pic from Gregg from Gridd

The President of the United States is the highest CEO in the country.  With the address to the country, will anger grow, or leadership prevail?  For nonprofit organizations, leadership and passion are key to accomplishing one’s mission.  The other key is bringing donors to want to be part of the mission to resolve the current problems of today.  

Whether the donor is funding a cause, a need or supporting the efforts of a nonprofit to succeed in its goals and objectives, people directly or indirectly need to be supported.  As an employee or people in need of services the basic survival life services are food (including water) shelter (housing), and clothing.  To provide employees or people with sustainability means that with the three basic survival services comes the need for funds.  In most societies that would mean using cash.  The cash is obtained from employment or another source such as the government.  To some degree, some societies use a barter system when cash is scarce. 

Therefore, the first goal of nonprofits should be to adequately support the living wage of the society in which they are geographically helping.  The salary of the highest paid employee should be proportional to the lowest paid salary.  Donors should look to see if a nonprofit takes such a view as they consider funding a nonprofit.  The more the question is asked the more it will become a standard.  In the Northeast of the USA below is a sample budget to consider for deciding whether a nonprofit is paying a living wage. 

 Two Living Wage samples are presented below: 

40 hour job at $11 an hour wage vs $16 an hour wage           
       
What can a wage support per month?       
 Individual     Family of 4  
 $22,880        $33,280  
 Mthly $11 hrly Yearly Costs   Mthly $16 hrly Yearly Costs
 $1,906.67 /$22,880.00           $2,773.33/$33,280.00
            
Expenses:  Individual vs Family

Housing 45% $850.00/$10,200.00    45% $1,236.36/$14,836.36
Health Ins $480 ind $780 fam (80%/20% split) 5% $96.00/$1,152.00     6% $156.00/$1,872.00
Food $11 day ind $77 wk (fam x 2) 16% $308.00/$3,696.00     22% $616.00/$7,392.00
Transportation ($35 wk gas & maint) 7% $140.00/$1,680.00     5% $140.00/$1,680.00
Clothing 5% $100.00/$1,200.00     7% $200.00/$2,400.00
Utilities (phone,heat,electric) 13% $240.00/$2,880.00     9% $240.00/$2,880.00
Taxes state/city/federal/sales 6% $111.54/$1,338.48     6% $162.24/$1,946.88
Subtotal 97% $1,845.54/$22,146.48     99% $2,750.60/$33,007.24
Net for savings/flex spending 3% $61.13/$733.52     1% $22.73/$272.76

The reality of the chart is to show a donor whether it is realistic for nonprofits or any employer to pay a certain wage and expect that the individual or family will not need government or a nonprofit’s assistance to live and participate in the society.  The chart further highlights that many people could be at a margin where any factor could suddenly cause them to need assistance.   A small amount of a donor’s funding can make the difference for thousands of people.  The increased cost of winter fuel, gasoline or a health premium changes everything.  

Pic by Twenty Questions

I am surprised by the number of nonprofits across the country that pay individuals in the organization above $400,000.  If I lower the bar to the average salary of $100,000 the number jumps off the charts.  Since these organizations are suppose to be charitable in their nature, it seems that paying individuals a salary that is less than 10% of the workforce seems to justify tying the wage to the lowest paid salary of the organization.

Nonprofit hospitals, colleges and universities have the highest salaries paid out to individuals.  These are the same two areas where costs have exceeded inflation every year.

I propose that salaries be tied to the lowest paid employee of an organization.  Since I stated that a living wage is $35,000 I would suggest that nonprofits start at this level as the entry-level salary.  If all management salaries were tied to this salary and limited to being no more than 5 times the salary of the lowest paid employee the individual would be limited to $175,000.  If the cap was 10 times the salary of the lowest paid employee that individual would be limited to $350,000.

I like what Massachusetts has done for capping salaries under a law they passed which limits reimbursement of state funds to salaries of a certain pay grade in government.  Yes, they have capped what the state will allow to be reimbursed with state funds. ”Effective July 1, 1998, the salaries of officers and managers as defined by OSD shall be non-reimbursable under Operational Services Division regulation 808 CMR 1.05 (24) as amended to the extent that they exceed an annual rate of $143,986.22. Please note: Due to budget constraints Commonwealth manager’s salaries have been frozen at FY ’08 rates.  Contractors must maintain documentation and justification for the selection of a salary reimbursement rate up to $143,986.22.  Where officers and managers devote less than full time to state programs, the level of reimbursement should be prorated accordingly.  See 808 CMR 1.05 (24).”

I think a similar system should be adopted by the federal government as a standard it will measure, consider in rate calculations for reimbursement and reporting to the public.

I recommend that boards of nonprofits use three measures for setting the floor and the ceiling for executive compensation.  For nonprofits $500,000 and above the floor should start at 8% of the revenues for the salaries of administrative staff.  The first ceiling for salaries should be tied to the Massachusetts salary cap with no further due diligence by the board.  If the board wishes to go beyond this cap, it should be required to show what benefit is being obtained for the additional compensation being given.  Yes, this means that the additional salary is tied to outcomes.  Under no circumstance can justification be made that any nonprofit should pay an individual more the President of the United States salary.

Photo by:  Telstar Logistics

Some of you out there may be wondering about different ways that you can reach out to the college population to help them out and get interested in the non profit sector.  There are several different paths you can choose.
A popular option is to offer a scholarship.  This does not have to be much, only a few hundred dollars.  For college students trying to pay for school any money is a help to them.  If using a scholarship you should set up requirements.  You can have the applicants write and essay about something to do with the nonprofit sector or to come up with a plan to help some area of your nonprofit.  These options are really endless and all that is required is for you to just be a little creative.  You can even contact some colleges in a certain mile radius and see if they can put your scholarship in the list of scholarships that many schools have.  This will help to inform more college age people about nonprofits and get a number of them interested in joining the nonprofit sector after they graduate.

Photo by: gregoirevdb

For the last part of my five part series, I am going to be talking about tax deductible entertainment expenses and the rules you must follow.  This for the person who really pays for the expense, either you or your employer if they reimburse you. There is a limit that applies to meal and entertainment in this category and it is where you are only allowed to deduct 50% of the expenses you incur.  There are also two classifications of these expenses.  There are the ones which are directly related to business and which are covered.  Then there are the expenses which are associated with business and these expenses must serve a specific business purpose to be deductible.  That could be obtaining new business or continuing existing business.  These expenses can get very complicated so I suggest that you speak with a CPA if you wish to get very in depth.  Good luck with deducting some of your business expenses and I hope it can help you to save a little money on your taxes.

Photo by: Thai Lin

Here is part four of my five part series on tax deductible business expenses.  So, today we are going to talk about education expenses.  This is an expense that many people have a good chance of coming across at some point in their career.  If you are someone who is planning on going back to school at some point to get a higher degree this is going to be very important for you.  But, as like any other tax law, you can not just go deducting any expense related to going to school.  There are two rules you must follow.  The first is to deduct the expenses you must be going back to school to maintain or improve existing skills required in the present job that you have.  Let’s use for an example that you are an accountant who works specifically with the taxes of your company and you wanted to go back to school to get your Masters.  Now if you went back and got your Masters degree in taxation, those expenses would be deductible, but if you went to get a law degree that would not be deductible.  The other rule that you must follow to be able to deduct these expenses is if you are going back to school to meet requirements expressed by your employer or requirements of the law so that you can retain your employment status.  This means that if your employer wants everyone in your line of work to have there Masters degree and you only have your Bachelors, the costs to go back to school would be deductible.  If you are trying to meet the minimum education requirements for your current job or you are getting the degree for a different trade or business you can not deduct those costs.  I hope this information can help you to save some money on your taxes and maybe give you some new insight.  But, again as I had stated before if you have any in depth questions please contact a CPA in your area who can probably be of more help or ask the IRS.

Photo by: jystewart

Here is part three of the five part series on business expenses that you can deduct on your tax returns.  Moving Expenses are on today’s agenda for something that you are allowed to deduct as a business expense.  These expenses are deductible if the move is in connection with commencement of work at a new principle place of work.  To be eligible for this you must meet two different tests.  The first is the distance test.  So, to meet this test the new job location must be at least 50 miles father from the taxpayer’s old residence than the old residence was from the former place of employment.  To meet this you must work at the new job for 39 weeks in the first 12 month period or 78 weeks during the first two years.  If you meet both of these tests than your expenses are deductible.  When deducting your expenses you are allowed to only include the cost of moving your household goods and personal effects and traveling from your former residence to your new one.  The traveling includes your lodging but not your meals experienced along the way.  If this is a situation which you encounter over time, and many people will, you now know what you can and can not deduct on your tax return.

As always read the IRS bulletin to the changes that may occur between tax years.  Congress is always playing with rules in the tax code. 

Photo by: caribb

This is the second part of the segment I am writing about business expenses on your tax returns, I am going to talk about travel expenses.  Travel Expenses are defined by the IRS code as transportation expenses and meals and lodging while away from home in the pursuit of a trade or business. Now this away from home must be overnight for this to count.  A day trip for work would not count as travel expenses.  Now when a temporary assignment comes up as some people might experience, those expenses incurred while traveling will be deductible.  If you question how long a temporary assignment is, you are probably not alone.  It is anything that is 12 months or less, so the majority of assignments away from your tax home will count as temporary at least for tax ramifications.

There are some restrictions to travel expenses that you may come across.  If you are traveling to a convention, it must be directly related to your trade or business.  Travel as a form of education is not deductible, however, if the education qualifies as a deduction then travel is allowed.  I will discuss education expenses later in this five part segment. When many people go on a business trip they also include some personal time in with it.  There are certain rules you need to follow if you want to deduct any of the costs associated with this type of travel.

First, if you are traveling domestically the trip must be primarily for business in order for the expenses to be deductible.  If you are traveling outside of the United States some special rules apply. First your transportation expense must be allocated between business and personal days if you are a) away from home for seven days or less or b) less than 25 percent of the time was for personal purposes.   No allocation is required if you did not have control over planning the arrangements or if the trip was primarily for pleasure no deduction is allowed.  A good thing to know is that travel days count as business days and weekends, legal holidays, and intervening days are considered business days provided that both the preceding and succeeding days were business days.

With this information you should now know what you need to know if order to get your correct amount of travel expenses deducted from you next tax return. But as always check the instructions since the IRS rules and requirements can be updated.

Photo by: Paul Keleher

When it comes to business expenses the list can go on and on. But over the next few days I will be covering a handful that you are able to deduct when you file your taxes.  Today, I will cover transportation expenses that you might encounter. Now the IRS classifies transportation expenses to include only the cost of transporting the employee from one place to another in the course of employment when the employee is not away from home in travel status. This deduction will be an itemized deduction from AGI.  Now something that would not be allowed is the cost of commuting to work.  These costs that you incur can not be deducted, however if you work two jobs the cost of going from one to the other can be deducted.  The costs of going to a temporary work station are allowed to be deducted. If you are using your personal automobile for this driving to and from places there are two ways in which you could find out what your deduction is.  The first and less common way the the Actual Cost Method.  First you must figure out the percentage of business use that you use your car for in the fiscal year.  Then you would add up all of your expenses and multiply that by the percentage of business use and that will be your deduction.  This can get very tricky so the more used method is the Automatic Mileage Method.  When using this method you first keep a running total of all the business miles you drive during the year.  Then at the end of the year you take that total and multiply it by the mileage rate which for 2009 is $.55 per mile. The total that you get here would be your driving deduction.  If you would like to get extremely in depth information on this or any other tax information, consult your local CPA in your area.

Photo by: tiarescott

Here’s another great article to add to the collection about non profit CEOs and their salaries.  The only thing with this story is that its actually is one with good news.  Back in early August when Jane McIntyre was a candidate for the CEO position of the United Way of the Central Carolinas, the only question they were really asking was how much would she want to be paid?  What she told them was a number a lot lower than what they would want to pay her.  She said she would ask for a salary of $150,000 a year, compared to her predecessor who received $365,000 a year plus a $2.1 million pension package.  As we can see here, not all the nonprofit CEOs are asking for and receiving such huge salaries.  I guess there is still some good left out there.

 To read the entire article, please follow the hyperlink to the Chicago Tribune page.

pic by Bjoreman

There is a time when each nonprofit should take a moment for their employees to have fun.  However,  being lavish in their spending for the event is not what should be expected from a nonprofit.  A number of nonprofits seem to be holding two levels of access to its donors and disguise it as a charitable event or staff appreciation.

The staff of the nonprofit and those they serve are the most important people.  While most nonprofits feel they need to take a low profile, the number of larger organizations who are lavishing big benefits to senior staff and donors gives the nonprofit industry a bad view.  Hospitals, Universities and Foundations types are the top three nonprofit organizations creating this problem.  Don’t get me wrong, the majority are OK.  However, the public and Congress only remember the bad apples and laws are passed for all based on the few bad apples.  The nonprofit industry needs to set a standard to operate by before others do it.