ECCU Blog

Taxes have gone up and we are all concerned about the potential negative impact on giving to our ministries. Should we be bracing for lower donations, or is it possible the tax code changes could actually be beneficial?

To find out, let’s take a look at several provisions in the new tax code.

Tax Rates. The tax rates went up for the highest income earners, as you can see here. 

Before looking at an example of the new tax rate’s impact for a high income earner, let’s look at another provision.

Itemized Deductions. Itemized deductions for higher income earners has a phased out provision. Coupled with the higher tax rate, this sounds like it will create a double blow to our largest donors. Here are the details on this phase-out provision: Singles with incomes over $250,000 and couples with incomes over $300,000 lose the lesser of 3% itemized deductions above this threshold or 80% of allowable deductions.

This can all be confusing, so here is an example of the impact the changes in tax rates and itemized deductions will have:

Under the new tax code, a couple with an adjusted gross income of $650,000 and itemized deductions of $75,000 will lose $10,500 in itemized deductions because of the phase-out limitation of itemized deductions while the taxes paid by this couple will increase $30,608 over 2012 rates.

This sounds like it could have an equally negative impact for our ministries since donors now have less incentive to give. But before we jump to that conclusion, let’s keep going with this example to see the potential impact if this couple were to increase their giving.

If this same couple donates an additional $10,000 to your ministry, their taxable income would decrease by $9,700, thus saving taxes paid  at the higher rate of 39.6% or $3,841. This is a $341 increase in tax savings for the additional $10,000 gift compared to 2012, when the top tax rate was 35%.

(To see all the details and calculations behind this example, click here.)

I’m often asked questions by people who want to help someone in need through the church’s benevolence fund. It typically starts when a member of the congregation becomes aware of a need and wants to help meet it by making a contribution to the benevolence fund. The member intends for that donation to provide assistance to this needy individual or family. So how should you handle this type of situation to maintain compliance with IRS rules?

The principle I try to emphasize with ministries I work with is to keep the collecting of benevolence funds completely separate from evaluating and disbursing benevolence funds. I use the analogy of not letting the right hand know (or influence) what the left hand is doing. We are all one body in Christ, but we need to keep a distinct line between donors and recipients. Let me explain.

• Any donor or congregation member can let the church staff or benevolence team know of a family or individual who is in need. We certainly want to encourage this behavior. Sharing a testimony, thank-you, or the result of donated funds helps communicate the joy that real needs are met through benevolence gifts.
• The benevolence team should receive requests for help or assistance and process them using discernment and judgment according their benevolence guidelines. These individuals should not be influenced by any donors, but rather by the need of the individual or family.
• Contributions to benevolence funds may be claimed as charitable tax deductions if they are not earmarked for particular recipients. If a donor or congregation member wants funds to go directly to an individual or family, they should give those funds directly to that individual or family. A donor can’t designate that benevolence funds go to a specific person and still receive a tax-deductable receipt. The church must maintain complete control over who receives benevolence funds.

During the holiday season, benevolence requests often increase. Let’s take this opportunity to bless as many as we can with the joy of Christ’s birth while doing so in a manner which also honors and respects the IRS, because we are subject to their authority.

As you steward the financial resources entrusted to your ministry, one way to deter fraud is to establish internal controls around your checking account activities. Here are some best practices you should consider adopting:

Examine your bank statements quickly: When you opened your checking account with your bank, you entered an agreement (usually communicated through your account disclosures) that requires you to review your bank statements promptly and report losses as soon as possible. If you delay this review, fraudulent activity can go undetected. Even worse, it may escalate and you may become liable for the loss or future losses. Be sure you understand the requirements in your account agreement for timely statement review.

Use online banking features: Most online banking systems have a feature that allows you to set up account alerts that can be configured to inform you when checks clear and if balances fall below specific thresholds. Alerts are a strong tool in your early fraud detection arsenal.

Instill segregation of duties for check responsibilities: “Opportunity” is a common risk factor for internal fraud or embezzlement. You can minimize opportunities to commit fraud by implementing an internal control known as segregation of duties. An example would be assigning different people in your organization to prepare and reconcile checks. This way no transaction is handled by only one person from beginning to end.

Perform spot checks: Performing occasional surprise checks of the processes you have put in place shows you if those processes are performing as they should and that duties are indeed segregated.

Keep your check stock secure: You can keep check stock secure by restricting access to it. One good option is a locking cabinet that is accessible only to those individuals who are responsible for issuing checks. A cabinet with two locks is even better. The check reorder form should also be stored securely. Otherwise, a forger could easily reorder checks with the form and have them shipped to another location. It’s also a good idea to do occasional surprise inspections of your check inventory.

What internal controls do you have in place to protect the funds in your checking account?

This is the fourth in our series of email interviews with presenters for the upcoming 2012 Financial Forum for Ministries.

Gary Hoag serves as the Generosity Monk, providing spiritual and strategic counsel for denominations like the Evangelical Free Church of America and the Anglican Mission in theAmericas, and for ministries like Prison Fellowship and International Health Services. He will speak at each of the three 2012 California forums about your stewardship responsibilities as a leader and encouraging others to generously participate in your ministry despite tough times.

Here areGary’s responses to my questions.

MBG: How will your presentation help attendees better serve their ministries?

Gary: My prayer is that people go away informed and inspired to do their work in a way that is biblically faithful and financially fruitful. I will seek to accomplish this objective by presenting biblical principles, inviting interactive discussion, and sharing an amazing story about a ministry leader who is a good example for us all.

MBG: What are three important takeaways attendees will learn during your presentation?

Gary: Call it going the extra mile if you wish, but I want attendees to learn six important lessons from Scripture—three tips for practicing faithful stewardship in tough times and three tips for encouraging Christian generosity in tough times. It’s my clearest and best advice for leaders who want to be found faithful and fruitful                                                   

MBG: How will the format of the forum make it an even more valuable learning experience?

Gary: This session is content oriented, so a formal presentation and the detailed outline will contribute substantially to the experience. The opportunity to ask questions will help attendees firmly grasp the concepts presented.

Next up will be Pastor Brian Kluth with Maximum Generosity, who will be presenting on creative ways to move ministry forward even in the midst of tighter budgets and a challenging fundraising climate.                         

Follow this link to learn more and sign up for the financial forum in your area.

Jesus said it is easier for a camel to go through the eye of a needle than for a rich person to enter the kingdom of God. 

So how can you effectively disciple people who have significant financial resources in matters of generosity and stewardship? How can you engage their hearts and help them catch a vision for your church’s mission? 

ECCU is hosting a Generis luncheon seminar, How to Disciple, Encourage, and Engage the Wealthy People in Your Church, on Thursday, October 18 from 11:00 a.m. to 1:30 p.m. Those who attend will learn from experts like Richard Watts, author of Fables of Fortune: What Rich People Have That You Don’t Want, and Generis Vice President Gerald Farley. They will discuss: 

• Who the wealthy are in your congregation.
• Why they often stay hidden.
• What they need that they don’t already have.
• How to encourage wealthy people to invest more of their financial resources in ministry. 

ECCU will host this free event for senior pastors and executive staff, which includes lunch, at its headquarters in Brea, California. To register, contact Sheri Kohlmann at 714.420.5092 or sherik@generis.com.