5 Things to Consider Before the Year Ends!

1.  The $250.00 Dollar Rule for Tax Deductions

Did you know that there are special rules issued in IRC 170 that specifically delegate how your church or ministry should treat donations that exceed $250.00 in value?  One of the greatest blessings to your church are members who tithe and give offerings faithfully.  Your church depends on faithful giving from members of the Body of Christ.  In return, members of the Body of Christ depend on the church to properly handle reporting their tithes and offerings.  When your church or ministry receives any donation that is $250.00 or greater, it must do the following to ensure that the giver can deduct it.

1. The church must issue contemporaneous written substantiation:  this means that the church must issue a receipt within a certain period of time.  Contemporaneous means that it has to be in the possession of the donor on, or before, the tax payer files his/her tax return.
2. The church or ministry can issue a one time contribution statement or a separate receipt.  The receipt must include the following pieces of information in order for it to be tax deductible:

• The name and address of the ministry,
• If the amount given to the ministry is cash or other cash-like media, such as a credit card, check, etc.
• It must state whether or not the church or ministry provided any goods or services in consideration for the gift.
• If so, the documentation must provide a description of the goods or services, along with a good-faith estimate of the the value of the goods or services provided to the donor.  In other words, the receipt must state the amount given, minus the amount received in return from the ministry.

If the receipt fails to have any of the items above, the contribution will not be deductible.  My recommendation is that you issue a separate tax receipt for each contribution that comes into your ministry. This ensures that the giver can meet the requirements of the law in claiming his or her tax deduction. 

Some argue that when a giver claims a tax deduction, his or her giving is not motivated out of a pure heart.  I argue that it is, and not only that, but to claim a tax deduction is good stewardship.  If the earth is the Lord's and goodness thereof, then we are simply stewards of the Lord's wealth.  Therefore, if we are stewards, we ought to maximize what has entrusted to us.

2.  Fix the Minister's Housing Allowance

The rules of the housing allowance mandate that the church or ministry maintain accurate documentation.  One common mistake made by churches is that they state specific dollar amounts for the minister's housing allowance.  By doing so, they unknowingly limit what they can claim to reduce taxes.  Also, many churches pay their ministers a salary in addition to a housing allowance.  I do not recommend that you do it this way.  There are three components that must be addressed when creating a housing allowance.  They are as follows:

1. Designate up to 100% of the salary as housing allowance:  This makes the maintenance of the housing allowance easier.  When you make that designation, make sure that you limit it to either the actual costs or fair rental value, as required by the Housing Allowance Clarification Act.
2. Create minutes to document the designation:  In order for the housing allowance to be valid, it must be documented and approved by the board of directors.  Unfortunately, if your housing allowance is not properly documented, it cannot be retroactively implemented.
3. Make sure that a housing allowance statement be used by the minister:  This statement must include calculations for three scenarios:  1.  The actual cost of providing a home. 2.  The estimated cost of providing a home.  3.  The fair rental value of the home.  This statement should be turned in by January 15th of each tax year.

3.  Follow the Tax Calendar Below

September 15th- Deposit payroll tax using form 8109

September 15th- Pay the third installment of your estimated tax for 2009 using form 1040ES

October 15th- Minister tax returns are due

October 15th- Deposit payroll tax using form 8109

November 10th- File Form 941 for the 3rd quarter of 2009 if payroll deposits were made in a timely fashion

November 15th- Deposit payroll tax using Form 8109

November 26th- Thanksgiving Day

December 15th- Deposit payroll tax using Form 8109

December 25th- Christmas Day

January 1st- New Year's Day

January 15th- Turn in Your Housing Allowance Statement

January 15th- Deposit payroll tax using Form 8109

January 31st- Submit Tax deductible contribution statements to donors

January 31st- Submit W-2, and 1099 forms

4. Check Your Status in Publication 78

Publication 78 is a Cumulative List of Organizations that have received official 501(c)(3) status.  Have you applied for official 501(c)(3) status?  Have you been approved?  If so, you need to check Publication 78 to see if your organization appears on the IRS list of approved charities.  To check the list, go to the IRS website at www.irs.gov and type Pub 78 in the search field.  Next you will type in your organization's information to see if you appear on the list.  If you believe that you should be on the list, but your ministry does not appear, please give us a call at 770-638-3444 and we will help you.

5. Keep Your 501(c)(3) Status Current!

I have spoken to many pastors that received 501(c)(3) approval several years ago.  Some got approval during a time when the laws were different.  Unfortunately, the IRS requires that a church or ministry make adjustments as the laws and regulations change.  For example:  In 2002, churches were able to get 501(c)(3) status even if the majority of the Board of Directors were related.  Today, the church is required to change its board of directors so that a majority of the board is unrelated and uncompensated.  Failure to change could cause the church to lose its 501(c)(3) status.  Because so many changes have taken place since 2006, I recommend that you consider coming to one of our conferences to learn updated information.  We will very likely be in a city near you soon.  At our conference, we discuss everything that you need to keep your church and ministry compliant with the latest IRS rules.  I also recommend that you consider the Advanced Compliance System II.  It has a 50 step program for you to perform your own compliance audit so that you do not have to hire it out to anyone.  You will be able to do it completely on your own.