Author Archives: Hallie Pentheny

Crowdfunding and Charity: It’s not always a tax deduction

A child in your community passed away from cancer and neighbors set up a fundraiser to help her parents pay for the medical bills. Your colleague at work has a kid using crowdfunding to pay for a volunteer trip abroad and wants you to contribute .You can certainly make a donation to any cause you like, but not all causes are non-profits, which means that they will not be tax deductible.


Many people are using crowdfunding sites, such as Kickstarter, gofundme and YouCaring, to raise money for various activities and causes. Donors should be aware that just because they are donating to what they consider a good cause, such as a scholarship fund in the name of a deceased community leader, it does not mean that their contribution will be tax deductible. The IRS only allows deductions for Qualified Organizations.


A qualified organization should be presented as a 501(c)3 and usually will indicate that it is a non-profit in its description, which means it has applied with, and received, tax exempt status with the IRS. Qualified organizations can include: “nonprofit groups that are religious, charitable, educational, scientific or literary in purpose, or that work to prevent cruelty to children or animals” (§ 1.501(c)(3)-1). Donations made to an individual or other organizations, such as a civic group or a political campaign are NOT deductible as a charitable contribution. Nor is a donation to a foreign charity deductible (this is different than a US charity working in a foreign country, which would be deductible if it is a 501(c)3) with the exception of certain Canadian, Mexican and Israeli organizations, because the U.S. has treaties with these countries.



As with any donation, if you receive a benefit when making a donation through crowdfunding to a qualified organization, the benefit (if more than a token) would have to be subtracted from the amount donated. And no matter what method you have chosen to make your donation, if it is eligible for a charitable deduction, always retain a receipt, and if the amount is $250 or more, make sure you have a written acknowledgement from the charity as well.



Also, remember that if you own a business, you might be able to argue the reasonableness of it being a business expense, such as advertising or promotion. Obviously, the business needs to get some benefit and it needs to be reasonable.


If you found this article useful, please do not keep this a secret. Share it with a friend.



Copyright 2016 by Hallie Pentheny of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.

The Trick to Reading Your Cash Flow Statement

The cash flow statement is your most important financial tool. It tells you exactly what happened to your cash. It shows you where your cash came from and where it went. It will show you if you are running out of cash (which can happen even if you are making a profit), how your loan payments are affecting your bank account and even if you are taking too much money out of your business.



The trick to reading a statement of cash flows is to pretend you are your bank account.   The statement is a diagram that shows you where your money came in, and where it went out. It should account exactly for the difference between what was in your bank account at the beginning of the month, year or any period, and what is in it at the end.



The statement is divided into three sections and the last two, Cash Flows from Investing Activities, and Cash Flows from Financing Activities are pretty straight forward. Investing Activities relate to things that your business owns and Financing Activities are either loans that you took, or loans that you gave to another business venture. A negative number means you bought stuff (the money went out; you don’t have it anymore) and a positive number means that you either sold stuff (Investing) or got a new loan (Financing), just like you would see deposits and withdrawals on your bank statement.



It is a little more difficult to follow the first section, Cash from Operating Activities. This section has to do with your actual product line or services. The first line you might see is depreciation or amortization. It got taken out in your expenses on your P&L (Income Statement), but it isn’t cash so it gets added back in.



Accounts Receivable and Inventory are important parts of your business, but think about what happens when they get too big. The bigger they get, the more money you don’t have; you are waiting for it. If your Accounts Receivable got larger, or you suddenly have 25 widgets in stock when you usually only keep 15 on hand, that difference is subtracted. If your receivables got smaller – because more people paid you, or you are down to 5 widgets in your warehouse, you have more cash, so you add it back in the decrease .


Accounts Payable is the opposite. If you haven’t paid the bills, you still have the money. So the bigger your payables get, the more cash you have, and you add the difference back in. If you paid down your payables, you have less cash, so you subtract it.



Once you understand how the cash flow statement, you’ll have a much better understanding of just where your profit is in your business.



If you found this article useful, please do not keep this a secret. Share it with a friend.



Copyright 2015 by Hallie Pentheny, Accounting Manager of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.