Church and religious organizations accounting systems are different from corporate systems

Article 1 Volume 7                                                                         August 23, 2017

                                             Different Accountability System Required for Church Accounting

Most churches and religious organizations do not understand that there are church laws for handling money. For example, in preparing a budget, the preparer should be aware that there are limits as to the percentage of money that can be allocated to administrative and salary expenses.  These figures are based on the gross income of the church or organization.

Some of the standard requirements are:

       1.  Issue a Form 1099 for all service over $25.  This practice makes it easier for the accounting department.

       2.  Do not make payments for service and classify them as honorariums and stipends.

       3.  Avoid making cash payments  for service.   If you do, record the amount paid.  Before the service begin, have the person sign a Form W-9.

      4.  A manager should not rely totally on one person.  There should be some kind of check and balance.

      5.  Church accounting is different.

   
Well, there is a lot more information related with this topic, but I'm not going to go into detail.

  

Pastors and Ministers are short changed by millions of dollars when they accept an IRS Form 1099 (contractor) method of payment for their leadership

Article 1, Volume 4                                                                                      February 22, 2016

Pastors need to be aware of their contract agreements with churches

Pastors who receive an IRS Form 1099 for their total service are considered contractors, and legally, in my research, do not qualify to have a retirement account set up.

Also, they lose when they have to pay their own social security and medicare taxes.

The opposers would argue that this consequence is not true in their churches.  I mean, you can do a lot of things and consider them to be right.  But there are IRS laws that govern the way you should do some church things.

Let me give you two potential real case examples.

Thirty years ago, Rev. Zamo(names changed to protect the innocent) agreed to pastor a church in Virginia. The Swinghigh church agreed to pay him $35,000 a year and set up a retirement program.  Recently, Rev. Zamo retired with a $2,000 a month pension for life.

Whereas, thirty years ago Rev. Kittomos, agreed to pastor for the same amount of money and accept a monthly contract from Swinglow church, and pay his own social security taxes, medicare expenses,  and health  benefits. Monthly, he deducted all his expenses from his payment as a private contractor.

Recently, Rev. Kittomos, retired and had no benefits from his years of service at Swinglow church.

Pastors and ministers, Negotiate! Negotiate! But when you do, know what you are doing.
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copyright 2016. Grady E. Bryant

Happy New Year!!

Happy New Year!

Grady

Churches unintentionally waste millions of dollars a year on buildings and automobiles

Article 2 Volume 4                                                                             Friday, July 4, 2014
 Republished by demand on Tuesday, November 17, 2015

Church Management

Church Buildings, big and small, are unused an estimated 80 percent of usable time and church owned automobiles go unused an estimated 92 percent of usable time**

The desire to build bigger churches is prevalent today all  across the country. You can go into poor neighborhoods where the need for food and financial assistance is evident.  However, the plea for help from the needy often go unanswered because the local church has a huge monthly mortgage note.  Some churches monthly notes exceed $15,000.

Members of church flocks will spend countless hours raising money to build bigger buildings when there is a slight spite in attendance. So, seeing a larger attendance, church members will launch a drive to raise millions and millions of dollars to build bigger buildings or increase the seating capacity of the current buildings.

But then, what I observe, there is no religious or community base activities planned for the daily or weekly use of the building.  In many cases, the only activity going on during weekdays is choir rehearsal a couple days a week at night for two hours and maybe Prayer Meeting and one or two other activities for one day, with a total usage time of 6 hours.

Well, what is the big deal?  Well, the lack of activities means potential usage time and money is wasted.

A church should be available to the community for a variety of activities. These activities could be day care, community meetings, youth meetings and so on and on.

Many expansions occur because churches get a new dynamic speaking minister or pastor. But what happens when he or she decide to go elsewhere? Then membership decline, income decrease and the church goes into foreclosure. It happens.

In conclusion, often, when an abnormal amount of the income is going into the buildings, the real missionary work of a church goes lacking.

Church Owned Cars and Buses 

Do you ever notice buses that belong to churches generally go unused 6 days a week. Although,   they may used for a few miles on Sunday. Then at the end of the year, the total mileage for the church four vehicles is about 5,000 miles or less.  I am talking about mileage for 4 vehicles that are virtually new and was recently purchased for about $80,000 or more.

This limited usage results in the buses deteriorating due to lack of use. Studies have concluded that vehicles that are rarely used will need more costly repairs than vehicles driven on a daily or regular basis.

I recommend that churches consider buying one and leasing one or more on an as needed basis. This action can save thousands of dollars a year.

It is not my intent to solve the problems but to plant the seed that will lead church officials and members to think about the cost before making financial decisions regarding the use of church money.
  

**based on a survey

Copyright 2014. Grady E. Bryant, Sr

Churches need to properly prepare and document payments and housing allowance to pastors and ministers. It's the law!!

Article 1 Volume 4                                                      July 4, 2014

           Republished by demand November 17, 2015

Church Law

In the past 20 years I have met with and consulted several pastors and church leaders on matters pertaining to church law and finance. The discussions and consultations were generally about doing things the right and legal way.

Surprisingly, many of the persons I talked with had very little knowledge that so many laws existed pertaining to churches.  Many of them believed that churches were exempt from virtually all the laws and could do whatever they wanted to do in handling church affairs.

In some cases, I was informed that churches had auditors and qualified accountants and bookkeepers to do their books.  

In the cases mentioned above, the auditors and reviewers accountability for the dollars were exceptional. Every dollar was accounted for on the books. But compliance with church laws was generally absent because the highly paid auditors and reviewers had little or no knowledge of church laws.  

Thus, the church could be found in violation of critical laws pertaining to housing allowance and accountability for disbursements to contractors, pastors, church members and many other sources.

I recommend that every church, check to determine if their treasurer and financial secretary are familiar with IRS regulations.  

The number one item in my mind right now is the accountability for pastors and ministers income and housing allowance.

The housing allowance has to be approved in advance and properly recorded in the church's minutes before it can take effect.

For example, if you have paid your pastor a housing allowance so far this year and did not document the churches approval in the minutes of the church meeting or some other government approved method before starting the allowance, the housing allowance is illegal and the pastor will have to pay taxes on that income.  That is the law!!

So, for 2014, if you have not already started a legal housing allowance for your pastor, the earliest you can start is August 2014, providing you have a church meeting and grant approval.

Please don't go back and start doctoring the minutes.  Because if you do, that can cause legal issues. 

I have a lot to say on this topic.  Too much for this blog. But on July 19th I will be presenting a seminar at the Northern Virginia Baptist Center, in Gainesville, Virginia pertaining to church tax and management of pastor's and minister's financial matters.  It will be a 4 hour workshop and lecture.

We will provide insight on the following topics:

      1. How to prepare and allocate housing allowance benefits that may save your pastors thousands of dollars annually.

     2.  How to prepare a compensation package for your current or new pastor.

     3.  Why it may not be legal to pay a pastor a stipend or just housing allowance without proper documentation.

     4.  How to prepare tax returns for pastors using rules established by IRS. 

     5.  Determining if your pastor is an employee or contractor. If contractor, benefits may be very limited and illegal.

     6.  Cash payment to guest ministers is illegal. We will show you how to do it the right way.

    7.  Do you give a 1099 to people you hire to do certain jobs for the church?  You should. If you don't the church could be fined by IRS. 

    8.  Should your church be incorporated?  Think twice before you do it.

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I will be discussing the 8 topics above.

The seating is limited.  So, for more information please call Sandy Blackwell,

 between the hours of 10 a.m. and 8 p.m., Monday through Saturday.

telephone:  703-670-3419

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11/17/2015
Please return to this blog site for more information about church tax and management. I am planning to have another workshop soon. Telephone: 571-201-6066

Copyright 2014.Grady E. Bryant Sr.

A Church should have a Constitution or By-Laws or Both

                                                    
Article I, Volume III

 Constitution and Bylaws

Reissued: January 1, 2013

      One of the first documents a church should prepare is a constitution or by-laws or both.  By-laws contain the rules of the church regarding service, management, procurement and other necessary requirements.  Also, guidelines for selection and removal of officers and members to and from various positions.

     Without proper guidelines, churches often get entangled in legal matters that they just cannot wiggle out of. These problems can occur in so many ways, including disgruntled employees, church members pressing for something to go their way, when it is clear that the church does not want to make the step.

     In a court of law, generally, the first item a judge want to see is the church's constitution or by-laws. If a church does not have either of the documents the matter may fall 100 percent in the hands of the judge to make a decision.

  For example, in 1999 a church hired a pastor, but did not enter into a written agreement with him until 2005.The employment agreement contained a provision for a term of two years.  This agreement could only be voided with the unanimous consent of both the pastor and the church.  In 2006, some members of the church became dissatisfied with the pastor's performance and decided to terminate his employment contract.
     The former pastor sued the church for breach of contract and wanted $77,000 for damages. The lower court ruled in favor of the church, and dismissed the lawsuit.  However, a state's appeal court reversed the lower court decision and the case was allowed to go to trial.
     My point is not who won or loss, but if the contract would have been more specific the church could have avoided all the money spent on the case.  
     One item that pops out in the contract is that it states that termination would require unanimous consent of the pastor and the church.  This in effect, means that there can be no termination unless both parties agree. Surely, the pastor (party #1) is not going to agree to be fired without some compensation.

     Often, there is no contract whatsoever. Therefore, it is very difficult to terminate the services of an unwilling pastor in those cases.  The firing can be further complicated if the church does not have any bylaws or constitution.

                                                                
Copyright 2013 Grady E. Bryant, Sr..