Click on a question to find the answer.

• What is "reasonable" compensation for our pastor or founder?

• Are love gifts or love offerings taxable?

• What donor management and accounting software should we buy?

• How are ministers' compensation and housing allowance reported?

• I am being audited. What should I do?

• We've raised more money than we can spend for a project! Can we use it for something else?

• How can I tell who should be paid as contract labor and who must I treat as an employee?

• How do I start a church, ministry or other nonprofit organization?

• Should a minister opt out of the self-employment tax system? How can I do it?

• Intermediate sanctions! Excess benefits! Disqualified Persons! What does it all mean?

Answers:

What is "reasonable" compensation for our pastor or founder?

Consider the following in setting a minister's compensation:

* Unique services provided by the minister.
* Contribution to the organization's growth.
* Years of service
* Size or membership of the organization.
* Financial position of the organization.
* Past compensation, i.e., underpaid in prior years?

To help avoid the issue of "excess compensation" an independent compensation committee should be used to recommend or evaluate the compensation package of the leaders of nonprofit organizations.

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Are love gifts or love offerings taxable?

yes. Yes. YES.

Love gifts are taxable and should be reported as compensation.

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What donor management and accounting software should we buy?

Sorry, no definitive answer on this one!

Things to think about are:

* Size of your organization's membership or mailing list.
* Skill level of prospective users of the software.
* Your reporting and tracking needs.
* Your existing hardware.
* Your budget

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How are ministers' compensation and housing allowance reported?

A minister's compensation, with the exception of housing allowance and other nontaxable items, should be reported on a W-2. Housing allowance should not be included on the W-2. While exempt from income taxes, housing allowances are not exempt from self-employment taxes.

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I am being audited. What should I do?

Call your professional tax advisor before you do anything else!

This means before you interview with the IRS and before you provide documents to them.

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We've raised more money than we can spend for a project! Can we use it for something else?

Don't laugh. It happens!

When excess funds have been specifically raised for a named purpose and it is not possible or feasible to spend them for the purpose for which they were raised, you should contact the donor and request permission to use them for another exempt purpose. Get professional advice.

To avoid this predicament in the future, fund-raising materials should indicate that excess funds will be used for other exempt purposes.

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How can I tell who should be paid as contract labor and who must I treat as an employee?

Generally speaking, if the organization provides the tools for the job, controls how the work must be done, and if the work must be performed by the contracting individual, then an employee/employer relationship exists. However, there are numerous influencing factors and this is not always an easy call.

Get professional advice on this one to help avoid payroll audits, additional taxes, penalties and fines.

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How do I start a church, ministry or other nonprofit organization?

An organization can apply for its "exempt status" by submitting its request to the IRS on Form 1023. We do recommend that you get professional help on this one. While a church by definition is "exempt" and not technically required to file a Form 1023, we recommend it.

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Should a minister opt out of the self-employment tax system? How can I do it?

The election out of Social Security must be made on the grounds of theological objections. It should not be an economic decision.

Ministers considering this option should be aware that there is no going back. This is an irrevocable decision.

If the election is made, the minister will lose more than his Social Security check at retirement. For example, widow's and orphan's benefits and medicaid benefits will be lost too.

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