4TH Quarter Estimated Tax Payments are due January 15, 2015
HAVE A BLESSED CHRISTMAS AND A HAPPY, HEALTHY NEW YEAR!
4TH Quarter Estimated Tax Payments are due January 15, 2015
On November 13, 2014, the U.S. Court of Appeals for the Seventh Circuit reversed the decision of the U.S. District Court for the Western District of Wisconsin in the case Freedom from Religion Foundation (FFRF) v. Lew. The Court of Appeals remanded the case to the District Court with instructions to dismiss the case for lack of standing.
The District Court had ruled that the tax exclusion of cash housing allowance for clergy under Section 107(2) of the Internal Revenue Code (Code) is unconstitutional under the Establishment Clause, although the District Court also held that the FFRF did not have standing to challenge the exclusion of in-kind housing (parsonage) under Section 107(1) of the Code.
In today’s ruling, the Court of Appeals stated that the FFRF had not asked the Internal Revenue Service (IRS) to exclude the housing allowance that its directors received from taxation. Importantly, because the challenge was resolved on standing grounds, the Court of Appeals noted in its opinion: “We therefore do not reach the issue of the constitutionality of the parsonage exemption.”
If you have had a significant change in income due to retirement or a move, it may be necessary to make adjustments in your estimated payments for the remainder of 2014.
The IRS has ramped up its efforts to fight tax identity theft and tax fraud. Here are some tips to help you avoid problems:
If you, your spouse, or your dependents are headed back to school for higher education, you may be eligible for an education tax credit:
Specific rules apply. If you think you might be eligible, check out the IRS website at www.irs.gov.
On Nov. 22, 2013, a federal district court judge in Wisconson struck down the ministerial housing allowance as an unconstitutional preference for religion. The exemption for the fair rental value of a parsonage provided by the church was not challenged in this particular case, and therefore the parsonage exclusion remains intact.
The take-away here is the ruling will not take effect until the conclusion of any appeals to the Seventh Circuit Court of Appeals. An appeal by the IRS and Department of the Treasury could take up to a year to resolve.
A ruling by a federal district court judge in Wisconsin is not binding on other courts, and does not apply to ministers in other states. If the ruling is appealed and affirmed by the Seventh Circuit Court of Appeals, it will apply to ministers in that circuit (Illinois, Indiana, and Wisconsin). It would become a national precedent binding on ministers in all states only if affirmed by the United States Supreme Court (an unlikely outcome). As a result, churches should continue to designate housing allowances for ministerial employees for 2014, and church pension plans should continue to designate housing allowances for retired ministers.
Clergy Tax Professionals will continue to keep you updated as this case proceeds through appeals and the ramifications of the outcome to clergy and churches.
Many clergy are very generous givers, and the IRS often target clergy for audit because of the high level of donations. The IRS requires that you be able to substantiate your donations. Be sure you can stand up to audit by following these guidelines:
Cash donation (< $250) For each single donation, keep one of the following: cancelled check, receipt from the charity, or some other written record
Non-Cash property (< $250) Keep a receipt from the charity showing the name of the charity, address/location, and description of the property donated
Cash or Non-Cash Property (> $250) Keep a written acknowledgement from the charity showing the amount of the cash donation, or a description of the non-cash property, and a confirmation that you did not provide goods or services in consideration of the contributed property. If goods or services were provided, include a description and good faith estimate of the value of the goods or service provided.
Non-Cash Property ($500 to $5,000) Same rules as above apply, AND you must keep the following records: date and manner of your acquisition of the property (or completion of property if you created it); adjusted basis of the property; copy of Form 8283, Non-Cash Charitable Contributions, that you filed with your tax return.
Non-Cash Property (> $5000) Add up all your non-cash contributions to all charities and see if the total exceeds $5,000. The same rules for non-cash property above apply AND you must get a qualified appraisal of all non-cash property donated. Complete the appraisal summary (Section B of IRS Form 8283) within 60 days of the contribution and before your filing deadline. The form must be signed by a qualified appraiser. Keep a copy of the appraisal and your tax return for your records.
September 16, 2013 is the deadline for third quarter estimated tax payments.
2012 Individual Returns on Extension must be filed by October 15, 2013.
According to a recent Tax Court ruling (Rogers, TC Memo. 2013-177), pastors must formalize their housing allowance agreement with the church before any reimbursement payments are made by the church. The pastor was denied tax-free treatment of reimbursements for his mortgage payments and utility bills because there was no official agreement in place with his church.
For most taxpayers, the tax deadline has passed. But planning for next year can start now. Being organized and planning ahead can save time and money in 2014. Here are a few things you can do now to make next April 15 easier.
1. Consider Federal tax withholding. Federal law allows federal tax withholding on clergy compensation. Some small churches do not want to withhold tax and file quarterly payroll reports, but if your church able withhold tax for you, then consider taking the bite out of your end-of-year tax bill. Withholding tax on your paycheck will also lower your estimated tax payments. If you are already using withholding, now is a good time to review your amounts. Call me for a review or go on www.irs.gov to use the IRS Withholding Calculator to complete a new Form W-4, Employee’s Withholding Allowance Certificate.
2. Make estimated tax payments. Clergy compensation is subject to self-employment tax and making quarterly estimated payments is the method to pay in that tax throughout the year. Failing to make estimated payments, or underpaying estimated tax is likely to result in a penalty. Plan your budget to allow payments to be sent in on April 15, June 15, Sept 15 and Jan 15. Send in your payments with Form 1040-ES. You’ll be glad you did when it comes to the bottom line of next year’s return!
2. Store your return in a safe place. Put your 2012 tax return and supporting documents somewhere safe. If you need to refer to your return in the future, you’ll know where to find it. For example, you may need a copy of your return when applying for a home loan or financial aid. You can also use it as a helpful guide for next year’s return.
3. Organize your records. Establish one location where everyone in your household can put tax-related records during the year. This will avoid a scramble for misplaced mileage logs or charity receipts come tax time. Remember to keep good records of your housing or parsonage expenses for a maximum deduction for 2013.
5. Consider itemizing deductions. If you usually claim a standard deduction, you may be able to reduce your taxes if you itemize deductions instead. If your itemized deductions typically fall just below your standard deduction, you can ‘bundle’ your deductions. For example, an early or extra mortgage payment or property tax payment, or a planned donation to your church or favorite charity could equal some tax savings.
The Season of Giving
Tax Tips for Charitable Giving
Tax Deductible Contributions