Church and Taxes San Jacinto Baptist Association October 2015 - - PowerPoint PPT Presentation
Church and Taxes San Jacinto Baptist Association October 2015 Updates for 2015 Standard mileage rate 56 cents per mile, 14 cents 1. charity $18,000 maximum contribution deferral to 403(b) or 2. 401(k) plan $6,000 catch-up limit for
1.
Standard mileage rate 56 cents per mile, 14 cents charity
2.
$18,000 maximum contribution deferral to 403(b) or 401(k) plan
3.
$6,000 catch-up limit for contributions deferral to 403(b) or 401(k) age 50 or older
4.
Personal exemption $4,000 each individual, with phaseouts
5.
Standard deduction $12,600 for joint returns $6,300 for filing single and married filing separately
6.
Tax brackets 10%, 15%, 25%, 28%, 33%, 35% & 39.6%
Five key questions
1.
Is the person ordained, licensed, commissioned?
2.
Does the person administer ordinances (Sacerdotal functions) i.e. baptism and the Lord’s Supper?
3.
Does the person conduct religious worship?
4.
Does the person have management responsibilities in the church?
5.
Is the person considered to be a religious leader by the church?
General Rule – Ministry begins with ordination Exception for Licensed Minister
substantially all the religious functions of an ordained minister
Ministers have a dual tax status
1.
Employee for IRS purposes (W-2)
2.
Self-Employed for Social Security (SECA)
security
wages are not wages for FICA
1.
Eligible for housing allowance exclusion – IRC Sec 107
2.
Self-employed status for Social Security – IRC Sec 1402(c)
3.
Exemption from mandatory income tax withholding – IRC Sec 1401(a)(9)
4.
Voluntary income tax withholding – Reg.31.3402(p)-1
5.
Exemption for Social Security coverage – IRC Sec 1402(e) (very limited circumstances)
6.
“Double dipping” benefit for deducting mortgage interest and real estate taxes as itemized deductions (Schedule A) and inclusion in housing allowance computation
Available only to those meet the IRS criteria for Minister Must be the lesser of:
Exempt from Federal Income taxes Taxable as Self-employment income (Social Security)
Must be designated by the employer/payer (the church) and Must be designated in advance of being paid and Must be designated in writing Can be amended during the year => amendment is only effective on a prospective bases Responsibility falls on the minister to notify the church of any inaccurate estimates for changes
Down Payment on home Mortgage payment (principal &
interest)
Rental payment Real estate taxes Homeowners insurance
Utilities ( gas. Electricity,
water, sewerage/trash, telephone, cable/satellite)
Furnishings and
appliances
Repairs and remodeling Yard care/Landscape Maintenance items
(cleaners, light bulbs, pest control, etc)
HOA dues Not Maid services Not food
Housing Allowance Designation I __________________________________ hereby designate the following expenses for housing allowance shall apply to calendar year 2013 and all future years unless otherwise changed. Item Amount 1Down payment on a home $ 2Mortgage payments on a loan to purchase or improve your home (include principal and interest) $ 3Monthly Rental 4Real Estate taxes $ 5Home Owners Insurance $ 6Utilities (electricity, gas, water, trash pickup, local telepone charges) $ 7Furnishings and appliances (purchase and repair) $ 8Structural repairs and remodeling $ 9Yard maintenance and improvements $ 10Maintenance items (pest control, etc.) $ 11HOA dues $ 12Miscellaneous $ $ $ $ $ $ $ Total Expenses: $ Signature: _______________________________________ Date: ___________________________ Company Officer signature: _______________________________________________ Date: __________________________
Base salary/wages
Bonuses
Reimbursement for portion of SE tax
Special occasion gifts
Incentive compensation
Severance pay
Below market loans
Gift Cards
Noncash Gifts
Personal use of employer provided auto
Payment of auto expenses
Auto allowances
Personal portion of cell phones
Life insurance outside of group plan
Travel advances without subsequent documentation
Reimbursements through a non- accountable reimbursement plan
Travel for spouses & family
Forgiveness of minister’s debt to the church.
Compensation packages should be approved by a governing body of the church and documented noting the date it was approved and who approved it.
For certain persons, the church must also document the outside sources used to determine reasonable compensation.
Nontaxable - Normally
Housing Allowance
Contributions to Qualified Retirement Plans
Health Insurance Premiums (group plan provided)
Employer provided room and board (for the convenience of the employer)
Reimbursements under an accountable plan Taxable - Maybe ????
Group term life insurance ($50,000 and greater taxable)
Payment of out of pocket medical expenses (Sec 125, MSA’s)
Dependent Care plan
Tuition assistance plan
Benefits provided through a cafeteria plan
Employer provided auto personal use always taxable
Form 941- Quarterly Reporting
Taxable items are included on the quarterly reports
Minister’s housing allowance is never included since it is not taxable
Should always reconcile with ledgers
W-2 – Annual Reporting
Taxable items included along with appropriate taxes that have been withheld
Special reporting required for certain benefits and forms of compensation in Box 12
benefits required to be disclosed
Housing allowance can be reported in Box 14, but not
else on W-2
Form 1099- Misc
Report payments of $600 or more to nonemployees for personal services rendered
Exceptions
Penalties apply if church doesn’t send 1099’s
Due to the payee by January 31, 2016
Due to the Social Security Adm by February 29, 2016
Tax Court’s 8 Factor Test 1. Degree of control exercised by employer over details of work 2. Which party invest in facilities used in work 3. Opportunity of individual to profit or loss 4. Whether employer has right to discharge the worker 5. Whether the work is part of employer’s regular business 6. Permanency of relationship 7. Relationship the parties believe they are creating 8. Provision of benefits typical to those provided to employees
Degree of control over the worker IRS 20 Factor Test
1.
Training
2.
Integration –services integrated into church
3.
Services rendered personally
4.
Hiring, supervising or paying assistants
5.
Instruction
6.
Continuing relationship
7.
Setting hours or work
8.
Full time required
9.
Working on employers premises
Degree of control over the worker IRS 20 Factor Test - cont
facilities
A.
Voluntary Classification Settlement Program
employees by paying a small amount representing potential taxes from prior years.
1.
Qualifying employer
must be presently treating the workers as nonemployees must have filed all Forms 1099-Misc for 3 prior calendar years consistently treated the workers as nonemployees not currently under examination for this issue by the IRS, DOL, or any state
employment agencies.
2.
Procedure
employer must file Form 8952 at least 60 days prior to the effective date of the
reclassification – reclassify on January 1, 2016 must be filed by November 2, 2015
must pay the taxes assessed on Form 8952 tax works is approximately 1% of the total wages paid for recently completed tax year not currently under examination for this issue by the IRS, DOL, or any state
employment agencies.
3.
Prior Tax Assessments
IRS agrees not to assess any additional payroll taxes for the open years prior to the re-
classification for the workers reclassified
Texas Tax Code provides tax exemptions for religious
franchise.
Requirements
established congregation,
services according to rites of their sect.
File Texas Application for Exemption – Religious Organizations Form AP-209-2.
This is not an exemption from collecting sales tax.
Churches that have received a letter of sales tax exemption do not pay sales tax on items bought, leased or rented if the items are necessary to the exempt function.
To claim exemption use Texas Sales and Use Tax Exemption Certificate provide to retailer.
Retailers not required by law to honor the exemption.
then request a refund directly from Comptroller.
Items purchased tax free cannot be used by employee or
individual for personal benefit.
Does not include purchase or use of motor vehicle. Remember => exemption from tax is for purchases not for sales. Exempt organizations must get a sales tax permit and collect and
remit sales tax for all taxable items it sales.
Meals and Food Products (including candy & soft drinks) if sold by
churches or at church functions conducted under the authority of a church
Annual banquets and suppers provided
Auctions, Rummage sales & other Fundraisers
Periodicals and writings are tax exempt if published and distributed
by a religious or 501(c)(3).
Exempt orgs not required to collect tax. Does not apply to items sold for more than $5,000. Counted as 24 consecutive hours Designated day is either the day the vendor delivers the
items or the day the organization delivers the items to customers.
collecting tax if the day the cookbooks will be delivered is designated tax-free day.
tax-free.
‐
Surplus cook books sold on other days will be subject to tax.
As defined by IRC Sec 170
A gift of cash or property
Given before the end of the year
Unconditional
Without personal benefit to the donor
Made to or for the use of the qualified charity
Properly substantiated
Donated Services
member who donates labor may not deduct value of the labor
Contributions of less than donor’s entire interest in the property
residence or farm
charitable remainder trust
Transportation Equipment – Cars, Boats, things that go
Clothing & Household Goods
Contributions that include a product or service
given/received
Gift of $250 or more
return for the contribution
“No goods or services were provided in exchange for the contributions, except for intangible religious benefits”
Note: It is the donor’s responsibility, not the church, to
Non cash contributions acknowledgement
donor’s responsibility)
the donor in return for the contribution
statement “No goods or services were provided in exchange for the contributions, except for intangible religious benefits”
Note: It is the donor’s responsibility, not the church, to
Accountable Plans
Nonaccountable Plans
1.
Reimbursements are made only with adequate substantiation.
2.
Written evidence required for all expenses, and receipts are required for expenses of $75 or more.
3.
Receipts must substantiate the amount, date, place and business nature of each expense.
4.
Expenses must be substantiated and excess reimbursements returned to the church within a reasonable period of time.
payment Reimbursements are not made out of salary reductions
by reducing employees salary
1.
Any sort of plan that does not require an accounting
2.
A plan that is deemed to not be timely carried out
3.
Netting arrangement -
Pastor receives $1,000 each week. Finance committee tells pastor that if he turns in his business expenses each week, then he can split the payment into part business expense and part salary payment. All of $1,000 is taxable.
1.
Avoids the reimbursement being includable as taxable income
2.
Avoids employee losing deduction because of standard deduction
3.
Eliminates loss of itemized deduction due to 2% floor on miscellaneous deductions
4.
Avoids 50% deduction for meal and entertainment expenses
5.
Avoids reduction to Deason rule
1.
Employee keeps detailed expense records
2.
Plan cannot be considered part of compensation package
3.
Church has full authority to deny reimbursements for unsubstantiated expenses
4.
Amount budgeted is not payable unless expense is incurred and substantiated to the church
Transportation
Travel
Entertainment
Books and subscriptions
Educational
Cell Phones
Telephone Numbers:
General Information 1-800-829-1040 Tax Forms and Publications 1-800-829-3676 Status of Refund 1-800-829-4477 Web Site:
www.irs.gov Publications:
Pub 15 Circular E, Employer’s Tax Guide Pub 15-A Employer’s Supplemental Tax Guide Pub 15-B Employer’s Tax Guide to Fringe Benefits Pub 463 Travel, Entertainment, & Auto Expenses Pub 517 Social Security and Other Information for Clergy Pub 526 Charitable Contributions Pub 1771 Charitable Contributions – Substantiation & Disclosure Pub 571 Tax-Sheltered Annuity Plans (403(b) plans) Pub 1828 Tax Guide for Churches and Religious Organizations
Other Publications GuideStone Financial - Ministers Tax Guide www.guidestone.org Church & Clergy Tax Guide - Richard Hammer Minister’s Tax & Financial Guide – Dan Busby Church Law & Tax Report Church Finance Today Web Sites: Christian Ministry Resources – www.churchlawandtax.com NACBA – www.nacba.net Evangelical Council of Financial Accountability (ECFA) www.ecfa.org
Randy Reid, CPA randy_reid_@msn.com