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Do Not Ignore These Tax Forms
By Raul Rivera
Now that the year is in full swing, tax forms are moving to the forefront. Every year churches and ministries are required to fill out certain tax forms to remain in compliance. Below is a list of certain forms with deadlines and reports that you need to prepare.
1. Review and find missing W-9 and W-4 forms: Did you know that your ministry is required to collect information from the pastor, employees, and guest speakers using these forms? Failure to collect these forms can result in very stiff fines and penalties. For example: Your church invites Pastor Gary X to preach at the church. After he preaches, the church takes up an offering of $1,000.00. However, the church does not collect from him a W-9 form. Under the law, the church is liable for a 28% tax on the love offering. See step 8 below for more information.
2. Form W-2 and W-3: Every year thousands of churches employ ministers and other individuals without ever documenting their salaries and housing allowances on a form W-2 and W-3. The form requires that all of the pastor's salary be reported as well as all other individuals who are employed by the church. These include janitors, secretaries, officers, elders, deacons, worship leaders, and anyone else that works for the church. The deadline for the Copy C of W-2 forms to employees is January 31st. However, for Copy A of form W-2 and form W-3 if you file a paper return it is February 28th. Finally, if you file copy A of form W-2 and form W-3 electronically, the deadline is April 28th.
I often see that form W-2 is improperly filled. When reporting a pastor's/minister's income, his salary minus the qualifying housing allowance goes on line 1. Lines 3, 4, 5, and 6 must be left blank. The housing allowance gets to be reported on line 14.
3. Forms 1099 and 1096: Many churches file form 1099-misc. for the wrong people. The pastor, worship leader, and others who do work for the church on a regular basis must not receive a 1099-misc. This form is for contractors who are outside of the behavior, financial, and relationship test. If you pay your landlord rent and the landlord is not incorporated, you must report the rent paid to the landlord on line 1. If you paid any royalties, they go on line 2 and all payments to contractors you hired get reported on line 7. Copy B of this form goes to the contractor and Copy A of the form with form 1096 goes to the IRS. The deadline for Copy B to contractors is January 31st, while the deadline for copy A and form 1096 is February 28th. If you file electronically, the due date is March 31st.
4. State annual report: Over 39 states require that you file an annual report, while other states require a bi-annual or periodic reports. It is important that you file this report by its deadline. If you would like more information, we will be happy to look up your state and tell you what form is appropriate. You can call us at 770-638-3444.
5. Form 941: If you have any non-ministerial employees, you are required to file a quarterly 941 form.
6. Receipt forms: Do not forget to issue contribution statements to your donors. We have always recommended that these statements be issued by January 31st.
7. Property tax exemptions: If your church/ministry purchased any real estate in 2012, now is the time to go to your county property tax assessor and request a property tax exemption form for your church. Most counties have a very specific deadline for this form.
8. Form 990: If you are a para-church ministry, you must file form 990 each year. There are three different 990 forms. Below is a schedule that will help you know which one you must file.
a. Form 990 long: You file this form if your gross income is $200,000.00 or more or your assets are $500,000.00 or more.
b. Form 990-EZ: You file this form if your gross income is more than $50,000.00 but less than $200,000.00 and your assets are $500,000.00 or less.
c. Form 990N: File this form if your gross income is less than $50,000.00. This is a postcard form and very easy to fill out. We can assist you with any of the 990 forms; just call us at 770-638-3444.
9. Form 990-T: Churches and ministries often overlook this form. Any church/ministry that has earned gross unrelated business income of $1,000.00 or more must file form 990-T. This is a four-page tax form that is used to collect income tax from unrelated business income activities. The deadline for this form is May 15th, 2013.
10. Educate yourself, your board, and those who work in your administration: Over the last year I have spoken to hundreds of pastors who felt that they lacked "one key person" needed to make their church administration work. One reason why they lacked that person is because they did not have the knowledge to understand what is needed. Even more, they lacked the knowledge needed to delegate their administrative responsibilities to that one person who has the skills to get the job done! I recommend that you find that one person and take him/her with you to one of our Church Compliance and Ministry Empowerment Conferences. It is the best way to take one giant leap forward.
11. P & L and balance sheet: January is the month for churches and ministries to prepare accurate profit and loss statements as well as balance sheets, to analyze their financial positions. These reports are useful to the pastor and board because they can rely on them to prepare the budget for the upcoming year and also to figure out how the ministry may be better able to provide its services. I have discovered that very few churches ever prepare a budget or properly analyze their financial position.
12. Board meeting to approve the following:
- Housing allowance: Many folks believe that a housing allowance is only for preachers on a salary at the church. However, that is not the case. A housing allowance ought to be designated for every minister of the church regardless of his/her employment status with the church.
- Pastoral salaries: If the pastor or someone else at the church receives a salary, now is the time to review those salaries and make adjustments as necessary.
Do not get discouraged!
Do not allow the above information to discourage you. Break it down into the steps that we have outlined. At StartCHURCH, we know how important this time is to the life of your church, and we understand that the legal side can feel overwhelming. It is our mission to help and serve you during this time, in order to help ensure you start the year right. If we can help you with any of these forms, please give us a call at 770-638-3444.