Accounting Services

Can the Research Credit Help Your Small Business Save On Payroll Taxes

Can the Research Credit Help Your Small Business Save On Payroll Taxes?
Can the Research Credit Help Your Small Business Save On Payroll Taxes? 850 500 smolinlupinco

Often called the R&D credit, the research and development credit for increasing research activities offers a valuable tax break to many eligible small businesses. Could yours be one of them? 

In addition to the tax credit itself, the R&D credit offers two additional features of note for small businesses: 

  • Small businesses with $50 million or less in gross receipts for the three prior tax years can claim the credit against their alternative minimum tax (AMT) liability 
  • Smaller startup businesses may also claim the credit against their Medicare tax liability and Social Security payroll 

This second feature, in particular, has been enhanced by the Inflation Reduction Act (IRA), which

1. Doubled the amount of payroll tax credit election for qualified businesses
2. Made a change to the eligible types of payroll taxes the credit can be applied to

Payroll election specifics

Limits to claiming the R&D credit do apply. Your business might elect to apply some or all of any research tax credit earned against payroll taxes rather than income tax, which may make increasing or undertaking new research activities more financially favorable.

However, if you’re already engaged in these activities, this election may offer some tax relief.

Even if they have a net positive cash flow or a book profit, many new businesses don’t pay income taxes and won’t for some time. For this reason, there’s no amount against which the research credit can be applied.

Any wage-paying business, however, does have payroll tax liabilities. This makes the payroll tax election an ideal way to make immediate use of the research credits you earn. This can be a big help in the initial phase of your business since every dollar of credit-eligible expenses holds the potential for up to 10 cents in tax credit. 

Which businesses are eligible? 

Taxpayers may only qualify for the payroll election IF:

  • Gross receipts for the election year total less than $5
  • Their business is no more than five years past the start-up period (for which it had no receipts)

To evaluate these factors, an individual taxpayer should only consider gross receipts from the individual’s businesses. Salary, investment income, and other types of earnings aren’t taken into account.

It’s also worth noting that individuals and entities aren’t permitted to make the payroll election for more than six years in a row. 

Limitations

Prior to an IRS provision that became effective in 2023, taxpayers were only allowed to use the credit to offset payroll tax against Social Security. However, the research credit may be now applied against the employer portion of Medicare and Social Security. That said, you won’t be able to use it to lower FICA taxes that are withheld on behalf of employees.

You also won’t be able to make the election for research credit in excess of $500,000. This is a significant uptick compared to the pre-2023 maximum credit of $250,000.

A C corporation or individual may only make the election for research credits that would have to be carried forward in the absence of an election—not to reduce past or current income tax liabilities. 

Questions? Smolin can help. 

We’ve only covered the basics of the payroll tax election here. It’s important to keep in mind that identifying and substantiating expenses eligible for the research credit—and claiming the credit—is a complicated process that involves extensive calculations.

Of course, we’re here to help! Contact your Smolin accountant to learn more about whether you can benefit from the research tax credit and the payroll tax election. 

How do cash accounting and accrual accounting differ

How Do Cash Accounting and Accrual Accounting Differ?
How Do Cash Accounting and Accrual Accounting Differ? 850 500 smolinlupinco

Financial statements play a key role in maintaining the financial health of your business. Not only do year-end and interim statements help you make more informed business decisions, but they’re also often non-negotiable when working with investors, franchisors, and lenders.

So, which accounting method should you use to maintain these all-important financial records—cash or accrual?

Let’s take a look at the pros and cons of each method.

Cash basis accounting

Small businesses and sole proprietors often choose to use the cash-basis accounting method because it’s fairly straightforward. (Though, some other types of entities also use this method for tax-planning opportunities.)

With cash basis accounting, transactions are immediately recorded when cash changes hands. In other words, revenue is acknowledged when payment is received, and expenses are recorded when they’re paid.

The IRS places limitations on which types of businesses can use cash accounting for tax purposes. Larger, complex businesses can’t use it for federal income tax purposes. Eligible small businesses must be able to provide three prior tax years’ annual gross receipts, equal to or less than an inflation-adjusted threshold of $25 million. In 2024, the inflation-adjusted threshold is $30 million.

While it certainly has its pros, there are some drawbacks to cash-basis accounting. For starters, revenue earned isn’t necessarily matched with expenses incurred in a given accounting period. This can make it challenging to determine how well your business has performed against competitors over time and create unforeseen challenges with tracking accounts receivable and payable. 

 Accrual basis accounting

The United States. Generally Accepted Accounting Principles (GAAP) require accrual-basis accounting. As a result, a majority of large and mid-sized U.S. businesses use this method. 

Under this method, expenses are accounted for when they’re incurred, and revenue when it’s earned. Revenue and its related expenses are recorded in the same accounting period, which can help reduce significant fluctuations in profitability, at least on paper, over time. 

Revenue that hasn’t been received yet is tracked on the balance sheet as accounts receivable, as are expenses that aren’t paid yet. These are called accounts payable or accrued liabilities. 

With this in mind, complex-sounding line items might appear, like work-in-progress inventory, contingent liabilities, and prepaid assets.

As you can see, the accrual accounting method is a bit more complicated than cash accounting. However, it’s often preferred by stakeholders since it offers a real-time picture of your company’s financial health. In addition, accrual accounting supports informed decision-making and benchmarking results from period to period. It also makes it simpler to compare your profitability against other competitors.

For eligible businesses, accrual accounting also offers some tax benefits, like the ability to: 

  • Defer income on certain advance payments
  • Deduct year-end bonuses paid within the first 2.5 months of the following tax year

There are downsides, too.

In the event that an accrual basis business reports taxable income prior to receiving cash payments, hardships can arise, especially if the business lacks sufficient cash reserves to address its tax obligations. Choosing the right method? Smolin can help!

Each accounting method has pros and cons worth considering. Contact your Smolin accountant to explore your options and evaluate whether your business might benefit from making a switch.

Choosing the Best Accounting Method for Business Tax Purposes

Choosing the Best Accounting Method for Business Tax Purposes
Choosing the Best Accounting Method for Business Tax Purposes 850 500 smolinlupinco

Businesses categorized as “small businesses” under the tax code are often eligible to use accrual or cash accounting for tax purposes. Certain businesses may be eligible to take a hybrid approach, as well. 

Prior to the implementation of the Tax Cuts and Jobs Act (TCJA), the criteria for defining a small business based on gross receipts ranged from $1 million to $10 million, depending on the business’s structure, industry, and inventory-related factors.

By establishing a single gross receipts threshold, the TCJA simplified the small business definition. The Act also adjusts the threshold to $25 million for inflation, which allows more companies to take advantage of the benefits of small business status. 

In 2024, a business may be considered a small business if the average gross receipts for the three-year period ending prior to the 2024 tax year are $30 million or less. This number has risen from $29 million in 2023.

Small businesses may also benefit from: 

  • Simplified inventory accounting,
  • An exemption from the uniform capitalization rules, and
  • An exemption from the business interest deduction limit.

What about other types of businesses?

Even if their gross receipts are above the threshold, other businesses may be eligible for cash accounting, including: 

  • S-corporations
  • Partnerships without C-corporation partners
  • Farming businesses
  • Certain personal service corporations

Regardless of size, tax shelters are ineligible for the cash method.

How accounting methods differ

Cash method 

The cash method provides significant tax advantages for most businesses, including a greater measure of control over the timing of income and deductions. They recognize income when it’s received and deduct expenses when they’re paid. 

As year-end approaches, businesses using the cash method can defer income by delaying invoices until the next tax year or shift deductions into the current year by paying expenses sooner.

Additionally, the cash method offers cash flow advantages. Since income is taxed when received, it helps guarantee that a business possesses the necessary funds to settle its tax obligations.

Accrual method

On the other hand, businesses operating on an accrual basis recognize income upon earning it and deduct expenses as they are incurred, irrespective of the timing of cash receipts or payments. This reduces flexibility to time recognition of expenses or income for tax purposes. 

Still, this method may be preferable for some businesses. For example, when a company’s accrued income consistently falls below its accrued expenses, employing the accrual method could potentially lead to a reduced tax liability.

The ability to deduct year-end bonuses paid within the first 2 ½ months of the next tax year and the option to defer taxes on certain advance payments is also advantageous. 

Switching accounting methods? Consult with your accountant

Your business may benefit by switching from the accrual method to the cash method or vice versa, but it’s crucial to account for the administrative costs involved in such a change.

For instance, if your business prepares financial statements in accordance with the U.S. Generally Accepted Accounting Principles, using the accrual method is required for financial reporting purposes. Using the cash method for tax purposes may still be possible, but you’ll need to maintain two sets of books, the administrative burden of which may or may not offset those advantages.

In some cases, you may also need IRS approval to change accounting methods for tax purposes. When in doubt, contact your Smolin accountant for more information.

Can too much cash be bad for business

Can Too Much Cash Be Bad For Business?
Can Too Much Cash Be Bad For Business? 850 500 smolinlupinco

Today’s marketplace can feel uncertain, so it’s no surprise that many businesses are stashing operating cash in their bank accounts. However, without imminent plans to deploy these reserves, do these excessive “rainy day funds” really offer efficient use of capital?

If you want to estimate reasonable cash reserves while maximizing your company’s return on long-term financial positions, try this approach. 

Why is it harmful to reserve extra cash? 

While maintaining a “cushion” can help with slowed business or unexpected maintenance needs, it’s important to acknowledge that cash has a carrying cost. The return your company earns on cash vs. the price you pay to obtain cash may be more significant than you realize. 

Carrying debts on your balance sheet for equipment loans, credit lines, and mortgages comes with interest that might be higher than the interest earned on your business checking account. After all, interest earnings on checking accounts are often little to none. Many generate returns of 2% or less.

The greater this spread, the higher the cost of carrying cash. 

What’s the ideal amount for a cash reserve?

While dividing current assets by current liabilities is helpful, there’s no magic ratio that’s appropriate for every business. A lender’s liquidity covenants can only provide an educated guess.

Still, it’s possible to analyze how your business’s liquidity metrics have evolved in previous months or years and compare those numbers to industry benchmarks. If you notice ratios well above industry norms—or substantial increases in liquidity—this could be a sign that capital is being inefficiently deployed. 

Looking forward may also prove helpful. Developing prospective financial reports for the next 12 to 18 months may help you evaluate whether your company’s cash reserves are too high.

For instance, you might use a monthly forecasted balance sheet to estimate expected seasonal ebbs and flows in the cash cycle. Projecting a truer picture of a worst-case scenario, using “what-if” assumptions, could also be helpful. When examining these scenarios, be sure to consider future cash flows, including debt maturities, working capital requirements, and capital expenditures.

Formal financial projections and forecasts provide a much better method for building up healthy cash reserves than relying on gut instinct alone. Over time, comparing actual performance to this data—and adjusting them, if necessary—will help you reach your ideal reserve.   

What to do with excess cash

Once you’ve determined your company’s ideal cash balance, it’s time to find a way to reinvest any cash surplus.

Some possible options include: 

  • Paying down debt to reduce the carrying cost of cash reserves
  • Investing in marketable securities like diversified stock-and-bond portfolios or mutual funds  
  • Repurchasing stock, especially if minority shareholders routinely challenge management decisions 
  • Acquiring a struggling competitor or its assets 

When implemented with due diligence, these strategies are the key to growing your business in the long run—not just your checking account balance.  

Questions? Smolin can help

Need help creating formal financial forecasts and projections to devise sound cash management strategies? We’re here to help. Contact your Smolin accountant for personalized advice on the efficient use of your business capital and the ideal cash reserve needed to meet your business’s operating needs. 

A hybrid DAPT may offer the asset protection you need

A Hybrid DAPT May Offer the Asset Protection You Need
A Hybrid DAPT May Offer the Asset Protection You Need 850 500 smolinlupinco

Asset protection is a vital part of estate planning. Chances are you want to pass on as much of your wealth to family and friends as possible. To do this, you may need to shield your assets from frivolous creditors’ claims and lawsuits.

One option available to you as you plan your estate is to establish a domestic asset protection trust (DAPT).

What is a DAPT?

A DAPT is an irrevocable self-settled trust that empowers an independent trustee to manage and distribute trust assets to beneficiaries. This unique structure enables the trust’s creator (known as the “settlor” or “trustor”) to enjoy the advantages of both asset protection from external creditors and the beneficial use of trust assets. 

Domestic asset protection trusts can offer creditor protection even if you’re a trust beneficiary, but there are risks involved. Bear in mind that DAPTs are relatively untested, so there’s some uncertainty over their ability to repel creditors’ claims.

Not all states currently recognize the DAPT. Those that do include: Alabama, Alaska, Connecticut, Delaware, Hawaii, Indiana, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming. 

Keep in mind that you don’t necessarily have to live in one of those states to qualify; what matters most is where the asset is located. So you can explore the possibility even if your state doesn’t currently participate.

A hybrid DAPT in action

A “hybrid DAPT” may offer the best option to the person planning their estate and to the beneficiary. In this arrangement, you’re not initially named as a beneficiary of the trust, which virtually eliminates the risk described above. But if you need access to the funds down the road, the trustee or trust protector can add you as a beneficiary, converting the trust into a DAPT.

A hybrid domestic asset protection trust is initially set up as a third-party trust, meaning it benefits your spouse and children or other family members, but not you. Because you’re not named as a beneficiary, the trust isn’t considered a self-settled trust, so it avoids the uncertainty associated with regular DAPTs.

There’s little doubt that a properly structured third-party trust avoids creditors’ claims. If, however, you need access to the trust assets in the future, the trustee or trust protector has the authority to add additional beneficiaries, including you. If that happens, the hybrid account is converted into a regular DAPT subject to the risks mentioned above.

Alternatives to a hybrid DAPT

Before forming a hybrid domestic asset protection trust, you should determine whether you need such a trust at all. The most effective asset protection strategy is to place assets beyond the grasp of creditors by transferring them to your spouse, children, or other family members, either outright or in a trust, without retaining any personal control.

If the transfer isn’t designed to defraud known creditors, your creditors won’t be able to reach the assets. And even though you’ve given up control, you’ll have indirect access to the assets through your spouse or children, provided your relationship with them remains in good standing.

Questions about hybrid DAPTs? Contact Smolin.

The hybrid domestic asset protection trust can add flexibility while offering significant asset protection. It also minimizes the risks associated with DAPTs, while retaining your ability to convert to one should the need arise. 

Consult with your accountant today to assess whether a hybrid DAPT is right for you.

Accounting M&As

Accounting for M&As
Accounting for M&As 850 500 smolinlupinco

Mergers and acquisitions (M&A) transactions significantly impact financial reporting, especially the balance sheet, which will look markedly different after the business combination. Keep reading for basic guidance on reporting business combinations under U.S. Generally Accepted Accounting Principles (GAAP).

Understanding the purchase price allocation process

Under GAAP, the buyer must allocate the purchase price to all acquired assets and liabilities based on their fair values. 

Estimate the purchase price

The purchase price allocation process begins by estimating a cash equivalent purchase price. Of course, this is simpler if the buyer pays 100% cash upfront. (The purchase price is already at a cash equivalent value.) If a seller accepts non-cash terms, however, the cash equivalent price is less clear. An example of this could be accepting stock in the newly formed entity or if an earnout is contingent on the acquired entity’s future performance. 

Identify assets and liabilities

Next, the buyer needs to identify all intangible and tangible assets and liabilities acquired in the merger. While the seller’s presale balance sheet is likely to report tangible assets and liabilities—like inventory, payables, and equipment—intangibles can be more difficult to nail down. They might only be reported if they were previously purchased by the seller. Since intangibles are generated in-house, they’re not often included on the seller’s balance sheet. 

Determining the fair value of acquired assets and liabilities

When a company acquires another company, the acquired assets and liabilities are added to its balance sheet at their fair value on the acquisition date. Any difference between the sum of these fair values and the purchase price is recorded as goodwill.

Generally, goodwill and other intangible assets with indefinite lives, such as brand names and in-process research and development, aren’t amortized under GAAP. Rather, goodwill must be tested for impairment on an annual basis. 

Testing for impairment

It’s also a good idea to test for impairment when certain triggering events—like the loss of a major customer or enactment of unfavorable government regulations—occur. If an impairment loss is reported by a borrower, this may signal that the business combination isn’t quite meeting management’s expectations. 

Straight-line amortization

As an alternative to testing for impairment, private companies may opt to amortize goodwill over 10 years straight-line. Even with this approach, though, the company will need to test for impairment when triggering events occur. 

Occasionally, a buyer negotiates a bargain purchase. In this circumstance, the fair value of the net assets exceeds the fair value of consideration transfer (the purchase price). Instead of recording negative goodwill, the buyer reports a gain from the purchase on their income statement. 

Questions? Smolin can help.

Accurately allocating your purchase price is crucial to minimize write-offs and restatements in subsequent periods. Contact Smolin from the start to ensure every detail of your M&A accounting is correct. We’ll help ensure your fair value estimates are supported by market data and reliable valuation techniques.

Running business spouse Tax issues

Running a business with your spouse? Watch out for these tax issues.
Running a business with your spouse? Watch out for these tax issues. 850 500 smolinlupinco

For many spouses who run a profitable, unincorporated small business together, filing taxes can be confusing.

Here are some of the most common challenges to look out for.

Classification: the partnership issue

In many cases, the federal government classifies unincorporated businesses owned by two spouses as a partnership. This means you’ll need to file an annual partnership return on Form 1065.

In order to allocate the partnership’s taxable income, deductions, and credits, you and your spouse must also both be issued separate Schedule K-1s.

Once that paperwork is covered, you should also expect to complete additional compliance-related tasks. 

Calculating self-employment (SE) tax 

The government collects Medicare and Social Security taxes from self-employed people via self-employment (SE) tax.

This year, you should expect to owe 12.4% for Social Security tax on the first $160,200 of your income, as well as an additional 2.9% Medicare tax.

Beyond that $160,200 ceiling, you won’t owe additional Social Security tax. But the 2.9% Medicare tax component continues before increasing to 3.8%—thanks to the 0.9% additional Medicare tax—if the combined net SE income of a married couple that files jointly exceeds $250,000.

You must include a Schedule SE with your joint Form 1040 to calculate SE tax on your share of the net SE income passed through to you by your spousal partnership. In addition, you’ll need to submit a Schedule SE for your spouse to calculate their share of net SE income.

All in all, this can result in a larger SE tax bill than you might expect.

For example, say you and your spouse each have a net SE income of $150,000 ($300,000 total) in 2023 from your profitable 50/50 partnership business. The SE tax on your joint tax return is a whopping $45,900 ($150,000 x 15.3% x 2). That’s on top of regular federal income tax.

Potential tax saving solutions

Option 1: Minimize SE tax in a community property state via an IRS-approved method

IRS Revenue Procedure 2002-69 allows you to treat an unincorporated spousal business in a community property state as a sole proprietorship operated by one of the spouses for tax purposes.

This allocates all of the net SE income to one spouse, so that only the first $160,200 of net SE income from your business will be subject to the 12.4% Social Security tax.

This can dramatically reduce your SE tax bill.

Option 2: Make your business into an S-Corp that pays you and your spouse modest salaries as shareholder-employees

If you don’t live in a community property state, you still have options. By converting your business to an S-Corporation, you can lessen the amount of Social Security and Medicare taxes you’ll owe.

Only the salaries paid to you and your spouse will be hit by the Social Security and Medicare tax, collectively called FICA tax. From there, you can pay out most or all remaining corporate cash flow to yourselves as FICA-tax-free cash distributions. 

Option 3: End your partnership and hire your spouse as an employee

For some couples, running the operation as a sole proprietorship operated by one spouse may make more sense than continuing with a spousal partnership.

In this scenario, you’d hire your spouse as an employee of the proprietorship with a modest cash salary and withhold 7.65% of that salary to cover their share of the Social Security and Medicare taxes. The proprietorship must also pay 7.65% as the employer’s half of the taxes.

As long as the employee-spouse’s salary is modest, the FICA tax will also be modest.

With this strategy, you file only one Schedule SE with your joint tax return (for the spouse treated as the proprietor). A maximum of $160,200 (for 2023) will be exposed to the 12.4% Social Security portion of the SE tax.

Questions? Smolin can help.

If you’re looking for tax-saving strategies for your small business, contact Smolin. We’ll help you determine how to minimize compliance headaches and high SE bills so you can get back to running your business with less tax-induced stress.

Understanding Percentage-of-Completion Method

Understanding the Percentage-of-Completion Method
Understanding the Percentage-of-Completion Method 850 500 smolinlupinco

If your business handles projects that take longer than a year to complete, you’ll need the “percentage-of-completion” method to recognize the associated revenue.

Let’s get into how and why to do this.

Percentage-of-completion vs. completed contract

Individuals and businesses who perform work on long-term contracts—like developers, engineering firms, creative agencies, and homebuilders—typically report financial performance with one of the two following methods:

  • Percentage-of-completion: Revenue recognition is tied to the incurrence of job costs.
  • Completed contract: Revenue and expenses are recorded upon completion of the contract terms.

Per U.S. Generally Accepted Accounting Principles (GAAP), companies that can make a “sufficiently dependable” estimate must use the more complicated percentage-of-completion method.

Those who use this method for reporting typically use the same method for taxes, as well. 

However, the federal tax code makes an exception for certain small contractors with average gross receipts of less than a certain amount over the previous three years.

For 2023, this amount is $29 million, and the number is adjusted annually for inflation. 

Estimating percentage-of-completion

Typically, companies that use the percentage-of-completion method report income sooner than those that use the completed contract method.

To estimate how much of a project is complete, companies usually compare the actual costs incurred to their total expected cost. Job cost allocation policies, change orders, and changes in estimates can complicate the process.

As an alternative, some companies choose to estimate the percentage completed via an annual completion factor.

In either scenario, the IRS requires detailed documentation to support estimates used in the percentage-of-completion method. 

Balance sheet impacts 

If your company uses the percentage-of-completion method, you’ll see an impact on your balance sheet.

You’ll report an asset for costs in excess of billings if you underbill customers based on the percentage of costs incurred. On the other hand, you’ll report a liability for billings in excess of costs if you overbill based on the costs incurred.

Imagine you’re working on a two-year projected valued at $1 million. You incur half of the expected costs in Year 1 ($400,000) and bill the customer $450,000. From a cash perspective, it appears as if you’re $50,000 ahead because you’ve collected more than the costs you’ve incurred. In reality, you’ve underbilled based on the percentage of costs incurred.

At the end of Year 1, you would have reported $500,000 in revenue, $400,000 in costs, and an asset for costs in excess of billings of $50,000. However, if you’d billed the customer $550,000, you’d report a $50,000 liability for billings in excess of costs.

Questions? Smolin can help.

The percentage-of-completion method can be complicated. Still, if your estimates are reliable, this method provides a more accurate picture of the financial performance of your long-term contracts.

If you’d like extra help navigating the percentage-of-completion method and interpreting the insights it provides, contact the helpful team at Smolin.

Is QuickBooks Right for your Nonprofit?
Is QuickBooks Right for your Nonprofit? 1275 750 smolinlupinco

Nonprofit organizations are created to serve nonfinancial or philanthropic goals rather than to make money or build value for investors. But they still need to keep track of their financial health, paying attention to factors like:

  • How much funding is coming in from donations and grants
  • How much the organization is spending on payroll
  • How much it’s spending on rent and other operating expenses

Many nonprofits use QuickBooks® for reporting their results to stakeholders and handling their finances more efficiently. Here’s an overview of QuickBooks’ specialized features for nonprofits.

Features of QuickBooks for nonprofits

Terminology and functionality. QuickBooks for nonprofits incorporates language used in the nonprofit sector to make it more user-friendly for nonprofits.

For example, the software comes with templates for donor and grant-related reporting. Accounting team members can also use it to assign revenue and expenses to specific funds or programs.

Expense allocation and compliance reporting. Many nonprofits often receive donations and grants with particular requirements regarding the expenses that can be applied. 

These organizations can use QuickBooks to establish approved expense types and track budgets for specific funding sources. They can also use the software to satisfy compliance-related accounting and reporting regulations.

Streamlined donation processing. Everyone likes convenience, and donors to nonprofits are no exception. The easier it is to donate to a nonprofit, the more likely it is that people will do so. 

QuickBooks allows for electronic payments from donors. The software also integrates with charitable giving and online fundraising sites, enabling nonprofits to process in-kind contributions, such as office furniture and supplies.

Tax compliance and reporting. Failure to comply with IRS reporting regulations could cause an organization to lose its tax-exempt status. QuickBooks provides a customized IRS reporting solution for nonprofits, which includes the ability to create Form 990, “Return of Organization Exempt from Income Tax.”

Donor management. With QuickBooks, nonprofits can store donor lists. This function includes the ability to divide the data according to location, contribution, and status.

Using these filters can make connecting with and nurturing donors who meet specific criteria easier. One example is reconnecting with significant donors who’ve stopped making regular contributions to your organization.

Data security. Data security is critical to building trust and encouraging donors to support your organization again in the future. 

QuickBooks protects donors’ personal identification and payment information by allowing the account administrator to limit access for viewing, editing, or deleting donor-related data. 

With QuickBooks, team members can only access and share data with the administrator or owner’s permission.

Not just for for-profit businesses

QuickBooks may be known as an accounting solution for small and medium-sized companies, but it also provides solutions for the nonprofit sector. 

From streamlined processes and third-party integrations to security management and robust reporting, Quickbooks can help nonprofits improve their financial management and fulfill the mission of their organization.

Have questions? Smolin can help

If you’re unsure of whether QuickBooks is right for your organization or you require other accounting services, contact the knowledgeable team at Smolin, and we’ll help you choose the best option for your nonprofit.

Reporting Non-GAAP Measures
Reporting Non-GAAP Measures 1275 750 smolinlupinco

Generally Accepted Accounting Principles (GAAP) is commonly known as the benchmark for financial reporting in the United States. However, both public and private entities occasionally use non-GAAP metrics in their press releases and disclosures or when seeking financing.

GAAP vs. Non-GAAP

GAAP comprises a framework of rules and procedures that accountants typically follow to record and summarize business transactions. These guidelines establish the basis for consistent, accurate, and fair financial reporting. While private companies are not generally obligated to comply with GAAP, many choose to do so. Public companies, on the other hand, have no choice—they’re required by the Securities and Exchange Commission to follow GAAP. 

The use of non-GAAP measures has grown over the years, and some executives and investors maintain that certain unaudited figures provide a more meaningful representation of financial performance compared to customary earnings figures reported under the GAAP. With that said, it’s crucial to understand what’s included and excluded to avoid making misinformed investment decisions.

Spotlight on EBITDA

One prominent example of a non-GAAP metric is earnings before interest, taxes, depreciation, and amortization (EBITDA). This metric was created in the 1970s to help investors assist in forecasting a company’s long-term profitability and cash flow. EBITDA is considered one of the most valuable benchmarks investors use when evaluating a company that is being bought or sold. 

Unfortunately, some companies manipulate EBITDA figures by omitting certain costs, such as stock or options-based compensation, which are undeniably a cost of doing business. This practice has made it difficult for investors and lenders to make accurate comparisons and understand the items that have been removed.

Last year, the Financial Accounting Standards Board (FASB) added a project to its research agenda to explore the standardization of key performance indicators (KPIs) within the existing regulatory framework, including the development of a standardized definition for EBITDA. During a March meeting of the Financial Accounting Standards Advisory Council, senior accountants assessed the feasibility of establishing a GAAP definition of EBITDA for use as either a one-size-fits-all formula or as a starting point for companies to make adjustments based on their specific business requirements.

For instance, a company might tailor its EBITDA calculation to align with the definition specified in its loan agreements. Any modifications to EBITDA would need to be transparently disclosed in the company’s footnotes.

Adopt a balanced approach

Many organizations opt to report EBITDA and other non-GAAP metrics to help stakeholders and investors make better-informed choices. However, it is crucial for these entities to avoid making assertions that could potentially mislead investors and lenders. 

Have questions? Smolin can help

If you’re unsure of how the regulations on reporting non-GAAP measures will affect your business, or if you want to know more about which reporting style works best for you, contact our team of professionals at Smolin and let us walk you through the ins and outs of these rules.

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