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Tax Forms to Prepare in January

By Raul Rivera

January is often times busier than December!

January is the time of year that many leaders make an effort to keep a resolution of better managing their ministries. Though it be a noble resolution, January may be the most challenging month of the year to keep such goals.  It is the month that the ministry must prepare and file tax and informational returns...a very challenging task if the ministry has failed to keep good accounting records throughout the year.  So, what started as a noble resolution usually ends by the end of the month as a frustrating experience which leads to a worse set of books for the rest of the year!  This type of discouragement often times leads to the church falling even more behind in its compliance because the average person tends to shy away from things that overwhelm.  

It doesn't have to be that way!

I want to take the next few moments to impart some information that will encourage you.  If you are willing to spend a few hours a week during the month of January, dedicating them to better establishing the business side of your ministry, it will pay off for you for many years to come.  The most powerful tool you can possess in order to keep your ministry books in order is wisdom and knowledge.  I have often heard the saying, "Knowledge is power."  While there is a lot of truth to that, I like the phrase "Knowledge with wisdom is power." Wisdom gives you the ability to use the knowledge you have in order to be successful in whatever endeavor you embark upon. If you are willing to acquire the knowledge needed to properly manage your ministry, I believe that God will give you the wisdom to implement that knowledge.  Part of wisdom is taking the knowledge and breaking it down into simple steps and then prioritizing those steps into a particular order to ensure that they all get completed in a timely manner.

A list of priorities for January

Below I will share with you what churches and ministries need to focus on in the month of January.  I have prepared the list in what I consider the order of priority to ensure success in the upcoming year and avoid IRS trouble in the future.

  1. Contribution Statements:  These are the statements that detail how much each person gave in contributions to your ministry.  The statement must contain a detailed break down of each time they gave. 

  2. 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 did 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.

  3. 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.

  4. Prepare W-2 and 1099-Misc Forms:  Chances are that your church probably has to prepare at least one of these forms, if not both.  If the pastor received any salary (this includes love offerings, housing allowance, car and gas reimbursements, paid rent or other gifts) then the church has to properly fill out a W-2 and W-3 report and submit it to the Social Security Administration.  If any other officer or other person was employed by the church, then a W-2 has to be prepared.  If the church had any guest speakers, babysitters, or musicians that got paid then the church has to prepare a 1099-Misc for each one and submit it to the IRS.  *Good news!  The 2010 version of the W-2 and 1099 Tax Kit has been released.  This software program will make the preparation of your church and ministry W-2 and 1099-Misc a breeze.  For more information call us at 770-638-3444 and speak with one of our representatives.

  5. 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 their 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.
  6. Form 941:  If your church has regular employees who are not ministers, then it must prepare a quarterly 941 payroll tax return.  These returns are often burdensome and require technical attention.

  7. Form 944:  The annual form 944 is much simpler than the quarterly 941.  However, most churches who pay their pastors a salary are not aware that they should do a form 944 each year.

  8. Form 945:  If the church failed to collect a properly filled W-9 form from a contractor (someone who was not an employee such as guest speakers, and paid musicians), then it must pay a 28% penalty on any and all contractors and report it on form 945.

  9. Form 8109 Monthly Deposit of Taxes:  If your ministry has employees that are on payroll, chances are you have been withholding and paying the payroll taxes on a monthly basis.

  10. State Annual Report:  Most states require that the ministry file an annual report.  Because these reports are required filings, failure to file an annual report for your ministry can result in administrative dissolution of your church/ministry.  Every year we help many churches get back into compliance with state laws by filing their annual reports.  Many churches come to us already having been administratively dissolved by the state.  We usually reinstate them.  However, they have to pay the state hefty penalties for late filings.  Do not forget to do your annual report.  *We can prepare your annual report for only $99.00.  If you want us to prepare it for you, please call us at 770-638-3444. 
  11. Form 990:  Though not due until May 15th, the month of January is the month to start prepping for this tax return.  If you are a church, you are blessed.  You DO NOT have to do a 990.  However, if you are a ministry, you must file either a 990-N or a 990EZ or regular 990 (Long Form).  With the exception of form 990N, these are very complicated tax returns that must be filed every year.  If you have a ministry and would like for us to prepare your 990 tax return, we will be happy to assist you.

  12. Educate Yourself, your board and those who work in your administration:  Over the last year I have spoken to hundreds of pastors who lacked that one 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 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 ConferencesIt is the best way to take one giant leap forward.

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. Its our mission to help and serve you during this time and make sure you start the year right. If we can help you with any of these forms, please give us a call at 770-638-3444.

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