Conference and Training Opportunities
Tax Conference: Conference Goal: To assist ministers, staff, and employees with the greatest tax savings and the church with the greatest stewardship of funds.
Financial Issues Conference: The Financial Issues Conference covers subjects other than tax. Topics included are internal controls, financial policies, designated giving, compensation planning and minister housing allowance.
Year-End Checklist for Church Treasurers
Housing allowance. The personnel or stewardship committee (or the congregation) should designate a housing allowance for 2011 for ministers who own or rent their home (and for ministers who live in a parsonage and who pay some of their housing expenses). A sample housing allowance resolution is available at GuideStone.org
Required Forms. All employees should review their W-4 form, and A-4 form and submit a new form if circumstances have changed.
Notice to donors. Richard Hammer suggests “Donors should be advised in the church bulletin or newsletter, or in a letter from the church, not to file their federal income tax return before they receive their contribution summary from the church. Donors may not be able to deduct individual contributions of $250 or more if they file a tax return before receiving a contribution summary from their church.”
“A contribution is effective when delivered. This means that a check deposited in the church offering in January of 2011 cannot be deducted in 2010 even lit is backdated to 2010. One exception—checks that are mailed and postmarked in 2010 are deductible in 2010 even though not received until 2011.” Church Law and Tax Report, ChurchLawAndTax.com
Christmas gifts and love offerings. Christmas gifts made by the church or congregation to a minister or lay staff member are taxable income and not a tax-free gift, and must be reported as income on the recipient’s W-2 or 1099.
Business expenses. If you have an accountable reimbursement plan for your minister, and there is a balance left in the account at the end of the year, do not give the balance to the minister. If you do, it will make all reimbursements for the year taxable income.
For more information about any of this information, feel free to contact me directly at 334-613-2241 or via email at [email protected].
Your office of Church Compensation at the Alabama Baptist State Board of Missions looks forward to being able to serve you!
Help Your Pastor Pay Less in Taxes
It is tax time again! We are in the middle of tax season and the April 15th deadline is about 6 weeks away! The median family income in Alabama is approximately $51,000. A typical Alabama family will pay between $4000 and $5000 in Federal Income Tax, approximately $4000 in Social Security taxes, between $1500 and $1700 in state income tax and between $1500 and $3000 in other taxes including sales tax, property tax, fuel taxes, etc. This is based on an average family size of 2.5 according to the U.S. Census Bureau. Many Alabama families will pay much more in taxes.*
Pastors and other ministers also pay a lot in taxes and often more than they should. Many churches still operate under the old “lump sum” or “package approach.” “We will pay you $X.XX and you divide it any way you wish.” This can cause the minister to pay several thousand dollars more in taxes.
Here are 5 easy ways to help your minister save on taxes, avoid confusion, help keep good church employees and honor the Lord in our stewardship:
1. Adopt an accountable reimbursement plan. The old car allowance method is taxable income, goes on the W-2 and the minister will pay taxes on money which is not income – it is a business expense of the church. Under an accountable plan, the church establishes a budget and the minister provides a report each month of mileage showing the date, location, purpose and business miles. The report also includes receipts for other business expenses such as attending a workshop or convention, books or tapes used in ministry, continuing education and hospitality. The minister could, for example, take a prospective family out to lunch to tell them more about the church, ascertain their spiritual needs, answer their questions, etc. This would be a legitimate business expense.
2. Provide health benefits. The church should provide health insurance, disability insurance and may offer other benefits such as dental and vision. These benefits protect the minister’s family and also protect the church as well from the potential of a catastrophic expense. A written church policy is needed, but may be quite simple. A church desiring greater flexibility concerning health needs may adopt a Health Reimbursement Arrangement. An HRA document tailored to your church could be obtained from a CPA or attorney. The cost might be $200 – $300, a small price to pay considering potentially saving thousands of dollars each year. Other churches may consider other plans such as a FSA or HSA tied to certain high deductible insurance coverage. GuideStone provides such insurance.
3. Provide life insurance. Most financial experts recommend that families have between 4 and 10 times annual income in group term insurance. The first $50,000 in employer provided term life insurance is tax free as well as dependent coverage of $2,000.
4. Help with a retirement plan. Retirement through GuideStone is a wonderful way to provide for your minister’s future. Normal retirement savings are tax deferred. In addition, there are potentially three additional benefits for ministers of Southern Baptist churches including a Survivor benefit of up to $100,000, a Disability benefit of up to $500 per month, and up to an additional $17.50 going into the minister’s account each month. These additional benefits are provided through the State Board of Missions and your Cooperative Program gifts. Also, amounts the minister sets aside for retirement through a salary reduction agreement may qualify for a retirement savings contribution credit on Federal taxes.
5. Provide a housing allowance. The housing allowance may include the payment (principal, interest, taxes and insurance), utilities, upkeep, maintenance, and improvements, furnishings, pest control, cleaning supplies for the home, home owners association dues and down payment. The housing allowance is requested by the minister and approved by the church. The church’s role is to determine that the request is reasonable and approve it. Then it is the responsibility of the minister to keep detailed records and receipts to be ready to prove the exclusion. A minister may exclude from federal income tax and state income tax the smallest of three numbers – (1) the amount designated by the church, (2) the actual expenses and (3) the fair market rental value of the home furnished plus utilities. If the exclusion is less than the allowance designated, the minister must report the excess as taxable income. A minister in a parsonage may also have a housing allowance to cover expenses he may be responsible for such as utilities, content insurance, furnishings, cleaning supplies for the home, pest control, etc. Many churches do not provide a housing allowance for a minister living in a parsonage. Also many churches put unreasonable limits on the housing allowance. These practices cost your minister additional taxes.
For more information, please contact me, State Missionary Lee Wright direct at 334-613-2241 or [email protected].
*Sources: The U. S. Census Bureau, U.S. Department of Housing and Urban Development, The Alabama Department of Revenue Annual Report 2006, the Federal Tax Tables, the Alabama tax tables.
Charitable Contributions
There are six requirements that must be satisfied in order for a contribution to be tax deductible.
The IRS looks at the substance and not the form of a transaction as the controlling factor. Did the donor intend to make a contribution to the church or did the donor only intend to benefit the designated cause or individual by using the church to obtain a tax deduction on an otherwise non-deductible gift?
The gift must be a gift of cash or other property (IRS §170) In the case of donated property the church may give a letter indicating when the property was received and a brief description of the property but the church may not assign or include a value. It is the donor’s responsibility to have the item appraised.
The gift must be delivered before the close of the year Charitable contributions must be claimed in the year in which they are delivered to the church.
Delivery date is:
The date it is actually received by the church (Post-dating a check does not help). If the check is delivered after the close of the year, it counts in the new year. One exception is a check that is mailed through the United States Postal Service to the church—it is deductible in the year the check is mailed (and postmarked), even if it is received early in the next year. The postmark counts as delivery date and the envelope should be retained.
The gift must be unconditional and without personal benefit to the donor Donors cannot create restrictions on how the church may use a charitable contribution. However, the church may create a restricted or designated fund and allow contributions to that fund.
Payments by participants and non-participants to their church for short-term mission trips are deductible as charitable contributions if the trip involves “no significant element of personal pleasure, recreation, or vacation.”
Contributions generally are deductible only to the extent they exceed the value of any goods or services received by the donor in return for the contribution.
The gift must be made “to or for the use of” a qualified charity.
The gift must not be in excess of the amounts allowed by law.
There are limits on the amount of a contribution that can be deducted. Currently that amount is 50% of AGI. In some cases, contributions that exceed these limits can be “carried over” and claimed in future years.
The gift must be substantiated. The church must provide the appropriate substantiation. The method will vary according to the type of gift and the IRS applicable rules. Additional rules apply to the donation of vehicles.
Contributions which are not deductible:
A contribution to a specific individual.
A contribution to a non-qualified organization.
The part of a contribution for which you receive or expect to receive an equal financial or economic benefit.
The value of your time or services—a plumber who donates his time and materials may receive tax credit for materials but not for the labor.
Your personal, living, or family expenses.
Certain contributions of partial interests in property.
Rent-free building space. The value of rent-free building space made available to a church cannot be claimed as a charitable contribution. This includes motels, meeting rooms, etc.
If you have questions about any of the above topics, please contact Jo Ellen Johnson, CPA direct at 334-613-2204, email at [email protected], or contact Lee Wright direct at 334-613-2241, email at [email protected].
Internal Controls
How well does your church manage God’s resources?
Your Sunday morning service has just ended. The Church Treasurer takes the offering home and counts it, later deposits it, records contribution records, reconciles the bank statement, writes checks, and prepares a financial report for the church to approve at the next business meeting. Sound familiar? Unfortunately, many of our churches have very few financial controls in place. Financial controls can protect the Treasurer (or Financial Secretary) and the church. Below are some suggestions for financial control that every church should consider using:
Separate the activities of counting, recording, and disbursing church funds. It is not wise for one person to perform all of these functions.
Establish clear guidelines for the handling of church funds.
Keep financial records in a secure area.
Conduct a financial audit annually. The audit may be external (performed by an outside Certified Public Accountant) or internal (reviewed by business people in the church who understand financial management).
Use caution when hiring personnel or enlisting those who have access to church funds.
Provide offering envelopes for member use.
Always have at least two people present when money is counted.
Deposit cash as soon as possible after it is received.
Have the counters verify that the amount written on the envelope was actually placed in the envelope.
Maintain current contribution records for members.
Use a requisition/purchase order system where expenses are approved before purchases are made.
Check all invoices for accuracy before payment is made.
Require two signatures on all church checks.
Separate the responsibilities of writing checks and bank account reconciliation.
The handling of church funds is an act of stewardship. Do what you can to see that God’s resources are properly managed and cared for. Call me, Lee Wright direct at 334-613-2241 or Jo Ellen Johnson, CPA, at 334-613-2204, if you have questions. You may also email us at [email protected] or [email protected].
Bi-vocational Pastor Compensation
What should you pay your Bi-Vocational Pastor?
Many bi-vocational churches still operate under the old “lump sum” or “package approach.” “We will pay you $X.XX and you divide it any way you wish.” This can cause the minister to pay much more in taxes. Here are 4 easy ways to help your minister save on taxes, avoid confusion, help keep good church employees and honor the Lord in our stewardship:
Adopt an accountable reimbursement plan. The old car allowance method is taxable income, goes on the W‐2 and the minister will pay taxes on money which is not income – it is a business expense of the church. Under an accountable plan, the church establishes a budget and the minister provides a report each month of mileage showing the date, location, purpose and business miles. The report also includes receipts for other business expenses such as attending a workshop or convention, books or tapes used in ministry, continuing education and hospitality. The minister could, for example, take a prospective family out to lunch to tell them more about the church, ascertain their spiritual needs, answer their questions, etc. This would be a legitimate business expense. Note: An accountable reimbursement plan cannot be funded through salary reduction.
Provide benefits. The church could provide term life insurance, health insurance, disability insurance and may offer other benefits such as dental and vision. These benefits protect the minister’s family and also protect the church as well from the potential of a catastrophic expense. GuideStone Financial Resources provides such insurance products.
Help with retirement. Retirement through GuideStone is a wonderful way to provide for your minister’s future. Bivocational ministers should participate even if they have retirement through their other employment. There are potentially three additional benefits for ministers of Southern Baptist churches including a survivor benefit of up to $100,000, a Disability benefit of up to $500 per month, and up to an additional $17.50 going into the minister’s account each month. These additional benefits are provided through the State Board of Missions and your Cooperative Program gifts. If the church budget offerings are less than $75,000, the minister may apply for the Mission/Church Assistance Program which could result in an additional $50 per month in the minister’s retirement account for up to 5 years. Also, amounts the minister sets aside for retirement through a salary reduction agreement may qualify for a retirement savings contribution credit on Federal taxes.
Provide a housing allowance. The housing allowance may include the payment (principal, interest, taxes and insurance), utilities, upkeep, maintenance, and improvements, furnishings, pest control, cleaning supplies for the home, home owners association dues and down payment. The housing allowance is requested by the minister and approved by the church. The church’s role is to determine that the request is reasonable and approve it. Then it is the responsibility of the minister to keep detailed records and receipts to be ready to prove the exclusion. A minister may exclude from federal income tax and state income tax the smallest of three numbers – (1) the amount designated by the church, (2) the actual expenses and (3) the fair market rental value of the home furnished plus utilities. If the exclusion is less than the allowance designated, the minister must report the excess as taxable income. A minister in a parsonage may also have a housing allowance to cover expenses he may be responsible for such as utilities, content insurance, furnishings, cleaning supplies for the home, pest control, etc. Many churches do not provide a housing allowance for a minister living in a parsonage. Also many churches put unreasonable limits on the housing allowance. Many bivocational pastors could request up to 100% of their income as housing. It is recommended that even if that is reasonable, the pastor request less than 100% so that he can participate in the Church Retirement Plan through GuideStone Financial Resources.
For more information, please contact me, State Missionary Lee Wright direct at 334-613-2241 or via email at [email protected].
Church Administrator Resources
2024 Labor Law Affecting the Church (.pptx)
2024 Personnel Conference (.ppt)
2024 Small Church Conference IRS Forms (.pptx)
2024 Federal Tax Estimate for Ministers Living in a Parsonage (.docx)
2024 Federal Tax Estimate for Ministers (.docx)
2024 Personnel Booklet – Sept. 2024 (.docx)
2024 Financial Issues Book – Feb. 2024 (.pdf)
Charitable Contributions – 2021 Designated Missions and Foreign Policy (.pdf)
Charitable Contributions and Designated Contribution Rules (.pdf)
