Tip of the Iberg

Growing under the load

2011-09-15T14:26:00.000-07:00

The cross that my Lord calls me to carry may assume many different shapes. I may have to be content with mundane tasks in a limited area of service, when I believe my abilities are suited for much greater work. I may be required to continually cultivate the same filed year after year, even though it yields no harvest whatsoever. I may be asked of God to nurture kind and loving thoughts about the very person who has wronged me and to speak gently to him, take his side when others oppose him, and bestow sympathy and comfort to him. I may have to openly testify of my Master before those who do not want to be reminded of Him or His claims. And I may be called to walk through the world with a bright, smiling face while my heart is breaking.

Yes, there are many crosses, and every one of them is heavy and painful. And it is unlikely that I would seek out even one of them on my own. Yet, Jesus is never as near to me as when I lift my cross, lay it submissively of my shoulder, and welcome it with a patient and uncomplaining spirit.

He draws close to me in order to mature my wisdom, deepen my peace, increase my courage, and supplement my power. All this He does so that through the very experience that is so painful and distressing to me, I will be of greater use to others. "I grow under the load"

The Numbers Really Do Work!

2009-07-17T15:26:00.000-07:00

Let me challenge you with a riddle. Three guys walk into a hotel to get a room they are going to share. The clerk charges them $300, so they each plunk down a $100 bill and go upstairs with the bellman. When the bellman comes back, the clerk says he made a mistake and that the room was only $270, so he gives the clerk a $50 bill and says go work it out. Well, the bellman knows they can’t split a $50, so he exchanges it for 5 10’s. He decides to pocket two of them for a tip knowing the men would never be the wiser, and then he gives one ten each to the three men. However, here’s the problem: It sounds fine, but the numbers don’t work. Each man put in $100, but with the returned $10, how much have they paid? $90. 90 x 3 is 270. The bellman has 20 which adds up to 290. Where’s the other 10?

It all seems logical. It ought to work. The money is all there, but in this case, the numbers don’t add up. The numbers don’t work. And that bothers us, doesn’t it? We don’t do well when the numbers don’t work. Right now, you are probably scratching your heads. It makes us feel insecure or unsure. We get reluctant to move or act if we don’t feel the numbers work, and that has everything to do with God’s call upon our lives to give and the reason we often don’t. We just can’t make the numbers work.

It is that same confusion I experience when reading Acts 20:32-38. It is Paul’s farewell speech to the Ephesian elders at Miletus. They are parting and, most likely, will never see each other again so you can imagine the poignancy of the moment. It is very emotional. They weep. They embrace. They kiss. It is a rare scene, indeed. However, in this final discourse, this moment when he is sharing the very last words he will ever speak with these leaders, he recalls the words of Jesus, “It is more blessed to give than to receive.” He says, “My example among you was that I did not covet what you had -- I did not take from you – but instead I gave.” Why does Paul say that in such a moment? Why does Paul go there? Clearly, he says it because he knows it is one of the most critical things Jesus said, and in the Economy of God, that’s how the numbers work. It is more blessed to give than to receive.

The word there for “blessed” is a word commonly used in Scripture that means “blessed or happy.” In other words, you are going to feel better, have more, experience more contentment and satisfaction when you give than when you receive. That makes no sense. Why? It makes no sense because the numbers don’t work within the parameters of this world’s economy, which is typically the system we are operating in.

Normally, in our world, 1 – 1 = 0. If you have something and you give it away, you are left with nothing. However, in the Economy of God, it does not work that way. In God’s economy, Jesus says 1 -1 = >1. If we have something and we give it away, the result is NOT that we are left with nothing, but we will always have more than we had to begin with. We are blessed more by giving than receiving.

God reminds us of this constantly in Scripture. Psalm 112:5, “Good will come to him who is generous and lends freely, who conducts his affairs with justice.” Proverbs 19:17, “He who is kind to the poor lends to the Lord, and He will reward him for what he has done.” Luke 6:35, “Love your enemies, do good to them, and lend to them without expecting to get anything back. THEN your reward will be great…” You do what God says – you give away what He has given to you in a faithful manner – and you get back more than that.

Now, does that mean you are going to get back more money? Not necessarily. However, you will get back MORE. Remember: the Economy of God forces you to define true wealth. When you live in God’s economy, you are going to receive things of far greater value than anything you could experience in this earthly realm.

So, what’s our problem? That sounds so good, why aren’t we doing this? Well, the reason is I’m not sure we actually believe it. We can’t launch out and live into this because in the back of our heads the numbers still don’t work. We are stuck at 1-1=0. So, how do we move forward? If this is where we are and we see the possibility but can’t get around the numbers, then what do we do?

First, in order to live into to this new Economy, you have to have the courage to attempt it. It is one of those things that is hard to believe until you experience it. There is an old axiom that goes, “Progress, without the benefit of prior experience, is, for the most part, unbelievable.” If I went over to the interior of Africa and found a young man who had never ventured outside his village and then showed him an airplane and said, “That huge thing is going to fly in the sky like a bird”, he would never believe me. Why? He has no experience that would point in that direction. He has no frame of reference, and when it comes to our economic understandings, neither do we. We have never actually given God’s economy a shot, so we dismiss it. We can’t make the numbers work, so we dismiss it.

Second, the numbers in the Economy of God work because our faithful use of God’s resources leads naturally to greater intimacy with Him. I know this may sound counterintuitive, but I often come across people who talk about feeling “distant” from God or that their walk with the Lord has stalled in some way. When I do, a question I always ask is, “How is your giving?” You will find that when you invest what God gives you in alignment with His will – in other words, when you ask the owner and do what He says – you start experiencing a oneness with God that is unique. When you partner with God in Kingdom things, there is an intimacy and a sweetness about it that deepens your faith and inspires your growth. When you put your treasure in Kingdom places, the world can’t take it away, which is why the numbers work. You never lost on that investment. However, by doing that, you are also putting your heart closer to the Lord. Your treasure is in heaven – that’s your focus – and that’s God’s dwelling place. It cannot help but create deeper intimacy and a more meaningful faith in God.

Third, the numbers work in the Economy of God because when you live accordingly, you develop Christ-like character. God has said to us that his desire for us is that we become more and more like Christ. How do you become like Christ? You become like Christ when you live as He did – sacrificially, selflessly and humbly. How do we do that? By giving. And if becoming like Christ is the great desire of our God – the reason for which He put us on this planet -- then that character development is more significant – more valuable – than any monetary thing we might gain for ourselves by living otherwise. Such choices do not make sense according to the numbers of the world, but the numbers work in the Economy of God.

Martin Luther once said that every believer goes through three stages of conversion: First is the heart. We feel in our heart the love of God and we respond. The head is generally second. The last part of our conversion is the will - or the wallet in this case. In other words, the last part of our conversion is allowing what we know in our head and our heart to actually change the self-centered will of our soul such that we begin to give - to be the generous, caring people that God desires for us to be.

One of my favorite stories is from a book called The Signature of Jesus. He tells of a group of businessmen who were running late to catch their train after a meeting in New York. They wanted to get home to their families and in their rush to get to the terminal, one of the men kicked over a slender table on which rested a basket of apples. A ten-year-old boy had been standing there selling apples to pay for his school books and clothes. The five made it to their train, but the one who had hit the table felt a twinge of compassion - and guilt - over the boy whose table he had turned over. With that, he told his friends to call his wife and tell her that he would be late. He got off the train and when he made it back to the spot, there was the boy, on hands and knees, feeling around for all the apples that had been spilled. The boy was blind. The man began to help the boy collect the apples and in doing so, noticed that some were now split or bruised. Reaching into his pocket, he pulled out a twenty dollar bill and said to the boy, “Here’s twenty dollars for the apples I damaged. I hope I didn’t ruin your day. God bless you.” As the salesman turned to get the next train, the blind boy called after him, saying, “Hey, Mister, are you Jesus?”

And the reality is, in the Kingdom of God, we are. The grace of Jesus has been given to us - and when we get the grander vision of that blessing - we have the privilege of being Jesus, incarnate, to others - to lift up His church - to take care of His kids - to reach out to the orphan and the widow and the alien - to be Jesus. And no, for all those who watch you do this, the numbers won’t work. But in the Economy of God, they always do. It’s a different kind of math. It’s more blessed to give than to receive.

Teachings from this economy......

2009-07-17T15:18:00.000-07:00

The headlines are filled with anxiety about the economy, as are many of our hearts. Those who have been able to save have watched their savings lose value; the ability to thrive in retirement has been threatened; those living on the edge have gotten closer to the precipice. What’s a Christian to do?

First, let’s remember that God is always with us. Second, let’s recall that God is always trying to teach us something. Now, God did not cause this economic crisis in order to teach us something. We (not just greedy fat cats on Wall Street), have been part of the problem. We, who had some savings, pushed our investors to get the most bang for our bucks, no matter the risk. Some of us took personal risks and reached further than was prudent. Now that the crisis is here, what good might God bring out of it and what might God be hoping we would learn? Here are some thoughts I have gleaned from myself as I walk through this economic season:

1. We are not our 401(k)s (or 403(b)s). Our worth as human beings is not dependent on our financial worth. Jesus tells the story of the man who accumulated wealth in more and more barns, but then was called home to God with a “penniless” soul. When did we begin to define our security – as Christians – by our retirement accounts?

2. Nothing that really matters is threatened by this economic crisis. Make a list of what really matters to you: your relationships with your spouse, children and family; your health and that of your family; purposeful work and ministry; your salvation at the hands of a loving God. None of it is dependent on the stock market or the value of your home.

3. Unbridled capitalism is prone to greed and misplaced values. Might this crisis be an opportunity to question, once again, whether “more and more” is the key to happiness? Perhaps we need to learn how much is “enough” instead. According to the Bible, every society is to be judged by how it cares for the least fortunate among us, not by how big executive compensation can be for the few.

Just as the ancient Israelites had to wander in the desert for 40 years to learn their dependence on God alone, perhaps we must experience a financial desert in order to remember that God alone is our source of security. While the culture depends on governmental “homeland security,” are we not meant to find our “homeland” in heaven, and our “security” in a loving and merciful God?

Shouldn’t Christians be responding differently than others to this crisis? Wouldn’t it be a bold act of evangelism if people could look at Christians and wonder, “How can THEY be so calm in the midst of this crisis?” Wouldn’t the world want what we’ve got – a confidence in God that calms our anxiety and keeps us hopeful, positive, and productive in the midst of a crisis? Wouldn’t it be great if we were the ones to say, “This isn’t all bad! Let’s see what we can learn from this?”

Let me suggest three things that you and I might do in the midst of this crisis – as Christians:

1. Pray for those who are adversely affected by this crisis. There’s nothing like praying for someone else to get your mind off your own perceived troubles. Pray for those whose services will be cut in order to pay for the bailout. Pray for those whose limited and diminished incomes will cause them to make truly painful choices in how they live. Pray for those who will have to redefine themselves and their lives because they can no longer be defined by financial success.

2. Give. I know, this sounds counter-intuitive, but it’s SO important (more about this at the link listed below). There is nothing like giving money away to remind myself that I don’t really need all the money I have. When I write a check to my church, or to a food bank, I remind myself how blessed I am….especially when my own budget is tight. Even in the midst of this “meltdown,” we are among the most blessed people in the whole world.

3. Take a deep breath, several times a day, and remember that God is still God, that we are loved and cared for by that God, and that we are accompanied by God no matter what our personal journey or circumstances. And then tell the world.

I don’t believe there is any more oft-repeated phrase in Holy Scripture than “Be not afraid.” What a witness it would be, to the world, and for God, if we were able NOT to be afraid in the midst of this crisis. It would say in a loud and profound way, “We know something that the world does not know. We know that God is with us, that God is teaching us something we need to know in the midst of this crisis, and that at the end of the day, we are still the loved, redeemed and resurrected people of God, no matter what the economy does.”

Seeing this situation as an opportunity, rather than a crisis, may be the most profound witness we can make as Christians to a hurting world.

Be an evangelist. Be not afraid.

Increase giving in tough times

2009-07-17T15:12:00.000-07:00

What? Increase giving during a poor economy? Some claim giving’s off 20 percent while others say its 10 percent. Mostly we have no clue how giving has been affected. Isolating a few examples here and there does not make a scientific study.

As with the rest of this economy, my feel is that a few years from now we will realize while there was a decline, it was not as bad as we thought. We tend to have short-term historical memories. We survived other tough times, we will survive this one. I am not naive enough to say that it is not a challenge and that some ministries are not suffering. I am simply saying that not everyone is seeing such a decline in giving………and I believe there are some strategies the church can use to help:

Compelling vision. People give to a compelling vision. My own church, through the leadership of the senior pastor, has a vision of reaching the lost and unchurched of their area. They have a vision to help connect people more closely to Christ. They are about doing exciting things and it is exciting to be a part of that vision. Good vision trumps bad economy.

Kingdom accomplishment. People give where they believe their money is accomplishing something for the Kingdom. My church tells its story of reaching people. In turn, celebrating those Kingdom “wins” produces stewardship funding.

Have you ever wondered why the top colleges in football regularly get the best athletes to sign with them? If you have a chance of playing for a national championship or playing at a small school, where would you go? Winning teams draw winning players. Show people you are a winner and they will want to join your team.

Pastoral involvement. My church’s senior pastor does not relegate stewardship responsibility to another staff member or lay person. He keeps his pulse on what is happening with giving in his church. In my experience churches that do better in the stewardship arena are churches where the senior pastor is engaged. Good stewardship takes good leadership.

A stewardship plan. Churches have mission plans, evangelism plans and discipleship plans. Why do so few have a stewardship plan? Every church should have that kind of plan and work it regularly. The success will be obvious.

Stewardship plans must be multifaceted. It begins from the pulpit with positive preaching. It is carried out through stewardship education and even direct mail. What works for one church might not work for yours but you need to develop a working plan of action for success. Without a plan you are planning to fail.

Positive atmosphere. We tend to think of stewardship as tiresome and negative. If you approach it with chagrin don’t be surprised if your members don’t view it the same way. This past fall I visited a church the Sunday they kicked off their annual campaign. I felt like I was at a funeral. The lay leader giving the stewardship sermon talked about how bad the economy was. The staff member assigned to preach that day talked about how they dreaded approaching the subject. In the end I dreaded I had attended.

At my church the leadership does not shy away from talking about the responsibility of stewardship. They have simply found a way to make the message positive instead of negative. It helps that the health of the church is positive, giving them a base to communicate from. Be positive in your approach and you will produce cheerful givers. Cheerful givers become repeat givers.

Consistency. To maintain and even increase giving during a poor economy takes hard consistent work. You can not make this a one-time sermon or a one-time letter. You have to regularly stay in tune with what is happening in your ministry. Too many leaders put stewardship on the back burner until they realize they are in a crisis.

Study after study has shown that donors are willing to continue giving despite these current times. The willingness is there. They are just looking for a reason to give. Develop your vision, create a plan to communicate that vision and work your plan.

Use the times to emphasis stewardship

2009-07-17T15:09:00.000-07:00

The economic implosion that has rocked our world may be one of the greatest gifts that church leaders could ever receive. It has thrown a spotlight on one of the most significant issues facing the church today — financial stewardship.

The uncertainty of these days presents a great opportunity to reframe the way Christians think about this issue that is so vital to the spiritual life of every believer. For the most part, Jesus’ teaching about money has failed to seep into the fabric of churches, as members have a view of money that is more culturally informed than biblically informed.

Most churches don’t view how money is handled as a central part of spiritual growth and a key to a personal relationship with Christ. It’s trumped by things like Bible reading, prayer, accountability to others, worship, mission trips and attending small groups. Although all of these are important, your church members can’t fully mature as Christians if they do not view money from a biblical perspective. But in our culture, many people serve and worship money. Living in capitalistic societies that are driven by money and consumerism shapes how people, including most Christians, handle their money.

People keep their money

A recent study by the Center on Philanthropy shows that giving within Christian denominations ranges from about 1.6 percent of household income to a high of 3.5 percent. The U.S. average of all households — Christian or not — is 2.3 percent. So it’s fair to say that Christians have bought into the world’s view of finances and are holding on to their money rather than sharing it as generously as they should. They have bought into the consumerism of capitalism.

I’m not against capitalism; it has helped build great nations. But it has at its roots a humanistic view of God’s world. It lives for the here and now and builds capital for self-serving purposes. As a result, it is the god that the masses worship — believing that this god will bring security and good fortune.

We should have learned a hard lesson, however, with the meltdown of the world economy and the resulting financial struggles of nations, markets, economies and households. This god of capitalism promises a security it can never deliver. Many hearts have been ensnared by the promise of good fortune, when in fact, this worship of money has only turned hearts away from fully following God.

This financial hardship is a clear and vibrant wake-up call to Christians everywhere. It challenges our view of money and our consumerism. It tests where we have placed our faith and trust. And it calls into question to what degree we have succumbed to the hypnotizing trance induced by money.

Bigger portfolio not the end

God knows that money has the power to turn the hearts of his people away from him because the human heart is inclined to put its “hope” in money, to find its security there. So if the priority of Christians in handling money is building a bigger and bigger portfolio, or accumulating possessions, or acquiring material things to the point that they are deeply in debt, then their hearts cannot fully follow God.

This is the danger in our churches today, even for serious followers of Christ. Subtly the hearts of God’s people have been given to money above God in the belief that money is a source of security, with the result that the lives of our people are driven more by consumerism than by genuine, biblical stewardship.

What should church leaders, do? Let me give just a few suggestions.
• Understand that how church members view and handle money is crucial to their spiritual well-being. They cannot be fully devoted to Christ and become mature in their faith if they are not investing as they should in God’s Kingdom.
• Preach the whole counsel of God, including the central role that money plays in a person’s spiritual walk. This doesn’t mean putting congregants on a guilt trip, but helping them understand that the natural inclination of the heart is for money to be the source of security rather than God. If people’s hearts are given to the things of this world, God’s Kingdom work will lack the resources needed to fulfill God’s call.
• Challenge your members to take time to step back and give serious consideration to their financial priorities, especially those with eternal consequences. Is funding God’s Kingdom work here on earth really a priority or not?
• Finally, inspire Christians to understand that they are in the midst of an epic spiritual battle against the forces of darkness for the hearts and souls of men and women, and that they have a crucial role to play in fighting this battle through their financial support of God’s work, especially through His Church.
• God expects us to use the resources He has put in our trust to fund the advancement of His Kingdom against those forces. As we make that investment, God also ends up with what He really wants — our hearts.

Church Board/Business Meeting Musings

2009-07-17T15:03:00.000-07:00

One church sign revealed, “Today’s sermon: What is hell like?” Underneath the sermon title were the words “Church business meeting tonight.” Some church business meetings have been alarmingly similar to the place of torment.

In Dr. W.A. Criswell’s famous sermon, “The Old Time Religion,” he tells about a church conference or church business meeting he had in the church he served as pastor when he was a student at Southern Seminary. Criswell reported, “We had a man in our church who was born in the objective mood, negative case. No matter what we were considering he was ‘agin it.’ “At one church business meeting we were discussing the prospect of building a fence around the church cemetery, and this obstreperous, cantankerous, argumentative church member rose to state his position on the matter at hand. “He vociferously exclaimed, ‘I am agin it! I am agin it! Why should we build a fence around the cemetery? Do you know anyone in the cemetery who can get out; and do you know anyone outside of the cemetery who wants to get in? Why build a fence around the cemetery?’”

Your church probably doesn’t have anyone born in the objective mood and negative case, but I have encountered a few people like that in the course of my ministry of auditing churches and board/business meetings. I have witnessed heated board meeting discussions regarding who should be in charge of the thermostat in the church worship center, the color of the carpet in the church, and whether or not to buy an electric typewriter or just keep the old manual typewriter for the church secretary.

The minutes of one church business meeting recorded the following: The committee charged with reducing the electrical costs in the church building reported that they had been standing outside the bathrooms after services and reminding people to turn out the lights as they leave. Mr. __________ objected that this might create the wrong impression with visitors but was quickly shouted down by Deacon __________ who opined that anyone who couldn’t follow a few simple posted rules weren’t the kind of people we wanted around this church anyway. After another thirty minutes of discussion, the matter was tabled until next month.

A blogger from Winnipeg, Manitoba, Canada has obviously been around a church business meeting or two. He observed, “Local churches all over the world are shattered so often that it is almost an expected result. Pastors are fired, members storm off, staff members take a group from one church to start another just down the road. Business meetings become filled with yelling, fighting, and screaming, believers taking sides against fellow believers. Then there are power plays, deception, and alliances that would make reality TV look sane.”
I have a few rules I would like to suggest that churches employ for their business meetings.

First, non-tithers should not be allowed to speak or vote at church business meetings. If that rule seems unfair then the time allotted for members to speak should be in direct proportion to how much they give. For example, a person who gives 2 percent of their income to the church should be given the opportunity to speak for 20 seconds, the person who gives 4 percent should be allotted 40 seconds, the person who gives 10 percent for 1 minute and 40 seconds and the person who gives 20 percent should be allowed to speak for 3 minutes and 20 seconds, etc.

Second, no one should be allowed to speak or vote at the church business meeting who is more conversant with the church constitution/by-laws and Robert’s Rules of Order than the Bible. I have known deacons who could quote Article III, Section 4, paragraph 6 of the church constitution, but couldn’t find the Gospel of John in the Bible.

Third, the only members who can speak or vote at church business meetings should have at least a 75 percent attendance record. In other words, if the church has Sunday morning, Sunday evening, and Wednesday evening worship services or Bible studies each week or 12 such meetings a month, a member should be in attendance for nine of those meetings in order to participate in a business meeting. Having this rule will prohibit conniving members from importing scads of inactive members for crucial votes – like for the termination of a pastor.

Fourth, a man who is silenced and controlled by his wife should not try to make up for his lack of authority at home by attempting to assert himself and control the church business meeting. Unfortunately, some men are as bold as a lion at a church conference and as meek as a lamb at home.

Fifth, some church business meetings should be held in a wrestling arena or hockey rink, because there is nothing spiritual about them and they hardly qualify to be held in a “house of prayer.” Half nelsons and flying pucks are more likely to be seen in some church business meetings than grace and unity.

In case you think the preceding suggestions are manifestly unspiritual I want you to know that I have written them facetiously or tongue-in-cheek – well, maybe somewhat facetiously. Others of you may be cheering the suggestions because if they were employed your church business meetings would be significantly improved.

Here is the question: What kind of impression would an unsaved person get about your church if his only exposure to it were a business meeting? Furthermore, if the resurrected Christ were to visibly walk into your church business meeting would He feel at home in His Church?

May the Lord be exalted in your church’s next business meeting. Why? Because sometimes the only impression the world gets of us is from that of our business meeting.

Tips for seasons of unemployment

2009-07-01T17:04:00.000-07:00

In his weekly radio and Internet address, President Obama claimed that more people have filed for unemployment in recent weeks than at any time in the last 26 years. There are many experts that believe our unemployment rate could reach double digits.

Bad news.

The good news is that God promises to help us in our financial lives—even when we don’t know where our provision is going to come from. Jesus told the masses in his day (many of whom were unemployed), “Give your entire attention to what God is doing right now, and don't get worked up about what may or may not happen tomorrow. God will help you deal with whatever hard things come up when the time comes” (Mat 6:34 MSG).

Comforting words…but how does it work when we are out of a job? And what are we to do with the time and the bills we find ourselves with while we sit jobless? I’ve got a few suggestions.

Pray Into Your Situation

Prayer is a funny thing. You don’t always get exactly what you pray for, and if you do, it’s usually not in the timeframe you expected. But we are called to a life of prayer. We are called to pray even when prayer didn’t keep us out of the trouble we are currently in. You probably prayed that you wouldn’t lose your job. Obviously that didn’t work. Why would prayer do any good now? Tough question, but one that is left unanswered as God calls us to pray…continually.

The place God first told his followers to live by faith was in a conversation he had with an Old Testament prophet named Habakkuk. Habakkuk was questioning why God had not protected his people. At that moment it looked like God was being unjust. God didn’t answer Habakkuk with a clear answer. Instead, he simply told Habakkuk, “the righteous will live by his faith” (2:4). In other words, God-followers are to trust God, period. No matter what is going on. Even if it seems like God dropped his end of the bargain.

Truth is, prayer always increases the activity of the Holy Spirit in our lives, and over the long haul God responds to the cries of his people and will redeem the ugly circumstances of their lives by weaving them into his good purposes. Keep praying into your situation.

Tighten Your Belt

When you find yourself out of work, find ways to spend less money. Obviously this is easier said than done. Why? Because spending money makes us feel good. When we buy $4 coffees at Starbucks, $70 haircuts, $22 lipsticks, and $5 half-gallons of organic milk, we feel good about ourselves. These purchases seem like “must-haves,” not luxuries.

In the past several decades our expectations of what is normal has changed so drastically that what used to be viewed as a luxury is now seen as "essential." Our standards have skyrocketed. Consider that not too long ago twelve hundred square feet used to be considered the standard-size house for a family. Many spend money on perceived essentials like—iPhones, designer sunglasses, flat-screen TVs, new cars, etc. Americans are so used to expecting these standards that we can no longer afford our lives. Now when times get tight, it's hard to find a way to cut back—it all seems so…necessary. But we must. We need to do a better job defining essentials. We must learn to differentiate between needs and wants.

Contact Your Lenders

Though you might feel embarrassed, contact your lenders if you know you will not be able to make a scheduled payment. And do so BEFORE they contact you. Creditors appreciate communication and will work with you when things get tight. Be honest about your situation and then follow through with whatever you arrange with them.

Jesus told those who wanted God to help them with their financial need to “seek first his kingdom and his righteousness” (Mt. 6:33). Seeking “his kingdom” is looking for his influence. Seeking “his righteousness” is working hard to do what is right. Contacting those you cannot pay is the “right” thing to do. Not only will your creditors appreciate it, God will honor it.

Don't Stop Giving

It may sound crazy, but God calls us to give even when it looks like we are going to run out of resources. There’s a wild story in 1 Kings 17 about the prophet Elijah asking this lady for a meal in the middle of a horrible famine. The lady said, "‘I swear, as surely as your God lives, I don't have so much as a biscuit. I have a handful of flour in a jar and a little oil in a bottle; you found me scratching together just enough firewood to make a last meal for my son and me. After we eat it, we'll die.’

Elijah said to her, ‘Don't worry about a thing…first make a small biscuit for me and bring it back here…The jar of flour will not run out and the bottle of oil will not become empty before God sends rain on the land and ends this drought'" (vv. 12-14). The lady did it and she didn’t run out of food until the drought ended. God used her giving to open up provision. It isn’t that giving “earns” anything with God; it’s that giving messes with us in a way nothing else does, and it brings trust to the forefront of our lives. It is trust in God that opens up the flow of provision.

Get Your Resume Out By Faith

With an eye towards heaven put together your resume and make a job out of getting a job. Don’t sulk and sit in fear. Keep moving with expectation. Remember God is a creator—that means that even if no job exists for you at this moment, he can create one just for you. Dare to believe. It was Jesus who said, “Everything is possible for him who believes” (Mark 9:23). Also, be willing to work at jobs that pay less than you are used to and ones for which you are overqualified. The bottom line is stay in motion. Over my 30+ years of dealing with various financial situations, I’ve observed that God moves more quickly in the lives of those who keep moving forward than he does in the lives of those who feel victimized and paralyzed by their circumstances.

Ask for Help

I hate this, but sometimes we need to ask for help. Maybe from a family member, a friend, or even the government. I know asking for financial help seems irresponsible on some level, but sometimes we need others. You may need to ask someone close to you for a loan that you can pay back after you are out of crisis. If you are a person of integrity, such vulnerability will be met with empathy and kindness.

This Too Shall Pass

The old adage, “This too shall pass” is true. Hang in there and your season of lack and joblessness will eventually pass. Hang onto that and keep keeping on. The Hebrew writer said it this way: “And now I want each of you to extend that same intensity toward a full-bodied hope, and keep at it till the finish. Don't drag your feet. Be like those who stay the course with committed faith and then get everything promised to them” (Heb. 6:11-12 MSG). Remember, this too shall pass. God will see to it that it does.

Go Old School to Survive the Economic Times

2009-02-08T11:05:00.000-08:00

Some of the fondest memories in my life are of helping my dad around the house and listening to him explain why he did and didn't do things. Although I didn't know it at the time, he was building a foundation for a frugal lifestyle…..one that I would carry with me the rest of my life. We talked about how to fix things…how and when to buy…or even more importantly, when not to buy. Now I'm older and he's gone, but looking at today’s economy I think his lessons are more appropriate than ever. Most of them aren't earthshaking. Some are old-fashioned. But taken together, they make the difference between controlling your finances or having your finances control you.

Wait before you buy. If you're like me, every once in awhile, 'buying fever' strikes. Whether it's a book, a CD player or a new PC, the urge to BUY NOW is almost overwhelming. Sometimes I'm amazed at how much I want this thing. When I was a boy, Dad would make me wait a few days before buying that new baseball glove. I used to chafe under the restriction. But, there were times that the buying fever went down and I found that I no longer wanted to make the purchase. As I've grown older I recognize that there are a certain percentage of purchases that I won't make if I'm just willing to wait a few days. And if I buy something after waiting awhile, the joy of ownership is that much sweeter.

Shop before you buy. When you do decide that you want something, take the time to shop around. Don't buy at the first store that carries the product. By shopping around you'll make sure you get the best price, best service, and best warranty. You'll avoid the mental anguish of finding the item at a lower price elsewhere just after purchasing it.

Consider floor models/demos/etc. While you're shopping ask the salesman about floor models, demonstrators and discontinued models….anything that might cause an item to be sold at an unusual discount. I've seen TV's sold at significant price reductions just because they're last year's model. It made no difference in the usefulness of the TV, but the retailer wanted to clear out the old inventory.

Ask for discounts. It never hurts to ask for a discount. The worst thing that can happen is that they say no. It helps if you have a reason, but it's not necessary. Sometimes the dealer won't give a discount, but they'll throw in something to 'sweeten' the deal -- free delivery, an extra battery for a cell phone, cables for your printer. Things like free delivery don't cost the seller much, but reduce the cost you pay. You get more than they give up.

Pay cash. To my father, paying cash was a firm rule. His reason for paying cash was simple: if you didn't have the cash to pay for something, you couldn't afford it. If you follow his rule you'll never have debt problems. Yes, there are some exceptions. Today, it's very difficult to buy a first house for cash. But for everything else it can be done. Sure, they'll be some things that you don't buy, but if you can't afford to pay cash today, what makes you think that you can afford to pay the principle AND the interest tomorrow?

Don't borrow money. Regardless of what the marketers say, consumer debt is probably the worst thing that has happened to this country financially in the last 50 years. It wasn't until people started widespread buying on credit that they even tried to play 'keep up with the Jones'. That pressure to put on a prosperous front has strained many a marriage. How many people do you know who are under tremendous stress because of the money they owe? The problem isn't limited to families, either. Our Federal government is a prime example of the tyranny of debt. If we didn't have to pay the interest on the Federal debt, the annual budget would be in balance. The taxes we pay today are enough to pay for today's services, but they're not enough to pay for today's needs and yesterday's overindulgence.

Save 10% of what you make (after your tithe of course!). Even as a boy, I was expected to save part of my allowance and then later my earnings. In those days you 'saved something for a rainy day'. The funny thing was that I didn't realize that I was developing a lifelong habit. By only spending 80% of the money that was available, I was always living a little bit below my means. Your wants (if you're in control of the situation) are based on how much money you have available. As your income increases you'll still feel more prosperous, just at a slightly lower level. The result is that you'll never be stretching the envelope of your budget.

Do you own something already that can do the job? Before you go buy something new, is there something that you already own that can accomplish the task? Recovering an old chair could be a far better option than buying a new one. If you can do the job yourself it's particularly frugal.

Perform routine maintenance. Neglecting your possessions is a sure way to see that they deteriorate before their time. If you mistreat your car you'll cut its life in half. It's true of most everything you own from your carpet to your roof. In fact, the time that's needed to care for your possessions is a good reason not to buy too many things. The more you own, the more you need to care for.

Learn to do basic repairs. Most basic repairs can be done successfully by an informed homeowner. When I was a boy, Dad had me hand him tools as he performed these tasks. Although I didn't know it at the time, I benefited more than he. Even though my young mind wandered and often he would remind me to aim the light where he was working, I was learning by watching. Over the course of my boyhood I would 'help' him with most of the common projects that the typical family faces. When I had a home of my own those lessons were enough to get me started on my own repairs.

When my son was small, I encouraged him to “help dad” when I worked around the house. Sure there were times that it would have been faster to just reach for the screwdriver, but we were spending time together and he was learning. Someday I'm hopeful that these little lessons will pay dividends when he is on his own.

Uncle Sam to Visit Soon

2009-02-08T11:00:00.000-08:00

Does tax season make you cringe? Do you hate the forms, paperwork and fine print? Have you already spent your refund on a new set of golf clubs or a summer vacation?

For many people, tax season stirs up many feelings about money and managing one's finances. Whether you're paying in or receiving a refund, it's difficult not to think about how hard you worked for your money, and how much goes out not only to the IRS, but to pay down credit cards, pay monthly utility bills, etc.

A recent national survey concluded that 77 percent of Americans hate financial planning and 72 percent don't have a financial plan for the future. Armed with those statistics, now would be a good time to make a Tax Day Resolution - vow to get your arms around your finances once and for all. Here are a few tips to help you get started:

Quit overpaying your taxes. According to the Internal Revenue Service (IRS), the average tax refund in 2007 was over $2,500. If you're someone who looks forward to this once-a-year cash bonus, you should understand the consequences. By overpaying your taxes, you're giving the government an interest-free loan. Lower your W-4 withholding and you'll receive more money from each paycheck. Instead of giving this money to the government each month, you can invest the extra dollars in your company retirement plan, an IRA or a mutual fund. To quit overpaying your taxes and lower your withholdings, ask the accounting or human resources department at your employer for a new W-4 form.
Timing is everything. By law, employers are required to distribute W-2 forms by Jan. 31. If you're expecting a refund, be sure to file early. The sooner you file, the sooner you'll receive your refund, which you can use to pay down debt or invest. Likewise, if you owe money, it's smart to wait until the April 15th deadline.
File electronically. Not only is it faster and more accurate to file electronically, you can get your refund in half the time, according to the IRS. In addition, filing electronically allows you to deduct your tax preparation fees from your refund and receive proof from the IRS that they've received your return. To file electronically, visit www.irs.gov.
Explore IRA options. Confused about Roth IRAs, deductible IRAs, non-deductible IRAs? The bottom line with IRAs is that they provide tax advantages to set aside money for retirement. For example, by contributing to a Roth IRA, you don't pay income tax when you withdraw the money (including gains, dividends and interest) assuming you are age 59 1/2 and the account has been open for five years. If your annual income is less than $99,000 for a single taxpayer or $156,000 for married couples filing jointly, you can contribute up to $5,000 per year, per person to a Roth IRA. In addition, you have until April 15 to contribute to an IRA (traditional or Roth) to reduce your tax burden for the previous year.
Don't skip tax deductions. It no longer requires a lot of homework and complicated forms to take a deduction. By preparing your taxes online or purchasing tax preparation software, you can learn the ins and outs of the tax code. Did you know you can deduct your expenses if you started a small business, enrolled in continuing education courses, paid a child care provider or incurred travel expenses while volunteering? Be sure to keep records of these expenses and document your contributions. And keep in mind that if your charitable contribution is more than $250, you'll need written documentation from the charity.
Keep a paper trail. Start a filing system for all paperwork (charitable receipts, un-reimbursed employee business expenses). As a general rule of thumb, you should keep financial records (tax forms, investment statements, bank statements, proof of deductions, etc.) for at least six years. Although the IRS has up to three years to initiate an audit, if they suspect income has been misreported by greater than 25 percent, they have up to six years. Therefore, any records pertaining to capital gains and capital losses, or the carryover of capital losses or charitable deductions, should be retained until they are no longer pertinent.
Max out your 401(k) or 403(b). If you're working, you should be contributing to your employer's retirement plan….especially if they match your voluntary contributions. This is your best opportunity to take advantage of tax-deferred savings. Ideally you should contribute the full amount that you can, but at the very least, contribute up to the match offered by your employer (if available) - that's free money!
Live within your means. Spending less than you earn is the key to any financial plan. Experts recommend that if you're working, you should be saving 10 percent of your annual pretax income. After you've maximized your 401(k) or 403(b), consider an automatic withdrawal from your paycheck into an investment program. By lowering your take-home check, you'll train yourself to spend less, just as you did when you were making less money. If you receive a raise, before you get into the habit of spending it, increase your automatic investment.
Time your income wisely. If you're thinking about selling stock that will result in a large capital gain, consider postponing the sale until next year or balancing the gain with a loss from another sale. Similarly, consider the timing of your year-end bonus. Your employer may be willing to postpone the payment of your bonus check until the new year, which would avoid paying higher taxes this year.
Move your money from low- or non-interest paying accounts. According to the American Bankers Association, Americans keep $700 billion in commercial bank accounts that pay little or no interest. Millions more earn 2 percent or less. Alternatives to low or non-interest paying accounts include credit unions or mutual funds. A good starting point is a money-market mutual fund paying 4.5 to 5 percent that offers immediate access to your contributions. Online investment sites now make it affordable (as low as $25 per month) to start a regular and rewarding investment program. Credit unions are typically sponsored by employers, unions, community groups or churches and are much easier to join thanks to new federal laws.

Investing

2009-02-08T10:55:00.000-08:00

Should I begin investing? Is my current retirement plan safe? What is diversification?

My office has been flooded with investment questions lately….and for good reason! In today’s economy, it goes without saying that we all have to be wise in how we handle the money God entrusts to us. Whether you are a seasoned veteran, or just now looking to set up a retirement plan, there is some basic information needed to get started…..and what better way to begin than by looking to the bible for our answers?

First, investing isn't simply multiplying and storing assets without purpose – that's hoarding, which is condemned by Jesus in Luke 12:16-21. But, Solomon gives some excellent investment advice: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth” (Ecclesiastes 11:2). With that counsel as our base line, let me share with you some tips that have helped me over the years.

Investing 101

An investment should be simple to understand and easy to track.
Investments mustn't change your lifestyle or cause stress or worry for you or your family.
Investments must have liquidity so you can get your money back in case of an emergency.
You should be able to handle the investment yourself, and develop it with little administrative time.
Invest with purposeful goals, such as retirement, education, tax shelter, and so on.
Don't allocate money for investing if your family budget doesn't allow for investing.
Avoid personal liability and remember that surety (or a personal guaranty) is always an unwise investment strategy.
Evaluate risk and return, and if you can't afford to lose it don't invest it.
Never encumber all of your assets, keep at least half of your investment debt-free.
Be patient and remember that most get-rich-quick schemes rely on greed and quick decisions.
Follow Solomon's counsel– diversify and don't put all your eggs in one basket.

Scripturally sound reasons to invest

Multiply to give more. Jesus' parable of the talents (see Luke 19:12-26) tells us that God entrusts wealth to some of His stewards so that it will be available to Him at a later date. Wealth management requires that it be invested or multiplied.
Meet future family needs. God's Word indicates that the heads of families should provide for their own (see 1 Timothy 5:8). Good planning requires laying aside some surplus for future needs.
Further the Gospel and fund special needs. This giving is necessary to maintain and promote the Gospel. If the church is ever to break out of the borrowing habit, Christians who invest must maintain some surpluses and be willing to give to legitimate needs.

Unsound reasons to invest

Greed. The desire to continually have more and demand only the best (see 1 Timothy 6:9).
Envy. The desire to achieve based on other people's successes (see Psalm 73:3).
Pride. The desire to be elevated because of material achievements (see 1 Timothy 6:17).
Ignorance. Lack of discernment in following the counsel of other incorrect people (see Proverbs 14:7).

Economic Uncertainty

2009-02-08T10:54:00.000-08:00

Fear. Financial meltdown. Panic. What a week on Wall Street. It’s been a while since I’ve heard those words used as often as they were this past week. The Stock Market seemed to be heading down a slippery slope. Then it roared back like a roller coaster coming out of a thrilling dip. What are we to think? How should Christ-followers respond? Our hope is not in this world . . . but we live in this world. Many of us have insurance policies, checking and saving accounts, investments or retirement plans. Some people are old enough to remember the Great Depression.

Numerous thoughts have pulsated in my mind this week. Where will this lead? No one knows the answer to that question. Is more bad news coming? Same answer: no one can say with reasonable certainty. Is God allowing our country to reap what we have sown in greed and materialism? Worse yet, could God be judging America? Or does it have a human root? Has someone mismanaged their watch-dog office in the government? Or, have some businesses tried to grow too big too fast? Or, is this an inevitable market correction from buying more than we can afford, stretching ourselves beyond sensibleness? These questions have no clear answers. But these questions, and others, persist.

Several things have settled in my thoughts. First is a verse of Scripture I taught my son when he was very young. Psalm 56:3, “When I am afraid, I will trust in you.” I said to my wife as the news was breaking about the massive government bail-out, “I’m sure glad Jesus is on the throne.” This is a time, unlike more comfortable times, to trust God, no matter what the future. It is a time to road test our faith, to embrace Jesus’ words recorded in Matthew’s gospel when he talked about this very thing. “So don't worry about these things, saying, ‘What will we eat? What will we drink? What will we wear?' These things dominate the thoughts of unbelievers, but your heavenly Father already knows all your needs. Seek the Kingdom of God above all else, and live righteously, and he will give you everything you need” (Matthew 6:31-33). May our fears find rest in these words of Jesus.

I’ve also found myself being thankful. I am thankful for people who are much smarter than I about finances on a national scale. The talk of hundreds of billions, even a trillion dollars, is beyond my comprehension. I’m grateful for the expertise some have to address this problem. I am thankful for my country, and the freedom we have to respond to every issue.

In times like these, one cannot help but think about the power of greed. Did it play a role in this present crisis? Only time will tell. Scripture is clear about the danger of greed. Paul instructed young Timothy, “The love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs” (1 Timothy 6:10). This is a warning to fellow Christians, but applies to all people. Anyone is vulnerable to the lure of loving money. Money is an innocent means of acquiring goods and services. It is the love of it that causes us to pierce ourselves with many griefs. The words of the writer of Hebrews makes so much sense, in good times and bad. “Keep your lives free from the love of money and be content with what you have, because God has said, ‘Never will I leave you; never will I forsake you’” (Hebrews 13:5).

All things considered, our best response is to pray. I read a news report over the weekend of prayer meetings happening in New York as this crisis broke, similar to the prayer response to 9/11. That is the best way to help our country right now. Pray for those wrestling with this problem, seeking reasonable solutions. Pray for leaders of our government and businesses directly affected, that they will make wise decisions. Pray for those personally affected by this financial roller coaster ride, that they will not be driven to despair. Pray for us all, that we will be delivered from the love of money. Pray that we will all turn, with bold trust, to God.

Church Credit Cards

2009-02-08T10:52:00.000-08:00

Most churches have one or more credit cards that pastors or other staff members use to pay for church-related expenses. For example, a pastor is given a credit card with a $5,000 limit, and uses it pay for fuel, business lunches, books, and supplies.

Credit cards can be a very convenient resource. But, it is important for church administrators and pastors to be familiar with the tax rules that apply to the use of credit cards because unfamiliarity with these rules can quickly result in a failure to correctly report taxable wages.

A church credit card is simply a means of reimbursing the cardholder for expenses he or she charges. The cardholder uses the card to charge expenses; the credit card company sends the church a monthly bill itemizing all charges; and the church pays the balance. Such an arrangement can be either "accountable" or "non-accountable." It is important for church administrators and staff members to understand the difference, since non-accountable reimbursements must be reported by the church as additional taxable income to the cardholder.

A credit card arrangement can be accountable, if the following requirements are met:

1) Business connection. The cardholder's expenses must have a business connection -- that is, they must represent expenses that could be deducted as business expenses on the cardholder's income tax return.

2) Adequate accounting. The cardholder must adequately account to the church for all expenses within a reasonable period of time (not more than 60 days after an expense is incurred).

3) Returning excess reimbursements. The cardholder must return any excess reimbursement or allowance within a reasonable period of time (not more than 120 days after an excess reimbursement is paid). An excess reimbursement or allowance is any amount a cardholder is paid that is more than the business-related expenses that were accounted for to the church.

4) Reimbursements not made out of salary reductions. For a church's reimbursement arrangement to be accountable, it must meet a reimbursement requirement. The reimbursement requirement means that an employer’s reimbursements of an employee’s business expenses come out of the employer’s funds and not by reducing the employee’s salary.

If a church adopts an accountable reimbursement arrangement, then none of the church’s reimbursements are added to an employee’s W-2 (or 1040), and there are no expenses for the employee to deduct. The employee, in effect, accounts to the employer rather than to the IRS.

Under an accountable reimbursement arrangement, employees must adequately account to their employer for any business expense that the employer reimburses (including the payment of credit card charges). In general, this means that employees must submit an expense account or other written statement to the employer showing the date, amount, location, and business connection of expenses (including those charged directly or indirectly to the employer through credit cards) broken down into categories such as transportation, meals and lodging while away from home overnight, entertainment expenses, and other business expenses. Receipts are required for any expense of more than $75.

An employee’s accounting or substantiation of business expenses must occur within a reasonable time. In general, this means that expenses are substantiated within 60 days of when they are incurred.

Business expense reimbursements paid by churches must be included on the employees’ W-2 forms, and are subject to income tax and FICA withholding when paid -- unless the reimbursements are paid under an accountable reimbursement plan. The withholding requirements will not apply to ministers, who are exempt from tax withholding (unless they have elected voluntary withholding).

Don't Lose Your House!

2009-02-08T10:51:00.000-08:00

Although a bit of a diversion from my usual topics, it seems appropriate to pass along some information that has affected all of us either directly or indirectly. You cannot open a paper, watch television or search the internet without receiving more disturbing news about today’s housing market. Thousands are facing the possibility of losing their home, and most do not know the practical options available to them. Hopefully the information below might be of use to you or someone in your church or neighborhood.

Things happen

Maybe you lost your job. Maybe you’ve been seriously ill or injured. Maybe your interest rate went up on an adjustable rate mortgage. Whatever happened, do everything you can to make your mortgage payments. Your house is the most important investment you will ever have, so you don’t want to lose it.

Open your mail

Don’t ignore any letters you receive from your lender. Those late-payment notices often have tips on how to bring your account up to date, plus telephone numbers and the names of people you can talk to.

Keep in mind, the lender is in the business of loaning money not taking away homes. They want you to keep your home so you can keep making loan payments. They will often bend over backwards to keep you in your home.

Slash your spending

Find a way to get caught up on your mortgage payments. Here are three tips:

1. Pay the most important bills first: Mortgage….utilities…..automobile….

2. Slash spending on unnecessary things like cable TV, dining out, hobbies, and the like.

3. Try to bring in more income – consider a second job, sell luxuries like jewelry or other valuables.

Call your lender and explain what’s happening

Your lender will work with you IF you contact them early enough. Call before you miss your first or second payment. The longer you wait to let them know you are having difficulties, the fewer options you’ll have. Here are some options your lender might offer:

· Reinstatement: You pay the lender the full amount past due, plus late fees and penalties, and resume making regular payments.

· Repayment plan: You make regular payments plus added partial payments to make up for the payments you missed.

· Forbearance: You are allowed to stop making payments for a set amount of time. At the end of that time you begin making regular payments plus added partial payments to make up for the payments you missed.

· Loan modification: You and your lender agree to change the terms of your loan to make your monthly payments more affordable.

· Sell your house: Depending on the real estate market in your area, selling your home may provide the money needed to pay off your mortgage – and avoid foreclosure.

· If you have a VA or FHA mortgage, you may have other alternatives: Contact www.FHA.gov or www.homeloans.VA.gov for information.

Need help?

Talk to a housing credit counselor. Their services are often free or low cost.

Counselors have worked with lots of people in your situation. They can go over your options, offer you advice, and help you negotiate with your lender.

Don’t be shy when talking to a counselor. They’ve heard every story there is and yours won’t be the worst. Don’t make things sound better than they are. Explain how difficult your financial situation really is.

Call the housing authority in your city or state for help finding a legitimate housing counseling agency, or visit www.hud.gov for a list of Housing & Urban Development approved agencies.

Beware of scams

Scam artists profile neighborhoods with high foreclosure rates. They find victims by posting flyers on telephone polls, calling on the phone, mailing letters, knocking on doors, and getting referrals from other people they have befriended. Some might offer counseling help. Others might offer to negotiate with your lender. A few might offer to buy your home and sell it back to you when you get back on your feet.

These people seem friendly, kind and sympathetic – until you get their bill or they steal your house. Don’t be fooled! If something sounds too good to be true – walk away. And, never sign anything you don’t understand. If you aren’t sure, call a housing credit counselor before you sign anything.

Gifts Designated for Scholarships

2009-02-08T10:50:00.000-08:00

Designated contributions are those that are made to a church with the stipulation that they be used for a specified purpose. If the purpose is an approved project or program of the church, the designation will not affect the deductibility of the contribution. However, if a donor stipulates that a contribution be spent on a designated individual, no deduction ordinarily is allowed unless the church exercises full administrative control over the donated funds to ensure that they are being spent in furtherance of the church’s exempt purposes. Contributions to a church that designate an individual recipient can arise in several ways, such as those that designate a student as the intended recipient.

Many taxpayers have attempted to claim charitable contribution deductions for payments made to a church-operated private school (or to the church that operates the school) in which the taxpayer’s child is enrolled. The IRS has emphasized that a charitable contribution is a voluntary transfer of money or property that is made with no expectation of procuring a financial benefit commensurate with the amount of the transfer. Therefore, payments made by a taxpayer on behalf of a child attending a church-operated school are not deductible as contributions either to the school or to the church if the payments are earmarked in any way for the child.

The fact that payments are not earmarked for a particular child does not necessarily mean that they are deductible. The IRS has held that the deductibility of undesignated payments by a taxpayer to a private school in which his child is enrolled depends upon whether a reasonable person, taking all the facts and circumstances of the case in due account, would conclude that enrollment in the school was in no manner contingent upon making the payment, that the payment was not made pursuant to a plan (whether express or implied) to convert nondeductible tuition into charitable contributions, and that receipt of the benefit was not otherwise dependent upon the making of the payment.

In resolving this question, the IRS has stated that the presence of one or more of the following four factors creates a presumption that the payment is not a charitable contribution:

the existence of a contract under which a taxpayer agrees to make a contribution and which contains provisions ensuring the admission of the taxpayer’s child
a plan allowing taxpayers either to pay tuition or to make contributions in exchange for schooling
the earmarking of a contribution for the direct benefit of a particular individual, or
the otherwise unexplained denial of admission or readmission to a school of children of taxpayers who are financially able, but who do not contribute.

The IRS has observed that if none of these factors is determinative, a combination of several additional factors may indicate that a payment is not a charitable contribution. Such additional factors include but are not limited to the following: (1) the absence of a significant tuition charge; (2) substantial or unusual pressure to contribute applied to parents of children attending a school; (3) contribution appeals made as part of the admissions or enrollment process; (4) the absence of significant potential sources of revenue for operating the school other than contributions by parents of children attending the school; and (5) other factors suggesting that a contribution policy has been created as a means of avoiding the characterization of payments as tuition. If a combination of such factors is not present, payments by a parent will normally constitute deductible contributions, even if the actual cost of educating the child exceeds the amount of any tuition charged for the child’s education.

Gifts Designated to Benevolence

2009-02-08T10:48:00.002-08:00

Many churches have established benevolence funds to assist needy persons. Typical beneficiaries of such funds include the unemployed, persons with a catastrophic illness, accident victims, and the aged. There is no question that churches may establish benevolence funds. This is both a religious and a charitable function. But, the tax consequences of such funds depend on the circumstances. Consider the following three scenarios.

Contributions made directly to individuals

Contributions made directly to individuals are not deductible, no matter how needy the recipient may be. For example, the courts have repeatedly denied deductions for contributions made directly to relatives, ministers, students, military personnel, and needy persons. The reason is that a charitable contribution must be "to or for the use of " a qualified charitable organization. Gifts to individuals, no matter how needy, are not deductible as charitable contributions. They are perfectly legal, just not deductible.

Undesignated contributions made directly to a church benevolence fund

Contributions made directly to a church benevolence fund, and that do not designate a recipient or beneficiary, can be treated as charitable contributions by the church and donor. To illustrate, assume that a church establishes a benevolence fund, and that a church member contributes $250 to the fund but does not designate the intended recipient. Such a contribution ordinarily can be treated as a charitable contribution since it was made "to or for the use of" the church.

Contributions designating a specific beneficiary

The most difficult kind of benevolence fund contribution to evaluate (but by far the most common) is a contribution that designates a desired recipient. The designation may be written on the face of the check, on an envelope accompanying the contribution, in a letter, or it may be oral. To illustrate, a member contributes a check in the amount of $500 to a church’s benevolence fund, and inserts a note requesting that a designated individual receive the proceeds. Can such a contribution be treated as a charitable contribution by the church and donor? Ordinarily, such designated contributions to a benevolence fund are not deductible, since the intent of the donor is to make a transfer of funds directly to a particular individual rather than to a charitable organization. This does not make them illegal; it simply makes them non-deductible by the donor. On the other hand, the recipient does not have to report the transfer as taxable income since it is excludable as a gift. Further, the church ordinarily would hold such funds as the trustee of an implied trust, and accordingly could not divert them to any other purpose or use.

The IRS has stated, "If contributions to the fund are earmarked by the donor for a particular individual, they are treated, in effect, as being gifts to the designated individual and are not deductible. However, a deduction will be allowable where it is established that a gift is intended by a donor for the use of the organization and not as a gift to an individual. The test in each case is whether the organization has full control of the donated funds, and discretion as to their use, so as to insure that they will be used to carry out its functions and purposes."

This test suggests that in some cases it may be possible for a donor to deduct a designated contribution to a church benevolence fund if the circumstances clearly demonstrate that the donor’s designation was a mere suggestion or recommendation and that the donor intended the contribution to be "to or for the use of" the church and subject to its control rather than to the designated individual. The IRS has occasionally ruled that mere "expressions of interest" accompanying an otherwise undesignated gift do not prevent it from being treated as a charitable contribution. On the other hand, if there is a "commitment or understanding" that the church will distribute a donation to a person designated by the donor, then the donation cannot be treated as a charitable contribution since the church lacks sufficient control over the funds.

In summary, there is support for the conclusion that contributions to a church benevolence fund can be deductible even if the donor mentions a beneficiary, if the facts demonstrate that

The donor’s recommendation is advisory only
The church retains full control of the donated funds, and discretion as to their use, and
The donor understands that his or her recommendation is advisory only and that the church retains full control over the donated funds, including the authority to accept or reject the donor’s recommendations

How can these facts be established? One possible way would be for a church to adopt a benevolence fund policy making all distributions from a benevolence fund subject to the unrestricted control and discretion of the church board, and to communicate such a policy to all prospective donors. It can be argued that donors willing to make a designated contribution to a church benevolence fund under these conditions are manifesting an intent to make a contribution to the church rather than to the designated individual. Churches adopting such a policy should make copies available to any person wanting to make a designated contribution to the church benevolence fund. There is no guaranty that such a policy will render a designated contribution deductible. Obviously, a church can administer a program in such a way as to jeopardize the deductibility of contributions. For example, a church can adopt a benevolence fund policy but honor every recommendation made by donors. Clearly, if this practice were made known to the IRS, no contribution would be deductible since the church’s alleged control over the donated funds does not in fact exist.

Special appeals

There is one other possible exception to the general rule of non-deductibility of designated contributions to church benevolence funds. Many churches have made special appeals to raise funds for a particular benevolence need. For example, an offering is collected to assist a family with a child who has incurred substantial medical expenses. Are contributions made to such an offering tax-deductible? Unfortunately, neither the IRS nor any federal court has addressed this issue directly. However, it is possible that such contributions would be tax-deductible if the following conditions are met: (1) the offering was preauthorized by the church board; (2) the recipient (or his or her family) is financially needy, and the uninsured medical expenses are substantial; (3) the offering is used exclusively to pay a portion of the medical expenses; (4) immediate family members are not the primary contributors; and (5) no more than one or two such offerings are collected for the same individual. Even if these conditions are satisfied, treating the donations as charitable contributions represents an aggressive position that is subject to challenge in an audit.

Gifts Designated to Projects

2009-02-08T10:48:00.001-08:00

Designated contributions are contributions made to a church for a specified purpose. In most cases, a donor either designates a specific project (such as the church building fund) or a specific individual (such as a missionary, student, minister, or needy person). In this week's lesson, we look at contributions that designate projects rather than specific individuals.

If a donor specifies that his or her contribution be applied to a specific project, the designation ordinarily will not affect the deductibility of the contribution. An example is a contribution to a church building fund. The reason that such designations do not prohibit the contribution from being treated as a charitable contribution by the church and donor is that the contribution is being made to the church. This assumes that the designated project was an existing, preapproved project of the church.

What about donors who contribute funds to a church for a project that has not been preapproved? For example, what if a donor believes that the church needs a new vehicle, and donates $20,000 with the stipulation that the entire amount be used to purchase a new vehicle. Is this contribution tax-deductible? Possibly not, since one requirement of a charitable contribution is that it be made "to or for the use of" a qualified charity, and how can this requirement be met when a donor removes all discretion from a church regarding how donated funds are to be spent? On the other hand, if a church approves or authorizes a project before a donor makes a contribution that is designated for that project, then the contribution, while designated, is nevertheless to the church because of the prior approval.

Church leaders should keep these principles in mind when members want to make contributions that are designated for a specific project. If the project has been previously approved by the church congregation or governing board, then ordinarily there is no problem regarding the treatment of the donation as a charitable contribution. But, if the suggested project has not been previously approved by the church, then the donor should be advised to delay making the gift until the church can determine whether it wants to approve the project. If a donor makes a contribution for a project prior to the approval of the project by the church, then it is questionable whether the church can treat the contribution as a charitable contribution.

Gifts Designated to Pastors

2009-02-08T10:45:00.000-08:00

Designated contributions are those that are made to a church with the stipulation that they be used for a specified purpose. If the purpose is an approved project or program of the church, the designation will not affect the deductibility of the contribution. However, if a donor stipulates that a contribution be spent on a designated individual, no deduction ordinarily is allowed unless the church exercises full administrative control over the donated funds to ensure that they are being spent in furtherance of the church's exempt purposes. Contributions to a church that designate an individual recipient can arise in several ways. Let’s look at contributions that designate a pastor as the intended recipient.

It is fairly common for individuals to attempt to "supplement" a minister's compensation by making "contributions" to a church that are designated for the benefit of a particular minister. To illustrate, assume that Pastor Ron is the youth pastor at a local church, that his annual compensation from the church is $20,000, and that his parents (who live in another state) want to supplement his income. They send $5,000 to their son's church, earmarked for their son, which is paid by the church to Pastor Ron in addition to his stated salary of $20,000. This contribution is not tax-deductible by the parents, since it clearly was their intent to benefit their son. The church acted simply as an intermediary through which the gift was funneled (in many cases, in an attempt to obtain a charitable contribution deduction).

But what if the church informed the parents that their $5,000 gift would be applied to reducing the church's obligation to pay a $20,000 salary? In other words, if the parents understand that their $5,000 gift will be applied toward the church's commitment to pay a $20,000 salary (leaving the church with an obligation of $15,000), does this make a difference? Does relieving the church of $5,000 of its $20,000 obligation warrant a charitable contribution deduction? This question has been addressed directly by the Tax Court. A couple paid $100 per month toward the housing expenses of their minister son, and they claimed a charitable contribution deduction for all of their payments. They argued that their payments were tax-deductible since they were relieving the church of an obligation to provide housing (or a housing allowance) for their son. In denying any charitable contribution deduction to the parents for their monthly payments, the court observed: "The cases are clear that the criteria for determining whether an amount is a charitable contribution is not whether the payment which is not made directly to the charity might incidentally relieve the charity of some cost but rather whether the payment is such that the contribution is 'for the use of' the charity in a meaning similar to 'in trust for.'"

The court referred to an earlier decision in which it denied a charitable contribution deduction for a payment made by a taxpayer directly to an educational institution for the education and maintenance of a child who lived in a state-operated children's home. In the prior case, the taxpayer had claimed that since the children's home would have had to pay for the education and maintenance of this boy had he not done so, his payments were payments "for the use of" that charity and should be tax-deductible. In holding that the amount paid by the taxpayer to the educational institution was not a charitable contribution, the court observed that these payments were earmarked "not for a group or class of individuals, not to be used in any manner seen fit by the home, but for the use of a single individual" in whom the taxpayer "felt a keen fatherly and personal interest." The court further observed that "charity begins where certainty in beneficiaries ends," quoting from a Supreme Court case which held that the uncertainty of the objects of the donation is an essential element of charity. After reviewing this precedent, the court concluded:

Here, whether the [church] would have chosen to maintain a house for the use of [the taxpayer's] son and his family as living quarters is not shown by this record. It may have been that had the taxpayer paid the [$100 per month] directly to the church, that organization would have chosen to use the funds otherwise. However, even were there something in this record to indicate that the church would have rented a house for the use of the taxpayer's son . . . it would not follow that the deduction would be allowable since by making the payments directly to the landlord the taxpayer took away the option of the church with respect to its use of the funds. As pointed out in several cases, the charity must have full control of the funds donated in order for a taxpayer to be entitled to a charitable deduction, and such is not the situation where the funds are designated by the donor for the use of a particular individual. In the instant case, the evidence as a whole shows that it was the taxpayer's intent to benefit his son by insuring that his son had a place to live with his family. Under these circumstances the payments were for the use or benefit of a particular individual, the taxpayer's son, and therefore are not charitable deductible contributions even though incidentally the payments may have relieved the church of the necessity of paying for a place for the taxpayer's son to live.

Year End Processing

2009-02-08T10:44:00.000-08:00

The month of December can be a time where churches receive a variety of checks…blank, predated and postdated. Should the church treat these checks as charitable contributions? If so, as of what date? The information below should assist leadership in determining what checks to accept, and what calendar year contribution credit should be given.

Blank checks

A blank check is a check that is complete in all respects except for the designation of a payee. The person issuing the check specifies the date and an amount, and signs the check, but does not identify a payee. Occasionally a church will receive a blank check in the offering or in the mail. This can occur for a number of reasons. Some church members may simply forget to complete the check. Others may assume that the church will insert (or "stamp") its name as payee, so why bother? Can church members claim a charitable contribution deduction for a blank check? Possibly not. Consider the following example.

Example. A husband and wife claimed a charitable contribution deduction on their tax return for contributions they made by check to their church. The IRS audited the couple’s tax returns, and questioned the contributions. The couple attempted to substantiate their deductions with canceled checks and carbon copies of checks from their two personal checking accounts on which they left the payee lines blank. The Tax Court ruled that "because these canceled blank checks fail to list [the church] as the donee, these checks do not establish" that the couple made tax-deductible charitable contributions to the church.

Canceled checks may be used to substantiate charitable contributions of less than $250. This case suggests that persons who make contributions of blank checks to their church may not be entitled to a charitable contribution deduction--unless the church immediately prints or stamps its name on the payee line of each check.

Predated checks

Can a member who contributes a personal check to a church during the first worship service in January claim a contribution deduction for the prior year by simply "predating" the check as December 31 of the prior year? Many churches advise their congregations during the first one or two worship services in January that checks can be credited to the previous year if they are dated December 31st of the previous year. This advice is wrong and should not be given. The income tax regulations specify that "ordinarily, a contribution is made at the time delivery is effected. The unconditional delivery or mailing of a check which subsequently clears in due course will constitute an effective contribution on the date of delivery or mailing."

According to this language, a check dated "December 31" of one year but physically delivered in January of the following year is deductible only on the donor’s federal tax return for the current year (the year the check was delivered). This is so whether a donor "predated" a check to read "December 31" or in fact completed and dated the check on December 31 of the previous year but deposited it in a church offering in January of the following year.

The only exception to this rule is a check that is dated, mailed, and postmarkedin December of the previous year. The fact that the church does not receive the check until January of the current year does not prevent the donor from deducting it on his or her federal tax return for the previous year.

Postdated checks

Churches occasionally receive a postdated check. A postdated check is a check that bears a future date. For example, Frank writes a check for $100 on March 1 that he dates April 15. Such checks often are received at the end of the year when some donors decide they will be better off for tax purposes if they delay their contribution until the following year. Other donors make gifts of postdated checks before leaving on an extended vacation or business trip.

A postdated check is treated like a promissory note. It is nothing more than a promise to pay a stated sum on or after a future date. It is not an enforceable obligation prior to the date specified. Since a postdated check is no different than a promissory note, it should be treated the same way. If someone issues a note to a church, promising to pay $1,000 over the next year, no charitable contribution is made when the note is signed (assuming the donor is a "cash basis" taxpayer). Rather, a contribution is made when the note is paid. Until then, there is only a promise to pay. Like a promissory note, a church ordinarily should simply retain a postdated check until the date on the check occurs. There is no need to return it. A bank may be willing to accept such a check for deposit before the date on the check has occurred, with the understanding that the funds will not be available for withdrawal.

Self-employment Tax

2009-02-08T10:43:00.001-08:00

One of the unique tax rules that applies to pastors is that they are always self-employed for Social Security with regard to services performed in the exercise of their ministry. This is true even if they report their income taxes as employees. This means that pastors pay the so-called "self-employment tax" rather than "Social Security" and "Medicare" taxes paid by employees.

It is helpful to review how Social Security benefits are financed. In general, benefits are financed through two tax systems. Employees pay “Social Security” and “Medicare” taxes, which comprise 7.65% of an employee's wages. Employers match this amount, meaning that a total of 15.3% is paid for each employee. Self-employed persons pay the “self-employment tax,” which is 15.3% of net self-employment earnings. In other words, self-employed persons pay the same tax rate that is split between employers and employees. While self-employed persons receive special deductions to minimize the impact of this rule, they still pay substantially more than employees.

As noted before, pastors always are treated as self-employed for Social Security purposes with respect to service performed in the exercise of ministry. This means that they never pay “Social Security” or “Medicare” taxes with respect to such services. Rather, they pay the full self-employment tax (15.3%) — unless they have filed a timely application for exemption from self-employment taxes and have received written approval of their exemption from the IRS.

Because pastors pay far more self-employment taxes than the Social Security and Medicare taxes paid by a non-ministerial employee earning the same amount of income, many churches seek to reduce or eliminate the effect of this unfair treatment by paying some or all of their pastor's self-employment tax. In fact, research indicates that over half of all churches pay some or all of their senior pastor's self-employment tax. This is a very common fringe benefit, and so pastors and church treasurers should be familiar with the tax consequences of such an arrangement.

However, note that churches that agree to pay "half" of their pastor's self-employment taxes will have difficulty making this calculation since it will not be clear what “half” of their pastor's self-employment taxes will be until the pastor completes a Form 1040 following the end of the current year. Churches wanting to pay a specified portion of a minister’s self-employment tax should consider paying a fixed amount rather than “half” of the total self-employment tax liability. This will avoid the complexities involved in calculating “half” of a minister’s self-employment tax.

While it is perfectly appropriate for a church to pay some or all of a pastor's self-employment tax, church leaders should understand that any amount paid by the church must be treated as taxable income to the pastor. This means that any amount of a pastor's self-employment taxes paid by the church must be reported on the pastor's W-2, and the pastor must report this amount as taxable income on Form 1040.

The IRS addressed this very question in a ruling in which it concluded, "To the extent that the church pays any amount toward the minister's obligation for income tax or self-employment tax other than from the minister's salary, the minister is in receipt of additional income that is includible in his gross income and must be considered in determining his income tax and self-employment tax liability." IRS Publication 517 gives ministers the following advice, "If a church pays any amount toward your obligation for your income tax or self-employment tax, other than by withholding the amount from your salary, this amount is additional income to you and must be included in your gross income and self-employment income.”

Church Provided Car

2009-02-08T10:42:00.001-08:00

Does your church provide you with a car for your business and personal use? Many churches do. It is commonly assumed that this arrangement has no tax consequences, and so no additional income is added to the pastor's W-2 by the church treasurer at the end of the year. In fact, if you use a church-provided car for any personal use, the value of that personal use must be determined and reported by the church on your W-2. This lesson will summarize how to calculate the value of the personal use of a church-provided car.

The church may use either general valuation principles or one of three special valuation rules to compute the value of the personal use of a church-provided car. General valuation principles must be used unless your church chooses to use one of the three special valuation rules. If your church uses a special valuation, you may use either that same valuation rule or the general valuation principles. Each of these four valuation methods is summarized below.

(1) general valuation principles

Under the general valuation principles, the amount to add to your income equals (1) the amount you would have to pay to lease a comparable vehicle on comparable terms in the same geographical area, multiplied times (2) the percentage of total vehicle miles for the year that were of a personal (rather than business) nature.

(2) special automobile lease valuation rule

Under this special rule, if your church provides you with a car that is available to you for an entire calendar year, the value of the taxable benefit is the annual lease value ("ALV") of the car multiplied times the percentage of total miles driven during the year that are for personal use. The ALV is determined from a table that is reproduced in IRS Publication 15-B (Employer's Guide to Fringe Benefits).

(3) special cents-per-mile rule

Under this rule, the standard mileage rate for business miles is multiplied by the number of miles you use the vehicle for personal purposes. If your employer does not provide the fuel for the vehicle, the mileage rate may be reduced by up to 5.5 cents per mile. Business miles must be substantiated and subtracted from total miles to determine personal miles. To qualify for use of this rule, the vehicle must be regularly used in the employer’s trade or business throughout the calendar year (or for such shorter period of time as the vehicle may be owned or leased), or actually driven at least 10,000 miles in that year and used primarily by employees. This rule cannot be used for an automobile with a market value of more than an amount specified annually by the IRS (generally about $16,000). This limitation prevents many ministers from using the "cents-per-mile" rule to value the personal use of a church-provided car. It was imposed because of an IRS concern that the cents-per-mile rule would not adequately value the personal use of employer-provided "luxury cars." If you use the cents-per-mile method, you must continue to do so for all future years with respect to the same vehicle (unless the "commuting valuation rule," discussed below, is used).

(4) special commuting valuation rule

If you are provided with a church-owned car, and you are required to commute to and from work in the car, then the value of the commuting miles (which are always considered personal rather than business) can be computed at a rate of $3 per round-trip commute or $1.50 per one-way commute. The value of all your commuting is included on your W-2. For this rule to apply, the following 5 conditions must be satisfied:

(1) the vehicle is owned or leased by the church and is provided to an employee for use in connection with church business

(2) for "non-compensatory" business reasons (i.e., security) the church requires the employee to commute to and from work in the vehicle

(3) under a written policy statement adopted by the church board, no employee of the church can use the vehicle for personal purposes, except for commuting or "de minimis" (minimal) personal use (such as a stop for lunch between two business trips)

(4) the church reasonably believes that, except for commuting and de minimis use, no church employee uses the vehicle for any personal purpose

(5) the employee who is required by the church to commute to and from work in the vehicle is not a "control employee" (defined below)

The tax regulations define a control employee (for purposes of the commuting valuation rule) as an employee who satisfies any of the following (for 2003):

a board appointed, confirmed, or elected officer with annual compensation of $80,000 or more
a director (regardless of compensation)
any employee with annual compensation of $160,000 or more

Obviously, most senior pastors will not be able to take advantage of this special commuting rule since they usually are directors of their church, and in some cases they are appointed or confirmed by the church board and receive compensation of $80,000 or more during the year. In some cases, however, pastors may be eligible for the special commuting rule.

De Minimis Gifts

2009-02-08T10:41:00.001-08:00

Churches frequently provide employees with benefits whose value is so minimal that it would be impractical to account for it. Such benefits include such items as occasional use of employer computers or telephones for personal use, or an occasional meal. The tax code calls these benefits "de minimis" fringe benefits, and specifies that employers are not required to value them and report them as additional taxable income to its employees. In this week's lesson, we look at de minimis fringe benefits.

Believe it or not, the tax law contains a few "common sense" rules. One of them states that the value of some "fringe benefits" provided by an employer to its employees are so insignificant that they need not be valued and reported as taxable income to the employees. These fringe benefits are called "de minimis" fringe benefits by the tax code. To be nontaxable, their value must be "so minimal in value that it would be unreasonable or administratively impractical to account for it." The tax code clarifies that in determining whether a benefit is minimal, "the frequency with which the benefit is provided must be considered. Therefore, if your employer provides you with a free lunch each day, such a benefit will not be de minimis; though the value of any one lunch would be."

What are some examples of de minimis fringe benefits? The tax code lists the following:

occasional typing of personal letters (by yourself on church equipment, or on your behalf by another employee on church equipment)
occasional personal use of the church duplicating machine
occasional office parties and picnics for employees and their guests
traditional holiday gifts of noncash property with low fair market value (such as turkeys and fruitcakes at Christmas time)
coffee, donuts, and soft drinks furnished to employees
local telephone calls
subscriptions to professional publications paid for by the employer on behalf of an employee

On the other hand, the tax code provides the following examples of fringe benefits that are not de minimis (meaning that they must be valued and included in the taxable income of employees):

season tickets to sporting or theatrical events
the commuting use of a church-owned vehicle more than one day each month
membership in a private country club or athletic facility

The IRS has warned that employers should not assume that all relatively low-cost dinners and gifts provided to employees are tax-free. The IRS notes that gift certificates that can be exchanged for merchandise will not be considered de minimis if the cost of the merchandise is less than the value of the certificate and the employee receives the difference in cash. The IRS also has cautioned against using any "threshold amount" (such as $25 or $75) to define "de minimis." The IRS has noted that a de minimis gift is one that has a value that is so small that it would be unreasonable or administratively impractical to account for it. Therefore, if the value of the gift is ascertainable, it is not a de minimis fringe benefit regardless of the value.

Discretionary Funds

2009-02-08T10:38:00.000-08:00

Many churches have established "discretionary funds" for their pastor. A discretionary fund is an amount of money the pastor can distribute to individuals who are facing an urgent need. The idea is that some needs are known only to the pastor, and so the pastor should have the discretion to make immediate decisions concerning financial assistance. In some cases, the pastor has no instructions regarding permissible distributions. In other cases, the church establishes guidelines, but these often are oral and ambiguous.

Many pastors and church treasurers are unaware of the potential tax consequences of these arrangements. The tax consequences of some of the more common arrangements are summarized below.

Situation 1. The congregation (or governing board) establishes a discretionary fund and gives a minister full and unrestricted discretion to distribute it.

To the extent the minister has the authority to distribute any portion of the discretionary fund for any purpose, including a distribution to him or herself, without any oversight or control by the governing board, then the following consequences occur:

The entire fund must be reported as taxable income to the minister in the year it is funded. This is so even if the minister in fact does not personally benefit from the fund. The mere fact that the minister could personally benefit from the fund is enough for the fund to constitute taxable income. The basis for this result is the "constructive receipt" rule, which is set forth in income tax regulation 1.451-2(a):

Income although not actually reduced to a taxpayer’s possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions.

For a discretionary fund to constitute taxable income to a minister, it is essential that the minister have the authority to "draw upon it at any time" for his or her own personal use. This means that the fund was established without any express prohibition against distributions benefiting the minister or the minister's family.

Donations by members of the congregation to the fund would not be tax-deductible as charitable contributions since the fund is not subject to the full control of the congregation or its governing board. For a charitable contribution to be tax-deductible, it must be subject to the full control of the church or other charity. The IRS stated the rule as follows in an important ruling: "The test in each case is whether the organization has full control of the donated funds, and discretion as to their use, so as to insure that they will be used to carry out its functions and purposes." If a church sets up a discretionary fund and authorizes a minister to make distributions from the fund for any purpose without any oversight or control by the church, this fundamental test is not met.

Situation 2. The congregation establishes a discretionary fund and gives a minister the discretion to distribute it for any purpose, but the congregation’s governing board retains administrative control over the fund.

Under this scenario the fund would still constitute taxable income to the minister, but the donations of congregational members to the fund probably would be tax-deductible as charitable contributions since the congregational board exercises control over the funds. Board "control" could be established if the board simply reviewed all distributions to ensure consistency with the congregation’s exempt purposes.

Situation 3. The congregation establishes a discretionary fund and gives a minister the discretion to distribute it only for specified purposes (such as relief of the needy) that are consistent with the congregation’s exempt purposes. The minister is prohibited from making distributions to him or herself. The congregation’s governing board retains administrative control over the fund.

If a discretionary fund is established by action of a church board or congregation that prohibits any distribution of the fund for the personal benefit of the minister or the minister's family, then the constructive receipt rule is avoided and no portion of the fund represents taxable income to the minister. In the words of the income tax regulations, "income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions." To avoid the reporting of the entire discretionary fund as taxable income to the minister, it is essential that the fund be established by means of a resolution that absolutely prohibits any use of the fund by the minister for personal purposes.

In order to provide a reasonable basis for assuring donors that their contributions to the fund are deductible, the following steps should be taken: (1) The board resolution should specify that the fund may be distributed by the minister only for needs or projects that are consistent with the congregation’s exempt purposes (as set forth in the congregation’s charter); and (2) the congregational board must exercise control over the funds. As noted above, board "control" could be established if the board simply reviewed all distributions to ensure consistency with the congregation’s exempt purposes.

What is "charity"?

Ministers who are authorized to distribute discretionary funds for benevolent purposes must recognize that the IRS interprets the term "charity" very strictly. More is required than a temporary financial setback or difficulty paying bills. Ministers should keep this important point in mind when making distributions from a discretionary fund. And, the church board should carefully scrutinize every distribution to ensure that this strict test is satisfied. The income tax regulations define "charitable" to include relief of the poor and distressed or of the underprivileged." The regulations define "needy" asbeing a person who lacks the necessities of life, involving physical, mental, or emotional well-being, as a result of poverty or temporary distress. Examples of needy persons include a person who is financially impoverished as a result of low income and lack of financial resources, a person who temporarily lacks food or shelter (and the means to provide for it), a person who is the victim of a natural disaster (such as fire or flood), a person who is the victim of a civil disaster (such as civil disturbance), a person who is temporarily not self sufficient as a result of a sudden and severe personal or family crisis (such as a person who is the victim of a crime of violence or who has been physically abused).

Should recipients receive a 1099?

In general, a 1099-MISC form is issued only to self-employed workers who are paid compensation. Since most recipients of a minister’s discretionary fund do not perform any services for their distribution, no 1099-MISC is required.

Short Term Missions Trips

2009-02-08T10:34:00.000-08:00

I am regularly asked questions concerning short term missions’ trips and the deductibility of contributions for such events. I have tried to answer the two most common inquiries. Please feel free to share this information with anyone who would benefit from this information.

Are payments made by adult participants to their church to cover the cost of their travel expenses deductible as charitable contributions?

Yes, according to IRS Publication 526, which states: "You can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in such travel. This applies whether you pay the expenses directly or indirectly. You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses. The deduction will not be denied simply because you enjoy providing services to the charitable organization."

However, note that the tax code specifies that no charitable contribution deduction shall be allowed for traveling expenses (including amounts expended for meals and lodging) while away from home, whether paid directly or by reimbursement, unless there is no significant element of personal pleasure, recreation, or vacation in such travel. The purpose of this rule is to deny a tax deduction to persons who perform only nominal services for a charity while traveling or who are not required to render services for significant portions of a trip. If a church does not pay the travel expenses of persons who participate on a missions trip, then adult participants can claim their un-reimbursed travel expenses as a charitable contribution.

It is common for minors to go on church-sponsored short-term missions trips. If parents pay for their child’s travel expenses, can they claim a charitable contribution deduction?

That depends. If the parents pay the church an amount sufficient to cover the travel expenses of their child on a church-approved missions trip, then it is likely that this payment will be tax-deductible. However, if parents pay their child’s travel expenses directly, or send funds to their children to cover travel expenses,the deduction is in doubt. The Supreme Court has observed that the plain language [of the income tax regulations] indicates that taxpayers may claim deductions only for expenditures made in connection with their own contributions of service to charities . . . A taxpayer ordinarily reports his own income and takes his own expenses . . . It would strain the language of the regulation to read it, as [the parents] suggest, as allowing a deduction for expenses made incident to a third party’s rendition of services rather than to the taxpayer’s own contribution of services.

Integrity - part 2

2009-02-08T10:33:00.000-08:00

There is no such thing as a minor lapse of integrity.

One of the wisest choices pastors can make with regard to the finances of the church is to delegate handling and spending money to a business administrator, treasurer, or finance administrator. Although some pastors are good business people and good administrators of finance, God primarily called pastors to shepherd the flock of Christ, not to manage the finances of the church. In addition, if pastors delegate paying bills, writing checks (pastors should neither sign nor cosign checks), collecting money, depositing money, and making large purchases to trustworthy financial administrators who have a reputation of honesty, they will eliminate suspicion and questions of mismanagement before the questions arise. Even though the pastor may not physically handle any of the money or write any checks, he or she is ultimately responsible for good stewardship and faithful management of the finances of the church.

Position of integrity

Because pastors hold a position of trust in the opinion of most members of a congregation, pastors must avoid situations that may tend to lead to mistrust or suspicions of financial mismanagement by the pastor. In order to avoid this potentially compromising situation, pastors might want to consider the following:

1. Pastors should never take any money, collected for any reason, home with them. Nonetheless, other than petty cash, money should never be kept at the church for any reason.

2. Pastors should never deposit offerings into the bank. The finance administrator, business administrator, or a member of the board delegated by the business administrator should make deposits. Pastors should never touch, for any reason, any offerings taken for any purpose. They need to treat money given to the church like they would a red-hot stove—stay away from it.

3. Pastors should never cosign a note for the church. Pastors should never allow their names to be placed on the deed (or any proof of ownership) of any property owned by their churches.

4. Pastors should exercise prudence in giving gifts and benefits (graduation gifts, gifts to staff, and so on).

5. Pastors should avoid accepting tithes (especially if the tithe is paid in cash) from members or attendees. They should encourage the givers either to give their tithes at church or mail the tithes to the church. In fact, pastors should try never to accept any gifts on behalf of the church. They should encourage the givers to give the gifts to their church treasurers, financial administrators, or business administrators. If it is necessary for pastors to accept gifts on behalf of their churches, they should issue receipts for the gifts immediately upon the acceptance of them.

6. Pastors should avoid accepting honorariums in cash. Insist that all honorariums be paid by checks and paid to the order of their churches. This way, the church business administrators can rightly credit the honorariums as income to the pastors. If pastors must accept cash, the giver should receive a cash receipt for the amount of cash given. A copy of the receipt should then be given to the church business administrator.

7. Pastors should never solicit gifts, rewards, prizes, or benefits for themselves.

8 Pastors should, if at all possible, refuse all gifts, rewards, prizes, or benefits that compromise the integrity of the ministry.

9. Pastors should never borrow money from pastoral accounts for personal use. Likewise they should not use their church's credit cards or charge accounts set up for ministry use for personal use or benefit.

10. Pastors should not use church property or equipment without written approval from at least one board member, business administrator, or financial administrator.

11. Pastors should not expect reimbursements unless accurate records are submitted, along with a receipt confirming the expenditure and attesting to the fact that the expenditure was ministry related.

12. Pastors should not request an advance on their salaries unless warranted by an emergency and then only after submitting a request to the financial administrator or business administrator in writing and receiving approval of the advance in writing.

13. Pastors should never have the church's CPA or attorney prepare his or her personal income taxes.

Some of these suggestions may sound extreme, but remember; one of the easiest, most hurtful, and professionally devastating traps for pastors to fall into is that of financial indiscretion. For this reason, pastors must avoid every appearance of compromise and even the slightest hint of financial impropriety regarding the finances of the church. However, by being faithful to Jesus' admonitions, seeking His guidance in prayer, and being cautious by staying far away from any financially compromising situation regarding church finances, pastors can minister freely knowing that they are not guilty of financial imprudence.

Integrity - part 1

2009-02-08T10:30:00.000-08:00

The American public generally has high expectations of religious organizations and churches. For the most part, donors and attendees recognize that enormous needs exist that the church is called upon to meet, and they usually want to respond adequately to help the church meet those needs.

However, they also want to be assured that the funds they give, many times sacrificially, are being used effectively and that the church is actively involved in ministering in a way that is pleasing to the Lord. So, there can be no acceptable alternative to financial accountability.

Want to gauge your financial accountability? How would your church answer the following 11 questions?

1. Do we count and record offerings immediately after they are received? Every moment they sit uncounted leaves them open to theft.

2. Are offerings always stored in a secure or well-supervised area?

3. Do we count our cash and checks twice for accuracy? To err in addition is human. But the more we check our work, the more we avoid careless mistakes.

4. Do we place offerings in lockbags (money bags provided by the bank requiring a key to open) after counting?

5. Do we place the lockbags in a safe or a night depository until the bank opens?

6. Do we strictly limit who has access to the safe?

7. Do we change the safe combination when someone is no longer authorized to use it?

8. Do we make sure the same person is not involved in more than one financial procedure (collecting funds, counting funds, recording the giving, authorizing expenditures, writing the checks, auditing the account)? The more access a person has to the various procedures, the greater the ability to misuse funds.

9. Are any persons authorized to write checks against church funds held responsible through an accounting/auditing system?

10. Do we provide the bank with annual updates of persons authorized to sign checks against any account associated with the church? Some banks are, surprisingly, not strict about who signs checks for a church.

11. Do we issue annual receipts for giving? This is another way to determine that what comes in has, in fact, been accounted for.

Managing Through a Financial Crisis

2009-02-08T10:27:00.000-08:00

While I would never attempt to predict the future, my position and interaction with hundreds of churches has shown me that it is inevitable that a financial crisis will touch every church at some point during its life cycle.

Even though there are more churches than ever before in the history of America facing financial problems, there is no simple, quick-fix formula that has proved always to work to reverse financial difficulties.

The most obvious thing that pastors, staff, leaders, and congregations should do first is to pray for God’s wisdom and direction.

Along with prayer, there are a few principles that, when followed resolutely, have proved to be effective in turning around financially troubled churches and ministries.

Some of these principles may seem drastic in today's credit society, but if they are followed without compromise, financial turn-around has proved to be the ultimate result.

Maintain credibility
Integrity is key to maintaining credibility—with donors, suppliers, the community, and with employees and staff. If the church makes promises, it must deliver on the promises. Otherwise, credibility will very rapidly decline, and it will take years of faithfulness and financial discipline to reestablish the credibility that was lost.

Control cash flow
For churches and/or ministries to survive; they must have positive cash flow! In order to do this, the financial resources that are readily available should be distributed to those whom the church owes.

The first priority should be payroll, followed by utilities, and rent or mortgage. After these obligations have been satisfied, partial payments can be made to vendors that fit into the following categories:

Vendors who provide vital goods and services
Vendors who are aggressively threatening to pursue collection procedures
Vendors whose survival is being threatened because of payments owed them by the church.

A difficult but sometimes necessary decision that must be made if cash flow continues to be lacking is to eliminate or restrict money from being allocated to church ministries or departments that consume a lot of cash but produce very little.

Hiring freeze
Another necessary step is to add no new staff and not to replace those who leave. That could mean that some employees might end up with dual positions and multiple responsibilities.

Evaluate
Evaluate each department and ministry. Determine whether the ministry or department is an integral part needed to fulfill the ministry goals of the church or a marginal necessity. Look at the spending practices of the ministry or department. Does it have the overall good of the church as a primary concern, or is it self-consumed? Are the ministry or department directors and leaders praying about the financial turn-around of the church? Evaluate each aspect of the ministry or department, which includes the attitude and dedication of the leadership.

Communicate
Whenever the church or ministry is facing a financial crisis, the leaders, staff, and department heads need to be informed of the situation and should be updated regularly.

Tell them the state of the finances first. Then suggest ways in which the situation can be improved and the positive consequences if the situation does improve. Finally, allow them to voice their opinions and give suggestions on how to better the situation.

Develop a plan
After all suggestions have been received, evaluated, prayed about, and discussed, a plan of action should be developed, implemented, rigidly followed, and strictly monitored.

Generate new cash
This may be the most difficult thing to do. Generating new cash may include selling assets such as vehicles, equipment, computers, buildings, and so on. It also could include reducing inventories like paper goods, supplies, and children's church materials.

Eliminate all trips, retreats, outings, cookouts, or any other activity in which the church has or would have a financial obligation.

Conclusion
The senior pastor of a church that is having financial difficulties must regularly keep the financial situation before the congregational body. This allows them to know if there has been any progress in correcting the problem and gives them a tangible need about which they can earnestly pray.

Payroll Processing

2009-02-08T10:20:00.000-08:00

Federal law requires employers to comply with several payroll tax reporting obligations. The most common requirements are these: (1) withhold federal income taxes and Social Security taxes from the wages of employees; (2) deposit these taxes; (3) file quarterly employer tax returns (Form 941) with the IRS; (4) issue W-2 forms to employees and 1099 forms to independent contractors.

Almost every church will be subject to at least some of these rules. Many states have similar provisions. Church treasurers must take these rules seriously, since there are penalties for noncompliance. Unfortunately, however, noncompliance is common. Why? Here are some of the reasons:

(1) Payroll tax reporting rules are complex.

(2) Unique rules apply to churches, including the exemption of ministers from income tax withholding, the treatment of ministers as self-employed for Social Security purposes, and the availability of an exemption from the employer’s share of FICA taxes for some churches that file a timely application. Church treasurers cannot assume that a church can be treated like a secular business.

(3) In many cases, church treasurers are volunteer, uncompensated individuals who serve for limited terms. It often is difficult for such individuals to adequately familiarize themselves with the application of federal payroll tax reporting obligations to churches.

Two special rules that apply to ministers

There are two special rules that apply to ministers under the payroll reporting rules. Unfamiliarity with these two rules has created untold confusion. The rules are:

(1) Ministers are always self-employed for Social Security purposes with respect to their ministerial services, and accordingly they pay the “self-employment tax” rather than the employee’s share of Social Security and Medicare taxes—even if they report their federal income taxes as an employee. It is incorrect for churches to treat ministers as employees for Social Security purposes, and to withhold the employee’s share of Social Security and Medicare taxes from their wages.

(2) Exemption from income tax withholding. Ministers’ compensation is exempt from income tax withholding whether a minister reports his or her income taxes as an employee or as self-employed. Therefore, a church should not withhold income taxes from the salary of a minister who is an employee for income tax reporting purposes. However, ministers who are employees for income tax reporting purposes can elect “voluntary withholding” of income taxes by submitting a Form W-4 to their church. The filing of this form is deemed to be a request for voluntary withholding. Voluntary withholding arrangements can be terminated unilaterally by either a minister or the church, or by mutual consent.

10 steps to complying with the payroll tax reporting rules

If a church has nonminister employees to whom it has paid wages, or if its minister is an employee for income tax purposes and has requested voluntary withholding, the following 10 steps should be taken to comply with the withholding requirements.

STEP 1. Obtain an employer identification number (EIN) from the IRS

This number must be listed on some payroll tax forms, and is used to reconcile a church’s deposits of withheld taxes with the W-2 forms it issues to employees. The EIN is a nine-digit number that looks like this: 00-0246810. Every tax-exempt organization, including a church, should have an Employer Identification Number (EIN), whether or not it has any employees.

STEP 2. Determine whether each church worker is an employee or self-employed, and obtain each worker’s Social Security number

In some cases it is difficult to determine whether a worker is an employee or is self-employed. If in doubt, churches always should treat a worker as an employee, since substantial penalties can be assessed against a church for treating a worker as self-employed who the IRS later reclassifies as an employee.

The IRS and the courts have applied a number of tests to determine whether a church workers are employees or self-employed for federal income tax reporting purposes. However, here are some simple rules that will resolve most cases.

• Senior ministers employed by a multi-staff church will almost always be employees for federal income tax reporting purposes.

• Associate ministers (e.g., youth, music) will almost always be employees for federal income tax reporting purposes.

• Senior ministers who are the only paid worker at smaller churches may be self-employed for federal income tax reporting purposes depending on the level of control exercised by the church board or congregation over how they perform their duties.

• Ministers are always self-employed for Social Security with respect to services they perform in the exercise of their ministry. In other words, they have a “dual tax status.” For income taxes, they generally are employees, while for Social Security they are self-employed. This means that church treasurers will never withhold FICA taxes from the wages of a minister, even if the minister is treated as an employee for income tax reporting purposes.

• Ministers’ wages are exempt from income tax withholding, even if a minister is treated as an employee for federal income tax reporting purposes. Ministers prepay their taxes using the quarterly estimated tax procedure, unless they elect voluntary income tax withholding.

• Full-time lay employees are employees.

• Part-time lay employees are usually employees, especially if they work more than 5-10 hours per week.

STEP 3. Have each employee complete Form W-4

Form W-4 is used by employees to claim withholding allowances. A church will need to know how many withholding allowances each nonminister employee claims in order to withhold the correct amount of federal income tax. Ask all new employees to give you a signed Form W-4 when they start work. Existing employees should be asked to review and update their W-4 form annually.

STEP 4. Compute each employee’s taxable wages

The amount of taxes that a church should withhold from an employee’s wages depends on the amount of the employee’s wages and the information contained on his or her Form W-4. A church must determine the wages of each employee that are subject to withholding and Social Security and Medicare taxes. Wages subject to federal withholding include pay given to an employee for service performed. The pay may be in cash or in other forms. Measure pay that is not in money (such as property) by its fair market value. Wages include a number of items in addition to salary. These include bonuses, Christmas and special occasion offerings, retirement “gifts,” the portion of a pastor’s self-employment tax paid by a church, the personal use of a church-provided car, business expense reimbursements under a nonaccountable business expense reimbursement arrangement, and most reimbursements of a spouse’s travel expenses.

STEP 5. Determine the amount of income tax to withhold from each employee’s wages

The amount of federal income tax the employer should withhold from an employee’s wages may be computed in a number of ways. The most common method is the wage bracket method. Under this method, the employer simply locates an employee’s taxable wages for the applicable payroll period (i.e., weekly, bi-weekly, monthly) on the wage bracket withholding tables in IRS Publication 15 (“Circular E”), and determines the tax to be withheld by using the column headed by the number of withholding allowances claimed by the employee. You can obtain a copy of IRS Publication 15 at any IRS office, by calling the IRS forms number (1-800-829-3676), or by downloading it from the IRS website (www.irs.gov). Be sure to obtain a new IRS Publication 15 (Circular E) in January of each year. It will contain updated tables for computing the amount of income taxes to withhold from employees’ wages, and other helpful information.

STEP 6. Withhold Social Security and Medicare taxes from nonminister employees’ wages

You are required to withhold Social Security and Medicare taxes from your nonminister employees’ wages and you must also pay a matching amount of these taxes. Generally, employee wages are subject to Social Security and Medicare taxes regardless of the employee’s age or whether he or she is receiving Social Security benefits. Determine the amount of withholding for Social Security and Medicare taxes by multiplying each payment by the employee tax rate. There are no withholding allowances for Social Security and Medicare taxes. The employee tax rate for Social Security is 6.2% (amount withheld). The employee tax rate for Medicare is 1.45% (amount withheld). The employer tax rate for Medicare tax is also 1.45% (2.9% total). There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax.

Wages of less than $108.28 per year paid to a church employee are exempt from Social Security and Medicare taxes.

Federal law allowed churches that had nonminister employees as of July of 1984 to exempt themselves from the employer’s share of Social Security and Medicare taxes by filing a Form 8274 with the IRS in 1984. Many churches did so. The exemption was available only to those churches that were opposed for religious reasons to the payment of Social Security taxes. The effect of such an exemption is to treat all nonminister church employees as -employed for Social Security purposes. Such employees must pay the self-employment tax (just like ministers). They are not exempt from Social Security taxes.

STEP 7. Deposit withheld taxes

In general, you must deposit income tax withheld and both the employer and employee Social Security and Medicare taxes by mailing or delivering a check, money order, or cash to a financial institution that is an authorized depositary for federal taxes. However, some taxpayers are required to deposit using the Electronic Federal Tax Deposit System (EFTPS), as noted below.

You may make a payment with Form 941 instead of depositing if you accumulate less than a $2,500 tax liability during the quarter (line 13 of Form 941), and you pay in full with a timely filed Form 941. However, if you are unsure that you will accumulate less than $2,500, deposit under the appropriate rules so that you will not be subject to failure to deposit penalties.

There are two deposit schedules (monthly or semi-weekly) for determining when you deposit Social Security, Medicare, and withheld income taxes. If you reported $50,000 or less of payroll taxes for the most recent lookback period, you are a monthly schedule depositor; if you reported more than $50,000, you are a semiweekly schedule depositor. The lookback period is the one-year period ending on June 30 of the previous year. Monthly depositors must deposit payroll taxes by the 15th day of the following month.

Payroll taxes can be deposited with a bank by using IRS Form 8109 (Federal Tax Deposit Coupon). The IRS keeps track of the number of FTD coupons you use and automatically will send you additional coupons when you need them. If you do not receive your resupply of FTD coupons, call 1-800-829-1040. The FTD coupons will be preprinted with your name, address, and EIN. They have entry boxes for indicating the type of tax and the tax period for which the deposit is made. It is very important to clearly mark the correct type of tax and tax period on each FTD coupon. This information is used by the IRS to credit your account.

You also have the option of depositing your payroll taxes electronically, using the Electronic Federal Tax Payment System (EFTPS). This procedure is required for large employers (with payroll tax deposits exceeding $200,000 in 2001), but can be used by any employer, including churches. To get more information or to enroll in EFTPS, call 1-800-555-4477 or 1-800-945-8400.

STEP 8. File Form 941

Form 941 reports the number of employees and amount of Social Security and Medicare taxes and withheld income taxes that are payable. Form 941 contains a box on line 8 that is checked if “wages are not subject to Social Security and/or Medicare tax.” This box should be checked if your church filed a timely Form 8274 with the IRS exempting itself from the employer’s share of Social Security and Medicare taxes. Form 941 is due on the last day of the month following the end of each calendar quarter.

STEP 9. Forms W-2 and W-3

A W-2 form must be issued to any employee to whom you pay wages.

STEP 10. Forms 1099-MISC and 1096

A Form 1099-MISC must be issued to any self-employed worker to whom you pay compensation of $600 or more during the year. Some exceptions apply.

Cell Phones

2009-02-07T09:38:00.000-08:00

It is common for ministers and church staff members to go out to lunch together on work days. In many churches, it is a weekly ritual. Since church matters are discussed, many ministers assume that lunch expenses are a legitimate business expense. As such, they can be reimbursed by the church under an accountable arrangement without constituting taxable income; or, if the church does not reimburse these expenses, they can be claimed as a business deduction by ministers on their tax returns. The key question, then, is whether or not lunch expenses can be treated as a business expense for tax purposes. Here are the rules that apply:

Entertainment expenses

Local lunch expenses incurred by church employees qualify as a business expense, and can be reimbursed by a church under an accountable expenses reimbursement arrangement, only if they qualify as entertainment expenses. The requirements for substantiating entertainment expenses are strict. You must demonstrate that the expenses are either (1) directly related to the active conduct of your ministry, or (2) associated with the active conduct of your ministry and the entertainment occurred directly before or after a substantial business discussion.

In order to show that entertainment was directly related to the active conduct of your business, you ordinarily must be able to demonstrate that (1) you had more than a general expectation of deriving income or some other specific business benefit at some indefinite future time; (2) you did engage in business during the entertainment period; and (3) the main purpose of the entertainment was the transaction of business.

In order to show that entertainment was associated with the active conduct of your ministry, you must be able to demonstrate that you had a clear business purpose in incurring the expense, and that the meal or entertainment directly preceded or followed a substantial business discussion.

Frequent staff lunches

Frequent lunches with the same members of the church staff are much less likely to qualify as a business expense, even if church business is discussed. For example, if the same three church staff members go out to lunch every Friday, it is very unlikely that any of these lunches will qualify as a business expense. After all, these persons work in the same office, and presumably have considerable interaction during the week. A shared lunch under these circumstances does not constitute an ordinary and necessary business expense. In one case, the Tax Court ruled that employees who met for lunch one day each month were meeting too frequently for their lunch expenses to constitute business expenses.

Occasional lunches with non-staff members

Such lunches are more likely to qualify as entertainment expenses, and as a result the costs of these lunches can be reimbursed by the church under an accountable expense reimbursement arrangement. To illustrate, a lunch arranged by a pastor with a local architect to discuss new building plans would qualify as a business expense.

Occasional employee lunches

The Tax Court, in a decision addressing the deductibility of lunch expenses incurred by attorneys one day each month, conceded that an occasional luncheon meeting with the staff to discuss the operation of the firm would be regarded as an ordinary and necessary expense as would a luncheon to mark an anniversary, retirement or other occasion for an employee since such expenses aid in building morale and loyalty and serve as an inducement for others to work more efficiently

Other requirements of an accountable arrangement

In order for your church to reimburse expenses under an accountable expense reimbursement arrangement, you must have adopted a reimbursement arrangement that meets certain requirements.

Unreimbursed expenses

In some cases, church employees pay for their own lunch expenses. Such unreimbursed expenses may be deducted as an employee business expense, but only if reimbursement from the church was not available. Further, church employees may deduct only 50% of business-related entertainment expenses, including meals. This 50% limitation is incorporated directly into the tax returns. Note however that the 50% limitation does not apply to expenses that are reimbursed by an employer under an accountable reimbursement plan. IRS Publication 463 states: As an employee, you are not subject to the 50% limit if your employer reimburses you under an accountable plan and does not treat your reimbursement as wages Publication 463 states that the self-employed persons also can avoid the 50% limitation through use of an accountable reimbursement arrangement.

Lunch Expenses

2009-02-07T09:30:00.000-08:00

Entertainment expenses

Frequent staff lunches

Occasional lunches with non-staff members

Occasional employee lunches

Other requirements of an accountable arrangement

In order for your church to reimburse expenses under an accountable expense reimbursement arrangement, you must have adopted a reimbursement arrangement that meets certain requirements.

Unreimbursed expenses

Year End Contributions

2009-02-07T09:08:00.000-08:00

In many churches, December is the month in which most contributions are received. This is easily explained--many donors make large contributions in December to fulfill pledges or other commitments made during the year. But, with the hectic holiday season, many donors end the year without honoring their financial commitments. In some cases, they attempt to do so by writing a check in January that they "backdate" to the prior year.

Example.Bob made a personal commitment to give $5,000 to his denominational missions board in 2007. By the end of the year, he had given only $4,000. In January of 2008 Bob writes a check for $1,000 that he "backdates" to December 31, 2007 and mails to the missions board. The missions board is not sure if the check should be reported on Bob’s 2007 or 2008 contribution summary.

Should Bob’s $1,000 check be treated as a 2007 contribution? Some churches advise donors in January that checks contributed in that month can be credited to the previous year if they are backdated to December 31st of that year. Is this correct? Or, should Bob’s check be treated as a year 2008 contribution? Can the church or donor assign the contribution to either year?

As a church official, you should make sure you are able to answer these questions. Doing so is easy, if you remember the following two rules.

Rule #1: the general rule.The income tax regulations specify that "ordinarily, a contribution is made at the time delivery is effected. The unconditional delivery or mailing of a check which subsequently clears in due course will constitute an effective contribution on the date of delivery or mailing." According to this language, a check (payable to a church or denominational agency) that is dated December 31, 2007 but physically delivered in January of 2008 is deductible only on the donor's 2008 federal tax return. This is so even though a donor backdates a check to read "December 31, 2007" in January of 2008. It is even true if the donor actually wrote and dated the check on December 31, 2007 if he or she did not deliver the check until 2008.

Rule #2: the exception. The only exception to the general rule is a check that is dated, mailed, and postmarked in 2007. Such a check is deemed to have been given in 2007 even if the church does not receive or cash the check until January of 2008.