Donna w corey - ncpe Fellowship



donna w corey

Accounting and Tax Services, LLC Phones Milford (203) 876-7343

39 Years In Business Block Island (401) 466-5941

Fax (203 878-4271

266 Broad St., Milford, CT 06460-3261 e-mail – donna@

TO: CHURCH & CLERGY CLIENTS

SUBJECT: 2018 YEAR END PLANNING & NEWSLETTER

As we come to the end of the year, there are a number of items that may help you and your contributors plan for 2018 tax filing and church good practices. Although I cannot detail everything, here are a number of basic issues to consider.

KEEPING DONORS INFORMED - In order to avoid jeopardizing the tax deductibility of charitable contributions, churches should inform their donors to wait until they receive their written confirmation of 2018 donations before filing their taxes. An example of this might be to put a statement in the weekly bulletin toward the end of December such as: IMPORTANT NOTICE: To ensure the deductibility of your church contributions, please do not file your 2018 income tax return until you have received a written acknowledgment of your contributions from the church. Some of your contributions may not be tax-deductible if you file your tax return before receiving a written acknowledgment of your contributions from the church

INDIVIDUAL DONATIONS OF $250 OR MORE - Be advised that the Internal Revenue Service requires that churches issue written acknowledgment of single donations of $250 or more. Therefore, if you receive a donation from an individual who does not pledge and therefore does not receive an annual written acknowledgment, you are required to supply the donor with a written statement of the donation, signed by a church official.

YEAR END DONATIONS - Donors must deliver checks on or by December 31st or, if mailing, the envelope containing the check must be postmarked no later than December 31st in order to claim a charitable contribution deduction for 2018. Checks that are placed in the church offering on the first or subsequent Sundays in 2019 will not qualify for a charitable contribution for 2018, even if the check is predated to 2018 or actually written in 2018. Keep mailing envelopes with postmarks.

VERBIAGE ON YOUR YEAR END STATEMENTS – Be sure your year-end donation statements to donors complies with Sect. 170 of the IRS Code. It should be signed by an officer of the church and contain the verbiage “no goods or services were rendered to you as a result of this donation” and “this donation qualifies under Sect. 170 of the Internal Revenue Code.” And if someone gives you a donation of property rather than cash, do not put a value on it. It is the responsibility of the donor to obtain the value. In a recent court case, a taxpayer was denied a deduction because the proper verbiage was not in evidence.

REPORTING MINISTERS' COMPENSATION & ALLOWANCES - Churches should issue a W- 2 to their clergy. Box 1 should include cash salary and any paid allowances such as auto, Social Security, professional expense, etc. (To avoid taxability of an item consider "Expense Reimbursement.” For example: Have your minister turn in a monthly travel sheet and issue a reimbursement check. In order to do this you must adopt this as a policy in a resolution during a regular or special meeting of the church. Allowances are taxable for clergy, expense reimbursements are not. Resolutions for these expense reimbursements should be adopted in the beginning of the year.) Housing allowances are not taxable for income tax purposes, and should not be included in Box 1. They are reportable in Box 14 of the W-2 for use by the clergy in calculating Self Employment Tax. (NOTE: Don't be too conservative with regard to your pastor's designated housing allowance. The pastor may never exclude from taxable income an amount greater than what the church designates. In addition, this is the time of year to determine the 2018 designation; in a resolution before December 31st or no later than the first vestry meeting in 2018.) SEE ATTACHED SAMPLE CLERGY W-2 - Be sure the W-2 you issue complies.

HOUSING ALLOWANCE VS HOUSING EQUITY ALLOWANCE – Many churches and clergy do not understand the difference between Housing Allowance & Housing Equity Allowance. Housing allowance is money paid to the clergy to help pay for current housing costs & expenses. Housing equity allowance is designed to help clergy purchase a house when he/she retires. That must be paid to a 3rd party just like a 403B plan. If paid to the clergy it is taxable to him/her currently and must be included in box 1 of the W-2. It also must be understood that when the clergy takes distribution of the housing equity at retirement, it is taxable just like 403B deferred compensation payments are taxable.

COMPLETING, ISSUING AND REPORTING W-2'S & 1099'S -Remember you must supply employees and subcontractors with tax documents by January 31, 2018 for 2018-year earnings. All non-employee individuals paid $600 or more during 2018 must be issued a form 1099. If not issued and discovered by the IRS, the church could pay a penalty of $50 per incident. (In my experience this is rare, but the potential is there none the less.). All W-2's and 1099's must be transmitted to the government by January 31, 2018 unless you file form 8809 which allows you to file by February 28th. (As a practical matter, I encourage you to issue the W-2's & 1099's, wait a few weeks to give recipients a chance to review for discrepancies, and then send the forms to the government -W -2's to the Social Security Administration and 1099's to the Internal Revenue Service. With billions of dollars of unreported income the government has stepped up their search for unreported 1099’s.

FOR CLERGY ONLY (others don't peek) - Remember to keep track of those unreimbursed business expenses (vestments, internet, sermon resource software, books & publications, telephone exp., travel, continuing education.) They can be important in reducing your self-employment tax IMPORTANT – For tax year 2018 there is NO DEDUCTION FOR THESE EXPENSES ON YOUR 1040 SCHEDULE A, but you can still use them against self-employment tax.

VOLUNTARY WITHHOLDING. Ministers' wages are exempt from tax withholding. This means they use the quarterly estimated tax procedure to prepay their federal taxes. They can, however, enter into a voluntary withholding arrangement with their employing church. Under such an arrangement, the employing church withholds income taxes as it would for any other employee, and also can withhold an additional amount of income taxes to cover the minister's self- employment tax liability. The ideal time to start voluntary withholding is January 1st. I have a form you can use if necessary.

MISCELLANEOUS ITEMS

Discretionary Funds – It is always recommended that discretionary funds be used only for alms. When doing so, it is preferable to pay vendors (i.e. landlords, oil companies, etc.), not the individuals you are helping, and you should never make checks out to “cash.”

Preschool rentals – If you rent your facility during the week to a preschool which is not an arm of the church, your municipality may charge you real estate taxes on that portion of your property.

Order IRS tax forms. December is a good time to order your year 2018 copy of IRS Circular E (withholding tables), and copies of Forms W -2, W -3, 1099, and 1096 that you will be issuing for compensation paid in 2018. To order forms simply call the IRS toll-free telephone number 1-800- TAX-FORM (1-800-829-3676), or visit the IRS website ().

IRS Note – You should be aware that the IRS has started to target non-profit organizations for random audits. They are especially looking for “Unrelated Business Taxable Income.” As you raise funds for

your ministry, be watchful that the way you raise money coincides with your mission. (i.e. a gift or bookstore which carries other than religious items is unrelated, however if 80% of your staff is volunteer that is excluded)

Internal Controls - In a case involving an embezzlement of half a million dollars, it was determined that two simple steps could have avoided the situation. (1) Require at least two signatures for all checks above a certain threshold. (2) Have monthly bank statements & reconciliations reviewed by a church official or employee having no responsibility for handling cash or writing checks.

Bylaws must be followed, by law—or it can hurt! – Churches are subject to the provisions of their governing documents (charter, constitution, bylaws) and in some cases all. In order to keep your church from risk, be careful to follow your governing documents. And be sure the bylaws are in compliance with state law.

Charitable mileage rate – Although there has been discussion about increasing the standard charitable mileage rate, it would appear that for at least 2018 the rate will remain at $.14 per mile.

Church Web Sites - Many churches maintain a web site that is a good tool for promoting their ministries. Few church leaders, however, are aware of unexpected liabilities associated with these web sites. Items to watch for are: copyright infringement, trademark infringement, the Children's Online Privacy Protection Act, invasion of privacy, pedophiles, defamation, political campaign activities (be careful, you could lose your non-profit status over this one), charitable contributions, engaging in commerce, and sales tax.

Not to be forgotten – The National Church publishes “Business Practices for Churches.” It is an invaluable tool for all churches. It is now in .pdf form on the Episcopal Diocese of CT website. I encourage you to have it handy for all vestry/committee meetings. (Sh!!! And you don’t have to be an Episcopalian to use the website!)

Christmas gifts to employees – Please be aware that if you give your staff a bonus/monetary gift the IRS considers it as part of compensation which is subject to SS/MC and income tax withholdings.

Gift & Thrift Shops - Many churches believe that because they are non-profit organizations they need not worry about sales tax on their gift/thrift shops. The organization does not have to pay income taxes, however, churches and other nonprofit organization are required to collect sales tax on goods sold in their shops. If the items are unrelated to your ministry, they can also be subject to Unrelated Business Income Tax. These rules are a bit complicated, so if you have any questions, feel free to contact me.

I hope these items are helpful for you. The tax laws and requirements are complicated and confusing to many volunteer treasurers. I subscribe to Church Law & Tax Report and Church Treasurer's Alert, so if you have any questions during the year, please feel free to call me.

Best wishes for the Christmas season and the New Year,

Donna Corey

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