MinistryCPA - Corey A. Pfaffe, CPA, LLC

Question : A ministry offers an allowance on books and other study aides to assist its pastor in his teaching and preaching. If the pastor maintains ownership of these materials rather than the church, do these amounts become taxable to him as additional compensation? Answer : We believe that a s long as the books and other similar supplies are related to his ministry rather than for his personal recreation, they are not taxable and he may maintain ownership without tax consequences. Presumably he and the congregation have gained the ministry benefit for which they were purchased. On the other hand, if he were to purchase books for recreation purposes (i.e., hobbies such as hunting, exercising, etc.), we would advise him to not use the church's reimbursement account.  It is important to understand the presumption that the ministry-related books are expendable supplies incurred in support of employee activity and have negligible or reduced value in used condition. Additional...

Question: A pastor no longer gets a benefit from writing off his unreimbursed ministry expenses. True? Answer: NOT TRUE! The most valuable tax benefit for pastors who don’t get fully reimbursed for their ministry expenses by their church or Christian ministry IS STILL AVAILABLE. TRUE … The Tax Cuts and Jobs Act (TCJA) enacted in December 2017 jettisoned the itemized deduction for unreimbursed employee business expenses. But, based on our experience serving more than 100 ministers, missionaries and ministry workers annually, the TCJA did not take away the most valuable tax benefit of writing off unreimbursed ministry expenses. Ministers are considered “dual status employees.” This means, among other factors, that most pay their own social security and Medicare taxes—a tax rate of 15.3%. Non-minister employees typically have only 7.65% withheld from their paychecks, while another 7.65% is contributed by their employers. As we suspected when the TCJA was enacted, and no...

Question: What are the consequences for a church or Christian ministry failing to file a required Form 1099-MISC? Answer: An organization that fails to file a Form 1099-MISC as required by the IRS and cannot show reasonable cause may be subject to severe financial penalties, as outlined in the IRS  instructions  (Section O. Penalties) for the form: $50 per information return if you correctly file within 30 days; maximum penalty $547,000 per year ($191,000 for small businesses) $100 per information return if you file correctly more than 30 days after the due date but by August 1; maximum penalty $1,641,000 per year ($547,000 for small businesses) $270 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,282,500 per year ($1,094,000 for small businesses) Based on these penalties, churches should be mindful of the filing requirements.  The most common ex...

Question : Every December, a church designates its pastor's next year's housing allowance. Its pastor resigned during the year to pursue other employment. How should his annual designated housing allowance be assigned to part-year compensation? Answer : To our knowledge, there is no specific guidance available in IRS regulations or rulings or in court case records to authoritatively clarify this reporting. It seems appropriate, however, that the annual housing allowance should simply be prorated over the time he was employed by the church. This situation does demonstrate the potential wisdom of documenting housing allowance as a monthly amount since mid-year turnover in the office of a pastor is not an uncommon event. A pastor contemplating an earlier departure may wish to declare (or request) in advance that his housing allowance be increased immediately for the remainder of his service. The minister's church or other qualified organization must desig...