MinistryCPA - Corey A. Pfaffe, CPA, LLC

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...

Question: If a minister receives a ‘gift’ from another church (not his home church), is it taxable compensation? Example: A church gives ‘gifts’ to a minister on his birthday, anniversary etc. Can it be treated as a nontaxable gift if that church writes a letter stating its intention to give? Answer: 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. Often churches will support a minister of another congregation that is unable to provide full support to its own minister. Similar to foreign missionaries supported by congregations, the IRS will imply that ...

Can you provide a checklist of items for a new church to consider? Pastoral Compensation Issues: 1. Consider establishing a professional expense reimbursement plan, either using an “advances” or a “reimbursement” arrangement. 2. Determine health insurance and medical care benefits, including the possible use of a major medical policy combined with a Health Reimbursement Arrangement (HRA). Two key questions to resolve regarding an HRA—what annual amount? and will any unspent amounts carryover? 3. Consider retirement funding, typically using either a 403(b) plan to providing funds for the pastor to fund his own Roth or traditional IRA 4. Designate a portion of cash compensation as a housing allowance. 5. Determine cash compensation. It may not be wise to reduce this amount too low (by providing other benefits instead of cash compensation). Pastors need $11750-$17400 (2007 amounts) for maximum Earned Income Credit (EIC) with 2+ children or need $8350-$16000 (2007 amounts) for maxi...

Question: Can a minister elect to be treated as a non-minister? Answer: In other words, while ministers are defined by the Internal Revenue Code as employees in every respect except for purposes of computing their 15.3% Self-Employment tax on Schedule SE (Form 1040), may a minister choose to have the church withhold the 7.65% FICA tax and then match the other half out of church money? The simple answer: "no." Many churches, in recognition that they are saving 7.65% by not having to match their ministers’ FICA tax, choose to increase their pay by this amount and then immediately withhold it as federal income tax. That way, when the minister computes his full 15.3% SE tax, at least ½ is already paid in through withholding. There may be good reason not to be treated as an employee even if the Internal Revenue Code allowed it. Before calculating one's SE tax a minister can reduce his reportable earnings by the excess of his employee business expenses over any reimbu...

There's lots of IRS authority (or precedent) for a local church or a denominational body to designate a minister's retirement benefits as housing allowance: 1. Audit Guide: Ministers: Market Segment Specialization Program 2. Letter Rulings 7734028, 7939077, and 8344062 3. Revenue Rulings 62-117, 63-156, and 75-22 A church is considered to be the sponsor of a 403(b) (Tax Sheltered Annuity) plan that receives the elective deferral withholdings of and matching contributions for its pastor. Accordingly, distributions from these plans qualify for housing allowance designation by the church. I find no evidence that funds in an IRA account, either originally contributed to it or rolled into it from a 403(b) plan, qualify for housing allowance designation by the church.

Question: I received a love gift from the church for pastor's appreciation. In the past I have declared this as business income and paid self-employment tax on it. Is this correct? Answer: Yes, virtually all gifts from an employer are considered taxable in the same manner as an employee's standard compensation. The church should report this income along with the pastor's standard compensation in Box 1 on his Form W-2. However, if the church should omit the gift, you are still responsible to report it as both earnings for income tax purposes and for self-employment tax purposes. Generally, the only exception to the taxation of gifts by an employer to an employee relates to non-cash gifts of nominal value. Per IRS Publication 525: Holiday gifts : If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. However, if your employer gives you cash, a gift certificate, or...