Skip to main content

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. 

Comments

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a...

How can my ministry expenses be covered by the church?

     How can my ministry expenses be covered?                            Many ministers use their personal autos for ministry purposes. Their employers can reimburse these costs using a standard mileage rate published by the IRS. The per mile rate represents employees’ entire reimbursable cost other than highway tolls and parking tabs. If not covered by use of the ministries’ credit card, other costs can be reimbursed as well—business and travel meals, lodging, office supplies, and professional library purchases among them. Some ministries reimburse travel costs using per-diems published by the IRS. If employee business expenses are not reimbursed, the personal tax deduction benefit to the individual minister is severely limited. Non-taxable reimbursements after documentation is provided to the employer follows IRS rules for accountable plans. Non-taxable cash advances before expenses are in...

What is the best retirement account for a Minister?

       What are my options for retirement savings?                  Regardless of options, start now! You probably have learned about traditional and Roth IRAs. We have often found them well short of the benefits we will share here regarding Internal Revenue Code section 403(b) plans. These plans must be established by your employer (although you might need to be the initiator). They are funded in two ways—withholding from your paycheck at your option (called “elective deferrals”) and as initiated by the employer (matching or non-elective contributions). These contributions not only save income tax, but they also reduce the income you must report as subject to the 15.3% SECA tax. Further, at retirement with the cooperation of your church or Christian ministry the distributions to you can be tax-free to the extent of your qualified housing expenses. Many ministries also adopt what are often called “FICA alternative” be...