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QuickBooks Reports of Designated Fund Activity

Question:The following question rolls out of content provided in a previous post: "Debits and Credits for Designated Gifts."How do I generate a report in QuickBooks that shows the monthly starting balance, change for the month, and the ending balance for each Equity account relating to Designated Gifts? Answer:Our answer here will be consistent with the above cited blog post. In it we discussed simplest approach to handling Designated Funds that we can suggest. We will illustrate assuming the use ofQuickBooks Desktop. Some of these instructions may be slightly modified for users of QuickBooks Online.The following are the necessary steps:1. Select the "Reports" pull-down menu 2. Under "Accountant & Taxes" choose "Trial Balance" 3. Modify the date range to reflect the desired period 4. Double-click on the amount for the Equity account of interest This will generate a "Transactions by Account" report.
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Mullen's Dairy Bar - A Business, a Pandemic and the Journey

On March 23, 2020, a governmental order was given to close all “non-essential” businesses due to the coronavirus outbreak.These words fell heavy upon the community and left the hearts and minds of every business owner questioning who was considered essential and what does an essential business look like during a pandemic?

Mullen’s Dairy Bar, in Watertown, Wisconsin was such a business.We asked Adam Keepman, operator and chef of Mullen’s, to share his journey with us and how Mullen’s has changed through COVID-19.

As we spoke with Adam over lunch, he looked pleasantly comfortable with all the busyness surrounding us. Our first question addressed the “most challenging obstacle” during the pandemic. “Was it customers, vendors or possibly finances?” we asked. His answer matched the initial reaction for many of us.“My biggest obstacle was myself, keeping cool, being positive and productive. I had to be able to look at the situation with a clear head. I also spoke with my staff, making sure ev…

Reflections on Small Business PPP Loans and Bank Relationships

Most of our small business clients are now focused on Step 2 of the Paycheck Protection Program (PPP) loan process - FORGIVENESS. While we're waiting yet again for clarifications from Congress and the Small Business Administration (SBA) on the rules for forgiveness, this may be a good time to reflect on small business banking relationships.
While national banks have received the most PPP loan attention from the popular press, we've been pleasantly surprised with the superior quality of our clients' experiences with smaller regional or state banks. There have even been a couple of credit unions that have participated in the SBA programs and aided our clients. Our clients have found these financial institutions almost without exception to be more responsive to small business needs than some of the national banks.
Don't get us wrong. We've also worked with individual bank professionals at these larger institutions who are serving well, so we don't want to name na…

Form 941 or 944 - Which Should a Church Use for Payroll Reporting?

Question:

Are churches required to file a Form 944 annually to report their employees' earnings and tax-withholdings? A quarterly Form 941 (rather than an annual Form 944) is required of some employers. Which IRS form, if any, should be filed?
Answer:

According to IRS Section 1402(c) and 3121(c), ministers are not subject to mandatory income tax withholding. Unless one or more ministerial employees request non-mandatory withholding, church employers with only ministerial employees do not need to file Form 941 or Form 944. The IRS Ministers Audit Techniques Guide explains in further detail a minister's treatments for Social Security, Medicare tax, and income tax withholding.

Form 941 or 944 must be filed when non-ministerial employees are compensated or when ministers request withholding.

When can a church file the annual Form 944 rather than filing Form 941 each quarter?
The IRS may permit the annual filing of Form 944 for employers who have less than $1,000 of withholding taxes to …

What should our church use to keep the books?

Question:

What bookkeeping system should our treasurer use to keep the church books?
Answer:

The bookkeeping system used by a church must be compatible with current and future treasurers’ training and experience. To adopt a system that is overly complex or suitable for only a highly qualified bookkeeper may create grave difficulty when there is turnover in the treasurer’s position. The following are several solutions that small local churches have found useful:

1. Accounting software. Intuit QuickBooks Desktop or Online and Sage (formerly Peachtree) are two general purpose accounting software packages. There are some church/ministry specific systems, such as Shelby Systems. These more specific software options tend to be more costly but also tend to have the features that the others do not. 
All these software options offer government reporting, payroll processing, donor management, bank reconciliation tools, use of bank feeds (downloading transactions), budgeting, and many others featu…

Should I opt out of Social Security?

Question:

Should I "opt out" of the Social Security system?

Answer:

First, some background information:

The Internal Revenue Code (IRC) exempts ministers from mandatory federal and state income tax and Medicare and Social Security (FICA) tax withholding by their employers. However, if they do not elect to have income tax withholding, then most ministers must file and pay federal and state estimated tax vouchers.

In any case, the employers of ministers are not permitted to withhold and match the 7.65 percent FICA tax. Instead, the minister (unless he opts out of the Social Security system) is responsible to pay the entire 15.3 percent self-employment tax (SECA). Many ministers elect to have additional federal income tax withheld so that the excess can be applied to their self-employment tax obligation at the time they file their annual Form 1040.

Now, let's consider what opting out of Social Security might mean:

1. A minister may apply to opt out of the Social Security sys…

Can the Church Sell the Parsonage and Give the Money to its Pastor?

Question:

How can the church and I work together to sell the parsonage and get my family into a home of our own?

Answer:

The answer varies greatly based on the church’s and minister’s specific situation. However, the following are several issues that likely need to be addressed.

      1. Any property transferred by the church to the minister will be considered taxable compensation at its fair market value (reduced by any payment by the minister to the church).
      2.Because the minister will no longer be living in real estate that is exempt from property taxes, his costs of living will increase accordingly.
      3. An excludable housing allowance is governed by a three-part test. Some ministers may believe that designating as housing allowance a one-time, large bonus from the church, which the pastor intends to use as a significant down payment, will fully qualify as exempt income under the three-part test. However, a large housing allowance designation may not fully eliminate the taxa…

Advantages for a Church to Pursue Formal Recognition of IRC Section 501(c)(3) Status

Question:

Our church is looking to apply for 501(c)(3) status. What are the advantages and disadvantages of pursuing formal recognition as a 501(c)(3) organization?

Answer:

To be tax-exempt under Internal Revenue Code § 501(c)(3), organizations (e.g., churches) must be organized and operated exclusively for exempt purposes set forth in the IRC. Additionally, a 501(c)(3) organization must not be organized or operated for the benefit of private interests (referred to as "private inurement").

Churches are automatically classified as IRC § 501(c)(3) entities regardless whether they have been formally recognized by the IRS. Yet, there are reasons to pursue formal recognition. Those that do receive this recognition receive from the IRS a Tax Determination Letter.

Advantages:

1. Church schools that wish to apply for grants will likely need to provide a Tax Determination Letter since foundations do not want to disseminate funds only to find that they were contributed to disqualified c…

Summary of the Families First Coronavirus Response Act

The “Families First Act” requires virtually all small employers to extend sick leave to affected employees, but a tax credit will help small business and not-for-profit organization employers pay for it.
Following are the most critical provisions, we believe, for small employers:
·    1. Public Health Emergency Leave (Division C of the Act effective April 2, 2020) – Small employers who have “employees who are unable to work (including telework) due to a need to care for a child under age 18 if school or child care is unavailable due to a public health emergency” are required to: oProvide paid leave “if needed by any employee who has been employed at least 30 calendar days,” oPay them “at a rate no less than two-thirds of the regular rate of pay” for public health emergencies declared by a federal, state or local authority that extend beyond 10 days (“employees may be required to use existing accrued leave during the first 10 days”). ·      2. Paid Sick Leave (Division E of the Act effective…

Can a Pastor Receive a Tax-Free Gift?

Question:

Can a church give non-taxable gifts to its pastor(s)?

Answer:

Typically, there are two ways members of a congregation can give gifts to its pastor(s) and staff member(s). One involves corporate action and the other involves personal and individual action.

1. The church can take up a collection for its pastor(s). In this case, the contributions are deductible to the donors, but must be reported by the pastor since they are deemed payments received from an employer as compensation for his services. Any gifts paid by employers to their employees are considered taxable income and must be reported together with other earnings on Forms 941 and W-2.

Additionally, churches should be aware of the Internal Revenue Service's "De Minimis Fringe Benefits" rules. According to IRS Publication 15-B, a de mininis benefit is any property or service provided to an employee that has so little value that accounting for it would be unreasonable or impractical. However, cash and cash …