MinistryCPA - Corey A. Pfaffe, CPA, LLC

Question: If I make a contribution to my church and make a note on the envelope that it is for Vacation Bible School, I was told it is not a tax deductible contribution. Is this true and why? Answer: Generally, contributions to support the general ministries and programs of the church are tax deductible. If the church VBS program requires a fee for materials or other costs, then payment of such a fee for oneself or an identified individual beneficiary will not be deductible. These contributions fall under the quid pro quo rules of the Internal Revenue Code (i.e., the donor received goods or services in exchange for the contribution). Unless these conditions apply, the gift should be deductible.

Question: If a minister is retired, he would have no congregation, so who would his "designated appointee" be to declare the appropriate dollars as housing allowance? Answer: I recommend that the minister contact the local church under which he retired to request the housing designation. Obviously, this is a good thing to take care of prior to retirement but can still be accomplished. I suppose that an earlier congregation under which he (and perhaps the church itself) made 403(b) contributions would work as well. Recall, IRA distributions do not appear to qualify since they are not considered employer plans.

This posting is a follow-up to August 10 th regarding gifts of cars to ministers. If the church owns a vehicle and allows the minister to use it for personal use, then it's generally best to have the church pay 100% of all expenses (including fuel) and to consider personal use as additional taxable compensation. In accordance with Internal Revenue Code Section 61(a)(1), vehicles used primary for business purposes, but occasionally for personal purposes by employees qualify for use of the standard mileage rate for taxation. For example, the minister records 1,500 miles of business use in August 2008, but 200 of personal use. Under the current $.585 standard mileage rate, $117.00 should be added to the minister's taxable earnings for August. 2008 IRS Publication 15-B provides a succinct explanation on page 20. A link is provided here: IRS Publication 15-B

Question: The church gave its pastor a car during an appreciation service. The fair market value of the car was not included in income on Form W-2. Is this an issue? Answer: In accordance with Internal Revenue Regulation Section 1.61-2(d)(2)(i) (reproduced in part below), there is virtually no condition under which an employee may receive a gift from an employer and it not be considered taxable compensation. Further, in the case of a minister, it's also subject to Self-Employment tax. "...if property is transferred by an employer to an employee ... as compensation for services, for an amount less than its fair market value, then regardless of whether the transfer is in the form of a sale or exchange, the difference between the amount paid for the property and the amount of its fair market value at the time of the transfer is compensation and shall be included in the gross income of the employee." Solution: Absent more information regarding the specific situat...

Question: If a minister doesn't want to keep records, can he simply accept the fair market rental value (plus actual cost of utilities)? Answer: Unfortunately, the Clergy Housing Allowance Clarification Act of 2002 clearly says, "No." The amount excluded from the minister’s gross income as a housing allowance is limited to the least of the following: (a) the amount actually used to provide a home, (b) the amount officially designated as a housing allowance, or c) the fair rental value of the home (plus utilities). I've found that the fair rental value is rarely the lowest amount, except when the minister's home undergoes considerable remodeling costs or a large mortgage prepayment is made. But... what happens when a minister pays off his home mortgage? Can he simply claim the fair market rental value? Again, unfortunately, "no." I know it sounds weird, but prepayments on a minister's home may be counterproductive, taxwise. Follow-up Questio...

Looking for a good resource to help a fellow believer rechart his or her financial course? Need some guidance yourself? This summer, I read what appears to me to be each of three ministries' best single book resource for Christians' personal financial management. Here's the author, title, and website link to each along with my brief assessment of its strengths and weaknesses or best applications (in alphabetical order by author): Ron Blue, Master Your Money (2004), http://www.ronblue.com/ Blue’s Financial Planning Process offers steps to rise from one’s current status to achieve long-term goals. It's a comprehensive, biblically based plan for Christians at all financial levels. Some may find its terms and detailed schedules overwhelming. He doesn't offer as many nuts-and-bolts of balancing one's budget, but, as a CPA, it's probably my favorite of the three. Website: Points to resources available at Amazon.com; personal financial recovery is not its ma...

...sorry that this is late, but the standard mileage rates changed July 1, 2008... 1/1-6/30/08 rates (the OLD rates) Business miles--$.505 per mile Charitable (volunteer) miles--$.14 per mile Medical & moving miles--$.19 per mile 7/1-12/31/08 rates (the NEW rates) Business miles--$.585 per mile Charitable (volunteer) miles--$.14 per mile Medical & moving miles--$.27 per mile Source: http://www.irs.gov/taxpros/article/0,,id=156624,00.html

President Bush sign HR 3221 today. I'll share a couple of quick excerpts that may be of interest to ministers who are considering a home purchase or already own a home. First-time homebuyer credit . A credit against federal income tax equal to 10 percent of the purchase price (maximum credit of $8,000) for first-time homebuyers applies if the taxpayer "had no present ownership interest in a principle residence during the 3-year period" preceding the purchase. The purchase must be on or after April 9, 2008, and before April 1, 2009. Maybe now's the time for more churches to get out of the real estate business and sell their parsonages--something I've often advocated! Married couples with more than $150,000 of income will lose the credit ratably as their income approaches $170,000, when it's eliminated entirely. On the other end of the income continuum, taxpayers with no tax will not receive a larger refund due to the credit. Apparently, it can only be used...

Question: Daniel asks the following question that I've abridged: On February 6 you posted a topic on Minister's retirement distributions designated as Housing allowance. Are you technically referring to a 403(b)9 plan? In such a plan, the Plan Administrator as an agent of a church body actually makes the distributions and I would assume be able to easily make such a designation before issuing a 1099-R. However, what about 403(b)7 or 403(b)1 plans where a custodial account plan sponsor (typically a mutual fund company) handles the distributions? Are retired ministers allowed to "correct" a 1099-R on their 1040s? Answer: In cases such as Daniel has addressed, the retired minister reports the full distribution on Line 16a (2007 Form 1040) and the taxable amount after allowable housing allowance on Line 16b. The minister must follow all other requirements of IRS Publication 1828, the Clergy Housing Allowance Clarification Act of 2002, and IRS Regulation Section 1....

Question: A church treasurer in Wisconsin writes: "I've often wondered if I need to keep all the receipts on items purchased for the church? Here's an example. An individual purchases items for VBS, they turn in the receipt, and I reimburse them. Do I need to keep those receipts?" Answer: You should keep receipts like these for seven years—the statutory limit for most legal actions. In a worst case scenario, you’d be responsible to prove that each disbursement was for legitimate expenses of the ministry. Many treasurers use a system such as the following: 1. Each paid invoice is clearly marked “PAID” along with its check number and date. 2. During the year, paid invoices are filed alphabetically by vendor or payee name. A church with a large volume of payments may set up 26 folders, each for a letter of the alphabet. If, for example, ABC Supply has a lot of paid receipts, then a 27th folder can be labeled and those documents filed in it, etc. A receipt for V...