MinistryCPA - Corey A. Pfaffe, CPA, LLC

Question: What bookkeeping system should our treasurer use to keep the church books? Answer: The bookkeeping system used by a church must be compatible with current and future treasurers’ training and experience. To adopt a system that is overly complex or suitable for only a highly qualified bookkeeper may create grave difficulty when there is turnover in the treasurer’s position. The following are several solutions that small local churches have found useful: 1. Accounting software . Intuit QuickBooks Desktop or Online and Sage (formerly Peachtree) are two general purpose accounting software packages. There are some church/ministry specific systems, such as Shelby Systems . These more specific software options tend to be more costly but also tend to have the features that the others do not.  All these software options offer government reporting, payroll processing, donor management, bank reconciliation tools, use of bank feeds (downloading transactions), budg...

Question: Should I "opt out" of the Social Security system? Answer: First, some background information: The Internal Revenue Code (IRC) exempts ministers from mandatory federal and state income tax and Medicare and Social Security (FICA) tax withholding by their employers. However, if they do not elect to have income tax withholding, then most ministers must file and pay federal and state estimated tax vouchers. In any case, the employers of ministers are not permitted to withhold and match the 7.65 percent FICA tax. Instead, the minister (unless he opts out of the Social Security system) is responsible to pay the entire 15.3 percent self-employment tax (SECA). Many ministers elect to have additional federal income tax withheld so that the excess can be applied to their self-employment tax obligation at the time they file their annual Form 1040. Now, let's consider what opting out of Social Security might mean: 1.  A minister  may apply to opt out of the S...

Question: How can the church and I work together to sell the parsonage and get my family into a home of our own? Answer: The answer varies greatly based on the church’s and minister’s specific situation. However, the following are several issues that likely need to be addressed.       1.  Any property transferred by the church to the minister will be considered taxable compensation at its fair market value (reduced by any payment by the minister to the church).       2.   Because the minister will no longer be living in real estate that is exempt from property taxes, his costs of living will increase accordingly.       3. An excludable housing allowance is governed by a three-part test . Some ministers may believe that designating as housing allowance a one-time, large bonus from the church, which the pastor intends to use as a significant down payment, will fully qualify as exempt income under the three-part test...