Year End Giving

December often brings more contributions to churches than any other month. Be prepared to handle year end contributions accurately by listening to Richard Hammar describe a number of important rules that apply to year end giving in the video below:

To learn more about how tax laws apply to your church, read Richard Hammar's 2012 Church & Clergy Tax Guide.

Payroll Tax Cut Temporarily Extended into 2012

After weeks of debate, Congress has finally resolved the question of whether or not to extend the payroll tax holiday that was enacted in 2011. From now until at least February 29, 2012, nearly 160 million workers will benefit from the Temporary Payroll Tax Cut Continuation Act of 2011 temporarily, which extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.

Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.

Read more …

The Importance of Financial Transparency

Vonna Laue, a partner with Capin Crouse and an Editorial Adviser for Christianity Today's Church Management Team, discusses why financial transparency creates a more trustworthy financial department for your church.

Watch the two-minute video below:

The management of church money is a complex task for any church finance manager, treasurer, business administrator, bookkeeper, or pastor. The Essential Guide to Church Finances will help you strategize, organize, measure, communicate, protect and audit the financials of your ministry—available at YourChurchResources.com.

Top 10 Year-End Fiscal Tasks

If your fiscal year-end is December 31, you have to complete all the necessary steps for closing the fiscal year while also preparing W-2s, 1099s, and donor giving statements. With a little planning though, you can avoid long hours and frustrated staff, no matter when your fiscal year ends. Here are the top 10 things you can do to make the end of the year easier:

1. Prepare a monthly closing checklist. This list should include items such as bank reconciliations, investment reconciliations, and items 2 through 5 below. It should also include the name and initials of the preparer and reviewer. Set a realistic timeframe for completing the checklist each month and monitor it for compliance.
2. Perform monthly donor reconciliation. Reconcile the donor system with the contribution accounts in the general ledger on a monthly basis. This will allow you to detect any errors or unusual reconciling items, such as recognition of pledges, and will make the year-end reconciliation quicker. Even if you use an integrated church management system, posted journal entries could result in differences.
3. Track temporarily restricted net assets. When donors give amounts for specific purposes, you need to track the amounts received and when and how they were spent. Doing this monthly will save you significant time and effort at year-end.
4. Track employee benefit hours. Your annual financial statements must include the value of any benefit hours (such as vacation time) paid out, times the pay rate. That will be easier to do if you calculate the amounts earned and used on a monthly basis.
5. Compare budget to actual numbers with department heads. Management should receive information on budgets and the actual amount of income and expenses each month. Department heads will inquire if they believe something was inaccurately charged to their budgets, creating an internal control to make sure transactions are properly recorded.
6. Reconcile 941 forms to payroll expense accounts. When the 941 is prepared each quarter, make sure the reported amounts agree with the general ledger.
7. Maintain a fixed asset folder. To easily identify and record fixed assets purchased during the year, keep a separate folder with copies of invoices related to the purchase. Many organizations leave the purchases expensed during the year to help with departmental budget reporting. At the end of the year, a reclassification entry is necessary to remove the amounts from expense and capitalize them as assets. This folder will make that process faster and provide documentation if your accountants or auditors want more information.
8. Monitor debt covenants. With the credit market so restrictive in recent years, monitoring debt covenants has become even more important. It’s crucial to start by understanding the covenants included in your loan documents. Then monitor them consistently so you can address any concerns with the lender upfront, rather than after a breech occurs.
9. Monitor any accounts outside your organization’s direct control. Sometimes groups within an organization, such as a parent/teacher group or mother’s group, establish bank accounts with the organization’s tax identification number. Ask the groups within your organization if they have a bank account and if so, which tax identification number was used. If the organization’s identification number was used, you need to make sure the funds are used appropriately. Consistently obtain bank statements and information on income and expenses related to these accounts.
10. Contact your accountant with new issues or questions. Don’t be afraid to contact your accountant throughout the year. He or she would love to help make sure your financial reporting is accurate during the fiscal year, not just after the year ends and adjustments are made.

As we near year-end, it is a great time to think about how to use your time most efficiently. Procedures like those provided here spread the workload out over a period of time. Performing these simple steps throughout the year will result in your year-end financial close being similar to any other month-end, rather than a stressful and time-consuming event.

Take a quiz and test your year-end knowledge on other aspects of church management.

December Tax Tip: Note New Withholdings for 2012

Beginning on January 1, churches having nonminister employees (or a minister who has elected voluntary withholding) should begin withholding federal income taxes according to the new tables and instructions contained in the 2012 edition of IRS Publication 15 (Circular E). You can order a copy by calling the IRS at 1-800-829-3676, or you can download a copy from the IRS website (http://irs.gov).

December Tax Tip: Plan Now to Reclassify an Employee

If you have a minister or lay worker who is treated as self-employed for federal income tax reporting purposes, but who you would like to reclassify as an employee, the ideal time to make the change is on January 1 of the new year.

The Top 10 Church Management Articles of 2011

I’ve said it before, and I’ll say it again: I’m a sucker for lists. And the end of a calendar year always brings opportunities to reflect on the top stories and headlines from the year that was.

So it’s only natural to share the top ten articles for ManagingYourChurch.com in 2011 based on unique page views. Each post is highlighted below, starting with the tenth-most uniquely viewed post and building up to the first-most. Each highlight also includes the post’s title, author, and date, as well as a brief description and, if available, a notable reader comment.

See what caught the interest of church leaders nationwide, and feel free to weigh in with your thoughts on these legal, financial, and management topics:

10. The Pluses of Google+ for Church Leaders by Margaret Feinberg (July 18, 2011)

Social media tools continued to proliferate in 2011, and no new addition created a larger stir than the summer unveiling of Google+. Many early adopters viewed Google+ as the first legitimate threat to Facebook’s status as the social networking site of choice for the masses. Christian author Margaret Feinberg dove in to Google+ immediately and shared her initial thoughts about how it works, and the way its features may be useful for churches.

Notable reader comment: “I definitely see the strengths of G+'s Circles. Love the idea of Hangout, etc all being built in. My concern is that FB would only need to make a few changes to do the same thing. And so far, my Incoming on G+ is DEAD. Very little updating going on.” —Richie Allen

9. A Pastor’s Thoughts on Knowing What People Give by Larry Osborne (May 3, 2011)

In this guest post, Pastor Larry Osborne shares about a situation that changed his thinking about whether a pastor should know what people give to the church.

Notable reader comment: “To me, what was done with the information presents a better arguemtn for why pastors don't need to know than why they do need to know.” —John

8. The Church Bulletin as a Tax Tool by Richard R. Hammar (November 1, 2011)

How churches can use their bulletins at the end of the year to provide timely, helpful year-end tax reminders and guidance to givers.

Notable reader comment: None.

7. The Top 5 Reasons Churches End Up in Court by Richard R. Hammar (January 25, 2011)

Every month, Richard Hammar reviews nearly 1,000 court rulings for Church Law & Tax Report and Church Finance Today, as well as the resources he creates for churches and ministers. He categorizes this information to identify patterns, and in this video, he shares the most common reasons that churches wound up in court in 2010.

Notable reader comment: None.

6. Before You Hire, Pick Up the Phone by James Emery White (August 8, 2011)

An excerpt from James Emery White’s What They Didn’t Teach You in Seminary about an important lesson he learned after rushing to hire an up-and-coming worship leader.

Notable reader comment: “Excellent advice... and not just for paid staff hires. Any time someone from the outside of your church family is put in a position of leadership, it would be wise for the pastor to do some sanity checking :)” —Jenni Baier

5. Scammers Phishing for Your Money by Lindsey Learn (July 28, 2011)

In July, the Internal Revenue Service issued an alert to churches nationwide regarding five scams focused on tricking churches into paying to pursue false or erroneous tax schemes. The bottom line: If free money sounds too good to be true, it probably is.

Notable reader comment: None.

4. The Top Three Reasons Fraud Happens at Church by Vonna Laue (June 16, 2011)

Vonna Laue, co-author of the Essential Guide to Church Finances, wrote about the top three reasons a church becomes a victim of fraud. By shedding light on these three, Vonna provides brief explanations on how churches can evaluate their own current practices—and possible ways to address deficiencies.

Notable reader comment: “I've been told that 85% of people will steal if given the opportunity; you can argue with the statistic, but it does make a point that reasonable safeguards need to be in place.” —Lori

3. Cyber Crime: Coming to a Church Near You? by Matt Branaugh (July 12, 2011)

Hackers targeted a church in Iowa this summer and stole $680,000. Sadly, it’s a potential sign of things to come, as one notable author on the topic of church fraud noted during a church business administration conference. Six tips, along with several recommended resources, can help churches thwart similar attempts.

Notable reader comment: None.

2. National Commission to Examine Church Financial Practices by Matt Branaugh (January 7, 2011)

After a three-year inquiry into the financial practices of six media ministries, Sen. Charles Grassley, R-Iowa, asked the Evangelical Council for Financial Accountability to head an independent commission that will obtain feedback about the financial practices and oversight of churches and religious groups nationwide. The Commission on Accountability and Policy for Religious Organizations is chaired by Michael Batts and includes notable legal, tax, and ministry voices, including Richard Hammar, senior editor of Church Law & Tax Report and Church Finance Today. In December, the commission began accepting public comments on the issues Grassley asked it to study.

Notable reader comment: “The issue is that churches are granted a tax exemption and some special privileges that other taxexempts don't have (the housing allowance for pastors). As a result, we the taxpayers are essentially subsidizing religion just like we subsidize many other charities, but with some extra percs that other charities don't get, which causes some concern. Certainly if we are going to give special privileges to churches not permitted to other tax exempt charities, we ought to be able to ensure that churches are at least as compliant with tax exempt status requirements as other charities are, and this can best be done through requiring the same kind of reporting required for other charities.” —How Tax Works

1. A Tax Credit for Churches? by Richard R. Hammar (April 18, 2011)

Is there really a "tax credit" available to churches based on President Obama’s 2010 healthcare reform? For small- and mid-sized employers offering healthcare to employees, including churches, the answer is quite possibly yes. Many churches took advantage of this tax credit in 2011, and unless the U.S. Supreme Court rules the reform is unconstitutional after hearing arguments for and against it in 2012, many likely will be able to do so again.

Notable reader comment: “Wonderful video and follow-up comments. Thank you, thank you, thank you. Our church may receive a $11,700 check in the mail later this year.” —David

IRS Announces Recommended Mileage Rates for 2012

On Saturday, the Internal Revenue Service announced its recommended optional standard business mileage rates for 2012. These recommendations are ones "employees, self-employed individuals, and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes," the IRS says.

Many church treasurers also use these recommended rates to reimburse business miles logged by pastors, staff members, and volunteers for the use of their personal vehicles to drive hundreds of miles each month for visitations, home visits, retreats, community meetings, and conferences, among other things.

Beginning January 1, 2012, the IRS says the 2012 standard mileage rate remains at 55.5 cents per mile for business uses, is reduced to 23 cents per mile for medical and moving uses, and remains at 14 cents per mile for charitable uses.

Moving forward, it's important for church treasurers to periodically check for updates on the rates from the IRS. For instance, in June, the IRS increased the standard mileage rate from 51 cents per mile to 55.5 cents per mile for the second half of 2011 to address increased gas prices around the country.

In the February 2012 edition of Church Finance Today, Richard Hammar sheds more light on mileage rates, including a more expansive review of the best practices regarding reimbursements for vehicle uses by church staff.

December Tax Tip: 2012 Pension Plan Limits

The IRS has announced cost-of-living adjustments applicable to dollar limitations for pension plans and other items for 2012. These include the following:

1. The limitation for defined contribution plans is $50,000.
2. The exclusion for elective deferrals is $17,000.
3. The limitation used in the definition of highly compensated employees is $115,000.
4. The dollar limitation for catch-up contributions to an applicable employer plan for individuals aged 50 or over remains unchanged at $5,500.

For more help with 2011 tax filings and 2012 tax questions, check out the 2012 Church & Clergy Tax Guide.

Handling Online Activities with Care

Every year, more organizations and people fall victim to cybercrime. Last year, more than 300,000 reported cybercrimes to the FBI with losses in the hundreds of millions of dollars. Whether it’s simple theft, fraud, or identity theft, this is a significant area of opportunity for criminals. Let’s shed some light on how to protect your church office and those you know from cybercrime.

Where There’s Opportunity …

A new level of crime became possible with the popularity of the Internet on a scale never before imagined! Criminals saw the opportunity to repackage old scams into electronic format and reach the masses in a way that could yield astounding results. That criminal vision has become a painful reality to many naïve victims.

The FBI co-publishes an annual Internet Crime Report detailing painful statistics. In the 2010 report:

• Among people ages 20 and older, fraud complaints are evenly distributed. This means those who are younger and more tech savvy still are just as likely to fall victim.
• Cybercrimes are evenly split among male and female victims, although men report an average of 25 percent more in financial losses.
• The largest complaint category was no payment or no delivery of merchandise through an online transaction (14 percent), followed by scams (13 percent), and identity theft (10 percent).
• The top five places where criminals resided was the United States (66 percent), the United Kingdom (10 percent), Nigeria (6 percent), China (3 percent), and Canada (2 percent. This means we’re all vulnerable, especially in the United States, where it appears most of the crimes occur.

It is important to note that people are vulnerable, but so are organizations! If your church or ministry conducts business over the Internet (email, purchasing, and so on), it is probably more vulnerable than an individual because of the number of staff online!

Most Common Scams

While non-delivery of merchandise or payments was the largest category of complaints, the second was scams. The three most common 2010 scams, according to the report are:

1. Mystery/Secret Shopper. Victims are contacted via email to help retailers evaluate the quality of their stores, personnel, and processes. Sometimes the employing company sends a check and asks the person to cash the funds, spend them, and return the unused portion. The problem is that the check is counterfeit.

Sometimes the employing company uses an extensive application and screening process to gain the shopper’s personal account and identity information.

2. Claims of being stranded. Law firms are getting email from out-of-country citizens requesting help. Also, people receive emails telling them a friend or family member is stranded and needs money immediately wired to them (in some cases the email arrives from a person they know whose email account was hacked). The pleas are lies designed to trick people into sending money.

3. Natural disaster relief. Natural disasters bring out the best in Americans; they also bring out criminals.

What Does the FBI Recommend?

The Federal Bureau of Investigation provides five quick recommendations that individuals and church offices should note and share:

1. Do not respond to unsolicited email, also known as spam. 2. Avoid filling out forms in emails.
3. Don’t click links.
4. Don’t open attachments in unsolicited email.
5. Be skeptical of those representing themselves as surviving victims or stranded friends.

Extra Precautions

The FBI’s recommendations are good, but I suggest going further with these additional precautions:

1. Besides avoiding responses to unsolicited email, get your email scanned for spam and malware before it arrives to your computers. This will eliminate almost all undesirable email and improve your defenses, but continue to be cautious! Cybercriminals are constantly working on ways to get through those protections, so still be wary of anything that looks questionable. The most effective solution is the Barracuda Spam Firewall , which you can acquire and use yourself, or you can hire a third party to install and do for you (which usually costs less than buying and doing it yourself).

2. If you receive an email from someone you don’t know, don’t click on any links or attachments (ideally, you’ll just delete the email, but if you’re afraid the email is a legitimate inquiry, be cautious and avoid clicking on anything. Simply hit “Reply” and craft your message based on the text you read).

If you receive an email from someone you know that contains links, attachments, or other content that make no sense, delete it.

3. Any email offers that sound too good to be true are probably scams. Immediately delete them.

4. When you or your office want to respond to disaster-relief fundraisers, give only to organizations you know. Research unfamiliar ones through Charity Navigator or the Evangelical Council for Financial Accountability (ecfa.org).

Shopping Online

Shopping online is a convenient and effective way to secure needed resources, often while saving money. For anyone using a church computer to make purchases, the following basic best practices before entering personal information, or credit card or banking information, can help ensure the transactions remain safe:

Windows Explorer

When browsing in Internet Explorer (the picture below is from version
8), first look for the closed lock. This will tell you whether or not you’re on a secure, encrypted web page:

If you’re still uncertain, click on the lock; doing so will tell you who owns the security certificate, who the issuing authority is, and when it expires:

On a Mac it will look like this:

In Firefox, the security certificate is available via the color-shaded section to the left of the website address, (also called the URL). Clicking on that shaded area shows the dark box shown with summary information about the certificate; clicking on “More Information” shows the following:

Clicking on “View Certificate” shows the following:

With these methods, you can check to be certain the website is owned by the organization you expect to own it, has a security certificate from an appropriate issuing authority, and is protected by a certificate that is still in effect.

Careful Where You Browse!

Another threat is the ease of inserting malware into unsecured websites. That means you could visit a legitimate website, but if the webhost hasn’t kept their security up-to-date, a hacker could have added malware to it that will instantly download to your computer!

From the Cybercrime Intelligence Report (Issue #3, 2009) published by the Finjan Malicious Code Research Center:

As we reported in our previous reports, it doesn’t take much for today’s cybercriminals to infect website visitors with a Trojan. Using commercial software … available for $100-$300 on hacking forums, the cybercriminal can easily launch a massive attack. It allows him to insert exploiting code to vulnerable websites (legitimate or fake ones). Once a visitor visits one of the infected websites, an exploit code, served by the crimeware toolkit, installs a Trojan on the PC in use.

The best protection strategy is to run anti-malware software on all of your computers and servers. I recommend Sophos.

Spread the Word!

I also recommend holding workshops for your staff and for your congregation. Your staff needs to know how to protect themselves and your church, but your congregation is vulnerable too—especially during the holiday shopping season! A wise strategy includes hosting an annual workshop every October or early November to protect your church, your staff, and your congregation from potentially damaging threats they may not be aware of.

The January 2012 edition of Church Finance Today looks at the ways technology can be used--and misused--to conduct fraud on churches. For more help with your church’s electronic safety, also check out Protecting Electronic Data from ChurchSafety.com.

December Tax Tip: Update Staff W-4s Now

December is a good time to check with all nonminister church employees to see if they need to file a new W-4 form with the church. The W-4 form is used by employees to report withholding allowances. This information will determine how much income tax the church withholds from the wages of a nonminister employee. The important point is this--W-4 forms often become obsolete because of changes in an employee's circumstances, but the employee fails to submit a new form to the church. This can result in withholding that is significantly above or below the actual tax liability.

There are many reasons why an employee's W-4 may be inaccurate, including the birth of a child, a pay raise, or significant medical expenses. These same considerations apply to ministers who have elected voluntary withholding of their taxes.

Additional Tip: The tax cuts passed by Congress in recent years have reduced taxes for most Americans, and this is another reason why some church employees will want to submit a new W-4 form.