, SNFs can establish a more stable financial framework that is less affected by patient volume.” Another of our clients, a small, local SNF owner, had a different take on current challenges. “MA plan participation is growing, and we must learn to work with that. The evolution of the industry has made us take a hard look at how we manage our resources, pushing us to reassess and work smarter— which is something every operation needs to do from time to time.”

Ultimately, while Medicare Advantage plans may effectively help participants manage their healthcare costs, they restrict revenues and patient care options for SNFs. Will the rise in MA plans push the SNF industry to its breaking point? Times may be lean for SNF’s, but we believe that agile and creative facilities can effectively modify operations, maintain patient care, and adapt to working with MA plans to achieve a sustainable business model for the long term.

Back to industry updates

With the bull market in stocks celebrating its second birthday, many potential donors have likely seen sizable gains in their investment accounts, especially those who have invested heavily in the tech and AI sectors. While that’s great for their personal wealth, it also creates a tricky tax situation when the time comes to sell those investments, and they are often exposed to hefty capital gains taxes.

Enter the beauty of donating appreciated stock. By gifting those shares directly to your non-profit, your donors can:

Avoid paying capital gains tax on the appreciation of stocks or securities
Become eligible to claim a charitable deduction, sometimes for the full fair market value of those assets
Continue to support the causes they care about

Receiving stock donations is a transformative opportunity for non-profits. Unlike individual investors, non-profit organizations don’t have to worry about capital gains taxes when selling donated shares. This strategy allows them to retain the full value of the donation and boosts the impact of the gift on the organization’s mission. Many donors are actively seeking tax-efficient ways to support the causes they believe in. Offering this donation option makes your organization an attractive choice and differentiates it from other charities.

What practical steps can a non-profit take to implement this strategy? By simply opening a brokerage account to accept stock donations, your organization can unlock a powerful new fundraising channel that benefits everyone involved.

The process is surprisingly simple:

Open a brokerage account specifically for accepting stock donations
Promote this giving option to your donor base, highlighting its tax benefits
Provide clear instructions on how donors can initiate the transfer

The donor handles the stock transfer, while the organization receives the full value of the investment asset; both come out ahead. If the donor is being serviced by a financial advisor, this strategy can be implemented as easily as a cash donation. If they do not have a capable advisor, suggest that they reach out to our affiliate wealth management group, Equinum, to receive professional, white glove service.

In a market flush with investor gains, tapping into donated appreciated stock can be a powerful fundraising strategy for non-profits. It allows donors to maximize the impact of their gift, while the non-profit retains its full value to drive its mission forward. Potential donors should consult with their tax advisors to ensure this strategy aligns with their goals and that they are prepared to meet all legal requirements.

Why should your organization wait any longer? Open a brokerage account and start spreading the word. Your donors – and your bottom line – will thank you.

Back to industry updates

Global crises and natural disasters are on the rise and in response, people all over the country are opening their hearts and their wallets to support those in need. But this rise in altruism has its challenges. In the wake of Hurricanes Milton and Helene, the Internal Revenue Service recently warned taxpayers to beware of scammers who exploit public generosity by creating fake charities that gather donations and steal sensitive personal and financial information. According to recent data from the Federal Trade Commission, in 2023, nearly 10,000 reports of charitable solicitation fraud were filed in the United States, resulting in a loss of approximately $22.5 million to donors. Scammers commonly take advantage of peoples’ generosity during the holiday season, and when natural disasters or other tragic events occur; and their victims are often the easier marks – seniors and groups with limited English proficiency.

Scammers are imaginative and don’t limit themselves to pulling on heartstrings only as a response to a natural crisis. In a shameful example of fake charity fraud, in 2023, student Madison Russo, fraudulently raised nearly $40,000 by claiming to have multiple cancers, including stage 2 pancreatic cancer and leukemia. She publicized her story on TikTok and set up a GoFundMe page for donations. Ultimately, she was challenged and, after failing to provide medical records or proof of her diagnosis, was convicted and sentenced to probation and restitution to her donors.

Sham charities can go corporate too. In a March 2024 announcement, the Federal Trade Commission, along with ten other states, brought suit against Cancer Recovery Foundation International, also known as Women’s Cancer Fund, and its operator, Gregory B. Anderson. The suit alleges that from 2017 to 2022, the organization collected more than $18 million from donors to support women cancer patients. It only spent 1.1%, or approximately $196,000, on financial support to patients, while a cool $775,139 went to pay Anderson, its operator.

The FBI warns citizens to avoid making financial contributions to groups that support terrorism. Foreign Terrorist Organizations (FTOs) are foreign organizations that are designated by the Secretary of State in accordance with section 219 of the Immigration and Nationality Act (INA). The US Department of State provides a public list of Designated Foreign Terrorist Organizations and warns donors to keep their distance.

“We all want to help innocent victims and their families,” said IRS Commissioner Danny Werfel. “Knowing we’re trying to aid those who are suffering, criminals crawl out of the woodwork to prey on those most vulnerable – people who simply want to help. Especially during these challenging times, don’t feel pressured to immediately give to a charity you’ve never heard of. Check out the charity first and confirm it is authentic.”

To that end, the IRS offers the Tax-Exempt Organization Search (TEOS) tool, which taxpayers can access on the IRS website to help them find or verify qualified, legitimate charities. Beyond this, how can a donor make sure that his or her charitable donations reach their intended recipients? The wise donor will do their research and will stick with charities they know and trust. It’s best to make targeted donations, designated towards specific purposes instead of to a general fund. Cyber-safety should always be paramount; never click on links or open attachments in unsolicited e-mails, texts, or social media posts. Also know that most legitimate charity websites end in “.org” rather than “.com.” Charities that ask for cash or wire payments raise a red flag. It is always more prudent to pay by credit card or write a check directly to a charity; and never make a charitable donation check out to an individual.

As charitable scams continue to evolve, it is vital for donors to stay vigilant and informed about how to identify potential fraud. Always verify the legitimacy of a charity through reliable resources, such as the Tax-Exempt Organization Search, Better Business Bureau or Charity Navigator, and be wary of unsolicited requests for donations. By staying aware and conducting due diligence, you can ensure that your contributions reach those who genuinely need support, while safeguarding yourself against scammers.

Back to industry updates

Most not-for-profit entities are familiar with the hazards of excess benefit transactions, but this brief refresher may enhance vigilance and compliance. The stakes are high. 501(c)(3) organizations determined by the IRS to have violated the rules governing excess benefit transactions can be liable for penalties of 25% to 200% of the value of the benefit in question. They may also risk a revocation of their tax-exempt status — endangering both their donor base and community support.

Private inurement

To understand excess benefit transactions, you also need to comprehend the concept of private inurement. Private inurement refers to the prohibited use of a nonprofit’s income or assets to benefit an individual that has a close connection to the organization, rather than serving the public interest. A private benefit is defined as any payment or transfer of assets made, directly or indirectly, by your nonprofit that is:

• Beyond reasonable compensation for the services provided or goods sold to your organization, or

• For services or products that don’t further your tax-exempt purpose.

If any of your organization’s net earnings privately benefit an individual, the IRS won’t view your nonprofit as operating primarily to further its tax-exempt purpose.

Private inurement rules extend the private benefit prohibition to “insiders” or “disqualified persons” — generally any officer, director, individual or organization (including major donors and donor advised funds) in a position to exert significant influence over your nonprofit’s activities and finances. The rules also cover their family members and organizations they control. A violation occurs when a transaction that ultimately benefits the insider is approved.

Examples of violations could include a nonprofit director receiving an excessive salary, significantly higher than what is typical for similar positions in the industry; a nonprofit purchasing supplies at an inflated cost from a company owned by a trustee, or leasing office space from a board member at an above-market rate.

Be reasonable

The rules don’t prohibit all payments, such as salaries and wages, to an insider. You simply need to make sure that any payment is reasonable relative to the services or goods provided. In other words, the payment must be made with your nonprofit’s tax-exempt purpose in mind.

It is wise for an organization to ensure that, if challenged, it can prove that its transactions were reasonable, and made for valid exempt purposes, by formally documenting all payments made to insiders. Also, ensure that board members understand their duty of care. This refers to a board member’s responsibility to act in good faith; in your organization’s best interest; and with such care that proper inquiry, skill and diligence has been exercised in the performance of duties. One best practice is to ask all board members to review and sign a conflict-of-interest policy.

Appearance matters

Some states prohibit nonprofits from making loans to insiders, such as officers and directors, while others allow it. In general, you’re safer to avoid such transactions, regardless of your state’s law, because they often trigger IRS scrutiny. Contact your accounting professional to learn more about the best ways to avoid excess benefit transactions, or even the appearance of them, within your organization.

Back to industry updates

In a May 24, 2024, press release the American Health Care Association (AHCA) announced that, in conjunction with the Texas Health Care Association (THCA) and several Texas long term care facilities, it has filed suit against the U.S. Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS). In June, trade association LeadingAge, which represents more than 5,400 nonprofit aging service providers, joined the fray and announced that it has joined as co-plaintiff with AHCA. No surprises here. Since CMS’ April 22 release of its final mandate establishing new requirements for nursing homes staffing, healthcare associations and operators have been gearing up for a fight.

“We had hoped it would not come to this; we repeatedly sought to work with the Administration on more productive ways to boost the nursing home workforce,” said Mark Parkinson, President and CEO of AHCA. “We cannot stand idly by when access to care is on the line and federal regulators are overstepping their authority. Hundreds of thousands of seniors could be displaced from their nursing home; someone has to stand up for them, and that’s what we’re here to do,”

AHCA’s complaint argues that the agencies’ decision to adopt the one-size-fits-all minimum staffing standards is “arbitrary, capricious, or otherwise unlawful in violation of the APA.” Further, the lawsuit argues that the rule exceeds CMS’s statutory authority and imposes unrealistic staffing requirements.

The final mandate demands a minimum of 3.48 hours per resident per day (HPRD) of total staffing, with specific allocations for registered nurses (RN) and nurse aides. The allocations call for significant HPRD of direct RN care, and direct nurse aide care, and require the presence of an RN in all facilities at all times. Nursing home operators around the country claim that these requirements are unattainable, unsustainable, and unlawful; they could lead to widespread closures that will put the country’s most vulnerable population at risk.

Partnering with Texas nursing home industry leaders was a fitting move by AHCA as more than two-thirds of Texas facilities cannot meet any of the new requirements and suffer from a nursing shortage that is not expected to abate. The lawsuit emphasizes that, “Texas simply does not have enough RNs and NAs to sustain these massive increases. On the other hand, Texas has a relatively high proportion of licensed vocational nurses (“LVNs”) but the Final Rule largely ignores their important contributions to resident care.”

LeadingAge, with a membership spanning more than 41 states, represents the aging services continuum, including assisted living, affordable housing, and nursing homes. Katie Smith Sloan, president and CEO of LeadingAge, was vociferous in LeadingAge’s stance on the mandate. “The entire profession is completely united against this rule,” she said in a statement. LeadingAge voiced its opposition to the proposed mandate back in 2022, at the outset of Biden’s administration, and now joins the legal battle against its implementation, claiming that, “it does not acknowledge the interdependence of funding, care, staffing, and quality.”

At inception, the new mandate triggered strong opposition from industry leaders and lawmakers. Industry leaders claim the rural areas will take a harder hit than urban areas. Rural facilities are grappling with an unprecedented and acute shortage of registered nurses (RNs), rising inflation, and insufficient reimbursement. Additionally, both Republican and Democratic Congressmen joined in protest of the mandate and threw their support behind the Protecting Rural Seniors’ Access to Care Act (H.R. 5796) which would have effectively suspended the proposal. Ultimately, the staffing mandate was finalized before the House of Representatives took it up.

On the other side of the courtroom, the Centers for Medicare & Medicaid Services’ (CMS) officials maintain that facilities will be able to comply with the mandate because the three phase plan will “allow all facilities the time needed to prepare and comply with the new requirements specifically to recruit, retain, and hire nurse staff as needed.” The lawsuit counters this assertion stating that a delay in deadlines will do nothing to fix the underlying problem.

“To be clear, all agree that nursing homes need an adequate supply of well-trained staff,” the lawsuit states. “But imposing a nationwide, multi-billion-dollar, unfunded mandate at a time when nursing homes are already struggling with staffing shortages and financial constraints will only make the situation worse.”

In conversations with our healthcare clients, the consensus that seems to be forming is that the new staffing mandate’s attempt to address healthcare staffing issues is simply not feasible. The mandate only exacerbates the post-Covid, turbulent environment of the healthcare industry. It is most likely that the legal assault against the mandate has only just begun as nursing home owners and healthcare companies turn to the courts to mitigate the effects of the mandate and to strongarm CMS into drafting a more equitable ruling. How the mandate will ultimately be implemented, which of its components may be reversed, and what adjustments and policy updates will arise, is yet to be seen. Stay ready for updates as the situation evolves.

Back to industry updates

Healthcare entities regularly seek out merger and acquisition (M&A) opportunities to expand and diversify, but M&A becomes more expensive and less attractive when rising interest rates make the cost of borrowing prohibitive. Vacillating interest rates invite fluctuating costs of capital, disrupt valuations, and strain financing opportunities. Throw in the newly released staffing mandates and the combination of factors affects the overall volume of M&A transactions.

Interest rates and valuations generally work inversely. When interest rates climb, discount rates also rise. This brings on lower present values of future cash flows, which lowers valuations for companies. Fluctuating valuations affect the pricing of M&A transactions. Low valuations translate into potentially higher returns for investors and more M & A activity.

According to a recent report by Forbes, despite forecasts of reduced interest rates, the Federal Open Market Committee has not moved to cut them. Currently, it seems most likely that the FOMC will cut rates in September and December, according to the CME’s FedWatch tool. Lower rates will mean lower valuations and will lead to a higher volume of M&A activity.

Where do staffing mandates come in? The nursing home industry is in an uproar in reaction to the Centers for Medicare & Medicaid Services new staffing mandate that will demand that nursing homes provide residents with approximately 3.5 hours of nursing care per day, performed by both registered nurses and nurse aides. This is the first time nursing homes are looking at staffing requirements set by the federal government and they are none too pleased. The mandate has been widely opposed by the nursing home operators, claiming that it is unreasonable, and more importantly, unrealizable.

Over the next three to five years, as the mandate’s requirements are phased in, providers will be faced with threatening staffing costs. According to the American Healthcare Association (AHCA), the proposed mandate would require nursing homes to hire more than 100,000 additional nurses and nurse aides at an annual cost of $6.8 billion. This signals inevitable closures and sell-outs in the coming years. The new staffing mandates threaten the healthcare industry as a whole, especially the activity of mergers and acquisitions. The saving grace may come in the form of a marked lowering of interest rates which can more likely than not keep M&A activity active and even trigger a robust year for healthcare in general.

Back to industry updates

Picture this: Two buddies hiking through the woods, when suddenly, out pops a massive bear. One guy takes off like a rocket – survival instincts kicking in. The other, oddly composed, yells after him, “What’s the point? You can’t outrun a bear!” The sprinting hiker retorts, “I don’t need to outrun the bear, I just need to outrun you!”

Sometimes, competition is the key to success. Beating your colleagues in the company fantasy football league makes you the water cooler hero. Getting in on a high-flying stock will make you a star at wedding conversations. Those feel-good victories definitely have their place, and may save your life in a bear attack.

But here’s the twist: When it comes to your personal financial goals, it’s not about beating anyone. It’s not even about the S&P 500. Imagine someone beating the S&P 500 by 10% a year, but at age 83 they’re sitting on a park bench, struggling to pay their electric bill. What did the outperformance bring them? Bragging rights won’t keep the lights on.

So when it comes to your personal finances, remember:

Your goals, your rules: Whether it’s buying a house, retiring in comfort, or traveling the world, your financial goals are all about you. What your neighbor or coworker is doing is irrelevant. Focusing on your individual needs and aspirations will help create a personalized investment plan rather than chasing someone else’s dream.
The risk factor: Remember, not all investments are created equal. Trying to “win” by picking riskier stocks might get you those sweet bragging rights…for a while. But if it jeopardizes your long-term financial stability, is it really worth it? Picking investments based on your risk tolerance keeps you focused on the bigger picture.
Time is on your side: Investing is a long game. Sure, seeing your portfolio outperform the market feels great, but what if those gains come with a side of heart-palpitating-volatility? A slow and steady strategy tailored to your needs sets you up for sustainable, long-term growth.

So, the next time you start comparing your portfolio to your buddy’s, stop. Remember, it’s not a competition. Focus on building a financial future that secures the life you want to live. After all, what good is bragging about outperforming a bear market if you can’t pay your bills?

Back to industry updates

Hard hit by the pandemic, the nursing home industry is still struggling to recover and rebuild its workforce. Standing in its way is the Biden Administration’s proposed federal staffing mandate. If passed, this mandate will cost nursing homes billions of dollars, compromise access to care for seniors, and increase the challenges already facing operators who are already responding to industry flux by limiting admissions and closing facilities.

According to a recent report by the American Health Care Association (AHCA), despite higher wages, the nursing home sector suffered the worst job losses out of all other health care sectors in the Covid period. In order to return to pre-pandemic levels, another 130,000 workers would still need to return to the industry.

The industry is up in arms and urging support for the Protecting Rural Seniors’ Access to Care Act, which would prohibit the Centers for Medicare and Medicaid Services (CMS) from finalizing its proposed federal staffing mandate for nursing homes, and would establish an advisory panel on nursing home staffing. The staffing mandate proposed by CMS would compel nursing homes to meet unjustified staffing minimums, without offering any resources or workforce development programs to soften the impact.

The proposed rule consists of 3 central staffing proposals:

The first calls for minimum nurse staffing standards of 0.55 hours per resident day for registered nurses and 2.45 for nurse aides.
The second rule mandates having an RN on site 24 hours a day, 7 days a week.
The final rule imposes additional facility assessment requirements.

According to a joint letter of protest written by the American Health Care Association and the National Center for Assisted Living, nearly 95% of nursing homes do not meet at least one or more of the three proposed requirements of the proposal. If the proposed rule is implemented, facilities would be forced to downsize or close down – displacing hundreds of thousands of nursing home residents.

The AHCA’s 2024 State of the Sector report asserted that if the staffing proposal is finalized, the sector will need to inject 100,000 more staff members into the workforce at an annual cost of $7 billion. An anticipated 280,000 residents would be displaced as facilities would be forced to downsize or close and the result would limit access to care for our most vulnerable population.

Ensuring that our nation’s sick and elderly population receives safe, reliable, and quality nursing home care is crucial. Further limiting the nursing home industry’s access to a competent workforce, without offering programs or funding to soften the blow, is untenable for both the industry and its beneficiaries.

Back to industry updates

Whether you are running a small business or are the CEO of a Fortune 500 company, having great leadership is critical for the success of any organization. Great business leaders don’t just inspire their employees to work harder and achieve more – they create a positive work culture that fosters growth, development, and success. The best business leaders create a vision for their company and help their employees turn that vision into a reality.

Becoming a great leader is a process — one that thrives on embracing challenges, seeking feedback, building connections, and cultivating understanding. While some leaders have certain innate skills that allow them to thrive, the majority of business leaders develop the necessary skills through a continuous journey of learning and growth. According to Professor Linda Hill, chair of the Leadership Initiative and author of Collective Genius: The Art and Practice of Leading Innovation, great leaders have intentionally put themselves into situations where they’ve had to learn, adapt, and grow. Finding and capitalizing on these situations is critical for developing the tenacity and fortitude to motivate and guide others.

There are certain qualities that great leaders need to have, like excellent communication, problem-solving skills, and delegating skills. I’ve written about these skills before, and they are a must for any strong business leader. Here are 5 additional qualities for successful leadership – according to Professor Linda Hill, along with ideas on how to help develop them:

Curiosity

Great leaders understand that curiosity is a mindset. They enjoy exploring uncharted waters and trying to understand the art of the ‘possible.’ They can look at situations and problems from the perspective of external stakeholders, such as customers or competitors, which enables them to better consider the broader context, beyond just an internal organizational viewpoint.

How to nurture curiosity

Be open to new experiences and people outside of your immediate division, function, and industry. Don’t be afraid to question the status quo, even if the questions seem basic or naive. The inspiration for the Polaroid instant camera came when Edwin Land’s daughter wanted to see a photo her father had just taken. When he explained that the film had to be processed, she wondered aloud, “Why do we have to wait for the picture?”

Adaptability

As technology evolves, the world changes faster and stakeholder expectations grow quicker. As a leader, you need to be able to adjust to these ever-shifting demands and cultivate an agile work culture. Adaptability allows you to swiftly respond to different issues, pivot when needed, and embrace new opportunities and challenges.

How to strengthen your adaptability

Venture beyond your comfort zone and push yourself to work in new environments with different kinds of people. By taking on assignments and seeking experiences that demand flexibility, you can help foster your adaptability.

Creativity

Any idea that is new and helpful to your company – is creative. Diversity of thought is the driving force behind true innovation, as each of us brings our own unique perspective and “slice of genius” to the table.

How to cultivate creativity

A leader’s job is not to come up with all the great ideas on their own, but rather to establish an environment that nurtures creativity in others. Encourage and promote diverse perspectives on your team. Different viewpoints standing against each other is when creativity flourishes and great ideas are born.

Authenticity

Being genuine and true to who you are is fundamental to success in any role and is even more important in leadership roles. Your talent and skills are not enough; people need to trust your character and connect with you, otherwise they will not be willing to take risks with you.

How to show your authenticity

Understanding how people perceive you is crucial for growth, but asking for and receiving feedback is not easy. Seek feedback at a time when you can remain open, without becoming defensive. Start by asking for feedback in more casual, low-pressure situations and work your way up to more formal and intensive reviews.

Empathy

Understanding and connecting with others on an emotional level is crucial to building trust and strengthening relationships. Great leaders need to see their employees not as robots, but as valuable team members. Leaders need to understand what matters to their employees, what their priorities are, and be able to find common ground. Developing empathy will give you a deeper appreciation of the challenges others are working through, and will help you foster a more supportive and nurturing environment.

How to develop greater empathy

Make a point to interact with employees by asking questions about their work preferences, the pressures they’re under, and their strengths and weaknesses. Your goal is to build understanding and connection. If someone’s opinions or actions strike you as illogical, it’s likely you don’t understand what matters most to that person.

Leadership isn’t a quality you either innately possess or lack. It is the composition of different skills that can be developed and perfected over time.

Back to industry updates

Whether you’re starting up a not-for-profit organization or your nonprofit has existed for years, you may have questions about insurance. For starters: What kind do you need? How much? Are you required by your state or by grantmakers to carry certain coverage?

Much depends on your organization’s size, scope and programming. But your goal should be to carry what’s required to meet any regulatory or funding mandates and to address legitimate risks. Although there are many types of insurance available to nonprofits, it’s unlikely that you need all of them.

The essentials

One type of insurance you do need is a general liability policy for accidents and injuries suffered on your property by clients, volunteers, suppliers, visitors and anyone other than employees. Your state also likely mandates unemployment insurance as well as workers’ compensation coverage.

Property insurance that covers theft and damage to your buildings, furniture, fixtures, supplies and other physical assets is essential, too. When buying a property insurance policy, make sure it covers the replacement cost of assets, rather than their current market value (which is likely to be much lower).

Depending on your nonprofit’s operations and assets, you might want to consider such optional policies as automobile, product liability, fraud/employee dishonesty, business interruption, umbrella coverage, and directors and officers liability. Insurance also is available to cover risks associated with special events. Before purchasing a separate policy, however, check whether your nonprofit’s general liability insurance extends to special events.

Biggest threats

Because you’re likely to be working with a limited budget, prioritize the risks that pose the greatest threats. Then discuss with your financial and insurance advisors the kinds — and amounts — of coverage that will mitigate those risks.

Be careful not to assume insurance alone will address your nonprofit’s exposure. Your objective should be to never actually need insurance benefits. To that end, put in place internal controls and other risk-avoidance policies such as new employee orientations and ongoing training.

Don’t go overboard

Some organizations buy more insurance coverage than they need, which can be costly. Make sure you’ve thoroughly analyzed your nonprofit’s risks and buy only what’s necessary to protect people and assets.

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

Back to industry updates

School Management Solutions, a Roth&Co affiliate, hosted a webinar yesterday featuring Roth&Co Manager Yisroel Lowinger, CPA , along with Rabbi Yehoshua Pinkus, Director of Yeshiva Services at Agudath Israel of America.

The 30-minute webinar clarified the impact of NYS’ recently released budget for school meal programs. Lowinger discussed what CEP covers, who is eligible, how and when to apply, the anticipated benefits from the new NYS budget, and how summer 2023 will be affected.

Watch the video recap below:

Below are the links which were referenced in the webinar:

CEP Guidance

CEP Application ’23-’24 (direct download link)

CEP Application Instructions

Sample Roster For DCMP (direct download link)

Sample Roster For GoAnywhere (direct download link)

GoAnywhere Access Request Form

With 20+ years’ experience, SMS guides schools in all food and nutrition program needs including application assistance, procurement, program maintenance, compliance and government communications. For further guidance, please reach out to School Management Solutions at info@smsny.net or 718-480-5606.

Back to industry updates

A lack of solid documentation is one of the most common mistakes employers can make when addressing an employee’s promotion, performance, behavior, or discipline issue. Not properly documenting, or not documenting at all, can hurt employers and employees in several ways. The value of good documentation is that it helps leaders provide useful feedback to employees, while also tracking both positive performance and areas of improvement. Documentation can make or break a manager’s ability to discipline, terminate, fairly promote, reward, and recognize employees.

Documentation is key to appropriate and effective disciplinary action. Although most employees never require discipline, some exceptions can occur, and it is useful to have a method that objectively, accurately, and fairly documents employee performance. Perhaps most importantly, solid documentation is critical should a terminated employee bring discrimination or other employment-related claims against the company.

One way to appropriately document workplace activities is the FOSA method. Identifying and documenting Facts, Objectives, Solutions and Actions (FOSA) helps ensure a fair and accurate recollection of events. The FOSA method helps keep a reliable record of employee performance, while also serving as a guide for managers when meeting to discuss an employee’s performance. Properly identifying the FOSA of every incident ensures that decisions are made correctly and that the employee clearly understands the expectations and steps to improve their performance.

Facts: Include specific facts explaining the who, what, where, when, and how. When recording the facts, keep them specific and focused on behavior, avoiding labels or attitude. Behavior is something that can be observed, whereas attitude is interpreted. Be careful not to interject your own opinions, emotions, or judgments. Include any information relating to dates, times, and previous discussions with the employee. For example, John increased sales by 7%, which exceeded his previously established goal of 5%. Michelle was 15 minutes late to work seven times in January.

Objectives: Objectives are your expectations. These can include performance expectations, work habit expectations, attendance and more. It can also include the impact of an employee’s behavior on peers, the organization, coworkers and customers. Define a specific behavior or result for the employee in measurable terms against which you (and they) can gauge performance.

Solutions: Solutions are ideas and suggestions in the form of assistance or coaching that can be offered to the employee to help him or her solve the performance problem. Examples of solutions include training, coaching, education or providing resources. The solutions offered should be designed to help the employee reach their objectives. Remember to include the employee when developing solutions because they may be able to come up with alternatives that you may not have considered. It will also help the employee become part of the solution while increasing accountability and a sense of ownership.

Actions: Actions are the steps in implementing the solutions. This is an important component because the actions communicate the importance of the situation and your commitment to helping the employee resolve the problem. In discipline situations, actions are the consequences for the employee if they do not improve their performance. The actions should clearly outline what will happen if the objectives are not met. When highlighting positive performance, the actions may be outlined as accomplishments or the positive impact that the incident had.

Do not put off documenting employee performance; be sure to write down the incident right away. Do your best to use objective terminology and stay away from vague language like “bad attitude” or “failure to get along with others.” Also, do not use terms such as “always” and “never,” as in, “Joshua never turns in his reports on time.” Using these types of absolutes without being 100% certain will undermine your credibility. Vague phrases that are unsupported by objective facts are almost as bad as not documenting at all.

Always remember that it is the responsibility of business leaders to create an environment of support, not fear. Most employees want to do a good job, and a good leader looks for the best in their employees.

Back to industry updates

Unless 501(c)(3) organizations prove they’re publicly supported, the IRS assumes they’re private foundations. The distinction is important because publicly supported charities enjoy higher tax-deductible donation limits and generally are exempt from excise taxes and related penalties.

The tax code recognizes several types of publicly supported organizations, but most 501(c)(3) charities fall into one of two categories. The first, Sec. 509(a)(1) organizations, primarily rely on donations from the general public, governmental units and other public charities. The second category, Sec. 509(a)(2) organizations, have significant program revenue. The IRS has established tests for each type of organization. If your nonprofit doesn’t pass the 509(a)(1) test, it may qualify under Sec. 509(a)(2).

First test

The Sec. 509(a)(1) test requires that:

You have at least one third of your total support from the public, governmental agencies or other public charities, or
You have at least 10% of your total support from such sources and that the “facts and circumstances” indicate you’re a publicly supported organization.

Several facts and circumstances help determine whether your organization is publicly supported — for example, whether you have actual sources of support above the 10% threshold, answer to a representative governing body and serve the general public on a continuing basis. Such tests measure public support over a five-year period, including the current and four prior tax years.

The public support percentage excludes certain types of contributions, program revenue fees from related activities, unrelated business income, investment income and “unusual grants.” Net income from unrelated activities and gross investment returns are included in total support, though unusual grants aren’t.

Second test

Under the Sec. 509(a)(2) test, your organization must receive at least one-third of its support from contributions from the public and gross receipts from activities related to its tax-exempt purpose. No more than one-third of its support may be from investment income and unrelated business taxable income. Public support is measured over a five-year period.

This test is subject to limitations. When calculating public support, you can count only the greater of $5,000 or 1% of your total exempt-purpose-related revenue from a single individual, corporation or governmental unit in the numerator. Receipts of any type or amount from disqualified persons, such as board members, aren’t considered public support either.

Be careful about misclassifying gross receipts that are subject to the limits. IRS auditors will look for payments that should be deemed gross receipts but instead are classified as, for example, contributions, gross investment income or unrelated business taxable activity.

Mission critical

It’s critical to maintain your nonprofit’s publicly supported status. Certain organizations automatically qualify as public charities. For other nonprofits, we can help determine whether you pass one of the two tests.

Back to industry updates

Can you guess which months are the least productive of the year? If the timing of this article doesn’t give it away, you might be surprised to hear that it’s the first two months of the year. A study by the data collaboration software provider Redbooth found that January and February are the least productive months. Cold temperatures and daylight hours that are in short supply seem to cause dreary conditions that impact everyone’s productivity.

Instead of simply bundling up and waiting out the slump, try some new actions to boost productivity in your business or organization. Rae Ringel, president of leadership development consultants The Ringel Group, developed four strategies that can breathe new life into this notoriously gloomy time of year:

Experimentation Mode

The new year is an excellent time to think about introducing new routines, tools, and habits into a team’s culture. The more radical the departure from business-as-usual, the more likely employees are to break old habits and reexamine what brings out their best.

Some ideas include replacing hour-long meetings with 15-minute check-ins. Or setting aside one day a week as a meeting-free zone. Maybe even move to a 4-day work week? Whatever your team’s experiment is, be sure to commit to it for at least a few weeks.

Fail-fast February

Sometimes the key to success is failing spectacularly and quickly, but then working and changing a solution until it succeeds. The final product or strategy may be significantly different from the starting point, but in the end, the most important thing is that success is achieved.

Consider designating February (or March) as a month when fast failure will be celebrated. Encourage employees to creatively develop large and small ways to improve the organization, so that leaders can crack open underexplored opportunities and spark new thinking. One way to kick off the “fail-fast” month might include business leaders recalling their own most disastrous professional failures and what they learned from them.

Unexpected Appreciation

Many employees expect some type of monetary gift around the end of the year as a form of appreciation for a year’s work. When leaders surprise their employees with employee recognition moments early in the new year, these gestures can take on greater significance because they don’t feel obligatory. Leaders could frame such gestures as a “thank you in advance” for work to come in the new year. And these acts don’t have to be monumental. Sometimes food-delivery gift cards or other simple gifts can go a long way when they are unexpected.

Reconnecting with What Matters Most

Finally, reconnect your team with what matters most. This may be the customers an organization caters to, the clients it serves, or users of the products it develops. As an example, a law firm might bring in a client whose life was positively affected by the firm’s work. That impactful work wouldn’t have been possible without a lot of team members who may never have heard the client’s name. The idea is for employees to see themselves as essential sparks in the work the organization performs. Reflecting on the new year can ground your team in your organization’s purpose and meaning.

The new calendar year offers an opportunity to shake things up in a meaningful way. You can’t change the weather, the amount of sunlight, or the general lack of enthusiasm, but the suggestions above can help build energy and excitement that can fuel productivity year-round.

Back to industry updates

Most not-for-profits can’t afford to turn down offers of financial support. At the same time, you shouldn’t blindly accept government or foundation grants simply because they’re offered. Some grants may come with excessive administrative burdens, cost inefficiencies and lost opportunities. Here’s how to evaluate them.

Administrative and other burdens

Smaller or newer nonprofits are at particular risk of unexpected consequences when they accept grants. But larger and growing organizations also need to be careful. As organizations expand, they usually enjoy more opportunities to widen the scope of their programming. This can open the door to more grants, including some that are outside the organization’s expertise and experience.

Even small grants can bring sizable administrative burdens — for example, potential reporting requirements. You might not have staff with the requisite experience, or you may lack the processes and controls to collect the necessary data.

Grants that go outside your organization’s original mission can pose problems, too. For example, they might cause you to face IRS scrutiny regarding your exempt status.

Costs vs. benefits

As for costs, your nonprofit might incur expenses to complete a program that may not be allowable or reimbursable under the grant. As part of your initial grant research, be sure to calculate all possible costs against the original grant amount to determine its ultimate benefit to your organization.

Then, if you decide to go ahead with the grant, analyze any lost opportunity considerations. For unreimbursed costs associated with new grants, consider how else your organization could spend that money. Also think about how the grant affects staffing. Do you have staff resources in place or will you need to hire additional staff? Could you get more mission-related bang for your buck if you spent funds on an existing program as opposed to a new program?

Quantifying the benefit of a new grant or program can be equally (or more) challenging than identifying its costs. Assess each program to determine its impact on your organization’s mission. This will allow you to answer critical questions when evaluating a potential grant.

The long-run

If your organization has lost grants during the COVID-19 pandemic, you’re probably tempted to welcome any new funds with open arms. But in the long-run, it pays to scrutinize grants before you accept them. Contact us if your nonprofit is trying to grow revenue and needs fresh ideas.

Back to industry updates

Fall is here, and many not-for-profits are starting to think about their 2023 budgets. If your budget process is on autopilot, think about changing things up this year — particularly if you’ve experienced recent shortfalls or found your budget to be less resilient than you’d like. Here are some ways for you to rethink your budgeting:

A holistic approach

Your nonprofit may not always approach its budget efficiently and productively. For example, budgeting may be done in silos, with little or no consultation among departments. Goals are set by executives, individual departments come up with their own budgets, and accounting or finance is charged with crunching the numbers.

You’d be better off approaching the process holistically. This requires collaboration and communication. Rather than forecasting on their own, accounting and finance should gather information from all departments.

Under-budgeting tendencies

Another habit to break? Underbudgeting. You can improve accuracy with techniques such as forecasting. This process projects financial performance based on:

Historical data (for example, giving patterns),
Economic and other trends, and
Assumptions about circumstances expected to affect you during the budget period (for example, a major capital campaign).

Forecasting generally takes a longer-term view than budgeting — say, five years versus the typical one-year budget. It also provides valuable information to guide budget allocations and strategic planning.

You also might want to do some budget modeling where you game out different scenarios. Consider your options if, for example, you lost a major grant or were (again) unable to hold big, in-person fundraising events.

If the COVID-19 pandemic has proven anything for nonprofits, it’s the necessity of rainy-day funds. If you don’t already have a reserve fund, establish one. If you do have a reserve fund, avoid the temptation to skip a budget period or two of funding for it.

More ideas

Another idea is to switch from your annual budget to a more flexible, rolling budget. You would still budget for four quarters but set certain intervals during which you’d adjust the numbers as circumstances dictate. Typically favored by organizations that experience volatile financial and service environments, rolling budgets can empower nonprofits to respond better to both crises and opportunities in a timely manner. Reach out for more ideas on crafting an accurate and effective budget.

Back to industry updates

Financial statements aren’t particularly meaningful without a relevant basis of comparison. There are two types of “benchmarks” that a company’s financials can be compared to — its own historical performance and the performance of other comparable businesses.

Before you conduct a benchmarking study, however, it’s important to make normalizing adjustments to avoid any misleading comparisons. This is especially important when looking at periods that include atypical financial results due to the novel coronavirus (COVID-19) pandemic. But there are a variety of factors that require normalizing adjustments.

Nonrecurring items

Some normalizing adjustments are needed to distinguish between historical results that represent potential ongoing earning power and those that don’t. A one-time revenue (or expense) or gain (or loss) will temporarily distort the company’s results. To more accurately reflect the company’s future earnings potential, you would add back expenses and losses (or subtract the revenues and gains) that aren’t expected to recur.

For example, if a retailer temporarily closed its brick-and-mortar stores during the COVID-19 pandemic, you’d add back the temporary losses to get a clearer picture of operating performance under normal conditions. Likewise, if a company won a $10 million lawsuit, you’d subtract the gain. Other nonrecurring items might include discontinued product lines or expenses incurred in an acquisition.

Accounting norms

Other normalizing adjustments compensate for the use of different accounting methods. Because companies’ accounting practices vary widely, comparing them without adjusting their financial statements is like comparing apples to oranges.

Even within the broad confines of Generally Accepted Accounting Principles (GAAP), it’s rare for two companies to follow exactly the same accounting practices. When comparing a company’s results to industry benchmarks, you need to understand how they report transactions.

A small firm, for example, might report earnings when cash is received (cash basis accounting), but its competitor might record a sale when it sends out the invoice (accrual basis accounting). Differences in inventory reporting, pension reserves, depreciation methods, tax accounting practices and cost capitalization vs. expensing policies also are common.

Related-party transactions

Another type of normalizing adjustment focuses on closely held businesses. They often pay owners based on the company’s cash flow or the owners’ personal needs, not on the market value of services the owners provide. Small businesses also may employ family members, conduct business with affiliates and extend loans to company insiders.

To get a clearer picture of the company’s performance, you’ll need to identify all related-party transactions and inquire whether they occur at “arm’s length.” Also consider reconciling for unusual perquisites provided to insiders, such as season tickets to sporting events, college tuition or company vehicles.

We can help

To complicate matters, normalizing adjustments can affect multiple accounts. While most normalizing adjustments are made to the income statement, some may flow through to the balance sheet. Our accounting professionals can help with these critical adjustments to a company’s financial statements, enabling you to make better-informed business decisions.

Back to industry updates

One of the many challenges of operating a not-for-profit organization during the coronavirus (COVID-19) pandemic is that just when you desperately need financial support, many donors are unable to help. Widespread unemployment, stock market volatility and general uncertainty make even dependable donors reluctant to part with their money.

Then there’s the fact that donors are receiving a staggering number of charitable solicitations right now. If your nonprofit doesn’t directly serve constituencies harmed by COVID-19, your appeals are likely to go to the bottom of donors’ piles. Here are some ideas for keeping your organization’s needs top of mind.

Avoid mass appeals

Now is generally not the time to make mass appeals for donations. If you do contact your entire mailing list, use the opportunity to express concern for your supporters’ well-being and to update them on how your organization is faring under the circumstances. Also let donors know that charitable donations made in 2020 are deductible up to $300, even if donors don’t itemize.

To keep supporters engaged, stay on top of your social media accounts. Use Twitter, Facebook and other platforms to announce program suspensions and reopening dates and to share success stories — either recent or, if your nonprofit is temporarily closed, from the past.

Build support

Reach out to significant donors in person. Obviously, face-to-face meetings are out of the question, so give major supporters a phone call or arrange for a videoconference. Be sensitive to donors’ financial challenges and prepare to be flexible. If donors express the desire to help but can’t commit to an amount right now, suggest they might want to make a multi-year gift or include your nonprofit in their estate plans.

Donors might also be able to provide your group with professional services — such as PR expertise or legal advice — or be willing to contribute an item to an online fundraising auction. It’s a great time to learn more about major donors and ask them how they want to help, now and in the future. You may be surprised by their answers.

Chances are these supporters are well established in the community and have friends and colleagues they can introduce to your nonprofit. If these well-connected donors aren’t already on your board, invite them to become members — or ask them to chair a future event.

Resist the temptation

Although you may be tempted to throw yourself on the mercy of donors, desperate appeals may not be wise right now. Donors generally want to invest in fiscally sound nonprofits that will be around for the long haul. So long as your nonprofit has adequate operating reserves and a contingency plan, you should be able to weather the current storm. Contact us if you need help getting over any hurdles in the meantime.

Back to industry updates

The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27. Among other economic relief measures, the new law allows large public banks to temporarily postpone the controversial current expected credit loss (CECL) standard. Here are the details.

Updated accounting rules

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, in response to the financial crisis of 2007–2008. The updated CECL standard relies on estimates of probable future losses. By contrast, existing guidance relies on an incurred-loss model to recognize losses.

In general, the updated standard will require entities to recognize losses on bad loans earlier than under current U.S. Generally Accepted Accounting Principles (GAAP). It’s scheduled to go into effect for most public companies in 2020. In October 2019, the deadline for smaller reporting companies was extended from 2021 to 2023, and, for private entities and nonprofits, it was extended from 2022 to 2023.

Option to delay

Under the CARES Act, large public insured depository institutions (including credit unions), bank holding companies, and their affiliates have the option of postponing implementation of the CECL standard until the earlier of:

The end of the national emergency declaration related to the COVID-19 crisis, or
December 31, 2020.

Many public banks have made significant investments in systems and processes to comply with the CECL standard, and they’ve communicated with investors about the changes. So, some may decide to stay the course. But many large banks are expected to take advantage of the option to delay implementation.

Congress decided to provide a temporary reprieve from implementing the changes for a variety of reasons. Notably, the COVID-19 pandemic has created a volatile, uncertain lending environment that may result in significant credit losses for some banks.

To measure those losses, banks must forecast into the foreseeable future to predict losses over the life of a loan and immediately book those losses. But making estimates could prove challenging in today’s unprecedented market conditions. And, once a credit loss has been recognized, it generally can’t be recouped on the financial statements. Plus, there’s some concern that the CECL model would cause banks to needlessly hold more capital and curb lending when borrowers need it most.

Stay tuned

So far, the FASB hasn’t delayed the CECL standard. But the COVID-19 crisis has front-loaded concerns about the CECL standard, prompting critics in both the House and Senate to step up their efforts to block the standard. Contact us for the latest developments on this issue.

Back to industry updates

As the emotional, physical and financial chaos of the past few weeks continues, so does the stress affecting your employees. Thanks to a little-known tax provision, you can now relieve some of that anxiety by providing cash gifts to your team that are tax-free to them, and fully deductible to you.

In general, an employer cannot give a “gift” to an employee. Regardless of intent, any payment from employer to employee is taxed to the employee as compensation. However, Section 139 — added to the Code after September 11th— says that during a federally declared disaster, an employer can reimburse or pay an employee for “reasonable and necessary personal, family, living, or funeral expenses.” These payments are tax-free to the employees, but fully deductible to the employer.

Beginning immediately, employers can assist employees in managing the COVID-19 crisis in the following ways:

Qualified Disaster Relief Payments

An employee’s medical expenses that are not compensated for by insurance, for example, the employee’s deductible and out-of-pocket expenses
The cost of over-the-counter medications and hand sanitizer
Funeral costs of an employee or a member of an employee’s family
The cost of enabling an employee to work from home throughout the pandemic, for example, the cost of a computer, cell phone, printer, supplies and increased utility costs of the employee
The cost of an employee’s child care or tutoring for family members that cannot attend school during the pandemic

Please note: Payments that are otherwise compensated for by insurance or that are intended to replace lost income do not qualify.

Interestingly, Section 139 does not require that employees complete a certain period of service to be eligible to receive these tax-free payments, nor is the employer required to maintain any formal plan or documentation. Nevertheless, it would be wise for employers to document their intention to make payments covered by Section 139, as well as the following:

Important Payment Information to be Documented by Employer

The amounts paid, and to whom
The start and end dates of any Section 139 “payment program”
A general list of the expenses that will be paid or reimbursed on behalf of the employees
Any maximum amount per-employee or in the aggregate that the employer will pay

You put your heart and soul into your business, and your employees have become your family. We understand how important it is for you to be a backbone for them and help in whatever way you can. We encourage you to take this opportunity to support your employees in a very practical way and be there when they need you most.

Wishing everyone happy and healthy YomTov.

Back to industry updates

Last Thursday we partnered with Agudath Israel of America to present an important webinar titled Navigating Regulatory Changes, covering the latest “CARES” stimulus act as well as other relief initiatives and how they affect your business or organization. To the 1000+ people who joined us – thank you! For those who missed it, a full recording of the webinar is available here.

Below, we have prepared a summary of the presentation as well as responses to some of the many questions we received. This is a very brief outline of several complex bills. We recommend speaking with your accountant or attorney to determine the best course of action for your specific circumstances.

CARES ACT

Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed by President Trump this Friday. The $2 trillion stimulus bill intends to provide significant relief for small businesses and expanded unemployment benefits for individuals. Here are the highlights:

For Individuals and Families

The CARES Act will provide direct payments to individuals depending on income.

How much can we expect?

· $1,200 per single individual who earns up to $75,000 in adjusted gross income

· $2,400 for married couples who earn up to $150,000

· An additional payment of $500 per child under the age of 17.

The payment would scale down by income (a $5 deduction for every additional $100 earned above the maximum), phasing out entirely at $99,000 for singles and $198,000 for couples without children. Qualifying income levels will be based on 2019 federal tax returns if already filed, or on 2018 returns if not. Payments should be received within three weeks.

If you haven’t filed a 2018 or 2019 tax return, you should speak to a tax professional and consider filing; so that you can be eligible to receive the stimulus payment.

What other relief is available to me?

Make the most of your 401k:

· You are no longer required to take the annual minimum distribution from retirement accounts. This is to give investments a chance to recover and avoid taking a loss.

· You can now withdraw up to $100,000 this year without the usual 10 percent penalty, so long as you are doing so in response to the COVID-19 outbreak.

· For 180 days after the bill passes, with certification that you’ve been affected by the pandemic, you will be able to take out a loan of up to $100,000.

Take advantage of relaxed charitable giving rules:

Normally, you may donate up to 60% of your income for a full tax deduction. You can now donate up to 100% of your income without any tax deduction limitations.

Expanded Unemployment Benefits

Who is covered?

The CARES Act has substantially expanded benefits to include part-time workers, gig workers and the self-employed, who in the past have not been eligible. Covered individuals include those who are unemployed, partially unemployed or unable to work as a direct result of COVID-19. This includes illness, quarantine, loss of childcare, or loss of unemployment as a result of the virus.

What are the benefits?

Exact employment benefits are determined by the state’s unemployment insurance program. The CARES act entitles covered individuals to an additional $600 per week in addition to state benefits. The extra $600 payment will last for up to four months, covering weeks of unemployment through December 31, 2020.

How soon can I get it?

States have been incentivized to waive the one-week waiting period, but processing claims may take some time given the current climate.

How long will it last?

The CARES Act would provide all eligible individuals with an additional 13 weeks of payment following the end of state benefit programs; for the maximum of 39 weeks of benefits.

Some important notes:

· Parsonage is not currently covered by unemployment.

· Organizations who opted to self-insure will be required to reimburse 50% of each unemployment claim.

For Employers

Tax Credit to Support Workforce Retention

This provision will reimburse up to 50% of qualified wages, including health insurance, as a refundable tax credit against the employer’s share of payroll taxes for applicable employment taxes, up to $10,000 per employee per quarter.

What organizations are eligible?

· Businesses and nonprofits that were partially or fully suspended due to a mandatory government shut-down related to COVID-19.

· If a business remained opened during any quarter in 2020 but gross receipts for that quarter were less than 50% of what they were for the same quarter in 2019, the business will then be entitled to a credit for each quarter. This will continue until the business has a quarter where gross receipts exceed 80% of what they were for the same quarter of the previous year.

· Employers with over 100 employees are eligible to receive the credit if they continue to pay employees that are not providing services.

· Employers with fewer than 100 employees will receive the credit if they continue to pay employees whether they are or are not providing services

What wages are ineligible?

· Qualified wages do not include those paid under the Families First Coronavirus Response Act for sick leave or family medical leave, which are already subject to certain tax credits.

· If an employer takes out a payroll protection loan under Section 7(a) of the Small Business Act as amended by this Act, no employee retention credit will be available.

Deferral of Payroll Tax:

The CARES Act allows a 50% deferral of the employer’s share of the 6.2% Social Security tax that would otherwise be due from the date of the CARES Act’s enactment through December 31, 2020.

When will the deferred taxes become due?

A payment of 50% of the deferred payroll taxes will be due on December 31, 2021, and the remaining 50% by December 31, 2022.

Paycheck Protection Loan Program

The United States Small Business Administration will administer the SBA 7a loan program to eligible businesses to help pay operational costs such as payroll, rent, health benefits, insurance premiums and utilities. Subject to certain conditions, loan amounts are forgivable if employers retain employees.

What businesses are eligible?

· Small businesses, nonprofits, religious institutions and houses of worship, with up to 500 employees.

· Independent contractors, 1099 workers, self-employed individuals and sole proprietorships.

· Restaurants and hotels, are eligible as long as they employ 500 workers or less per location.

· Businesses that have more than 500 employees but are within the SBA size limits.

How much can I borrow?

Loan amounts can be up to 2.5 times average monthly payroll (between January 1, 2020 and February 29, 2020), mortgage payments and lease payments. The maximum loan amount is $10 million.

An advance grant of up to $10k can be requested 3 days after applying for the loan. Even if the business is denied the loan, the advance will not have to be paid back provided it is used for operational expenses such as payroll and rent payments.

What are the terms of the loan?

· Maximum interest rates of 4% with 10-year term.

· No personal guaranty or collateral is required.

How does loan forgiveness work?

· There is an additional application for loan forgiveness.

· Upon application, your company’s expenses for the eight-week period after the origination of the loan will be analyzed.

· Every dollar spent on payroll, utilities, rent, or interest on mortgage debt will be forgiven, up to the total amount borrowed.

Loan amount forgiven will be reduced if:

· Businesses lay off employees during the first eight weeks following the loan.

· Companies reduce wages of employees who make less than $100,000 per year by 25% or more.

· Businesses that have already let employees go before accepting the loan will not be subject to such penalties. If those businesses rehire employees after accepting the loan, they’ll receive additional credit to cover their wages.

Please note: As of Friday, March 27th, parsonage was not explicitly noted as a part of payroll. There is a possibility that it will be included in the future.

Economic Injury Disaster Loan Program

The SBA will directly provide loans up to $2 million to small businesses and non-profits that have been severely impacted by COVID-19, with interest rates of 2.75% for nonprofits and 3.75% for businesses.

HR 6201: FAMILIES FIRST CORONAVIRUS RESPONSE ACT

HR 6201 was signed by President Trump on March 18, 2020, ensuring that employees are eligible for two weeks of Paid Sick Leave and use of 12 weeks of Family and Medical Leave Act leave for several circumstances related to COVID-19. It will be in effect from April 1, 2020 until December 31, 2020.

How does it work?

Under HR 6201, employers can claim a Social Security tax credit to offset the cost of providing expanded FMLA and emergency paid leave to their employees. If the credit exceeds the employer’s accumulated Social Security tax for the calendar quarter, the excess will be issued in the form of a refund from the IRS.

Who is eligible?

· Employers with under 500 employees

· Employees who cannot work due to COVID-19 related illness, and/or quarantine, or due to an ill family member or a child without childcare.

What do these provisions provide?

· 10 days covered by Emergency Paid Sick leave for illness or quarantine, with a total of $5,110, or 2/3 of pay to care for ill family or because of loss of childcare, capped at $200/day and $10,000 total.

· 10 weeks covered by Family Medical Leave pays 2/3 of the employee’s regular rate of pay for the number of hours they would normally be scheduled to work, capped at $200/day and $10,000 total.

Please note: As of now there is no mechanism for business owners to collect PSL or FML.

For full details on EPSL and FMLA expansion please visit our website: https://rothandco.com/trend/current-tax-paid-leave-regulation-changes/

We will continue to keep you informed as more information becomes available. As always, we are here to help implement these changes. Please don’t hesitate to contact us with questions or concerns.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.

Back to industry updates

Every company has faced unprecedented challenges in adjusting to life following the widespread outbreak of the coronavirus (COVID-19). Small businesses face particular difficulties in that, by definition, their resources — human, capital and otherwise — are limited. If this describes your company, one place you can look to for some assistance is the Small Business Administration (SBA).

New loan, relaxed criteria

The agency has announced that it’s offering Economic Injury Disaster Loans under the Coronavirus Preparedness and Response Supplemental Appropriations Act, which was recently signed into law.

Here’s how it works: The governor of a state or territory must first submit a request for Economic Injury Disaster Loan assistance to the SBA. The agency’s Office of Disaster Assistance then works with the governor to approve the request. Upon completion of this process, affected small businesses within the state gain access to information on how to apply for loan assistance.

To speed the process, the SBA has relaxed its usual disaster-loan criteria. A state or territory now needs to certify that at least five small businesses have suffered substantial economic injury anywhere in the state. Previously, at least one of the companies had to be in each of the disaster-declared counties or parishes.

Along similar lines, once the submission process is completed, Economic Injury Disaster Loans will be available across the state. Under previous criteria, only businesses in counties identified as disaster areas could obtain financial assistance. Given the expected widespread and economically drastic effect of the coronavirus, most states will have likely garnered approval by the time you read this.

Amount, interest and terms

Economic Injury Disaster Loans offer up to $2 million in financial assistance to help small businesses mitigate their revenue losses. You could use the money to pay overhead costs such as utilities and rent, keep up with accounts payable and cover payroll.

For qualifying small businesses, the interest rate is 3.75%. Some nonprofits may also be eligible for this assistance. For them, the interest rate is 2.75%. The specific loan terms will vary according to each borrower’s ability to pay. The agency does say that it “offers loans with long-term repayments in order to keep payments affordable.”

Mitigate and manage

Bear in mind that these loans are just one form of assistance offered by the SBA. Your small business may qualify for other loans, and there might be training programs that benefit your company. Our firm can help you assess your financial situation in light of the coronavirus crisis and formulate a strategy for mitigating and managing your risks going forward.

Back to industry updates

As we continue to face the global health crisis of COVID-19, Roth&Co is committed to supporting your organization in navigating these confusing times. Here is what you need to know regarding the recent tax and regulatory changes.

TAX FILING DEADLINE EXTENSION

On Friday, March 20th the IRS has announced that the deadline for filing tax returns is being moved from April 15 to July 15. All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.

HR 6201: FAMILIES FIRST CORONAVIRUS RESPONSE ACT

HR 6201 was signed by President Trump on March 18, 2020, ensuring employees are eligible for two weeks of Paid Sick Leave and use of 12 weeks of Family and Medical Leave Act leave for several circumstances related to COVID-19. It will be in effect until December 31, 2020.

Key Details:

1. Payroll Tax Credit for Employers

2. Emergency Paid Sick Leave for Employees

Covered Employers: Employers with fewer than 500 employees.
Covered Employees: All employees, except some exclusions for health care providers or emergency responders.

Covered Leave: When an employee is quarantined or isolated as ordered by a governmental agency, health care provider, or is experiencing symptoms of COVID-19. 2/3 pay is required for employees on leave for the purpose of caring for an individual in quarantine, or a child whose school is closed or child-care provider is no longer available due to COVID-19.

Duration of Leave: Full-time employees are entitled to 80 hours of paid sick leave. Part-time employees are entitled to sick leave equal to the hours worked on average over a typical two-week period.

Pay caps:
Illness or quarantine: Pay is capped at $511/day and $5,110 total
Providing family care: Pay is capped at $200/day and $2,000 total

Note: Employers cannot require employees to use other leave first.

Additional Tax Credits: An employer can claim additional refundable tax credits for the employer portion of Medicare taxes and nontaxable health insurance premiums as related to COVID-19.

3. Emergency FMLA Expansion for Employees

Covered Employers: Employers with fewer than 500 employees
Covered Employees: Any employee who has been employed for at least 30 calendar days (excluding health care providers or emergency responders)
Covered Leave Purposes: To care for a child under 18 if the child’s school or the childcare provider is unavailable due to the Coronavirus.

Duration: Up to 12 weeks of job-protected leave.

Compensation: After 10 days covered by Emergency Paid Sick leave, employers must pay two-thirds of the employee’s regular rate of pay for the number of hours they would normally be scheduled to work, capped at $200/day and $10,000 total.

4. Reinstatement to Position after Leave

The same reinstatement provisions apply under the traditional FMLA. However, restoration to position does not apply to employers with fewer than 25 employees if the job no longer exists because of the economic downturn caused by a public health emergency. The employer is required to make reasonable efforts to return the employee to an equivalent position, and contact a displaced employee if a similar position becomes available within a year of when they would have returned to work.

5. Exemptions for Businesses with Fewer than 50 Employees

Businesses with under 50 employees are subject to exemptions from Emergency FMLA and Emergency PSL if the requirements “would jeopardize the viability of the business.”

We will continue to keep you informed as more information becomes available. As always, we are here to help implement these changes. Please don’t hesitate to contact us with questions or concerns.

Back to industry updates

While global health and governmental agencies grapple with how best to fight the new coronavirus (COVID-19), nonprofit organizations worldwide are scrambling to figure out what steps they should take and how they can be helpful in this time of uncertainty.

The U.S. Centers for Disease Control and Prevention (CDC) is taking aggressive public health measures to help protect the health of Americans and assist international partners. Leaders at nonprofit organizations can also play a pivotal role at this critical time.

COVID-19 is very dangerous, and we must take comprehensive and coordinated action to address it. Today, we must be diligent in our response as the outbreak continues to spread worldwide, including in the United States, and the economic consequences that follow.

What can nonprofit leaders do in this time of uncertainty and concern? We’d like to offer five steps or initiatives that leaders of all nonprofits and philanthropies can take or consider.

1. Seek out the right information. The best source of up-to-date information on everything related to COVID-19 is the CDC website. It is a trusted source with information provided by CDC scientists. Beyond CDC, look to your state and local public health departments.State and local health departments offer accurate and timely infectious disease information.

2. Dispel myths. We are living in an anxious time, and as leaders we must ensure not to create a panic. This is even more difficult in an era where anyone with a smart phone can share an opinion or create a storyline. Myths about the coronavirus, including all the remedies, protections, etc. will continue to proliferate. Social media, while it can be a powerful tool to provide timely updates and information, can also make the problem worse. As leaders, we can dispel many of the myths about the disease and use our platforms to get out the facts.

3. Put into action good public health practices. As employers, community partners and influencers, the nonprofit sector enjoys a tremendous amount of trust and respect. Ensure your employees, volunteers and ambassadors know what they can do to protect themselves, their communities and the people they serve. Putting into practice actions from staying home when sick to cleaning and disinfecting work areas and communal areas where services are provided can make a big difference.

4. Make a financial grant. If your organization is in the position to do so, make a financial grant to strengthen public health and the response efforts. While increased funding is becoming available for public health agencies, governments cannot do it alone, particularly as the response moves from containment to mitigation. A collective response is needed to meet the rapidly evolving needs of COVID-19 — from communications campaigns to strengthening state and local health labs to providing equipment and supplies as well as supporting those in quarantine or those who are at high-risk from the dangers of COVID-19. In any crisis situation, it takes an effort on the part of all sectors to mitigate the crisis and meet the needs of our communities and vulnerable populations.

5. Collaborate with peer organizations. Nonprofit organizations and philanthropies have greater positive impact and can accomplish more collectively than individually. By aligning diverse interests and resources and leveraging the strengths of your organization with another, we can work together to fight this outbreak and support those affected. If your organization is in a position to partner with another nonprofit, consider it. The nonprofit sector has been crucial in past emergency responses such as the Ebola and Zika outbreaks, and we can’t do it alone this time, either.

From the outset of the COVID-19 outbreak, there has been confusion, concern and anxiety about the infectious disease with good reason. We should treat it as we would other past outbreaks — recognize that it has not respected borders or politics and requires a collective effort of government, individual and organizations.

The resilience of our front line public health responders is amazing. The nonprofit community has the opportunity to support them and others affected by the COVID-19 outbreak by providing accurate information and working with the public health community to find innovative ways to offer support.

Back to industry updates

The coronavirus (COVID-19) outbreak — officially a pandemic as of March 11 — has prompted global health concerns. But you also may be worried about how it will affect your business and its financial statements for 2019 and beyond.

Close up on financial reporting

The duration and full effects of the COVID-19 outbreak are yet unknown, but the financial impacts are already widespread. When preparing financial statements, consider whether this outbreak will have a material effect on your company’s:

Supply chain, including potential effects on inventory and inventory valuation,
Revenue recognition, in particular if your contracts include variable consideration,
Fair value measurements in a time of high market volatility,
Financial assets, potential impairments and hedging strategies,
Measurement of goodwill and other intangible assets (including those held by subsidiaries) in areas affected severely by COVID-19,
Measurement and funded status of pension and other postretirement plans,
Tax strategies and consideration of valuation allowances on deferred tax assets, and
Liquidity and cash flow risks.

Also monitor your customers’ credit standing. A decline may affect a customer’s ability to pay its outstanding balance, and, in turn, require you to reevaluate the adequacy of your allowance for bad debts.

Additionally, risks related to the COVID-19 may be reported as critical audit matters (CAMs) in the auditor’s report. If your company has an audit committee, this is an excellent time to engage in a dialog with them.

Disclosure requirements and best practices

How should your company report the effects of the COVID-19 outbreak on its financial statements? Under U.S. Generally Accepted Accounting Principles (GAAP), companies must differentiate between two types of subsequent events:

1. Recognized subsequent events. These events provide additional evidence about conditions, such as bankruptcy or pending litigation, that existed at the balance sheet date. The effects of these events generally need to be recorded directly in the financial statements.

2. Nonrecognized subsequent events. These provide evidence about conditions, such as a natural disaster, that didn’t exist at the balance sheet. Rather, they arose after that date but before the financial statements are issued (or available to be issued). Such events should be disclosed in the footnotes to prevent the financial statements from being misleading. Disclosures should include the nature of the event and an estimate of its financial effect (or disclosure that such an estimate can’t be made).

The World Health Organization didn’t declare the COVID-19 outbreak a public health emergency until January 30, 2020. However, events that caused the outbreak had occurred before the end of 2019. So, the COVID-19 risk was present in China on December 31, 2019. Accordingly, calendar-year entities may need to recognize the effects in their financial statements for 2019 and, if applicable, the first quarter of 2020.

Need help?

There are many unknowns about the spread and severity of the COVID-19 outbreak. We can help navigate this potential crisis and evaluate its effects on your financial statements. Contact us for the latest developments.

Back to industry updates

If you’re the owner of an incorporated business, you probably know that there’s a tax advantage to taking money out of a C corporation as compensation rather than as dividends. The reason is simple. A corporation can deduct the salaries and bonuses that it pays executives, but not its dividend payments. Therefore, if funds are withdrawn as dividends, they’re taxed twice, once to the corporation and once to the recipient. Money paid out as compensation is taxed only once, to the employee who receives it.

However, there’s a limit on how much money you can take out of the corporation this way. Under tax law, compensation can be deducted only to the extent that it’s reasonable. Any unreasonable portion isn’t deductible and, if paid to a shareholder, may be taxed as if it were a dividend. The IRS is generally more interested in unreasonable compensation payments made to someone “related” to a corporation, such as a shareholder or a member of a shareholder’s family.

How much compensation is reasonable?

There’s no simple formula. The IRS tries to determine the amount that similar companies would pay for comparable services under similar circumstances. Factors that are taken into account include:

The duties of the employee and the amount of time it takes to perform those duties;
The employee’s skills and achievements;
The complexities of the business;
The gross and net income of the business;
The employee’s compensation history; and
The corporation’s salary policy for all its employees.

There are some concrete steps you can take to make it more likely that the compensation you earn will be considered “reasonable,” and therefore deductible by your corporation. For example, you can:

Use the minutes of the corporation’s board of directors to contemporaneously document the reasons for compensation paid. For example, if compensation is being increased in the current year to make up for earlier years in which it was low, be sure that the minutes reflect this. (Ideally, the minutes for the earlier years should reflect that the compensation paid then was at a reduced rate.)
Avoid paying compensation in direct proportion to the stock owned by the corporation’s shareholders. This looks too much like a disguised dividend and will probably be treated as such by IRS.
Keep compensation in line with what similar businesses are paying their executives (and keep whatever evidence you can get of what others are paying to support what you pay).
If the business is profitable, be sure to pay at least some dividends. This avoids giving the impression that the corporation is trying to pay out all of its profits as compensation.

Planning ahead can help avoid problems. Contact us if you’d like to discuss this further.

Back to industry updates

In business, a failure to evolve may lead to failure. One way to keep your company rolling is to regularly adjust how you market products or services to customers and prospects.

A marketing strategy shouldn’t be a knee-jerk reaction to some enticing rumor or hot trend. Rather, it needs to be a carefully calculated effort that assesses profitability (not just revenue) and identifies a feasible price point for the products or services in question.

Evaluating targets

Consider each prospect, existing customer or targeted group as an investment. Estimate your net profit after subtracting production, sales and customer service costs.

More desirable customers will purchase a sizable volume with enough frequency to provide a steady income stream over time rather than serve as just a one-time or infrequent buyer. They also will be potential targets for cross-selling other products or services to generate incremental revenue.

Bear in mind that you must have the operational capacity to fulfill a given prospect’s demand. If not, you’ll have to expand your operations to take on that customer, costing you more in resources and capital.

Also, be wary of becoming too dependent on a few large customers. They can use this status as leverage to lowball you. Or, if they decide to pull the plug, it could be financially devastating.

Naming your price

Another key factor to consider in adjusting your marketing strategy is how much you’ll charge. It’s a tricky balance: Setting your price low may help to attract customers, but it can also minimize or even eliminate your profit margin.

In addition, think about what kind of payment terms you’re prepared to offer. Sitting on large accounts receivable can strain your cash flow. Establishing a timely payment schedule with customers is critical to sustaining your operations and supporting the bottom line.

If you must make a major cash outlay for setting up a new customer, such as for new equipment, consider offering initial pricing that includes a surcharge for a specified period. For example, if the normal product price is $1.00 each, you might want to arrange for the customer to pay $1.10 each until you have recovered the cost of the equipment, plus carrying charges.

Taking the risk

If your company has been around for a while, you know that marketing is risky business. An unsuccessful campaign can not only waste dollars in the short term, but also hurt morale and even trigger bad PR if it’s particularly misguided. The costs of doing nothing, however, may be even greater. We can assist you in evaluating the potential profitability of your marketing initiatives, as well as calculating viable price points for your products or services.

Back to industry updates

The rules for reporting leasing transactions are changing. Though these changes have been delayed until 2021 for private companies (and nonprofits), it’s important to know the possible effects on your financial statements as you renew leases or enter into new lease contracts. In some cases, you might decide to modify lease terms to avoid having to report leasing liabilities on your balance sheet. Or you might opt to buy (rather than lease) property to sidestep being subject to the complex disclosure requirements.

Updated standard

In 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases. The effective date for calendar year-end public companies was January 1, 2019. Last fall, the FASB deferred the effective date for private companies and not-for-profit organizations from 2020 to 2021.

The updated guidance requires companies to report long-term leased assets and leased liabilities on their balance sheets, as well as to provide expanded footnote disclosures. Increases in debt could, in turn, cause some companies to trip their loan covenants.

Updated lease terms

The updated standard applies only to leases of more than 12 months. To avoid having to apply the new guidance, some companies are switching over to short-term leases.

Others are incorporating evergreen clauses into their leases, where either party can cancel at any time after 30 days. An evergreen lease wouldn’t technically be considered a lease under the accounting rules — even if the lessee renewed on a monthly basis for 20 years. This might not be the best approach from a financial perspective, however, because the lessor would likely charge a higher price for the transaction. There’s also a risk that short-term and evergreen leases won’t be renewed at some point.

Lease vs. buy

The updated standard is also causing organizations to reevaluate their decisions about whether to lease or buy equipment and real estate. Under the previous accounting rules, a major upside to leasing was how the transactions were reported under Generally Accepted Accounting Principles (GAAP). Essentially, operating leases were reported as a business expense that was omitted from the balance sheet. This was a major upside for organizations with substantial debt. Under the updated guidance, lease obligations will show up as liabilities, similar to purchased assets that are financed with traditional bank loans. Reporting leases also will require expanded footnote disclosures.

The changes in the lease accounting rules might persuade you to buy property instead of lease it. Before switching over, consider the other benefits leasing has to offer. Notably, leases don’t require a large down payment or excess borrowing capacity. In addition, leases provide significant flexibility in case there’s an economic downturn or technological advances render an asset obsolete.

Decision time

When deciding whether to lease or buy a fixed asset, there are a multitude of factors to consider, with no universal “right” choice. Contact us to discuss the pros and cons of leasing in light of the updated accounting guidance. We can help you take the approach that best suits your

Back to industry updates

Roughly half of CFOs believe an economic recession will hit by the end of 2020, and about three-quarters expect a recession by mid-2021, according to the 2019 year-end Duke University/CFO Global Business Outlook survey. In light of these bearish predictions, many businesses are currently planning for the next recession. Are you? Here are four steps to help your company strengthen its balance sheet against a possible downturn.

1. Identify what’s most important

The balance sheet shows your company’s financial condition — its assets vs. liabilities — at a specific point in time. Some line items are more critical to your success than others. For example, inventory is a top priority for retailers, and accounts receivable is important to professional service firms.

A “common-sized” balance sheet can help you determine what’s most relevant. This type of statement presents each account as a percentage of total assets. Items that represent the highest percentages are generally the ones that warrant the most attention.

2. Analyze ratios

Ratios compare line items on your company’s financial statements. They may be grouped into four categories: 1) profitability, 2) solvency, 3) asset management, and 4) leverage. While profitability ratios focus on the income statement, the others assess items on the balance sheet.

For example, the current ratio (current assets ÷ current liabilities) is a solvency measure that helps assess whether your company has enough current assets to meet current obligations over the short run. Conversely, the days-in-receivables ratio (accounts receivable ÷ annual sales × 365 days) is an asset management ratio that gauges how efficiently you’re collecting receivables. And the debt-to-equity ratio (interest-bearing debt ÷ equity) focuses on your company’s use of debt vs. equity to finance growth.

3. Set goals

The common-sized balance sheet and ratios can be used to create “goals” for each key line item. What’s right depends on the nature of your business and industry benchmarks.

For example, you may strive to meet the following goals over the next year:

Increase cash as a percentage of total assets from 5% to 15%,
Improve the current ratio from 1.1 to 1.2,
Decrease the days-in-receivable ratio from 40 to 35 days, and
Lower the debt-to-equity ratios from 5.6 to 4.

4. Forecast the impact

Once you’ve set goals, devise a plan to achieve them. For example, you might cut fixed costs or forgo buying equipment to build up your cash reserves. In turn, stockpiling cash — along with improving collections — might help boost your current ratio.

Part of your plan should be forecasting how the changes will filter through the financial statements. This exercise can help you determine whether your goals are realistic. For example, if you decide to build up cash reserves, it might be difficult to simultaneously pay down debt. You can generate only a limited amount of incremental cash in a year. Forecasting can help pinpoint the shortcomings of your plans.

We can help

Markets are cyclical. So, it’s only a matter of time before another downturn happens. We can help you take steps to position your organization to weather the next storm — whenever it arrives.

Back to industry updates

Have you applied for a business loan lately? Or had some repairs done on your facilities? Maybe you’ve signed a contract with a certain technologically inclined customer or vendor. In any of these instances, you (or one of your employees) probably had to electronically sign a digital document.

So, the next question is: Why isn’t your company using this technology? If the answer is, “We are,” kudos to you (assuming it’s working out). But if your reply is, “We’ve always used paper and don’t want to deal with the expense and hassle of converting to digital documentation,” you may want to reconsider — because it’s not going away.

Why go digital?

For businesses, there are generally three reasons to use digital documents with e-signatures:

1. Speed. When you can review and sign a business document electronically, it can be transmitted instantly and approved much more quickly. And this works both ways: your customers can sign contracts or submit orders for your products or services, and you can sign similar documents with vendors, partners or consultants. What used to take days or even weeks, as paper envelopes crisscrossed in the mail, now can occur in a matter of hours.

2. Security. Paper has a way of getting lost, damaged and destroyed. That’s not to say digital documents are impervious to thievery, corruption and deletion, but a trusted provider should be able to outfit you with software that not only allows you to use digital docs with e-signatures, but also keep the resulting files encrypted and safe from anyone or anything who would do them harm.

3. Service. This may be the most important reason to incorporate digital docs and e-sigs into your business. Younger generations have come of age, if not grown up, with digitized business services. They expect this functionality and may prefer a company that offers it to one that still requires them to put pen to paper.

What about the law?

Many business owners hesitate to dive into digital docs and e-sigs because of legal concerns. This is a reasonable concern. However, e-signatures are now widely used and generally considered lawful under two statutes:

The Electronic Signatures in Global and National Commerce Act of 2000, a federal law, and
The Uniform Electronic Transactions Act, which governs each state unless a comparable law is in place.
What’s more, every state has some sort of legislation in place legalizing e-signatures. There may be some limited exceptions in certain cases, so check with your attorney for specifics.

Is now the time?

To be clear, investing in digital documents with e-signatures, and training your employees to use them, is a major strategic initiative. You need to ensure the return on investment will be worth the effort. We can assist you in evaluating whether now’s the time to “go digital” and, if so, in setting a budget for the software purchase and implementation.

Back to industry updates

Numbers can be misleading. While data can give the impression of clarity and transparency, figures can mean different things depending on how they are presented.

For example: The Federal Reserve Chairman Jay Powell held a press conference and commented that US consumers in aggregate are propping up the economy. This phrase subtly highlights the very different situations experienced by the wide range of US consumers that are thrown together and summarized in one number. In short, the consumers that added $1.3 trillion to their savings last year are not the same ones who owe $1 trillion on their credit cards. Is this good news or bad news?

Charles Munger, one of the greatest business minds of our time and vice chairman of Berkshire Hathaway, calls out another example of misinformation by numbers, citing the proliferation of EBITDA as a fake profit metric. In business, there’s more than meets the eye in any given set of numbers. Take Uber for example. Its shares jumped last week after it announced it was moving up its EBITDA profitability target to the fourth quarter of this year.

Good investment? “It’s ridiculous,” Munger said, EBITDA — which is short for earnings before interest, taxes, depreciation and amortization — does not accurately reflect how much money a company makes, unlike traditional earnings. “Think of the basic intellectual dishonesty that comes when you start talking about adjusted EBITDA. You’re almost announcing you’re a flake.”

Today, with nearly all activities measured or recorded, it is more challenging than ever to discern what to keep track of and whether the numbers you’re seeing are telling the whole story. The right metrics enable your organization to examine concrete criteria and to meet its business goals. The wrong metrics lead you down a risky road.

Don’t risk it…Roth and Co.

Back to industry updates

A financial power of attorney can be a valuable planning tool. The most common type is the durable power of attorney, which allows someone (the agent) to act on the behalf of another person (the principal) even if the person becomes mentally incompetent or otherwise incapacitated. It authorizes the agent to manage the principal’s investments, pay bills, file tax returns and handle other financial matters if the principal is unable to do so as a result of illness, injury, advancing age or other circumstances.

However, a disadvantage of a power of attorney is that it may be susceptible to abuse by scam artists, dishonest caretakers or greedy relatives.

Watch out for your loved ones

A broadly written power of attorney gives an agent unfettered access to the principal’s bank and brokerage accounts, real estate, and other assets. In the right hands, this can be a huge help in managing a person’s financial affairs when the person isn’t able to do so him- or herself. But in the wrong hands, it provides an ample opportunity for financial harm.

Many people believe that, once an agent has been given a power of attorney, there’s little that can be done to stop the agent from misappropriating money or property. Fortunately, that’s not the case.

If you suspect that an elderly family member is a victim of financial abuse by the holder of a power of attorney, contact an attorney as soon as possible. An agent has a fiduciary duty to the principal, requiring him or her to act with the utmost good faith and loyalty when acting on the principal’s behalf. So your relative may be able to sue the agent for breach of fiduciary duty and obtain injunctive relief, damages (including punitive damages) and attorneys’ fees.

Take steps to prevent abuse

If you or a family member plans to execute a power of attorney, there are steps you can take to minimize the risk of abuse:

Make sure the agent is someone you know and trust.
Consider using a “springing” power of attorney, which doesn’t take effect until certain conditions are met, such as a physician’s certification that the principal has become incapacitated.
Use a “special” or “limited” power of attorney that details the agent’s specific powers. (The drawback of this approach is that it limits the agent’s ability to deal with unanticipated circumstances.)
Appoint a “monitor” or other third party to review transactions executed by the agent and require the monitor’s approval of transactions over a certain dollar amount.
Provide that the appointment of a guardian automatically revokes the power of attorney.
Some state laws contain special requirements, such as a separate rider, to authorize an agent to make large gifts or conduct other major transactions.

Act now

If you’re pursuing legal remedies against an agent, the sooner you proceed, the greater your chances of recovery. And if you wish to execute or revoke a power of attorney for yourself, you need to do so while you’re mentally competent. Contact us with questions.

Back to industry updates

Finding the right person to head up your company’s finance and accounting department can be challenging in today’s tight labor market. While it may be tempting to simply promote an existing employee, external candidates may offer fresh ideas and skills that take your financial reporting to the next level. Here are four traits to put on your wish list.

1. Leadership and strategy experience

The finance and accounting department provides critical feedback on how your company is performing and is expected to perform in the future. That information helps the rest of the management team make critical business decisions.

The CFO must provide timely, relevant financial data to other departments — including information technology, operations, sales and supply chain logistics — to help improve how the business operates. He or she also must be able to drum up cross-departmental support for major initiatives. If you operate overseas or plan to expand there soon, experience operating and reporting in a global context would be a bonus.

2. Command of the basics

Your CFO must have a working knowledge of finance and accounting fundamentals, such as:

U.S. Generally Accepted Accounting Principles (GAAP) and, if applicable, international accounting standards, Federal and state tax law, Budgeting and forecasting, and Financial planning and benchmarking. Accounting rules and tax law have undergone major changes in recent years. Candidates should understand the business provisions of the Tax Cuts and Jobs Act, as well as the impact of updated accounting standards on reporting revenue, leases and credit losses. It’s also helpful to have experience with managerial accounting and cost-cutting initiatives.

3. Previous employment in public accounting

Many CFOs start off their careers in public accounting for good reason: They learn about a broad range of accounting, tax and consulting projects in many different industries.

This experience positions candidates for leadership roles in the private sector. Former CPAs know how the auditing process works and can implement procedures to support that process within your organization. They’ve also seen the best (and worst) business practices in the real world. This insight can help your company seize opportunities — and avoid potential pitfalls.

4. Forensic and technology skills

CFOs sometimes need to examine the business from a forensic perspective. That could include overseeing a fraud investigation, evaluating compliance with new or updated government regulations, or remediating a data breach.

In turn, the prevalence of cyberattacks has made technology skills increasingly important for CFOs. Candidates should know how to protect against loss of sensitive data, including customer credit card numbers and company financial data and intangible assets. Candidates also must have a working knowledge of accounting systems and how they operate in the cloud.

Help wanted

As your business evolves, so too must the role of the CFO. We can help you evaluate candidates to find the right mix of skills and experience for your finance and accounting department.

Back to industry updates

Many taxpayers make charitable gifts — because they’re generous and they want to save money on their federal tax bills. But with the tax law changes that went into effect a couple years ago and the many rules that apply to charitable deductions, you may no longer get a tax break for your generosity.

Are you going to itemize?

The Tax Cuts and Jobs Act (TCJA), signed into law in 2017, didn’t put new limits on or suspend the charitable deduction, like it did with many other itemized deductions. Nevertheless, it reduces or eliminates the tax benefits of charitable giving for many taxpayers.

Itemizing saves tax only if itemized deductions exceed the standard deduction. Through 2025, the TCJA significantly increases the standard deduction. For 2020, it is $24,800 for married couples filing jointly (up from $24,400 for 2019), $18,650 for heads of households (up from $18,350 for 2019), and $12,400 for singles and married couples filing separately (up from $12,200 for 2019).

Back in 2017, these amounts were $12,700, $9,350, $6,350 respectively. The much higher standard deduction combined with limits or suspensions on some common itemized deductions means you may no longer have enough itemized deductions to exceed the standard deduction. And if that’s the case, your charitable donations won’t save you tax.

To find out if you get a tax break for your generosity, add up potential itemized deductions for the year. If the total is less than your standard deduction, your charitable donations won’t provide a tax benefit.

You might, however, be able to preserve your charitable deduction by “bunching” donations into alternating years. This can allow you to exceed the standard deduction and claim a charitable deduction (and other itemized deductions) every other year.

What is the donation deadline?

To be deductible on your 2019 return, a charitable gift must have been made by December 31, 2019. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” The delivery date depends in part on what you donate and how you donate it. For example, for a check, the delivery date is the date you mailed it. For a credit card donation, it’s the date you make the charge.

Are there other requirements?

If you do meet the rules for itemizing, there are still other requirements. To be deductible, a donation must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions.

And there are substantiation rules to prove you made a charitable gift. For a contribution of cash, check, or other monetary gift, regardless of amount, you must maintain a bank record or a written communication from the organization you donated to that shows its name, plus the date and amount of the contribution. If you make a charitable contribution by text message, a bill from your cell provider containing the required information is an acceptable substantiation. Any other type of written record, such as a log of contributions, isn’t sufficient.

Do you have questions?

We can answer any questions you may have about the deductibility of charitable gifts or changes to the standard deduction and itemized deductions.

Back to industry updates

You’ve no doubt read articles or heard stories about how artificial intelligence (AI) is bringing sweeping change to a wide variety of industries. But it’s one thing to learn about how this remarkable technology is changing someone else’s company and quite another to apply it to your own. Here’s a primer on what AI might be able to do for your business.

3 technology types

AI generally refers to using computers to perform complex tasks usually thought to require human intelligence — such as image perception, voice recognition, decision making and problem solving. Three primary types of technologies fall under the AI umbrella:

1. Machine learning. This involves an iterative process whereby machines improve their performance in a specific task over time with little or no programming or human intervention. It can, for example, improve your forecasting models for determining which products or services will be in high demand with customers.

2. Natural language processing (NLP). This uses algorithms to analyze unstructured human language in documents, emails, texts, conversation or otherwise. Language translation apps are among the most common and dramatic examples of NLP. Communicating with business partners, customers and prospects in other countries — or simply people whose first languages are other than English — has become much easier as this type of software has improved.

3. Robotic process automation (RPA). Using rules and structured inputs, RPA automates time-consuming repetitive manual tasks that don’t require decision making. For instance, an RPA system can collect data from vendor invoices, enter it into a company’s accounting system, and generate an email confirming receipt and requesting additional information if needed. This functionality can help you better time vendor payments to optimize cash flow.

Chat boxes, data sensors

A couple of the most common on-ramps into AI for businesses are chatbots and data sensors. Chatbots are those AI-based instant messaging or voice-based systems that allow users to ask relatively simple questions and get instant answers.

Today’s customers expect to find information quickly and chatbots can provide this speed. However, it’s important to implement a system that enables users to speedily connect to a human customer service rep if their questions or issues are complex or urgent.

Data sensors generally don’t have anything to do with customers, but they can be quite valuable when it comes to your offices or facilities. AI-enhanced building systems allow for real-time monitoring and adjustment of temperature, lighting and other controls. This data can drive predictive analytics that improve decisions about the maintenance and replacement of systems, lowering energy and repair costs.

Upgrade prudently

Precisely how AI might help you run your business more efficiently and profitably depends on the size of your company and the nature of its work. You don’t want to throw dollars at an AI solution just to keep up with the competition. Then again, this technology may offer enticing ways to sharpen your competitive edge. We can help you perform a cost-benefit analysis of any technological upgrade you’re considering.

Back to industry updates

Personal data encompasses a lot of our identifiable information, like social security numbers, addresses, banking information and credit card details. Yet, what is often overlooked are the breadcrumbs we leave online. Innocuous information which we freely share through our social media and internet searches are regularly monetized in ways that our credit card number is not.

Personal data today can be compared to yesterday’s oil—it powers today’s most profitable corporations. Every day, hundreds of companies gather facts about us, some more private than others.
American companies are estimated to have spent over $19 billion in 2018 acquiring and analyzing consumer data, according to the Interactive Advertising Bureau. The information that brokers collect is incredibly valuable to corporations, marketers, investors, and individuals – as well as abusers. In addition to the companies trying to sell us stuff, the information may be passed on to data analysts, hackers, and many others.

When President Lyndon Johnson’s administration proposed merging hundreds of federal databases into a centralized National Data Bank, Congress quashed the project. Concerned about possible surveillance, if congress organized a Special Subcommittee on the Invasion of Privacy. The New York Times reported that lawmakers worried that the data bank could violate the privacy of millions of Americans. Instead, Congress passed a series of personal data use laws, including the Fair Credit Reporting Act in 1970 and the Privacy Act in 1974, mandating increased transparency on how and when federal agencies use our personal data.

Fast forward to today. Even after being faced with numerous high‐profile data security breaches and despite knowing little about how much of their information is collected and who gets to look at it, people world‐wide surrender all sorts of their data in the name of convenience. But their expectation that their medical histories, for example, will stay private remains deeply embedded in their assumptions. “Health information,” The Wall Street Journal recently wrote, “is the last sacrosanct piece of personal information.” So eyebrows were raised, recently, at the news that Google and Ascension entered into a business venture giving Google access to millions of American’s private medical records. Everyone, it seems, expected that HIPAA laws would protect them.

The HIPAA law, though, was enacted in 1996 ‐ before Google, Amazon and Apple became titans of technology. The technology boom left us with gaping holes in our regulatory framework that Congress is only now working to address. And while transparency is still a most important tool in protecting consumers, as competitors, these industry giants all value the shroud of secrecy they operate behind. Aggregating, sharing, selling and transferring data remains perfectly legal. For now. Tech companies have been forced to acknowledge the need for additional regulation as lawmakers slowly sift through the dense and challenging nature of the laws governing them. Even in a divided Congress, they are likely to unite around protecting American’s privacy. crutinizing “Big Tech” has become an important issue for people who are on either side of the aisle.

In the meantime, business owners all agree that loose lips sink ships, but Roth and Co. keeps your confidence.

Back to industry updates

With the empty bottles of bubbly placed safely in the recycling bin and the confetti swept off the floor, it’s time to get back to the grind. The beginning of the year can be a busy time for business owners and executives, because you no doubt want to get off to a strong start in 2020.

One danger of a hectic beginning is setting an early precedent for distancing yourself from rank-and-file staff. After all, a busy opening to the year may turn into a chaotic middle and a frantic conclusion. Hopefully all’s well that ends well, but you and your top-level executives could wind up isolating yourselves from employees — and that’s not good.

Here are some ways to stay connected with staff throughout the year:

Solicit feedback. Set up an old-fashioned suggestion box or perhaps a more contemporary email address where employees can vent their concerns and ask questions. Ownership or executive management can reply to queries with the broadest implications, while other managers could handle questions specific to a given department or position. Share answers through company-wide emails or make them a feature of an internal newsletter or blog.

Hold a company meeting. At least once a year, hold a “town hall” with staff members to answer questions and discuss issues face to face. You could even take it to the next level by organizing a company retreat, where you can not only answer questions but challenge employees to come up with their own strategic ideas.

Be social. All work and no play can make owners and execs look dull and distant. Hold an annual picnic, host an outing to a sporting event or throw a holiday party so you and other top managers can mingle socially and get to know people on a personal level.

Make appearances. Business owners and executives should occasionally tour each company department or facility. Give managers a chance to speak with you candidly. Sit in on meetings; ask and answer questions. Employees will likely get a morale boost from seeing you take an active interest in their little corner of the company.

Learn a job. For a potentially fun and insightful change of pace, set aside a day to learn about a specific company position. Shadow an employee and let him or her explain what really goes into the job. Ask questions but stay out of the way. Clarify upfront that you’re not playing “gotcha” but rather trying to better understand how things get done and what improvements you might make.

By staying visible and interactive with employees, your staff will likely feel more appreciated and, therefore, be more productive. You also may gather ideas for eliminating costly redundancies and inefficiencies. Maybe you’ll even find inspiration for your next big strategic move. We can assist you in assessing the potential costs and benefits of the strategies mentioned and more.

Back to industry updates

If your company comes up over budget year after year, you may want to consider cost management. This is a formalized, systematic review of operations and resources with the stated goal of reducing costs at every level and controlling them going forward. As part of this effort, you’ll answer questions such as:

Are we operating efficiently? Cost management can help you clearly differentiate activities that are running smoothly and staying within budget from the ones that are constantly breaking down and consuming extra dollars.

Depending on your industry, there are likely various metrics you can calculate and track to determine which aspects of your operations are inefficient. Sometimes improving efficiency is simply a matter of better scheduling. If you’re constantly missing deadlines or taking too long to fulfill customers’ needs, you’re also probably losing money playing catch-up and placating disappointed buyers.

Can we really see our supply chain? Maybe you’ve bought the same types of materials from the same vendors for many years. Are you really getting the most for your money? A cost management review can help you look for better bargains on the goods and services that make your business run.

A big problem for many businesses is lack of practical data. Without the right information, you may not be fully aware of the key details of your supply chain. There’s a term for this: supply chain visibility. When you can’t “see” everything about the vendors that service your company, you’re much more vulnerable to hidden costs and overspending.

Is technology getting the better of us? At this point, just about every business process has been automated one way or another. But are you managing this technology or is it managing you? Some companies overspend unnecessarily while others miss out on ways to better automate activities. Cost management can help you decide whether to simplify or upgrade.

For example, many businesses have historically taken an ad hoc approach to procuring technology. Different departments or individuals have obtained various software over the years. Some of this technology may still be in regular use but, in many cases, an expensive application sits dormant while the company still pays for licensing or tech support.

Conversely, a paid-for but out-of-date application could be slowing operational or supply chain efficiency. You may have to spend money to save money by getting something that’s up-to-date and fully functional.

The term “cost management” is often applied to specific projects. But you can also apply it to your business, either as an emergency step if your budget is really out of whack or as a regular activity for keeping the numbers in line. Our firm can help you conduct this review and decide what to do about the insights gained.

Back to industry updates

A significant law was recently passed that adds tax breaks and makes changes to employer-provided retirement plans. If your small business has a current plan for employees or if you’re thinking about adding one, you should familiarize yourself with the new rules.

The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law on December 20, 2019 as part of a larger spending bill. Here are three provisions of interest to small businesses.

Employers that are unrelated will be able to join together to create one retirement plan. Beginning in 2021, new rules will make it easier to create and maintain a multiple employer plan (MEP). A MEP is a single plan operated by two or more unrelated employers. But there were barriers that made it difficult to setting up and running these plans. Soon, there will be increased opportunities for small employers to join together to receive better investment results, while allowing for less expensive and more efficient management services.
There’s an increased tax credit for small employer retirement plan startup costs. If you want to set up a retirement plan, but haven’t gotten around to it yet, new rules increase the tax credit for retirement plan start-up costs to make it more affordable for small businesses to set them up. Starting in 2020, the credit is increased by changing the calculation of the flat dollar amount limit to: The greater of $500, or the lesser of: a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan, or b) $5,000.
There’s a new small employer automatic plan enrollment tax credit. Not surprisingly, when employers automatically enroll employees in retirement plans, there is more participation and higher retirement savings. Beginning in 2020, there’s a new tax credit of up to $500 per year to employers to defray start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. This credit is on top of an existing plan start-up credit described above and is available for three years. It is also available to employers who convert an existing plan to a plan with automatic enrollment.
These are only some of the retirement plan provisions in the SECURE Act. There have also been changes to the auto enrollment safe harbor cap, nondiscrimination rules, new rules that allow certain part-timers to participate in 401(k) plans, increased penalties for failing to file retirement plan returns and more. Contact us to learn more about your situation.

Back to industry updates

While you were celebrating the holidays, you may not have noticed that Congress passed a law with a grab bag of provisions that provide tax relief to businesses and employers. The “Further Consolidated Appropriations Act, 2020” was signed into law on December 20, 2019. It makes many changes to the tax code, including an extension (generally through 2020) of more than 30 provisions that were set to expire or already expired.

Two other laws were passed as part of the law (The Taxpayer Certainty and Disaster Tax Relief Act of 2019 and the Setting Every Community Up for Retirement Enhancement Act).

Here are five highlights.

Long-term part-timers can participate in 401(k)s.

Under current law, employers generally can exclude part-time employees (those who work less than 1,000 hours per year) when providing a 401(k) plan to their employees. A qualified retirement plan can generally delay participation in the plan based on an employee attaining a certain age or completing a certain number of years of service but not beyond the later of completion of one year of service (that is, a 12-month period with at least 1,000 hours of service) or reaching age 21.

Qualified retirement plans are subject to various other requirements involving who can participate.

For plan years beginning after December 31, 2020, the new law requires a 401(k) plan to allow an employee to make elective deferrals if the employee has worked with the employer for at least 500 hours per year for at least three consecutive years and has met the age-21 requirement by the end of the three-consecutive-year period. There are a number of other rules involved that will determine whether a part-time employee qualifies to participate in a 401(k) plan.

The employer tax credit for paid family and medical leave is extended.

Tax law provides an employer credit for paid family and medical leave. It permits eligible employers to claim an elective general business credit based on eligible wages paid to qualifying employees with respect to family and medical leave. The credit is equal to 12.5% of eligible wages if the rate of payment is 50% of such wages and is increased by 0.25 percentage points (but not above 25%) for each percentage point that the rate of payment exceeds 50%. The maximum leave amount that can be taken into account for a qualifying employee is 12 weeks per year.

The credit was set to expire on December 31, 2019. The new law extends it through 2020.

The Work Opportunity Tax Credit (WOTC) is extended.

Under the WOTC, an elective general business credit is provided to employers hiring individuals who are members of one or more of 10 targeted groups. The new law extends this credit through 2020.

The medical device excise tax is repealed.

The Affordable Care Act (ACA) contained a provision that required that the sale of a taxable medical device by the manufacturer, producer or importer is subject to a tax equal to 2.3% of the price for which it is sold. This medical device excise tax originally applied to sales of taxable medical devices after December 31, 2012.

The new law repeals the excise tax for sales occurring after December 31, 2019.

The high-cost, employer-sponsored health coverage tax is repealed.

The ACA also added a nondeductible excise tax on insurers when the aggregate value of employer-sponsored health insurance coverage for an employee, former employee, surviving spouse or other primary insured individual exceeded a threshold amount. This tax is commonly referred to as the tax on “Cadillac” plans.

The new law repeals the Cadillac tax for tax years beginning after December 31, 2019.

Stay tuned

These are only some of the provisions of the new law. We will be covering them in the coming weeks. If you have questions about your situation, don’t hesitate to contact us.

Back to industry updates

If you think search engine optimization (SEO) is something only for-profit businesses need to worry about, think again. The Google rankings of your not-for-profit’s website can make a tremendous difference in the donations and other support you receive.

Cracking Google metrics

Google, of course, isn’t the only search engine on the Web. But it accounts for more than 75% of search engine traffic worldwide and an even greater percentage in the United States. Research has found that sites appearing on the first page of Google search results receive more than 90% of search traffic — and that about 60% of traffic goes to the first three results.

Although it’s not easy (or even possible) to crack Google’s search engine metrics and configure your site so that it lands a top spot, monitor trends and adjust your Web strategies accordingly. For example, periodically review the keywords you use in headlines, content, titles, heading tags and meta descriptions. Then check their popularity using Google Trends. If there’s a heavily trafficked news item that relates to your nonprofit’s mission or programs, you might be able to use fresh keywords to tie your site to the story and, thus, increase traffic.

Another thing that can boost your search engine standing are links from other sites. Quality matters when it comes to incoming links. A few links from sources with strong reputations in the relevant areas will be ranked higher than dozens from less credible sources. Know that reputable and popular sites are more likely to link to yours if you provide substantive content that isn’t available elsewhere.

Keeping up with trends

Mobile device traffic has exploded over the past decade — so your site’s content must be mobile-friendly to get the most mileage with search engines. Google has expanded its use of mobile-friendliness as a ranking factor and even offers a Mobile-Friendly Test Tool at http://bit.ly/2DlChHB. Use it to identify mobile usability problems so you can make your site easier for users to navigate and search engines to index.

Social media is the other game-changer of the past 10 years. Facebook, Twitter, LinkedIn and other platforms are instrumental in boosting the visibility of your nonprofit’s site and, indirectly, your SEO. Include links to your site in social media posts so the links are shared when readers repost your content. However, keep in mind that links from other sources are rated more highly than links from your own postings.

Getting help

There’s a lot you can do — even with only a little technical knowledge — to improve your site’s search engine visibility. But if you’re starting from scratch with a newly designed website, consider getting advice from an SEO expert. Some contractors offer lower-fee arrangements for nonprofits. Ask us for recommendations.

Back to industry updates

The end of one year and the beginning of the next is a great opportunity for reflection and planning. You have 12 months to look back on and another 12 ahead to look forward to. Here are five ways to strengthen your business for the new year by doing a little of both:

1. Compare 2019 financial performance to budget. Did you meet the financial goals you set at the beginning of the year? If not, why? Analyze variances between budget and actual results. Then, evaluate what changes you could make to get closer to achieving your objectives in 2020. And if you did meet your goals, identify precisely what you did right and build on those strategies.

2. Create a multiyear capital budget. Look around your offices or facilities at your equipment, software and people. What investments will you need to make to grow your business? Such investments can be both tangible (new equipment and technology) and intangible (employees’ technical and soft skills).

Equipment, software, furniture, vehicles and other types of assets inevitably wear out or become obsolete. You’ll need to regularly maintain, update and replace them. Lay out a long-term plan for doing so; this way, you won’t be caught off guard by a big expense.

3. Assess the competition. Identify your biggest rivals over the past year. Discuss with your partners, managers and advisors what those competitors did to make your life so “interesting.” Also, honestly appraise the quality of what your business sells versus what competitors offer. Are you doing everything you can to meet — or, better yet, exceed — customer expectations? Devise some responsive competitive strategies for the next 12 months.

4. Review insurance coverage. It’s important to stay on top of your property, casualty and liability coverage. Property values or risks may change — or you may add new assets or retire old ones — requiring you to increase or decrease your level of coverage. A fire, natural disaster, accident or out-of-the-blue lawsuit that you’re not fully protected against could devastate your business. Look at the policies you have in place and determine whether you’re adequately protected.

5. Analyze market trends. Recognize the major events and trends in your industry over the past year. Consider areas such as economic drivers or detractors, technology, the regulatory environment and customer demographics. In what direction is your industry heading over the next five or ten years? Anticipating and quickly reacting to trends are the keys to a company’s long-term success.

These are just a few ideas for looking back and ahead to set a successful course forward. We can help you review the past year’s tax, accounting and financial strategies, and implement savvy moves toward a secure and profitable 2020 for your business.

Back to industry updates

In its 2018 decision in South Dakota v. Wayfair, the U.S. Supreme Court upheld South Dakota’s “economic nexus” statute, expanding the power of states to collect sales tax from remote sellers. Today, nearly every state with a sales tax has enacted a similar law, so if your company does business across state lines, it’s a good idea to reexamine your sales tax obligations.

What’s nexus?

A state is constitutionally prohibited from taxing business activities unless those activities have a substantial “nexus,” or connection, with the state. Before Wayfair, simply selling to customers in a state wasn’t enough to establish nexus. The business also had to have a physical presence in the state, such as offices, retail stores, manufacturing or distribution facilities, or sales reps.

In Wayfair, the Supreme Court ruled that a business could establish nexus through economic or virtual contacts with a state, even if it didn’t have a physical presence. The Court didn’t create a bright-line test for determining whether contacts are “substantial,” but found that the thresholds established by South Dakota’s law are sufficient: Out-of-state businesses must collect and remit South Dakota sales taxes if, in the current or previous calendar year, they have 1) more than $100,000 in gross sales of products or services delivered into the state, or 2) 200 or more separate transactions for the delivery of goods or services into the state.

Nexus steps

The vast majority of states now have economic nexus laws, although the specifics vary:Many states adopted the same sales and transaction thresholds accepted in Wayfair, but a number of states apply different thresholds. And some chose not to impose transaction thresholds, which many view as unfair to smaller sellers (an example of a threshold might be 200 sales of $5 each would create nexus).

If your business makes online, telephone or mail-order sales in states where it lacks a physical presence, it’s critical to find out whether those states have economic nexus laws and determine whether your activities are sufficient to trigger them. If you have nexus with a state, you’ll need to register with the state and collect state and applicable local taxes on your taxable sales there. Even if some or all of your sales are tax-exempt, you’ll need to secure exemption certifications for each jurisdiction where you do business. Alternatively, you might decide to reduce or eliminate your activities in a state if the benefits don’t justify the compliance costs.

Need help?

Note: If you make sales through a “marketplace facilitator,” such as Amazon or Ebay, be aware that an increasing number of states have passed laws that require such providers to collect taxes on sales they facilitate for vendors using their platforms.

If you need assistance in setting up processes to collect sales tax or you have questions about your responsibilities, contact us.

Back to industry updates

State law typically specifies the minimum number of directors a not-for-profit must have on its board. But so long as organizations fulfill that requirement, it’s up to them to determine how many total board members they need. Several guidelines can help you arrive at the right number.

Small vs. large

Both small and large boards come with perks and drawbacks. For example, smaller boards allow for easier communication and greater cohesiveness among the members. Scheduling is less complicated, and meetings tend to be shorter and more focused.

Several studies have indicated that group decision making is most effective when the group size is five to eight people. But boards on the small side of this range may lack the experience or diversity necessary to facilitate healthy deliberation and debate. What’s more, members may feel overworked and burn out easily.

Burnout is less likely with a large board where each member shoulders a smaller burden, including when it comes to fundraising. Large boards may include more perspectives and a broader base of professional expertise — for example, financial advisors, community leaders and former clients.

On the other hand, larger boards can lead to disengagement because the members may not feel they have sufficient responsibilities or a voice in discussions and decisions. Larger boards also require more staff support.

What you should weigh

If you’re assembling a board or thinking about resizing, consider:

Director responsibilities and desirable expertise,
The complexity of issues facing your board,
Fundraising needs,
Committee structure,
Your organization’s life stage (for example, startup, or mature), and
Your nonprofit’s staffing resources.
You may have heard that it’s wise to have an uneven number of board members to avoid 50/50 votes. In such a case, though, the chair can make the decision. Moreover, an issue that produces a 50/50 split usually deserves more discussion.

Downsizing harder than upsizing

If you decide a larger board is in order, recruit new members. Trimming your board is a trickier proposition. For starters, you might need to change your bylaws. Generally, it’s best to set a range for board size in the bylaws, rather than a precise number.

Your bylaws already might call for staggered terms, which makes paring down simpler. As terms end, don’t replace members. Or establish an automatic removal process in which members are removed for missing a specified number of meetings.

An engaging experience

To successfully recruit and retain committed board members, you need to offer an engaging experience. Maintaining an appropriately sized board that makes the most of their talents is the first step.

Back to industry updates

Your not-for-profit may have paid little attention to the European Union’s (EU’s) General Data Protection Regulation (GDPR), which took effect May 25, 2018. The GDPR revises standards for privacy rights, information security and compliance in the EU. Yet it might also apply to U.S.-based organizations, such as your not-for-profit.

Big steps beyond

GDPR requirements are comprehensive and go far beyond existing U.S. privacy standards. They address:

Data security and data governance,
Consent to processing,
Mandatory breach notification,
Access to personal data and data erasure (the right to be “forgotten”),
Data portability, and
Cross-border data transfers.

Organizations must notify the appropriate EU authority within 72 hours after becoming aware of a data breach. By contrast, U.S. states’ breach notification laws require notification “without unreasonable delay,” with the shortest timing at 30 days, while the Health Information Portability and Accountability Act (HIPAA) allows 60 days.

The regulations define “personal data” broadly to include such identifiers as name, address, Social Security or tax identification number, and email address. Location data and online identifiers such as cookies or IP addresses are also considered personal data.

Notably, GDPR rules apply to entities outside the EU that process or hold the personal data of “data subjects” who are physically in the EU. It doesn’t matter where the processing takes place or whether the subjects are EU residents.

Rights of individuals

To comply with the GDPR, your nonprofit must obtain consent from individuals to collect their personal data. This means the person takes affirmative action, such as clicking on an “I agree” statement, and the personal data you already possess isn’t “grandfathered in.” You must obtain consent on that data or purge it completely from your systems (including employees’ spreadsheets and Outlook contact lists).

You also must disclose to individuals the data you collect on them upon request, so you’ll need to keep close track of such information. And if individuals ask to be forgotten, you must delete all of their data or anonymize it.

Proceed with caution

A serious violation of the GDPR can bring a penalty as high as 20 million euros (about $23 million) or 4% of the violator’s annual revenue. Questions remain about enforcement in the United States, but that’s no excuse not to abide by the rules and develop a compliance plan now. Contact us if you have questions.

Back to industry updates

It’s no secret that this is a challenging time for charitable fundraising. In its annual Giving USA 2019 report, the Giving USA Foundation noted a decrease in individual and household giving, blaming such impersonal factors as tax law changes and a wobbly stock market.

So why not fight back by making personal appeals to supporters? Requests from friends or family members have traditionally been significant donation drivers. Even in the age of social media “influencers,” prospective donors are more likely to contribute to the causes championed by people they actually know and trust.

Success strategies

The dedicated members of your board can be particularly effective fundraisers. But make sure they have the information and training necessary to be successful when reaching out to their networks.

When making a personal appeal to prospective donors, your board members should:

Meet in person. Letters and email can help save time, but face-to-face appeals are more effective. This is especially true if your nonprofit offers donors something in exchange for their attention. For instance, they’re more likely to be swayed at an informal coffee hour or after-work cocktail gathering hosted by a board member.

Humanize the cause. Say that your charity raises money for cancer treatment. If board members have been impacted by the disease, they might want to relate their personal experiences as a means of illustrating why they support the organization’s work.

Highlight benefits. Even when appealing to potential donors’ philanthropic instincts, it’s important to mention other possible benefits. For example, if your organization is trying to encourage local business owners to attend a charity event, board members should promote the event’s networking opportunities and public recognition (if applicable).

Wish list

Consider equipping board members with a wish list of specific items or services your nonprofit needs. Some of their friends or family members may not be able to support your cause with a monetary donation but can contribute goods (such as auction items) or in-kind services (such as technology expertise).

If you’re concerned about declining donations and need help finding new revenue streams, contact us for ideas.

Back to industry updates

One of the worst things that can happen to a not-for-profit organization is to have its tax-exempt status revoked. Among other consequences, the nonprofit may lose credibility with supporters and the public, and donors will no longer be able to make tax-exempt contributions.

Although loss of exempt status isn’t common, certain activities can increase your risk significantly. These include ignoring the IRS’s private benefit and private inurement provisions. Here’s what you need to know to avoid reaping an excess benefit from your organization’s transactions.

Understand private inurement

A private benefit is any payment or transfer of assets made, directly or indirectly, by your nonprofit that’s:

Beyond reasonable compensation for the services provided or the goods sold to your organization, or
For services or products that don’t further your tax-exempt purpose.

If any of your nonprofit’s net earnings inure to the benefit of an individual, the IRS won’t view your nonprofit as operating primarily to further its tax-exempt purpose.

The private inurement rules extend the private benefit prohibition to your organization’s “insiders.” The term “insider” or “disqualified person” generally refers to any officer, director, individual or organization (as well as their family members and organizations they control) who’s in a position to exert significant influence over your nonprofit’s activities and finances. A violation occurs when a transaction that ultimately benefits the insider is approved.

Make reasonable payments

Of course, the rules don’t prohibit all payments, such as salaries and wages, to an insider. You simply need to make sure that any payment is reasonable relative to the services or goods provided. In other words, the payment must be made with your nonprofit’s tax-exempt purpose in mind.

To ensure you can later prove that any transaction was reasonable and made for a valid exempt purpose, formally document all payments made to insiders. Also ensure that board members understand their duty of care. This refers to a board member’s responsibility to act in good faith, in your organization’s best interest, and with such care that proper inquiry, skill and diligence has been exercised in the performance of duties.

Avoid negative consequences

To ensure your nonprofit doesn’t participate in an excess benefit transaction, educate staffers and board members about the types of activities and transactions they must avoid. Stress that individuals involved could face significant excise tax penalties. For more information, please contact us.

Back to industry updates

Most not-for-profit board members are unpaid volunteers. They’ve agreed to serve because they care about your mission and the impact your organization is making. You owe it to them to make the job as easy as possible — starting with well-organized board meetings that are only as long as necessary.

Setting the agenda

The key to effective board meetings is good planning. Once the meeting date is set, your executive director and board chair should prepare an agenda. To ensure the meeting will cover all pressing concerns, email board members to ask if there’s anything they want to add.

For each item, the agenda should provide a timetable and assign responsibility to specific members. Include at least one board vote to reinforce a sense of purpose and accomplishment, but be careful not to cram too much into your agenda. Otherwise, the meeting is likely to feel rushed and some items may need to be postponed to a future meeting.

Distribute a board packet at least one to two days before the meeting. This packet should consist of the agenda, minutes from the previous meeting and materials relevant to new agenda items, such as financial statements and project proposals.

Keeping things moving

Start with a short pre-meeting reception that allows members to chat. Some board members have little time to spare, but most will welcome the opportunity to get to know their colleagues. Staff should help facilitate communication by introducing any new members to the group and ensuring people mingle.

During the meeting itself, your executive director and board chair should stick to the agenda and keep things moving. This means imposing a time limit on discussions and calling time when necessary — particularly if one or two individuals are dominating the conversation.

Encourage a vote after a reasonable period. But if your organization requires a consensus (as opposed to a majority vote), the board may not be able to reach a decision in one meeting. If members need more time to think about or research an issue, postpone the decision to a future date and move on.
Finally, end the meeting on a positive note: Remind board members why they’re there and thank them for their time.

Following up

Board meetings can’t be effective if there’s no follow-up. Find answers and supporting materials for any questions that might have arisen during the meeting and make sure unresolved items are placed on the next meeting’s agenda.

Also ensure that board members are fulfilling their commitments to your organization and fellow members. If their busy schedules are impeding them, step in and help. If the issue continues, consider replacing the board member.

Back to industry updates

How well do you listen to your not-for-profit’s supporters? If you don’t engage in “social listening,” your efforts may not be good enough. This marketing communications strategy is popular with for-profit companies, but can just as easily help nonprofits attract and retain donors, volunteers and members.

Social media monitoring

Social listening starts with monitoring social media sites such as Facebook, Twitter, LinkedIn and Instagram for mentions of your organization and related keywords. But to take full advantage of this strategy, you also must engage with topics that interest your supporters and interact with “influencers,” who can extend your message by sharing it with their audiences.

Influencers don’t have to be celebrities with millions of followers. Connecting with a group of influencers who each have only several hundred followers can expand your reach exponentially. For example, a conservation organization might follow and interact with a popular rock climber or other outdoor enthusiast to reach that person’s followers.

Targeting your messages

To use social listening, develop a list of key terms related to your organization and its mission, programs and campaigns. You’ll want to treat this as a “living document,” updating it as you launch new initiatives. Then “listen” for these terms on social media. Several free online tools are available to perform this monitoring, including Google Alerts, Twazzup and Social Mention.

When your supporters or influencers use the terms, you can send them a targeted message with a call to action, such as a petition, donation solicitation or event announcement. Your call to action could be as simple as asking them to share your content.

You can also use trending hashtags (a keyword or phrase that’s currently popular on social media) to keep your communications relevant and leverage current events on a real-time basis. Always be on the lookout for creative ways to join conversations while promoting your organization or campaign.

Actively seeking opportunity

Most nonprofits have a presence on social media. But if your organization isn’t actively listening to and communicating with people on social media sites, you’re only a partial participant. Fortunately, social listening is an easy and inexpensive way to engage and become engaged.

Back to industry updates

The process of selling a business or admitting an investor can be overwhelming and burdensome. However, as with any product, if the company is primed for sale, then the seller can receive a higher value. Realtors always advise homeowners to trim the hedges, update the windows, and declutter the home to maximize its value. In fact, according to a study by the National Association of Realtors, home staging can increase the dollar value of the house by 11-20%. Accordingly, a business owner would be wise to properly plan and prepare for the sale of his/her lifetime of work or a portion thereof. The level of planning will determine the timing, price, and process of the transaction.

A business owner can decide to sell his or her business for various reasons. At times, it results from a change in lifestyle. For example, a business owner may choose to retire and use the proceeds of the sale instead of a retirement plan. Sometimes, the business owner is an innovative individual with an entrepreneurial spirit but does not have the proper management skills to grow or manage a thriving enterprise. Being a business owner is also time-consuming, and some may prefer to be an employee with limited hours rather than an employer with management and financial risks and responsibilities.

A business can also be sold due to regulatory or legal issues, a partnership buyout or estate plan (i.e., when the second generation doesn’t have the passion of the founder). It is also wise for a business owner to know a business lifecycle to sell the business or a portion of the company at its optimal stage. A business lifecycle includes the following:

Beginning Stage

At the launch or establishment of a business, its revenues are increasing slowly but often not enough to generate positive net income. This stage can include startups or companies in early development. A startup is usually less than one year old, and financing may be necessary for product development, prototype testing, and test marketing. A company is considered in early development when the business established a business plan, conducted studies of market penetration, and hired a management team.

At the seed or startup stage, the business owner can be expected to provide a rate of return of between 40% and 70% to an angel investor or venture capitalist. Although it’s better to own a slice of a watermelon than an entire core of an apple, it isn’t prudent to unnecessarily give away equity too early.

Growth Stage

During the expansion stage of a company, the company experiences rapid sales growth. Although the company may initially still be unprofitable, it eventually breaks even and generates a profit. At this time, the company may require capital for equipment and its working capital needs, which can usually be accomplished by obtaining bank financing. However, if the company cannot obtain traditional bank financing, it may be able to raise capital via asset-based or mezzanine Lenders. Conversely, an owner can be expected to provide a rate of return of between 30% and 50% to an angel investor or venture capitalist at this stage.

Maturity Stage

At maturity, a company’s revenue growth and its expenses stabilize, which reduces the risk of investment in the company. At this stage, the company reinvests some working capital but relies on debt financing over equity dilution. Nevertheless, if the company fails to innovate and introduce new services or product, then its growth will plateau and eventually decline. At this stage – often known as post-maturity – a cash infusion is necessary. This is the stage that may result in an initial public offering (IPO) or reliance on debt or additional equity investment. If the owner cannot invest more capital, then it is smart to sell the business before it declines.

Business lifecycle CFI’s FREE Corporate Finance Class

Conclusion

Ronald Wayne co-founded Apple Inc. with Steve Jobs and Steve Wozniak. In 1976, just 12 days after he entered into the partnership, he sold his 10% stake for approximately $2,300. A 10% stake of Apple Inc. would be worth roughly $100 billion today. In fact, the partnership contract was sold in 2011 for $1.6 million – after Wayne sold it earlier for $500.

Window-dressing a home is relatively simple, but preparing a business for sale is more involved. Don’t make the mistake of selling your business or equity interest too soon, but it is equally important not to wait until the value declines.

Back to industry updates

Many businesses struggle to turn abstract strategic-planning ideas into concrete, actionable plans. One reason why is simple: ineffective meetings. The ideas are there, lurking in the minds of management and key employees, but the process for hashing them out just doesn’t work. Here are a few ways to run your strategic-planning meetings like they really matter — which, of course, they do.

Build buy-in

Meetings often fail because attendees feel more like spectators than participants. They are less likely to zone out if they have some say in the direction and content of the gathering. So, before the session, touch base with those involved and establish a clear agenda of the strategic-planning initiatives you’ll be discussing.

Another common problem with meetings occurs when someone leads the meeting, but no one owns it. As the meeting leader, be sure to speak with conviction and express positivity (if not passion) for the subject matter. (If others are delivering presentations during the proceedings, encourage them to do the same.)

Fight fatigue

To the extent possible, keep meetings short. Cover what needs to be covered, but ensure you’re concentrating only on what’s important. Go in armed with easy-to-follow notes so you’ll stay on track and won’t forget anything. The latter point is particularly important, because overlooked subjects often lead to hasty follow-up meetings that can frustrate employees.

In addition, if the contingent of attendees is large enough, consider having employees break out into smaller groups to focus on specific points. Then call the meeting back to order to discuss each group’s ideas. By mixing it up in such creative ways, you’ll keep employees more engaged.

Tell a story

There’s so much to distract employees in a meeting. If it’s held in the morning, the busy day ahead may preoccupy their thoughts. If it’s an afternoon meeting, they might grow anxious about their commutes home. If the meeting is a Web conference, there are a variety of distractions that may affect them. And there’s no getting around the ease with which participants can sneak peeks at their smartphones (or smart watches) to check emails, texts and the Internet.

How do you break through? People appreciate storytellers. So, think about how you can use this technique to find a more relaxed and engaging way to speak to everyone in the room. Devise a narrative that will grab attendees’ attention and keep them in suspense for a little bit. Then deliver a conclusion that will inspire them to work toward identifying fully realized, feasible strategic goals.

Make ’em great

Grumbling about meetings can be as much a part of working life as burnt coffee in the bottom of the breakroom pot. But don’t let this occasional negativity sway you from doing the critical strategic planning that every business needs to do. Your meetings can be great ones. We can’t help you run them, but we can assist you in assessing the financial feasibility and ramifications of your strategic plans.

Back to industry updates

Failure to collect accounts receivable (AR) in a timely manner can lead to myriad financial problems for your company, including poor cash flow and the inability to pay its own bills. Here are five effective ideas to facilitate more timely collections:

1. Create an AR aging report. This report lets you see at a glance the current payment status of all your customers and how much money they owe. Aging reports typically track the payment status of customers by time periods, such as 0–30 days, 31–60 days, 61–90 days and 91+ days past due.

Armed with this information, you’ll have a better idea of where to focus your efforts. For example, you can concentrate on collecting the largest receivables that are the furthest past due. Or you can zero in on collecting receivables that are between 31 and 60 days outstanding before they become any further behind.

2. Assign collection responsibility to a sole accounting employee. Giving one employee the responsibility for AR collections ensures that the “collection buck” stops with someone. Otherwise, the task of collections could fall by the wayside as accounting employees pick up on other tasks that might seem more urgent.

3. Re-examine your invoices. Your customers prefer bills that are clear, accurate and easy to understand. Sending out invoices that are sloppy, vague or inaccurate will slow down the payment process as customers try to contact you for clarification. Essentially you’re inviting your customers to not pay your invoices promptly.

4. Offer customers multiple ways to pay. The more payment options customers have, the easier it is for them to pay your invoices promptly. These include payment by check, Automated Clearing House, credit or debit card, PayPal or even text message.

5. Be proactive in your billing and collection efforts. Many of your customers may have specific procedures that must be followed by vendors for invoice formatting and submission. Learn these procedures and follow them carefully to avoid payment delays. Also, consider contacting customers a couple of days before payment is due (especially for large payments) to make sure everything is on track.

Lax working capital practices can be a costly mistake. Contact us to help implement these and other strategies to improve collections and boost your revenue and cash flow. We can also help you with strategies for dealing with situations where it’s become clear that a past-due customer won’t (or can’t) pay an invoice.

Back to industry updates

In 2014, Brian Acton and his partner, Jan Koum, sold the popular messaging app WhatsApp to Facebook for approximately $19 billion in cash and stock. However, in 2017, Acton left WhatsApp and thereby left $850 million in unvested options on the table. He paid this price over a dispute he had with Facebook executives regarding users’ privacy. While Facebook understood the need to monetize WhatsApp’s data, its founders did not believe that it was in line with their vision and core values.

Studies show that children are excited about inheriting the family business and taking it to the next level. 75% of the next generation have big plans and energetic ideas on how to grow the family business. However, a founder may often be at odds with the next generation regarding the strategy and goals of the company. Accordingly, to ensure continuity, a business should implement a strategic plan with a company mission and underlying core values to serve as the bedrock of the company for future generations to rely upon. A strategic plan helps determine the long-term goals of a company, its core value, mission, and objectives. Such a plan can safeguard the continuity of a company and maintain the principles and tenets of the original founder.

Core Values

Core values are the underlying beliefs (“credo”) that govern an entity’s operations and relationships with other parties. They represent the fundamental beliefs of what is important to the company, publicize who the company is and what it stands for, and communicate the personal values and beliefs of the founder(s).

The core values are more than just a marketing concept. Instead, it should feed into the vision, purpose, and mission of the company and set the stage for all decisions that will be made as the company grows. Essentially, the core values should be treated as the foundation of the company and used to assist the company in developing and executing its goals and strategies.

For example, Whole Foods Market’s credo states: “We Sell the Highest Quality Natural and Organic Foods.” This will ensure that, although Amazon purchased the grocery chain, Whole Foods will remain a company that focuses on quality and product differentiation rather than cost leadership.

Mission Statement

The mission statement of a company provides an expression of the purpose and range of the entity’s activities, including the overall goals and operational scope and general guidelines for future management actions. A mission statement represents a condensed version of the company’s strategic plan and serves to differentiate the company from its competitors. Effectively, the mission statement ought to provide direction to the company’s executives when deciding on the products or services to offer. Nevertheless, the mission statement should be adjusted to reflect changing business environments and management philosophies.

Conclusion

William Rosenberg opened the first Dunkin’ Donuts store in 1950. Today, there are more than 10,000 Dunkin’ Donuts franchises in 32 countries around the world. In order to ensure uniformity and continuity, Mr. Rosenberg created the following mission statement: “Make and serve the freshest, most delicious coffee and donuts quickly and courteously in modern, well-merchandised stores.” Although Dunkin’ – as it re-branded itself – sells beverages and pastries beyond coffee and donuts, the founder’s mission of providing delicious and fresh baked goods is shared by local, small business franchisees around the world.

A strategic plan along with the core values and mission statement assists company leaders in following the objectives of the company to achieve the desired measurable results, including profitability, growth, market share, innovation, etc. while remaining true to the company’s philosophy and its founder’s vision.

Back to industry updates

If you’re a volunteer who works for charity, you may be entitled to some tax breaks if you itemize deductions on your tax return. Unfortunately, they may not amount to as much as you think your generosity is worth.

Because donations to charity of cash or property generally are tax deductible for itemizers, it may seem like donations of something more valuable for many people — their time — would also be deductible. However, no tax deduction is allowed for the value of time you spend volunteering or the services you perform for a charitable organization.

It doesn’t matter if the services you provide require significant skills and experience, such as construction, which a charity would have to pay dearly for if it went out and obtained itself. You still don’t get to deduct the value of your time.

However, you potentially can deduct out-of-pocket costs associated with your volunteer work.

The basic rules

As with any charitable donation, to be able to deduct your volunteer expenses, the first requirement is that the organization be a qualified charity. You can check by using the IRS’s “Tax Exempt Organization Search” tool at irs.gov/charities-non-profits/tax-exempt-organization-search.

If the charity is qualified, you may be able to deduct out-of-pocket costs that are unreimbursed; directly connected with the services you’re providing; incurred only because of your charitable work; and not “personal, living or family” expenses.

Expenses that may qualify

A wide variety of expenses can qualify for the deduction. For example, supplies you use in the activity may be deductible. And the cost of a uniform you must wear during the activity may also be deductible (if it’s required and not something you’d wear when not volunteering).

Transportation costs to and from the volunteer activity generally are deductible — either the actual expenses (such as gas costs) or 14 cents per charitable mile driven. The cost of entertaining others (such as potential contributors) on behalf of a charity may also be deductible. However, the cost of your own entertainment or meal isn’t deductible.

Deductions are permitted for away-from-home travel expenses while performing services for a charity. This includes out-of-pocket round-trip travel expenses, taxi fares and other costs of transportation between the airport or station and hotel, plus lodging and meals. However, these expenses aren’t deductible if there’s a significant element of personal pleasure associated with the travel, or if your services for a charity involve lobbying activities.

Record-keeping is important

The IRS may challenge charitable deductions for out-of-pocket costs, so it’s important to keep careful records and receipts. You must meet the other requirements for charitable donations. For example, no charitable deduction is allowed for a contribution of $250 or more unless you substantiate the contribution with a written acknowledgment from the organization. The acknowledgment generally must include the amount of cash, a description of any property contributed, and whether you got anything in return for your contribution.

And, in order to get a charitable deduction, you must itemize. Under the Tax Cuts and Jobs Act, fewer people are itemizing because the law significantly increased the standard deduction amounts. So even if you have expenses from volunteering that qualify for a deduction, you may not get any tax benefit if you don’t have enough itemized deductions.

If you have questions about charitable deductions and volunteer expenses, please contact us.

Back to industry updates

Whole Foods Market is now famous as the upscale supermarket chain that was acquired by Amazon for close to $14 billion. However, Whole Foods Market began with humble beginnings. In 1978, John Mackey and Renee Lawson borrowed money from friends and family to open a small natural food store in Austin, Texas. As the store expanded to open more locations and Mackey and Lawson admitted two additional partners and designated specific tasks to each partner, such as finance, human resources, and sales. This process continues today where, although Whole Foods Market is a multinational food chain with 500 locations, each regional manager has the autonomy and flexibility to decide on suppliers and pricing.

The proverb “too many cooks spoil the broth” applies to the management of a business. Thus, establishing the sequence of control as part of a succession plan ensures that the company continues to operate effectively and efficiently – especially if the business is bequeathed to children who do not work in the family business.

The sequence of control of a business succession plan outlines the decision-making process of a closely-held, family business once the owner is determined to be incapacitated or deceased. Although this can be emotionally tolling, the sequence of control is essential for the continuity of the business. The following are questions that arise when planning the sequence of control.

What is the definition of incapacitated?

You undoubtedly know of instances in which the patriarch of a family suffered from dementia or a form of memory loss. You are probably familiar with cases in which people took advantage of individuals suffering from Alzheimer’s disease. Such undue influence can arise if a business owner can no longer exercise prudent business reasoning and judgment. Accordingly, the business succession plan should define “capacity” and specify who makes the determination, which can be a physician or a member of the clergy.

Who assumes control?

It may seem irresponsible to vest absolute control to the child or children who work(s) in the business; however, it may be imprudent to allow children who do not work in the company to be involved in the decision-making process of the business. A business administrator who requires approval for the day-to-day operational decisions in the ordinary course of business may be unable to perform basic administrative duties of the company, especially if consent is needed from an adverse party. Nevertheless, a proper business plan may require a vote of all members for significant business decisions, or decisions that may alter the business structure or significantly impact the business.

How can I secure oversight over the business administrator?

Proper internal controls are always recommended to promote accountability and prevent fraud, but it is even more critical when one heir controls the family business. The business succession plan can provide for a salary and fringe benefits or performance-based compensation, methods for removing or replacing the administrator, an arbitrator to adjudicate disagreements or disputes among family members, and an exit strategy or process of dissolving the business or partnership.

How can I provide for myself and my spouse while incapacitated?

If you are considered an owner of the business during your lifetime or so long that your spouse is alive, your succession plan can stipulate that you receive periodic distributions. However, a fixed withdrawal may prove to be insufficient for your medical needs or general cost of living. Conversely, the business may be dependent on its working capital that is now being distributed and accumulated in your personal checking account.

Back to industry updates

Small businesses may find it beneficial to barter for goods and services instead of paying cash for them. If your business engages in bartering, be aware that the fair market value of goods that you receive in bartering is taxable income. And if you exchange services with another business, the transaction results in taxable income for both parties.

Income is also realized if services are exchanged for property. For example, if a construction firm does work for a retail business in exchange for unsold inventory, it will have income equal to the fair market value of the inventory.

Barter clubs

Many business owners join barter clubs that facilitate barter exchanges. In general, these clubs use a system of “credit units” that are awarded to members who provide goods and services. The credits can be redeemed for goods and services from other members.

Bartering is generally taxable in the year it occurs. But if you participate in a barter club, you may be taxed on the value of credit units at the time they’re added to your account, even if you don’t redeem them for actual goods and services until a later year. For example, let’s say that you earn 2,000 credit units one year, and that each unit is redeemable for $1 in goods and services. In that year, you’ll have $2,000 of income. You won’t pay additional tax if you redeem the units the next year, since you’ve already been taxed once on that income.

If you join a barter club, you’ll be asked to provide your Social Security number or employer identification number. You’ll also be asked to certify that you aren’t subject to backup withholding. Unless you make this certification, the club will withhold tax from your bartering income at a 24% rate.

Required forms

By January 31 of each year, the barter club will send you a Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” which shows the value of cash, property, services, and credits that you received from exchanges during the previous year. This information will also be reported to the IRS.

If you don’t contract with a barter exchange but you do trade services, you don’t file Form 1099-B. But you may have to file a form 1099-MISC.

Many benefits

By bartering, you can trade away excess inventory or provide services during slow times, all while hanging onto your cash. You may also find yourself bartering when a customer doesn’t have the money on hand to complete a transaction. As long as you’re aware of the federal and state tax consequences, these transactions can benefit all parties. Contact us for more information.

Back to industry updates

Do you want to control costs and improve delivery of your not-for-profit’s programs and services? It may not be as difficult as you think. First, you need to know how much of your nonprofit’s expenditures go toward programs, as opposed to administrative and fundraising costs. Then you must determine how much you need to fund your budget and weather temporary cash crunches.

4 key numbers

These key ratios can help your organization measure and monitor efficiency:

Percentage spent on program activities. This ratio offers insights into how much of your total budget is used to provide direct services. To calculate this measure, divide your total program service expenses by total expenses. Many watchdog groups are satisfied with 65%.

Percentage spent on fundraising. To calculate this number, divide total fundraising expenses by contributions. The standard benchmark for fundraising and admin expenses is 35%.

Current ratio. This measure represents your nonprofit’s ability to pay its bills. It’s worth monitoring because it provides a snapshot of financial conditions at any given time. To calculate, divide current assets by current liabilities. Generally, this ratio shouldn’t be less than 1:1.

Reserve ratio.Is your organization able to sustain programs and services during temporary revenue and expense fluctuations? The key is having sufficient expendable net assets and related cash or short-term securities.

To calculate the reserve ratio, divide expendable net assets (unrestricted and temporarily restricted net assets less net investment in property and equipment and less any nonexpendable components) by one day’s expenses (total annual expenses divided by 365). For most nonprofits, this number should be between three and six months. Base your target on the nature of your operations, your program commitments and the predictability of funding sources.

Orient toward outcomes

Looking at the right numbers is only the start. To ensure you’re achieving your mission cost-effectively, make sure everyone in your organization is “outcome” focused. This means that you focus on results that relate directly to your mission. Contact us for help calculating financial ratios and using them to evaluate outcomes.

Back to industry updates

Your not-for-profit’s ability to pursue its mission depends greatly on its financial health and integrity. If your nonprofit is growing and your executives are struggling to juggle financial responsibilities, it may be time to hire a chief financial officer (CFO).

Core responsibilities

Generally, the nonprofit CFO (also known as the director of finance) is a senior-level position charged with oversight of accounting and finances. He or she works closely with the executive director, finance committee and treasurer and serves as a business partner to your program heads. A CFO reports to the executive director or board of directors on the organization’s finances. He or she analyzes investments and capital, develops budgets and devises financial strategies.

The CFO’s role and responsibilities vary significantly based on the organization’s size, as well as the complexity of its revenue sources. In smaller nonprofits, CFOs often have wide responsibilities — possibly for accounting, human resources, facilities, legal affairs, administration and IT. In larger nonprofits, CFOs usually have a narrower focus. They train their attention on accounting and finance issues, including risk management, investments and financial reporting.

Making the decision

How do you know if you need a CFO? Weigh the following factors:

Size of your organization,
Complexity and types of revenue sources,
Number of programs that require funding, and
Strategic growth plans.

Static organizations are less likely to need a CFO than not-for-profits with evolving programs and long-term plans that rely on investment growth, financing and major capital expenditures.

The right candidate

At a minimum, you want a CFO with in-depth knowledge of the finance, accounting and tax rules particular to nonprofits. Someone who has worked only in the for-profit sector may find the differences difficult to navigate. Nonprofit CFOs also need a familiarity with funding sources, grant management and, if your nonprofit expends $750,000 or more of federal assistance, single audit requirements. The ideal candidate should have a certified public accountant (CPA) designation and, optimally, an MBA.

In addition, the position requires strong communication skills, strategic thinking, financial reporting expertise and the creativity to deal with resource restraints. Finally, you’d probably like the CFO to have a genuine passion for your mission — nothing motivates employees like a belief in the cause.

Consider outsourcing

If your budget is growing and financial matters are becoming more complicated, you may want to add a CFO to the mix. Otherwise, consider outsourcing CFO responsibilities to a CPA firm. Contact us for more information.

Back to industry updates

Most not-for-profits are intensely focused on present needs, not the possibility that disaster will strike sometime in the distant future. But because a fire, flood or other natural or man-made disaster could strike at any time, the time to plan for it is now.

You likely already have many of the necessary processes in place — such as evacuating your office. A disaster or continuity plan simply organizes and documents your processes.

Identify specific risks

No organization can anticipate or eliminate all possible risks, but you can limit the damage of potential risks specific to your nonprofit. The first step in creating a disaster plan is to identify the specific threats you face when it comes to your people, processes and technology. For example, if you work with vulnerable populations such as children and the disabled, you may need to take extra precautions to protect your clients.

Also assess what the damages would be if your operations were interrupted. For example, if you had an office fire — or even a long-lasting power outage — what would be the possible outcomes regarding property damage and financial losses?

Make your plan

Designate a lead person to oversee the creation and implementation of your continuity plan. Then assemble teams to handle different duties. For example, a communications team could be responsible for contacting and updating staff, volunteers and other stakeholders, and updating your website and social media accounts. Other teams might focus on:

Safety and evacuation procedures,
IT issues, including backing up data offsite,
Insurance and financial needs, and
Recovery — getting your office and services back up and running.

Planning pays off

All organizations — nonprofit and for-profit alike — need to think about potential disasters. But plans are critical for some nonprofits. If you provide basic human services (such as medical care and food) or are a disaster-related charity, you must be ready to support victims and their families. This could mean mobilizing quickly, perhaps without full staffing, working computers or safe facilities. You don’t want to be caught without a plan. Contact us for more information.

Back to industry updates

It’s every business owner’s nightmare. Should hackers gain access to your customers’ or employees’ sensitive data, the very reputation of your company could be compromised. And lawsuits might soon follow.

No business owner wants to think about such a crisis, yet it’s imperative that you do. Suffering a data breach without an emergency response plan leaves you vulnerable to not only the damage of the attack itself, but also the potential fallout from your own panicked decisions.

5 steps to take

A comprehensive plan generally follows five steps once a data breach occurs:

1. Call your attorney. He or she should be able to advise you on the potential legal ramifications of the incident and what you should do or not do (or say) in response. Involve your attorney in the creation of your response plan, so all this won’t come out of the blue.

2. Engage a digital forensics investigator. Contact us for help identifying a forensic investigator that you can turn to in the event of a data breach. The preliminary goal will be to answer two fundamental questions: How were the systems breached? What data did the hackers access? Once these questions have been answered, experts can evaluate the extent of the damage.

3. Fortify your IT systems. While investigative and response procedures are underway, you need to proactively prevent another breach and strengthen controls. Doing so will obviously involve changing passwords, but you may also need to add firewalls, create deeper layers of user authentication or restrict some employees from certain systems.

4. Communicate strategically. No matter the size of the company, the communications goal following a data breach is essentially the same: Provide accurate information about the incident in a reasonably timely manner that preserves the trust of customers, employees, investors, creditors and other stakeholders.

Note that “in a reasonably timely manner” doesn’t mean “immediately.” Often, it’s best to acknowledge an incident occurred but hold off on a detailed statement until you know precisely what happened and can reassure those affected that you’re taking specific measures to control the damage.

5. Activate or adjust credit and IT monitoring services. You may want to initiate an early warning system against future breaches by setting up a credit monitoring service and engaging an IT consultant to periodically check your systems for unauthorized or suspicious activity. Of course, you don’t have to wait for a breach to do these things, but you could increase their intensity or frequency following an incident.

Inevitable risk

Data breaches are an inevitable risk of running a business in today’s networked, technology-driven world. Should this nightmare become a reality, a well-conceived emergency response plan can preserve your company’s goodwill and minimize the negative impact on profitability. We can help you budget for such a plan and establish internal controls to prevent and detect fraud related to (and not related to) data breaches.

Back to industry updates

It’s a well-known truism in the corporate world: Organizations that don’t evolve run the risk of becoming obsolete. But instead of anticipating and reacting to market demands like their for-profit counterparts, many not-for-profits hold on to old ideas about how their organizations should be run. Here are a few things your nonprofit can learn from the business world.

Thinking strategically

The strategic plan — a map of near- and long-term goals and how to reach them — lies at the core of most for-profit companies. If your nonprofit doesn’t have a strategic plan or has been lax about revisiting and revising an existing plan, this should be a top priority.

Although the scope of your plan will be specific to the size and nature of your organization, basic principles apply to most. For example, you should set objectives for several time periods, such as one year, five years and 10 years out. Pay particular attention to each strategic goal’s return on investment. For example, consider the resources required to implement a new contact database relative to the time and money you’ll save in the future.

Spending differently

You probably already develop an annual budget, but how closely does it follow your strategic plan? For-profit businesses use budgets to support strategic priorities, putting greater resources behind higher priority projects.

Businesses also routinely carry debt on their balance sheets in the belief that it takes money to make money. Nonprofits, by contrast, typically avoid operating deficits. Unfortunately, it’s possible to operate so lean that you no longer meet your mission. Applying for a loan or even creating a for-profit subsidiary could provide your nonprofit with the funds to grow. Building up your endowment also may help provide the discretionary cash essential to pursue strategic opportunities.

Promoting transparency

Although nonprofits must disclose financial, operational and governance-related information on their Form 990s, public companies subject to the Sarbanes-Oxley Act and other regulations are held to higher standards. Consider going the extra mile to promote transparency.

If you don’t already, engage an outside expert to perform annual audits, and make your audited financial statements available upon request. Outside audits help assure stakeholders that your financial data is accurate and that you’re following correct accounting practices and internal controls.

We can help with your audit needs and assist you in adopting for-profit business practices that make sense given your organization’s needs. Reach out to learn more.

Back to industry updates

Competition is as fierce as it has ever been for private and public grants to not-for-profits. If your funding model depends on receiving adequate grant money, you can’t afford to submit sloppy, unprofessional grant proposals. Here are some tips on writing a winner.

Do your research

Just as you’d research potential employers before applying for a job, you should get to know grant-making organizations before asking for their support. Familiarize yourself with the grant-maker’s primary goals and objectives, the types of projects it has funded in the past, and its grant-making processes and procedures.

Performing research enables you to determine whether your programs are a good fit with the grant-maker’s mission. If they aren’t, you’ll save yourself time and effort in preparing a proposal. If they are, you’ll be better able to tailor your proposal to your audience.

Support your request

Every grant proposal has several essential elements, starting with a single-page executive summary. Your summary should be succinct, using only the number of words necessary to define your organization and its needs. You also should include a short statement of need that provides an overview of the program you’re seeking to fund and explains why you need the money for your program. Other pieces include a detailed project description and budget, an explanation of your organization’s unique ability to run this program, and a conclusion that briefly restates your case.

Support your proposal with facts and figures but don’t forget to include a human touch by telling the story behind the numbers. Augment statistics with a glimpse of the population you serve, including descriptions of typical clients or community testimonials.

Follow the rules

Review the grant-maker’s guidelines as soon as you receive them so that if you have any questions you can contact the organization in advance of the submission deadline. Then, be sure to follow application instructions to the letter. This includes submitting all required documentation on time and error-free. Double-check your proposal for common mistakes such as:

Excessive length,
Math errors,
Overuse of industry jargon, and
Missing signatures.

Take the time

To produce a winning proposal, you need to give yourself a generous time budget. Researching the grant-maker, collecting current facts and statistics about your organization, composing a compelling story about your work and proofreading your proposal all take more time than you probably think they do. Above all, don’t leave grant proposal writing to the last minute.

Back to industry updates

If you think that, once your not-for-profit receives its official tax-exempt status from the IRS, you don’t have to revisit it again, think again. Whether your organization is a Section 501(c)(3), Sec. 501(c)(7) or other type, be careful. The activities you conduct, the ways you generate revenue and how you use that revenue could potentially threaten your exempt status. It’s worth reviewing the IRS’s exempt-status rules to make sure your organization is operating within them.

Hot buttons

There are many categories of tax exemption — each with its own rules. But certain hot-button issues apply to most tax-exempt entities. These include:

Lobbying. Having a Sec. 501(c)(3) status limits the amount of lobbying a charitable organization can undertake. This doesn’t mean lobbying is totally prohibited. But according to the IRS, your organization shouldn’t devote “a substantial part of its activities” trying to influence legislation.

For nonprofits that are exempt under other categories of Sec. 501(c), there are fewer restrictions on lobbying activities. Lobbying activities these groups undertake must relate to the accomplishment of the group’s purpose. For instance, an association of teachers can lobby for education reform without risking its tax exemption.

Campaign activities. The IRS considers lobbying to be different from campaign activities, which are completely off limits to Sec. 501(c)(3) organizations. This means they can’t participate or intervene in any political campaign for or against a candidate for public office. If you’re not a 501(c)(3) organization, campaign restrictions vary.

Excess profit and private inurement. The cardinal rule about profits is that a nonprofit can’t be operated to benefit private interests. If your fundraising is successful and you have extra income, you must put it back into the organization through additional services or by creating a reserve or an endowment. You can’t use extra income to reward an individual or a person’s related entities.

Unrelated revenue. If you’re generating income through a trade or business you conduct regularly and it’s outside the scope of your mission, you may be subject to unrelated business income tax (UBIT). Examples include a university that rents performance halls to nonuniversity users or a charity selling advertising in its newsletter.

Almost all nonprofits are subject to this provision of the tax code, and, if you ignore it, you could risk your exempt status. That said, losing an exempt status from unrelated business income is rare.

Know the rules
IRS Publication 557, Tax-Exempt Status for Your Organization, outlines the rules for all nonprofits that qualify for exempt status. We can help your nonprofit interpret and apply the information based on its specific situation.

Back to industry updates

Signs of financial distress in a not-for-profit can be subtle. But board members have a responsibility to recognize them and do everything in their power to avert potential disaster. Pay particular attention to:

1. Budget bellwethers. Confirm that proposed budgets are in line with strategies already developed and approved. Once your board has signed off on the budget, monitor it for unexplained variances.

Some variances are to be expected, but staff must provide reasonable explanations — such as funding changes or macroeconomic factors — for significant discrepancies. Where necessary, direct management to mitigate negative variances by, for example, implementing cost-saving measures.

Also make sure management isn’t overspending in one program and funding it by another, dipping into operational reserves, raiding an endowment or engaging in unplanned borrowing. Such moves might mark the beginning of a financially unsustainable cycle.

2. Financial statement flaws. Untimely, inconsistent financial statements or statements that aren’t prepared using U.S. Generally Accepted Accounting Principles (GAAP) can lead to poor decision-making and undermine your nonprofit’s reputation. They also can make it difficult to obtain funding or financing if deemed necessary.

Insist on professionally prepared statements as well as annual audits. Members of your audit committee should communicate directly with auditors before and during the process, and all board members should have the opportunity to review and question the audit report.

Require management to provide your board with financial statements within 30 days of the close of a period. Late or inconsistent financials could signal understaffing, poor internal controls, an indifference to proper accounting practices or efforts to conceal.

3. Donor doubts. If you start hearing from long-standing supporters that they’re losing confidence in your organization’s finances, investigate. Ask supporters what they’re seeing or hearing that prompts their concerns. Also note when development staff hits up major donors outside of the usual fundraising cycle. These contacts could mean the organization is scrambling for cash.

4. Excessive executive power. Even if you have complete faith in your nonprofit’s executive director, don’t cede too many responsibilities to him or her. Step in if this executive tries to:

• Choose a new auditor,
• Add board members,
• Ignore expense limits, or
• Make strategic decisions without board input and guidance.

Proceed with caution

The mere existence of a financial warning sign doesn’t necessarily merit a dramatic response from your nonprofit’s board. Some problems are correctable by, for example, outsourcing accounting functions if the staff is overworked. But multiple or chronic issues could call for significant changes.

Community Spaces Were Built to Welcome. Now They’re Built to Defend.

The Anatomy of a Hardened Target

The 2025 Funding Freeze: A Bureaucratic Chokepoint

The Cash Flow Challenge

Saving Lives

Protected or Policed?

Everything we know about Trump Accounts

Program timeline

Pre-funding window: before July 4, 2026

Account Lifecycle

After the growth period: 18 through retirement age

Earning More, Falling Behind: The Trap of the Benefits Cliff

The Fallout of CDPAP Consolidation and What Policy-Dependent Industries Can Learn From It

No Purchase Necessary: Understanding the Basics of Sweepstakes

The Data Problem Inside Growing ABA Companies

What Needs to Change

What Integrated Reporting Enables

Report: Exploring the Rental Housing Surge

﻿﻿Update: One Big Beautiful Bill Act’s SGO Tax Credits—﻿Treasury’s Proposed Rules and Roth&Co’s Suggested Revisions

I. State Certification and Oversight of SGOs

II. The 90%Scholarship Expenditure Requirement

III. Interaction Between Federal and State Scholarship Tax Credits

IV. Treatment of Multi-state SGOs

V. Definition and Treatment of Disqualified Persons

VI. Reporting and Recordkeeping Obligations

VII. Application of the Credit Limitation to Joint Filers

From Good to Great: Mastering ABA Practice Management

Give Smart Before Charity Deductions Change for 2026

Protect Donor Data at All Costs

Navigating the One Big Beautiful Bill Act: Challenges and Opportunities for Long-Term Care Providers

Beyond the Ask: The Real Science of Fundraising

Donors, Deductions & Dollars: How Will The Big Beautiful Bill Reshape Non-Profits? [Update: Passed Into Law]

From Chaos to Clarity: How Cloud Tools Are Reinventing Bookkeeping

How My Client Almost Landed in Prison—and the Little-Known Tax Rule That Saved Him

The One Big Beautiful Bill SGO Tax Credits: What We Know and Don’t Yet Know

Trump’s “Big Beautiful Bill” Passed: What It Means for You + Key Highlights

Tariffs, Red Tape, and Middlemen: White House Puts Big Spotlight on Small Pharma

Tariffs Bite, But Push for Domestic Supply Gains Momentum

A Regulatory Labyrinth — and Hopes for Reform in Washington

The PBM Squeeze: Long-Term Care’s Unseen Cost Crisis

Toward a Resilient Future

Court Hits the Brakes on Healthcare Staffing Mandate

Sky-rocketing Demand for ABA Services Offers Vast Opportunities: Here are the Key Metrics for Success

Self-Dealing Could Spell Disaster for Private Foundations

Medicare Advantage Plans: Are They Sabotaging the Skilled Nursing Home Industry?

How The Sharpest Nonprofits Are Benefiting From Donations of Appreciated Stock

When Generosity Gets Hijacked: Charity Scams and How to Avoid Them

Excess Benefit Transactions and How They Can Undermine Your Nonprofit

AHCA Goes to Court

Will M&A Survive Crushing Interest Rates and Government Staffing?

The ‘Personal’ in Personal Finance

Federal Staffing Mandate For Nursing Homes Means Trouble For Staffing

5 Essential Qualities of Successful Leaders

Nonprofits and Insurance: Getting it Just Right

Webinar Recap | Clarifying NYS Budget Impact on Universal Meals

Are You Documenting Employee Performance?

Passing the Public Support Test

Jumpstart a Sluggish New Year

Before your nonprofit celebrates that new grant…

How Your Nonprofit Can Break Bad Budget Habits

Benchmarking: Why Normalizing Adjustments Are Essential

Donor Care During the COVID-19 Pandemic

Cares Act Provides Option to Delay CECL Reporting

How to Make Tax-Free Payments to Your Employees

What the CARES Act Means for Your Business and Organization

SBA Offering Loans to Small Businesses Hit Hard by COVID-19

Current Tax & Paid Leave Regulation Changes

CDC Foundation Has COVID-19 Guidelines for Nonprofits

How Coronavirus May Affect Financial Reporting

Determine a Reasonable Salary for a Corporate Business Owner

Marketing Is a Game of Adjustments

Lease or Buy? Changes to Accounting Rules May Change Your Mind

4 Steps to a Stronger Balance Sheet

Digital Documents With E-Signatures Aren’t Going Away

Safety in Numbers

Take Steps to Curb Power of Attorney Abuse

4 Key Traits to Look for When Hiring a CFO

Can You Deduct Charitable Gifts on Your Tax Return?

What Can AI Do for My Business?

Loose Lips Sink Ships

Update: One Big Beautiful Bill Act’s SGO Tax Credits—Treasury’s Proposed Rules and Roth&Co’s Suggested Revisions