Church Tax Conference – Contribution Rules

Originally Posted on March 1, 2021

Webinar Transcript

– We’ll begin in just a moment, but let’s begin with a word of prayer. Thank y’all for being with us and we’re so glad to have you here today for this webinar. Let’s pray together. Father we thank You for today. Thank You for Your Word. Thank You so much for how You lead us and guide us and most of all, that You provided Your Son Jesus for us, and the joy of eternal life through Him. Father I pray that You’d be with us during this time together, that we may have open and clear minds, and ready to take in some information and ready to be wise stewards of all that You’ve given us, in Jesus name, Amen. Before I begin on contributions I wanna do a couple of things before I forget. First of all, we had several questions as a result of yesterday and previous days. And I just wanted to talk about those for just a moment. First of all the W-2. Is it required for housing to be listed on the W-2? And I received one question that I thought was well said. Do we do it, or did we not do it? And the answer is the IRS says, you may put housing in box 14, labeled housing. That’s what the IRS says. It doesn’t mean that you must. It doesn’t mean that you’re required. You may. We have recommended through the years not to just to keep the W-2 very simple, and as simple as it can be. However, in recent years, a lot of the church software programs do include housing allowance in box 14. And so if that’s the case, that’s okay. That’s okay. Don’t worry about it. Don’t get upset about it if that happens. You’re going to calculate your taxes exactly the same way, whether housing allowance is listed in box 14, or whether it’s not listed in box 14. We have also recommended through the years that if you don’t put it in box 14, then give them a memo, the minister a memo which says, for 2020 your housing allowance was, and the dollar amount. So I hope that that helps. We shouldn’t be upset about whether it is or not, and your minister should not be upset whether it is or not, that minister’s gonna calculate the taxes the same way. And remember that the minister is going to pay federal income tax and state income tax on the salary, and they will pay but not housing. And they will pay social security taxes on salary and housing on both. They’ll pay social security, Medicare tax on both of those. And in that case, that’s where the minister is self-employed, and he will pay self-employment tax. So that’s the way that that works. And I hope that clears that up a little bit. You may include it if you wish to or if your software automatically does it. And then again we have recommended just don’t, you’re not required to, and to keep the W-2 very simple. Wanted to say something about a question that came up in recent days. President Biden issued one of the orders to promote and that’s the way that it’s worded. To promote a minimum wage of $15 per hour. What he’s doing is he’s checking for federal workers, are any federal workers or groups of federal workers paid less than $15 per hour? He is also looking at government contractors, and advocating that government contractors pay their workers, a minimum of $15 per hour. That does not affect the rest of us especially those of us in church work, it does not affect your regular businesses in your community, things like that. Only if there was a government contract involved. So he is promoting it. So watch throughout the year there probably will be legislation eventually about minimum wage. It might be for $15 per hour. If it is, then they usually provide some kind of a step up basis so that it may say, perhaps to $10 an hour and then 12 and then 15, or maybe two steps to get there or something like that. And an order that it’s not just suddenly from 725 per hour to $15 an hour, in one stroke. So just watch for that, it probably will be some kind of legislation. Perhaps it might be less than 15 but that’s what’s being discussed, and you watch for that during the year. But so far, the executive order that was issued does not affect us yet. And so we’ll keep on watching that. I did wanna mention, as we lead into charitable contributions I wanted to mention one thing that is effective for 2020. It’s not in the notes that we’re gonna talk about today but there is for 2020, a deduction on your income tax, for charitable giving in the amount of $300 up to $300. And it can be done on your 1040 form without having to itemize deductions. 95% of all Americans these days don’t have enough to itemize deductions. The itemized deductions are still there, but the standard deduction for a married couple is now $25,100, and most Americans just don’t have that much in itemized deductions. And so they also take the standard deduction. And so in addition to that standard deduction, you will be able to deduct $300 from your income tax, even if you cannot itemize. So let’s look at charitable contributions. And again, for those of you who have joined us in the last few minutes, look at alsbom.org/ccs, and click on Administrator Resources, and you’ll find these notes and you’ll find other notes there, and I hope those are helpful to you. All right. So there are six requirements, IRS requirements for charitable contributions. And we go through these each time that we talk about this, but we do need to have this understanding of what are the basic IRS requirements. So number one, it is a gift of cash or property. Number two, it was claimed as a deduction in the year in which the contribution was made. Number three, the contribution is unconditional. And without personal benefit to the donor we’re gonna talk about these more, and in more depth. Number four, the contribution is made to or for the use of, a qualified charity. And we as a church we are a qualified charity. And so it is to, and for the use of the church. And then number five, the contribution is within the allowable legal limits. I’ll tell you that all that I’m gonna say about that is, that it is now 60% of income, and it’s up to the donor to determine that and deal with the IRS. That’s not a church responsibility. We don’t usually see that happen of course, but occasionally when somebody receives a large bonus or large inheritance of some kind, then that might come into play. If they do exceed the allowable legal limits, they can do what’s called a carry over, and they can carry it over for a couple of years. Number six, the contribution is properly substantiated. And we’re gonna be talking about that today. So let’s kind of go back through them and talk in detail. So a cash gift is cash, checks, bank transactions. Those are the ones that are recorded on the regular contribution statement, in just a regular way. You would list the date, and the amount. And the date and amount and if it’s some kind of designated or special offering like Lottie Moon, then you would indicate what kind of special offering it was. But those are cash gifts. Also I said bank transactions, that would include whether you do an ACH with your bank and it’s drafted out of your checking account each month, or whether you do a credit card transaction or a debit card transaction, and give that to the church. Then those are cash gifts. Property is any non-cash, and it’s recorded separately from the cash gifts. The IRS requires that taxpayers show all their tax forms, gifts of cash, and then gifts of property. And since it’s required of the IRS that way, then we need to separate those things on our statements. And so we would have gifts of cash, with the date and the amount. And then some of you for a gift of property you might write a letter, thank you for your donation of the HP computer, and describe it on such and such date, given to First Baptist Church. No, no, nothing was given in exchange for your contribution. So that would be property. Some of your church software, it allows gifts of property. And it will allow you to list it and describe it. It will not allow you to put a value on it. So I’ve said here under number two, do not give gifts of property a value. That’s up to the donor to have to decide, how much that’s worth and if it’s $5,000 or more, then they must get an appraisal of that piece of property. It’s not up to the church to determine a value. And if the donor gives you a value, you should not list that on the contribution letter or statement. You should just simply describe it and list it. Number three, time and labor are not deductible. We often see that in somebody in the trades and they’ve done some kind of work for our church. They’ve done some plumbing work or some carpentry work and they say, here’s my bill but instead of paying my bill, why don’t you just put it on my contribution statement and do that? And you must say no, I’m sorry I can’t do that. The IRS does not allow it to be deductible a gift of time or labor. And then the use of something is not deductible. So somebody is in the business and they’ve got a backhoe and they let the church use it, then that is not a deductible donation. Just the use of something. If they give you the backhoe that would be a gift, but they’ll just let you use it, that’s not tax deductible. Number three and four. It has to be unconditional. Number three. Any designated gift must be a pre-approved fund. It’s got to be unconditional. And both number three and number four, indicate church control. Got to be under church control. So one of the things that the IRS says and the very first thing they always list is something, that is not deductible, is that you cannot designate a particular individual. So when we have benevolence and somebody indicates to you a benevolent need, the Smith family has a need, and here’s $1000 I want it to go to the Smith family. They can suggest a need but they can insist that would not be tax deductible. Then you could pass that on to the benevolence committee, ask that person, don’t put the Smith family on this just write benevolence, and you’ve got to know that the committee might do that, or they might do something else or they might split your gift. You just need to give to benevolence. That’s the why that it’s tax deductible. And you can suggest a need, but you cannot insist that the money go that direction. Sometimes we have a gift to a staff member. A money gift to a staff member. You can’t designate to an individual, so that would be that. We do often have a love offering for staff members. Can we do that? And yes we can, and it would be tax deductible. But as being tax deductible, it’s got to be just the staff love offering. However that’s termed, by the church, and then the church sets when, the church establishes how it’s going to be divided, the church establishes is it for full-time or part-time or everybody that’s on the payroll. How has that done? The church establishes that. So I cannot say to the church, hey, I want all my money to go to the youth ministry. I can’t do that. That would be designating to an individual. I’ve got to go along with what the church does. Let me give you an example of that. And it was the envelopes we bought from LifeWay and they said, “Revival love offering.” “Revival love offering.” What does that mean? And I remember a day and I’m not sure exactly how it’s being done in churches these days, but a long time ago love offerings were pretty good. And you could count on getting a pretty good love offering. And so the pastor and the chairman of finance and other church leaders had in mind, what would be done with that love offering. So if we get a good love offering we will pay the evangelist, we’ll pay the, and we have in mind kind of how much we’d like to give to the evangelist, to the musician. And maybe if we have even more than that we might use some of it of the love offering, for the revival expenses. We had in mind that if the love offerings not very good, then it would maybe all go to the evangelist. But we had in mind an amount that we felt like was a good amount, to provide to the evangelist. And then we dealt with that as the love offering came in. So that example that I’ve just given, it demonstrates that the church had control. Church leaders, had control over that love offering. And so if we got a gigantic love offering it wasn’t all going to the evangelist. It would go to those other expenses of the revival. And there was no guarantee that the love offering would go to only the evangelist. So the church controls that and a member cannot say, I don’t want my money to go that way I want it to go to a particular individual. They cannot designate to a particular individual, and it be tax deductible. Number four, we need some church policies about that that it set conditions, about designated offerings. And we’re gonna talk a little bit about some potential policies that you might have. So same thing with the love offering for benevolent need. And so you may suggest a need, but the church must control that and deal with it through a team or committee, so that it’s controlled by the church. And you would instruct the church members simply to write on own their check, benevolence in the for line. Instruct the church that if more is received than needed, then you’re gonna be helping additional people. There’s no guarantee that 100% of this money is going to that person, even if we all know of a huge need and we’ve talked about the need, then the committee will be the one to decide, how much will go to that need and how much will go to other needs. In IRS Publication 1828, it requires the church to use the money and assets exclusively for its tax exempt purpose. And our purposes are to reach and teach the Gospel. Our purposes are to fulfill the great commission. Our purposes are to minister. Our purposes include all those things but they also include benevolence. So it is one of our purposes, but let’s say that we had a need in the church, I sometimes get this question, a person has a need, and we decided to help that person. The need actually was about $1000 but we took up $2,000. We did not know what to do with the other money, and so we just gave it to them. Well that’s wrong. The rest of that money beyond the need, is an improper use of the church’s money. So we need to be careful of that. And so we want to be careful, that we’re using our money properly. Contributions that are not deductible. Contribution designated to a specific individual. That’s always first, OF the IRS list. Always first. And then there’s some other things listed there that are not deductible. Let’s move on. A mission trip is a tax deductible event. And so camps and retreats are not tax deductible, but a mission trip is. Camps and retreats are about us. They help us. They help us to grow spiritually. They help us in many different ways but a mission trip is different. It’s not about us. A mission trip is about us helping others, assisting others, leading others to Christ. And so mission trips such as evangelism, such as Vacation Bible Schools, and a mission trip, church construction, disaster relief, all those kinds of things. It’s not about me. It’s about other people and spreading the Gospel. And so that one, is a tax deductible event. And it is tax deductible as long as there’s no significant element, of personal pleasure or vacation. That’s what the IRS says. So what does that mean? How do we determine if there’s a significant element? And so Richard Hammar who’s the nation’s leading authority, on taxes in church and clergy. He recommends that we have at least a six hour work day, for the mission work that we’re doing, or 80% of the itinerary devoted to the mission work. And that’s two ways to look at it, but that’s a wonderful help to us to know kind of how to do it, and how to keep keep it a tax deductible event. So Hammer also in his more recent book of his, he talks about a mission trip at a little different way who they used to. So an adult paying their own mission for their own mission trip is tax deductible, but it also needs to be non-refundable. Number two, church members who are not going on that mission trip they may donate to the mission trip, but they cannot designate to a particular person, and that be tax deductible. So the person would designate to the mission trip, and then the church would decide how members are helped to go. We might want to specifically help people who are more in need, or we might wanna divide that money among several or all who are going, and we determine, the church determines, how that money is going to be used. Number three, an adult paying for their own teenager to go, is not tax deductible unless, notice that I’ve underlined the word not and unless. This one is a different way of saying it than he used to say it. Unless the funds were made in trust, or legally enforceable arrangement for the benefit of the church. So you’ve gotta do it in that manner. And so as you have your first meetings about a mission trip with teenagers and you talk to the parents, tell them that this is not refundable. It is not refundable and you’re gonna be giving your money freely, and unconditionally to the church for the purpose of this mission trip. And if your teenager can’t go, then your money is non-refundable. You just gave a gift to the church that will be used to help others to go. So we need to inform the parents of that at the very beginning, and so the donation should be non-refundable. We often send people on mission trips to other countries, and we need to be concerned about some of those things. And so when we give money to a foreign national, that one is of great concern, that we’re doing it correctly. So when we’re you thinking about giving money to a church or a pastor who lives in another country, we’ve got to think about some of the same concerns that we have over our money here in the States. And so remember that Publication 1828 it says that, we must use all of our money, for our tax exempt purpose purposes. And so one is we do not want to provide any kind of private benefit or inurement. There needs to be reasonable salaries for that location. I went to a tax conference and there was a church that was giving money to a church, and pastor in a foreign location, and they found out they were giving that pastor $2,000 per month, and in that location, in that country that was a very good salary. Pretty good salary. It was not a low salary. And they were providing that for that pastor. And then later on down the road, they found out that that pastor was getting money from several other churches to the tune of $2,000 per month each. And so that was an unreasonable salary for that location. And that would be inurement. Political activities we’ve got to be concerned about that. As you know churches cannot be involved directly in political activities. We can speak out about issues all day long but we’re not to get involved in endorsing a candidate, or recommending that people vote against a candidate, or things like that. And then we’ve got to watch out for illegal activities. And Homeland Security is very concerned about money sent to other countries, that cannot be accounted for. Down to the bottom we need to do these things. We need to keep receipts, we need to keep records of activities. We should have that pastor or church leader give a report at least quarterly, monthly might be better. Just what’s going on. What are y’all doing? What are the activities? What kind of results are you seeing, and what kind of attendance, what kind of things are happening in the church? How many people have been saved, things of that nature. Record those activities, and then encourage that pastor to take lots of pictures, and when you send a team to that location, you take lots of pictures and make a report. These reports don’t have to be terribly long. A page would be plenty, and that way you would file those away, and if there’s ever any question about the way your money was used, then you can show how the money was used and that you took reasonable care to assure that the money was well spent. So be careful about money going to other places, other countries. Sometimes we pay an American citizen going overseas. And so when we do that, we’re going to think about are we gonna have this person as a volunteer, and that would typically be a short-term mission trip. Maybe a week or two or maybe six or eight weeks. Something like that. They are a short-term volunteer missionary. And the other option is, well maybe we’re gonna send them there for two years and we’re gonna help, pay their support. And if we pay them like that then we’re gonna need to provide them a 1099 or W-2. Don’t worry too much about their taxes because they will have a huge tax break in living overseas, and working overseas. But whatever you provide you would need to do one of the way that, one or two or the other way. When you do that, if you’re gonna send them as a volunteer, keep them a volunteer. Don’t send them for six months and then not pay them. Just pay their expenses, and then after six months you bring ’em home and give them $1000. Don’t do that. Either keep them a volunteer, or have them go as paid. And if they go as paid you need to provide the tax form. So do it that way. When they go as a volunteer, strictly a volunteer, you can pay their expenses of that mission trip. And then when they come back, and especially if you don’t know exactly what the costs are gonna be, and you gave them maybe more money than they needed perhaps, then when they come back they should settle up with the church, giving receipts and giving any excess money back to the church, so they’ve remained a volunteer. Let’s talk about paying a foreign national. When they come to the US, say they’re speaking, they’re helping to get their support together, they’re doing speaking engagements in several different churches, you could help them with their travel expenses, their food and lodging, but any additional is money beyond that is probably gonna be a violation of their travel visa. Most basis, you can’t work. You can’t get paid. And that person would need an R1 religious worker visa, in order to be paid. And even with that kind of visa, the R1 they’re usually limited to only being paid by one source. And so you would need to find out those things. Perhaps they’re here on a trip to kind of drum up support for their mission work in the other country. And so you could send that money to them in their country, but don’t give it to them here, because that’s likely to be a violation of their travel visa. There is an IRS substitute form subject to backup withholding, if you wanted to do that. But generally don’t pay them while they’re here. If in their other country there’s no reporting they’re not an American citizen. But you do need to do the record keeping requirements that we talked about earlier, of keeping records of receipts and expenditures, and take pictures and have that report on the activities that they’re doing with their church. So we do need to be very careful about foreign activities, and paying in proper kind of way. And in fact, one of the things that we need to do if we’re paying foreign nationals, we need to check specifically designated nationals list, at treasury.gov. And then an attorney suggested take a screenshot of that page, showing that the person is not on the list. That where they would have been they’re not there and so you’re safe. Specially Designated Nationals. That’s the list of potential terrorists. And that’s what that is and just show that you have been responsible to check. Then take a screenshot of that page. All right, countries. We need to check the sanctions list also at treasury.gov. And there are certain countries we cannot send money to. You know, I was thinking about we used to send people and money and efforts to Venezuela. And in recent years we’ve not been able to do that. So you do need to be careful about your money. Another question that has come up a lot is, we have a designated fund. We’re gonna kind of shift gears here, talk about designated funds. We have a designated fund that now we don’t want that, we’ve changed our minds, or we don’t need that money anymore. Or we did what it called for, and now we’ve got leftover money, and people are still sending money to that fund and we don’t know what to do with the money. So if we’re going to repurpose designated money, we have made a legal agreement with the donors, that the donors have given in good faith and the church has agreed to allow them to give to that designated purpose. And so to undo that, it takes a vote of the church and number two, obtaining permission from the donors. Wow, that’s gonna be a monumental task to get permission for the donors, especially if this has been going on for years which sometimes it has. And so you want to be very, very careful about setting up a designated fund in the first place, and just make sure that that’s what you wanna do. And then another thing that we’re gonna talk about as we talk about policies, another thing we’re gonna talk about is that you might wanna set it where, the fund is in effect for a certain period of time and then it ends. And that when it does the end any leftover money from that fund will go to the general fund, or something like that. So you can set policy but the problem is, is that many of us have these funds on our books for the last 20 years, we did not have a policy in place 20 years ago, and we could change the policy from now on, but we can’t change it for money that was 20 years ago. So you cannot borrow the funds either when it’s been designated. And if you repurpose the funds without the donor’s permission or the court’s permission, then in some states that’s called fraud and other states it’s called theft. So you’ve got to be very careful about that. Repurposing designated money that was given from the church to a designated fund, that money can be reallocated. So for example, and that’s not a problem. The church contributes $1000 each month, to a contingency fund, or emergency fund from the general fund. And so if you wanted to change that, you could change that easily. That’s no problem. But what we’re talking about is changing money, that has been given by donors to a particular purpose. That’s a legally binding contract really is what that is. Let’s talk some about contribution rules, and having some contribution rules in your church. So these are just some suggestions. You can do with these what you wanna do. You can use some of them and not others or do as you wish, but here are some suggestions. Number one, all designated funds must be approved at advance of contribution. That’s just a kind of a restatement of what the IRS requires here. Number two, all designated funds are under the control of the church. Just let your members know that that’s how that works. Number three, have an exit strategy for some funds. So that leftover funds from a project, will revert back to the general fund. So after 2021, then these funds will revert back to the general fund. Any funds that have not been used already. Number four, if a designation is not an approved fund, the church will not accept the gift. Number five, a designated offering may not be for a specific person except for a mission trip. And a person may suggest a need, but must be willing to allow the benevolent committee or other committee to decide how best to use the money. And number six, a mission trip is a tax deductible event, as long as there’s no significant amount of personal pleasure or vacation. Gifts given by persons going or even family members, are tax deductible. In fact, I can pay for my own mission trip and that would be a tax deductible gift. That’s unusual to be able to do that, but that is the rule. Number seven, gifts given toward a mission trip will benefit others going, or revert to the general fund if the participant is not able to go. That’s that idea that I’m giving unconditionally to the church mission trip. And that is the spirit of charitable giving. Number eight, designated funds should be broad rather than narrow in focus. So for example Building Fund rather than Family Life Center Fund. And that way we might have to get more parking before we build that. We might have to remodel another area before we get to the Family Life Center. Building Fund is whatever the church decides to do next. But Family Life Center Fund would be specific to Family Life Center. So keep it broad. Music fund rather than a choir robe fund. I don’t see a whole lot of choir robes as much as I used to, but sometimes church has changed their mind about they wore choir robes, and then later they don’t. And so if you kept at music fund, then no matter what happens we’ll be able to use that money. Number nine, staff love offerings are under church control. The church decides when, the church decides how, and how the money will be distributed among the staff. And will it be part-time, full-time, everybody? How does that work? The church decides that through its church leadership. And then number 10, you need to talk about designated offering to a church budget line. Does the church allow that? Most churches would allow that. But then what does it mean when you do? Does it increase the budget line? Or is it simply the first money spent, assuring that those dollars are available for that budget line if cashflow is tight? Does it carry over to the next year and 99% churches on that one would say, no, it does not carry over. So be careful. Sometimes designated offerings to particular line of the budget, can be a means of controlling a donor, and controlling the church. And sometimes it means that the church budget might be in trouble. So be careful about this number 10, and talk through it very carefully so that you understand what your church is gonna do. Substantiation. And we need to talk about this one. Substantiation the IRS says something very unusual. The IRS says, “Contribution statements must be received, “before the return is filed by the taxpayer.” So as you know, the 31st is a suggested date to have the contribution statements out. Some of you might be late. The taxpayer might be anxious about getting their tax return filed, and he cannot send it in before he has the statement in hand. if he did, the first day to file this year is in February. And so hopefully all your statements will be out before that. But if he did file before he had his statement in hand, the IRS could question him about that, and actually could deny the giving if he did not have his statement in hand. And he could be saying, I gave $500 on the first Sunday of every month and here are my canceled checks. And the IRS would say, I’m sorry you needed that statement in hand before you filed. And about the word contemporaneous the IRS says, “Recipient organizations typically send “written acknowledgements to donors, “no later than January 31st.” That’s a suggestion or recommendation, but it’s not a legal requirement. So we need to encourage our donors to not file until they have their statement. And this year that’ll be easier to do. When you do substantiate their giving, the requirements are the name of the organization, and the date and each contribution itemized and the amount. The amount of each contribution. What the IRS actually requires and what I’ve said here is just a simple way to do it. The IRS requires that any gift of $250 or more, be itemized. You could conglomerate those smaller gifts if you wanted to. But to me it’s just much simpler just to itemize every gift, and that’s simple to do. The other thing about that is that if there’s ever a question about someone’s gift, it’s easier to see the date, the contribution was made and the amount, and to be able to clear up any questions about contributions. If there is something given in exchange, you’re going to show that. But let’s go back to number four. A description of the non-cash contribution but not the value. Thank you for your donation of a HP computer, laptop with such and such hard drive, and so-and-so, given on January the 26th of 2021. Something of that nature. But you wouldn’t say, it’s worth $500. You wouldn’t say it’s worth $800. Your donor might suggest that you give it a value. Hey, this computer is worth $1,500 but you cannot list that. You cannot list the amount. And then it must have a statement that no goods or services, were provided by the organization in return for the contribution if that was the case. So those are the things that are required for your substantiation and you’ve got to do it right. This is very important because if your substantiation, your statement, if those things are incorrect, you’re not going to be able to fix it. So your statement’s incorrect and the donor gets audited about their giving, and they come back to you and say I was audited and my gifts were not allowed. And you say, well, I can fix it. I’ll give you the proper statement. I’ll fix that statement. But by then it’s too late, you cannot fix it. Some other requirements if there is something given in exchange you would state, what the value of that. For example, in the one organization that does this more than any of that I know of, is Alabama Public Television. So you give 100$ and they’ll say this, if you give $100 or more we’ll give you this DVD. If you give $250 or more, we’ll give you this DVD set. And then when they do that acknowledgement about the DVD it might be worth $15. So their acknowledgement would be thank you for your donation of $100, in exchange you received a DVD with an approximate value of about $15. And so that’s the way that that works. But on your statements on your letter if you send a individual letter, maybe it’s just a one-time gift, one time for that entire year, maybe the person doesn’t even live here and they give to your church and so you just think I’ll just give them a letter, that wording needs to be there. “No goods or services were given “in exchange for your contribution.” Or you can say as this wording says, or “It consisted entirely of an intangible religious “benefits only.” I’ve seen some statements that said, nothing was given in exchange for your contribution unless otherwise noted. And that I don’t really like that as much as just keeping it separate, but that’s okay and that’s what some of the church software does. So another thing about substantiation is, if the donation is less than $250, the IRS will accept a canceled check, or a receipt or a letter from the church. It’s got to be one of those two. They won’t just let you write down I gave $250 when there’s nothing to support that. So a canceled check or receipt. If it’s $250 or more, the IRS will only accept the receipt. The statement from the church. And you might be thinking well, but I’ve got my canceled checks. I’ve got proof. I can show it, but yet if it’s $250 or more the IRS will only accept the church statement. That’s why your statements are so important. So be careful of how you do your statements in these next few days. The wording must state, “No goods or services were provided “to the donor, in exchange for a contribution.” An example of written acknowledgement could say, “Thank you for your cash contribution of $300 “that First Baptist Church received on December 12, 2019, “or 2020, no goods or services were provided “in exchange for your contribution.” There’s no certain IRS form for the acknowledgement. Letters, computer-generated forms. It’s weird that the IRS says postcards in these days that were so privacy conscious. But anything like that with the above information is acceptable. And the organization could provide a paper copy, or it could even be electronic such as email. Could be. And that would be sufficient for the IRS. Another question that I get often is, does it have to be signed? And actually the IRS does not state that a signature is required although an agent might ask sometimes, but there’s nothing in the IRS language that indicates that that’s required. About non-cash gifts could be crayons from Walmart, for VBS or jewelry, or a car, or real estate or publicly traded stock. And the church should not determine the value. That’s the donor’s responsibility. So you would list it, you would describe it, but you wouldn’t give it a value. Even if they’ve got a receipt that they just bought stuff from Walmart, for Vacation Bible School, you still would not put a value on it. And don’t put it on your contribution statement, unless the software has a section for non-cash contributions. Examples of goods and services, might be something like a carwash. We don’t do things like the Alabama Public Talent Television, but we do some things in which goods or services are received in exchange like a carwash, or a youth supper to raise money for the youth mission trip. Things like that. And so if they received a carwash and they give you $10, and they say, would you put that on my giving statement? You’ve got to say, no, I’m sorry that we can’t. But if they gave $100 to the car wash you could say, thank you for your donation of $100, in exchange you received a carwash with an approximate value of $10. Same thing with the meal, same thing with this bake sale. Thank you for your donation of $100, in exchange you received a cake worth approximately $15. So things like that could be done. So it’s called, what I’m talking about is called quid pro quo. Easy for me to say. It means this for that. And so you don’t have to do a receipt unless the donation is more than $75, and the donor will subtract the fair market value of the thing given in exchange, even if it costs the church nothing. Example, the church receives donated food and labor for a fundraising dinner, but the member contributed $10, $10 minus the $10 value is zero donation. $100 donation minus the $10 value would be a $90 contribution. And so the way the church would say it thank you for your donation, of $100 given to First Baptist Church on January 26, 2021, in exchange you received a meal with approximate value of $10. We’re gonna stop right here for just a moment, and I’m going to check and see about any questions. And we have a question from Karen Phillips, “An acknowledgement “of an item bought at a youth fundraiser option. “Do we put an approximate value of what they bought?” That’s a great question Karen. So that’s harder because what kind of items are you talking about? I suspect it might be things that were donated, and so they bought a little knick-knack of some kind. How do you put a value on that? I think I would think in terms probably unless it’s a brand new item. I think in terms of maybe like garage yard sale type of a value. Thank you for your donation of $100, to the youth fundraiser option in exchange you received an item with an approximate value of 10. You received a knick-knack with an approximate value of $10. Something along that lines. If they gave $10 and it was worth $10, then of course they’ll record that as a contribution. I think I would not really volunteer to give people contribution credit for that because, a lot of people aren’t going to be buying an item and they’re going to be giving an amount that’s approximately the worth of the course the auction, you can run that value up. I know we ran the value up on the cake sale that we did at state board admissions, to raise money for the Kathleen Myers Mallory offering in recent years. So I think I would kind of prefer not to indicate that on their contribution record, unless somebody wants to give a big amount like thank you for $100, and in exchange you received a knick-knack with an approximate value of 10. I think I would do it that way. Sometimes it’s just hard to know what that item is worth. All right. Gary Jones, “Mission trips. “If the trip is planned by the church “and the trip is canceled due to COVID, “can and should the funds designated “for the trip be refunded to to the donors?” I think if the church cancels the mission trip, that the church may return those donations. I think it would be important that it be in the same year. So like for example let’s say that we plan to take the trip in March of 2021, and we’ve canceled, but people were giving money in 2020. I think I would ask them, you gave unconditionally and we’re going to allow the church to maintain those gifts for the mission trip fund. If you should absolutely need your donation back, we will do that but we would for everybody else if it’s okay, that will to the mission trip fund, and it will be used for a future mission trip. So you really don’t want to give money back, but I do think that it’s probably permissible when the trip is canceled, not by the individual but by the church. But I think even in that I’d prefer to say, if you’re okay then we would like to maintain that money in the mission trip fund for a future mission trip. And then Gary Jones, “We sometimes receive gifts “in memory of members who’ve died. “Sometimes it’s designated to a certain fund, “and sometimes just to the church. “Would this be a charitable contribution?” And Gary, that one is a difficult one. If they just give to the church of course obviously that one is a charitable contribution. If they give to a certain fund, if that fund is established that is a charitable contribution. If they give and it’s not acceptable by the church, then you would probably want to get back with that donor, and say, the church does not have a fund for that, and you might want to allow the church to use your money in a different way and if that’s permissible to you, we would like to do that. That would be a better way. Sometimes people come up when they’re giving in memory of somebody, then sometimes they don’t follow those important kinds of designation rules. And this is in the financial issues book. Starting on page 58 we have some specifics about non-cash gifts. So that book is, we don’t have printed copies right now. We were waiting to see what changes were going to be in the new year, and we’ll have printed copies of that before long. But in the meantime, it is online at alsbom.org/ccs, and then click on Administrator Resources. So about a non-cash gifts, key concept this is a gift of property not cash. So don’t post it on your regular contribution statement, unless your computer software has a special section for non-cash contributions. And you would give a receipt, and you did not give a value to the donation. So your letter, or if it’s allowable on your software, it would say, “Thank you for your donation “of a blank,” used computer or HP computer, “received by First Baptist Church, September the 12th, 2020, “no goods or services were provided in exchange “for your contribution.” And that kind of light is the way you would word it. Notice I did not put a value on it. It’s got to include a description of the property. So if it was a computer and that is worth something, it’s not used clothing. So that is where something is so you would describe it. You would tell manufacturer, the model number, the type of computer it is. The size, hard drive, and things of that nature. You would describe it. And so then if it’s less than the entire interest in the property is donated, then you must include an explanation of the total amount claimed. And that I wouldn’t really get into that. It’s something that you don’t want to be the one who says, how much that’s worth. And then C, you must include the terms of any agreement between donor, and church relating to use, sale, or disposition of the property. Okay, let’s move on. If it’s valued at more than $500, the donor must complete IRS form 8283. Notice, that that says the donor not the church. And the donor reports the donation of let’s say they give a car that’s worth $1000. But well, let’s stop using a car in this example. Let’s use they gave a piece of jewelry that’s worth $1000. Then they would complete that form 8283, and it would have a detailed description and the cost or other basis. If it’s valued at more than 5,000, the donor must get an appraisal. The donor must complete the IRS form 8283, and then the appraiser completes a part of that. And then the church must complete part four, and all you’re doing in that is you’re just acknowledging you did receive that piece of jewelry. That’s what you’re acknowledging. You’re not stating it’s worth a certain value, you’re just saying that you actually received it. And then if the church sells the property valued more than $500 within three years, the church has to complete form 8282. And what’s gonna happen with that, let’s say they give you a piece of jewelry and they say this piece of jewelry is worth $4,000, so it doesn’t have to have a qualified appraisal. And they think it’s worth 4,000 but you only sell it for $500, then you’ve got to complete that form 8282, and they’re going to have to recapture that itemized deduction that they had, and that’s not going to be good. So that’s what happens with the 8282. Car donations are a little different. When somebody gives a car to the church, you’re not going to post it on their regular contribution, you’re not gonna give it a value. You’re going to give the receipt in the form of a 1098-C. You’re required to if it’s more than $500 and any kind of junk car is probably worth more than $500. And so you’d use a 1098-C. And it is worth, it is tax deductible, but they’ve got to be proving the amount. So let’s say it’s worth $2,000, then they would go to some kind of Kelley Blue Book something like that to establish the value. And it would not be the retail value it’d be the private party value. If somebody gives stock, then it is a gift of property not cash. You don’t post that amount, even though you sold it and you know what it was worth. And so you don’t post it on the regular contribution statement. You give a receipt or letter, and don’t give a value to it. You would say, thank you for your donation of 100 shares of XYZ stock, and it was given on January 26, 2021, and no goods or services were given in exchange for your contribution. And then they would know or look up what is the value of that stock on January 26, and they would know that they would be the one that have to show that. On January 27th, when you sell it, it might be worth a different amount. We could see the stock go up or go down. And so they get the value that it was on the date they gave it, not the date the church sold it. So that’s how you do that. You do not list a value. List of some sources in your notes and one good source is IRS Publication 526, on charitable contributions. Another good source is IRS Publication 1771, which is all about how to substantiate their giving. And you’ll want to note that. We’re about to change gears to talk about accountable reimbursements, and expenses, and things like that. Y’all might wanna take a stand-up break. I don’t see any new questions in the Q and A, and you’re welcome. Let me just remind you that you’re welcome at any time, to put a question there in the Q and A section. Just type it in, and I’m gonna stop periodically and check for those questions. So you might wanna take a stand-up break, you may wanna take a very, very, very quick bathroom break, and we’ll kind of start back up again. I’m going to see if there’s any questions out there. Let me remind you while y’all are taking standup break, let me just remind you that next month we’ll be doing the minister tax conference. We’ll be talking about ways ministers can save money, we’ll be talking more in depth about the housing allowance. We’ll be talking about retirement and how that can help to save money, and to prepare for retirement. We’ll be talking about how ministers can avoid the kind of package approach that churches so often do. So I hope that those things are helpful next month and those will be on the eighth and the 16th and the 17th. Let’s talk about, let’s see. Before we begin we’ve got another question. We sometimes receive gifts of members, okay we’ve talked about that. All right. “Pastor Greg, just to clarify, we have a donor write a check “for Alabama Baptist subscription “and write that in the memo.” If they’re just paying for something, “that would not be a donation. They are receiving something in return. When they buy something if they buy a meal, if they buy something that they buy a book from the church that’s not a contribution. And so you would not indicate that, that was a contribution. let’s go back and I’ll share the screen again. I wanna just talk just a little while about accountable reimbursements. This is extremely, extremely important these days, because ministers cannot write off their business expenses on their taxes any longer. Remember a minister is an employee for federal purposes, self-employed for social security purposes. And so the employee unreimbursed business expense is not on the itemized deductions anymore. So you cannot itemize that on your taxes and most people can itemize in anyway because they don’t have enough. So we as a church, we should provide for ministry related expenses. And this is in the Compensation Planning Guide. We went over this a few days ago, Compensation Planning Guide. So address these expenses with an accountable reimbursement plan, and the purposes can be vehicle used for business purpose, meetings and workshops and conferences, books, and periodicals, continuing education, and provisions for ministry-related hospitality. That would be say, the pastor takes a family to lunch to tell them about the church, and answer their questions, and find out where they are spiritually, and any prayer needs they have, that would be a business lunch that could be reimbursed by the church. And then the requirements, it must have a business purpose, we must document the date, place, amount and purpose. Amount if it’s a dollar amount or number of miles if it’s mileage. The expenses should be substantiated within 60 days, and any excess should be returned to the church at least within 120 days. We can use this IRS standard mileage rate for business vows, and any of that money should not be given back to the to the employee as a bonus or additional income. And in fact the IRS says, it cannot come from salary deduction. So you determined the covered expenses and create a plan, these expense reports they need to be submitted at least every 60 days, and then you would reimburse what that is indicated on the expense report. Who can have reimbursed expenses? The minister, the secretary, who also goes to the bank or store or post office. Custodian who goes to buy cleaning supplies. Things like that for their mileage. And any employee who has expenses on behalf of the church. So what is a non-accountable plan? And the IRS talks about non-accountable plan. It would be not accounting for it as we just described, a car allowance with no accounting to the church. So we’re gonna give you $4,000 this year for your car expenses. Do I turn in a report? No. Do I get reimbursed? No, we’re just gonna you that amount of money. And so that would be taxable money that’s all that is. Reimbursements with improper documentation. For example I drove 535 miles this month. Now it’s got to show date, place, purpose, and number of miles. And then reimbursements from salary deduction. You cannot do that. What happens under a non-accountable plan? It’s just simply taxable money and it’s added to the box 1 of the W-2. It’s not on a separate 1099, it’s not in box 14, it’s just added to box 1 of the W-2. And these days without having an accountable reimbursement plan, the employee would not be able to write it off on schedule A, itemized deductions. That is no longer allowed on schedule A. What about an accountable plan? The church keeps the records on file, it’s not added to the W-2, it’s not taxable at all. And it’s not taxable for federal, not taxable for state, not taxable for social security, Medicare either. So what are the basic rules that must be properly documented? It must include a receipt if there was a purchase, it’s got to be done at least every 60 days, you may give an advance but that’s got to be settled within 120 days. Can we drive from home to a business purpose? Notice on this chart, this dotted line from home to church. Home to church and this minister was bi-vocational, and so showing home to a secular job, and that’s a dotted line. You can’t count your commute. However, you may count from home to a business purpose, as long as that business purpose does not become regular. It’s not your regular place to go. For example, let’s give an example. So the administrator goes to visit a prospect and at their home. You can always count that even if you drove from home. The minister goes to Walmart to buy stuff for VBS. You can pretty much always do that because you’re not gonna be buying VBS stuff every week. The minister goes to the hospital, and most often you can count that because you don’t have a regular schedule of going to that hospital. You go when there’s a deed. And so you may count mileage from home under certain circumstances, but you might never count from home to church. That’s always commuting. One thing I did not know is, what if I go back to church that night for a meeting, I can’t count that mileage. That’s still commuting no matter how many trips that I make. I think we’ve got a question and I especially wanted to do any kind of question about this chart. This chart was actually taken from an IRS Publication, and we just adapted the chart to a church situation. So that’s the way that that works. These other locations, Walmart and the hospital, and the prospective member’s home, those are called temporary work locations. And you can count in those cases as long as it remains temporary work location, you may count from home to that location. I’m going to look back at the questions. There’s one more down. Peggy Vincent, “If your teenagers going “on a foreign mission trip with you for a week, “can you detect the cost for both of you?” And yes, that is true. And you can, because it’s not about you, it’s not you benefiting from the mission trip. It is you assisting to spread the Gospel or assisting a church, or assisting a need, like in the case of disaster relief, and you would be able to deduct your own trip, and you would be able to deduct that of your teenager. If you paid it through the church, that gift to the church would be tax deductible. And if you paid your own way, then you would just need a letter from the church acknowledging, thank you for going to the mission trip in Asia on August the 12th through the 30th, and thank you for going and working for needs there in that area. And no goods or services were given in exchange for your contribution. That acknowledgement is for the purpose of just verifying that it was a mission trip. It wasn’t just a pleasure trip to that part of Asia, that you went for a mission trip. But whether you pay your own way, or whether you pay it to the church and the church pays those expenses, it is still tax deductible. Even if it’s you, or even if it’s you and your teenager. That’s a great question. That’s a really important question that we need to look at. Sharon says “We’re in the process of having our gym floors, “and racquetball floors refinished, “being paid out of repairs. “We have a few members as well as non-members “that are using the racquetball court. “They have asked about giving a donation “towards helping with the cost. “Can they give towards this purpose?” Really the best thing to do, I mean they can give. The easy way would be just say, thank you for your gift to the church, and it is going to be done. This is work that’s already underway. It is gonna be done, and we just received that into budget money. You could if you have a Building Fund. You could allow them just to, that goes through the Building Fund. And that would probably a very good way to do it. You are supposed to have a designated fund. Let’s say that you made a big deal out of having the gym floors redone. And so let’s say it costs $5,000. I don’t know what it cost. But let’s say it costs $5,000, and you put out the word hey, we need money for fixing the floors and you establish a gym floor repair fund, and you get $8,000, what are you gonna do with the other three? So you would not want to start a gym floor repair funds. You’d want to just have it out of Building Fund or some kind of broad fund like that. But yes, they could give a donation and it would be tax deductible. That’s a very, very good question. This is an important diagram. Ministers can, as well as other church staff they can go from home, to a temporary business location, and that one they can turn in their mileage for, and get reimbursed for that. There’s a concept that you and I need to understand, and this is not the easiest of concepts. But there’s a difference between transportation which is local, and tribal which is out of town. And the IRS actually has a more specific definition of that. It’s out of town overnight. They define it doesn’t have to be that you’re gone a full 24 hours, but that it did. It was enough hours that it did require you to stop and rest. And they’ve got a specific definition of that. So we can reimburse on local transportation. We can reimburse for mileage, tolls, parking, any kind of thing having to do with their expenses. And meals are generally not included unless we’re entertaining a client. We’ll talk about that in just a moment. For example, you go to the hospital, and so your mileage could be reimbursed by the church. You go to the hospital, someone is having surgery and their loved ones are there. Well, they’re not there now because you can’t go in with your loved ones during times of COVID, but under normal circumstances, their loved ones are there and you say to the loved ones hey, I know this is gonna be a long surgery, I know you’ve been here since early this morning. Let me take you down to the cafeteria and buy you some breakfast. And so you do that and you talk and you share spiritual needs, and maybe have prayer with them, and then that bill could be reimbursed. And so under certain circumstances the meal may be reimbursed. But the general rule is that meals during local of this would not be reimbursed. And it may be permitted under certain diminimous rules. I’ll talk about that one in a moment. Travel is out of town overnight, and we can reimburse meals and the mileage, and hotel expenses, and things like that. And so that’s the difference. Local, you generally do not reimburse for meals, unless there’s some other rule. And then out of town overnight you can reimburse for mileage and meals and hotel expenses. So staff going to lunch is not a business expense, and that’s generally not permitted. You can do it occasionally as maybe a staff celebration over birthdays and anniversaries and things like that. So meals are generally not accepted, but you can celebrate birthdays and anniversaries. The church may provide a meal under the diminimous rule, to keep the employee on the job, such as working overtime, and a meal may be reimbursed if it’s hospitality. We still can do business meals reimbursed to the employee, and we still can do entertainment like say, that you take a perspective family to the local high school football game and you use that as a way to talk with them, and get to know them, and it has a business purpose, and things like that. You could be reimbursed for that. Let’s talk about a few things that are new, and then we’ll be wrapping up in just a few moments. What’s new in 2021? And I’ve just brought to you a few things. So first of all, the business mileage rate for 2021, is 56 cents per mile. We need to all realize that. Number two, there are three new IRS forms this year. There’s a new W-4. We’ve talked about that quite a bit each time. And for a minister, I have developed a form to help you to determine how much do I need to withhold, or how much do I need to set aside to get ready to turn in my tax money as I do an estimated tax payment. And so those resources are at alsbom.org/ccs. We’ll talk just a little bit about the W-4 in a minute. There’s a new 941 and it’s pretty much the same as it always has been, but it has some new lines for the Family Medical Leave Act 2020. Family Medical Leave Act 2020. That was that if a person had to quarantine because they got COVID, or had to quarantine because of family, they’re caring for a family member who has to quarantine because of COVID, or they were under some kind of quarantine order, or their child has lost their ability to go to school or daycare, due to COVID and those places closed. Then what happens is, the employer is supposed to pay two weeks in full pay, and then 10 weeks at I think it’s 2/3 pay for those times of quarantine. But you can go to the 941, and the church would be able to get some of their money back through a credit on the 941. Another new form is the 1099 NEC. Stands for non-employee compensation. Don’t use a 1099 miscellaneous. And in fact, the non-employee compensation, that’s not even on there anymore. So you’ll want to use the new form 1099 NEC. So we’ve talked a little bit about that, about the Family Medical Leave Act of 2020, and you were supposed to pay them, and then you can get a credit on the 941, as you fill that out. For 2021, the Family Medical Leave Act has expired, but you may voluntarily do it. You pay the employee because they were quarantined, and then you can get some of your money back on the 941 form. So it’s voluntary this years, at least that’s so far. We don’t know what Congress might do. There’s new stimulus as, and notice this date. December of 2020, there will probably be some more stimulus coming in the coming months. But there’s a $600 stimulus check or deposit into your checking account, per adult to persons up to $75,000 income or 150,000 per couple. And if you did not get that as electronic deposit, there are ways to get it as a paper check or as you do your taxes. There are new unemployment benefits. There’s an extra $300 per week going on for up to 11 weeks, and watch for that, that may change too in the coming weeks. There’s a new round of PPP loans to small businesses, and then the loan is given, the business qualifies for it, and then the loan is later forgiven. I have heard from some churches, they took out one of the earlier rounds of PPP loans, and I’ve heard from churches who have had that loan forgiven. So churches do qualify for PPP loans if you need that to maintain your payroll. There is a new W-4 form, and for most people it’s really simple. For most people it’s just three considerations. Your filing status, like married filing jointly, filing separately, head of household or single. The standard deduction is the way that it’s gonna operate off of, and then you can indicate child tax credits. And so it’s possible even to fill out your personal information, the name, and address and stuff, indicate filing status and sign it at the bottom. It could be, that that employee just completes step one and step five and signs it and that’s it. So it’s a lot simpler for the employee. And so step one is personal information and filing status. Step two is if there are multiple jobs in the home. This is very, very important. For example, married filing jointly, and if you’ve got multiple jobs say, husband and wife both work, then you could indicate married filing jointly but check the box. If you don’t check the box, is gonna claim the full standard deduction of 25,000. If you do check the box, then it’s assuming that each will claim the standard deduction as if they were single of $12,500. And so that’s very important that each spouse does this correctly. If they don’t do it, if both of them failed to check that box, and they both indicate married filing shortly, that is going to claim the standard deduction of $25,000 for each of them, and they will have seriously underpaid on their taxes. Step three is about Child Tax Credit. So we get a credit for each child under age 17. Step four is adjustments for extra deductions or extra withholding. So anybody can withhold more, than what the tables call for. And then finally you’ve signed and dated. And step four, ministers would want to withhold extra. If they want withholding done, then they should base their withholding on both their federal income tax, but also they should base their withholding on what they’re gonna owe in social security taxes, and they can’t have the church deduct their social security taxes from their paycheck. And so they can deduct extra federal withholding. And that’s the way a minister would do that. I have completed this work, this amount. Let’s have a word of prayer. Let me remind you of that next month we’ll be having the minister of tax workshops. Hope you can join us for those. We will be doing those again as Zoom meetings, and hope that soon we’ll be able to go back to some live meetings and especially by the summertime, I hope that we’re doing a lot of meetings. Thank you for being with us and let’s have word of prayer. Thank You, Father. Thank You for this time together. Thank You for all that you’ve done for us, and just help us as we do our tasks that need to be done this month, as we do this work for the church. Father help us to be wise, and just praying for Your protection and Your wisdom for each person that’s been involved. Thank You for each person who’s been involved in Jesus name, Amen. For those of you who wish to, be glad for you to leave the meeting if you’d like, but I think there’s another question or two. “What type of documentation do we need to have, “for getting the givers approval to put the money “into a designated building, and grounds fund “instead of gym and gym floor fund?” That’s a great question. And I think that for a lot of donors, you could just say, we don’t have a specific gym floor fund, but we do have a Building Fund and that’s what the Building Fund is for. The building and grounds fund is for anything having to do with our buildings and building needs. And so we do have that fun and I think most donors would accept that as, that’s what you did and you just tell ’em. And I think that most donors will be fine and understand that. If you need something, if the donor have questions you, you can put that in writing. This is going to the building grounds fund and it will assist to repair the gym floor. So I think that’s the way that you would do that. If it’s really a change, like we’re not gonna put it in the gym floor fund, we’re gonna put it in the bus and van fund, then you would need to notify that donor and let them know we don’t have such a fund, and we need this money so much more this way and we’re gonna do that. But I don’t think you’d do that. If you didn’t such a fund you’d probably just tell them, I’m going to put this in the general fund and then it will be used for that. Tammy asks, “What about pastors taking other pastors “to lunch?” Do you mean pastors that are church staff? That would be one thing. So your pastor taking a staff member to lunch, generally that’s not going to be a business purpose. If they have a specific business purpose to talk about out of very occasional basis that could be done. “What about if they’re taking another pastor “say a local pastor in the area?’ Again if they have a business purpose to go to lunch, then that’s possible. But the general feeling of the IRS towards staff meeting lunches, is that they’re not allowed. So taking current staff members to lunch is generally not allowed as a business expense, unless there’s some particular purpose. You can also do that sort of thing once in a awhile, having to do with acknowledging birthdays or anniversaries or things like that in those occasions. But generally you’re going to need a business purpose to be able to do that. And okay, Pastor Greg says, “I’m paid a set yearly salary, “church reduces that salary and moves some of it “to an expense account. “Is that using salary deduction?” Yes, it is. I will tell you that when my church that I attended for many years and was on staff for many years, when they first set it up, they said to us, you said that you were using $5,000 for business expense. Is that realistic? Are you really using that for business expense? And then they did move the money one time. They didn’t have enough money to give us a whole bunch of money extra. And so then they said we’re gonna move this money to the church budget area, it’s not gonna be salary anymore. It’s not going to be anything that you’re gonna control anymore except, I mean, you might use it for business purposes and get reimbursed, but you’re not going to get this money if you don’t use it all and things like that. So the church did at one time and then from then on the church controlled it. If the IRS mileage rate went up, they could increase that amount in the church budget. If we didn’t spend it all, we didn’t get it. And so those are the kinds of rules of an accountable reimbursement plan. But if you’re gonna do that, you just need to do at one time and have an understanding that you’ve already been using that money for business expense. You already indicated that that’s what was needed for business expense, so we’re going to move it this one time, and then the church will control it from then on. You cannot do it from salary deduction, year after year after year after year. That’s a great question. Let’s see if there’s anything else. Sharon Cox ask, “Could you repeat what you said “about withholding federal taxes, “Alabama taxes on a minister?” “We have a minister who would like for me “to take out federal and state taxes.” State taxes you would just look at the tax tables, a court for the salary. So let’s take an example. Let’s take an example of a person who ministers full-time makes $50,000, and let’s say he’s married and he asked for $15,000 worth of housing allowance. So his taxable portion is gonna be 35,000. 50,000 minus the housing allowance. So 35,000 and on the Alabama taxes you can look at the tax tables just like anybody else, and withhold enough to deal with the 35,000, and his marital situation that he’s married filing jointly. On the federal, let’s take my example on the federal. So he’s going to oh, he’s got $35,000 taxable income, then you subtract the standard deduction for a married couple which is 25,000. So he’s gonna have federal taxes of about $10,000 which is about $1000. But that same pastor is gonna owe 15.3% on his social security, Medicare taxes. And so 15% of $50,000 is 7,500. Actually there’s a little break on it in my worksheet having to do with minister estimated taxes. It deals with some of those breaks, but it does have a little break on it. So it’s a little less than $7,500, but 7,500 in our example plus 1000, 8500, you would divide 8,500 in my example, by the number of paychecks that you have and that would be federal withholding. You would do it as federal withholding, you would not do it as social security, and you would do it as federal withholding. It would be sent in either monthly, tax deposit just like your other employees, or if you have a very very low amount of wages and taxes being withheld that it might be sent in quarterly, but monthly possibly even more often than monthly, depending on how much you’re having in total withholding for your 941. So that’s the way that you would do that. And it is a good method. Amy asks, “So we check the box on step two “on both jobs W-2?” Check the box on step two on both jobs done. I think that might have to do with the W-4 that question. I believe. And Amy if not, then email me back and then we’ll talk some later today. But if two people, if they each have a job, or if one spouse is having two jobs and the other spouse doesn’t work, if there’s multiple jobs in the home and you indicate married filing jointly, then you would want to check the box in step two on the W-4. You would want to do that. There’s also another method, and the instructions for the W-4 given another method, let’s say that one spouse makes 100,000 and the other makes 20. Then there’s a process to deal with that in a different way on the W-4, but I’m just gonna keep it simple. The easy answer is to check the step two. Amy if you’ve got a different question just email me back. Okay let’s see. “We have a budget line item that is pastors reimbursements.” I think that’s just not showing up. That’s great. Okay, here we go. “And they use it for these items you’ve listed “on the accountable reimbursement plan. “Is that okay?” Yes, you do need to have that as a budget line item. That’s where the money comes from and they turn in the reports, and get reimbursed from that that they turned in. Great question Amy. Great questions everybody and I hope this has been helpful to you. Please give me a call or email me at lwright@alsbom.org and anytime I’d be glad to help all that I can. Thank y’all so much for being with us, hope y’all have a great day.

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