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End Strong to Start Strong
By Raul Rivera
As the end of the year approaches, pastors and church administrators need to plan how to close out 2011 with a strong finish for the church. How well you gather information now dictates how you start the New Year.
There is nothing better and more promising than getting a good start. Each year churches make commitments to get the New Year started right but they do not succeed because they do not end the previous year well. Many reports and tax forms need to be filled out in January and February, and without proper documentation they cannot be done. That leads to frustration and an eventual drop from their commitment. Ever been there?
The steps below will help your church get off to a good start in January.
1. Annual board meeting: Many churches never have an annual board meeting, yet state law requires at least one annual board meeting in which minutes are taken and filed in the corporate records kit of the church. In general, the annual board meeting covers many topics, such as salaries, reimbursements, housing allowance designations, corporate policies, procedures, and much more. If your ministry needs assistance in order to get into compliance with that state requirement, we have a service we provide for churches whereby we make sure your church annual minutes are compliant with state law. Usually, the minutes we help you create end up being a 25-page document. If you find that you need this service, please call us at 770-638-3444 and ask about our annual minutes service.
2. Designate the housing allowance: Many churches improperly designate the housing allowance, thus failing to fully maximize it. Others illegally designate it to the degree that if audited, would result in fines assessed against the pastor. Make sure that this December you properly designate a housing allowance for the pastor and each minister of the church even if they do not get a salary.
3. Get proper tax forms: There are several tax forms your church should have in its files at all times; they include W-4, W-9, tax deposit coupon 8109, 1099-C, 941Quarterly, W-2, W-3, 1099-Misc, 1096, and form 8282. These are forms that you will most likely use next year.
4. Report gifts to the pastor: Many churches do not include gifts to the pastor in their W-2 and W-3 reports that are sent to the Social Security Administration. These gifts include love offerings, gift cards, and cash. Any amount given to the pastor regardless of how small must be reported.
5. Contribution statements: Make sure that you make an announcement to the church and that you also put into your church bulletin that congregation members need to wait until they get their contribution statements before they file their tax returns. This is a must, because if they file their tax returns before they get their receipts and contribution statements, then every donation they made to the church that was $250.00 or more will not be tax deductible. It is important that you follow the $250.00 rule in regards to contributions given to the church. Any tithe, offering or donation that is $250.00 or more must have a separate acknowledgement that shows the amount given, and whether the giver received goods or services in return. A general statement that "no goods or services were received in return except for intangible religious services" will suffice. Our Kingdom Steward software program will help you stay compliant in this area.
6. Get a list of every vendor: Every church has vendors. These are individuals that have rendered services to the church for compensation. It is important that you make a thorough list of each guest speaker, babysitter, guest musician, contractor, and every other individual that has rendered services to the church. After making the list, make sure that you give each one a W-9 form for them to fill out, sign and return to you. Store those forms in a locked filing cabinet after entering that information into your accounting software or one we provide called the W-2 and 1099 Misc. Kit. To each vendor that received $600.00 or more in compensation for services rendered to the church, you must issue a 1099-Misc form.
7. Self-employment tax exemption: If you have recently ordained any ministers, it is important to know that applying for self-employment tax exemption may be one of the best decisions you ever make. Under the rules of section 1402, a minister may choose to apply for an exemption of self-employment tax without losing any of his/her benefits when reaching retirement. Many ministers have not applied for the exemption either because they did not know that they could, or because they got bad advice from their accountant or legal counsel. December is the perfect time to consider this exemption because it is possible that come April 15th, you may have exhausted your two-year window of time to apply.
Get educated
When it comes to the management of taxes, getting educated is a must. We all know that taxes are complicated. But that does not mean that you avoid the topic. In fact, the less you know about taxes, the more you will likely overpay. Why not make a desicion that this year, you will add to church tax management to your learning.