Church Accounting

[S T]

I am hoping for some assistance for those of you that post and have some Church - Non Profit accounts.

I just signed on for Accounting for a Small Church - couple of questions as we are reviewing what the prior CPA entered. First of all EVERYTHING is a journal entry - not understanding that - but hoping I can deal with - Payroll is a MESS as I understand it - no liabilities for the items needed - but they are paid through Journal entries- no accountability for the Pastors Housing Allowance, and the Fringe Benefits. I believe I have figured out how to correct the payroll.

My questions are these two items for now.

Church receives their contributions from the parishioners - records those amounts as income. Then the Church takes part of those funds as expenses going to other Ministries or other non-profit organizations. These are listed as an expense on the profit and loss - under other ministry expenses - Would this be correct?

Other item is that the Church had several large acquistions of computer, Copier, Sound Equipment and Screens - this was listed as a Building Expense rather than an Asset that might or could be depreciable (Sect 179 or not) Would this be correct?

I am applying what I know as regular business Accounting, but I do understand that there might be something different with Church Accounting.

Any guidance would be greatly appreciated.

Thanks,

Sandy

[Uncle Sam]

Church Accounting

Church financial accounting, per se, is no different than from any other normal accounting recording system.

What's materially different about it is the reporting of the sources of income- Donations Unrestricted, Donations Restricted, Unrelated Business Income, Fundraising.

Expenses are categorized by three main purposes - Exempt Function, Management and General, and Fundraising.

Unless it's a small church with few parishioners, there is no reason why everything is recorded by journal entry. Cash receipts should be recorded from parishioners in some form of uniform accounting system where individual account statements can be produced annually for members' tax donation purposes. No reason why for expenses journal entries only - should be in a disbursements journal that would break out the expenses grouped together by the 3 major classes.

Except for real property, the fixed assets are classified and depreciated just like normal business operations.

Since the church is affiliated with a religious order, there's no requirement for 990 filing, unless it exceeds the UBTI.

I'm not too familiar with employee W-2/1099 reporting for clergy regarding compensation, but I know there are special rules pertaining to them - parsonage for one. Non clergy employees are W-2'd.

Don't let the fact that a church is a tax exempt organization frighten you. So long as you keep in mind the major issues relative to exempt organizations that should keep you straight.

[Davc]

Non clergy employees are W-2'd.

So are clergy employees if it's done correctly.

[Edsel]

Church employees

Be sure and read the IRS definition of a "church employee."

It is NOT what you might think. A pastor, for example, is not a "church employee" believe it or not.

[PIGLEE]

You definitely need some information on churches. Here are two books that I would recommend.
My favorite is Church & Clergy Tax Guide from YourChurchResources.com. It has 695 pages for 39.95 The other one that a lot of people like is Worth's Income Tax Guide for Ministers from evangelpublishing.com, or from NATP bookstore it has 141 pages and I don't know the price .

[Burke]

I am hoping for some assistance for those of you that post and have some Church - Non Profit accounts. Sandy

What software are you using? On the payroll, have any of your ministers opted out of SS?

[S T]

Church Payroll

Thanks all on the payroll issues

I believe I am okay on payroll.

I have three church employees (2regular an 1 part time) issue was how to handle the fringe benefits for pre-tax 125 health insurance, retirement 403b, and HSA employee/employr contributions. Big issue was California does not conform to Federal regulations. All 3 are subject to social security and Mcare

Then I have a Senior Pastor that receives Compensation, and Housing Allowance once a month, also has the 403b, and pre-tax 125 Health, and HSA (all company contribution)

Then I have a Music Pastor that receives very little Compensation and Housing Allowance every two weeks, also has the 403b, pre-tax Health, and HSA (combined employee and employer contribution.

I believe - after several tests on the software (which is Quickbooks) we have all allocated correctly.

The three church employees (regular and part time ) "Test" W-2 forms appear to be correct - 125 and HSA for federal are calculating correctly - found out how to have the Calif wages including the HSA calculate, including the SS and Mcare

On the Senior Pastor and Music Pastor - I am still working on - but have compensation component only in Box 1 and housing allowance under Box 14, and for HSA Box 12 code W - which then Box 12 is adding to Box 1 to arrive at Calif amount in box 16. - No Box 3 Soc Sec Wages, and no Box 5 - Mcare wages or associated withholding.

Both pastor's have opted out of Social Security (based on Church Secretary verbal) - do I need confirmation on that with whatever that form is??? Probably a good idea, right?

Sandy

[RLymanC]

Ministry Bookkeeping

Run, don't walk to the bible on church taxes:

Google" B.J. Worth

https://www.worthfinancial.com/cgi/publications.pl

[MAMalody]

You have no requirement to secure a copy of the approved Form 4361 for the SS/MC exemption. I usually ask for a copy. I simply indicate I need one for my records and in the event of an audit I already have it available.

[PIGLEE]

If the pastor opps out of S.S. or not, the church does not caculate SS taxes on a pastor. Basically a pastor is an employee for reporting wages and withholding of Income Tax. But a pastor is considered self employed for Social Security purposes.

[PIGLEE]

If the pastor opps out of S.S. or not, the church does not caculate SS taxes on a pastor. Basically a pastor is an employee for reporting wages and withholding of Income Tax. But a pastor is considered self employed for Social Security purposes.

You really need to get one of the two books I mentioned, someone in this thread gave you the link to one of them. They both give you some good examples.

[MAMalody]

While not as good as the books mentioned above, the IRS does have a Publication 517 and MSSP that deal with clergy. They are both available free at www.irs.gov.

[Burke]

If the pastor opps out of S.S. or not, the church does not caculate SS taxes on a pastor. Basically a pastor is an employee for reporting wages and withholding of Income Tax. But a pastor is considered self employed for Social Security purposes.

True, but they CAN withhold federal income tax if requested, and the amount can be adjusted upwards by an additional $$ amt entered on the W-4 to compensate for SS/MC taxes the pastor will have to pay (if he has not opted out.)

[S T]

Many Thanks

Thanks everyone for the info and the links - I have some of the material on order

I think I have the payroll so it will be reporting correctly - the prior accountant was not separating Compensation and Housing on the 2 Pastors, and the fringe benefits for "all" were not being reported correctly due to the California non-conformity on the HSA accounts (a complication) - All will be receiving a W-2 that hopefully will be correct at the end of 2011.

The new Church Secretary is very bright and easy to work with - so she is understanding on these issues and it seems we have already simplified her job.

No longer using items, like Monthly prepaid Expenses and a multitude of Journal Entries, that make no sense.

Sandy