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Frequently Asked Questions

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FAQDefinitions


  1. Q. Do I have to file a tax return?

    2. A.General rule: A tax return must be filed if your gross income is greater than or equal to the sum of the standard deduction and the personal exemption amount for your filing status (this amount changes from year to year and can be found on the IRS website). 
    If you are self-employed (this includes clergy) and your net business earnings are greater than or equal to $400 or owe any self-employment tax, you must file.
    If you are a dependent, you may or may not have to file, depending on your gross income (the filing requirements change from year to year and can be found on the IRS website).
    You may still want to file a tax return in order to get a refund of any tax withheld.

  2. Q. How much do you charge to prepare a tax return?

    3. A. Our fees are based on the forms required and the complexity of the return. Most of our fees range between $150 and $250, with an average of $200. Clients with investments, rental property, partnerships, tuition payments, or home-based businesses will incur higher fees. Please use our organizer to help you know what information to bring or send. We also look for ways to simplify your tax return and keep fees to a minimum.

  3. Q. Does Clifford & Associates, LLC audit or review a church?

    4. A. No. If an audit or review is legally required, you must consult with a CPA. We only provide consulting services. We can provide support and training in a variety of areas, including internal controls, bookkeeping, reporting, QuickBooks(R)/Quicken(R), and payroll. Fees vary depending on the scope, the time needed, and the magnitude of any problems encountered. 

  4. Q. Does Clifford & Associates, LLC accept new clients?

    5. A. Yes. If you know of friends or family who could benefit from our services, please refer them to us. We gladly accept new clients.

  5. Q. How much do you charge to provide payroll services?

    6. A. Payroll service set-up costs depend on the number of employees and the specific services requested. Bookkeeping, consultation, training, compensation planning, and related services are all billed separately and customized according to each client's needs.

  6. Q. What is my filing status?

    7. A. There are five filing statuses. The following are the general requirements for each (there are exceptions):
    • Single:
      • Unmarried or fail to meet requirements for any other status
    • Married filing jointly:
      • Married as of the last day of the tax year OR
      Spouse died during the tax year
    • Married filing separately:
      • Married but not filing with spouse and not abandoned
    • Head of household:
      • Generally must be unmarried and not entitled to file as a qualifying widow or widower with a dependent child; must also have provided more than half the cost of maintaining as your home a household that was the main home for a qualifying person. A qualifying person includes the following:
      • A qualifying child who is single
      • A qualifying child who is married AND you can claim as a dependent
      • A father or mother who you can claim as a dependent (but not because of a multiple-support agreement)
      You may also qualify for head of household status if you, though married, file a separate return, your spouse was not a member of your household during the last six months of the tax year, and you provided more than half the cost of maintaining as your home a household that was the main home for more than one half of your tax year of a qualifying child.
    • Surviving spouse:
      • Can file as this status for the two tax years following the death of a spouse if all four of the following are met:
      1. You were entitled to file a joint return with your spouse for the year he or she died. It does not matter whether you actually filed a joint return,
      2. You did not remarry in the two years following the year your spouse died,
      3. You have a child, stepchild, or adopted child (a foster child does not meet this requirement) for whom you can claim a dependency exemption, and
      4. You paid more than half the cost of maintaining a household that was the main home for you and that child, for the whole year.


  7. Q. How do I get tax forms?

    8. A. Tax forms can be acquired at most local libraries and online in PDF format from the IRS website.


  8. Q. How do I get another copy of my tax return? I can't find my tax information. What do I do?

    9. A. You have several options if you have lost your copy of your return. Your first option is to contact your tax preparer and request another copy of your return. Your preparer may charge a fee. Your second option is to submit Form 4506 ("Request for Copy of Tax Return") to the IRS. The IRS requires a $57 processing fee for each copy requested. Your third option is to request an account or tax return transcript from the IRS. Transcripts are free and, in most cases, are acceptable substitutes for an exact copy of the return. To request a transcript, you can call the IRS at 800-829-1040 or mail Form 4506-T ("Request for Transcript of Tax Return").

    If you can't find your tax reporting statements (W-2, 1099, etc.) and have not yet filed your return, you can either contact the issuer and request another copy or you can call the IRS or file IRS Form 4506-T and request a wage and income transcript.

  9. Q. How do I prepare for my tax appointment?

    10. A. Please go to our Downloads section and use our engagement letter and client tax organizer to help you with this process. Bring all W-2's, 1099's, 1098's, investment statements, income & expense reports for home-based businesses, records of tax payments made (estimated payments), your previous tax year statement, and updated personal information. 

  10. Q. When do I throw away my tax records? How long should I keep tax returns and records?

    11. A. It depends. Generally, the IRS has three years from the due date of your tax return to challenge, audit or change the total tax owed. For the IRS' record retention recommendations, refer to IRS Publication 552 and IRS Publication 583. Generally, all tax related records should be kept for at least four years after the filing deadline. Investment records should be retained until the investment is sold plus four years. Rental property records should be kept for four years after the property is sold. However, if you did not file a tax return there is no statute of limitations! Also, there may be non-tax reasons to hold on to records for a longer period of time than the general record retention rules recommend.
    We have worked on some audits that required tax records going back over twelve years due to some obscure regulations and circumstances. Corporations, partnerships, trusts and exempt organizations should keep all records at least seven years. Refer to PDF When do I throw away church records? How long should a church keep records? for more details on church record retention guidelines.

  11. Q. When do I file my tax return? What is the due date?

    12. A. Your tax return and payment of any tax liability are due on April 15. If April 15 falls on a weekend or holiday, the return and payment will be due on the next business day. You can file to extend the due date of your return until October 15. However, even if you file for an extension, any tax you owe is still due April 15. Any unpaid tax will accrue interest and penalties if not paid by this date.

  12. Q. When do I file my tax return if I filed for an extension?

    13. A. If you file for an extension the new deadline for your tax return will automatically be October 15. You cannot get an extension of the due date beyond October 15. Even if you file for an extension, your tax payment is still due April 15. It will accrue interest and penalties if not paid by this date.

  13. Q. What is the IRS approved mileage rate for business mileage?

    14. A. $.50 per mile for miles driven in 2010. 
         IRS Annual Mileage Reimbursement Rates:
             2010 ..... $.50
             2009 ..... $.55
             2008 ..... $.585 (Jul.-Dec.)
             2008 ..... $.505 (Jan.-Jun.)
             2007 ..... $.485
             2006 ..... $.445
             2005 ..... $.485 (Sep.-Dec.) 
             2005 ..... $.405 (Jan.-Aug.) 
             2004 ..... $.375
             2003 ..... $.36 
             2002 ..... $.365 
             2001 ..... $.345 
             2000 ..... $.325 

  14. Q. What is the IRS approved mileage rate for medical/moving mileage?

    15. A. $.165 per mile for miles driven in 2010. 
         IRS Annual Mileage Reimbursement Rates:
             2010 ..... $.165
             2009 ..... $.24
             2008 ..... $.27 (Jul.-Dec.)
             2008 ..... $.19 (Jan.-Jun.)
             2007 ..... $.20

  15. Q. What is the IRS approved mileage rate for charitable mileage?

    16. A. $.14 per mile for miles driven in 2010. 
         IRS Annual Mileage Reimbursement Rates:
             2010 ..... $.14
             2009 ..... $.14
             2008 ..... $.14
             2007 ..... $.14

  16. Q. Should I issue W-2's for all employees, or just the main ones? 

    17. A. W-2's are required for all employees. Independent contractors should receive Form 1099's. The person in charge of payroll should get Publication 15, Pub. 15-A, or Pub. 5-B annually. Refer to PDF Handout: "Independent Contractor or Employee?"

  17. Q. How much do you charge  to complete Form W-2's and/or other payroll forms? Can you create W-2's for us? 

    18. A. Our fees vary with the number and complexity of forms required.  We will need detailed payroll information--number of employees; job titles; amounts withheld for federal, state, local, FICA, and Medicare taxes; whether 941's, Workman's Compensation, state, and withholding reports have been filed; clergy withholding, housing allowance/parsonage, car mileage reimbursement plan; etc. Fees depend on which forms need to be filed as well as the quality and accuracy of the payroll reports. Information submitted after January 24 may entail late charges. Please call our office if you would like to discuss pricing.

  18. Q. Do I have to pay taxes on an inheritance?

    19. A. It depends.
    You do not have to pay federal estate tax on an inheritance. If any estate tax is due, the estate is responsible. Currently, there is no estate tax in 2010; however, the estate tax will be back starting in 2011. Please refer to the IRS estate tax FAQ for more information: IRS Estate Tax FAQ
    Each state has its own separate limits. You may have to pay state inheritance tax. Check with your state to see if this tax applies to you.
    If you inherit an IRA or other retirement fund, you may have to pay income tax on any increase in the value of the account(s). For instance, if your ancestor invested $10,000 in an IRA many years ago and the account is worth $100,000 when you inherit it, you would pay income tax on the $90,000 increase in the account.
    If you inherit stocks or mutual funds, you may pay income tax when you sell such items. Your cost basis in the shares is usually the fair value of the shares on the date of death of the person from whom you inherited the shares.
    For a detailed analysis of your particular situation, please contact our office.

  19. Q. Is there a ceiling or limit on how much a church can designate as housing allowance?

    20. A. No! Set it generously above the expected expenses for the next year. See Chapter 6 in "How to Set Clergy Compensation" (available in our Offers Section) for more information.

  20. Q. Should the church pay for housing or just reimburse the pastor?

    21. A. Either is acceptable, but it is unusual for any employer to pay such expenses directly. Common practice is to pay the housing allowance with each paycheck in equal installments.

  21. Q. Should the church board approve my housing allowance amount?

    22. A. Whoever has the power to set salary (the elders, the congregation, the denomination, etc.) must also set the housing allowance. The determination should be documented in the church minutes. 

  22. Q. Does the amount of housing allowance need to be announced verbally or in written form at a board meeting?

    23. A. Written form is advisable because it provides an audit trail.

  23. Q. Does the amount of housing allowance have to be in the minutes of the board meeting?

    24. A. Yes!

  24. Q. Is housing allowance considered income?

    25. A. Housing allowance is earned income (subject to SE tax), but it is generally non-taxable to the extent used for federal income tax purposes.

  25. Q. Is the clergy housing & furnishing allowance always tax-free? 

    26. A. NO! Housing allowances and the fair rental value of parsonages are subject to Social Security tax of 15.3%. Also, any amount not spent on housing is fully taxable. 

  26. Q. Is a minister considered self-employed or an employee?

    27. A. A minister is an employee for federal income tax purposes and self-employed for Social Security tax purposes. (For more information, see "How to Set Clergy Compensation" available in our Offers Section.)

  27. Q. How do I prepare a Form W-2 for a minister?

    28. A. A minister is an employee for federal income tax purposes and self-employed for Social Security tax purposes. Box 1 of the W-2 should not include clergy housing allowance. The amount of housing allowance should appear in box 14. For more help, try our sample clergy W-2 form, or refer to our sample Form W-2, included in the How to Set Clergy Compensation book in our Offers Section.)

  28. Q. What is housing allowance? What are deductible housing expenses?

    29. A. Section 107 of the Internal Revenue Code provides that clergy may receive a housing/parsonage allowance. Housing allowance may come in the form of a church-provided parsonage and utilities, a cash allowance, or a combination of both. The portion of the allowance that is spent for housing expenses is not subject to federal income tax. However, the entire allowance is subject to Self-Employment tax.
    You must have designated housing allowance in order to deduct housing expenses. All expenses to furnish and maintain the home of a minister are housing expenses. Maid and lawn service, food, and personal care products are not housing expenses. A minister does not pay federal income tax on the portion of pay designated as housing allowance if it is spent on qualified housing expenses. A minister still pays self-employment tax on the full amount of housing allowance. Any unspent allowance will be subject to federal income tax. The following list gives some items that are housing expenses:

    1. Mortgage payment (principal & interest) or rent
    2. Real estate taxes on the primary residence
    3. House/property insurance on the primary residence
    4. Utilities
      • Gas/fuel oil/other heating fuel
      • Electric
      • Water
      • Sewer
      • Trash
      • Local phone only (no long distance calls!), including special computer phone line rental
      • Cable TV, cable modems, internet access, DSL lines, & everything related
      • Satellite dishes & Direct TV
      • Internet service provider charges
    5. Maintenance, repairs, & improvements
    6. Major purchases (furniture, appliances, home computers, VCR/DVD player, trash cans, lawn tractors, etc.)
    7. Minor purchases (light bulbs, cleaning supplies for the home, Christmas decorations)
    8. Outdoor expenses (mower, yard bags, garden tools, etc., but not lawn service)

  29. Q. Can I receive housing allowance in retirement? Is housing allowance taxable in retirement?

    30. A. Yes, you may receive housing allowance in retirement. Housing provided by the church to retired pastors, as long as they are no longer performing any services for the church, is not subject to income tax or self-employment tax, per Internal Revenue Code section 1402(a)(8). The portion of distributions from clergy 403(b) plans and equivalent church pension plans used for qualifying housing expenses may be nontaxable.  

  30. Q. I have bought/sold my house this year. How do I handle buying/selling my house for tax purposes? What do I need to do?

    31. A. Bring a copy of the HUD closing papers to your tax appointment. There may or may not be tax repercussions. If the profit on the sale was below $250.000 ($500,000 if married and filing a joint return) and there was no home business or depreciation involved, there is generally nothing to report. 

  31. Q. Should I pay city Income tax? Must I file a city tax return? 

    32. A.Those who live inside a city with a tax must file. Those who work within a city’s limits must pay. If your employer does not withhold the correct amount, you must file and pay the difference. If there is no withholding, most cities want estimated payments. For most, wages, business profits and rental income are taxable. Clergy housing is exempt. Ohio’s city taxes are among the most complicated of any state.

  32. Q. What is the IRS rate for the Child Tax Credit? 

    33. A.This is a refundable credit of $1,000 for each qualifying child aged 17 and under. Taxpayers may receive less than the full amount of the credit, depending on their tax situation.

  33. Q. How do I qualify for the First-Time/Replacement Homebuyer Credit?

    34. A. The First-Time Homebuyer Credit generally is available to taxpayers and their spouses who purchase a home and who have not owned a home in the past three years. Originally the credit only applied to homes purchased in 2008, but Congress extended the credit to apply to homes purchased after January 1, 2009 and before December 1, 2009. Then the Worker, Homeownership, and Business Assistance Act of 2009 extended the credit to home purchases finalized before May 1, 2010 and to purchases finalized before July 1, 2010 provided a written binding contract to close on the purchase was made before May 1, 2010. The credit maximum is $8,000 for first-time homebuyers. The 2009 bill also provided that homebuyers who purchase a "replacement home" may receive a credit of $6,500. A home is a replacement home if the purchaser has lived in the same principal home for five consecutive years out of the past eight years. All home purchases after November 6, 2009 must also meet the following requirements to qualify: (1) the purchase price must not exceed $800,000, (2) the taxpayer must be age 18 at the date of purchase, and (3) the taxpayer must not be a dependent of another taxpayer. You must attach a properly executed copy of the settlement statement to your tax return to claim the credit. For more details, visit the IRS' "First-Time Homebuyer Credit Questions and Answers: Basic Information."

  34. Q. How do I qualify for the New Vehicle Sales Tax Deduction?

    35. A. The New Vehicle Sales Tax Deduction is generally available to taxpayers who purchase a new (not used) qualifying car/automobile, light truck, motorcycle, or motorhome between February 17, 2009 and December 31, 2009. The Deduction allows qualifying taxpayers to deduct state and local sales and excise taxes (or other taxes or fees paid in states with no sales tax) on qualified new motor vehicles even if they do not itemize. For more details, visit the IRS' "Seven Facts about the New Sales Tax Deduction for Vehicle Purchases."

  35. Q. How do I qualify for the Energy Efficient Property Credit?

    36. A. The Energy Credit is back for 2009 and 2010. Certain insulation, windows, doors, water heaters, furnaces, and other improvements, excluding installation costs, are eligible for a tax credit of up to $1,500. Ask your vendor if the item qualifies for the credit. You must receive a certificate and save all your receipts for tax time. For more details, visit IRS' "Energy-Saving Steps This Year May Result in Tax Savings Next Year."

  36. Q. What is a Required Minimum Distribution (RMD)? Should I take a RMD? 

    37. A. If you are over 70½ and have an IRA, 403B or 401K account, you must make a withdrawal or "required minimum distribution" (RMD) from your account every year. The IRS will assess penalties for failure to take the RMD. Check with your financial planner for details. 

  37. Q. I am over 70½ and have an IRA, 403B or 401K account. What is the “Required Minimum Distribution (RMD)? 

    38. A. In most cases, your financial institution or investment advisor will calculate the amount. Distributions must be made by December 31. Check with your financial advisor for details. 

  38. Q. Should I take funds out of my IRA or other retirement account? 

    39. A. It is possible to take funds out of your account, but you may incur large costs. All withdrawals are subject to income tax. If you are under the age of 59 ½, expect a 10% penalty on top of income taxes. If you are 70½ or older, you may be required to take a distribution out of your account. Plan on total federal taxes of 15-35% plus state income taxes. Check with your financial advisor for details.  

  39. Q. How do I check the status of my state tax refund?

    40. A. Most states have an online tool available that will allow you to check the status of your return. Visit our Tools page for our list of links to state tax resources.

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© 2010 R. Shul | Updated 09/02/10 | Terms | Ph. 800.456.1803 | Fax 330.493.1807

Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete initial and ongoing certification requirements.