For Virginia residents approaching retirement, the years between leaving the workforce and reaching Required Minimum Distribution (RMD) age present a critical window for tax planning. With traditional IRA balances, rental properties generating income, and unclaimed Social Security benefits, retirees face a complex web of tax decisions that can significantly impact their lifetime wealth and the legacy they leave to heirs. Understanding Required Minimum Distributions (RMDs) The SECURE 2.0 Act raised the RMD age to 73 for those who turn 73 after January 1, 2025 . For someone turning 73 on August 20, 2025, the first required minimum distribution must be taken by April 1, 2026, with a second RMD required by December 31, 2026 . After the starting year, RMDs must be taken by December 31 of each year. The RMD calculation is straightforward: divide the prior December 31 account balance by a life expectancy factor from IRS Publication 590-B. Most retirees use the Uniform Lifetime Table (Table III) . Notably, Roth IRAs are not subject to RMDs during the owner’s lifetime , making Roth conversions a powerful strategy for reducing future RMD exposure. For a retiree with $1.8 million in traditional IRAs, the initial RMD at age 73 would be approximately $65,000–$70,000 (depending on the exact life expectancy factor). This amount, combined with other income, can push retirees into higher tax brackets and trigger Medicare IRMAA surcharges. Roth Conversions: The Strategic Window The years between retirement and RMD age represent the most valuable period for Roth conversions. During this window, taxable income is often at its lowest, making conversions more tax-efficient. Converting traditional IRA funds to a Roth IRA now means paying tax at current rates rather than potentially higher rates when RMDs begin. A multi-year conversion strategy could involve converting $23,500–$25,000 annually to fill the 12% federal bracket without crossing the Medicare IRMAA threshold . Over a 10-year window, this could convert approximately $235,000 to Roth, creating tax-free growth and tax-free distributions for the future. The long-term benefit extends beyond the retiree’s lifetime. Roth IRAs are not subject to RMDs during the owner’s lifetime, and non-spouse heirs can inherit Roth IRAs tax-free under the 10-year distribution rule . This makes Roth conversions particularly valuable for clients concerned about the tax impact on their heirs. Social Security Taxation Social Security benefits are fully exempt from Virginia income tax . This means any portion of Social Security that is taxable federally is subtracted on the Virginia return, effectively eliminating state tax on Social Security benefits. However, Social Security is partially taxable at the federal level based on combined income (AGI + nontaxable interest + half of Social Security benefits). For a single filer with combined income between $25,000 and $34,000, up to 50% of benefits may be taxable. Above $34,000, up to 85% may be taxable. Medicare IRMAA: The Hidden Retirement Tax Medicare IRMAA (Income-Related Monthly Adjustment Amount) is a surcharge on Medicare Part B and Part D premiums for higher earners . For 2026, the first-tier IRMAA threshold is $109,000 for single filers and $218,000 for married couples filing jointly . Crossing even $1 over a threshold triggers the full surcharge tier, ranging from $1,148 to $6,936 per person per year . IRMAA uses a two-year lookback, meaning 2026 premiums are based on 2024 income . This creates a significant planning opportunity: income decisions made today affect Medicare premiums two years later. For retirees considering Roth conversions, this timing allows for strategic planning to avoid IRMAA surcharges while still maximizing conversion benefits. Virginia Retirement Tax Considerations Virginia offers a moderate tax environment for retirees. Social Security benefits are fully exempt from Virginia income tax . However, most other retirement income—including pensions, 401(k) distributions, and IRA withdrawals—is taxable at Virginia’s graduated rates, which top out at 5.75% . The Age Deduction Taxpayers aged 65 and older can claim an age deduction of up to $12,000 per person . However, the deduction is reduced dollar-for-dollar when adjusted federal AGI exceeds $50,000 for single filers and $75,000 for married filers . This means many retirees get only part of the deduction—or none at all. For a single filer with $30,000 of Social Security, $40,000 from a 401(k), and a $20,000 private pension, the Social Security is excluded, leaving $60,000 of Virginia income. This puts the filer about $10,000 over the $50,000 phase-out threshold, cutting the $12,000 age deduction to roughly $2,000 . Managing adjusted federal AGI around the $50,000 and $75,000 phase-out lines is essential for preserving the age deduction. Rental Property Depreciation For retirees with rental properties, depreciation is one of the most valuable tax benefits available. Residential rental property is generally depreciated over 27.5 years . However, a cost segregation study can identify components with shorter useful lives—carpet, appliances, landscaping, and specialty electrical systems—that can be depreciated over 5, 7, or 15 years instead . 100% Bonus Depreciation The One Big Beautiful Bill Act (OBBBA) restored 100% bonus depreciation for qualified property placed in service after January 19, 2025, extending through December 31, 2029 . When a cost segregation study identifies that 20–40% of a building’s purchase price consists of 5-, 7-, or 15-year property, all of that can potentially be deducted in full in year one . For a rental property purchased for $800,000, a cost segregation study could identify $162,500 (25%) of the building value as shorter-lived property. With 100% bonus depreciation, the owner could deduct $162,500 immediately, plus remaining building depreciation of approximately $17,727, for total year-one depreciation of over $180,000 . At a 32% tax bracket, this yields approximately $57,673 in federal tax savings . Cost Segregation Considerations The cost of a study typically ranges from $5,000–$15,000 depending on property size and complexity . The investment routinely generates 3–10x returns through accelerated depreciation . However, investors should model the full hold period, as accelerated depreciation reduces basis and may affect gain recognition or depreciation recapture when the property is sold . How We Can Help Developing a comprehensive multi-year tax strategy requires integrating federal tax brackets, state tax rules, RMD projections, Social Security taxation, and Medicare IRMAA thresholds. This is not a spreadsheet problem—the interactions between these variables produce results
For nonprofit organizations, financial transparency is the bedrock of donor trust and public confidence. But not every organization needs the same level of financial scrutiny. Understanding the differences between a financial statement audit, a review, and a compilation helps you choose the right level of assurance for your organization’s needs and budget. The Three Levels of Assurance Financial statement services provide three distinct levels of assurance, ranging from the highest level (audit) to no assurance (compilation). Each service serves a different purpose and is appropriate for different circumstances. Compilation: No Assurance A compilation is the most basic level of financial statement service. The CPA organizes your financial data into formal financial statements in accordance with accounting standards, but performs no verification or testing. No assurance is provided that the statements are free from material misstatement. When it’s appropriate: Internal management reporting Tax preparation Small loan applications where assurance is not required Newer nonprofits with simple operations Grant applications that do not require audited statements What it includes: Presentation of financial data in statement format No inquiry, analytical, or verification procedures A compilation report that clearly states no assurance is provided Review: Limited Assurance A review provides limited assurance, sometimes called “negative assurance.” The CPA performs analytical procedures—examining trends and relationships among financial data—and makes inquiries of management to assess whether the statements are plausible and free from material misstatement . When it’s appropriate: Nonprofits with revenue between $100,000 and $1,000,000 Board members seeking a comfort-level report without the cost of an audit Lenders or grantors who require limited assurance Organizations preparing for a future transition to an audit What it includes: Analytical procedures to identify unusual trends or unexpected differences Inquiries of management about the financial statements No testing of transactions or confirmation of balances with third parties A review report stating that nothing came to the CPA’s attention suggesting material misstatement Audit: Reasonable Assurance An audit provides the highest level of assurance—reasonable assurance that the financial statements are free from material misstatement and are presented fairly in accordance with GAAP. The CPA performs extensive testing, confirms balances with third parties, evaluates internal controls, and issues an opinion on the financial statements . When it’s appropriate: Federal grant recipients expending $1,000,000 or more in federal awards (Single Audit) Organizations required by state or local law to have audited financials Major donors or grantors requiring audited financial statements Organizations with significant financing or lender requirements Boards seeking the highest level of financial oversight What it includes: Comprehensive risk assessment Walkthroughs and testing of internal controls Substantive testing of transactions Confirmation of key balances with banks, donors, and grantors Review of contracts, grant agreements, and board minutes An audit opinion on the fairness of the financial statements Factors to Consider When Choosing a Service Stakeholder Requirements The primary driver is often external requirements. Loan agreements, grant letters, and state rules should specify the required level of service. Major donors, private foundations, and government agencies frequently require audited financial statements as a condition of receiving funds. Organization Size and Complexity Smaller organizations with simpler operations may find that a review or compilation meets their needs. As organizations grow and their operations become more complex, the need for a full audit often increases. Cost Considerations An audit is significantly more expensive than a review, and a review is more expensive than a compilation. Many organizations move between these levels over time as their needs and budgets evolve. Virginia Nonprofit Audit Requirements Organizations with income under $25,000 in Virginia may file a certified treasurer’s report containing a balance sheet and income and expense statement instead of an audit or IRS Form 990 . For organizations with higher revenue, Virginia law may require a financial review or audit, particularly when applying for or maintaining certain state tax exemptions. The Audit Program For organizations undergoing an audit, the audit program will vary with the type of nonprofit, its volume of income, and the complexity of its operations . Key areas of emphasis include: 1. Proper Authorization of Activities and ExpendituresThe budget and board of directors’ minutes are the usual source of verification of a nonprofit’s activities. Committee chairs are generally required to authorize any expenses from their budget funds. Employees often document their own timesheets and expense records, with a second party reviewing these documents each month . 2. Determination of the Physical Existence of AssetsVerification of bank balances, count of securities owned, and count of merchandise help the audit team determine physical existence of assets. Examination of deeds and tax assessments applies when real property is owned by a nonprofit . 3. Ascertaining That Returns and Reports Are Filed in a Timely FashionA nonprofit has the same obligation to file tax returns and corporate reports as a for-profit organization. Failure to comply will expose the nonprofit to possible fines or penalties . How We Can Help At Nova Tax & Accounting Services , we help nonprofits choose the right level of financial assurance and prepare for a smooth audit or review experience. Our audit and assurance services include financial statement audits, reviews, compilations, and Single Audit compliance. We also provide Form 990 preparation and nonprofit consulting to help organizations strengthen internal controls and maintain compliance. Schedule your free consultation today to discuss your organization’s needs. Nova Tax & Accounting Services | Audit & Assurance Services | Form 990 Preparation | Schedule a Consultation External Links: IRS Charities and Nonprofits | Uniform Guidance (2 CFR Part 200) | Virginia Department of Taxation Nonprofit Resources
For organizations that receive federal funding, the Single Audit requirement represents one of the most significant compliance obligations they face. In 2024, the Office of Management and Budget (OMB) raised the Single Audit threshold from $750,000 to $1,000,000, effective for fiscal years beginning on or after October 1, 2024 . This change brought relief to many smaller organizations but also created confusion about which entities must undergo the rigorous audit process. What Is the Single Audit Threshold? The Single Audit threshold determines whether a non-federal entity—including nonprofit organizations, state and local governments, and other federal award recipients—must obtain a Single Audit for its fiscal year. Under 2 CFR 200.501, any entity that expends $1,000,000 or more in federal awards during its fiscal year must have either a Single Audit or, in limited single-program situations, a program-specific audit conducted for that year . The threshold is based on federal awards expended during the fiscal year, not on awards received. This distinction is important because organizations may receive awards in one year but expend them over multiple years. The threshold applies to the total amount of federal funds actually spent, not the total amount awarded or drawn down. Who Is Affected by the Single Audit Threshold? The Single Audit requirement applies to all non-federal entities that expend federal awards, including: Nonprofit organizations (including 501(c)(3) organizations, foundations, and charities) State and local governments Public housing authorities Colleges and universities Healthcare providers Tribal organizations For-profit entities (only when explicitly required by the award or agency) For most for-profit businesses, the Single Audit requirement does not automatically apply. However, some federal awards or agencies may specifically require a Single Audit or program-specific audit as a condition of the award. What a Single Audit Includes A Single Audit is more comprehensive than a standard financial statement audit. It combines: A Financial Statement Audit: Examines the accuracy of your financial statements and internal controls over financial reporting. A Compliance Audit: Assesses whether your organization has followed the specific rules, regulations, and terms of each federal award or program under the Uniform Guidance. This means the audit is not just about the numbers, but also about how federal funds were managed, documented, and reported. The audit includes testing of internal controls over compliance and compliance testing for major federal programs . 2026 Single Audit Updates OMB published a proposed rewrite of 2 CFR Part 200, the Uniform Guidance, in the Federal Register on May 29, 2026 . The proposal does not lower the Single Audit threshold or reverse the 15% de minimis indirect cost rate. Both remain in effect at $1,000,000 of federal awards expended and 15% of modified total direct costs . The proposal instead targets broader grant administration policy, including pre-issuance review of selected discretionary awards and expanded agency termination authority. The audit framework in Subpart F is being refined, not rebuilt . If finalized, the proposed rule contemplates an effective date as early as October 1, 2026, which would align with the start of the federal fiscal year . How to Determine If You Need a Single Audit To determine whether your organization needs a Single Audit: Calculate total federal awards expended during your fiscal year. This includes all federal grants, contracts, cooperative agreements, and other federal assistance. **Compare the total to the $1,000,000 threshold.** If the total equals or exceeds $1,000,000, a Single Audit is required. If you are below the threshold, no Single Audit is required, but you may still need to comply with other audit requirements from state or local governments, grantors, or funders. For HUD multifamily entities, be aware that the REAC FASS-MF system still validates against the old $750,000 threshold, creating a compliance gap . Entities expending between $750,000 and $999,999 must navigate this system issue carefully. How We Can Help At Nova Tax & Accounting Services , we provide Single Audit (Uniform Guidance) services for nonprofits, government entities, and other federal award recipients. Our team helps you prepare for a smooth Single Audit experience, organize your grant documentation, and address any findings or questioned costs. We also assist with pre-audit assessments to identify and address potential issues before the audit begins. Schedule your free consultation today to discuss your Single Audit needs.