December 30, 2015

MinistryCPA Special Topic: Starting a WI Small Business

The State of Wisconsin launched a One Stop Business Portal to assist individuals in establishing a business in Wisconsin. The portal’s web address is www.openforbusinesswi.com. The portal walks the individual through the following steps.
  1. Entity Registration
  2. Business Tax Registration, which can include a seller’s permit and employee withholding tax number
  3. Unemployment Insurance Assessment

In addition, the website offers an Expanding Your Business page that reviews worker’s compensation requirements.

We have walked many clients through the process of starting a business, and the process can be a bit daunting to the client because of new terms, multiple registration websites, and lots of steps to complete the process. Maybe this Wisconsin portal is the beginning of a one-stop location to learn state requirements and to set up a new business.


December 21, 2015

2016 Standard Mileage Rates

The IRS issued the 2016 standard mileage rates. These rates for the use of a car (also vans, pickups or panel trucks) begin on January 1, 2016.
  • 54 cents per mile for business miles driven, down from 57.5 cents for 2015
  • 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
  • 14 cents per mile driven in service of charitable organizations
More information is available on the IRS’s webpage.

December 17, 2015

Office-in-home Deduction for Overseas Missionary

Question:

I am a missionary overseas. I do not have an office at church, but I use a portion of my home as an office. What are the requirements for an Office in Home deduction?

Answer:

A home office qualifies for a deduction if the space is used “exclusively and regularly as your principal place of business” according to IRS Publication 587. In order to fulfill the exclusive use test, the office area must be limited to a separate and recognizable area that is limited only by business use. For example, if your wife and children use a desk in the corner of the living room for homeschooling and you use the same desk for ministry work, the entire living room office space is disqualified from the deduction since you partake in both personal and business use in the area. In order to fulfill the regular use test, the office space must be used on a consistent, regular basis. If the space is used only occasionally, it is disqualified from the deduction.

However, if the desk and additional office furniture, e.g., filing cabinet, is in the corner of your bedroom, and that area is used regularly and exclusively for ministry purposes, that area of your bedroom is deductible as a home office—however small the area truly is!

For further information on qualified home office deductions, refer to our prior blog postings:

Missionary Business Use of Home

“Exclusive Use Test” – Business Us of Home Deduction by a Minister Missionary

December 15, 2015

Church Commissioning a Missionary

Question:

What would constitute “duly commissioned” in the case of a church commissioning a missionary for ministerial service outside of the immediate context of the sending church? In addition, how is a commissioning substantiated to the IRS?

Answer:


Denomination polity differs on who is considered “duly ordained, commissioned, or licensed.” For example, Independent Baptist churches, in general, believe from a theological standpoint that only a local assembly of believers in Jesus Christ can recognize the call to the gospel ministry upon a qualified member of the church. The IRS has readily accepted this type of recognition as well. While the process of becoming ordained, commissioned, or licensed may differ, some churches do not differentiate between ordination, commissioning, or licensure for granting authority or recognizing a minister’s call to the gospel.

Missionaries are often ordained, commissioned, or licensed by a local church in anticipation of ministering outside of the sending church. Per IRS Publication 517, the minister must “have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination.”

In addition, IRS Publication 517 states, “if a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister for social security purposes.”

Whether a commissioned missionary is considered a minister for IRS tax purposes will be based upon the facts and circumstances of each denomination. Church documents (e.g., constitution, bylaws, certificates) are a good way to substantiate a commissioning to the IRS if requested or for purposes of opting out of social security (IRS Form 4361). In addition, a detailed job description of ministerial duties and responsibilities after commissioning may be helpful.

This response is a follow-up to the recent blog post, Commissioned Missionary and Housing Allowance.

December 11, 2015

Commissioned Missionary and Housing Allowance

Question:

I am a commissioned missionary of a local church. Do I qualify for a housing allowance tax exclusion?

Answer:

In order for any missionary or minister to qualify for a housing allowance, the individual must fit the IRS’s definition of a minister. Let’s review the qualifications of ministerial treatment as noted in the IRS’s Minister Audit Technique Guide.
Treas. Reg. § 1.1402(c)-5(b)(2) provides that service performed by a minister in the exercise of the ministry includes:

1. Ministration of sacerdotal functions;

2. Conduct of religious worship;

3. Control, conduct, and maintenance of religious organizations (including the religious boards, societies, and other integral agencies of such organizations), under the authority of a religious body constituting a church or denomination.

Treas. Reg. § 1.1402(c)-5(b)(2) also provides that whether service performed by a minister constitutes conduct of religious worship or ministration of sacerdotal functions depends on the tenets and practices of the particular religious body constituting the church or denomination.

Treas. Reg. § 1.107-1(a) also provides examples of specific services considered duties of a minister, including:

1. Performance of sacerdotal functions;

2. Conduct of religious worship;

3. Administration and maintenance of religious organizations and their integral agencies;

4. Performance of teaching and administrative duties at theological seminaries.

The duties performed by the individual are also important to the initial determination whether he or she is a duly ordained, commissioned, or licensed minister. Because religious disciplines vary in their formal procedures for these designations, whether an individual is “duly ordained, commissioned, or licensed” depends on these facts and circumstances.
Conclusion: A commissioned missionary qualifies for a minister’s housing allowance if he meets the IRS’s definition of a minister and performs services in the exercise of his ministry as noted above in Treasury Regulations Sections 1.107-1(a) and 1.1402(c)-5.

December 10, 2015

Proposed Change for Donor Written Acknowledgements

Question:

I recently attended a conference, and the speaker mentioned that donor social security numbers will need to be collected in the future. The social security numbers will then be included on donor contribution acknowledgements. Is this true?

Answer:

This is partly true. Published on September 17, 2015, the IRS issued proposed regulations for donee reporting. At the date of this blog posting, the regulations are still only proposed. In addition, if the regulations become final, the donee reporting with donor social security numbers will remain optional.

If a nonprofit chooses to use the optional donee reporting, the nonprofit will (1) file a specific-use form with the IRS by February 28 for contributions made in the prior calendar year and (2) provide a copy to the donor by the same February 28 date. The nonprofit will report on the IRS’s specific-use form all current required information (e.g., amount of cash, no goods or services disclosure) and the new required information: donor’s name, address, and social security number.

Rather than filing the IRS’s specific-use form, nonprofits may continue issuing the usual contemporaneous written donor acknowledgement after a donor contributes $250 or more, as currently required by the IRS under IRC Section 170(f)(8).

In our opinion, the proposed regulations if finalized and adopted by nonprofits will create a need to improve donor reporting processes and create a significant risk to both the nonprofit and the donor. First, the donor must be willing to trust the nonprofit with his or her social security number. Second, the nonprofit must have sufficient controls in place to protect the donor’s sensitive information. Most small nonprofits do not have checks and balances in place to protect such information.