11 Sep 2018

7 Steps to Take When the Church Buys a Car

Founder Raul Rivera

When a church in South Carolina bought a new car for the pastor to use, he was delighted!  The pastor used the vehicle to do visitation and for commuting between his home and the church.  Being that the church was located in a higher crime area, parking the car at the pastor's residence each night, instead of on the church property, sure seemed like a great way to preserve the car. 

When the church bought the car, they paid $32,500.00; they put $2,500.00 as a down payment, and financed $30,000.00 over 6 years at a 1.99% interest rate.  Their monthly payment was $442.38.  The challenge the church had was accounting for the car in their books and figuring out whether there was anything else legally that they should be concerned about in owning the vehicle.  

There are at least seven steps that church needs to take when buying a car for the pastor. 

1.    Record the purchase:  When the church bought the car, they had to account for the actual purchase price of the car, the down payment, and the new loan debt.  Let's take a look at how this should be done.  The church creates a new asset and new liability account in its accounting system. The asset account is called Church Vehicle and the liability account is called Church Vehicle Loan.  The balance of each one starts at $32,500.00.  The church then enters a transaction for a check to the dealership of $2,500.00. Instead of assigning it to an expense account they must assign it to the Church Vehicle Loan account.  This lowers the Church Vehicle Loan account to $30,000.00.

2.    Record monthly payments:  During the month that the first loan payment is due, the church must write a check in the amount of $442.38 to the finance company.  To properly record the transaction, they must use a mortgage calculator to determine how much of the payment is interest expense and how much is principal.  The church determines that $49.75 is interest and $392.63 is principal.  Therefore, when they write the check, they credit the Church Vehicle Loan account $392.63 and then they create a new account called Bank Finance Charges and debit the new account $49.75.  At the end of this transaction, the Church vehicle Loan account shows that the loan balance is $29,607.37.  They will continue to do this until the account is paid off.

3.    Keeping mileage logs:  Now that the church owns the car, they need to keep mileage logs so that all business miles and personal miles are recorded properly.  When the pastor commutes or uses the vehicle for any personal miles, the church must record those miles on the log.  You will see why on item 6.    

4.    Pass a "Don't Text and Drive" policy:  A policy that prohibits texting while driving, and possibly requires hands-free use of the cell phone reveals that the church is taking reasonable measures to ensure the safety of its passengers.  Moreover, insurance companies will give you a preferred rate if you have certain policies that the church enforces, which increase the safety of its passengers and reduce the chances of an accident.

5.    Get a corporate insurance policy:  Make sure that the policy you get for the vehicle covers all of the individuals that plan on driving it.

6.    Calculate the value of taxable fringe benefits: Because the pastor is allowed to drive the vehicle home for commuting purposes, the church is required by law to record the actual value of that use and report it on the pastor's W-2 for him/her to file his/her taxes.  There are three different approved formulas to calculate that value.  They are the as follows:

  • Cents-Per-Mile Rule
  • Commuting Rule
  • Lease Value Rule

7.    Transport of children due diligence:  Since it is possible that the vehicle will be used to transport children, the church makes sure that anyone who would drive the car surrenders a copy of his/her valid driver's license and submits to a background check.  This is the church's due diligence to ensure the safety of children.  It is one way to reduce the chance of liability against the church.

It is also important that your church have a Child Transportation Policy in place, anytime children are being transported to and from sponsored activities and events of the church.

Call StartCHURCH at 877-494-4655 to recieve a complimentary copy of this policy! 

Most of the work is done up front

When a church buys a vehicle, most of the paper work is done when the vehicle is purchased.  Thereafter, it is just maintenance. At StartCHURCH, we believe in systems.  If you let us teach you how to create systems at your church, you will be surprised how much leadership you can give your church without feeling bogged down with day-to-day activities that take away from your abilities to teach and preach.  

At StartCHURCH is it our desire that as your church grows and your move your ministry forward, that you are equipped to handle the legal and compliance aspects of your ministry.

That is why host the Ultimate Church Structure Conference in cities all over the United States. So you can come and learn about what you need to do to protect what God has given you to lead.

Register for a Conference Today

Click Here

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.

Raul Rivera

comments powered by Disqus

And receive our free eBook Sequence: A step-by-step guide to successfully launching your church.