MinistryCPA - Corey A. Pfaffe, CPA, LLC

The following summaries highlight major changes in tax law. New Tax Law Topics for INDIVIDUALS 1. Standard Deduction and Personal Exemptions—The married filing joint standard deduction rises from $13,000 to $24,000, BUT the $4,050 personal exemption for each family member is gone. 2. Tax Rates—Seven brackets with rates between 10 and 37 percent replace the current range of 10 to 39.6 percent. Favorable rates for capital gains and qualified dividends remain. 3. Child Tax Credits—Each child under the age of 17 gains the family a $2,000 tax credit (up to $1,400 can be refunded even if the family has no tax). For 2017, these amounts are $1,000 and $1,000, respectively. 4. Itemized Deductions—Changes are coming for most taxpayers related to state tax payments, interest deductions and unreimbursed employee business expenses. · Write-offs for state income taxes and property taxes cannot exceed $10,00. · Interest paid on a home equity loan is no longer deductible. · ...

Question: A church would like to award a scholarship to a young person attending a Christian College. Should the check be made payable to the student or the institution? Answer: The check should be made payable to the institution . We recommend that additional information be communicated to the institution including the name of the student and a note related to the scholarship with wording such as: "The accompanying check is awarded to a student of the University or College as a scholarship subject to Internal Revenue Service filing instructions for Form 1098-T as cited here: Form 1098-T, Box 5  'Scholarships and grants generally include all payments received from 3rd parties (excluding family members and loan proceeds). This includes payments received from governmental and private entities such as the Department of Veterans Affairs, the Department of Defense, civic, and religious organizations, and nonprofit entities.' " Here's the problem:   A chec...

Question: Can a church with an active employee 65 years of age drop the employee's health coverage in favor of assisting the Medicare eligible employee with Medicare premiums? Answer: "The Age Discrimination in Employment Act (ADEA) which is administered by the Equal Employment Opportunity Commission requires employers of 20 or more employees to offer to their age 65 or over employees and to the age 65 or over spouses of employees of any age, the same coverage, and under the same conditions, as they offer to employees and employees" spouses under age 65." (https://secure.ssa.gov/poms.nsf/lnx/0600620177) The following source addresses employer reimbursements of Medicare premiums: "In general, when an employee (or his or her spouse) is eligible for Medicare due to age, an employer may reimburse his or her Medicare premiums only when: 1 The employer’s group health plan is a secondary payer to Medicare because the employer has fewer than 20 employees; AND 2...

For a quick review, readers should be reminded that ministers may be eligible to make contributions to an Internal Revenue Code section 403(b) plan established by their not-for-profit employers. The traditional 401(k) plan is available to for-profit employers. Also, ministers' distributions at retirement taken from 403(b) plans may be designated as non-taxable housing allowance. See other postings on this blog for a refresher of these rules: 403(b) Retirement Distributed as Housing Allowance Question 1: An ordained minister, formerly working for a for-profit company, is now working for a nonprofit ministry. His former retirement plan was a 401(k). The current employer offers a 403(b) plan. Can a 401(k) distribution be rolled over into a 403(b) plan? Answer 1: According to IRS Publication 571, “ You can generally roll over tax free all or any part of a distribution from an eligible retirement plan to a 403(b) plan.” Question 2: But should a minister consider d...

Question: A church wishes to sell a five acre lot of land. The church obtained the property 15 years ago and had the plan of building on the property, but it since abandoned those plans. If it sells the property will it be taxed on the gain? Answer: This gain will not be taxed s ince the church did not hold the property primarily for investment or as inventory in the sense that a real estate developer might purchase and improve property for eventual sale. The  26 U.S. Code § 512 - Unrelated business taxable income  lays out what income can be taxed to a tax-exempt organization. According to  26 U.S. Code § 512 - Unrelated business taxable income , "T here shall be excluded all gains or losses from the sale, exchange, or other disposition of property other than— (A)  stock in trade or other property of a kind which would properly be includible in inventory if on hand at the close of the taxable year, or (B)  property held prima...

Question: Do batteries qualify as a housing allowance expense? Answer: The expenditure for batteries, if meeting the following general guidelines for use in connection with the pastor's personal residence, may meet the requirements. Although there are not likely court cases or Revenue Rulings citing the exact examples offered here. In a June 2016 post, we shared the following: "A minister’s housing allowance benefit is non-taxable income to the extent that the allowance is used for housing expenses. The three-part test includes consideration of the fair rental value of the home, plus actual costs of utilities (see this blog post regarding the three-part test). In addition, the expenses must be incurredrelative to the minister’s principal residence. According to Federal Tax Regulations, Regulation, §1.107-1, Internal Revenue Service, Rental Value of Parsonages, only food and servants are specifically excluded." If, for example, the batteries are for a smoke ala...

Question: A church would like to "gift" 10% of the sale price of the parsonage to a pastor towards his retirement. Is the pastor going to be subject to income tax on that gift? Is it taxable if put into an IRA on his behalf? Answer: Whether the gift is paid is paid to him directly or through contributions to his Traditional IRA, the “gift” will be taxable and reportable on Form W-2, Box 1. Internal Revenue Code section 102(c) clearly states that gifts given to employees by their employers are taxable compensation. The IRS has consistently applied this provision to self-employed (non-employee) individuals who provide services for an organization as well. Only the facts and circumstances surrounding a gift can determine whether IRC section 102(c) does or does not apply; a letter stating that a payment is a gift will not override the substance of a transaction ( 2008 Blog ). Having said this, the church may wish to consider other alternative means. For example, cooperation wit...

William Carey: The Father of Modern Missions by S. Pearce Carey, 1923, The Wakeman Trust, London, ISBN 978-1-870855-61-7 Follow link for an Introduction to the Cloud of Witnesses series S. Pearce Carey, William Carey’s great grandson, offers a family perspective on the brilliant mind and consecrated life of one who first left England to reach to the regions beyond with the Gospel of Jesus Christ.  From the historical setting of his birth on August 17, 1761, to the legacy he left in the land of India and upon the world following his death on June 9, 1834, Carey’s life story leaves its reader with a sense of enablement to attempt great things for God. For William Carey once said, Expect great things from God. Attempt great things for God. Source: https://edhird.files.wordpress.com/2013/05/william-careymap.jpg It was 32 years before Carey left England never to return. He was motivated by the lives and stories of such men as Captain John Cook, explorer of the isl...

John Newton: From Disgrace to Amazing Grace by Jonathan Aitken, 2007, Crossway Books, ISBN 978-1-58134-848-4 Follow link for an Introduction to the Cloud of Witnesses series In his biography of John Newton, Jonathan Aitken colors a canvas with broad strokes of a physical life and spiritual influence enabled and preserved by the grace of God. Drawn from an apparent deep study of both long-available and recently accessible origin archives of Newton’s life, Aitken explores the sea captain turned preacher’s troughs and peaks while leaving the reader wanting more but appreciating the concise and enriching overview. Source: http://www.christianitytoday.com/images/67452.jpg?w=700 Amazing Grace, how sweet the sound, That saved a wretch like me. I once was lost but now I'm found, Was blind, but now I see. Untiringly rebellious from his youth, Newton brought grief to his parents and employers alike. Born July 24, 1725, to Captain John and Elizabeth Newton of London, young...