Category

Tax

Jul 16
0

The One Big, Beautiful Bill and Its Impact on Businesses

By | Accounting, Nonprofit, Tax | No Comments
One Big, Beautiful Bill

President Trump’s “One Big, Beautiful Bill” Act passed through Congress and was signed by the President on July 4, 2025. The bill codifies many of the tax breaks from Trump’s first term in office that were considered temporary measures and adds new items to the list for both personal and business tax impacts.

For a detailed list of the many items in the bill, please refer to the Journal of Accountancy’s article, Tax Provisions in the One Big Beautiful Bill.

Deductions for Charitable Contributions

The new bill offers taxpayers who do not elect to itemize the ability to claim a deduction of up to $1,000 for single filers ($2,000 for married taxpayers filing jointly) for certain charitable contributions. For those who itemize their deductions, there is a .5% floor on the charitable contribution deduction. This means that the charitable contributions for a tax year are reduced by .5% on the contribution base for the tax year. Corporations have a floor of 1% based on their taxable income. And, for corporations, charitable contributions cannot exceed the current 10% of taxable income limit.

Nonprofits can view this as a win. It may encourage more donations as it makes it easier for individuals to claim their donations as deductibles, even if they are non-itemizers.

No Tax on Tips

One of Trump’s campaign promises was to enact “No Tax on Tips,” and the One Big, Beautiful Bill includes this as a temporary provision. The bill offers a temporary tax deduction of up to $25,000 for individuals who earn tips in occupations where tipping is common. This deduction applies to both traditional employees who receive a W-2 form and independent contractors who receive a 1099-K, 1099-NEC, or report tips using Form 4317. Taxpayers can claim this deduction regardless of whether they take the standard deduction or itemize their expenses.

The benefit begins to phase out once a taxpayer’s modified adjusted gross income (MAGI) exceeds $150,000 for individuals or $300,000 for those filing jointly. This deduction is valid for tax years 2025 through 2028. Additionally, for the year 2025, employers who are required to report tips may use any reasonable method to estimate tip amounts.

No Tax on Overtime

This is another temporary provision in the bill. It includes a temporary deduction of up to $12,500 per qualified individual, or $25,000 for a joint return, during a given tax year. If an individual’s MAGI exceeds $150,000, or the MAGI for a joint return exceeds $300,000, the deduction is phased out. The bill defines overtime as per Section 7 of the Fair Labor Standards Act of 1938; this definition states that the pay must be over the individual’s regular rate. The no tax on overtime provision is only for non-itemizers and is effective from 2025 to 2028.

Trump Accounts

This is a new way to save a little nest egg for minors. A “Trump Account” refers to a tax-free savings account for minors. Individuals can save money in an individual retirement account (IRA) but not a Roth IRA for the benefit of minors under the age of 18. Contributions can only be made until the year the beneficiary turns 18, and distributions can only be made after the beneficiary turns 18. Eligible investments include indexed EFTs and mutual funds. Other than qualified rollover contributions, regular contributions are capped at $5,000 per year. Employers can contribute to a Trump account, and the contribution is not included in the employee’s income.

Another benefit: If you have a child born between January 1, 2025, and December 31, 2028, there is a tax credit of $1,000 for opening a Trump account for that child.

More Changes for Personal and Business Taxes

The One Big, Beautiful Bill contains many more changes, some permanent, some temporary. It is essential to consult with your accountant or CPA to find out which, if any, will impact you or your organization.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Jun 13
0

Important Tax Changes Coming to Washington State

By | Nonprofit, Tax | No Comments
"tax changes" on ticker tape

The Washington State legislature passed a new budget on April 27, 2025. The new budget updated several notable tax policies, some of which may affect you or your organization. These changes impact nonprofits, including colleges and universities, as well as nonprofits that host conferences and live events. We’ve summarized key points below and included links to the actual bills for your reference. The Washington Society of CPAs has also provided a more in-depth look and additional resources you may wish to review.

Engrossed Substitute House Bill 2081

Engrossed Substitute House Bill 2081 made changes to the state’s business and occupancy (B&O) tax. Rates have changed for service providers earning more than $5 million annually. The new rate is 2.1%. Previously, the rate was applied to businesses in this sector earning more than $1 million.

Additionally, the bill clarifies tax treatment for investments in response to the Antio, LLC vs. Department of Revenue court case. It formally defines “incidental investments” and establishes a 5% threshold for classification; a stricter limit compared to the Department of Revenue’s previous 5% safe harbor standard. While this change provides a clearer framework, some ambiguity remains regarding the definition of a business’s main purpose and how the 5% threshold should be applied across different reporting periods. To address outstanding tax questions, the Department of Revenue will issue additional guidance to further clarify tax policies and compliance expectations.

A key point in this bill affects nonprofits. Washington State’s Engrossed Substitute House Bill 2081 introduces tax exemptions for mutual funds and most nonprofit organizations, aiming to address concerns raised by the Antio, LLC vs. Dept. of Revenue case. This change benefits foundations, private colleges, and nonprofits by preventing their endowment funds and investments from being taxed under new B&O provisions. However, the exemption won’t take effect until January 1, 2026, as the Department of Revenue (DOR) indicated it needs time to implement the necessary administrative processes. Until then, nonprofits and other affected entities remain uncertain about their tax liabilities for the current and previous years. To provide additional clarity, the DOR will issue further guidance on how these exemptions will be applied under Washington’s evolving tax rules.

Engrossed Substitute Senate Bill 5814

Engrossed Substitute Senate Bill 5814 modifies the rules around sales tax. It removes a tax exemption for services that rely primarily on human effort, meaning that accounting and other professional services will now be subject to sales tax if they involve the use of digital tools. The bill defines Digitally Automated Services (DAS) as any service transferred electronically using one or more software applications.

Because many CPAs and professional service providers use online portals to communicate with clients, their engagements will likely be taxed. The legislature declined to restore the exemption, so this change will take effect on October 1, 2025. In response, the Washington Society of CPAs (WSCPA) and other professionals have asked Governor Ferguson to veto this section of the bill, arguing that more discussion is needed to assess its broader impact.

Another change is that “live presentations,” such as conferences, will now need to charge sales tax. This includes all professional development conferences. This provision requires further study, as it may also impact schools, colleges, and universities.

Nonprofits Need to Know Tax Law Changes

Having a tax-exempt status does not mean that your organization is entirely exempt from all taxes. As in the examples above, there are certainly situations in which nonprofits could be required to charge taxes, such as sales tax. Nonprofits must keep up to date with tax law changes in their states to ensure they’re in compliance with current regulations.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Aug 20
0

Employee Retention Credit Compliance for Nonprofits: Are You at Risk of an Audit?

By | Accounting, Audit, Nonprofit, Tax | No Comments
folders and notepad, employee retention tax credit

Enacted in 2020 as part of the Coronavirus Aid Relief and Economic Security (CARES) Act and now codified at IRC section 3134 (after various amendments), the Employee Retention Credit (ERC) is a refundable tax credit available for certain employment tax quarters in 2020 and 2021. And while it may have helped some organizations and people financially, over the past two years, the IRS has warned that many who claimed the tax credit were ineligible to receive it.

The IRS is increasing its enforcement campaign in 2024 and targeted for potential audits are those who benefited from this tax credit. The IRS is looking for those who received this benefit in error. Some ERC promoters, for example, charged fees to help organizations apply for and receive the credit. Many of these companies charged fees commensurate with the funds they were able to secure, a recipe for problems. Now, the IRS is increasing enforcement of the requirements around the ERC, and organizations may find themselves on the receiving end of an inquiry or audit.

Nonprofits May Be at Risk for Noncompliance

Unfortunately, these ERC promoters heavily targeted certain nonprofit organizations, including religious organizations and healthcare nonprofits. Those who realize that they made a mistake and perhaps should not have received funds will face some penalties.

Many organizations who applied for ERCs will find they did not fully comply with the requirements simply because they didn’t fully shut down during the pandemic. A good example is a house of worship that moved its services online during the pandemic. Yes, the building’s doors were closed, and congregations could not gather in person, but services were held online. This is akin to a business shutting its office doors but asking employees to work from home; it is not a full shut down, and therefore did not comply with all the rules around receipt of the tax credit.

Next Steps to Get Back into Compliance

If the IRS determined that you received ERC tax credits and did not comply with the rules around them, your organization may face penalties like those for erroneous refunds. These may include:

  • Bills for previously unreported taxes
  • Penalties
  • Interest or penalties extending back in time to the date when the mistake occurred.

Take Action Now

If you’re afraid that your organization made a mistake and incorrectly received an Employee Retention Credit, it is vital that you consult with a tax and accounting professional immediately for specific guidance. Professionals can help you get back into compliance with the law and assess any potential fees. Working together, you can ensure that, moving forward, your organization will comply with the law and pay any penalties owed.

The pandemic upended many things and caused a great deal of disruption for all businesses, both for-profit and nonprofit. The ERC was intended to help individuals during a time of national crisis. Unfortunately, some companies targeted nonprofits aggressively to rake in fees on their own for the ERCs and may have steered organizations into accepting erroneous refunds. It’s important to act quickly if you think your organization may be at risk. Mistakes can happen to anyone, but it’s how you address them that counts.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Dec 01
0

Payroll Tax Credits May Be Available to Businesses That Paid Emergency Leave

By | Accounting, Nonprofit, Tax | No Comments
person at desk with pen, ledger, and mobile device

If your business paid for emergency leave during the COVID-19 pandemic, you may be eligible for certain payroll tax credits.

Billions of dollars in aid resulted from a series of laws passed around March 2020. These laws were intended to offset the financial burden from small business owners who continued to pay employees wages and paid emergency leave during the pandemic. Now that the national health emergency is over, businesses must be vigilant and claim any rightful tax credits that remain from the pandemic-era laws.

Family First Coronavirus Response Act and Tax Credits

Under the Families First Coronavirus Response Act (FFCRA), private American employers with fewer than 500 employees could receive payroll tax credits to offset the costs of the requirement to provide employees with qualifying paid leave for specified reasons related to COVID-19.

The mandate ended in 2020. However, the American Rescue Plan Act (ARPA) extended and expanded the payroll tax credits, allowing covered employers to take the credits until Sept. 30, 2021, if they voluntarily provided employee paid leave under the FFCRA framework. Keep in mind that the credit could be affected by local and state COVID-19 leave requirements and the interaction with the requirements under FFCRA. Another caveat is that an employer could only qualify for the federal tax credit if the leave met the requirement of the original FFCRA mandate.

What You Need to Know About FFCR Act

From April 1, 2020, through March 31, 2021, American private employers with fewer than 500 employees and self-employed individuals could claim certain COVID-19-related leave credits. The maximum leave days varied based on the situation and the calculation was dependent on regular work hours. Qualifying reasons for leave during this period included various COVID-19-related circumstances, and part-time employees received leave equivalent to their regular hours.

From April 1, 2021, through September 30, 2021, healthcare providers and certain governmental employers became eligible for the credits, and the limit on self-employed family leave credit increased. Non-discrimination rules were also established. Also, during this period, more reasons for leave were added, including COVID-19 testing and vaccination-related leave.

Wage calculations for paid sick leave depended on the reason for the leave, with varying pay rates.

The American Rescue Plan Act (ARPA) introduced changes in the Emergency Paid Sick Leave Act (EPSLA) and Emergency Family and Medical Leave Expansion Act (EFMLEA), affecting the refundable portion of credits and other details.

Under EFMLEA, the maximum leave amount and eligibility were modified, allowing for an increase in the aggregate amount and extending eligibility to healthcare workers and emergency responders.

Organized Recordkeeping Is Critical for Compliance and Reimbursement

Regardless of whether you granted leave, you must keep all the requests and time tracking information for up to four years. The Department of Labor requires employers to maintain the following documentation for four years:

  • Documentation demonstrating how the employer determined how much paid leave an employee was eligible for
  • Documentation showing how the employer determined the amount of qualified health plan expenses that were allocated to wages
  • Copies of completed IRS Forms 7200 and 941 that employers submitted to the IRS (If you use a third-party payer to meet employment tax obligations, you’ll need a copy of their records to meet this requirement).

Although the pandemic may be over, many of the record-keeping and reporting requirements for businesses will carry over for several years as the reconciliation between applications for tax credits and reimbursements continues. It is always a good idea to maintain clear, consistent records, in an organized fashion, for the required time so that you can back up any claims when needed.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.