Congress enacted major tax bills in 2001, 2003, 2004 and 2005 containing several provisions that will affect tax reporting by both ministers and churches for 2005 and future years. Many of the changes are geographical by statute, but most will apply nationally. Several common questions and answers are listed below for your information. Click here for Q & A. Here is a run down of some of the key provisions:

(1)  Congress passed the Energy Tax Incentives Act to encourage energy efficiency and reduce dependence on foreign oil. The Act provides tax credits for (1) energy efficient residences; (2) solar water heating devices and (3) hybrid cars.

(2)  Congress passed the Katrina Emergency Tax Relief Act. This legislation provides tax relief for individuals and families, along with incentives for charitable donations. Some of he main provisions include the following:

(3)  Archer medical savings account (MSA) deductions are extended through 2005, and are reported on Line 36 of Form 1040.

(4)  The maximum annual dollar contribution limit for IRA contributions is $4,000 for 2005. The same limit applies for 2006 and 2007.

(5)  You may be able to claim the earned income credit for 2005 if (1) a child lived with you and you earned less than $31,030 ($33,030 if married filing jointly); (2) 2 or more children lived with you and you earned less than $35,263 ($37,263 if married filing jointly) or (3) a child did not live with you and you earned less than $11,750 ($13,750 if married filing jointly).

(6)  You may be able to take an IRA deduction even if you were covered by a retirement plan and your 2005 modified  AGI is less than $55,000 ($75,000 in married filing jointly or qualifying widow or widower).

(7)  The dollar limit on annual elective deferrals an individual may make to a 403(b) annuity increased to $14,000 in 2005. This amount increases to $15,000 in 2006, with indexing in $500 increments thereafter.

(8)  The limit on elective deferrals to a 403(b) annuity plan was increased by $4,000 in 2005 for individuals who had attained age 50 by the end of the year.

(9)  The personal exemption amount increased to $3,200 for 2005.

(10) The standard mileage rate for business miles was 40.5 cents per mile for business miles drive during the first 8 months of 2005, and 48.5 cents per mile for business miles driven during the final 4 months of the year. The standard business mileage rate for 2006 is 44.5 cents per mile.

(11) The IRS maintains that a minister's housing allowance is "earned income" in determining eligibility for the earned income credit--for ministers who have not opted out of Social Security by timely filing Form 4361. For ministers who have opted out of Social Security the law is less clear, and the IRS has not provided guidance.

(12) Recent tax cuts enacted by Congress will result in lower taxes, and lower estimated tax payments, for many taxpayers. Be sure your estimated tax calculations or withholdings take into account the most recent tax law changes.

(13) Recent Tax Court rulings indicate that there will be no relaxation in the strict substantiation requirements that apply to the business use of cell phones.

(14) The Social Security "earnings tests" are increased for 2006. The earnings tests prescribe the amount of income that persons who elect to receive Social Security retirement benefits prior to attaining "normal retirement age" may receive without a reduction in benefits. The normal retirement age for persons born in 1941 is 65 years and 8 months. For persons attaining normal retirement age after 2006 the earnings test amount in 2006 is $12,480, or $1,040 per month. Social Security benefits are reduced by $1 for every $2 of earnings in excess of the exempt amount. For people attaining normal retirement age in 2006 the earnings test amount is $2,770 per month. Social Security benefits are reduced by $1 in benefits for every $3 of earnings in excess of the exempt amount for months prior to the month that normal retirement age is attained. Earnings in or after the month you reach normal retirement age do not count toward the retirement test.

(15) The Working Families Tax Relief Act extends the $1,000 child tax credit through 2010.

(16) The "standard deduction" (the amount you can deduct if you cannot itemize your deductions) increased to $10,000 in 2005 for married couples filing jointly--up from $9,700 in 2004. This is twice the amount of the standard deduction for single taxpayers ($5,000) for 2005. Single taxpayers who are 65 years of age or older, or blind, get a $1,250 increase in their standard deduction for 2005. Married taxpayers who are 65 years of age or older, or blind, get a $1,000 increase in their standard deduction for 2005.

(17) Under the so-called "Deason Rule" (named after a 1964 court case) ministers must reduce their business expense deduction for unreimbursed expenses as well as expenses reimbursed under a non-accountable arrangement by the percentage of their total church income that consists of a tax-exempt housing allowance. The Tax Court reaffirmed this rule in 2005.

(18) The IRS amended the "use it or lose it" rule for flex plans. The amendment allows employers to amend their flex plan for a "grace period" of 2 1/2 months. Expenses for qualified benefits incurred during the grace period may be paid or reimbursed from benefits or contributions remaining unused at the end of the preceding year.

(19) The IRS has issued Form 1098-C, which must be used by churches to report to the IRS donations of used vehicles (cars, boats, planes) valued by the donor at more than $500. The same form can be used to provide donors with a written acknowledgment of their donation.

(20) New tax regulations issued by the Treasury Department eliminate the requirement that employers send copies of potentially questionable Forms W-4 (Employee's Withholding Allowance Certificate) to the IRS.

(21) The IRS will be unveiling a new Form 944 in 2006 that will replace Form 941 (Employer's Quarterly Tax Return) for eligible small employers. The purpose of the new Form 944 is to reduce burden on the smallest employers by allowing them to file their employment tax returns annually, and in most cases, pay the employment tax due with their return.

(22) A blue-ribbon panel has made several suggestions to Congress regarding the governance of public charities. Many of the suggestions, if adopted, would impact churches.