Year-end is not just a deadline – it’s a test of how well an organization has prepared throughout the year. Successful leaders share a common discipline: they plan ahead. In this issue, our specialists examine the controls, processes and obligations that reward early attention and explore how proactive preparation transforms year-end from a source of stress into a strategic advantage.
Our first article examines how year-end philanthropy will be influenced by the One Big Beautiful Bill Act’s (OBBBA) changes to federal charitable deduction rules. Beginning with tax year 2026, the tax value of a gift will increasingly depend on the donor’s income, other deductions and choice of giving vehicle, which means planning the timing, form and source of charitable contributions will be critical to maximizing tax benefits.
Our next article outlines the tax and compliance considerations private foundations should address before year-end, including required distributions, grant documentation, investment reporting, governance records and Form 990-PF readiness. Early attention to these obligations can help foundation leaders avoid last-minute issues and fulfill their responsibilities with confidence.
We then examine a hidden cost of automation: the risk that a single poor configuration can generate pervasive errors across thousands of transactions. This article makes the case for the early involvement of finance, operations and IT in system design and user acceptance testing – and shows how implementing strong controls before problems become entrenched can equip CFOs with reliable data that can drive better business decisions throughout the year.
In our third article, our specialists focus on 401(k) forfeitures that occur when employees resign before becoming fully vested. The employer contributions that remain in the plan are drawing growing scrutiny from the IRS and DOL, creating significant compliance risk. You’ll appreciate our best practices for avoiding improper plan administration, audit findings and costly corrective actions.
Our final article outlines 10 steps to a more successful year-end audit for private clubs – and illustrates how adopting a proactive mindset throughout the year can turn the audit from an annual obligation into a competitive edge. The benefits extend well beyond the audit itself: stronger financial reporting, more efficient processes, sharpened internal controls and deeper member loyalty.
The advance planning strategies our specialists recommend can empower you to see into the future and manage it today.
Featured Article
Charitable Giving after OBBBA: Changes for Individuals in 2026
By Bonnie Orr, CPA, Partner and Greer Gervolino, Supervisor
Charitable giving is usually driven by our desire to support a cause, but tax rules can influence a gift’s timing and form. The One Big Beautiful Bill Act (OBBBA) changes federal charitable deduction rules for tax years beginning in 2026. Taxpayers should consider whether to itemize, which assets they donate and whether an IRA distribution offers a better result.
New Deduction for Non-Itemizers
Beginning in 2026, an individual who claims the standard deduction may also deduct qualifying cash contributions under Internal Revenue Code (IRC) Section 170(p). The annual limit is $1,000, or $2,000 for married taxpayers filing jointly. The cash must go to an eligible organization described in Section 170(b)(1)(A). Gifts to supporting organizations and donor-advised funds do not qualify.
The contribution must be made in cash directly to an eligible organization, such as a qualifying church, educational institution, hospital or public charity. For example, a $500 cash donation made directly to a local food bank may be deductible even when the taxpayer does not itemize.
0.5% Floor for Itemized Charitable Deductions
Taxpayers who itemize face a new limitation under Section 170(b)(1)(I). Charitable contributions are deductible only to the extent total contributions exceed 0.5% of the taxpayer’s “contribution base,” generally adjusted gross income computed without a net operating loss carryback.
For example, a taxpayer with $500,000 of AGI has a $2,500 floor. If the taxpayer contributes $20,000, only $17,500 is potentially deductible. The first 0.5% of AGI contributed will not yield a deduction. This floor may increase the value of “bunching” several years of gifts into one year.
Donors should also consider contributing appreciated securities instead of selling them and donating cash. A direct gift of long-term appreciated property can generally avoid recognition of the built-in gain. Limitations may still apply.
Reduced Benefit in the 37% Bracket
Beginning in 2026, taxpayers with income in the 37% federal tax bracket could receive a smaller benefit from their itemized deductions. Under IRC Section 68, itemized deductions are reduced to limit the federal tax benefit to 35%, rather than 37%.
For example, an itemized deduction that would otherwise reduce federal tax by $370 may reduce tax by approximately $350 after applying Section 68. This limitation applies after other restrictions, including the new 0.5% floor on charitable deductions.
The Continuing Power of a Qualified Charitable Distribution (QCD)
A qualified charitable distribution (QCD) under Section 408(d)(8) remains valuable for an IRA owner who is at least age 70½ on the distribution date. The IRA owner can transfer up to $111,000 directly to an eligible charity in 2026.
A QCD is excluded from gross income instead of being claimed as an itemized deduction. It therefore bypasses the 0.5% floor, does not require itemizing and may satisfy all or part of a required minimum distribution. By reducing AGI, it may also improve other income-based tax calculations. QCDs cannot be made to donor-advised funds and no separate charitable deduction is allowed for the excluded amount.
Planning Is the Key to Tax Savings
The new charitable-giving tax rules create both opportunities and limitations for taxpayers. The tax value of a charitable gift will depend more than ever on the donor’s income, other deductions and choice of giving vehicle. Careful planning around the timing, form and source of charitable contributions can help maximize the tax benefits of giving.
To share this article or contact the authors directly, view it on our website here.
Key Tax and Compliance Considerations for Private Foundation Year-End Readiness
By Anan Samara, EA, Partner, Gianna Macari, CPA, Director and David Smith, CPA, Director
For private foundations, proper planning ahead of year-end can provide an opportunity to confirm that the foundation’s grantmaking, investment activity, governance records and tax reporting are aligned before year-end transactions and reporting deadlines compress the timeline.
Timely review can help a foundation identify unresolved payout obligations, address grant documentation requirements, anticipate tax and filing requirements of investment activity and assemble the information needed for an accurate Form 990-PF. The following considerations can help foundations have a more deliberate compliance and planning process rather than a year-end scramble.
Minimum Distribution Requirement and Qualifying Distributions
A private foundation that fails to pay out the minimum distributable amount in a timely manner is subject to a 30 percent excise tax under §4942 of the Internal Revenue Service (IRS) guidelines. To avoid this additional tax, a foundation should consider the following:
Ensure prior year undistributed income has been, or will be, distributed before year-end. If most grantmaking is performed at the end of the tax year, consider giving out more than the required amount and give sufficient time to write out the checks or process the grant wires. For wire payments to grantees, the foundation should confirm the wire instructions with a trusted individual at the grantee’s organization before making the transfer to ensure the proper bank information is verified and avoid any delays. We also recommend review of the latest bank reconciliations for any old checks that have not yet cleared the bank. If these checks are stale and become written off, the foundation may have a higher distribution requirement. Grant refunds received during the year would also increase the distribution requirement.
Consider contributing to a donor-advised fund (DAF) to meet minimum distribution requirements. This is permitted by the IRS; however, if a contribution is made to a DAF which the foundation or a disqualified person has advisory privileges over, the foundation should maintain supporting documentation and include the required explanation within its Form 990-PF.
Develop a plan to use excess distribution carryforward as this carryforward expires after a five-year period.
Review the allocation of operating and administrative expenses between net investment income and charitable expenditures. Most common administrative expenditures that can be considered charitable consist of employee salaries, legal, accounting, grant administration and other costs that help a foundation further its mission. By reviewing these allocations in conjunction with the IRS Federal Form 990-PF instructions, a foundation may determine that certain expenses can qualify as a charitable expense thereby assisting in meeting the mandatory distribution requirements.
For grants subject to expenditure responsibility (i.e., grants to other private foundations, non-charitable tax-exempt organizations, taxable corporations and certain grants to foreign organizations), ensure that expenditure responsibility requirements are met. Generally, an expenditure responsibility grant requires a pre-grant inquiry and a written, signed grant agreement containing certain requirements including reporting by grantee to grantor foundation. If the foundation is making equivalency determinations, make sure the written advice used meets requirements.
For grants to individuals, confirm whether the foundation’s grant procedures require advance IRS approval. Advance approval is generally required for grants to individuals for travel, study, or similar purposes, unless an exception applies. Prizes or awards recognizing past accomplishments generally do not require advance approval; however, they may be taxable to the recipient and reportable on Form 1099-MISC. Obtain Form W-9 information from recipients when needed to meet applicable information-reporting requirements.
Federal Excise Taxes
A foundation may be able to mitigate its tax liability using some of these strategies:
Consider offsetting capital gains with capital losses. Capital losses from the sale or disposition of investments can reduce capital gains recognized in the current year. However, losses cannot go below zero and cannot be carried back or forward to another tax year.
Avoid the federal excise tax by donating highly appreciated publicly traded stock with a low-cost basis to a public charity grantee. The fair value of the appreciated securities counts toward the calculation of the five percent minimum distribution, and the payment of excise tax on the gain of the appreciated securities is avoided.
If the estimated excise tax for the current tax year is $500 or greater, estimated tax payments are required. These estimated tax payments are due the 15th day of the 5th, 6th, 9th and 12th months of the foundation’s fiscal year. At this point, the foundation most likely already made two or three tax deposits for the current tax year via the Electronic Federal Tax Payment System® (EFTPS). Please note that the IRS now allows private foundations to make federal estimated tax payments directly through IRS Direct Pay, without enrolling in EFTPS. EFTPS remains available and may be preferable for foundations that make frequent payments, but Direct Pay provides a convenient no-registration option for one-time or occasional estimated tax payments.
Read the full article to explore investment portfolio considerations, Form 990-PF preparation and other year-end compliance reminders for private foundations.
Automation Is Not Assurance: How to Strengthen Controls in an Automated Environment
By Donny Butler, CPA, CISA, Partner and Victoria Swift, CPA, Director
Manufacturers are wise to take advantage of connected equipment, production automation, warehouse management systems, sensors, robotics, artificial intelligence and real-time analytics. All offer meaningful opportunities to increase capacity, improve quality and respond to continuing workforce and supply-chain challenges.
They also enable critical financial data – production quantities, labor hours, machine utilization, scrap, yield, inventory movements and shipment information – to pass automatically through multiple systems before reaching the general ledger. Information generated outside the accounting department may be used to determine inventory quantities and costs, drive revenue recognition, allocate overhead or support management forecasts.
The implications for financial reporting are significant.
Where finance personnel once manually created or reviewed most accounting records, financial results now increasingly depend on operational systems, automated interfaces and data generated far from the finance department. Operational data has become financial reporting data – and the reliability of financial statements now hinges on the controls surrounding the systems that create, process and transfer it.
For chief financial officers (CFOs) and controllers, the question is no longer simply whether technology improves operations. A single implementation error, inappropriate system access or uncontrolled change can affect hundreds of transactions before anyone notices – resulting in misstated inventory or revenue, inaccurate margins, audit adjustments or business decisions based on flawed data.
Controls over automation are not solely an IT issue. Now, they are a core component of the financial reporting control environment and an essential element of managing financial, operational and reputational risk.
Connecting the Factory Floor to the Financial Statements
In a typical automated manufacturing environment, data flows through multiple systems before reaching the financial statements:
Machine, sensor or operator input → manufacturing execution system → warehouse management system → ERP subledger → general ledger → financial statements
At each step, data integrity matters. Rather than requiring the CFO to validate every automated transaction, proper controls – source validation, system reconciliations, access restrictions, change management testing and audit trails – demonstrate that data is complete, accurate and appropriately authorized, providing management a sound basis for relying on automated information.
Automation reduces manual processes, but a single poor configuration can generate pervasive errors across thousands of transactions. Finance, operations and IT must be involved early in system design and user acceptance testing – before problems become entrenched in system flow.
Start at the Source
A CFO’s ability to rely on automated information begins with understanding where financial data originates and how it reaches the financial statements. Management should map how financially significant information moves from the warehouse, production line and third-party systems to the general ledger.
Key questions to address:
Where is the data collected and by which system or individual?
Which systems process, modify or transfer it?
Which reports ultimately drive finance decisions?
Who reviews the information and what audit trail is retained?
Common warning signs:
Finance cannot explain how a key report is produced.
Reports are manipulated manually outside the system without a documented process.
System changes occur without the accounting department’s knowledge or approval.
No designated data owner is accountable for reliability.
The reports that influence key business decisions or support the audited financial statements deserve management’s closest attention.
Read the full article to explore the controls manufacturers should consider across critical reports, automated interfaces, system changes and other processes that affect financial reporting.
Managing 401(k) Forfeitures: Five Best Practices for Plan Sponsors
By Danielle Arsenault, CPA, Director and Linda McLean, CPA, Partner
401(k) forfeiture balances may be small, but the compliance risk they create can be significant. When forfeitures are not monitored and used in accordance with the plan document and applicable guidance, plan sponsors can face audit findings, operational failures and avoidable corrective action. A disciplined process for reviewing and applying forfeitures can help reduce that risk and strengthen overall plan governance.
What Are Forfeitures?
A forfeiture occurs when an employee leaves a company before becoming fully vested in the employer contribution portion of their retirement plan account. The unvested employer contributions are not paid to the participant; instead, they remain in the plan as forfeitures. Depending on the terms of the plan document, forfeited amounts may generally be used to reduce future employer contributions, pay eligible plan expenses or restore previously forfeited participant accounts when required.
Because forfeiture accounts can easily be overlooked, balances may accumulate over time if they are not monitored and used in accordance with the plan document. As regulators have increased their focus on the timely use and proper administration of forfeitures, unused balances have become a more common audit finding.
When Must Forfeitures Be Used?
Current IRS guidance generally requires plan sponsors to use forfeitures no later than 12 months after the end of the plan year in which they arise. Equally important, forfeitures must be used in accordance with the terms of the plan document. Regularly reviewing forfeiture balances can help prevent compliance issues, reduce the risk of audit findings and minimize the need for corrective action.
Read the full article for five practical steps plan sponsors can take to monitor, document and properly administer forfeiture balances.
Preparing for the Private Club Audit: 10 Key Steps to Take Ahead of Time
By Kelly Arpin, Supervisor
As the fiscal year draws to a close, private club managers turn their attention to financial statement audits – gathering documentation, preparing reconciliations and closing the books. What many overlook is that thoughtful audit preparation offers something far more valuable than compliance: an opportunity to strengthen club operations, sharpen internal controls and deepen member loyalty.
Capitalizing on that opportunity requires more than a year-end checklist. Reviewing key transactions and membership activity, evaluating internal controls and updating policies that no longer reflect current operations transform the audit from an annual obligation into a strategic advantage. Clubs that adopt this proactive mindset throughout the year emerge with stronger financial reporting, more efficient processes and an audit that delivers lasting value.
Taking these 10 key steps ahead of time can help set the stage for a successful annual audit:
1. Reconcile Significant Balance Sheet Accounts
Accurate balance sheet reconciliations are the foundation of sound financial reporting and efficient audit preparation. Before the audit begins, reconcile all significant accounts – cash, accounts receivable, prepaid expenses, accounts payable, accrued liabilities, inventory and debt. Reconciling these accounts regularly throughout the year builds management’s confidence in the club’s financial information, reveals variances early and reduces the risk of surprises during the audit.
2. Reconcile the Change in Net Assets (Retained Earnings)
Each year, the club’s net income or loss rolls into net assets, which then become the opening balance for the following year. When discrepancies arise – backdated transactions, unposted entries or prior-period adjustments – reconciling net assets between internal records and audited financial statements becomes difficult and time-consuming. Verifying this reconciliation before the audit minimizes delays, confirms the integrity of prior periods and keeps the audit on track.
3. Perform a High-Level Review of the Income Statement
Compare revenue and expense accounts against the prior year and note any significant changes. Investigating unexpected fluctuations allows management to identify errors, unusual transactions and operational trends before auditors arrive. These variances often reveal important operational insights – whether membership grew significantly, for example, food and beverage revenue shifted unexpectedly, or repairs and maintenance were properly classified.
4. Gather Board and Committee Meeting Minutes
Detailed Board and committee meeting minutes make it easier to document major events, transactions, approvals and key decisions. These records serve as an important reference when questions arise and can surface financial reporting or audit implications that might otherwise go undetected during the audit process.
5. Review Membership Activity
Membership billings, receivables, deferred revenue, collections and revenue recognition represent a significant portion of club finances – and a critical area of audit focus. Reviewing membership activity throughout the year, rather than scrambling at year-end, provides real-time visibility into collections and cash flow. Ensure accounts receivable are properly recorded and uncollectible balances addressed promptly. An updated aging schedule helps identify collection issues early, while current schedules of past due balances and prepaid dues support reliable financial reporting and a more efficient audit.
Read on for additional steps covering fixed assets, internal controls, governance policies and year-end audit preparation.
Explore More Insights on the New Tax Law
The One Big Beautiful Bill Act (OBBBA) adds another layer of complexity to an already evolving business and financial landscape. Its provisions continue to shape tax planning, compliance obligations and long-term decisions for not-for-profit organizations, businesses and individuals. Explore our dedicated resource hub for practical insights designed to help you understand the changes, assess their potential impact and plan your next steps with greater confidence.
Connect with Us
If you have any questions, contact your PKF O’Connor Davies client service team or contact us here. Visit our website to request a proposal.
For personalized content tailored to your interests, subscribe to our emails here. You’ll receive industry insights and updates directly in your inbox.
If you are interested in joining PKF O’Connor Davies, explore opportunities on our Careers page.
Follow us on social media! Connect with us on LinkedIn, X, Instagram and Facebook to stay informed and engaged.
