MinistryCPA - Corey A. Pfaffe, CPA, LLC

Question: Sue—“I’m planning on issuing my pastor a 1099-MISC for this year and I understand that I can't include Housing Allowance, but what about the retirement that church paid monthly on behalf of my pastor? And the mileage reimbursement we've paid him? Do I have to report all these on 1099?” Answer: Sorry, but it’s a bad idea all around. Unless your pastor is an itinerant pastor serving multiple congregations, it’s virtually impossible to classify him as an independent contractor for whom a Form 1099-MISC is prepared. Further, if the church provided him a retirement plan, then that settles it right there. There is no church retirement plan in the Internal Revenue Code for independent contractors. Pastors receive Form W-2. Housing Allowances are noted in the memo box – Box 14. And the retirement plan reporting depends on the type of plan. Mileage reimbursement? it depends on whether it’s an accountable or a non-accountable plan. Sorry to say this, but Sue likely needs pr...

**Update to Previous Blog Post : Proposed Change for Donor Written Acknowledgements Yesterday, January 7, 2016, the IRS withdrew its proposed rulemaking change for donor written acknowledgements. Per REG-138344-13 , the IRS received public comments that “expressed significant concerns about donee organizations collecting and maintaining taxpayer identification numbers for purposes of the specific-use information return.” As a reminder though, nonprofits are still required under IRC Section 170(f)(8) to provide donors a written acknowledgement for any gift over $250. Check out our blog’s other discussions on charitable contributions.

The State of Wisconsin launched a One Stop Business Portal to assist individuals in establishing a business in Wisconsin. The portal’s web address is www.openforbusinesswi.com . The portal walks the individual through the following steps. Entity Registration Business Tax Registration, which can include a seller’s permit and employee withholding tax number Unemployment Insurance Assessment In addition, the website offers an Expanding Your Business page that reviews worker’s compensation requirements. We have walked many clients through the process of starting a business, and the process can be a bit daunting to the client because of new terms, multiple registration websites, and lots of steps to complete the process. Maybe this Wisconsin portal is the beginning of a one-stop location to learn state requirements and to set up a new business.

The IRS issued the 2016 standard mileage rates. These rates for the use of a car (also vans, pickups or panel trucks) begin on January 1, 2016. 54 cents per mile for business miles driven, down from 57.5 cents for 2015 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015 14 cents per mile driven in service of charitable organizations More information is available on the IRS’s webpage .

Question: I am a missionary overseas. I do not have an office at church, but I use a portion of my home as an office. What are the requirements for an Office in Home deduction? Answer: A home office qualifies for a deduction if the space is used “exclusively and regularly as your principal place of business” according to IRS Publication 587 . In order to fulfill the exclusive use test, the office area must be limited to a separate and recognizable area that is limited only by business use. For example, if your wife and children use a desk in the corner of the living room for homeschooling and you use the same desk for ministry work, the entire living room office space is disqualified from the deduction since you partake in both personal and business use in the area. In order to fulfill the regular use test, the office space must be used on a consistent, regular basis. If the space is used only occasionally, it is disqualified from the deduction. However, if the desk and additi...

Question: What would constitute “duly commissioned” in the case of a church commissioning a missionary for ministerial service outside of the immediate context of the sending church? In addition, how is a commissioning substantiated to the IRS? Answer: Denomination polity differs on who is considered “duly ordained, commissioned, or licensed.” For example, Independent Baptist churches, in general, believe from a theological standpoint that only a local assembly of believers in Jesus Christ can recognize the call to the gospel ministry upon a qualified member of the church. The IRS has readily accepted this type of recognition as well. While the process of becoming ordained, commissioned, or licensed may differ, some churches do not differentiate between ordination, commissioning, or licensure for granting authority or recognizing a minister’s call to the gospel. Missionaries are often ordained, commissioned, or licensed by a local church in anticipation of ministering outside o...

Question: I am a commissioned missionary of a local church. Do I qualify for a housing allowance tax exclusion? Answer: In order for any missionary or minister to qualify for a housing allowance, the individual must fit the IRS’s definition of a minister. Let’s review the qualifications of ministerial treatment as noted in the IRS’s Minister Audit Technique Guide. Treas. Reg. § 1.1402(c)-5(b)(2) provides that service performed by a minister in the exercise of the ministry includes: 1. Ministration of sacerdotal functions; 2. Conduct of religious worship; 3. Control, conduct, and maintenance of religious organizations (including the religious boards, societies, and other integral agencies of such organizations), under the authority of a religious body constituting a church or denomination. Treas. Reg. § 1.1402(c)-5(b)(2) also provides that whether service performed by a minister constitutes conduct of religious worship or ministration of sacerdotal functio...

Question: I recently attended a conference, and the speaker mentioned that donor social security numbers will need to be collected in the future. The social security numbers will then be included on donor contribution acknowledgements. Is this true? Answer: This is partly true. Published on September 17, 2015, the IRS issued proposed regulations for donee reporting. At the date of this blog posting, the regulations are still only proposed. In addition, if the regulations become final, the donee reporting with donor social security numbers will remain optional. If a nonprofit chooses to use the optional donee reporting, the nonprofit will (1) file a specific-use form with the IRS by February 28 for contributions made in the prior calendar year and (2) provide a copy to the donor by the same February 28 date. The nonprofit will report on the IRS’s specific-use form all current required information (e.g., amount of cash, no goods or services disclosure) and the new required infor...

Question: I expect to have health insurance coverage for some or all of this year. What form(s) should I expect to receive in January? Answer: More than likely you will receive one or more Forms 1095-A, 1095-B, or 1095-C. You will use the Forms 1095 to report your Minimum Essential Coverage on your tax return. What forms you receive will depend on where you received health insurance coverage and on your size of employer. You will receive Form 1095-A if you have coverage through the Federal or a State Marketplace.* You will receive Form 1095-B if you receive coverage from your employer who has fewer than 50 full-time employees or if you self-purchased coverage through the individual insurance market (not the Marketplace).* You will receive Form 1095-C if you receive coverage from your employer who has 50 or more full-time employees.* You should receive your form(s) each year by January 31. But certain employers could request a 30-day extension. Something ...

Question : I am treated as a 1099-MISC self-employed contractor by my U.S. mission agency. Should I consider establishing and contributing to a 403(b) retirement plan? Am I eligible?  Answer : This blog post will deal with the issue concerning a self-employed minister’s eligibility to establish a 403(b). Please bear with the very technical nature of this post. Starting with IRS Publication 571 , Tax-Sheltered Annuity Plans (403(b) Plans) , we see two conflicting statements when taken at face value. First Statement: “The following ministers are eligible employees for whom a 403(b) account can be established… Self-employed ministers. A self-employed minister is treated as employed by a tax-exempt organization that is a qualified employer.” Second Statement: “Who Can Set Up a 403(b) Account? … A self-employed minister cannot set up a 403(b) account for his or her benefit. If you are a self-employed minister, only the organization (denomination) with which you ...