Category: Blog

April is Financial Literacy Month: How Much Do You Know?

4 min read

Financial LiteracyWhat started as Youth Financial Literacy Day some years ago is now a monthlong event: Financial Literacy Month. It all started in 2003 when some U.S. legislators got together and decided that we needed more days dedicated to this topic. So, what does that mean for us? Plenty. It’s one month out of the entire year you can dedicate to getting your financial ducks in a row by engaging in fiscally savvy activities, absorbing all the knowledge, and then sharing your learnings with family, friends, and the world.

Prepare the Kids

Unless you went to a school (K-12) that included business/money classes, chances are you didn’t learn basic finance until you were older.That’s why starting kids early in their understanding of how to make deposits, withdrawals and balance their checkbooks is key. Here’s a resource for downloadable PDFs that you can use to help kids understand the basics of banking. You can even read a children’s book on personal finance to your grands or nieces and nephews, something like The Berenstain Bears’ Trouble with Money.

Both of these resources give kiddos a strong foundation for digesting more complex financial products, like Non-Fungible Tokens (NFT) and cryptocurrency. (You can save those for when they’re older.) When children master everyday money tasks, they’re better equipped to navigate life when they leave the nest.

Subscribe to a Blog or Podcast

You can choose personal finances, investing, or whatever you like. Educating yourself about how to make the best use of your money will pay off – and we’re not talking about just cash. You’ll also discover a variety of strategic directions about how to handle future financial issues. A few blogs to check out are Think Save Retire and The Penny Hoarder. Here are a few more. In terms of podcasts, check out Millennial Investing and Ditch the Suits. After you’ve digested some helpful nuggets, share them with your family and friends.

Learn More with Jumpstart Coalition

Jumpstart Coalition is a non-profit organization out of Washington, D.C., that houses a world of info about all things money – a curated database of financial education resources. From tax tips to credit unions, it’s a one-stop shop. Just spend a little time looking around, and you’ll finish smarter than when you started.

Attend Your State’s Financial Literacy Events

While this varies from state to state, be on the lookout in April for an announcement signed by your governor or your state representative. Typically, these are held in your capitol and are free. For example, the Idaho Financial Literacy Coalition holds a piggy bank beauty contest for elementary kids. All you have to do is search (Google, Bing, your choice!) “[State] April literacy month events,” and a list will come up. After you’ve attended, you might even think of creating a seminar of your own.

Go Over Your Monthly Budget

So, after you’ve filled your noggin with all your new money knowledge, you might want to review your finances for the month to see where you can tweak. Money is a fluid situation, as you well know, and applying new tricks and tips can help exponentially.

At the end of the day, and of course, the month, taking time to dive into improving your financial literacy – and spreading the news­ – is well worth it. When you’re fiscally fit, everything else in life seems to fall into place.

Financial Literacy Month 2024: Financial Literacy Activities to Start With | EVERFI

April is National Financial Literacy Month (moneyfit.org)

U.S. Beneficial Ownership Information Reporting Begins

4 min read

U.S. Beneficial Ownership Information Reporting BeginsThe U.S. Treasury recently enacted a new reporting requirement aimed at quashing illicit financial transactions. The agency believes that corporate anonymity is enabling money laundering, terrorism, and drug trafficking. As part of the 2021 Corporate Transparency Act (CTA), certain companies are now required to report information about their beneficial owners. The goal of the new registration requirements is to create a centralized database of beneficial ownership information.

There has been push-back from some lawmakers and small business organizations, citing this as an erroneous regulatory process that just makes life harder for small businesses. Efforts to carve out exceptions or delay the implementation failed. As a result, the Treasury Department officially opened beneficial ownership information reporting on Jan. 1, 2024.

Who is Subject to Reporting?

Generally, a company may need to report beneficial ownership information if it is a corporation, LLC, or other business entity created by the filing with a U.S. secretary of state or a foreign company registered to do business in the United States. Reporting requirements for trusts and other entity types are more dependent on state law.

At first glance, the rules make it look like all businesses are subject to reporting. There are exemptions, however, including nonprofits, publicly traded companies, and certain large operating companies. The FinCEN’s Compliance Guide provides an exemption qualification checklist.

Reporting Timelines and Requirements

First, you only must file an initial report once. There are no annual reporting requirements. Filing deadlines vary based on when a company was created or registered with the relevant secretary of state.

  • Before Jan. 1, 2024, => Deadline of Jan. 1, 2025
  • Between Jan. 1, 2024, and Jan. 1, 2025, => You have 90 calendar days after receiving notice of the company’s creation or registration to file.
  • On or after Jan. 1, 2025, => Deadline is 30 calendar days from the company’s creation or registration.

While there is no annual filing requirement, filing updates are necessary within 30 days of any changes. Ownership activity subject to change reporting includes registering a new business name, a change in beneficial owners, or a beneficial owner’s name, address, or unique identifying number previously provided.

What Do You Need to Report?

Beneficial ownership reporting must identify the following data.

At the company level, it must report:

  • Company name, both legal and trade (if applicable)
  • Company physical address (no post office boxes)
  • Jurisdiction of formation or registration
  • Taxpayer Identification Number

For each beneficial owner, the following must be reported:

  • Name
  • Date of birth
  • Address
  • Driver’s license, passport, or other acceptable identification

Depending on the situation, there also may be reporting requirements about the company applicant. This is generally a person involved in the creation or registration of the company. The same four pieces of data as for a beneficial owner would need to be provided.

As a general rule, a beneficial owner is someone who controls the company or owns 25 percent or more.

The full definition and all exemptions to whom constitutes a beneficial owner or company applicant can be found here.

No financial information or details about the business operations are required.

How and Where to File

You have the option to file online or via PDF. Filing online can be done through the Beneficial Ownership Information (BOI) E-Filing System on the FinCEN site.

There is no cost to file.

Conclusion and Cautions

While the reporting is simple, the requirements should not be taken lightly. Failure to report could result in civil penalties of up to $500 per day and criminal charges of up to two years imprisonment and a fine of up to $10,000.

The message is this: Don’t wait – and don’t forget to file!

What to Know About the Art Donation Deduction

4 min read

Art Donation DeductionIf you would like to donate artwork to an eligible charitable organization, you might be able to take a deduction on your tax return. However, the rules are complex. There are different requirements for different values, and there are scams you want to avoid that could lead to severe consequences for taxpayers who abuse this deduction.

Generally, the deduction for donated art is based on the fair market value of the property. This refers to the price the artwork could reasonably be expected to sell for on the open market. To qualify for the deduction, note that the value of an art donation may be limited to between 20 percent and 60 percent of the taxpayer’s adjusted gross income, based on the type of organization and whether the deduction must be reduced.

For the donation to qualify for a deduction at the full fair market value, the artwork must be used by the charitable organization in a way that relates back to its charitable purpose. For example, art is donated to an art museum or school. Otherwise, the deduction is limited to the amount of capital gain realized had you sold the property instead of giving it to a charity.

Requisite Tax Documentation

The IRS requires the following records to claim a charitable art donation deduction:

  • Name and address of qualified receiving charitable organization
  • Date and location of the donation
  • Detailed description of the artwork

The following details require additional documentation based on the value of the art donation:

  • $250 or more requires a documented acknowledgment from the recipient
  • $500 or more must file Form 8283 with a tax return, and records must be retained documenting how and when you obtained the artwork as well as its cost basis
  • $5,000 or more, the donor must obtain a documented qualified appraisal no more than 60 days before the contribution date
  • $20,000 or more must include the signed appraisal with your tax return
  • $50,000 or more, request that the IRS appraise the artwork and issue a Statement of Value to substantiate the value

Fractional Gift/Deduction

It is possible to make fractional deductions for an art donation as long as the artwork is wholly owned by the donor or shared between the donor and the charity. Furthermore, fractional donations must be completed within 10 years of the initial fractional gift or the donor’s date of death.

Artist Donation

The art tax deduction is more beneficial to collectors than artists. If an artist decides to donate a piece to a charity, he can deduct only the cost of the materials used to create the art – assuming he hasn’t already claimed them as a business deduction.

IRS Caution

Recently, the IRS has published warnings about art tax deduction schemes being promoted by fraudsters. It starts with a promotion encouraging (usually high net) taxpayers to buy art at a “discounted” price. The entity or person will offer various accompanying services, such as appraisal, storage, and shipping. The promoter may then help the taxpayer donate the artwork to one or more specific charities in order to claim a higher deduction than the purchase price.

The scheme generally involves waiting a least a year before donating in order to claim the deduction at an inflated fair market value. Some promoters work with taxpayers to donate art on a rotating basis every year in order to continue receiving the artificially inflated deduction. The following are some red flags from the IRS that indicate an art deduction scheme.

  • Be wary of buying multiple works by the same artist, especially when the art appears to have little to no market value beyond what the promoter is advertising.
  • Be wary of an appraisal that does not adequately describe the art in terms of rarity, age, quality, condition, the stature of the artist, the price paid, and the quantity purchased.
  • Remember that taxpayers are ultimately responsible for the accuracy of information reported on their tax returns. Avoiding taxes by participating in an overvalued art scheme could lead to back-tax payments, additional penalties and interest, additional fines, and even imprisonment.

Another option is to simply sell the art and donate the proceeds to a charity. The donor may owe capital gains taxes on the sale, but it’s possible that the charitable donation deduction will offset this expense.

As with all complex tax deductions, it’s a good idea to consult with a tax professional or legal advisor when donating artwork. This can help ensure that both the taxpayer and the charity are able to maximize the potential benefits of the donation.

 

Debating U.S. Border Policies and Foreign Aid, Providing Tax Relief Before Tax Season, and Training More Nurses

3 min read

Debating U.S. Border Policies and Foreign Aid, Providing Tax Relief Before Tax Season, and Training More NursesThe Emergency National Security Supplemental Appropriations Act (HR 815) – Formerly known as the RELIEVE Act, this bill was originally written to improve veteran eligibility for reimbursement for emergency treatment. However, the bill was altered to incorporate the Senate’s effort to combine new U.S. border policies with aid for wars abroad. On Feb. 13, the Senate passed this bill to provide $95.3 billion in aid for Ukraine, Israel, and Taiwan. While the border policy portion of the bill was struck out, the Senate did manage to pass the foreign aid funding. The bill includes $4.83 billion to help deter China’s aggression against Taiwan, $9.15 billion in humanitarian assistance to civilians in conflict zones such as Gaza and the West Bank, $14.1 billion to support Israel’s war against Hamas, and $60 billion in aid to Ukraine. It is worth noting that about 75 percent of the Ukraine funding would be spent in the United States to refill inventories and purchase new weapons from American manufacturers. However, the House speaker has indicated he will not bring the bill to the floor for a vote until they have satisfactorily readdressed immigration policies affecting the U.S. border.

Tax Relief for American Families and Workers Act of 2024 (HR 7024) – This bipartisan legislation was introduced on Jan. 17 by Rep. Jason Smith (R-MO). The bill includes a variety of tax-related provisions, such as enhancing the low-income housing and child tax credits, as well as offering additional tax incentives to promote economic growth for small and private business owners and entrepreneurs. The bill passed in the House on Jan. 31 and has the potential to pass in the Senate before the April tax filing deadline.

No Dollars to Uyghur Forced Labor (HR 4039) – This bill prohibits two U.S. government agencies from spending funds associated with goods procured via forced labor in the Xinjiang Uyghur Autonomous Region (XUAR) of China. However, if the State Department advises Congress of evidence that no forced labor was used in making particular goods, it may waive the prohibition. The act was introduced by Rep. Nathaniel Moran (R-TX) on June 12, 2023. It passed in the House on Feb. 13 and currently lies with the Senate.

A bill to improve performance and accountability in the Federal Government and for other purposes (S 709) – This bipartisan bill was introduced by Sen. Gary Peters (D-MI) on March 8, 2023. It is designed to improve performance and accountability within the Federal Government by re-evaluating the goals of federal agencies and authorizing a Deputy Performance Improvement Officer in addition to a Performance Improvement Officer. The act passed in the Senate on Feb. 8 and is now under consideration in the House.

Train More Nurses Act (S 2853) – This bill requires the Departments of Labor and Health and Human Services to research and prepare recommendations to make grant programs that support nurses more effectively. Specifically, how to increase pathways for experienced nurses to become teachers at nursing schools, particularly in underserved areas, and how to encourage more licensed practical nurses to become registered nurses. The act, which was introduced by Sen. Jacky Rosen (D-NV) on May 3, 2023, passed by unanimous consent in the Senate on Jan. 24. It is currently under review in the House.

Contingent Liability Defined

4 min read

Contingent Liability, What is Contingent LiabilityAs the name implies, a contingent liability for a business does not always happen and depends on how the future unfolds. When it comes to a business analyzing a contingent liability, it focuses on the probability of the business realizing it, the time frame within which the liability might occur, and the accuracy of the contingent liability’s estimated amount.  

When to Record and Notify of Contingent Liabilities

Projected contingent liabilities are typically recorded if the contingent liability will materialize and can be reasonably projected with a high level of accuracy. Examples include a company making good on a large-scale product warranty, a business facing a government probe or ongoing litigation, or an organization having to satisfy a guarantee on debt.

When recording contingent liabilities, businesses must adhere to three accounting principles from generally accepted accounting principles (GAAP) and the International Financial Reporting Standards (IFRS):

1. The Full Disclosure Principle

This requires consequential and pertinent financial details and essentials to be documented thoroughly in financial statements. Relevant fiscal circumstances that have a reasonable likelihood to negatively impact a business’s future net profitability, cash flow, and assets highlight the importance of why a company’s solvency is the primary focus of this tenant.   

2. The Materiality Principle

This focuses on the necessity of financial statement disclosure. Preparers of the financial statements must determine if including financial information (or not) on the business’s financial statements would give interested parties substantive information to help them determine whether or not to engage with the company.

3. The Prudence Principle

This last principle focuses on ensuring income and assets are reported accurately, along with requiring liabilities and expenses not to be reported too low. When applying this principle through the lens of contingent liabilities, if there’s more than a 50 percent chance of the event occurring, it and the associated expense are documented. Recording the liability gives a fair reporting of the expenses and obligations.  

Naturally, if there’s a strong likelihood of reducing a business’s ability to sustain profitability, it also can reduce investor interest in buying part (or all) of the company. Similarly, while being transparent by disclosing contingent liabilities, a business might not be able to secure lending if the lender doesn’t have faith that the debt will be repaid according to the loan’s terms.

Contingent liabilities that are expected to occur/settle in the short term are usually more impactful. Conversely, contingent liabilities that are anticipated to be settled over the long term are less impactful because there’s a smaller chance of the event actually materializing.     

Another consideration when it comes to generally accepted accounting principles is that there are three categories of contingent liabilities, which are all based on the probability of it occurring.

  1. If the likelihood of the liability arising is more than 50 percent and the loss can be projected with relative certainty, this is recorded as an expense on the income statement and a liability on the balance sheet. This also can be referred to as a probable contingent liability that can be reasonably estimated (and reflected on financial statements).
  2. If the contingency meets one, but not both, of the criteria of a high probability contingency, the contingent liability is required to be documented in the footnotes of the financial statements. This also can be referenced by stating that the liability is as likely to occur as not.
  3. If a contingent liability does not meet either of the first two conditions, the rest fall into this category. Since the probability of a cost arising due to these liabilities is highly unlikely, and while reporting these in financial statements is not required, companies sometimes do disclose them.

With contingent liabilities being naturally uncertain, these approaches give business’ some level of certainty to evaluate and make reasonable judgment calls to manage internal and external expectations.