Zondervan 2006 Minister's Tax and Financial Guide

by Dan Busby, CPA

• ISBN13: 9780310262169
• ISBN10: 031026216X
• Format: Paperback
• Copyright: 2006-01-16
• Publisher: Harpercollins Christian Pub

Summary

For 2005 Returns This easy-to-understand workbook simplifies the tax code and offers dozens of tips to reduce your tax bill. For 2006, the guide includes a lineby- line explanation of the 1040 Form. This edition includes retirement tips, compensation planning guidance, and maximizing business expense reimbursements.

Table of Contents

Recent Developments	1	(8)
Form 1040---Line by Line	9	(16)
Taxes for Ministers	25	(14)
Ministers serving local churches	26	(2)
Evangelists and missionaries	28	(1)
Members of religious orders	28	(2)
Ministers in denominational service, administrative and teaching positions, and other service	30	(3)
Individuals not qualifying for ministerial tax treatment	33	(1)
Social security status of ministers	33	(1)
Income tax status of ministers	34	(2)
Importance of the employee vs. self-employed decision	36	(2)
Recommended filing status	38	(1)
Compensation Planning	39	(12)
Determine the current compensation	40	(4)
Plan the compensation package	44	(3)
Use fringe benefits wisely	47	(1)
Use accountable expense reimbursements	48	(3)
The Pay Package	51	(24)
Delaying a portion of your pay	51	(1)
When do the discrimination rules apply?	52	(1)
Tax treatment of compensation elements	53	(19)
Reporting compensation, fringe benefits, and reimbursements	72	(3)
Retirement Planning	75	(8)
Preparing for retirement	76	(3)
The keys to social security	79	(1)
Taking out your retirement money	80	(3)
Housing Allowance	83	(16)
Types of housing arrangements	85	(2)
Structuring the housing allowance	87	(4)
Reporting the housing allowance to the minister	91	(1)
Accounting for the housing allowance	91	(2)
Other housing allowance issues	93	(3)
Housing allowance worksheets	96	(3)
Business Expenses	99	(24)
Accountable and nonaccountable expense reimbursement plans	100	(3)
Documenting and reporting business expenses	103	(1)
Travel and transportation expenses	104	(4)
Auto expense deductions	108	(7)
Home-office rules	115	(2)
Other business and professional expenses	117	(4)
Allocation of business expenses	121	(2)
Social Security Tax	123	(12)
The two social security systems	123	(2)
Computing the self-employment tax	125	(2)
Both spouses are ministers	127	(1)
Self-employment tax deductions	128	(1)
Use of voluntary withholding agreement to pay social security taxes	128	(1)
Opting out of social security	129	(4)
Working after you retire	133	(1)
Canada Pension Plan	134	(1)
Paying Your Taxes	135	(12)
Tax withholding	135	(1)
Estimated tax	136	(3)
Excess social security withheld (FICA)	139	(1)
Earned income credit	139	(1)
Extension of time to file	140	(2)
Extension of time to pay	142	(2)
Offers in compromise	144	(1)
Filing an amended tax return	144	(3)
Sample Returns	147	(28)
Example No. 1 Minister-employee for income tax purposes (accountable plan)	147	(11)
Example No. 2 Minister-employee for income tax purposes (nonaccountable plan)	158	(17)
Citations	175	(5)
Index	180

Excerpts

The Zondervan Minister’s Tax and Financial Guide: 2006 EditionCopyright © 2006 by Dan BusbyFor information, write to:Zondervan, Grand Rapids, Michigan 49530Publisher’s note: This guide is published in recognition of the need for clarification of the income taxlaws for ministers. Every effort has been made to publish a timely, accurate, and authoritative guide.The publisher, author, and reviewers do not assume any legal responsibility for the accuracy of the textor any other contents.Taxpayers are cautioned that this book is sold with the understanding that the publisher is not engagedin rendering legal, accounting, or other professional service. You should seek the professional advice of atax accountant, lawyer, or preparer for specific tax questions.References to IRS forms and tax rates are derived from preliminary proofs of the 2005 forms or 2004forms and some adaptation for changes may be necessary. These materials should be used solely as aguide in filling out your 2005 tax return. To obtain the final forms, schedules, and tables for filing yourreturn, contact the IRS or a public library.ISBN-10: 0-310-26216-XISBN-13: 978-0-310-26216-9All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmittedin any form or by any means—electronic, mechanical, photocopy, recording, or any other—except for brief quotations in printed reviews, without the prior permission of the publisher.Printed in the United States of AmericaWe want to hear from you. Please send your comments about thisbook to us in care of [e-mail]. Thank you.2005 tax changesSome of the key 2005 changes follow:Child tax credit increase. If you are a parent, stepparent, foster parent, or grandparent withdependent children under age 17, you will enjoy the child tax credit. It is refundable to theextent of 15% of the taxpayer’s income in excess of $11,000.The maximum child credit amount for 2004 through 2010 is $1,000 per year.Earned income credit. For 2005, “low income” generally means families (married filingjointly) with taxable and nontaxable earned income of less than $12,490 if there is noqualifying child, less than $31,338 if there is one qualifying child, and those who earnedless than $34,458 and have two or more children.Investment income. The amount of investment income children under age 14 can receivebefore it is taxed at their parents’ maximum tax rate is $1,600 for 2005.Standard deductions and personal exemptions. The standard deduction and personalexemption amounts, if under age 65, are adjusted as follows:Standard deduction: 2003 2004 2005Married couples $9,500 $9,700 $10,000Head of household 7,000 7,150 7,300Single 4,750 4,850 5,000Dependent children (1) 750 800 (1) 800 (1)Personal exemption 3,050 3,100 3,200(1) $800 or $250 plus the individual’s earned income up to the single standard deduction amount, whichever is greater.College cost deduction. A $4,000 deduction for 2005 may be claimed for college costsby itemizers and nonitemizers alike. This provision is repealed after 2005.Standard mileage rates. The IRS increased the business and medical mileage rates effective January 1, 2005, and then another significant increase became effective on September 1, 2005.The optional standard mileage rates for employees to use in computing the deductible costs in connection with the operation of a passenger automobile for business, charitable, medical, or moving expense purposes are as follows (for more information, see page 109-10):2005 Rate 2005 Rate1/1/05 to 8/31/05 9/1/05 to 12/31/05 2004 RateType of Expense (per mile) (per mile) (per mile)Business 40.5 cents 48.5 cents 37.5 centsCharitable 14 cents 14 cents (1) 14 centsMoving/Medical 15 cents 22 cents 14 cents(1) The rate is 29 cents a mile for Hurricane Katrina–related volunteer work from August 25 toAugust 31, 2005, and 34 cents a mile from September 1 to December 31, 2005.Social security taxable limit increases. The maximum amount of taxable and creditableannual earnings subject to the social security and self-employment income tax increased to $90,000 in 2005, up from $87,900 in 2004. There is no maximum wage base forMedicare. The 2006 wage base is expected to be $93,000.Increase in unified estate and gift tax exemptionThe exemption from federal estate taxes increases through 2009 as follows (the gift taxexemption is $1,000,000 until 2010):ApplicableYear Exemption Amount2005 $ 1,500,0002006 through 2008 2,000,0002009 3,500,000If your estate is less than $1.5 million, federal estate tax is not a problem. The simplestway to dispose of assets may be to place them in joint ownership with the person whomyou wish to receive them, such as a spouse. If your estate is more than $1.5 million, estate tax planning is a must. If married, use both exempt amounts to pass up to $3 million taxfree in 2005. There is no estate tax for those dying in 2010. Without further legislative action, the estate tax law in effect on May 26, 2001, would again become effective on January 1, 2011.A donor may exclude the first $11,000 (2005 limitation) of gifts made to any donee indetermining the amount of taxable gifts made.2005 clean-fuel auto special tax deductionBuyers of these clean-fuel autos can deduct up to $2,000 (up to $5,000 of the cost of a truck or van with a gross vehicle weight above 26,000 pounds) for 2005 and $500 for 2006 of the cost of the car on their tax returns. However, the proper place for the write-off is difficult to find. The deduction goes on line 34 of Form 1040.No deduction will be allowed after 2006. The tax break is available even if the purchasertakes the standard deduction. Larger clean-fuel vehicles get even bigger deductions, up to$5,000 for a light truck or van. The deduction is phased out by 25% for vehicles placed inservice in calendar year 2004, by 50% in 2005, and 75% in 2006.The following autos have been certified by the IRS:Model YearToyota Highlander Hybrid 2006Ford Escape Hybrid 2005Toyota Prius 2001 through 2005Honda Insight 2000 through 2005Honda Civic Hybrid 2003 and 2005Lexus RX 400h 2006Honda Accord Hybrid 2005For hybrid cars purchased after 2005, a credit is available of between $650 and $3,400,depending on estimated lifetime fuel savings, plus an extra credit that is based on overall fueleconomy. The credit will phase out quickly. When an auto manufacturer sells its 60,000thhybrid vehicle (that is the total per manufacturer, not 60,000 per model), the phaseout startsat the beginning of the second subsequent calendar quarter.Foreign earned income exclusionThe foreign earned income credit for qualified individual U.S. citizens or residents whoreside in foreign countries is $80,000.For any tax year after 2007, the $80,000 amount is increased by multiplying the dollaramount of the limitation by the cost-of-living adjustment for the calendar year in whichthe tax year begins. The increase will then be rounded to the next lowest multiple of $100. Pension contribution limitsThe Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 containedprovisions for the relaxation of key limits on pension nonprofitplans:_ Change to maximum exclusion allowanceor 403(b) plans. For 2005, the maximumexclusion allowance is $42,000 or 100% ofcompensation, whichever is less._ Change in salary reduction contributionlimits to 403(b) plans. The 403(b) and401(k) contribution limits increased from$13,000 in 2004 to $14,000 in 2005.The limit is capped at $15,000 in 2006and subsequently is indexed in incrementsof $500. Employees over age 50 will also be able to make a “catch-up” contributionof $4,000 in 2005 and $5,000 for 2006 and future years.

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Excerpted from Zondervan Minister's Tax and Financial Guide: For 2005 Returns by Daniel D. Busby
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