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  • Writer's pictureMichelle R Brown

Welcome to Summer! Time for a Mid-Year Review

Since it’s summertime and the year is ½ over, in today’s episode we are going to be talking about performing a mid-year review for your church and the three areas I think you need to take a look at.


Are you ready? Let’s go learn something!


Just like many businesses do an annual performance review on their employees, churches should also do a mid-year review on three important areas that may need to be adjusted:

1. Budget

2. Minister Housing Allowance

3. Contributions


Let’s take a look at each one and why you should take a look at these now instead of at the end of the year.


1. Budget


The word “budget” is defined as an estimate of income and expenditures for a set period of time. That means…. budgets are not written in stone and can absolutely be changed when merited. With most major church activities occurring in the 3rd & 4th quarters of the calendar year, taking a deeper view of your budget numbers mid-year can be a great help in preparing for those increased expenses.


A great process to follow is to give each department leader a YTD copy of their budget and expenses (with details) and have them look at their planning schedules for the remainder of the year and see if they are on target or if adjustments need to be made.


If adjustments need made at this time, simply follow your churches procedures as spelled out in the budget section of your Financial Policy and Procedure guide (that you hopefully have). :-)


2. Ministers Housing Allowance


I cannot speak enough about this topic because it is the most misunderstood benefit qualified ministers have. The key here is to have all qualified ministers to review their housing expenses year-to-date.


To review: According to the IRS:


“Ministers are individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. Ministers have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination.

If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister to be treated as a minister.”


To further clarify on what Ministerial Services are:


The IRS states that Most services you perform as a minister, priest, rabbi, etc., are ministerial services. These services include:

· Performing sacerdotal functions;

· Conducting religious worship; and

· Controlling, conducting, and maintaining religious organizations (including the religious boards, societies, and other integral agencies of such organizations) that are under the authority of a religious body that is a church or denomination.

You are considered to control, conduct, and maintain a religious organization if you direct, manage, or promote the organization's activities.


Now that we have covered who is a qualified minister for the Housing Allowance Exception, let’s see why need a mid-year review for this item.


#1 Life happens! We’ve been through Spring and are now going headstrong into Summer. You’ve no doubt experienced a thunderstorm or two that may have blown off some shingles or downed a tree or two; and maybe now that the temps are reaching the 90 degree mark you’ve turned on you’re A/C unit just to discover that it’s NOT blowing out the cold air you were hoping for. You did not plan on these expenses last winter when you set your designated housing allowance amount. So now is the time to make that adjustment! Though you cannot get “backpay” to help cover those amounts, you absolutely can add those expenses into the amount to be designated for the remainder of the year.


Example:

HA designation 1.1.2023 $24k ($2k/month)

Regular housing expenses YTD 6.1.2.2023 = $12k

Spring storm damage in May 2023 = $5,k estimated cost to repair

AC unit died and must replace in June 2023 = $8,500 estimated cost to replace

Both of the above additional costs are ESTIMATES only due to a work backlog for both companies and they can’t get to your home until mid-July to do the actual work, so NO payment (including a deposit) for these expenses has been made. -0- (remember this)


If you were spot on in your designation of $24k before these weather issues, you will have $13,500 more in actual expenses than designated. As you know, the allowable housing exclusion follows the least of 3 rule.


You are allowed to exclude from federal income tax the least of:

1. Designated Housing Allowance

2. Actual Expenses

3. FRV (fully furnished) + utilities


So in this case, if the minister decided not to do a review to see if any adjustments needed to be made, assuming that his FRV + utilities was greater the $24k, then his allowable housing exclusion on his 2023 return would only be the $24k that was designated, because that was the least of the three.


Now, if he took the time to do the review before the end of June, and adjusted his HA designation and added the $13,500 to his HA with an effective date of July 1st, he would NOW be eligible to include the cost of paying for the needed repairs since the designation adjustment was made BEFORE the payments were made. Therefore, instead of the $2k he received each month for January – June, he would now receive $4,250 for each month remaining in the calendar year and a new Annual Designated Housing Allowance of $37,500 would be used to end of year calculations.


The make-or-break issue here is that housing allowance is never retroactive when it comes to the expenses you pay. This means you cannot “go back” and pick up expenses you have paid and consider them to be a part of your used housing allowance at the end of the year if you exceeded your designated housing allowance at the time you paid them. That’s why I stressed earlier that the repairs were NOT paid for when they occurred and that the new HA designation was made BEFORE the expenses were paid for. So if the minister had paid for the repairs when they occurred, then he could not legitimately include those expenses in an adjusted HA. HA is proactive, not retroactive.


Ok. Wasn’t that fun!?!


Now onto the last area that you should do a mid-year review on…..contributions


3. Contributions

Likely by now, you’ve done a few ministry projects during the 1st ½ of the year. Take this opportunity to share the love with your donors. Send them a mid-year contribution statement showing their giving YTD along with a Giving Supplement statement sharing some of the ministry projects you’ve completed already this year.


Example:

Because of your generous giving so far this year, we at First Christian Church of Anywhere, USA have been able to do the following:


1. Send 75 students to Youth camp

2. Share the Gospel of Jesus Christ with 215 children and adults that participated in this year’s VBS

3. Collect $3,746 for the Annie Armstrong Easter Offering that helps support missionaries in North America

4. Completed home repairs for three of our Sr. Citizens in need


Help your church members to know where their giving is going so that they get a since of accomplishment in knowing that their giving is making a difference in other’s lives.


And that’s going to wrap up another episode. As always, thank you so much for joining me today. I hope that the information provided was informative and insightful. I pray that it gives you some ideas on how to use the summer as a time to review three important areas of the church.


~ Bookkeeping with a Purpose podcast episode #30

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