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Clergy Tax Law Blog Has Moved!

The Clergy Tax Law Blog now resides on Clergy Financial Resources’ website. Please click on the follow link to visit the Clergy Tax Law Blog at its new home:

http://clergytaxnet.com/blog/

IRS Updates Mileage Rates for 2013

NOTE: The Clergy Tax Law Blog now resides on Clergy Financial Resources’ website. Please click on the follow link to visit the Clergy Tax Law Blog at its new home:

http://clergytaxnet.com/blog/

The Internal Revenue Service has issued the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 56.5 cents per mile for business/ministry miles driven
  • 24 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The rate for business miles driven during 2013 increases 1 cent from the 2012 rate.  The medical and moving rate is also up 1 cent per mile from the 2012 rate.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.  Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Source:

Internal Revenue Service
http://www.irs.gov

Clergy Financial Resources
http://www.clergytaxnet.com

Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations

IRS Audits on Churches Temporarily Halted

NOTE: The Clergy Tax Law Blog now resides on Clergy Financial Resources’ website. Please click on the follow link to visit the Clergy Tax Law Blog at its new home:

http://clergytaxnet.com/blog/

In a previous article “Clarifying the IRS Rules About Endorsing Candidates From The Pulpit,” we wrote about the IRS rules and regulations concerning churches/clergy officially endorsing political candidates. Throughout the election season, the IRS was inundated with complaints regarding the churches officially endorsing candidates.

Recently, Bloomberg BNA talked with Russell Renwicks of the IRS Tax-Exempt and Government Entities division regarding the the numerous complaints. Renwick stated that “We are holding any potential church audits in abeyance.” This was the first official announcement by an IRS official that indicated that IRS church audits were being temporarily halted. The moratorium is in effect until the IRS determines which employees have the authority to the issue a church audit. According the Christianity Today, a 2009 court ruling in Minnesota ruled that the person originally designated to issue church audits was not a high enough ranking official in the IRS to be authorized to issue these audits. Since the 2009 ruling, the IRS has not revisited the issue of who should be in charge of issuing church audits. IRS audits on churches will most likely be on hold until IRS designates a high enough ranking official that is legally eligible to issue audits to churches.

Source:
Clergy Financial Resources

http://www.clergytaxnet.com

Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations.

Bloomberg BNA

http://www.bna.com/church-tax-audits-n17179870390/

Christianity Today

http://www.christianitytoday.com/ct/2012/october-web-only/why-irs-has-stopped-auditing-churches-even-one-that-calls-p.html

Social Security Tax Increase Starting January 1, 2013

NOTE: The Clergy Tax Law Blog now resides on Clergy Financial Resources’ website. Please click on the follow link to visit the Clergy Tax Law Blog at its new home:

http://clergytaxnet.com/blog/

Over the past two years, there has been a “payroll tax holiday” in effect. This reduced the employee’s share of Social Security from 6.2% to 4.2%. This “payroll tax holiday” is scheduled to expire on December 31, 2012. Non-clergy employees will have an additional 2% of Social Security tax withheld from their paychecks starting on January 1, 2013. Since clergy are exempt from SS/Medicare withholding, they will not see this change impact them until they complete their 2013 taxes in the Spring of 2014. However, clergy should contact a knowledgeable clergy tax professional to see if this will affect their estimated payments. In terms of dollars and cents, for most taxpayers, for every $10,000 earned, an extra $200 of tax liability will be created(automatically withheld for secular employees).

Source:
Clergy Financial Resources

http://www.clergytaxnet.com

Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations

What would happen if the “housing allowance” exclusion was eliminated?

How much money does the IRC 107(clergy housing allowance/parsonage tax exclusion) actually save clergy? After running a few scenarios, the outcome may surprise you.

In each scenario, we calculated the amount of tax paid by the clergy in two ways. First, their taxes are calculated as if the housing allowance/parsonage exclusion was eliminated(secular employee). This means that they are treated as secular employees under the FICA system and their housing allowances and the FRV of their parsonages are taxed as secular employees. This article is looking at how these scenarios would affect cash flow for the taxpayer in reference to their federal income tax return, not the impact it would have on the amount of tax that the church/employer pays. Scenarios 1-3 feature a clergy living in a church owned parsonage, while scenarios 4-6 feature a clergy that receives a housing allowance. The second calculation(clergy dual status) represents the current tax law, meaning that clergy are dual-status employees and their housing allowances and the FRV of their parsonages are not included in federal income tax(but they are included in the SECA calculation). Under current tax laws, most clergy are considered dual-status employees and do not have the option of choosing secular employment.

Keep in mind these figures do not represent actual taxpayer figures, they are just scenarios put together for this article. Your individual employment status and tax circumstance may vary greatly from the examples given.

Scenario #1

MFJ
2 kids under 17
Standard Deduction
Income: 
40,000 base + 12,000 FRV (Parsonage)

Secular Employee:
$52,000    AGI
$994      Tax Due
$2,938    SS/Medicare Taxes W/H from Pay

$3,932    Total Taxes Paid

Clergy Dual Status:
$36,327    AGI
$5,487      Tax Due
$0             SS/Medicare Taxes W/H from Pay

$5,487      Total Taxes Paid

Scenario #1 Outcome: In scenario #1, the family would actually pay $1,555 less tax for the year if clergy were treated like secular employees and the housing allowance exclusion was eliminated.

Scenario #2
MFJ
2 kids under 17
Standard Deduction
Income: 
Clergy: 40,000 base + 12,000 FRV (Parsonage)
Spouse: 30,000

Secular Employee:
$82,000    AGI
$5,603       Tax Due
$4,633       SS/Medicare Taxes W/H from Pay

$10,236     Total Taxes Paid

Clergy Dual Status:
$66,327      AGI
$9,715         Tax Due
$1,695         SS/Medicare Taxes W/H from Pay

$11,410        Total Taxes Paid

Scenario #2 Outcome: In scenario #2, the family would actually pay $1,174 less tax for the year if clergy were treated like secular employees and the housing allowance exclusion was eliminated.

Scenario #3
Single
Standard Deduction
Income: 
40,000 base + 12,000 FRV (Parsonage)

Secular Employee:
$52,000    AGI
$6,756      Tax Due
$2,938      SS/Medicare Taxes W/H from Pay

 $9,694     Total Taxes Paid

Clergy Dual Status:
$36,327     AGI
$9,986        Tax Due
$0              SS/Medicare Taxes W/H from Pay

$9,986        Total Taxes Paid

Scenario #3 Outcome: In scenario #3, the taxpayer would actually pay $292 less tax for the year if clergy were treated like secular employees and the housing allowance exclusion was eliminated.

Scenario #4
Single
Income: 
Clergy: 32,000 base +  18,000 Housing Allowance
Itemized Deduction
RE Taxes 2,500
Mortgage Interest 6,000
Charitable 3,500

Secular Employee:
$50,000     AGI
$4,724        Tax Due
$2,825         SS/Medicare Taxes W/H from Pay
 $7,549       Total Taxes Paid

Clergy Dual Status:
$28,468      AGI
$7,632         Tax Due
$0               SS/Medicare Taxes W/H from Pay

$ 7,632      Total Taxes Paid

Scenario #4 Outcome: In scenario #4, the taxpayer would actually pay $83 less tax for the year if clergy were treated like secular employees and the housing allowance exclusion was eliminated.

Scenario #5
MFJ
2 kids under 17
Income: 
Clergy: 25,000 base + 25,000 Housing Allowance
Spouse: 50,000
RE Taxes 2,500
Mortgage Interest 6,000
Charitable 5,000

Secular Employee:
$100,000     AGI
$8,181           Tax Due
$5,650           SS/Medicare Taxes W/H from Pay

$13,831          Total Taxes Paid

Clergy Dual Status:
$71,468           AGI
$9,767           Tax Due
$2,825           SS/Medicare Taxes W/H from Pay

$12,592          Total Taxes Paid

Scenario #5 Outcome: In scenario #5, the family would actually pay $1,239 more tax for the year if clergy were treated like secular employees and the housing allowance exclusion was eliminated.

Scenario #6
MFJ
Income: 
Clergy: 25,000 base + 25,000 Housing Allowance
Spouse: 50,000
RE Taxes 2,500
Mortgage Interest 6,000
Charitable 10,000

Secular Employee:
$100,000      AGI
$10,781          Tax Due
$5,650            SS/Medicare Taxes W/H from Pay

$17,681            Total Taxes Paid

Clergy Dual Status:
$71,468           AGI
$12,127           Tax Due
$2,825             SS/Medicare Taxes W/H from Pay

$14,952            Total Taxes Paid

Scenario #6 Outcome: In scenario #6, the family would actually pay $2,729 more tax for the year if clergy were treated like secular employee and the housing allowance exclusion was eliminated.

Source:
Clergy Financial Resources

http://www.clergytaxnet.com

Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations

Is your church in compliance with current payroll laws?

Make sure your church is in compliance with current payroll laws. Clergy Financial Resources payrolls service now includes a “year-to-date” payroll audit. During our audit, we will review each employee’s compensation to to ensure that everyone is being paid in accordance to Federal tax laws.

Clergy Financial Resources is the leading payroll provider for churches. We offers an easy online payroll management service for churches with 1 employee to 200 employees that specifically meets the requirements of religious organizations.

Selecting a payroll company may seem easy at first. However, a closer look at the effort, cost, liabilities, education, and ongoing training reveals some potential challenges. The greatest challenge for the church in selecting a payroll company is finding someone who is truly qualified in clergy tax law.  Knowledge and experience in clergy tax law are critical.  Large payroll companies may be great with payrolls of large secular businesses. However, they only provide payroll service and do not provide any guidance and adequate knowledge relating to clergy compensation, PARP, pension accounts, clergy W-2 forms, etc.  A secular payroll company only knows what you tell them.  If your payroll contact person does not have an accurate and up-to-date knowledge of standard tax law and clergy tax law, your payroll can become nothing more than an exercise in wrongdoing. In 2011, 60% of clergy W-2 forms were issued in error by churches and payroll companies.  Ministry leaders must understand these challenges and recognize the need for industry specialists.

To learn more about Clergy Financial Resources payroll service please visit our website.

Kids going to a day camp this summer? Get a tax break!

Most working parents are well aware they get a tax break to help cover the costs of sending their children to day care. But some parents overlook the tax advantage of summer day camp costs.

During school vacations, many parents turn to these supervised programs to provide child care while they work. Overnight camps don’t count, but the Internal Revenue Service says day camp expenses do qualify for this popular credit.

Regardless of whether you paid for after-class child care during the school year or a week of day camp during summer break, you can apply the costs to the child and dependent care tax credit and use it to cut your tax bill at filing time.

And while this credit also applies to care for dependents other than children, there are limits — on what you spend as well as how much you earn — that reduce the actual amount of the credit. Plus, you must make sure you and the person being cared for meet IRS eligibility guidelines.

Clergy Financial Resources
http://www.clergytaxnet.com

Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations.

IRS Has $1 Billion for People Who Have Not Filed a 2008 Income Tax Return

WASHINGTON — Refunds totaling more than $1 billion may be waiting for one million people who did not file a federal income tax return for 2008, the Internal Revenue Service announced today. However, to collect the money, a return for 2008 must be filed with the IRS no later than Tuesday, April 17, 2012.
The IRS estimates that half of these potential 2008 refunds are $637 or more.
Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury.
For 2008 returns, the window closes on April 17, 2012. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.
The IRS reminds taxpayers seeking a 2008 refund that their checks may be held if they have not filed tax returns for 2009 and 2010. In addition, the refund will be applied to any amounts still owed to the IRS, and may be used to offset unpaid child support or past due federal debts such as student loans.
By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2008. Some people, especially those who did not receive an economic stimulus payment in 2008, may qualify for the Recovery Rebate Credit. In addition, many low-and moderate-income workers may not have claimed the Earned Income Tax Credit (EITC). The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2008 were:

•    $38,646 ($41,646 if married filing jointly) for those with two or more qualifying children,
•    $33,995 ($36,995 if married filing jointly) for people with one qualifying child, and
•    $12,880 ($15,880 if married filing jointly) for those with no qualifying children.

Individuals Who Did Not File a 2008 Return with a Potential Refund
State    Individuals    Median    Potential Refund

Alabama    18,400    $641    $15,738

Alaska    5,800    $641    $5,952

Arizona    29,000    $558    $24,913

Arkansas    9,600    $620    $8,152

California    122,500    $595    $112,201

Colorado    20,500    $589    $18,909

Connecticut    12,500    $697    $13,893

Delaware    4,200    $644    $3,784

District of Columbia    4,000    $642    $3,791

Florida    70,400    $650    $66,974

Georgia    35,800    $581    $30,661

Hawaii    7,600    $714    $8,307

Idaho    4,700    $541    $3,878

Illinois    40,800    $692    $40,712

Indiana    21,800    $664    $19,590

Iowa    10,600    $658    $9,295

Kansas    11,500    $631    $10,084

Kentucky    12,300    $640    $10,501

Louisiana    20,500    $662    $18,859

Maine    4,000    $579    $3,248

Maryland    24,600    $641    $22,591

Massachusetts    23,900    $699    $22,957

Michigan    33,300    $660    $30,903

Minnesota    15,200    $584    $12,772

Mississippi    9,900    $591    $8,254

Missouri    21,600    $593    $18,213

Montana    3,600    $599    $3,192

Nebraska    5,100    $623    $4,371

Nevada    14,500    $619    $13,381

New Hampshire    4,300    $733    $4,518

New Jersey    31,300    $716    $31,185

New Mexico    8,000    $611    $7,420

New York    60,300    $686    $61,240

North Carolina    30,800    $558    $24,997

North Dakota    2,000    $625    $1,895

Ohio    36,400    $622    $31,018

Oklahoma    16,800    $620    $14,787

Oregon    18,500    $527    $14,819

Pennsylvania    38,700    $695    $35,565

Rhode Island    3,400    $674    $3,040

South Carolina    12,200    $547    $10,158

South Dakota    2,300    $669    $2,234

Tennessee    18,400    $626    $16,130

Texas    96,200    $689    $97,057

Utah    7,800    $536    $6,676

Vermont    1,700    $647    $1,410

Virginia    30,800    $624    $28,670

Washington    29,900    $705    $32,138

West Virginia    4,300    $687    $4,068

Wisconsin    14,100    $592    $11,885

Wyoming    2,600    $773    $2,919

Grand Total    1,089,000    $637    $1,009,905

 

Source: IRS

Clergy Financial Resources
http://www.clergytaxnet.com

Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations

Hunting for a New Ministry Position Could Help Cut Taxes

Your search for new work in the ministry must be in the same field in which you’re currently or were formerly employed.

Seminary graduates are out of luck. The costs you incur in getting your first job aren’t deductible, because the tax law only allows you to write off expenses incurred in searching for another position in your present occupation.

What you can write off
•    Employment and outplacement agency fees.
•    Resume services.
•    Printing and mailing costs of search letters.
•    Want-ad placement fees.
•    Telephone calls.
•    Travel expenses, including out-of-town job-hunting trips.

Clergy Financial Resources
http://www.clergytaxnet.com

Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations

Appeals Court Rejects Multiple Housing Allowance Decision

On Wednesday February 8, 2012, the Eleventh Circuit Court of Appeals in Atlanta overturned a decision made by the United State Tax Court(Commissioner vs. Driscoll) regarding the ability for a clergy to claim more than one home as a housing allowance tax exclusion.

In May 2010, a United State Tax Court finalized a ruling, from a 4-3 vote(in December 2010), that the term “home” in Section 107 of the United States Tax Code could be considered to be plural, meaning multiple homes could be used under Section 107 of the United States Tax Code. In February 2012, a panel of three judges in the Eleventh Circuit Court of Appeals ruled the opposite stating that “the word “home” does not readily support plural connotations.” Therefore, with this definition of the word “home,” Phil Driscoll would not be allowed to use multiple homes for his housing allowance exclusion.

It is expected that Phil Driscoll will continue through the appeals process.

The entire Eleventh Circuit Court of Appeal  ruling can be found here

See Previous Articles
- June 16, 2011: Department of Justice Appeals “Multiple Home” Housing Allowance Ruling
- January 14, 2011: New Tax Court Ruling on Clergy Housing Allowance & Multiple Homes

Clergy Financial Resources
http://www.clergytaxnet.com

Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations.

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