A Better Way to File Taxes

New products and programs to ease the way

by John R. Throop

Death and taxes may be certain in life, but most people—including pastors—aren't dying to file their taxes. Tax compliance isn't easy for churches, either.

Still, it's especially important for pastors and churches to cooperate with Internal Revenue Service regulations because ministers are at a higher risk than the general public of being audited (especially when filing Schedule C). Churches are also being monitored more closely than ever by the Exempt Organization Division of the Internal Revenue Service.

A System for Filing
To take some of the burden out of filing taxes, pastors, church business administrators, and treasurers might want to take a look at some helpful software, Internet, and print resources. The U.S. Congress, IRS, and state and local governments change tax regulations nearly every year, so some materials must be budgeted for and purchased annually.

Before making any purchase, though, ask what system must be set up to make compliance accurate and easy. If the system is accurate, you'll meet tax-compliance tests. If the system is easy, you'll use it more consistently, and ongoing record-keeping will mean spending fewer hours preparing taxes and completing forms at the end of the year. Careful use of print and electronic resources can help eliminate extra steps and time-consuming repetitive tasks.

The Right Software and Books
Clergy will find especially helpful those products and services that are designed specifically for their particular tax situation. For example, how many taxpayers have to deal with parsonage allowances, mortgage exclusions, and depreciation on a personal ministry library? Consider:

The Abingdon Clergy Income Tax Guide 1999 for Windows and Macintosh, compiled by the global accounting firm Deloitte & Touche (Abingdon Press, $24.95; print, $13), tackles issues specific to ordained ministers. Various forms guide the reader into the text, which explains how to fill out the forms. The guide includes blank IRS forms to complete and print out (individual state forms are not available). Since a messy or unreadable tax return is a red flag to the IRS for a possible audit, a clean, printed copy is a definite priority.

For overall tax planning and preparation, The Zondervan Minister's Tax and Financial Guide, 1999 edition, by Daniel Busby, CPA (Zondervan, $14.99), offers a wealth of advice on a huge assortment of issues. It shows how to develop a compensation package that avoids unnecessary tax exposure. It tells how to set reimbursement policies and offers guidelines on how to determine whether ministers are employees or independent contractors. The guide also offers sample forms and essential policies to protect the clergy taxpayer.

A helpful fact-filled little book titled Minister's Guide for 1999 Income Tax by Conrad Teitell is available through the Episcopal Church Pension Group (call 800-223-6602 for cost and order information). One other important reference is the Institute of Church Leadership's Church and Clergy Tax Guide, by Richard Hammer, CPA ($24.95, print).

Internet Helps
Two clergy-specific Internet resources for tax preparation that can be very helpful are the Web sites for Clergy Financial Resources (Clergy TaxNet), and the Institute of Church Leadership (see sidebar for addresses).

Clergy TaxNet provides a wealth of resources to surfers and specialized help to members on tax-law changes, tax planning, and record keeping.

The Institute of Church Leadership site offers similar information as well as subscription access to the monthly Church Law and Tax Report, edited by Richard Hammar ($39 per year; online at additional cost).

While not clergy-specific, Intuit's TurboTax is an excellent software tool for three reasons. First, its CD-ROM version offers a video tutorial that takes the user step-by-step through the filing process. If preferred, you can disable the video and use only the pop-up instructions. Worksheets enable the filer to tally up expenses, then immediately transfer the total to the relevant form.

When you're finished, the program checks the return for errors or potential problems. If you and your spouse want to file separate tax returns, both of you can file using the same piece of software. Electronic filing also is available, ensuring timely delivery.

Second, TurboTax State is available for each state that requires personal income tax. Transfer relevant information from TurboTax to the state software, complete the form for the state, then print it out.

Third, TurboTax offers a seamless interface with Quicken personal-financial software, so that expense information can be collected and dropped into tax forms with a simple mouse click. By using this program, I cut my own tax-prep time from 20 to four hours.

Another helpful Web site is the The IRS Digital Daily, provided by the IRS itself. The site, which is very user-friendly, sure beats using the IRS's toll-free number for most services.

Updated daily, the site has sections on taxpayer help and education, individual and business services, and an entire archive of forms and publications that can be downloaded and printed. The files are compressed into Portable Document File format, so Acrobat Reader software is required to download and print them. The site allows surfers to browse through an increasing number of IRS publications (86 so far, with more being added monthly).

For individual taxpayers and businesses, regional offices of the IRS (located in most midsize to large cities) provide forms and publications as well as walk-in tax assistance. Most public libraries and office superstores have individual tax forms in binders that can be copied.

The IRS also has a separate toll-free hotline you can use to order tax forms and publications, which usually arrive within 10 days. The Government Printing Office also offers a CD-ROM in Windows and Macintosh formats containing all tax forms.

Tax Compliance Helps for Churches
Even though they are tax-exempt, churches and ministries have their own tax reporting and compliance issues. So church business administrators and treasurers should consider some basic questions before setting up a compliance system or buying software.

The Zondervan Church and Nonprofit Financial Guide, 1999 Edition (Zondervan, $14.99), by Daniel Busby, CPA, is an indispensable guide for the financial administration of churches. In addition, the Institute for Church Leadership offers an annual Tax CD-ROM Reference Library with a wide range of topics arranged in an interactive format ($99).

Choosing the right accounting system is crucial to effective compliance and reporting. A certified public accountant can help build a chart of accounts that will create a general ledger. The ledger can serve as the basis for a financial report, a balance sheet, compliance with Financial Accounting Standards Board (FASB) requirements, tax withholding and reporting, and checkwriting.

Popular accounting software can also be adapted for church use. In this, a few major players dominate the market: QuickBooks, Peachtree, and Lotus 1-2-3.

Financial Advice for Churches
Dozens of companies offer financial software for church ministry with various levels of technical support. Busby's book has a comparison chart of such software along with contact information. Let the buyer beware, however; small firms can close shop quickly, and new companies start up monthly. Busby's chart was outdated before it hit the bookstores. Some additional helps:

Electronic reporting. The Web site provided by Ministry Business Services offers an up-to-date inventory of financial software and an internal search engine that allows a user to enter a set of criteria (e.g., member donations transferable to cash or designated accounts) and find the top matches among different products. Company links and phone contacts are provided for buyer follow-up.

An electronic system makes tax reporting easier because your treasurer can calculate and print completed forms such as the quarterly Form 941 payroll-tax report or annual W-2s and Form 1099s (miscellaneous income). The information is drawn straight from the ledger.

Automatic payments. Larger churches with more than $500 of payroll taxes per quarter must now make monthly payroll tax deposits with the IRS. Churches with annual payroll taxes of $20,000 or more per year will have to make electronic deposits with the IRS in 1999. The Electronic Federal Tax Payment System is handled as an authorized automatic withdrawal from your account. The church treasurer can check with the bank that handles the church's money to file the forms to activate this transfer.

Additional earnings. Churches with separately incorporated schools, daycare centers, bookstores, or other income-producing organizations must remember to file IRS Form 990 annually to document the financial activity of the organizations (churches themselves do not file Form 990). Churches must also guard against incurring significant unrelated business income, which could be subject to taxes and penalties. That topic will be covered in more detail in the July/August issue of Your Church.

Tax updates. Church treasurers and business administrators will find helpful regular updates of tax requirements and accounting developments. The Institute of Church Leadership offers such updates in its monthly Church Treasurer Alert ($24.95 print, also available online at additional cost). The National Association of Church Business Administrators offers its members valuable updates, too. The church accountant can inform church leaders about developments that might affect them.

Of course, all the right tools can't compensate for procrastination, disorganization, or bad advice. The burden of compliance and reporting remains with the taxpayer and the organization. With the right set of tools, however, pastors and church administrators can tackle tax matters accurately, completely, more quickly, and less painfully than ever before.

John Throop is pastor of Christ Church, an Episcopal church near Peoria, Illinois.

Copyright © 1999 by the author or Christianity Today International/Your Church Magazine. For reprint information call 630-260-6200 or e-mail yceditor@yourchurch.net.
January/February 1999, Vol.45, No. 1, Page 64

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