Navigating Church Finances: Keeping it Simple & IRS Compliant l Church Bookkeeping, Church Payroll, Minister Taxes

Ep 76 ~ FLSA and State Labor Laws: Which one wins?

With the newest updates in the FLSA and salary requirements, there have been questions about how the State labor laws come into play. In today's episode, we discuss a couple of the sections of labor law and how each is affected. 
I am only providing you with a  summary of research that I have done and am NOT providing legal advice. 
Take a listen. 
xo,
Michelle
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Ep 75 ~ New Salary Rules now in Effect

Here is my disclaimer… I am NOT providing legal advice here, I am simply telling you what I have learned so far about the new rules going into effect. 
xo,
Michelle
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Ep 74 ~ "Faith & Taxes: A Church's Legal Battle Over Social Security"

Hello everyone, and welcome to today's episode of the Church Finance & Minister Tax Podcast. I'm your host, Michelle Brown, and today we're diving into a fascinating court case that highlights the importance of understanding tax codes and meeting filing deadlines when it comes to churches and Social Security taxes.
In this episode, we'll explore the background of Social Security taxes and churches, focusing on a pivotal change in 1983 that made Social Security taxes mandatory for churches unless they filed for an exemption within a specific timeframe. We'll then discuss a case where a church in Pennsylvania sued the U.S. government over the constitutionality of these taxes on religious grounds.
The court's decision, based on factors like free exercise of religion, the establishment clause, and equal protection, ultimately upheld the Social Security tax requirements for the church and its employees. This case serves as a powerful reminder of the importance of knowing your tax obligations, options, and deadlines to avoid costly legal battles.
So, grab a pen and paper, and let's dive into this intriguing case that emphasizes the critical role of understanding and complying with tax laws for churches and religious organizations.
 
xo,
Michelle
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Ep 73 ~ Cyber Security Awareness Training for your Church

As a tax professional, I am required by the Federal Trade Commission to take regular ongoing cybersecurity awareness training and I also have to have specific software in place to protect client data per FTC AND IRS requirements. 
Today, I will share some practical tips I have learned from my cybersecurity training to help protect your church from falling victim to a terrible scam that stole nearly $800,000 from a church in NC.
Don't forget to sign up for my new course Intro to Church Finances
see the links below
 
xo,
Michelle
Next Steps: 
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Ep 72 ~ Exciting Announcement you don't want to miss!

It's here!!!!
My new course is launching TODAY!
You only have until July 31st to get in on the initial launch of this exciting and informative course!
See below for all the links!!
xo,
Michelle
Next Steps: 
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Intro to Church Finances course
 
 

Ep 71 ~ How the IRS determines if you qualify as a church

Information the IRS requests on Schedule A of Form 1023:
A recognized creed and form of worship,
A definite and distinct ecclesiastical government,
A formal code of doctrine and discipline,
A distinct religious history,
A membership not associated with any other church or denomination,
Ordained ministers ministering to the congregation,
Ordained ministers selected after completing prescribed courses of study,
A literature of its own,
Established places of worship,
Regular congregations,
Regular religious services,
Sunday schools for the religious instruction of the young, and
Schools for the preparation of
 
 
xo,
Michelle
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Ep 70 ~ Strange Taxes from the past

Enjoy a break from work, and learn a few of the strangest taxes in history. 
xo,
Michelle
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Ep 69 ~ Recent Minister Tax Court Case

ISSUES:
Whether petitioners are entitled to deduct job expenses and certain miscellaneous expenses totaling $37,535 for the 2014 tax year.
FACTS:
Petitioners, MInister and his wife, resided in Oklahoma and filed a joint federal income tax return.
Minister was a staff pastor, and his wife was a salesperson and later a teacher.
They moved from Oklahoma to Florida for new job positions, incurring various expenses.
Petitioners claimed unreimbursed employee expenses, including vehicle expenses, travel expenses, meals and entertainment, and other business expenses.
Petitioners' records were lost, and they attempted to reconstruct their mileage log from memory.
Listen is to see what we can learn from this case.
 
xo,
Michelle
Next Steps: 
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Ep 68 ~ Ways to reduce taxable income to Ministers

"In today's episode, we're exploring 'Ways to Reduce Taxable Income for Ministers.' Ministers often face unique tax challenges, balancing their roles as both employees and self-employed individuals. We'll uncover effective strategies to legally minimize taxable income, with a special focus on salary reduction agreements and the option to refuse part of one's salary. Whether you're a minister looking to optimize your tax situation or simply interested in the intricacies of clergy taxation, this episode is packed with valuable insights and practical advice. Let's get started!"
Episode Quote: "Today’s episode quote is by Amy Porterfield, a go-to expert for creating online and digital courses. Amy says, 'I don’t even realize how good it can get, but I’m willing to try and find out.' 
Introduction: Believe it or not, as part of your church’s finance team, one of the top priorities is to help minimize the tax liability of the minister’s income. Many ministers are not well-versed in the U.S. Tax Code System and are also not finance gurus. They are there to share the Gospel and equip the members for the work of the Gospel. It’s up to the church treasurer, bookkeeper, personnel team, finance team, or whatever title you hold within your church, to take care of the finances, including the minister's compensation package.
Dual Status Explanation: Ministers have a unique dual status for tax purposes: they are considered employees for income tax purposes and self-employed for Social Security tax purposes. This dual status opens up specific strategies for reducing taxable income.
Pre-Tax Deductions: A pre-tax deduction is an amount subtracted from an employee's (minister's) gross income before taxes are calculated. This reduces the minister’s taxable income, thereby lowering the amount of income and SECA tax owed. Common examples include contributions to retirement plans (such as 403(b) plans), health insurance premiums, housing allowance, and even charitable contributions.
Retirement Contributions:
Utilizing tax-advantaged retirement plans like 403(b) and IRAs can significantly reduce taxable income.
In 2024, the most an employee can contribute to a 403(b) account out of salary is $23,000.
Housing allowances should typically be excluded from compensation for retirement plans due to their special tax treatment.
Example: If a minister receives a $20,000 tax-free housing allowance, this amount is excluded from gross income and not included in the compensation for retirement plans.
 
Housing Allowance:
Explanation of the housing allowance exclusion and how to maximize this benefit.
 
Charitable Contributions:
Donating part of the salary back to the church can provide tax benefits.
Example Scenario: Suppose you are a minister receiving a salary of $50,000. You decide to donate $10,000 back to the church.
Verify the church’s status as a qualified organization under IRC §170(c)(2).
Write a check for $10,000 and ensure it is deposited into the church's account.
Obtain documentation such as a receipt from the church.
Report the donation on your tax return, deducting it on Schedule A (Form 1040) as a charitable contribution.
Refusal to Accept Full Salary:
Definition: Refusal to accept full salary means a minister voluntarily chooses not to take a portion of their agreed-upon salary, reducing taxable income.
Legal Basis: Treasury Regulation § 1.451-2(a) outlines the concept of constructive receipt of income.
Impact on Taxable Income: If a minister specifies where the money should go, it remains taxable. If the minister has no expectation or intent to withdraw the money later and gives no direction on its use, it can be considered non-taxable.
Example:
Pastor Gary, with an annual salary of $50,000, decides to refuse $10,000 with no intent of drawing it later and no direction on its use, reducing his taxable income to $40,000.
If Pastor Gary specifies the $10,000 to go to a specific fund, it becomes taxable income.
Steps to Properly Document a Refusal to Accept Full Salary:
Written Agreement:
Create a written agreement stating the agreed-upon salary and the portion refused.
Include the effective date and duration.
Board Approval:
Obtain approval from the church board and record it in the meeting minutes.
Amend Employment Contract:
Amend the minister's contract if necessary and ensure both parties sign it.
Payroll Adjustments:
Adjust payroll records to reflect the reduced salary.
Maintain Records:
Keep copies of all related documents for IRS review.
Annual Review:
Review the arrangement annually to confirm continuation or make adjustments.
Example:
Pastor Gary agrees to refuse $10,000 of his $50,000 salary, with a written agreement and board approval. Payroll is adjusted, and all documents are filed. This arrangement is reviewed annually.
Conclusion: By understanding and utilizing these strategies—such as salary reduction agreements, housing allowances, charitable contributions, and the refusal to accept full salary—ministers can effectively reduce their taxable income. Proper documentation and adherence to IRS regulations are crucial to ensure compliance and maximize tax benefits.
Thank you for tuning in! If you have any questions or want to learn more, stay tuned for our next episode.
xo,
Michelle
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Ep 67 ~ Mid-Year Review for Your Church: Budget, Contributions, & Minister Housing Allowance

Episode Date: June 18, 2024
Episode Summary: It is June and it is HOT! That means the year is halfway over, so now is the perfect time to conduct your mid-year review. In today's episode, we discuss the importance of performing a mid-year review for your church and the three key areas that require your attention: Budget, Contributions, and Minister Housing Allowance. Are you ready? Let’s go!
Quote of the Day: Today's quote comes from John Gordon & Alex Demcazk's book, “The Sale”: “A fool thinks only of how his decisions will impact him in the moment, but someone who has wisdom considers the long-term implications of his decisions.”
Episode Highlights:
1. Budget:
Definition: An estimate of income and expenditures for a set period.
Importance: Budgets are not set in stone and can be adjusted when needed. With major church activities often occurring in the third and fourth quarters, a mid-year review can help prepare for increased expenses.
Action Steps:
Provide each department leader with a year-to-date copy of their budget and expenses.
Have leaders review their planning schedules for the remainder of the year to determine if they are on target or if adjustments are needed.
Follow your church's procedures for budget adjustments as outlined in your Financial Policy and Procedure guide.
2. Contributions:
Mid-Year Contribution Statement: Send a mid-year contribution statement to donors, showing their giving year-to-date along with a Giving Supplement statement highlighting completed ministry projects.
Methods: Contribution statements can be mailed, picked up at the church office, or accessed via an online giving portal.
Communication: Include a sampling of ministry accomplishments in your church bulletin or pre-service slides to show the impact of donations.
3. Minister Housing Allowance:
Understanding the Benefit: Review housing expenses year-to-date. Qualified ministers should take note of any unexpected expenses, such as storm damage or essential repairs.
Key Point: Housing allowance adjustments must be proactive, not retroactive. Ensure the designation is made before paying for the expenses to include them in the housing allowance.
Call to Action:
Take the time now to conduct your mid-year review focusing on your church's budget, contributions, and minister housing allowance.
Share today's episode with other church leaders to help them understand the importance of these mid-year adjustments.
xo,
Michelle
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