01 Oct 2020

5 Ways You Can Misuse Church Credit Cards

Kristen Calicott

The information in this blog for church credit cards also applies to church debit cards.

Credit and debit cards are an easy way for churches to allow their leadership to make purchases quickly without writing a check or waiting to be reimbursed for every single expense.

However, most people don't know the rules surrounding how they can be used and end up entangling personal costs with organizational expenses, causing headaches for administration and bookkeepers at the end of the year. 

It doesn't have to be this way!

Let's look at the 5 most common mistakes involved with using church issued credit and debit cards.

5 Common Mistakes

Some pastors believe credit cards are more hassle than they are worth, while others love the convenience they provide. Credit cards can work well, especially for organizations with many departments, but certain rules and procedures should be followed by anyone who has access to them. 

So what are the pitfalls that need to be avoided? 

Here are five of the most common trouble areas:

  1. Paying for personal meals
  2. Filling up the gas tank in a personal vehicle
  3. Using airline miles for personal trips
  4. Airline tickets for family members
  5. Clothing purchases

You can manage the proper use of credit cards with procedures and policies and by using the appropriate forms to ensure accountable reimbursement. Income Tax Regulation 1.501 states that a church must be managed in a way that does not allow individuals associated with the church any private inurement. This is a serious offense that can incur hefty fines and cause your ministry to have its tax-exempt status revoked in the event of an audit.

But how do you tell which expenses are covered and which should be reimbursed? Let's consider filling up the fast tank as an example.

Mileage Reimbursements

A pastor visits the local prison every weekend and stops at a gas station to fill up his car. He pays for his gas with the church credit card, and within minutes, he is on his way to continue the journey that is his calling. He may be shocked to hear that using the church's credit card to pay for gas in his car is considered taxable income to him by IRS standards. 

Gas pumped into your personal vehicle is taxable income because there is no way to differentiate what was used for ministry purposes, and what may have been used for personal use.

The IRS permits the church to cover the cost of its mission by way of using a mileage reimbursement system. By doing so, you pay for the gas that goes into your vehicle and then submit a log of the miles used for that purpose to the church. The church can then reimburse you for the miles driven based on the IRS-approved reimbursement rate, not the actual cost on the receipt. 

This reimbursement rate is based not only on gas expense but also on the vehicle's wear and tear. The 2019 IRS mileage reimbursement rate for employees is 58 cents per mile, which up form 2018's 54.5 cents per mile. (Rates differ for volunteers). 

Each year, the IRS takes the time to assess deductible costs for anyone that uses their personal vehicle for business, charitable, medical, or moving purposes. The church can reimburse the cost to them and have a record of the information if needed in the future. 

To do this, it must be determined which purchases were personal and which were for the ministry.

Business or pleasure?

As a bookkeeper at StartCHURCH, I record transactions and compile financial reports. Too often, I see purchases made by a cardholder who pays for personal items. This can look like buying medicine from a pharmacy after visiting their doctor, purchasing clothes from the local department store for a conference that they are attending next month, or paying for hair-styling and makeup before they appear on a television ministry. 

These are all considered personal purchases by the IRS and will be taxable income at the end of the year. 

These expenses are taxable because the federal income tax liability is not covered while the individual alone can enjoy the benefits of their earnings (.08 Revenue Ruling 69-266, 1969-1 C.B. 151). None of the things listed above are items kept at the organization for other staff and leaders to use and are thus considered personal expenses. 

Items that all staff could use for church activities are considered business-related expenses. These might include:

  • Laptop bags,
  • Travel suitcases,
  • Robes/uniforms worn by leadership, and more.

The purpose is the principle in these situations. The difference is who can use them and how.

With StartCHURCH Bookkeeping, we’ll take care of your church’s finances. You'll save more time to be able to do what God has called you to do and you'll experience less stress knowing that your financial books are in good care. Give us a call today to speak to a bookkeeping specialist at 877-494-4655 or click the link below to learn more about StartCHURCH Bookkeeping!

Learn More About Our Bookkeeping Service

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How Reimbursements Work

Reimbursements are used to repay someone that used their own money to buy something for an organization. Generally, reimbursements need approval by staff before making a purchase. An expense request form helps to track what purchases were made and why. These forms should include:

  1. The name of the person requesting the reimbursement,
  2. Purchase date of the item,
  3. The reason the reimbursement is being requested
  4. The department or description of the items (i.e., Kid's Ministry or Easter Celebration)
  5. The signature of the approving staff member
  6. A place to attach the receipt if the form is a paper document or a way to scan and link the record if it is a digital copy.

What about accidents?

Accidents happen every day, but it's how you handle the situation that matters. 

For example, if you picked the wrong card when you were in the check-out line at the store, it's okay! Have the cashier cancel the transaction if you noticed before it was completed. If you missed it, and the purchase went through before you could stop it, or you got home and realized that the wrong card number was on the receipt, use best practice.

Write a letter explaining what happened and include a check for the amount that was for personal use. Records of this will help the church to keep track and prevent it from showing up in taxable income that you receive throughout the year. 

Now you know!

Credit and debit cards are such a useful tool for organizations everywhere. They are helpful with reporting and budgeting if each department head is issued one and tracks the spending. Spending limits are common factors of companies such as PEX and Dash and help those that are tracking a budget.

End the stress and headaches associated with utilizing cards and move forward, knowing that you are informed on how best to use them! 

As a StartCHURCH bookkeeper, I find it helpful to see specialized cards when putting together financial reports as it limits the questions I may have on transactions. So, if you decide to use them, make sure that you are aware and implementing best practices that will help keep you light-hearted and focused on your calling!

Our Bookkeeping Service at StartCHURCH is focused on religious nonprofits, churches, and ministries. Our ministry-minded bookkeepers provide years of experience for ministers and pastors to rely on for situations such as these. Give us a call today at 877-494-4655 or schedule a call below to find out how to add one of our bookkeeping specialists to your team!

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Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Blessings,
Raul Rivera


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