LET IT GO

If you never let go of those feelings of bitterness, it will become a sin of unforgiveness.

If someone did not treat you right, - LET IT GO

If someone has angered you, - LET IT GO

If you are holding on to some thoughts of evil and revenge, - LET IT GO

Peter asked - How long should I forgive someone who sins against me, seven times?

Jesus said - Not seven times but seventy times seven

HOW ARE YOU DOING WITH THE SEVENTY-TIMES SEVEN

Covenant of Compliance: Understanding Your Tax Status

To a New Minister, as you begin your ministry, you must reconcile your spiritual calling with your status as a "dual-status" professional under the TAX law. Here are some Legal and Tax Pillars.

1. The Myth of Tax Exemption: While the church is a tax-exempt entity, the minister is not. Per the Supreme Court in Murdock v. Pennsylvania, the First Amendment does not grant clergy immunity from federal income tax. You are legally required to report all income derived from your ministerial duties as gross income.

2. The Dual-Status Concept: This is the most critical technicality for new ministers. For Federal Income Tax, you are generally treated as an employee of the church, W-2. However, for Social Security and Medicare, you are treated as self-employed and are subject to the Self-Employment Contributions Act (SECA) tax rather than FICA.

3. Voluntary Withholding: Unlike secular employees, your church is not required to withhold federal income tax from your paycheck. However, this is "voluntary withholding," not "voluntary tax." You must either make quarterly estimated payments or enter into a voluntary withholding agreement to avoid penalties.

4. Individual Responsibility: Under the precedent of Pomeroy v. Commissioner, the tax-exempt status of your religious organization does not shield your personal earnings. You must file Form 1040 and accurately report both your W-2 wages and your self-employment income to remain in good standing with the law and the IRS.

Is the minister required to be ordained

Strictly speaking, no—the individual does not have to be ordained to qualify for ministerial tax status, but they must be "duly ordained, commissioned, or licensed" by a religious body.

The IRS treats these three terms disjunctively, meaning any one of the three credentials can satisfy the requirement. However, having the paper credential is only one part of a five-factor "balancing test" the IRS uses to determine if you are a minister for tax purposes.

The Five-Factor Test for Ministerial Status

To qualify for the unique tax benefits (like the housing allowance) and the dual-status tax treatment, you generally must meet a majority of these criteria:

1.     Credentialing: You are ordained, commissioned, or licensed.

2.     Sacerdotal Functions: You administer sacraments or ordinances (such as baptism or communion).

3.     Worship Leadership: You conduct religious worship services.

4.     Organizational Control: You perform services in the control, conduct, or maintenance of a religious organization.

There Comes a Time in Leadership...

There comes a time in every leadership experience when YOUR role as a leader must change in order for the organization to advance. Go ahead and soak that up...

Whether in business or ministry, the only constant is change. Specifically, every organization comes to a point in size and scope that, in order to get over a statistical hump, leadership must make a shift. Here's an example:

If you're a pastor that has an incredible heart for shepherding, then you naturally have a desire to know the names of every member of your "flock." You strive to know what's happening in their lives, the good times and the bad. You want to add every need to your personal prayer list. Having the pulse of every member at a micro level is what keeps you jazzed up. This is an incredible trait and calling until...

Until your church reaches 350-400 people (give or take a few). Then it becomes statistically almost impossible to keep the pulse of every member's life. You'll try. You'll resist. Then you'll realize that if you want to keep growing (by the way, if you aren't growing, your regressing), then you need to scale. You need to add staff and/or change structure. Your role will shift to lead the new staff and structure rather than touching the life of every individual member.

Any organization that intends to grow must scale, usually adding personnel and resources. Structure must shift. Investments must be made. Change is necessary. 

Are you resistant?
Are you the cause of stagnation in your organization?
Are you prepared to shift your role to an equipping leader?
Have you considered the steps you need to take to continue growth?

Don't be the cause of stagnation and regression because you aren't willing to change your own role.

ZOOM Consulation or Phone Consulation

For Pastors and Churches, Schedule time with David Rutledge at a discount rate. 60 min. $99 instead of $195; 30 min. $75 instead of $135; 15 min. $47 instead of $85.

Consultation is limited to 3 contacts within your organization. You will be required to specify at least one contact at the time of checkout. - ZOOM or Telephone Consultation

TAX FREE MONEY

MINISTER FINANCES

TAX-FREE MONEY

Loophole for Tax-Free Rental Income

(Your Primary Home, Secondary Home, and Vacation Home)

It does not matter what time of the year it is, people take vacations or just want to just get away for a few days, year round

The IRS has a Section 280A, in the Tax Code which allows homeowners to rent out their home for up to 14 days per year, (the max days in a year) and they DO NOT have to report any of the rental income to the IRS on their tax return.

This does not matter what income bracket you fall into. This is known as the Augusta Rule

 If you rent the property out for 15 days or more, ALL of the money becomes taxable income.

This can work both ways, you can rent out your property for 14 days and then you can tell your friend to rent out their property to you and they will not have to report the income that they receive from you.  

You may only claim this deduction on your home, if the home is your primary residence, it is not used for business (office in the home) and you do not rent the home at any other time,  more than 14 days.   

The August Rule can be applied to the owner’s secondary home, their vacation home as well as their primary home. (only, 1 home or 14 total rental days per year).

Why is it called the Augusta Rule?

The Augusta rule IRS exemption was lobbied for by residents of Augusta, Georgia, in the 1970s. Each year, the Master's golf tournament is held at the Augusta National Golf Club, and residents of the city wanted to rent their homes to attendees of the tournament without becoming full-fledged rental businesses. Their efforts paid off, and Section 280A was added to the tax code. Fortunately, today, the IRS Augusta Rule extends to all homeowners in the US, not just those in Augusta, Georgia.

How Does it Work?

SECTION 280A(g) states in part:

“…if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is rented for less than 15 days during the taxable year, then… the income derived from such use for the taxable year shall not be included in gross income…”

In layman’s terms, this means short-term rentals of personal residences are not taxable.

Of course, like with all tax laws, there is some fine print worth noting:

·         To qualify for the exemption, the taxpayer must be renting out a dwelling unit that they use as a personal residence. This means that renting out a house, apartment, condo, mobile home, boat or similar property may qualify for the exclusion as long as the taxpayer uses that dwelling unit as a residence.

·         The Augusta Rule IRS exemption applies to the owner’s primary homes, secondary homes, and vacation homes.

·         Expenses related to the rental of these properties are not deductible.

·         The 14-day restriction is cumulative and does not need to be consecutive. For example, if you live close to a popular wedding venue, you might want to rent your home to guests of different weddings throughout the summer and fall. As long as you do not exceed the 14-day rent rule in a single tax year, you can qualify.

·         The rental price must be reasonable for that location on that date. For example, if you live in Las Vegas near Raiders, Allegiant Football Stadium, your home may be rented for only $ 200 per night on an average day. However, in the days leading up to the 2027 Super Bowl, you might be able to charge $500, $700, or even $1,000 per night for the same rental due to the increased demand. As long as your rent prices are comparable to the market, it should qualify for the exemption.

Check with Local Regulations

Before you begin renting out your home, local municipalities to see if there are any restrictions or conditions for short-term renters.

Strategically Plan Your Rentals During High Market Rent Times

It’s important to use market rent for the Augusta rule. To ensure you get the most out of your 14-day rent rule, research when the rental market peaks each year in your city. If you can rent your homes during a time when rental prices are high, you can receive more tax-free income.

Here’s an example of how it might work:

You are part owner of a small business. The business rents your vacation home for three days for the management team to use as a planning retreat. During the long weekend, management strategizes about the upcoming year. The business rents your vacation home at market rent.

The business can deduct the price of the rental as a legitimate business expense. Because you only rent your home for three days the entire tax year, you do not need to report that income on your personal income tax return.

You and the business should keep records that show the business paid market rent for the rental. You can do this by getting rental quotes from similar locations. You should also keep a record that the management team performed business duties while using the rental. They can keep meeting minutes or records that show what strategic decisions were made.

By allowing the business to take a deduction for the rental expense and allowing you to exclude that rental revenue from taxable income, the Augusta rule effectively lets small business owners “double dip” on this benefit. This means that the Augusta rule can be a great tax planning tool for both businesses and business owners.

--

For QUESTIONS or COMMENTS: 

Money@rutledgefg.com

David Rutledge EA, CEP, RFC
11501 Dublin Blvd. Suite 200
Dublin, CA 94568

925-999-8295

20 Church Forms You Might Need To Correct

For the month of January, church leaders were hurrying around trying to get all of the 2025 year-end reports finished so they could be filed with the various government agencies on time and sent out to all of the different places that the forms needed to go to. 

During this month I have been receiving telephone calls from some of the church leaders, and the telephone calls go something like this. “David, I just finished sending off the church’s Fourth Quarter 941 Payroll Report and I found a mistake, what do I do now?” or maybe “David, I think I made a mistake when I filed the W-2’s for our church, what do I do now?”        

That is a good question, “I made a mistake, what do I do now.”

Some of you might say, “I use a payroll service so all of my forms are correct.” That is not always true.  After working with many of the major payroll services for the past 30 years, mistakes do occur.  Mistakes can happen on the part of the payroll service and on the part of the person giving the information to the payroll service. Others do not use a payroll service and there can be mistakes made there as well.

The church is also involved with many forms that need to be filed with government agencies that do not involve the ongoing payroll.

I have attached a file for you that compares the forms that might have submitted and what you need to do to update them.

DOWNLOAD THE FILE HERE

I cannot cover all of the possible forms that there are. If you have a form that I did not mention and need some help, contact me by clicking here.

Six Charitable Contributions that Churches Often Handle Incorrectly

How would your church handle these charitable contributions situations? Would your church accept the contribution and pass the money on, give a contribution receipt as the donor requested, or accept the contribution for the churches own use?

1. Steve donates a car to the church and specifies that the car be given to the Jones family, a needy family, and members of the church. Steve wants a charitable contribution.

2. Paul gives a $1,000 check to the church but wants the money to go to ABC Mission in the Philippines. Paul wants a $1,000 charitable contribution shown on his contribution receipt.

3. Mary gives a $500 check to the church but wants the money to go to Rev. John Smith, not a church member. Mary wants a $500 charitable contribution shown on her contribution receipt.

4. Alice, the church secretary, decides not to accept her pay for one week (to save the church some money), but wants a charitable contribution for her time she worked without pay. She wants a contribution receipt for $600 (40 hours @$15 /hour).

5. Dick, chairman of the board, who owns a lumber yard, donates a truck load of lumber for the church's building project and wants a contribution receipt for the retail value of the lumber.

6. Charles Rich donates some land to the church and wants a contribution receipt.

How would your church handle the different Contribution situations?

Here’s how you SHOULD handle them.

Contributions made directly by a donor to needy individuals are not tax deductible.

To qualify for a charitable deduction, contributions must be made to a qualified charity, such as a church. The gift must be given to the church with what we call “no strings attached.” That means that the church can do anything with the contribution that they wish after they receive it.

In examples of #1, #2, and #3 above, the contributions were not given for the church's use. The church should not accept the contribution. These contributions are not for the use and benefit of the church. No contribution receipt is to be given.

Services giving of your time (#4 ) or the use of your property, such as allowing the youth to use your cabin, would not qualify as a deduction. No deduction is allowed for the contribution of services to a church, and neither is a gift of the right to use property yield a tax deduction to the donor. Receipts should not be issued in either of these situations, a Thank You letter should be given, NO DOLLAR AMOUNT.

Donors may donate items (#5) to the church and request a receipt for the retail value of the items given, but the church should not give such a receipt with an amount on the receipt.

An acknowledgement of the items given should be given to the donor. The acknowledgement should NOT state the value of the gift. It should only state the date of the gift and a description of the items donated should he noted.

If the donor gives a non-cash donation such as described in #5 above and the value of the non-cash donation is in excess of $5,000 (except securities), the gift must be appraised by an accredited appraiser and IRS Form 8283 must be used to document the gift. The church will sign the Form 8283 to acknowledge the receipt of the items and give the signed form back to the donor. The donor would send in the signed Form 8283 with his personal tax return.

Real estate gifts (#6 above) to a church can bring headaches as well as opportunities. Most gifts of property would normally be valued at over $5,000, so the IRS Form 8283 described above as well as an appraisal would be needed.

Many times, when someone wants to donate property, the first thought is regarding the money the church could receive if they sold or rented the property.

Before accepting the property, the church should do an inspection of the property. The church would need to find out what the property has previously been used for. An Environmental Site Assessment is often a good prerequisite to start with their inspection. During the Phase I Environmental Site Assessment, the actual sampling of soil, air, ground water and/or building materials is typically not conducted during this phase.

If a site is considered to possibly be contaminated, a Phase II Environmental Site Assessment may be conducted. The church should also obtain names of any co-owners and their ownership shares, recent tax statements, recent appraisals, information on any current leases or contracts outstanding, details of any debt on the property, and a survey of the property and legal description.

So, you can see that a gift of real property can bring headaches and possible liabilities as well as opportunities. When the church establishes a clear, easy-to-follow set of charitable contribution guidelines, they can avoid a lot of problems for the future. Carefully designed guidelines can help avoid hard feelings of donors when problematic situations are resolved ahead of time.

Here is an example of some additional wording that could be added to the church’s guidelines:

"All donations accepted by the church will be allocated to the general fund unless it is designated to an already established fund. Establishing a designated fund will only be made by the finance team.”

MISTAKES CHURCHES OFTEN MAKE

1.      Improperly classifying employees as self-employed (Independent Contractors)

2.      Failing to send a Form W-2 to each employee, minister and/or a Form 1099-Misc to

certain non-employees

3.      Failing to include taxable fringe benefits (such as non-accountable expense

reimbursements, social security supplements, and “special occasion" gifts) in wages

on Forms W-2

4.      Including the minister’s housing allowance in wages (Box 1 ) on Form W-2

5.      Failing to offer church employees available nontaxable fringe benefits

6.      Failing to provide church employees with an accountable expense reimbursement

plan.

7.      Funding an accountable reimbursement plan for employee compensation

8.     Providing contribution receipts to members who donate their services to the church

9.     Providing contribution receipts for donations designated to other individuals without

proper organization control

10.  Failure by churches that operate, supervise, or control a private school to timely file

an annual Certificate of Racial Nondiscrimination (Form 5578)

QUESTIONS ABOUT THE 10 ABOVE ITEMS, SEND AN EMAIL TO INFO@CHURCHFINANCE365.COM

Tax Free Gifts to the Pastor

I received an email the other day that talked about a church that wanted to bless its pastor with a gift.  The church wanted to give their pastor a $10,000 gift, but the church wanted to fix the gift so that the pastor would get a gift, tax-free.  The church did not want the pastor to have to pay any taxes to the IRS or to his state government, on the money.   

If an employer gives a "bonus" or "love gift" to an employee, it is simply an additional salary. When a donor gives money to the church, receives a receipt for a deductible contribution to the church, and the church pays the bonus or gift to the employee, it is taxable compensation to the employee.

Employers are permitted to exclude from gross income (as a de minimus fringe benefit) the value of a gift that is given by an employer if the value is insignificant (i.e., turkey, ham, etc.) (Revenue Ruling 59-58). This does not apply to gift certificates or similar items that can readily be converted to cash, regardless of the amount involved. The church can give some length of service awards that we will discuss later, that can be tax-free, but it is for a very limited amount.

Church members are free to make personal gifts to ministers and it may or may not be tax-free income. If the gift is organized by church leaders, it becomes taxable income. 

DOWNLOAD THIS DOCUMENT FOR EXAMPLES

Limited Perspective Minimizes Our Vision

I went upstairs for the night and was about to go to bed when I noticed I left my laptop power cord upstairs by the bed. Rather than take the cord downstairs to where my laptop was, I put the power cord by the stairs with the intention of grabbing it in the morning on the way down.

When morning came, I went through my typical routine. I’m not a morning person, so I schedule just enough time to shower, get dressed, brush my teeth, and comb my hair (breakfast is a bonus). I finished my tasks, headed downstairs to grab my bag, and realized…I forget my power cord upstairs.

How could I forget my power cord? I put it in the most obvious place I could put it with the intention of NOT FORGETTING IT.

It’s intriguing how we can miss the mark so easily when our perspective is obstructed or distorted. I overlooked my power cord, because my head was up and my speed was fast. No matter how intentional I was to remember my cord and to ensure that it was the in the perfect place, I missed it.

Vision is no different.

Establishing vision is challenging itself. Determining what it is we desire to be, aspiring to achieve it, and inspiring others to cast and carry that vision is difficult. The process of defining vision is as important as the vision itself.

I challenge you…lift your head up and look around you. Do not conjure a statement or paragraph labeled “vision” behind your desk. Copying someone else's statement won't get it done. Believing your have a creative tag line that everyone will embrace and love is naïve. 

Engage your leaders and your team. Their histories and gifts are invaluable and will contribute, like it or not, to the vision, culture and outcomes of your organization. Limiting your perspective will narrow or distort the vision that your team will lead.

Need guidance with the process of defining a clear organizational vision or mission. We're here to help. Let us know how we can help here.