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Showing posts from August, 2013

MinstryCPA Special Topic: Who is Qualified for Social Security Benefits?

Question:

I am nearing retirement age, and hoping to collect Social Security once I reach full retirement age (FRA). I have worked for a few years recently, but never had a full-time job before that. I have never been disabled. How will I know whether I have earned enough income subject to Social Security tax to collect benefits when I retire?

Answer:

In order to be eligible to receive Social Security benefits, you need to accumulate 40 work credits. According to the Social Security Administration, "In 2013, you receive one credit for each $1,160 of earnings, up to the maximum of four credits per year." Each year, the amount of earnings required for a credit is adjusted based on nationwide average earnings. An individual with 10 years of work, earning at least 4 quarters worth of the minimum income required per year, will earn 40 credits and be eligible for benefits.

While an individual cannot earn more credits above $4,640 in a year, the amount of benefits is based on full earn…

Church as a Conduit for Non-deductible Gifts: Illustration

Question:

A member of a church has recognized the need of a family in the congregation for a new vehicle. If the member purchases a car and gives it to the church, which immediately passes it along to the needy family, can the donor claim a tax deduction?

Answer:

Car purchases and gifts of this type are common topics on the MinistryCPA blog, so readers should first consider the following blog posts.

Donating a Vehicle

Church as a Conduit for Non-deductible Gifts

Deductibility of Designated Gifts

Since it is apparent that the car is a gift from one individual to another individual, using the church as a conduit, it is highly unlikely that a charitable deduction is warranted. As readers may have observed by reading the above blog posts, congregational initiation is necessary to avoid the appearance or reality of a gift between individuals. In order for a gift to be deductible, it must be a charitable act of the church body rather than the good intentions of an individual.

Private Inurement: Review and Application

Question:

The secretary of a small church, who handles the checkbook, often purchases supplies for the pastor's personal use and pays his expenses along with those for the church. He enjoys the convenience, and the deacons approve of this arrangement. Does this need to be reported as compensation? Are there any other tax consequences to be aware of?

Answer:

In regard to the first question, yes, this would be reportable compensation. Payments in cash or in kind (instead of cash) on behalf of an employee are taxable. However, this situation presents issues for a tax-exempt organization in the area of "private inurement." According to IRS Code Section 501(c)(3), "No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual." Essentially, private inurement describes a situation in which a tax-exempt organization deviates from its exempt purpose through the enrichment of an individual or group. This c…

Housing Allowance for Minister Leading NPO

Question:

An ordained minister recently started a Non-Profit Organization to spread the gospel through providing free food to needy members of the community. Is he eligible for a housing allowance?

Answer:

The Minister Audit Technique Guide provides the answer to the question, "Who qualifies for a housing allowance?" Follow the link below to choose the second item in the Table of Contents-"Who Qualifies for Special Tax Treatment as a Minister?"

Minister Audit Technique Guide

Generally, the following two treasury regulation sections list the services defined by the IRS which a minister must be performing "in the exercise of his ministry" to qualify for a housing allowance:

Housing Allowance Designations by Multiple Employers

Question:

If a new missionary on deputation is also working part-time in his church, can he receive a housing allowance from both organizations?

Answer:

Yes, this is legal under IRS guidelines and, in most circumstances, wise tax planning. There is no danger in excessive avoidance of tax because of the three-part test defined by the IRS for computing taxation of housing allowance, defined in a previous blog post.

IRS Filing by Church if no Taxable Compensation is Paid

If the combined housing allowance designations are higher than actual housing expenses or the fair rental value plus utilities, the excess will be taxed as regular compensation. Based on this, excess housing allowance designation is generally preferable to too little.

Note: In limited situations, ministers are ill-advised to claim a substantial housing allowance. Readers should consult their tax adviser to ensure that they avoid these consequences.

MinistryCPA Special Topic: When Can I Start Receiving Social Security Benefits?

Question:

When can I start to receive Social Security benefits?

Answer:

The average individual is eligibleto begin receiving partial Social Security benefits as early as age 62. However, the Social Security Administration (SSA) has defined full retirement age (FRA), the age at which an individual is eligible to receive his or her full benefit, according to the table below:

An individual may also elect to delay collecting benefits to age 70 in order to receive increased benefits. (For the purposes of this blog post, we will consider only an "average" individual; widows, widowers, disabled individuals, and others are subject to different guidelines).
An individual who elects to start receiving benefits between age 62 and FRA may be subject to two separate penalties. First, monthly benefits may be reduced by as much as 30 percent for those who claim at 62. Second, earnings may be subject to an earnings test, and benefits will be reduced by $1 for every $2 earned past the cap set by …

MinistryCPA Special Topic: Family Finances Resource

Russ Crosson’s book, Eight Important Money Decisions for Every Couple (Harvest House Publishers, 2012), gets our strong recommendation as an extremely practical aid to couples wanting to better communicate about their family finances. We especially appreciate his thorough consideration of Biblical truths about marriage, husband and wife roles, and God-honoring communication.

We have referenced other family financial resources in this blog, including those by Crosson’s colleague, Ron Blue (Books for Financially Troubled Christians). Crosson’s book is not quite as “in-your-face” as Dave Ramsey’s, Total Money Makeover (not without its merits), but Eight Important Money Decisions for Every Couple offers comprehensive instruction into the root cause of financial disharmony—a lack of discerning communication.
Before Crosson initiates development of his eight money decisions in chapter five, he explores the purpose of money, the purpose of marriage, reasons for marriage conflict, and the value…