MinistryCPA - Corey A. Pfaffe, CPA, LLC

How do we count our blessings at year end?            As Certified Public Accountant and founder of MinistryCPA, I challenge us with lessons in counting our blessings at year end that I find I must revisit each December. The missions of more than 100 MinistryCPA charity clients constantly serve to re-center my thinking. Thankfully, early in my career I started a year end pattern of looking back on the past 12 months and looking forward to the next. In addition to the natural reflections you might expect, charitable giving is on my mind. It wasn’t until I was well into my 40s that my vision for giving was expanded beyond simply giving because of a sense of duty. Now I’m much more careful to check and recheck my motivations. 1.        We give because we care about the impact of charities       Giving Tuesday, each Tuesday after Thanksgiving in the U.S., is past. But our favorite charity is still counting on us...

With recent law changes, the federal standard deduction now exceeds $12,000 for individuals and $24,000 for married couples filing jointly and grows each year with inflation adjustments. With only mortgage interest, state and local taxes, catastrophic medical expenses, and charitable contribution deductions to accumulate, many families and individuals face a seemingly insurmountable wall to exceed the "free" standard deduction and, instead, itemize their own write offs.  Some have even questioned whether charitable contributions are deductible anymore; however, all is not lost! MinistryCPA offers four strategies for you to consider as the 2019 calendar year comes to a close. 1. Many state income tax returns do not follow the federal itemized deduction rules. This allows taxpayers to continue gaining a tax benefit for charitable contributions. For example, a Wisconsin taxpayer with $50,000 of Wisconsin income is granted a standard deduction of $6,709 (married filing ...

Question: Could a church borrow from church members at a 0% interest rate? Do “imputed interest” rules apply to such loans? Is there any limitation that a church member needs to be aware of before loaning funds to the church under these conditions? Answer: To answer the first question, yes, a church could receive loans from church members with a 0% interest rate. This type of loan is usually classified as a below-market gift loan. In a sense, the church member who is lending the money is transferring an annual amount equal to the forgone interest to the church as a gift. The church, however, simultaneously transfers such interest back to the lender. This is the idea of imputed interest. Were it not for limitations related to Schedule A itemized deductions, a donor would report equal amounts of the foregone interest as taxable interest income, but enjoy offsetting charitable contribution deduction. However, an exception to this unfortunate consequence does exist.  Accordi...

Question: If I can make retirement contributions to both a Traditional IRA and to a church plan is there a reason to prefer one over the other? Answer: Yes! Most ministers should likely be choosing a 403(b) church plan. In addition to a Traditional IRA, a minister may choose to claim a contribution to another retirement plan, like a 403(b) church plan. However, before choosing to do so, it is important to understand the benefits and disadvantages of both a Traditional IRA and a 403(b) plan. Contributions to a Traditional Individual Retirement Account are not employer plans that are deducted up front from a minister's pay (reported on Form W-2). Instead, these amounts are truly deducted on his personal tax return. The benefit of the IRA is that it can be funded after December 31 st and still count against one's taxable income. Additionally, an IRA does not require church sponsorship and has lower fees to establish an account. While there are several benefits of ...

Question: A church received a Visa gift card in the offering.  Is this considered a taxable contribution for the person donating it and, if so, how is it handled?  Answer: A gift card is considered the equivalent of cash, so it should be treated in the same way as cash donated to the church. While it is possible to accept gift cards as contributions, the issue lies more with the recording and tracking of the gift, which can be labor intensive. The value of the gift card will need to be determined since its cost may not equal the face value of the card. Why not? The deductibility of the gift card is based on what the donor actually paid for it rather than the value stated on the card. For example….a simple web search of "gift cards at a discounted price" received more than 12 million hits. A second complication: After determining the card's value, the gift must be recorded to a separate general ledger asset account where its value could be tracked. Un...

Question: A church youth group is going on a missions trip this summer. There a few youth members who have yet to bring in the necessary amount needed for their trip. A couple in the church has offered to give towards their trip in exchange for work around their house. How is this treated? Is this allowable? Answer: Our MinistryCPA experience leads us to believe that in most cases the value of the work that is being completed by the youth members is not representative of the donation amount. It often appears to us that the young people are essentially volunteering so that a homeowner will consider making a donation, rather than providing taxable, fair value services. This kind of work is sometimes referred to as a "makework proposition" (e.g. raking leaves, washing windows, trimming hedges).

Question: A church regularly sends out teams on short-term mission trips to destinations hosted by charitable organizations. They have set up a fund for receiving special offerings and for reimbursing travel, meals, and lodging expenses. Recently, a church team was required to pay the hosting organization a fee for each member to cover meals and lodging. The team leader required each team member to make a donation to the fund in the amount of the fee. Are these donations tax deductible? Some argue that the team members are receiving a benefit from the donation and should not receive a tax benefit for the donations. Others feel they should qualify for a charitable donation because the benefit they receive only facilitates their charitable work. Besides, can't these expenses be deducted on the individual's Schedule A as out-of-pocket contributions even if the church doesn't consider them a donation? Answer: IRS Publication 526 says, "Generally, you can claim a c...

Question: A church is looking to rent out its parsonage to a non-staff member. Can the income that is received for the rent be used for church expenses not related to the property without affecting the church's tax-exempt status? Answer: The church tax-exempt status will not be affected by the use of the rental income for expenses not related to the property. However , the church may lose its real estate tax exemption for the property because it is not used for an exempt purpose. There are both potential Unrelated Business Income Tax (UBIT) and local property tax concerns. First, tax-exempt organizations generally do not need to report rental income as unrelated business income (UBI) unless it is financed with tax-exempt debt instruments. According to IRS Publication 598  (Page 10), "Rents from real property, including elevators and escalators, are excluded in computing unrelated business taxable income. Rents from personal property are not excluded." The IRS cite...

Question: A mom and dad established a Internal Revenue Code section 529 college fund for their son, but he has decided to join the military instead. What are the penalties if the parents decide to pull the money out of the 529 college fund to give to him for uses other than college tuition? Does the family pay taxes only on the interest that was made or is the entire distribution treated as taxable income? Answer: Before we dive into answering the question it is important to understand that there are two types of 529 plans and that all fifty states and Washington D.C. use at least one of these two plans. The Securities Exchange Commission  (SEC) defines both types. First, there are prepaid tuition plans which allow individuals to purchase credits at colleges/universities for future tuition at its current rate. These plans typically do not include room and board. The second type, which falls in line with our question, is an education savings plan. Under this plan, an individ...

Over the past couple of years, I've taken a greater interest in reading Christian biographies. I've come to think of these individuals as our 21st Century "Cloud of Witnesses" (to borrow a concept from the Bible book of Hebrews, chapter 12, verse 2). Perhaps you too will find them encouraging, motivating, and worthy of emulation as I did. a Quotes from Our 21st Century Cloud of Witnesses: a As a 15 year old (and for the rest of his life), Hudson Taylor maintained "the habits of prayer and Bible study in which he had been trained from childhood" (p. 63, in Hudson Taylor in Early Years: Growth of a Soul by Howard Taylor, OMF International, 1911). "Daily reading the Bible is the most stabilizing habit in my life" ( Ben Peterson , p. 27, in Road to Glory: The 1972 Olympic Journey of Ben and John Peterson by Ben Peterson, Camp of Champs Publications, 2015). "A simple layman armed with Scripture is to be believed above a pope or a ...