Tax Issues

Scenario: Pastor Brown is going to take a week of vacation to Florida. He wants one of the youth pastors who work part-time to accompany he and his family. The church paid for the airfare and the hotel rooms for both pastors.

Question: Are the travel costs paid by the church, taxable compensation to the minister?

Just before adjourning for 2006, Congress passed the Tax Relief and Health Care Act of 2006. President Bush signed the bill into law on December 20, 2006. The law retroactively reinstates a number of tax breaks that had expired at the end of 2005, making them effective for 2006 and 2007. Here’s a brief overview of what was extended:

1. The itemized deduction for state and local sales tax was reinstated for 2006 and 2007. This is a boon for taxpayers in states without a state income tax, but taxpayers who pay both state sales and income taxes can deduct whichever is higher.

As discussed in our earlier post, the FASB issued a new standard for nonmonetary asset exchanges. One of the most common nonmonetary exchanges is purchasing a new vehicle with a trade in. The nonmonetary asset that is exchanged is the old vehicle. This new standard requires calculating the gain/loss differently.

For example, if your trade a vehicle which initially cost you $20,000 and you have recognized $16,000 of book depreciation, for a vehicle with a sticker price of $30,000 with a $9,000 trade-in allowance. You would calculate the gain on the relinquished asset as follows:

In the two previous posts we have discussed how the housing allowance should be reported by a minister and taxed. What kind of housing expenses are allowed? In an excerpt from the 2006 Church & Clergy Tax Guide, published by Christianity Today International, the following expenses are allowed in computing the housing allowance:

· down-payment on a home

· interest and principal payments on a mortgage loan to purchase or improve the home

· real estate taxes

· property insurance

· utilities (electricity, gas, water, trash pickup, local telephone charges)

The major tax deadlines for February are as follows:

1. February 28 - payors must file 2006 information returns (such as 1099s) with the IRS. (Electronic filers have until April 2 to file.)

2. February 28 - employers must send 2006 W-2 copies to the Social Security Administration. (Electronic filers have until April 2 to file.)