The 7 Responsibilities of Owning a Church Van
By Raul Rivera
When a church in South Carolina bought a new van, they used it for picking up children from different parts of the town and bringing them to their children's church. The pastor also used the van to do visitation and for commuting between his home and the church. The reason why he would use the van to commute between his home and the church was because the church was in a community where crime was high and they wanted the van parked in a more secure area. When the church bought the van, they paid $12,500.00; they put $2,500.00 as a down payment, and financed $10,000.00 over 5 years at a 1.99% interest rate. Their monthly payment was $175.23. The challenge the church had was accounting for the van in their books and figuring out whether there was anything else legally that they should be concerned about in owning the vehicle. There are at least seven things with which they need to be concerned.
1. Record the purchase: When the church bought the van, they had to account for the actual purchase price of the van, the down payment, and the new loan debt. Let's take a look at how this should be done.
The church creates a new asset and new liability account in its accounting system. The asset account is called Church Van and the liability account is called Church Van Loan. The balance of each one starts at $12,500.00. The church then enters a transaction for a check to the dealership of $2,500.00. Instead of assigning it to an expense account they must assign it to the Church Van Loan account. This lowers the Church Van Loan account to $10,000.00.
2. Record monthly payments: During the month that the first loan payment is due, the church must write a check in the amount of $175.23 to the finance company. To properly record the transaction, they must use a mortgage calculator to determine how much of the payment is interest expense and how much is principal. The church determined that $16.58 was interest and $158.65 was principal. Therefore, when they write the check, they credit the Church Van Loan account $158.65 and then they create a new account called Bank Finance Charges and credit the new account $16.58. At the end of this transaction the Church Van Loan account shows that the loan balance is $9,983.42. They will continue to do this until the account is paid off.
3. Keeping mileage logs: Now that the church owns the van, they need to keep mileage logs so that all business miles and personal miles are recorded properly. When the pastor commutes or uses the vehicle for any personal miles, the church must record those miles on the log. You will see why on item 6.
4. Pass a "Don't Text and Drive" policy: A policy that prohibits texting while driving, and possibly requires hands-free use of the cell phone reveals that the church is taking reasonable measures to ensure the safety of its passengers. Moreover, insurance companies will give you a preferred rate if you have certain policies that the church enforces which increase the safety of its passengers and reduces the chances of an accident.
5. Get a corporate insurance policy: Make sure that the policy you get for the van covers all of the individuals that plan on driving it.
6. Calculate the value of taxable fringe benefits: Because the pastor was allowed to drive the van home for commuting purposes, the church is required by law to record the actual value of that use and report it on the pastor's W-2 for him/her to file his/her taxes. There are three different approved formulas to calculate that value. They are the as follows:
a. Cents-Per-Mile Rule
b. Commuting Rule
c. Lease Value Rule
7. Transport of children: Since the van was going to be used to transport children, they made sure that each driver gave a copy of his/her valid driver's license and that each submitted a background check. This was the church's due diligence to ensure that they made every possible effort to keep the children safe. This is one sure way to reduce the chance of liability against the church.
Most of the work is done up front
When a church buys a vehicle, most of the paper work is done when the vehicle is purchased. Thereafter it is just maintenance. At StartCHURCH, we believe in systems. If you let us teach you how to create systems at your church, you will be surprised how much leadership, you will can give your church without feeling bogged down with day-to-day activities that take away from your abilities to teach and preach.