A parsonage allowance is a house or dwelling that is provided to the clergy-person as compensation for ministerial services. Most often the parsonages are controlled by the religious organization. Many clergy-people who live in these homes are not even aware that they are getting a tax break from this portion of their salary. it does not cost the church anything, but does provide a beg tax break for the minister. This parsonage allowance is the rent-free usage of the furnished home.

A housing allowance goes towards a rented home or apartment or a home owned by the minister. This expense is paid as part of their salary while  performing ministerial services. The clergy-person will elect this option and church approves the total compensation as a housing allowance.

When reporting to the IRS:

• The allowance must be designated in advance.
• The allowance must only be used for housing-related expenses.
• The allowance may not exceed the fair rental value of the house.

A double deduction is a possibility for clergy-persons who own their own home and receives a housing allowance. House taxes and mortgage interest are included in housing allowances but they also may be able to be taken as itemized deductions. Talk to your tax service with any concerns regarding this or any other tax question you may have.

An important factor for clergy to remember before they opt out of Social Security is that once they do, they will not be eligible for any Social Security retirement benefits. If the clergy-person does decide to opt out, it must be done by their second year in which more than $400 had been earned in ministerial income. Form 4361 will need to be completed and filled out based on your religious denomination. If the IRS approves this exemption, only ministerial services are exempt from self-employment tax. It is clearly stated on the form that once the exemption is approved, the status cannot be revoked, so be certain to discuss this option with your financial planner.

Rules to follow:

• File Form 4361
• State that they are conscientiously opposed to public insurance which includes that of the Social Security Act.
• State their desire to opt out based on religious denomination  or because it goes against religious principles and/or beliefs.
• Economic reasons are NOT an option for opting out.
• The clergy must inform the religious institution which ordained, licensed or commissioned them that they are against public insurance.
• The same institution which ordained, licensed or commissioned the clergy-person must be a tax-exempt religious organization. This organization must be a church, convention or n association of churches.

Once the IRS approves the tax exempt status, a notification will be sent and must be signed and returned by the clergy-person for verification.

If you are a clergy-person and are looking to understand your tax status more completely, you can call Murrieta Tax Service for further information.

The IRS is having glitches with their new electronic tax return system. The problems started showing up in February with several million taxpayers’ tax returns taking longer to be returned. On a good note, the IRS has caught up with the delays and is on track with their processing as compared to last year’s progress. Taxpayers can expect to continue to get their returns within a short period time as projected.

The IRS has suggested that tax preparers send in e-files through the old system as they continue to make the new technology platform upgraded system more proficient.

A properly designed life insurance  program will involve taking care of taxes so the beneficiaries will be left with something of value. Taxes can greatly enhance the value of benefits or they can diminish their value. Many tax rules which are related to life insurances seem to be easy enough to understand, but there are always exceptions to rules. Get with your CPA Temecula and examine the the tax laws that can effect your life insurances. The more problems you can solve early on, the better life insurance package you will be leaving your family.

Many Tax payers are under insured or do not carry life insurance at all. Make a positive difference for your loved ones and create a life insurance package which does not ignore any related tax rules.

Some people have been told that  certain items of value will be left to them, but without legal documentation, the items will fall into the deceased estate. Moat often, the IRA is left to a spouse. If you are not the spouse of the deceased you will have some important rules to follow before you attempt to do anything with that money.

Most spouses would simply roll over the IRA into one of their own without penalty. This can be done simply without penalty. First and foremost, you will want to have legal proof that you are the owner before you can take over ownership. Once that is fully proven, you will need to rename the IRA. There are guidelines to follow with the renaming of the IRA . One thing you must not do is rename the IRA to your name. There will be major tax liabilities with that action. You could be placed into a different tax bracket and could trigger a 6% tax penalty for excessive contributions for that year. Get with your Certified Public Accountant to ensure you are following the strict guidelines for renaming an IRA that you inherited.

Social Security will use information from Experian to verify the taxpayer’s identity. There is a terms of service requirement which is written in language easily readable. You will be guided through a three step process.

1. You will need to enter your name, address, telephone number and Social Security number (SSN).
2. Answer questions based on credit rating through Experian.
3. Set up a user name and password. In doing this you will provide an email address and security questions in case you forget your user name or password.

If  there are any problems signing up, you can request your information sent to you by mail or go to the local Social Security office with proper identification to set up an account there.

You can use this information when planning your retirement with your CPA Murrieta.

These organizations such as labor, civic, recreational and fraternal are required to file but will not pay tax on money earned for their stated purpose. If there are side earnings, that income could become taxable.

The return that any organization will file will be determined by their total receipts;

• Use an e-postcard to inform the IRS if the organization brought in less than $50,000 and are still in operation.
• Use Forms 990 or 990-EZ to file if the organizations has brought in more than $50,000 or have side income.

Form 990 is public record and can be viewed by anyone. The organization is required to have a copy. If taxes are not filed for three consecutive years, the organization will lose their tax exempt status and will have to file special paperwork to be back in good standing.

Most tax payers will not be affected by this deadline, but if you are part of one of these organizations, you may want to check that the forms or e-postcard are being filled out.

Essential documents that you will want to keep along with your tax returns for the three year statute of limitations are:

• Copies of everything involved with the tax return. This means the tax return, any forms filled out as well as an Schedules.
• Proof that you filed as in a certified receipt from regular mail an or electric filing receipt.
• Proof of any payment to the IRS with EFTPS receipts or canceled checks.
• Any W-2 and 1099 forms.
• Any accounting documentation for income and expenses. If you keep a spreadsheet, print out a copy and keep a backup.
• Receipts for any tax deductions whether it is from charities to property tax.
• If you use any electronic software to file, keep a PDF copy or scan the documents.

When you are storing your returns and documents, make sure they are in a safe easy to remember place. Also, if you have copies on an electronic storage device, keep it separate from the paper ones. Anything that you leave on your computer, make it a password safe document to protect your information. Create a back up of anything done on your computer. Use a CD-Rom or a thumb drive.

The information you have when the IRS calls, the easier it will be to answer any concern they have.

The IRS has a statute of limitation set to three years in which they can audit a loan. This means it would be a good idea for you to keep three years worth of returns and any documentation you have to go along with them.

Before you throw out the paper documents after the three year term limit, it would be in your best interest to scan the pages and store it in a thumb drive or another type of off computer device. If the IRS  or a state tax agency ever come back claiming that you did not file your taxes during a certain year, you will have proof without all the paperwork. Having this copy will come in very handy when you are defending your case.

We  here at Murrieta CPA welcome any question and will continue to present answers in our blog of any answers that may come handy to our readers.