Whitfield & Associates | 501c3 Applications | Sample Form 1023 Narrative | Church CPA
Whitfield & Associates | 501c3 Applications | Sample Form 1023 Narrative | Church CPA

The Internal Revenue Service issued the 2014 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

56 cents per mile for business miles driven
23.5 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations

Mileage reimbursements reported under an accountable plan are tax-free fringe benefits to employees and are not reported on the W-2. However, gas or car allowances must be reported on the W-2.

Encourage your volunteers to track their mileage for ministry volunteer errands and activities and claim them as a tax deduction on their tax return. Keep in min, mileage to attend worship services should not be included as volunteer miles.

Learn more about mileage reimbursements and gas allowances in our Payroll Management course.

Is your church or ministry issuing IRS compliant contribution statements?
Imagine what would happen if your pastor’s tax return or a member’s tax return was audited and the IRS requested supporting documentation for the contributions made to your church.
Your pastor or church member would confidently go through their tax records and give the IRS representative a copy of the letter you provided.

What would happen if the IRS reviewed the contribution statement you gave your pastor or member and denied the tax deduction because of a minor technicality.
This happened to someone I know and the IRS denied over $20,000 worth of contributions. What if the word got out throughout the church?
How do you think your church members would respond? I mean, they are expecting that you’ve dotted the “i’s” and crossed the “t’s” to make sure they won’t have any problems claiming their tax deduction, right?

Here are the four most important things that we look for on your contribution statements to make sure they are compliant with IRS guidelines.

1. Organization’s Name and Address

2. Church Member’s or Donor’s Name (include the address if its available)

3. Contributions listed by date received. Technically, any contribution single contribution of $250 or more must be itemized. A summary by month, quarter or grand total for the year does not meet IRS guidelines.

4. A statement indicating that “no goods or services were provided in exchange for monies received”, or a similar statement will suffice.

Here are a few other optional things you can include:

It’s okay to include a scripture reference or thank you note. Some church database programs include an authorized signature line. I wouldn’t recommend the authorized signature, especially if you have a large congregation.

Click here to download my sample contribution statement.

Wait! There’s One More Thing You Should Know…
Technically, the IRS requires the donor to have proper documentation before their tax return is filed. Quite frankly, this is the “minor” technicality the Pastor I mentioned had problems. He didn’t keep a copy of his contribution statement. So, to respond to the IRS, he had the church secretary re-print his contribution statement. Well, the statement the secretary issued matched all the items listed in my 4 steps. But one thing blew this out the water… The date she printed the report (a current date) was on the printed document. So, the IRS agent could tell the Pastor received his documentation after the return was filed. The end result, the tax deduction was denied.

There are many church and donor management programs that can help you get this right.

Action Items

1.  Review the contribution statement format you’ve been issuing to your church members or donors.    Make sure all 4 items that should be on your contribution statements are there.  If you’ve passed this test, you’re done.  Just make sure you issue these statements each year in the right format by January 31st.  Now that’s not an IRS deadline, its just a good business practice to do so.

2.  If the contribution statements you’ve issued are not compliant, there is some hope.  You can identify the members that are most affected.  Any member that made a single donation of $250 or more will need a revised statement.  If you are using a church management software, this should be easy peasy.  Just  set-up the right filters to select only members that made a single contribution of $250 or more (not a total of $250, but a single instance contribution) find the right format, reprint the statement.  Send the replacement statement to the member with a sweet note letting them know they may discard the old one and keep the new one in their tax files.  I like adding a note that you’ve put processes in place to make sure they will receive the correct statement next year.

3.  But what if you had to tally all this stuff on MS Excel or by hand?  I’m feeling your pain right about now.  You’ll have to review their contribution history through whatever system you have in place.  You’ll need to weed out the one time donations of $250 or more.  Next, you’ll want to re-issue the contribution statement and include an itemized list of contributions of $250 or more by date and amount.  Send the replacement statement to the member with a sweet note letting them know they may discard the old one and keep the new one in their tax files.  Again, consider adding a note that you’ve put processes in place to make sure they will receive the correct statement next year.

Take my Church Finances 101 course and learn more about complying with IRS guidelines.

Does your church or ministry use a business credit card?

If you’re the bookkeeper and your ministry is using a debit card or credit card, I know you have your work cut out for you.  Especially if its a MasterCard, Visa, American Express or Discover Card.

This is one of the most challenging areas in managing the finances.  A number of my clients are using credit cards. Its a lot of extra work for the bookkeeper to manage.  I’ll admit a few tend to fall behind with their quarterly financial check-ups because they have to find the extra time to record the transactions.  Here are a few tips to help you:

  1. Use the card for business use only.  Make sure each cardholder knows they should not put personal charges on the company card.
  2. Request receipts.  Establish a policy where receipts must be turned in within 3 days.
  3. Monitor credit card activity online.  I know this is like micro-managing, but if you have certain people that are using the card that can’t seem to keep up with receipts, its best to monitor the charges and request the receipts right away.  If you wait till the statement comes in, they may not have it.
  4. Record transactions separately in your accounting system. QuickBooks has a credit card transaction entry screen.  If you’re using Peachtree, you can use the Tasks/Payments screen.  With either system, you should have a credit card liability account on the books.  Record each transaction as though you were making a cash purchase.
  5. By all means – don’t set-up an expense account called “American Express”, “Visa”, “MasterCard”, or “Discover” or Credit Card Purchases on the books.  This is an accountant’s nightmare!  I’ve seen a new client’s set of books with thousands of dollars of transactions coded to this one – dump all account.  It’s important to record each purchase to the correct expense account.  Example: if you go to OfficeMax and buy office supplies, code the transaction to office supplies expense.  If you dump it all into one expense account, how will anyone know what all that money was spent on?  And if you hire me, I’m going to tell you to clean it up by splitting those transactions.

I really get into this in Lesson 4 of my Internal Controls course.

Lenders use a formula called the Debt Coverage Ratio to determine whether a ministry’s debt is reasonable or too high.  The Debt Coverage Ratio compares the borrower’s annual net income (excluding mortgage interest and depreciation) to the annual debt payments.

Basically, lenders like to see the ministry’s annual net income be anywhere from 10% to 25% more than their annual debt payments.  This means you have enough to cover your debt payments plus you will have an extra 10% to 25% left over for cash reserves and major purchase.  I recommend the ministry’s net income to be at least 25% higher than the annual debt payments.  This gives you a little more room to work with for expanding your ministry and missions outreach programs as well as to fund new furniture, equipment and/or vehicle purchases.

OMG! I’ve seen this one too many times.

Here’s the scenario.  The pastor or other board member receives all the monthly bank statements and credit card statements.  They look over the statements, everything looks good, no errors, no fraudulent transactions.  What next?  They throw the statement away or better yet, they shred the statement.  Why you ask?  We’ll hey, that’s what they do when they handle their personal statements.  Later, they hire a bookkeeper, or better yet, Whitfield and Associates to come on board and set-up the books, and maybe even go back 3 years or so, so they can present financial statements to a potential lender.  But, the bookkeeper has nothing to work with.  No bank statements, no canceled checks – nothing!

So many times, we carry our own personal money management and organizational systems to our new companies.  I’m not just knocking church pastors, this happens with for-profit business owners as well.  Now you may not have any reason to keep your statements for personal reasons (but you should anyways); but you need to hang on to all monthly statements for accounting purposes.

Otherwise, you’re going to spend a lot of time and money ordering copies and waiting for them to come in the mail.

Remember to keep personal finances separate from the church/ministry. Otherwise it will catch up with you some day.

Did your church/ministry board approve your last pay raise? Or those paychecks you’ve been writing to yourself? Uh Oh!

Whitfield & Associates | 501c3 Applications | Sample Form 1023 Narrative | Church CPA
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