As churches approach traditional late summer/early fall budget planning, there are a number of ways financial and personnel teams can help their pastors, according to Lee Wright, church compensation specialist for the Alabama Baptist State Board of Missions.
Wright served as host for a church financial issues conference in Prattville July 6.
“The Tax Cuts and Jobs Act of 2017 raised the standard deduction for federal taxes,” he explained, “but it also eliminated business deductions we used to claim on Schedule A. Therefore, an accountable business reimbursement plan is a good thing for the church to do. The minister will submit receipts for expenses, such as books or conferences, and travel records for mileage. He is reimbursed without losing salary to legitimate expenses.”
One attendee said her church supplied a credit card for the pastor to purchase gasoline.
Wright, who noted the IRS established 56 cents per mile as business travel expense this year, said that was not the best plan.
“The biggest part of this cost-per-mile is depreciation on a vehicle,” he explained. “The cost of owning a car is more than the gasoline we buy.”
Cell phone benefit
Another tax-free benefit now allowed is the cost of a cell phone used mainly for business.
“Much of church business is done now by cell phone, and the church can provide its cost for the minister,” he said.
Another helpful idea is to offer a self-employment tax offset, Wright said.
“Many church members don’t know that a minister is self-employed for Social Security purposes, and pays the full 15.3% tax,” he noted. “The church cannot contribute half of this as a business does for is employees. Offering a SECA offset is considered additional and taxable income, but it is a good benefit for the pastor.”
Wright also said ordained ministers and other church employees who work more than 20 hours per week can receive extra benefits by enrolling in GuideStone Financial Resources’ church retirement plan.
“The minimum contribution is $50 per month,” Wright said, “and this can be a church contribution or a salary deduction.
“GuideStone also includes a survivor benefit (life insurance) and disability coverage, so it’s a great program.”
Health coverage
Also available through GuideStone is health coverage that can be treated as a tax-free benefit.
Wright noted that a downside to ministers receiving bonuses or love offerings is that the IRS considers them taxable benefits.
“Even giving ministers gift cards from the church means he must report the additional income, since a gift card is like giving money,” Wright said.
In other matters, he urged accountability in handling church offerings.
“We trust our members, to be sure, but we also need to protect them with internal controls,”
he said. “The ‘two person’ rule, or what I call ‘dual control’ is a good plan so that more than one person is responsible for handling money.”
Wright said two simple actions are: requiring two signatures on disbursement checks or having notices of electronic payments automatically emailed to someone in the church other than the one who issued the check.
He added it is important to verify expenses, and be sure work was actually performed.
“Many banks now offer ‘positive pay,’ and it works like getting a call from your credit card company after an unusual charge,” Wright said. “This is a good thing to have, if available.”
Designated gifts
He noted churches must also be sure they handle designated gifts properly so they don’t jeopardize the church’s tax exempt status.
“The church must exercise control over designated funds,” Wright explained. “It’s improper for an individual to make a designated gift to a ministry of their choice if the church hasn’t made this decision. And this includes benevolence. The propriety of benevolent gifts is determined by the church and not by the donor. ‘Control’ is a key word in the proper handling of all contributions.”
Wright encouraged churches to “start where they are” and do what they can to make internal controls better.
“Asking a CPA for suggestions in the proper handling of funds could be money well spent,” he said.
A number of helpful documents and videos are available without charge at alsbom.org/ministries/church-compensation. Wright can be reached at lwright@alsbom.org or 800.264.1225, ext. 2241.
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