As a CPA firm, we here at Wisdom often hear the same statement time and time again: “Your team understands churches. You are not like other CPAs we have talked with.” Not all CPAs are the same and we at Wisdom are cut from a different cloth. I was reminded of this again, recently, after a call to a client’s previous CPA.
Unlike many professions, CPAs become proficient in different financial specialties. For instance when an individual visits an optometrist, they receive a “well vision” examination. During this “well vision” examination their visual acuity is tested, the patient’s eyes are visually examined, and they are tested for glaucoma via a pressure test. By license and practice, optometrists are all very similar in the professional service they provide.
But CPAs are different. Some CPAs specialize in financial planning. Others focus on tax preparation. Some are auditors while many specialize in particular industries.
In truth, very few CPAs specialize in Church and Clergy accounting and taxation. And, while holding a CPA credential can be important it does not automatically make someone a good choice for outsourcing your church accounting.
Churches are unique in so many ways; church finances contain elements like Clergy Housing Allowance and IRS filing rules that are not found in any other type of organizations. With all the unique situations found within churches it is easy for a good individual tax preparer to provide poor service and incorrect advice on church specific matters.
As you are looking into hiring a CPA to help your church here are some “bright light” questions to ask your prospective CPA. If they cannot answer these questions off the top of their head, terminate the conversation and continue looking.
QUESTION #1
Explain the dual employment status that clergy enjoy as employees of the church?
The answer should explain that a clergyman is an employee for income tax and self-employed for Social Security and Medicare.. FICA is never withheld from a clergyman. This is fundamental for the CPA to know. If it is not second nature to the CPA, they will likely direct the church and the clergymen onto a path that will bring penalties and interest due to the IRS.
QUESTION #2
Will your firm prepare and file the church’s form 990 income tax return to the IRS?
The answer is that most churches are exempted from filing income tax returns to the federal and state governments. Only if a church has the special case of Unrelated Business Income will a tax return be necessary. If the CPA offers to prepare these tax returns and your church does not have special circumstances, they do not understand church taxes. Keep looking for another CPA.
QUESTION #3
How will your firm account for restricted gifts? How will we know how much is left to spend in a project funded by restricted gifts?
This question will reveal whether the CPA has experience with restricted gifts within a church. Ask if they have done this type of accounting before and get references from those churches to see if the reports were clear about the history of designated gifts. An experienced church CPA should excel with this question.
Our specialty at Wisdom Over Wealth is church and clergy financial accounting, reporting and taxes. This is all we do. If you have a CPA and you are not sure they are aware of church specifics or you are looking to outsource your accounting projects, give us a call at 877-823-3101.
