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Year-End Contribution Rules

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Here is a memo you can share with your donors that explains the year-end rules and deadlines regarding contributions.

To ensure the deductibility of your church contributions, do not file your 2022 income tax return until you have received a written acknowledgment of your contributions from the church. Under IRS rules, you may lose the deduction if you file your tax return before receiving the written acknowledgment from the church.

(Canceled checks are no longer considered by the IRS as proof of a contribution.)

For a contribution to be included on your 2022 contribution statement, the contribution must be delivered to the church (or postmarked) on or before December 31, 2022.  No exceptions! Contributions received after this date – regardless of the date of the check – will be recorded on your 2023 contribution statement.

Also, the IRS permits taxpayers to deduct either the actual transportation costs incurred in performing charitable work, or a standard mileage rate of 14 cents per mile.

Church Finances

Now Is The Time

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This is a great time of year to spend some extra time on church finances.  Things are slowing down after all the camp meetings, and the busy holiday season is still two months away.  The year is also far enough along to be able to project how it may end.  If you have bank covenants to meet, you should review to see if you will meet them by year-end.  If not, what expenses can be reduced now to close the gap?

It is also a good time to begin working on the 2021 budgets.  As the reality of a world post-covid settles in, churches are getting used to doing things much differently than they used to.  While some in person events are still smaller, more resources are being used in areas such as live-streaming, including higher costs for internet band width, etc.

Other questions to consider: Do you have any significant capital improvements that you need to plan for next year?  If so, will you need to make any special appeals for donations or are the funds already available?

Time spent now will provide a clearer picture on where you stand and what adjustments, if any are needed, rather than experiencing an unpleasant surprise after December 31st.

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Budgeting for 2021

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This is the time of year when we strongly recommend that you prepare a budget for next year.  Without exception, organizations that have a budget are better off financially and find themselves better able to weather a crisis (ie: 2020’s pandemic) than those who don’t.   As a result of better managing their spending, they also typically have more cash reserves.

While many think that a budget will “restrict” them or be used as a way to dictate how money is spent, in reality, it gives you more freedom to make financial decisions and allows you to better follow a plan – your plan – which is based on your priorities.

As our clients have begun to work on their 2021 budget, they have encountered challenges.  Usually, you would start by looking at 2020 expenses.  However, this year has been anything but normal.  Most churches have reduced expenses in many expense categories as a result of not meeting in person, while costs for cleaning, media, IT and benevolence are higher than a normal year. How do we know how to plan for 2021?  How do we project donations as we enter a second year of restricted gatherings?

While it may take more time to work through these questions, the effort will be worth it.  Just remember to review actual results to the budget each month.  When you start to see areas that are not going as planned, you can react and adjust sooner rather than later – and avoid a crisis down the road.

Blog Post 5-14-2020 (2)

Still The Same

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Much has been written regarding the CARES Act and the PPP loan & EIDL programs.  I have updated the original summary of these programs on our website multiple times as the rules continue to change.

While these are certainly unusual times, our advice remains the same as it has for over two decades.  For the financial health and well being of your company or church, create and live on a budget.  Yes, it takes time, but it is worth it.  Also, maintain a cash balance of 3-6 months of operating expenses.  Spending 100% of what comes in leaves you vulnerable when a downturn occurs.  Many are now forced to cut back much more severely due to a lack of margin.

Those who practice these principles (yes, these recommendations are based on Biblical Principles) will have more peace and will also save money in the long run, especially when borrowing for a loan or mortgage.  Banks provide a more favorable interest rate to those that practice these financial disciplines.

Also, in the coming years, be prepared to answer when your bank asks, “how did your company or church do during the Covid-19 crisis?”.

It’s never too late to start.

 

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2020 Retirement Contribution Limits

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The Treasury Department has announced the 2020 limits for retirement accounts:

The amount you can contribute to your 401(k), 403(b) or similar retirement plans goes up from $19,000 in 2019 to $19,500 in 2020. The 401(k) catch-up contribution limit—if you’re 50 or older—will be $6,500 for workplace plans, up from $6,000.

Those 50 years or older can save $33,000 in tax-advantaged accounts for 2020. If your employer allows after tax contributions or you’re self-employed, you can save more. The overall defined contribution plan limit increases from $56,000 to $57,000.  Likewise, for the self-employed and small business owners, the limits for the SEP IRA or solo 401(k) increases from $56,000 in 2019 to $57,000 in 2020.

The limit on contributions to an Individual Retirement Account (pretax or Roth or a combination) remains unchanged at $6,000 for 2020. The catch-up contribution limit remains at $1,000. (Remember that you have until April 15th to make a contribution for the prior year.

There are income based phaseouts that apply, please contact your investment advisor or accountant if you think this may apply to you (you can still contribute—it’s just nondeductible).

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Year-End Contribution Reports

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This is a good time to review the rules for issuing year-end charitable contribution statements.

Charitable contributions must be reported and claimed in the year in which they are delivered to the charity. If you receive cash or a check after December 31st, it should not be included on the donor’s 2018 contribution statement. This is true even if the check is dated in December, but delivered in January.

For the purpose of determining the delivery date, a contribution that is mailed (postmarked) by December 31st, 2018 is considered delivered by that date and can be included on the donor’s 2018 contribution statement. However, if you receive a check in 2018 that is dated in January 2019, it must be held until 2019 and recorded as a 2019 contribution.

Not following these rules can jeopardize the tax exempt status of the church.

Each contribution statement should include the following statement: “No goods or services were provided in exchange for these contribution, except for intangible religious benefits.”

We suggest that you advise your donors to not file their 2018 income tax return until they have received a written acknowledgment of their contributions from the church. Under IRS rules, they may lose the deduction if they file their tax return before receiving the written acknowledgment from the church.

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Cash Flow Statement

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While most accounting software for business use includes financial reports such as the balance sheet and the income statement, many do not include the cash flow statement.   For many churches this is not a report that is needed for internal reporting purposes.  However, if you are preparing financials with the intent of using them to secure a loan, this is an important report that is part of any financial statements that are prepared under GAAP (generally accepted accounting principles).  Almost all banks require annual reports prepared according to GAAP.

The cash flow statement eliminates expenses that do not affect cash (ie: depreciation) and breaks down cash generated and or used from three separate activities: operations, investing (purchase and sale of assets) and financing (borrowing and repayment of debt).

The information provided on this statement assists a bank (and the church) in determining the amount of debt that a church can reasonably borrow.

There are two different methods of preparing the statement, (indirect and direct), which is beyond the scope of this article.  We recommend obtaining qualified professional help to review and prepare your financial statements prior to sending them to the bank.  He/she should also be able to anticipate any concerns that the bank may have and prepare an explanation of these or any unusual items in the financial reports.

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Cost Savings (Continued)

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Churches can save a significant amount on the cost of computer hardware and software. Many companies provide a discount to nonprofits. TechSoup is a company that provides discounts on everything from Microsoft Office 365, QuickBooks desktop and on-line version, Adobe and many more.  For a complete list, visit their website:  www.techsoup.org.  They also have discounts available on computer hardware and can provide tech support for companies that do not have their own IT staff.  You will need to fill out an application, and prove your 501c3 status, but the savings is definitely worth the effort.

Dell sells refurbished computers that are like new as well.  Look for the Dell – Outlet on their website.    Many of the computers are new, but were sold and returned and are now offered at a discount.   Apple also has a refurb/clearance site.

For media and graphics, look at Igniter Media.  They have a library available for an annual subscription.  It includes backgrounds, title graphics, countdowns, mini movies and more.

If you know of other places that a church can save in this area, please email and let us know!

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Cost Savings (Continued)

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Most businesses lease a copier, upgrading every 3-5 years.  There are two types of leases: Fair market value lease (FMV), where if you choose to buy the copier at the end of the lease, you pay the fair market value.  With a Dollar buyout lease, you own the copier at the end of the lease (for $1).  FMV leases have a lower monthly payment.

However, it is always advisable to look at what it would cost to purchase the copier, rather than lease it.  In most leases that we have analyzed, the business will pay 1.5 to 2.0 times the actual cost of the copier.  If financing is the only way to purchase the copier, contact a local bank for a loan.  The interest rate on a lease (which is hidden) is always much higher than what your bank will offer.

Another cost savings in purchasing a copier vs leasing is in property taxes.  When you lease, the leasing company owns the copier not the church.  Since the lease company is required to pay property taxes, this cost is passed on to the church.  This can be a significant additional cost on a high-end copier.

If you purchase the copier, you can still get a maintenance contract if one is needed.

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Cost Savings (Continued)

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Utilities make up a significant portion of a churches annual budget.  Updating the HVAC systems and installing cost-savings light fixtures can significantly reduce the amount a church spends on gas and electric.

Fortunately, there is help with the initial costs of these improvements.  Contact your local power company (or visit their website) to see what they offer.  Many will replace inefficient bulbs with new led bulbs for free.  Not only will you save in electric costs, but the new led bulbs last significantly longer,  saving money on replacement costs.  They may also provide rebates for led bulbs, new windows, insulation and other electric saving options.

Consider hiring an electrical engineer to do an audit of your electric usage.  He may also know of available rebates to help with the cost of improvements.

Not every improvement is expensive.  Walk around and look for leaking doors and windows.  I often visit churches in cold climates and see gaps around doors letting cold air in.  An inexpensive weather strip is easy to install and will help reduce utility bills.

Don’t forget the baptismal tank. Do you keep it heated 24/7 or is it on a timer?  Does it have a cover to keep the heat in?  One church we work with found that just by making sure the tank heater was turned off after each service saved them over $500/month.

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