Psalm 112 says that one who delights in the Lord will “manage his affairs with discretion.” As we look to concluding this year, we want to provide some practical notes and tips for you and your congregation how to employ principles of good stewardship over the resources that God has entrusted to our care:
A payment by check is deductible in the year the check is mailed (postmarked before the end of day on December 31, 2022) or unconditionally hand-delivered to the church, by that same date. If a large contribution is mailed on December 31, it is also advisable to use certified mail and retain the receipt as documentation that your contribution was made before the end of the year.
Donors must substantiate individual cash contributions of $250 or more “by a contemporaneous written acknowledgment of the contribution by the church.” Donors cannot substantiate individual cash contributions of $250 or more with canceled checks. They must receive a written acknowledgment from the church or other charity with this wording “no goods or services were received in exchange for this donation.” If this wording is not included if the donor is audited, the IRS may disallow the deduction.
A great way to make sure your end-of-year donations make the cut-off is to utilize online giving. For business owners or investors expecting an influx of income in the first part of the year, electronic giving provides a great option to maximize your tax deductions this year for income anticipated in early January 2023. The district office can guide you to some great options for implementing electronic giving in your church, including the use of “ipad kiosks” and “apps” for smartphones.
Encourage your people to consider donating appreciated assets
Donating property that has appreciated in value, like stocks, can result in a double benefit. Not only can you deduct the fair market value of the property (so long as you’ve owned it for at least one year), you avoid paying capital gains tax. Normally, appreciated property is subject to capital gains tax at disposition, but donations made to charitable organizations escape the capital gains tax altogether.
Donating stocks, bonds or other monetary instruments
Stocks, bonds, annuities and certain other financial instruments (owned for more than one year) can be donated directly to the church. Investors desiring to make donations to the church, but stand to incur tax consequences for cashing out these investments, may benefit greatly by donating their stock directly and allowing the church to cash out the investment. Doing so provides the following benefits:
- The donor gets a tax deduction for 100% of the fair market value of the asset, and does not have to pay (the often hefty) capital gains tax on the appreciated value.
- The church can cash out the asset for the higher value and also avoids paying taxes because of our non-profit status.
- These transfers are usually very easy to execute and made simply by filling out a form.
Donors in the higher income tax brackets will face some important planning decisions as 2022 closes. Consider the following possible strategy:
- Transfer assets to the church through a Charitable Remainder Trust.
A charitable remainder trust (CRT) is a private fund that you set up to which you contribute. It provides you or the beneficiaries you select with taxable income for a certain number of years, or for life. Money that’s left over—the “remainder”—passes tax-free to one or more charities of your choosing. The significant benefit of these tools is that your contributions (of cash, investments or property) are tax deductible, based on the amount of money projected to go to charity and can be used to offset your taxable income distributions from the trust.
For more information about these options, visit Foursquare Financial Solutions planned giving website at: https://www.4sqfs.org/
For Pastors: If you need advice on how to facilitate receipt of a stock donation to your church, please contact the District Office and we can send you information on options to process this donation.
Please be aware: volunteers cannot deduct the value of their time.
The IRS does not allow a charitable deduction for volunteering your services (even professional services). The good news is that (unreimbursed) out-of-pocket expenses relating to volunteering at church directly connected with your volunteer services are considered a charitable contribution. Such out-of-pocket charitable expenses might include the cost of transportation (including parking fees and tolls); travel expenses while you are away from home performing services for a charitable organization and supplies or materials used in the performance of your services. As with other donations, keep good records since documentation is key. A letter from the charitable organization validating the charitable work performed will be necessary.
Tax deductions for mileage when volunteering at church
People who volunteer their time at church (or with other charities) may deduct $0.14 per mile on their federal tax return for the mileage driven in their personal vehicle to and from church. The IRS still requires contemporaneous records (such as a mileage log) showing odometer readings, date of travel, charitable purpose etc. In many cases the IRS has accepted MapQuest printouts in lieu of odometer readings. This only applies to those who are serving as a volunteer on the date of travel and who are not compensated in any way by the church/charity.
Other planning tips for the coming year
Financial matters often contribute to the top reasons churches and religious organizations end up in court each year. Here are some important planning tips to help your church stay above reproach and ensure that your time and energy can stay focused on mission:
- 1099-NEC Payments to non-employee’s are reported on IRS Form 1099-NEC. Form-1099-NEC should be sent to any company or individual that provides a service to the church with the exception of C or S corporation’s (indicated on their W- 9). This includes payment for services such as landscaping, cleaning, snowplowing, honorariums to visiting speaker’s, etc. (Attorney fees paid to a C or S corporation must be reported on 1099-NEC.) All payers must submit form 1099-NEC to the recipient and form 1099-NEC and 1096 to the IRS by February 1, 2023.
Form 1099-NEC form is not part of the combined Federal/State Filing Program which enabled the IRS to automatically report 1099-Misc information to the state. Form 1099-NEC is not part of that program, so filers will need to file 1099-NEC forms with their states or find a provider that provides a state filing option. (AK, FL, IL, NV, NH, NY, SD, TN, TX, WA, WY do not require state filing.)
Failing to file penalty can be as high as $280 per return or $560 for intentional disregard for filing.
Information about how to classify a worker as an employee or an independent contractor can be found at this link.
- Renew housing allowances. As a best practice, and to ensure maximum benefit, we recommend that all ministers review the amount of compensation claimed as a housing allowance and submit this amount to the church council (even if it has not changed) in order to document this designation in the church council minutes before January 1st of each year. For information about the ministers housing allowance and compensation for ministers, see the Church Compensation Practices video series: Church Compensation and HR Practices – Module 2. You can also find forms, sample letters and other housing allowance resources here: Employee Forms.
- Fair Labor Standards Act. In January 2020, the Department of Labor increased the salary requirement to $35,308 for exempt employees. California’s salary requirement is $54,080.If an employee is paid less than salary requirement annually, they need to be paid for the hours they work and are entitled to overtime AND • If your worker is paid the salary requirement annually or more but does not exercise independent judgment over significant work matters or have supervisory responsibility or perform work that requires advanced knowledge they must be paid as a non-exempt hourly worker and be paid overtime.
Ministers are exempt from the FLSA rules. There maybe some other exceptions for churches. Please watch this short 6-minute video to make sure your church is in compliance.
- Budgeting and planning + retooling your financial systems. As you approach the end of the year, consider taking advantage of the many budgeting and planning tools that are now available: QuickBooks and The Foursquare Hub Resources. These resources have been strategically designed to help pastors and their teams to organize their financial information for easy integration with the Foursquare Monthly Church report while maintaining great flexibility to customize reporting to fit your church.
Also consider our Foursquare Preferred Provider, Aplos, for accounting software. Their software is specifically designed for churches tracking donor-restricted funds with simplicity. Please use this link to access a 25% discount for Foursquare churches.
We also have several preferred providers offering full bookkeeping services:
Payroll for clergy is much different than regular employees. For example, ministers are fully responsible for all their own Social Security and Medicare tax. A simple way to see if you are correctly paying your minister is to review their W-2. If a minister has an amount in box 3,4, 5 or 6, this may indicate the minister’s pay is not being handled correctly. Foursquare recommends that churches outsource their payroll to a company specializing in clergy compensation because of the complexity. There are several Foursquare preferred payroll providers:
Please contact them for more details.
- Facilitate in-service training for your staff. The beginning of a new year is a great time to sharpen your ministry skills by training together as a team. Consider using some of the new training resources available here: Administrative Training Video Series.
- Facilitate in-service training for your church council. The beginning of the year is a great time to review article 16 of the Foursquare bylaws as new members join the church council. A humorous but educational training video for church councils is available at the administrative toolkit. This video benefits both existing and new council members. We encourage you to take a few minutes at each council meeting to review a chapter of this video.
No matter what happens with economies, governments, laws or taxes we can rejoice in the knowledge that God’s kingdom continues to thrive. In the words of John the Apostle “His commandments are not burdensome. For whatever is born of God overcomes the world. And this is the victory that has overcome the world—our faith.” May God lead you into new levels of victory in 2023 and beyond!