Church/Nonprofit Tax Financial Guide

Zondervan Church and Nonprofit Tax and Financial Guide: 2006 Edition © Copyright 2005 by Dan Busby For information write to: Zondervan, Grand Rapids, Michigan 49530 Publisher's note: This guide is published in recognition of the need for clarification of tax and other laws for churches and nonprofit organizations. Every effort has been made to publish a timely, accurate, and authoritative guide. The publisher, author, and reviewers do not assume any legal responsibility for the accuracy of the text or any other contents. Readers are cautioned that this book is sold with the understanding that the publisher is not rendering legal, accounting, or other professional service. Organizations with specific tax problems should seek the professional advice of a tax accountant or lawyer. References to IRS forms and tax rates are derived from preliminary proofs of 2005 forms or 2004 forms. Some adaptation for changes may be necessary. These materials should be used solely as a guide in filling out 2005 tax and information returns. To obtain the final forms, schedules, and tables for filing returns and forms, contact the IRS or a public library. ISBN 10: 0-310-60415-X ISBN 13: 978-0-310-60415-0 All rights reserved. With the exception of the sample board resolutions, checklists, charts, and procedures, no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means-electronic, mechanical, photocopy, recording, or any other-except for brief quotations in printed reviews, without the prior permission of the publisher. Printed in the United States of America We want to hear from you. Please send your comments about this book to us in care of zreview@zondervan.com. Thank you. These new plans can incorporate a "qualified Roth contribution program," under which participants may elect to have all or a portion of their elective deferrals designated as aftertax "Roth contributions." Employer contributions, including matching contributions, cannot be added to the Roth account. Qualified distributions from such Roth sub-accounts will not be subject to tax, and earnings on the contributed amounts will also grow tax-free. However, they continue to be subject to normal plan withdrawal restrictions that require a five-year holding period, as well as reaching age 591/2, dying, or becoming disabled. There are important differences between 401(k) plans and Roth 401(k)s, most of them favorable. The Roth 401(k) pay-in cap will be slightly higher than for a Roth IRA. The standard 401(k) limits apply-a $15,000 maximum for 2006 plus up to an additional $5,000 for participants born before 1956. The 2006 ceiling on pay-ins to Roth IRAs seems paltry by comparison: $4,000 plus up to $1,000 extra for individuals who are age 50 or older. Roth 401(k)s are set to lapse after 2010. However, Congress is likely to make them permanent, given the number of firms expected to hop on the Roth 401(k) bandwagon. Bill proposed to curb abuse of "stranger owned" life insurance On May 10, 2005, Senators Charles Grassley (R-IA) and Max Baucus (D-MT), chair and ranking member of the Senate Finance Committee, have proposed a bill (S. 993) to crack down on perceived abuses with life insurance in which investors who have no insurable interest in the person insured acquire an interest in a policy held at least in part by a charity. The bill would add new Section 4965 to the Internal Revenue Code, imposing a 100% penalty on the costs of acquiring life insurance policies under arrangements where both an "applicable exempt organization" and another person or entity have an interest in an "applicable insurance contract." The proposed bill is broader than the reform proposed by President Bush in his Budget message. The bill would be rZondervan Publishing Staff is the author of 'Church/Nonprofit Tax Financial Guide ', published 2005 under ISBN 9780310604150 and ISBN 031060415X.