CPA's & Consultants Providing Business Insight To Churches & Ministries

Last-minute law extends tax breaks

Just before adjourning for 2006, Congress passed the Tax Relief and Health Care Act of 2006. President Bush signed the bill into law on December 20, 2006. The law retroactively reinstates a number of tax breaks that had expired at the end of 2005, making them effective for 2006 and 2007. Here’s a brief overview of what was extended:

1. The itemized deduction for state and local sales tax was reinstated for 2006 and 2007. This is a boon for taxpayers in states without a state income tax, but taxpayers who pay both state sales and income taxes can deduct whichever is higher.

Love Offerings – Gift or Taxable Compensation (2 of 2)

In the previous post on love offerings, we discussed the definition of a gift. A gift = detached generosity. The following is a common church scenario:

On a weekly basis love offerings envelopes are available for congregants to fill out and include a donation for their pastor. The love offerings are received regularly and systematically and the church makes a payment to the pastor on a monthly basis.

Question: Are these offerings considered a gift to the pastor or taxable compensation?

What are special offerings?

Report Date of Auditor’s Opinion

In December 2005, the AICPA (American Institute of Certified Public Accountants) issued SAS (Statement on Auditing Standards) #103, Audit Documentation. This statement addresses certain audit practices incorporated during fieldwork. One of the significant changes provided by this new standard is the dating of the audit opinion. Prior to years ending before December 31, 2006, the last day of audit fieldwork was the date the auditors used for the opinion. SAS #103 changes the date of the auditor’s report.

Nonmonetary Exchanges – New Standard – (2 of 2)

As discussed in our earlier post, the FASB issued a new standard for nonmonetary asset exchanges. One of the most common nonmonetary exchanges is purchasing a new vehicle with a trade in. The nonmonetary asset that is exchanged is the old vehicle. This new standard requires calculating the gain/loss differently.

For example, if your trade a vehicle which initially cost you $20,000 and you have recognized $16,000 of book depreciation, for a vehicle with a sticker price of $30,000 with a $9,000 trade-in allowance. You would calculate the gain on the relinquished asset as follows:

Love Offerings – Gift or Taxable Compensation? (1 of 2)

Scenario: On a weekly basis love offering envelopes are available for congregants to fill out and include a donation for their pastor. The love offerings are received regularly and systematically and the church makes a payment to the pastor on a monthly basis.

Question: Are these offerings considered a gift to the pastor or taxable compensation?

Sample Board Resolution for Designating the Housing Allowance

If a church hires a new minister during the year or if they need to make changes to a minister’s housing allowance, a board resolution is one of the methods used by churches to designate and approve the allowance.

For an example of a board resolution, see SAMPLE

Remember, the allowance should be approved (i.e., properly designated) before any payments are made to the minister.

Housing Expenses – (3 of 3)

In the two previous posts we have discussed how the housing allowance should be reported by a minister and taxed. What kind of housing expenses are allowed? In an excerpt from the 2006 Church & Clergy Tax Guide, published by Christianity Today International, the following expenses are allowed in computing the housing allowance:

· down-payment on a home

· interest and principal payments on a mortgage loan to purchase or improve the home

· real estate taxes

· property insurance

· utilities (electricity, gas, water, trash pickup, local telephone charges)

Nonmonetary Exchanges – New Standard – (1 of 2)

In December 2005 the Financial Accounting Standards Board (FASB) issued FAS #153: Exchanges of Nonmonetary Assets. This statement amended certain provisions of APB Opinion No. 29, Accounting for Nonmonetary Transactions.

February Major Tax Deadlines

The major tax deadlines for February are as follows:

1. February 28 - payors must file 2006 information returns (such as 1099s) with the IRS. (Electronic filers have until April 2 to file.)

2. February 28 - employers must send 2006 W-2 copies to the Social Security Administration. (Electronic filers have until April 2 to file.)

Reporting Housing Allowance (2 of 3)

Ministers may designate a portion of their compensation as a housing allowance. Ministers do not pay federal income taxes on the housing allowances. However each year the minister is responsible for calculating any excess housing benefits and paying and reporting the federal income tax.

What is an excess housing benefit? An excess housing benefit is the difference between the housing allowance received and the amount allowed for reporting purposes. The amount allowed is the lowest of the following three:
1. Church designated housing allowance