Clergy Tax Facts – Housing Allowance

Posted on October 28, 2011 by JFleming

As a “qualified” minister, you are eligible to receive lodging from the church free of income tax liability. This is known as the Housing Allowance. A housing allowance may be provided for a minister living in employer-provided housing or in minister provided housing (owned or rented). This is a key component of your income tax preparation.

To be qualified and eligible, you must meet 5 IRS tests -

Be licensed, ordained or commissioned by the church,
Administer sacrements – serving communion, baptizing, dedicating infants, performing marriages and funeral services,
Conduct religious worship,
Be considered a religious leader by your church or parent denomination, and
Have management responsibility in the control, conduct or maintenance of your local church or parent denomination.

Every qualified minister should have a portion of salary designated as a housing allowance. This provides an opportunity to exclude dollars from gross income and save on your income taxes.

Typically, the Housing Allowance cannot exceed the fair rental value of the housing including furnishings plus utilities. Any allowance in excess of these guidelines is considered taxable income.

Allowable Housing expenses include:

utilities,
principal and interest payments,
down payment on house purchase,
real estate ommission,
real property taxes,
homeowner’s insurance,
structural maintenance and repairs,
landscaping, gardening, pest control, home association or condo fees,
furnishings, decoration and local telephone expense.

The qualifying minister should submit a housing related expense estimate to the church for the coming year and the church should adopt a written designation for the housing allowance and include the designation in the church minutes or resolutions.

This is just an overview of the issues regarding the Housing Allowance.

Please discuss this in more detail with your board or your church accountant or feel free to give me a call at 240-356-5050

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Cash Flow – How to Stop the Bleeding!

Posted on October 2, 2011 by JFleming

4 Areas and Questions to Improve Cash Flow

Cash Flow is the life blood of any and every business.  Cash is king and your business needs it to stay alive.  Below are 4 areas and questions to help you improve the cash flow of your business.

 Spending

  •  Do you have a system that helps you identify what needs to be paid, how much and when?
  •  How much does it cost you in fixed expenses to run your business each month?
  •  How do you make purchase decisions – Need, Want or Return on Investment?
  •  When did you last review your spending habits and determine if you could do better?
  •  Have you price or value shopped the services or products you currently use – telephone, cable, auto, life, health and liability insurances, supplies, etc.
  •  Are there products and services you can buy in bulk to reduce your costs?
  •  Have you tried to negotiate new payment terms – Net 30, Net 60, 2%-10 Days, Pre-Payment discounts – in order to conserve cash?
  •  Are there items where it would be better to own than to rent or rent than own – Car, trucks, furniture, buildings?
  •  Can you use independent contractors – legally, rather than employees?

Collections

  •  Do you bill clearly, accurately and on time?
  •  Do you or can you offer multiple payment methods?
  •  Do you have or can you enforce late payment fees?
  •  Are you in regular contact with your clients and their payables department?
  •  Can you legally discontinue services for non-payment?
  •  If billing is based on hours or items quantity, can you move to a fixed fee model?
  •  Can you bill prior to rendering service instead of after?
  •  Are your billing and payment terms easily understood and agreed upon?
  •  Can you arrange to only accept only cash, credit card or debit card?

Profits

  •  Do your sales prices cover all your business costs?
  •  Do you know what your costs are in order to properly set your sales prices?
  •  How can you raise the value of your products in order to raise your price?
  •  How can you lower your costs to maintain your sales prices and still increase your profits?

 Sales

  • Do you have a qualified prospect?
  • Deos the prospect have a real and verifiable need?
  • Does the prospect realize what the problem is costing them?
  • Does the prospect have the authority to make a purchase decision?
  • Are you focusing on the right market?
  • Are you offering the right product?
  •  Do you have a teachable and repeatable sales process?
  •  Are your  sales people properly trained?
  •  Have you educated your clients how to buy?

Give consideration to these questions and apply them to help your business.  If it would help, give us a call us at 240-356-5050 for a cash flow planning session and let’s stop the bleeding.

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Direct Sellers and MLM’s! – the IRS is looking for you!

Posted on August 14, 2011 by JFleming

In an ongoing effort to find unreported or underreported revenues, the IRS has now created a video for Direct Sellers and MLM’s.

This video is to “help” you properly record and report your income each year.  It also helps you determine if you really have a business or a hobby.  (The tax laws treat each differently).

The video Direct Sellers is about an hour long but very information and instructive.  It will help you understand the value of getting and keeping your bookkeeping in order and help you understand what the IRS will be looking for in case of an audit.

By the way, the IRS has created an ATG (audit technique guide) for its agents for the Retail Industry.    They include Direct Sellers in the Retail Industry.   This guide walks agents through the audit process for the Retail industry.  If interested, you can view the guide, again quite instructive.

As usual, if you have any questions, please feel free to reach me at 240-356-5050.   To Your Financial Health!

 

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Loan Modifications – Joy and Pain

Posted on March 24, 2011 by JFleming

Last year, Charles and Gloria were giddy with happiness.  Finally, after struggling for over a year with the loan modification process, they had been approved.

The modification would save them $700/month on their note, which equals $8,400/year.

Shortly thereafter, they received more good news!  Their property tax bill was being reduced $150/month or $1,800/year.  The county had re-assessed their home and the value of their home had dropped.

This was all good news… but a new problem was brewing.

Charles and Gloria now had an additional $850/month or $10,200 to work with.  What they didn’t have now was the tax write-off that went with the mortgage interest and the property taxes!

At our tax appointment, we discovered that they were in the 20% tax bracket.  As a result, their tax liability was $2,040 higher than usual because of the mortgage interest and property tax savings.   This was a major surprise to them.  They were still getting a refund but not as much as they had planned on.

Charles and Gloria were blessed that they did not end up owing taxes.  Many other families may not be so blessed.

So what should you do – Depending on your situation, here are 4 solutions

  1. Adjust your withholdings down to pay more taxes in during the year.
  2. Put more money into your 401k or 403b plan if you can
  3. Save 20%-25% of the new income to cover your taxes
  4. Some combination of all 3.

Hopefully you’ve found this helpful.

If you have any questions, please feel free to call me at 240-356-5050 or if you have any relevant comments on this blog, please feel to comment.

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IRS Announces Tax Filing Delays!

Posted on December 27, 2010 by JFleming

Out of a limb

The Christmas Gift of Extended Tax Benefits may turn out to be a New Year’s Headache for both Tax filers and Tax Preparers.

The IRS announced on Thursday, December 23, 2010 that their systems will need to be reprogrammed and they would not be ready to accept tax filings for certain forms until at least mid-February, 2011.

Those affected include:

• Taxpayers who claim itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses, state and local taxes.

• Taxpayers who claim a deduction for tuition and fees. This is a so-called “above-the-line” deduction, which means taxpayers don’t have to itemize to claim it.

Parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit, will not have to wait to file, the IRS said, assuming they don’t itemize.

• Taxpayers who claim the educator expense deduction. This deduction, which is also an above-the-line deduction, allows teachers to deduct up to $250 in out-of-pocket costs for classroom materials.

“The majority of taxpayers will be able to fill out their tax returns and file them as they normally do,” IRS Commissioner Doug Shulman said. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”

If you will have to itemize for 2010 or have tuitions and fees to be deducted, plan your finances now to anticipate the delay in possibly receiving a refund.

If you have any questions, please feel free to call me at 240-356-5050 or if you have any relevant comments on this blog, please feel to comment.

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