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Important Changes for Seniors and Their IRA Retirement Options

On December 20, 2019 President Trump signed the SECURE Act (Setting Every Community Up for Retirement Enhancement Act of 2019). Effective January 1, 2020, two widely applicable changes to Individual Retirement Accounts (IRAs) have been made:

1)Seniors turning 70½ in 2020, can now wait until the year they turn 72 years old before being forced to take taxable money out of their IRA and other retirement investments. These are called RMDs (Required Minimum Distributions). 2)Beginning in 2020, seniors can continue to make deductible contributions to their IRA accounts as long as they’re still working and receiving earned income. Before 2020, taxpayer who turned 70½ lost their right to deduct contributions to IRAs even though they were still working.


Recent posts

Top 10 Questions that Pastors Ask MinistryCPA: Q1 - Employee or Self-Employed?

Question: 

As a pastor, am I an employee of the church or am I self-employed?

Answer:

The answer is "yes" to both. Most ministers are considered employees in every respect except for the purposes of paying self-employment tax (SECA), which includes Medicare and Social Security tax. This means that they are eligible for virtually all employee benefits that are given favorable tax treatment in the Internal Revenue Code. Many of these benefits are unavailable to the typical self-employed individual.

Ministers are not permitted to have employee Social Security and Medicare (FICA) withheld and matched by the church. Ministers who have not been granted exemption from SECA tax must pay the entire 15.3% of self-employment tax. Many churches provide additional funds to assist their ministers in the payment of this tax, but this additional compensation, while very helpful, is subject to both income and self-employment tax.

Itinerant evangelists are a common example of ministers who do …

Why We Give—Thoughts on Year End Giving from a CPA

How do we count our blessings at year end?           
As Certified Public Accountant and founder of MinistryCPA, I challenge us with lessons in counting our blessings at year end that I find I must revisit each December. The missions of more than 100 MinistryCPA charity clients constantly serve to re-center my thinking. Thankfully, early in my career I started a year end pattern of looking back on the past 12 months and looking forward to the next. In addition to the natural reflections you might expect, charitable giving is on my mind. It wasn’t until I was well into my 40s that my vision for giving was expanded beyond simply giving because of a sense of duty. Now I’m much more careful to check and recheck my motivations.
1.We give because we care about the impact of charities       Giving Tuesday, each Tuesday after Thanksgiving in the U.S., is past. But our favorite charity is still counting on us and others to give this December. The leaders, staff and volunteers of the organizations…

Insurmountable Wall for 2019 Charitable Contributions?

With recent law changes, the federal standard deduction now exceeds $12,000 for individuals and $24,000 for married couples filing jointly and grows each year with inflation adjustments. With only mortgage interest, state and local taxes, catastrophic medical, and charitable contribution deductions to accumulate, many families and individuals face a seemingly insurmountable wall to exceed the “free” standard deduction and, instead, itemize their own write offs.
Some have even questioned whether charitable contributions are deductible anymore; however, all is not lost!

MinistryCPA offers four strategies for you to consider as the 2019 calendar year comes to a close.
1. Many state income tax returns do not follow the federal itemized deduction rules. This allows taxpayers to continue gaining a tax benefit for charitable contributions. For example, a Wisconsin taxpayer with $50,000 of Wisconsin income is granted a standard deduction of $6,709 (married filing joint is $14,641). While Wisc…

Interest-Free Loans to a Church

Question:

Could a church borrow from church members at a 0% interest rate? Do “imputed interest” rules apply to such loans? Is there any limitation that a church member needs to be aware of before loaning funds to the church under these conditions?

Answer:

To answer the first question, yes, a church could receive loans from church members with a 0% interest rate. This type of loan is usually classified as a below-market gift loan. In a sense, the church member who is lending the money is transferring an annual amount equal to the forgone interest to the church as a gift. The church, however, simultaneously transfers such interest back to the lender. This is the idea of imputed interest.

Were it not for limitations related to Schedule A itemized deductions, a donor would report equal amounts of the foregone interest as taxable interest income, but enjoy offsetting charitable contribution deduction.

However, an exception to this unfortunate consequence does exist. According to 2018 U.S. Mast…

Minister, is an IRA the Best Option for You? Retirement Alternatives

Question:

If I can make retirement contributions to both a Traditional IRA and to a church plan is there a reason to prefer one over the other?

Answer:

Yes! Most ministers should likely be choosing a 403(b) church plan.

In addition to a Traditional IRA, a minister may choose to claim a contribution to another retirement plan, like a 403(b) church plan. However, before choosing to do so, it is important to understand the benefits and disadvantages of both a Traditional IRA and a 403(b) plan.

Contributions to a Traditional Individual Retirement Account are not employer plans that are deducted up front from a minister's pay (reported on Form W-2). Instead, these amounts are truly deducted on his personal tax return. The benefit of the IRA is that it can be funded after December 31st and still count against one's taxable income. Additionally, an IRA does not require church sponsorship and has lower fees to establish an account.

While there are several benefits of an IRA, there are also…

Gift Cards in the Offering Plate

Question:
A church received a Visa gift card in the offering.  Is this considered a taxable contribution for the person donating it and, if so, how is it handled? 
Answer:
A gift card is considered the equivalent of cash, so it should be treated in the same way as cash donated to the church. While it is possible to accept gift cards as contributions, the issue lies more with the recording and tracking of the gift, which can be labor intensive.
The value of the gift card will need to be determined since its cost may not equal the face value of the card. Why not? The deductibility of the gift card is based on what the donor actually paid for it rather than the value stated on the card. For example….a simple web search of "gift cards at a discounted price" received more than 12 million hits.
A second complication: After determining the card's value, the gift must be recorded to a separate general ledger asset account where its value could be tracked. Unless the church is ab…

"Free Labor" in Exchange for Charitable Donations

Question:

A church youth group is going on a missions trip this summer. There a few youth members who have yet to bring in the necessary amount needed for their trip. A couple in the church has offered to give towards their trip in exchange for work around their house. How is this treated? Is this allowable?

Answer:
Our MinistryCPA experience leads us to believe that in most cases the value of the work that is being completed by the youth members is not representative of the donation amount. It often appears to us that the young people are essentially volunteering so that a homeowner will consider making a donation, rather than providing taxable, fair value services. This kind of work is sometimes referred to as a "makework proposition" (e.g. raking leaves, washing windows, trimming hedges).

Source: http://www.samiyouth.org/awesome-job-ideas-teenagers/



Travel for Mission Trip Deductible as Charitable Donation

Question:

A church regularly sends out teams on short-term mission trips to destinations hosted by charitable organizations. They have set up a fund for receiving special offerings and for reimbursing travel, meals, and lodging expenses. Recently, a church team was required to pay the hosting organization a fee for each member to cover meals and lodging. The team leader required each team member to make a donation to the fund in the amount of the fee. Are these donations tax deductible?

Some argue that the team members are receiving a benefit from the donation and should not receive a tax benefit for the donations. Others feel they should qualify for a charitable donation because the benefit they receive only facilitates their charitable work. Besides, can't these expenses be deducted on the individual's Schedule A as out-of-pocket contributions even if the church doesn't consider them a donation?

Answer:

IRS Publication 526 says, "Generally, you can claim a charitable …

Housing Allowance and Form 1099-MISC Reporting

Question:

A church provides its minister a housing allowance, but believes it must report the full amount of compensation (including the non-taxable housing allowance portion) on Form 1099-MISC in order to demonstrate the full earnings of the minister.

If the church reports his compensation, including the housing allowance, on the Form 1099-MISC as taxable income, will he be able to deduct his housing expenses somewhere else on the Form 1040?

Answer:

This question brings up a couple of issues. First, most ministers are properly classified as employees who receive Form W-2, not as independent contractors who receive Form 1099-MISC. Box 1 on Form W-2 reports taxable compensation. It is reduced reflecting the church's designation of a portion of his pay as non-taxable housing. Then, in Box 14 (Other), Form W-2 typically reports as a memorandum item his additional non-taxable, housing allowance compensation.

Alternatively, the minister who receives Form 1099-MISC instead of Form W-2 mu…