October 22, 2014

Milestone - 200,000 Page Views



Earlier today, we reached 200,000 total page views on this blog! 

In late 2007, Dr. Corey Pfaffe, CPA, began this blog with the purpose of answering financial and tax questions asked by ministers and others serving in Christian ministries. It took us until March 14, 2013 to get 100,000 total page views. Now, only nineteen months after that first milestone, we have reached 200,000 page views. 

Thank you to everyone who has used this blog and has helped us reach this milestone. We hope that MinistryCPA has been of service to you and that our posts continue to help guide you in ministerial and ministry tax issues. We look forward to serving you in the future and reaching our next milestone!

Corey Pfaffe - CPA, Principal
Tara Watterson - CPA, Senior Accountant
Laurie Pfaffe - Office Administrator
Kyle Kutz - Accounting Associate 

October 17, 2014

Cautions for a Church Serving as a Missions Agency

Question:

Our church is thinking about acting as a missions agency by directly supporting some missionaries. Do you see any concerns with doing this?

Answer:

In the past, we have provided blog posts concerning how churches have chosen to serve as missions agencies. Recently, however, we have deepened our research and discussion concerning this complex topic. Our research and experience has provided some additional cautions about a church taking on the responsibilities of a missions agency. 

Regulations for missionaries continue to become more complex. Unless a church is willing and able to thoroughly research and act in accordance with these regulations, we strongly discourage churches from acting as missions agencies. We fear that either the church or the missionary will not have the expertise to comply with the law. 

Recently, the following topics have added to that complexity:
  • Affordable Care Act
  • Foreign Bank Account Reports (FBARS)
  • Payments to foreign nationals
  • Retirement plans
  • Employee vs. contractor classifications
  • Payments to foreign charities
  • Foreign Account Tax Compliance Act (FATCA)
  • Expense reimbursement plans
Before making a decision to act as a missions agency, we strongly suggest that a church consider contacting us or its own professional advisor. 

October 10, 2014

Top Ten Q&A Update

 We have recently updated our Top Ten Questions that Ministers, Missionaries, and Church Treasurers Ask Tax Preparers

Based on our experience, the Top Ten Questions are frequent questions asked by ministers, missionaries, church treasurers, and others serving in ministry positions as licensed or ordained ministers. Our answers are not intended to be exhaustive. Accordingly, you should consult your own tax professional for assistance in applying our information to your specific situation. 

The "Top Ten Q&A" has been our most hit web page since 2010. Providing a helpful resource to many who are involved in ministry, it averages close to 1,000 page views every two weeks. 

If you prefer to download a PDF of our Top Ten Questions, click here


October 03, 2014

Cell Phone Reimbursement by Church

Question:

One of our pastors recently upgraded his iPhone and submitted for reimbursement through a professional account. Is it proper for the church to refund him fully as a non-taxable reimbursement? 

Answer:

The italicized excerpt below is taken from IRS Publication 15-B. We have added some of our own comments, which are in parenthesis and underlined. 

The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis (non-taxable) fringe benefit. 

Noncompensatory business purposes. You provide a cell phone primarily for noncompensatory business purposes (the cell phone should not be a disguised way to give the pastor more compensation) if there are substantial business reasons for providing the cell phone. Examples of substantial business reasons include the employer's:
  • Need to contact the employee at all times for work-related emergencies (certainly seems to fit the description of most pastors)
  • Requirement that the employee be available to speak with clients at times when the employee is away from the office (also appears to apply to most pastors), and 
  • Need to speak with clients located in other time zones at times outsides the employee's normal workday. 

Basically, the IRS is saying that organizations are not required to report employer-provided cell phones as income to its employees as long as the cell phone is provided primarily for noncompensatory business purposes. If the iPhone is the pastor's only personal phone, then Publication 535 would likely lead to the conclusion that it was not primarily for noncompensatory business purposes. 

So then who reports the expense of the phone?

An individual can deduct certain un-reimbursed employee expenses on his/her tax return under certain circumstances. When considering the reimbursement of the phone upgrade, the pastor and church should keep in mind the following items:
  • The person or organization who pays the expenses is the one who gets to deduct them. So, if the church pays for an expense or reimburses the pastor for one, the pastor cannot take a deduction for that expense. 
  • If the pastor pays for his own expenses and doesn't get reimbursed, then he might be able to deduct them on his tax return. However, there are some limitations and restrictions on what and how much he can deduct. 


September 12, 2014

Journal Entries for Land Acquisition - Modified Cash Basis

Question:

A church is in the process of purchasing property and wants to use the modified cash basis. The church plans to pay for part of the property with cash while financing the remainder of the payments through a long-term note. What are the debit and credit effects of the following hypothetical scenario?

Hypothetical Scenario:

The property that the church desires to purchase costs $100,000. The church is able to pay $50,000 with cash, meaning that the remaining $50,000 will be financed through a long-term note. The church expects to pay monthly payments of $500 on the long-term note. 

Answer:

The modified cash basis, as we recommend its application, includes no long-term assets or liabilities on the balance sheet. Therefore, the journal entries for the above scenario are as follows:

*Capital Expenditures (debit)                          $50,000
          Cash (credit)                                                               $50,000

The above journal entry is the only current entry. However, monthly payments on the long-term note are recorded as follows:

**Long-Term Loan Payments (debit)             $500
            Cash (credit)                                                               $500

While the balance sheet for the church reports no long-term assets or long-term debt, most members of the congregation will be interested to know the status of the reduction in the amount owed on the long-term note. We recommend that the reports to the congregation include a recap of loan activity. In our example, the first year report would likely include a beginning balance of $50,000. The principal portions of the $500 monthly payments that are subtracted (the remaining portion being interest cost) should result in an ending loan balance equal to the remaining debt. 

We encourage our viewers to read the following blog post that we published in June of 2013:


*An expense account used only on a rare occasion such as this.
**An expense account that can and should be provided a general fund budget.