Are Dual Signatures Required for my Church?

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Are Dual Signatures Required for my Church?

This is a question we run into quite often.

If not as a question, we have churches all the time telling us that they have dual signatures required on their checks.

While I understand that dual signatures may provide the appearance of security, I’d contend that it does very little to protect your church’s money.

I’ve been around several organizations myself and even served as treasurer of a few.  In those, we required dual signatures on the checks and at the surface, it seemed fine.  The problem was, dual signatures often caused more issues than they solved.

Now, I’m not trying to do away or say that you don’t need to have dual signatures on your checks.  I’m not even saying that it’s a completely bad idea.  However I could contend that with modern digital banking, online bill-pay and e-commerce, the days of requiring dual signatures are dwindling.

For most churches, dual signatures are setup only because that’s the way its presumably always been done.  Nothing requires dual signatures inherently just because it’s a church.  That is usually a requirement that gets put in the church’s Bi-Laws and that is usually only because “everyone else does it”.

Requiring dual signatures on checks can be a hinderance to your ministry.

Dual Signatures Can Be Problematic. Here’s Why:

1. I have never seen a dual signor say no

Usually, I see dual signatures as more of a formality to give the appearance of security.  In most cases, when a check requires dual signatures, the second signor barely gives a look even to the amount of the check they are signing.

2. Banks often overlook signatures

Most banks are going through checks so quickly that catching a check that doesn’t have dual signatures is often missed.  I’ve seen several checks clear the bank even when dual signatures were required.

3. Dual Signatures creates unnecessary bottlenecks

Often, when dual signatures are required, waiting for the second person to sign can slow things down for no reason.

Again, my intent

A Pastor’s Guide To Cash Flow Management

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One of the things we always see pastors and church leaders struggle with is managing the money in the bank. Many pastors tend to live in the idea of Bank Balance Accounting which everyone can be guilty of from time to time.

Bank balance accounting is that concept of looking at your online banking account, seeing there is money available and then writing the check or swiping the card.

The problem there is that the balance in your online account isn’t telling you the whole story.

While for many cases, the balance is going to be close, in many instances there are outstanding checks waiting to clear or transactions made that have not processed yet. With church, we also throw into the mix that some of those funds may be allocated or designated to other purposes further making the balance inaccurate.

How can a pastor better manage cash flow?

There are in depth accounting and financial strategies that can come into play here but this isn’t meant as an in depth analysis of those concepts. What we’ll detail here are some simple steps that can be put in place to help manage cash flow for your church.

1. Have a Budget

If you have a budget in place, that is well thought out consistently against past trends for spending and income you should have no problem with church cash flow. We write extensively about budgeting on faith while spending on reason as well as many other posts about the topic. Budgeting is crucial for the financial health of a church.

If you’ve not heard it before, I’ll say it again. No one plans to fail, but most of us fail to plan.

A budget is merely a roadmap on how you’ll PLAN to spend the money. It is a good way to steward the church resources so that you can answer to your donors when they ask how the money was handled.

A good budget is more of an art than a science, but there are some ways to get started and some concepts that need to be in place to get started. Stay tuned to a budget planning course we’ll be releasing soon!

2. Get Accurate Reports

Maintaining accurate financial reports for your church is also crucial for managing your church cash flow. These reports start with doing a systematic bank reconciliation of the account. I cannot tell you how many churches we partner with that have gone years without reconciling the account.

Without a bank rec, there is no way to know the accurate balance of the account.

Some will tell me that the church is so small, with so few transactions that there is no need, however, I would contend that when you’re faithful with the small things, you will be entrusted with more. It’s also worth it to your faithful contributors that know that their generosity is being stewarded well.

Our Simplify Church Bookkeeping system is a great partnership for your church so you can rest assured that your finances are being taken care of professionally and accurately.

3. Ask For Help

We have many pastors that come to us and will tell us that they are not very administratively minded. At times, those same pastors are the ones making spending decisions and putting the bank account in jeopardy.

There’s no shame in not knowing how or asking for help.

Sometimes the best solution is to put in place another system with accountability. We’re not saying that the pastor is doing anything wrong, but there are times when there needs to be a system in place to make sure there is money in the bank and we don’t run the balance to a point that could detriment ministry.

Hopefully these steps will help you be a better steward of the resources entrusted to your church. Church finances is one of those required, but often neglected and misunderstood parts of church that we want to help you with.

If you need help managing the cash flow and finances of your church, check out our Simplify Church Bookkeeping system and let one of our Account Managers partner with you in ministry.

Three Misconceptions About Meal Expenses for Churches and Pastors

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When I was in the youth group late in high school we had a new youth pastor join our church. He was great and came from a significantly smaller church when he joined us. By smaller I mean the jump in size was fairly significant. Our youth group alone had an average attendance of more than his previous church. Needless to say there were a lot of new things for him.

One of those things was he now had a sizeable ministry expense budget. That line was there for him to be used to expense items that benefited his personal ministry. The funds could be used for books, conference registrations, mileage, and also food for meals with others.

I’ll never forget coming back after a few years of college to have lunch with the pastor and heard his story. He’d put on nearly 25 pounds that he attributed solely to his ministry expense budget.

Now, he was not using that money inappropriately, but at the same time he realized that perhaps eating out consistently may not have been the best use of that budget line.

How does this relate?

As a church bookkeeper, we see the expenses from hundreds of churches across the country and there is definitely a mis-perception that I’d like to address here.

Here’s the question we get asked a lot, Are Meal Expenses Limited for Churches and Church Staff?

Here are three misconceptions about using ministry funds for eating out.

1. Meal expenses are handled much the same as they would in a for profit business.

We see churches and pastors all the time using the church funds at Starbucks several times per week. We see pastors buying lunch out several times per week. While it would seem that there is a justification to use the church funds when working from the local Starbucks, unfortunately, that is not the case.

Much like in a business, meals can only be expensed when they serve a legitimate business purpose, and that purpose needs to be documented.

The measure here is to ask “What would a reasonable person say?”

If a pastor takes the staff out to lunch several times throughout the week and pays for everyone on the church’s card, a reasonable person may say that is abusive.

“But we need to eat” you may say.

While that is true, that meeting could have just as easily been pushed a couple hours before or after lunch and not required the meal to happen.

In a for profit business that files tax returns, the owner can only expense 50% of meals anyway. This is due to the fact that the IRS will claim that half of the meal was for the owner and therefore not able to be expensed.

In the case of Wells v. Commissioner, Docket No. 6088-76, 1977 Tax Ct. Memo LEXIS 22 (U.S. T.C. Dec. 7, 1977), the meals of attorneys who met monthly for lunch were considered too frequent to be business-related expenses.

While frequency is not defined, what was deemed here was meeting with the same people, frequently could not be considered a business related expense.

2. Using church funds for personal meals and coffee is inappropriate

We work with many churches that don’t have a physical office or location. Throughout the week pastor will work from a local coffee shop or other location. It can be tempting to get a cup of coffee and use the church’s card to pay for it. It’s easy to justify and say that you’re doing church business and therefore the church should cover that expense.

Unfortunately, that is not the case.

The IRS makes it very clear how to handle meals & entertainment expenses and does not provide any distinction between for profit and nonprofit entities.

There are some ways that a church can put an Accountable Reimbursement Plan in place which would give guidance and direction and provide some assistance to the pastor. Unfortunately, without this plan the IRS would deem this use of funds to be a benefit provided to the pastor and therefore taxable as personal income.

3. Remember, we’re called to be good stewards.

This is a very sticky issue and I’ll admit there is some grey area in the discussion.

I always will contend for churches in areas where the answer is grey that we hold ourselves to a higher standard. Just because something can be justified doesn’t make it right. Many churches are already under scrutiny so why would we voluntarily enter into situations to increase that?

Something that a previous pastor I worked for told me when stewarding and making decisions about church funds was to keep my grandma in mind. My grandma lived for many years on her Social Security income so needless to say she was not rich. However, she was a faithful tither. She made sacrifices to faithfully give and we needed to hold her sacrifice in regard when it came to using church resources.

Another way to think about it is to ask what your average church member would think. Now I’ll admit many in the church want pastors to live on peanuts and they want to go cheap. I get it. However, can you justify your expenses to the average church member? If you showed them the amount of money or percentage of budget that was spent on staff meals would they deem that as appropriate?

Now some churches have taken that too far and become cheap. I’m not advocating for hoarding and not using funds for ministry, but rather using those funds to further the ministry.

Unfortunately, the ramifications here are extreme. IRS field agents are given the authority to deem what they think is excessive or inappropriate. The fines and penalties enough should prevent us but you may also be putting your church’s nonprofit status in jeopardy. It’s really not worth it for a $3 cup of coffee.

Now this post is not intended to be an exhaustive comment on this situation and there is much more that could be said. If you want to dive deeper, comment below and we can discuss more.

If you need help in these areas or putting together a financial system that better tracks and manages your expenses let us know. We’re here to simplify so you can do ministry better.

Are Pastor Appreciation Gifts Taxable by the IRS?

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We all know that pastors don’t serve in their position for the money.

(well most anyways, but I won’t touch that debate today)

Most pastors serve long, stressful hours in an often thankless job. Much of their work happens behind the scenes and away from the public eye and by its very nature often goes unrecognized.

The fact of the matter though is that pastors deserve to be appreciated.

For many of us, that appreciation is shown through gifts which is great and appreciated. However, are Pastor Appreciation Gifts Taxable by the IRS? Here are some quick tips on how to determine.

Pastor Appreciation Gift Tip #1

Since the pastor will most likely be considered an employee, any non-reimbursement payments to them will be considered taxable income. This would include cash, checks or gift cards. Monies designated by church members directly for the pastor as well may not classified as a tax deductible donation either. See our post on How To Handle Pastor Appreciation Gifts for more info.

Pastor Appreciation Gift Tip #2

Gift Cards are always taxable to the pastor. Regardless of the amount, since gift card has a defined cash equivilent, they will be taxable as a gift to the pastor. Many churches will seek this option to avoid tax, but if ever audited they will be surprised.

Pastor Appreciation Gift Tip #3

There are gifts that would be considered non-taxable. These may include a gift basket of items, letters, cards, or other items that would be considered a de minimis fringe benefit. The IRS Website has some specific information on De Minimis gifts and make it pretty clear on what does and does not qualify. Basically, it cannot be disguised as wages or be given in any way to avoid taxing, it must be infrequent and the value can be determined as “administratively impractical” to account for.

To conclude, your pastor deserves to be appreciated but keep in mind that there are other considerations that need to be taken into account before you determine your pastor appreciation gift. Appreciate your pastor, but do so in a way that blesses him and let’s him know that you are thankful for the time and effort he puts in.

How To Handle Pastor Appreciation Gifts

The IRS and pastor appreciation gifts

When I first felt the calling to ministry, I actually had a pastor who did his best to talk me out of it. He shared his experiences with isolation, long hours and times when he wanted to give up.

At first I was shocked. Why is this man who is serving the Lord trying to talk me out of being a pastor?

Why is this man who is serving the Lord trying to talk me out of being a pastor?

I quickly realized he wasn’t really trying to talk me out of it, but testing my calling and really forcing me to wrestle and pray through the decision of going into full time ministry.

I took the plunge and haven’t looked back. Now I don’t serve in a traditional capacity as a pastor, preaching and leading a church each weekend, but rather a role supporting pastors and freeing them up to be better focused on what they do best … Ministry.

Your pastor probably shares a similar experience. He may be all smiles and joy on Sunday morning, but truth be told, there is a war waging inside of him.

He’s not showing the late night he spent last week when he was called to the hospital in the middle of the night.

He’s not showing the hurtful words that a member shared with him about how he’s handling the church.

He’s not showing the stress put on him by the finance team giving him direction, but not providing him any input to the matter.

He’s not showing the stress from home as his wife and children realize they often take a second seat to his role as pastor.

These are the things most people don’t realize your pastor is dealing with.

Now that I’ve painted a bleak picture of being a pastor, let me also share that your pastor is probably in the most rewarding position he could be in. While there are times of stress, the position is often the most rewarding and delightful place to be, fully serving God.

So why did I share all those things about your pastor?

Your pastor needs your appreciation.

Most pastors aren’t in their positions for the money or fame. Many could go get secular jobs and not put up with the hassle they often deal with. Your pastor does it for a higher calling.

However, your pastor would still like to be appreciated.

Every year, October is pastor appreciation month a time when most churches are going to provide a pastor appreciation gift. I’ll admit we shouldn’t reserve our appreciation and show only one month, but it’s nice to have a defined time to remind us of what our pastors do for us.

In appreciating your pastor, there are some things to keep in mind that we’ll discuss here. While most people have great intentions in how they show appreciation, there are definitely some guidelines to stay within so you can truly bless him.

Pastor Appreciation Gift Guidelines

For many churches, they want to bless their pastor with a cash gift to show their appreciation. While that is great, here are a few things to keep in mind.

Cash gifts for pastor appreciation are probably taxable income

It’s pretty safe to say that anytime an employer (the church in this case) provides cash or a non-reimbursable payment to the employee (pastor) it is probably taxable income to the receiver. There really are no instances where an employer can provide payment to an employee and have that not taxed.

As a church, maintaining your financial records is crucial on so many levels. Any check or money that is spent needs to be tracked. When that payment is given to an individual in a non-reimbursable payment, it needs to be recorded and handled correctly.

If you are paying pastors straight cash with no record, you’re inviting a whole host of problems should an audit ever occur. There is never a time when someone should be given cash from the church. This also goes for love offerings that are collected. At no time should any part of a collected amount of money be given in cash to an individual.

Church collections for pastor appreciation gifts may not be a tax-deductible donation

Churches often survive on faithful gifts and offerings.

It’s often misunderstood, but in most cases the donor can claim donations to a church as a charitable donation and have that reduce their yearly tax burden. However, in instances where money is given and designated by the donor as to the use of those funds, it opens an entirely new set of circumstances for that donation which may preclude the amount from being deductible.

The IRS has made it fairly clear as to when a donation is deductible or not. The test really goes back to donor intent.

The test here really goes to how much control the organization maintains as to the use of the funds. If the donor gave a gift and “designated” that gift to a specific individual, that gift would not be tax deductible. Those gifts are being treated, in effect, as a gift to the individual.

If the person gave the gift to an organization to a designation where the church maintains control as to the disbursement of that gift, it can be tax deductible.

Here are a few specifics.

If money is collected for the Senior Pastor, and people are giving specifically for that purpose, those monies are probably not tax-deductible.
Here’s a good article to help understand giving designated for an individual in your church.

If there is more than one pastor on staff, and people are giving money to a pot of money that will be distributed by the church among the pastoral staff, that would be a deductible gift.

In both cases, when the money is disbursed to the pastor(s), it would be considered taxable income to them and would need to have appropriate amounts withheld.

What if our pastor is paid as a 1099 Independent Contractor?

This presents a completely different scenario and the church really needs to take a look at the IRS test page as to whether the pastor really qualifies to receive a 1099-Misc. Additionally, for the pastor, he is being over-taxed handling things this way if that is his choice on how to receive compensation.

Are non-cash pastor appreciation gifts to the pastor taxable

Many churches will choose to give gift cards or other non-cash gifts as pastor appreciation gifts.

In this case, the IRS terms those gifts at “De Minimis Fringe Benefits” defined considering its value and frequency are so small that accounting for it would be impractical or unreasonable.  IRS page on De Minimis gifts for churches

Two keys here to keep in mind are that these gifts are not to be a way to disguise compensation, they are to be occasional or unusual in frequency and as already ruled by the IRS, should not exceed $100.

However, gift cards cannot be classified as de minimis gifts for the very fact that they have a specific cash value. Because they have a specific value which can be accounted for, any Gift Card pastor appreciation gift would need to be considered a taxable fringe benefit to the pastor. A case could be made for the small monetary value of a Gift Card falling under the guidelines as “impractical or unreasonable” for accounting purposes, but again, since they do have a very specified cash equivalent value, they would be a taxable gift to the individual.

Because they have a specific value which can be accounted for, any Gift Card pastor appreciation gift would need to be considered a taxable fringe benefit to the pastor.

You should appreciate your pastor regardless

Being a pastor is a difficult position and we should always take time to show our appreciation. He’ll definitely appreciate it.

Note: Because your situation may be fact dependent, this is not to be considered tax or legal advice. The intent of this advice is to be general in nature and should not be used as legal advice. Your church should consult a qualified individual with the specific facts of your situation.

Are Churches Required to Provide a Contribution Statement Every Year?

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Church Answers

Are churches legally obligated to provide contributions statements or donor receipts every year?

The quick and easy answer is no.

There is no obligation on the church or ministry to provide a statement of giving to donors who have made a donation to the church in the previous year. There is no deadline to provide it and there are no penalties if a letter is not provided.

Many churches are still operating under the assumption that to maintain their not for profit status, something has to be provided, but that is not the case.

For many, this goes back to a situation very similar to those statements and phrases that people mistakenly think are actually scripture. Those things that sound good enough to be biblical but have actually just evolved over tradition.

That is the case here. The IRS has made it very clear in their guidelines for contributions that the organization is not responsible to provide any documentation of the gifts. In fact, they go on to say that it is the donor’s responsibility to request a statement if they want to itemize those donations on their tax return.

Now, let’s get into the practical fact of the matter.

It’s always a good idea to provide a contribution letter to your donors. Most churches, if not all, are completely reliant on the faithfulness of their givers to pay the bills and keep the power on. Without faithful givers, ministry doesn’t happen.

Giving is already hard enough in church and most churches struggle when it comes to cash flow. A sincere thankfulness for their generosity starts with a contribution letter.

What does that do?

A contribution letter is an opportunity for you to speak to your church. You have an open door to thank them for their generosity, but also share how those donations impacted the ministry of your church.

A contribution letter is an opportunity for you to speak to your church. You have an open door to thank them for their generosity, but also share how those donations impacted the ministry of your church. Let them know how many people were saved in the previous time period, how many baptisms and the other tangible things the ministry was able to do only because the donor was faithful and generous. As always, a simple thank you can go a long way.

We have many more articles around the site speaking to encouraging generosity so you can look around for those but for now, just know, that your church is NOT required to provide a donation letter, but it’s still probably a good idea to do anyways.

Does That Person You Paid Actually Qualify For a 1099?

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A current hot debate in the church world is when a person qualifies for a 1099-MISC for monies they were paid.  The big question is when does a person qualify for a 1099?
OK, I’ll admit, it’s kind of a nerdy topic, but you’ll be thankful you took a few minutes to read what’s next.
do they qualify for a 1099Many churches have unfortunately fallen victim to the idea that they can make the decision on whether or not someone qualifies to receive a 1099 vs. a W-2.
Unfortunately, that decision is not left up to the church.
Some have decided to issue a 1099-MISC because it seems easier.  It’s too tedious to add this person to payroll and we’re only going to pay them one-time.  Adding a person to payroll costs more money so we’ll just do it this way.
The problem with each of those statements is that it is not a decision the church has the authority to make.
The IRS has made it very clear when a person does and does not qualify to receive a 1099-MISC.  They have released a “filter test” form of 20 questions.  Here is a link to the IRS filter test to determine if a person is Self-Employed or a W-2 Employee.  If any one of the questions is true, that person is considered the result of that question (vague right?) Take a look at the form and you’ll get what I mean.
So what now?
Make sure you’re correctly classifying people that you pay individually at your church.
Here’s an example.
We had a church ask us about paying childcare workers.  They had a girl who worked for them one time during the year and wondered if they still needed to pay her through payroll.
It’s easy to attempt to avoid it because for one, there’s a good chance they’ll be paying her less than the $600 threshold where you are required to provide a 1099 MISC.
But let’s change the context.
What if this girl was working for your small business bakery that you owned.  She came by to help ice donuts one day and you paid her cash for her work.  Many in the business world would call this “paying under the table”.
Sounds a bit shady in that context right?
Well the same thing is basically happening in the church childcare scenario.  They are wanting to pay her “under the table” to avoid the work of getting her payroll documents and doing things above reproach.

What are the consequences?

Well, the IRS has been known when a decision has been made that the church paid people incorrectly where the entity (the church) has to pay the amounts that should have been withheld PLUS fines and penalties they can apply.  Where at one time the church was trying to save some money and time, it’s not coming back to bite them.

It’s a very tough situation and in some ways I will agree there seems to be some grey area.  however, do yourself and the church a favor and error on the side of caution.  If you are paying a person, chances are very likely you should pay them as a W-2 employee.
If you’d like to know more about this issue or to have a chat regarding your individual situation, get in touch with us, we’d love to hear your thoughts.