In the simplest of worlds, an employee effectively performs a set of tasks on an agreed-upon schedule and you pay him or her a fair wage. End of story. But, in the real world, employers need to craft a compensation philosophy: a formal statement outlining their belief system and approach to all the different ways they compensate employees. Here are four compensation philosophy questions to ponder: 1. Do small annual raises for everyone really make sense? Many employers have dropped the practice of spreading around modest (for example, 2% or 3%) raises broadly, because it limits funds available to give substantial pay raises to top performers. Often these raises are referred to as “cost of living adjustments,” but the value of a job doesn’t necessarily move in lockstep with inflation (even when inflation is low). 2. Are you using the right benchmarks? Although salary surveys can tell you average pay levels for jobs in your labor market, they can be misleading. This is because, in your own organization, an employee whose job pays, for instance, $50,000 on average in your community might be worth much more — or less — to you because of factors distinctive to your organization. An […] Details
Restricted gifts — or donations with conditions attached — can be difficult for not-for-profits to manage. Unlike unrestricted gifts, these donations can’t be poured into your general operating fund and be used where they’re most needed. Instead, restricted gifts generally are designated to fund a specific program or initiative, such as a building or scholarship fund. It’s not only unethical, but dangerous, not to comply with a donor’s restrictions. If donors learn you’ve ignored their wishes, they can demand the money back and sue your organization. And your reputation will almost certainly take a hit. Rather than take that risk, try to encourage your donors to give with no strings attached. Personal touch Some donors simply don’t realize how restricted gifts can prevent their favorite charity from achieving its objectives. So when speaking with potential donors about their giving plans, praise the benefits of unrestricted gifts. Explain how donations are used at your organization, offering hard numbers and examples where needed. Be as upfront as possible and give them as much information as you can about your organization. To make unrestricted giving as easy as possible, give donors (and their advisors) sample bequest clauses that refer to the general mission […] Details
When you file your 2018 income tax return, you’ll likely find that some big tax law changes affect you — besides the much-discussed tax rate cuts and reduced itemized deductions. For 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) makes significant changes to personal exemptions, standard deductions, and the child credit. The degree to which these changes will affect you depends on whether you have dependents and, if so, how many. It also depends on whether you typically itemize deductions. 1. No more personal exemptions For 2017, taxpayers could claim a personal exemption of $4,050 each for themselves, their spouses and any dependents. For families with children and/or other dependents, such as elderly parents, these exemptions could really add up. For 2018 through 2025, the TCJA suspends personal exemptions. This will substantially increase taxable income for large families. However, enhancements to the standard deduction and child credit, combined with lower tax rates and other changes, might mitigate this increase. 2. Nearly doubled standard deduction Taxpayers can choose to itemize certain deductions or take the standard deduction based on their filing status. Itemizing deductions when the total will be larger than the standard deduction saves tax, but it makes […] Details
Limited liability company (LLC) members commonly claim that their distributive shares of LLC income — after deducting compensation for services in the form of guaranteed payments — aren’t subject to self-employment (SE) tax. The IRS, however, has been cracking down on LLC members it claims have underreported SE income, with some success in court. SE tax background Self-employment income is subject to a 12.4% Social Security tax (up to the wage base) and a 2.9% Medicare tax. Generally, if you’re a member of a partnership — including an LLC taxed as a partnership — that conducts a trade or business, you’re considered self-employed. General partners pay SE tax on all their business income from the partnership, whether it’s distributed or not. Limited partners, however, are subject to SE tax only on any guaranteed payments for services they provide to the partnership. The rationale is that limited partners, who have no management authority, are more akin to passive investors. (Please note that “service partners” in service partnerships, such as law firms, medical practices, and architecture and engineering firms, generally may not claim limited partner status regardless of their level of participation.) LLC uncertainty Over the years, many LLC members have taken […] Details
Companies will be able to capitalize, or spread out the costs of, setting up pricey business systems that operate on cloud technology under an update to U.S. Generally Accepted Accounting Principles (GAAP). Here are the details. FASB responds to business complaints Over the last three years, businesses have complained to the Financial Accounting Standards Board (FASB) about the different accounting treatment for cloud-based services vs. those operated on physical servers onsite. Businesses told the FASB that the economics of these arrangements are virtually the same. As more businesses moved to cloud-based business applications, those complaints grew louder. So, in August, the FASB published Accounting Standards Update (ASU) No. 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Existing GAAP “resulted in unnecessary complexity and needed to be updated to reflect emerging transactions in cloud computing arrangements that are service contracts,” FASB Chairman Russell Golden said in a statement. “To address this diversity in practice, this standard aligns the accounting for implementation costs of hosting arrangements — regardless of whether they convey a license to the hosted software.” Old rules, new rules Under […] Details
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