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Clergy, Exec. Directors Now Need Accountable Business Reimbursement Plans… and Nonprofits Must Budget Differently

If you’re a community-minded businessperson, you likely serve on at least one nonprofit or church board of directors. Your work helps ensure the nonprofit’s leader focuses on the mission rather than personal financial issues, such as his or her next income tax return.

The new tax law, the Tax Cuts and Jobs Act (TCJA), just complicated your achieving that objective with more budget planning now required.

Effective January 2018, TCJA eliminated one of the primary ways clergy and nonprofit staff received compensation for unreimbursed business expenses, such as travel, meals, education and clothing, when it cut the “unreimbursed business expenses subject to two percent of adjusted gross income” deduction from the 1040 Schedule A.

The IRS is still developing guidelines for the new law, and opinion in professional journals and websites remains just that—opinion—until the IRS finalizes its interpretation of TCJA. So clergy members and their houses of worship along with nonprofit staff and their boards should establish accountable, documented reimbursement plans until further guidance is codified.

Since in the past these expenses may have been truly “unreimbursed,” the nonprofit didn’t pay—or budget for—these expenses, and you and your board colleagues should now consider a new expense line item on its financial statements.

In short, the religious and nonprofit boards need to work with their clergy and paid staff to decide exactly what expenses will now be funded.

An important item specifically for clergy that didn’t change in the new law: the clergy housing allowance, at least not yet. It’s the greatest tax benefit available to clergy members. IRS guidelines require your employing house of worship to officially designate your home as a portion of your compensation in advance of the qualified costs being paid. However, be aware a federal appeals case on this benefit, which could threaten this legacy tax exclusion, is being considered this year.

Of course, we’ll monitor developments and IRS updates and bring you more information as it’s decided and published.

At Patrick & Raines CPAs, our experienced, committed team prides itself on its work with nonprofits, including many houses of worship. We build long-lasting, trusted relationships with our nonprofit clients to help them reach their management and financial goals.

Contact us when you need help with your tax or financial planning questions: Office@CPAsite.com or 904-396-5400.

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