November 18, 2014

Tax Considerations When Using Amazon Affiliate Program

Question:

Our non-profit organization (NPO) participates in the Amazon affiliate program. We offer books on our website specifically related to our organization's exempt purpose. In addition, we also provide a link for individuals to purchase other non-related items from the Amazon website. 

Are there any tax considerations our NPO needs to be aware of?

Answer:

There are three conditions that must be met in order for certain income producing activities to be taxed as Unrelated Business Tax Income (UBTI). Those three conditions that determine if an activity generates unrelated business income (UBI) are the following:
  1. Is the activity a trade or business?
  2. Is the activity regularly carried on?
  3. Is the activity not substantially related to the exempt purpose?
If the answer is yes to each of the above conditions, it is likely the income producing activity is subject to UBTI, as defined under Internal Revenue Code Sections 512 and 513.

We are familiar with a couple ways of using the Amazon affiliate program that result in tax considerations. First, If an organization sells or advertises goods that are directly related to and further the organization's exempt purpose, these types of sales are likely not subject to UBTI even though conditions No. 1 and 2 above are met (1995 IRS Letter Ruling 9550003).

Second, if the organization is receiving commissions when individuals "shop for other items," the commissions would be subject to UBTI. If gross income from unrelated sales is less than $1,000, then a UBTI return would not need to be filed or tax be paid.

We suggest that the organization should keep track of the two types of commissions received. 
  1. The commissions for sales relating to the tax exempt purpose can be considered program-related commission income. 
  2. The other commissions would be considered unrelated commission sales; if these sales hit $1,000, then a UBTI return (Form 990-T) is needed.
As always, we recommend the organization to contact their tax professional and request guidance through this situation. 

November 14, 2014

Court Ruling Update on Housing Allowance

Yesterday, the Chicago-based 7th Court of Appeals rejected a case brought by the Freedom From Religion Foundation (FFRF) that would have declared tax-exempt housing allowances unconstitutional. The court overturned a previous ruling in favor of FFRF by claiming that FFRF lacked "standing" because the law did not affect them. 

Had the court of appeals upheld the previous ruling, thousands of clergy would have been affected by an increase in income taxes.

This news comes as an encouragement to us at MinistryCPA and to the clients we serve. Although FFRF vows to appeal their case to the Supreme Court, the court of appeal's decision sets a strong precedence in favor of clergy.

November 13, 2014

Can a Motorhome Qualify as a Principal Place of Residence?

Question:

I am a minister and I have lived in a parsonage for 40 years. I hope to retire soon and travel around as a non-paid volunteer to assist small churches in rural areas. 

I am considering buying a motorhome (or RV). Can a motorhome qualify as a principal place of residence?

Answer:

Many individuals who own a motorhome ask this similar question: "Can my motorhome count as my second home?" The reason people ask this question is because there are tax benefits to claiming a motorhome as a second (or only) home. For example, the interest on a loan for the motorhome can qualify as a tax deduction, and an individual may be able to deduct a portion of the sales tax paid on a new motorhome. Also, some states allow a portion of the RV's vehicle registration to be deducted. 

There are a few basic requirements that must be met to claim a motorhome as a second (or only) home. For example, it must have on-board permanently mounted sleeping, eating, and bathroom facilities; these characteristics fulfill the IRS definition of a "dwelling unit." 

Additionally, owners who use their motorhomes for business purposes may be able to deduct some of their travel expenses and depreciation on their motorhome. We recommend you see your tax professional to see if you qualify and to find out what records you need to keep.   

November 10, 2014

The Fee You Pay if You Don't Have Health Coverage

Over the past few weeks, we have written on the requirements to comply with the Affordable Care Act. If an individual does not have insurance that qualifies as minimum essential coverage, the individual will pay either a percentage of his or her household income or a flat fee -- whichever is higher. The figures below are taken from HealthCare.gov.

2014 Fee

If you don't have coverage in 2014, you will have to pay the higher of these two figures:
  1.  1% of your yearly household income
    • The maximum penalty is the national average premium for a bronze plan
  2. $95 per person for the year ($47.50 per child under 18)
    • The maximum penalty per family who chooses to use this method is $285
2015 Fee

If you don't have coverage in 2015, you will have to pay the higher of these two figures:
  1.  2% of your yearly household income
    • The maximum penalty is the national average premium for a bronze plan
  2. $325 per person for the year ($162.50 per child under 18)
    • The maximum penalty per family who chooses to use this method is $975
After 2015

The fee will increase each year. In 2016, the fee will be 2.5% of income or $695 per person. 

October 31, 2014

Can You Claim a Housing Allowance for Two Homes?

Question: 

A minister recently accepted a call to a new ministry where he and his family are staying in the church parsonage. 

Meanwhile, the minister's home in the previous location is unsold. The minister is responsible for payments, taxes, and so forth, on the unsold home in the previous location. 
 
Can the minister claim a housing allowance on the unsold home? 

Answer:

The Ministers Audit Techniques Guide states that "A minister can receive a parsonage allowance for only one home." Many ministers own two homes due to the fact that the minister has accepted a position in a different community and has yet to sell his previous home (similar to the question above). 

Not only may a minister receive a housing allowance for only one home, but that home must be the minister's principal residence. A key term to understand here is the phrase "principal residence," which can be defined as the home where an individual is currently residing.  

So, in the situation above, the minister cannot claim a housing allowance on the unsold home. However, it is not a "lost cause" for the minister and his family. If living in a parsonage, the minister is allowed a small designated allowance to cover utilities and other housing expenses. Additionally, the minister must take into consideration the fair rental value of the property when reporting self-employment earnings for sake of the self-employment tax. 

Read about the controversial "Driscoll court ruling" that helped define the current IRS stance concerning a minister being able to receive a parsonage allowance for only one home. 

Also, we wrote a similar blog post concerning this matter on September 18, 2009:
Two residences for Housing Allowance Purposes?