December 11, 2014

New Standard Mileage Rates Now Available; Business Rate to Rise in 2015

Yesterday, the Internal Revenue Service issued the 2015 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. 

Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be:
  • 57.5 cents per mile for business miles driven, up from 56 cents in 2014
  • 23 cents per mile driven for medical or moving purposes, down half a cent from 2014 
  • 14 cents per mile driven in service of charitable organizations
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.

Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after claiming accelerated depreciation, including the Section 179 expense deduction, on that vehicle. Likewise, the standard rate is not available to fleet owners (more than four vehicles used simultaneously). Details on these and other special rules are in RevenueProcedure 2010-51, the instructions to Form1040 and various online IRS publications including Publication17, Your Federal Income Tax.

Besides the standard mileage rates, Notice2014-79, posted yesterday on IRS.gov, also includes the basis reduction amounts for those choosing the business standard mileage rate, as well as the maximum standard automobile cost that may be used in computing an allowance under a fixed and variable rate plan.

December 10, 2014

5 Reminders about Charitable Contributions

It's that time of year when individuals and businesses are making year-end gifts to charity. In a recent email, the Internal Revenue Service reminded those individuals and businesses that several important tax law provisions have taken effect in recent years. Here are five topics that taxpayers should keep in mind: 
  1. Qualified Charities

    Before you give that year-end donation, make sure the charity is eligible. Only donations to eligible organizations are tax-deductible. Select Check, a searchable online tool available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches and government agencies are eligible to receive deductible donations. That is true even if they are not listed in the tool's database.

  2. Year-end Gifts

    Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2014 count for 2014, even if the credit card bill isn't paid until 2015. Also, checks count for 2014 as long as they are mailed in 2014.

  3. Itemize Deductions vs. Standard Deductions

    For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction. This includes anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2014 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.

  4. Guidelines for Giving Clothing and Household Items

    Household items may include furniture, furnishings, appliances, electronics, and linens. Generally, clothing and household items must be in good condition or better in order be claimed as tax deductible.

    Donors must get a written acknowledgement from the charity for all gifts worth $250 or more. The written acknowledgement must include, among other things, a description of the items contributed.

    For all donations of property, including clothing and household items, get from the charity, if possible,
    a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity's unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value.

    If the amount of a taxpayer's deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
     
  5. Guidelines for Monetary Donations

    Regardless of the amount, a taxpayer must have (1) a bank record or a (2) written statement from the charity in order to deduct any donation of money. The record must show the name of the charity and the date and amount of the contribution. 

    For donations of $250 or more, a written acknowledgement from a charity for each deductible donation (either money or property) is required. 

December 08, 2014

Ice Bucket Challenge - Taxable Income?

Question:

A church's minister has an immediate relative who has been suffering from ALS for the past six years. The church sponsored and organized an "Ice Bucket Challenge" for the relative.

Originally, the thought was to raise $3,000-$5,000. The church intends to (1) transfer the funds to the facility that cares for the relative or other ALS charities and (2) report the funds as a bonus compensation to the minister.

However, the church raised close to $30,000; now the tax situation has more serious consequences if the church calls it compensation to the minister. How should the church report these monies?

Answer:

We see three areas that could affect how to report this money:

  1. If the funds are simply going to an organization to support its general operations (not to pay a single patient's costs) or to other ALS charities, the transfer is from one Internal Revenue Code section 501(c)(3) organization to another. There is no tax consequence for the church's ice bucket challenge.

  2. If the funds are given as true benevolence (as opposed to disguised compensation) to pay the employee's relative's bill, then there is no tax consequence to the minister. We have written many blog posts on benevolence; we suggest readers type the word "benevolence" in the search bar of this blog, or go to the Labels section on the right side of the page and click on "Benevolence."

  3. The church needs to be sure that it is not disguising compensation to the minister. At times, church's have felt that they have not provided fair compensation for employees; this feeling may appear in churches where the minister's family has experienced financial stress because of a medical condition. The church in the question here must be careful that it is truly carrying on a benevolent cause and not disguising compensation to its minister. 

December 02, 2014

MinistryCPA Makes List of Top 50 Accounting Blogs

It is our privilege to announce that our blog has been chosen as one of the 50 Best Accounting Blogs of 2014 by Accounting Degree Review.

Accounting Degree Review ranks and reviews the best accounting degree programs in the country. As a helpful resource, they decided to provide their readers with the 50 Best Accounting Blogs of 2014. MinistryCPA is mentioned in the "Profit and Non-Profit Businesses" section of the article.

Our blog has seen substantial growth through the years, as we recently passed 200,000 page views. The mission of the blog has always remained the same: to answer questions given to us by ministers and others serving in Christian ministries who are advancing the gospel of Jesus Christ.

November 26, 2014

Year End Donations for Next Year's Projects

Question:

At the end of each calendar year, a church has several members who make cash contributions to projects which the members have pledged to support in the upcoming year. The church uses the modified cash basis of accounting. Believing that IRS regulations so require, the church's year end statement includes the donation even though it is designated for the next year. 

For book purposes, can the church record the donation in a liability account as a "prepaid donation" rather than recognizing it as income in the year of receipt? 

Answer:

Taxpayers' donations are considered to be on a cash basis, so the understanding above is correct: the donor's year-end statement must include the donation even though it is designated for a project the church will emphasize in the next year. 

If the church's financial statements are for internal purposes only (and they likely are since the modified-cash basis is not consistent with full-accrual GAAP accounting that is required for many external reporting purposes), booking it as a prepaid-donation accomplishes the objective of delaying recognition of the income until the next year. 

If the church's purpose is to delay recognition, booking it to a prepaid-donation liability account accomplishes this objective.