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Hi, I'm Rob West. Scripture teaches that God owns everything, gives us the ability to earn, and calls us to work with integrity because ultimately, we serve Christ. Today, Howard Dayton joins us to talk about earning money God's way and how biblical wisdom can shape our work, our businesses, and our generosity. And then we'll take your calls at 800-525-7000. This is Faith in Finance, biblical wisdom for your financial journey.
Well, it's always a joy to welcome my good friend Howard Dayton back to the program. Howard is the founder of Compass Financial Ministry, and of course, the former host of this program. Howard, great to have you back with us. Oh, great to be with you, Rob.
Well, we love it when you stop by, Howard. And you write about earning in your book, Business God's Way. And I'd love to dive into that today because it's such a helpful topic. This is a book that helps people understand and apply God's financial principles in ways that reach the heart and transform lives, whether they're running a business or not.
So let's begin with Earning Money God's Way. Howard, what's the first thing we need to know?
Well, God owns everything, and He's your real boss, no matter if you're self-employed, Rob, or you work for someone else. I love what Colossians 3:23 and 24 tell us. Whatever you do, do your work hardly. Ask for the Lord rather than men. It is the Lord Christ whom you serve.
and even your ability to earn is a gift from God. Deuteronomy 8.18 tells us You shall remember the Lord your God, for it is He who gives you the The power to get wealth. Wow, that puts things in perspective. The next time you get pretty excited about something you've accomplished, remember it's the Lord who gave you the ability to do it. All right, let's talk about some principles here.
What principles should we follow as we earn money?
Well, the very first one is that we should be totally honest, Rob. Business people need to treat customers, vendors, even competitors with complete integrity. And workers, well, they need to be honest with their employers. I like to tell them: never steal even a pencil or a penny from your employer. Yeah, that's exactly right.
And as we do those things, it's important to remember that we represent Christ in the workplace, right? I sure would agree with that. Jesus says in Matthew 5:16, Let your light shine before others, so they may see your good works and give glory to your Father. Who is in heaven? Yeah, that's great.
Howard, when it comes to the business owner, owning and running a business, as you well know, is a challenge. What comes to mind first and foremost, perhaps a biblical principle that can help with that? Yeah, Rob, I think planning a course and being in order certainly come to mind.
Now, we might not think of being in order as a biblical principle, but it is. In 1 Corinthians 14:40, it says, All things should be done decently and in order. And I would also add: not presuming on the future would certainly be another principle. James 4 warns us, Come now, ye who say, Today or tomorrow we will go to such and such a town, spend a year, and make a profit. yet you do not know what to morrow will bring.
That's so good, Howard.
Now, the world would probably agree with many of these principles for running a business or earning wages because they help the bottom line, but probably not generosity, do you think? I sure don't think that comes to mind for a lot of folks. You know, the world often looks at making a living really as dog-eat-dog competition, but that's not how Christians should view it, especially when it comes to giving. Proverbs tells us, one person gives freely, yet gains even more. Another withholds what he should give.
But comes to poverty. A generous person will prosper. Whoever refreshes others will be refreshed.
Now, I don't think that means God will always reward you with material wealth. but he promises to bless those who are generous, And in my experience, he can do that in a lot of different and very creative ways.
Well, that's exactly right. And there are a lot of ways to give, Howard. You could give a tithe off the profits. You could even give the whole business away, like Alan Barnhart and Stanley Tam, right? That's exactly right.
And, you know, I would take a look at how can you creatively give. And even stretch yourself to give more than you have in the past. And then watch what God does as you're faithful to use your business as an engine for ministry.
Well, Howard, thanks for stopping by and for bringing the counsel of scripture, which is always where we want to look when we're talking about money and finances. God bless you, my friend.
Well, thank you. Love the time together, Rob. That's Howard Dayton, author of Business God's Way. It's a wonderful resource for understanding and applying God's financial principles not only in business, but in every area of life. We'll be right back.
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Learn more at faithfuy.com/slash chm. Taking your calls today here on Faith and Finance, 800-525-7000. Let's begin in Kansas. Paul, go ahead. Uh yeah, Rob.
Uh thank you for taking my call. I appreciate what you do. And my daughter is in the market for a house. And like my parents did for my wife and I forty years ago. I'd like to do for my daughter to Be the private lender, meaning that as a buyer, she has 20% to put down, which is A good amount.
And even with that and a conventional rate, it's a pretty high payment and I've been blessed, my wife and I have been blessed to be able to. Have uh some extra money that we could loan her And I don't know research. because things have changed in forty years a little bit. since we had our loan with my parents. But uh What I've looked up is that the IRS has published monthly something they call the applicable federal rate.
Yeah. That's a little bit less, so would save her some money and for us to have a loan to be earning five percent That's a good return from my standpoint. Uh You can get amortization schedules quite easily online today. We've looked at that. I also know that in doing this there would be the requirement to file an IRS form ten ninety eight And that form would Copy A would go to the IRS, copy B would go to my daughter so that she would be able to report The interest that she paid during the year, and then we would report.
Interest on our tax return in the form of a ten ninety-nine INT. But I've looked at the IRS regulations and they talk about buyer financing, but they never mention a private loan.
So I'm assuming it works the same way. Mm. Really helpful and some great background information. And I love what you're trying to do here with your daughter because you're right, this is really challenging. And, you know, we often think about giving an inheritance at death.
And yet, if we think about it, you know, the real power of helping out a child comes probably in this season of life where they're trying to make that first home purchase.
So somebody has the ability to do that. You certainly don't want to hinder their ability to provide for themselves, but at the same time, making a gift for many people, again, if you can afford it, and a lot of people can't, you know, of maybe somewhere between $1,000 and $200,000, maybe a little bit more, to be able to help them get into a home or something like this where you're just kind of privately lending the money and charging 0%, which again is a huge benefit because it keeps that payment more affordable. What a great use of the money God has entrusted to you.
So I'm on board with this. There are some best practices here. I think the first one is around that interest, because in order for this to be seen as legitimate, you're right, depending on the term, whether it's three years or less or midterm, three to nine years, or long term, nine years or more, that annual AFR, the applicable federal rate, the minimum interest rate, has to be somewhere between four and basically 5%. But you can go below that.
So, for instance, you could do a 0%. You would just need to treat that as a gift. Uh, because the IRS would see that as money that you forego as a gift to your daughter. And if you got above the annual gift exclusion, although you probably wouldn't, because you can go up to $38,000 to any one individual between you and your wife for 2026, then you know, if you went above that, you'd have to report it, but it's just an informational reporting, there's no tax due. But below that, you could just consider that a gift, and that would be fine.
You would want to talk to your CPA about it just to make sure it's structured properly, but you likely wouldn't even have form 1098 because if you're an individual not in the business of lending, making a one-off loan to a family member, and you generally do not have to use form 1098.
So you would just need to make sure you report anything over the annual gift exclusion.
Now, your intent may be, no, I'm not looking to get this down to zero. I kind of like the idea of her paying 4%. She's got a little skin in the game here, but we're still helping her because she's not up at 6.5% or 7% as a new borrower. That's ultimately your call as to what your intent is. But beyond that, you know, you need to make sure you have some other pieces in place.
I would say everything needs to be in writing. A promissory note that spells out the loan, the interest rate, the payment schedule, the length of the loan. You're going to want to secure the loan typically by a recorded deed, although you don't have to, as long as you have everything in writing with the promissory note. And then you would, you know, want to think about the what-ifs, because the last thing you'd want would be a damage to the relationship if the loan, even though she may have the desire to pay it on time, let's just say something happens out of her control. You know, what happens then?
And we certainly want to have that all spelled out just so there's not unmet expectations there inadvertently. But let me stop there and get your thoughts on that, Paul. Oh yeah, that's good information. And yes, forty years ago when we had loan from my parents. We did put it in writing, had it recorded at the Register of Deeds office.
And then when we paid it off, We filed a release of mortgage And we did report The interest that we paid my parents, and then they reported the interest that they received on their taxes.
So it sounds like it's pretty much the same, just watch out, decide what you want to do, how you want to lend that to her. But I hadn't really thought about the gift portion because It's like $19,000. Yeah. Person per year, right, that you can gift. That's right.
Yeah. And so a married couple could give any one individual $38,000 as a gift.
So you can choose to make it a 0% loan or even forgive the interest as a gift. You know, the IRS treats the foregone interest as though you received it and then gave it back. And if that amount exceeds the annual gift tax exclusion, you need to file the gift tax return 709. But again, it's not taxable.
Okay. Oh, well, this is good information. And I'm sure the listeners there are some people out there that could also do this for family members.
So it's really a blessing to have the extra funds that you can, like you mentioned before, help out before you pass away.
So that's what we're trying to do. That's right. And I think the key here is one other thing, just to make sure I'm clear, is that although it would be considered a gift, the IRS basically uses that applicable Federal rate to essentially treat it as if you receive that.
So you have to pay it income tax on it because it's considered interest income, actually, even though you never receive the cash. And then it's as if you got it. Pay the tax on it as interest and then turn around and gave it back through the annual gift tax exclusion, if that makes sense. Oh, there's a a little bit of a hoop you have to jump through there. That's right, 'cause they want to get uh paid on the interest income that you should have charged that you're choosing to now give back and essentially rebate to her.
Okay, yes, of course they want their tax. Yeah, so I love the idea. Let's just make sure everything's in writing, documented. Let's get with your CPA and get everything squared away. But I think at the end of the day, this is a great idea, Paul, and one that, you know, hopefully a lot of folks will take advantage of to help out this next generation if they're in a position to do that.
So long as housing prices are where they are and homes are difficult to get into, especially for somebody just starting out. Hey, God bless you, sir. Call anytime if we can help.
Well, folks, we're going to take a quick break and we come back to our final segment just around the corner. We'll be right back. Have you ever started a budget only to watch it fall apart a few weeks later? You're not alone. The FaithFi app is the leading Christian budgeting app, combining smart budgeting tools, automated budgeting, and personalized insights with daily rhythms of scripture, short devotionals, and guided reflection.
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More information, including the short video webinar, Profit and Peace of Mind, no matter what's happening in the market, is available at soundmindinvesting.org. Hey, thanks for joining us today on Faith and Finance. Let's get right back to the phones. Let's go to Cleveland. Jeff, how can we help?
Hi, um, unfortunately we didn't come on capsis for last year.
So I called and they gave me an extension. And when I go ahead and I call various individuals, they're talking about over six hundred dollars to do my taxes. And that's a pretty penny. I have a ministry, it's a nonprofit organization. and our support families in Ethiopia.
And um six hundred dollars could buy a lot of fruit. And I'm hoping that I could find someone that could do the taxes for less. Yeah. And I'm thinking maybe a CK advisor. Um could they ever produce such nights?
Yeah. Yeah, it's a great question, Jeff. And there are plenty of CKs that do pro bono work. It's just not on any predictable basis.
So I would not be able to say just call any CK and they would be able to do this free. It would be up to each individual advisor to determine how and when they do pro bono work. I would say a more consistent approach would be: there is an IRS volunteer income tax assistance program, VITA for short, and they offer free tax prep. Uh, you know, if you've got low to moderate income, um, AARP Foundation has a tax aid where they'll do free tax prep. There's also IRS Free File if your income qualifies.
So, you know, I would look at some of those options. Again, it's the IRS Vita program. You could go to AARP or look for IRS Free File. I would say those would probably be your best options to start with. And let's see if you can't get it done through one of those services, especially if your income is low.
You may qualify for these services. Jeff, we appreciate your call.
Sounds like you're doing great work, my friend, overseas. Keep up that. And if you have questions along the way, don't hesitate to reach out to us. Thanks for calling today. Let's go to Birmingham.
Craig, go ahead. No, you have a question about a K one tax form within an IRA investment.
Okay. How do I handle that within an IRA? Yeah. So essentially, let me just back up for a second. An MLP, a master limited partnership, is in fact a partnership, not a corporation.
So that means the partnership itself doesn't pay federal income tax. Instead, the income, the deductions, credits, any other tax items pass through to you as the investor.
Now, this comes up a lot, just as a point of confusion, whenever somebody owns an MLP, a master limited partnership, because of this difference in taxation.
So the key points that you'd want to know would be: first of all, that instead of that 1099 DIV for a dividend, when you own a stock, you're going to get the Schedule K1. That reports your share of the partnership's taxable income. And ultimately, the cash distributions are often not immediately taxable, but they're typically considered a return of capital that then reduces and this gets a little complicated, but it reduces your tax basis in the investment. And then, normally, when you eventually sell it, that lower basis results in a larger taxable gain, and part of that gain may be taxed as ordinary income. Again, we're getting a little complicated here.
So, you know, one of the downsides though to the K1 is they often arrive later than the 1099, so that delays your filing and that can catch you off guard.
Now, with an IRA, you can own an MLP, but there's one important tax issue, and it's called unrelated business taxable income. And so, unlike most stocks and mutual funds, the MLP generate this UBTI. And if the total from all the MLPs in your IRA go above the threshold set by the IRS for the year, then the IRA may owe tax. Um not you personally. And so on that K1, it will report that amount.
And then you'll need to look at the filing threshold. Typically, the IRA custodian that holds the account is going to file the required tax return, and then it pays any tax from the assets in the IRA, not from your personal funds. And you know, if you have a small MLP position, most investors don't ever exceed that threshold. If you have a larger position or you own several MLPs, then of course you certainly could.
So, you know, typically people will buy master limited partnerships inside taxable accounts as a general rule of thumb, where you can benefit from their tax characteristics more so than an IRA, where you lose a lot of that generally, and then that UBTI can create some complexity. Does that make sense though? Yeah, it's clear as mud. Sure. And it's why I think I mean, do you do your own taxes?
I do not.
Okay. So your CPA can walk you through this, but essentially what you would do is just hand off that K1 and the CPA can take it from there. But just know that you're not going to get it as timely as the 1099.
So you're just going to have to wait it out. And then once you get it, you know, give it to your CPA. But essentially, the only thing you need to be concerned about with an IRA is that UBTI and whether you're going to go over that threshold from the IRS, and that's going to be reported on that K1, so you'll know ultimately whether you did.
Okay, good, good. Yeah, I'll give it my local CPA and we'll go from there. Thanks for the info. Absolutely, Craig. Thanks for your call today.
We appreciate you being on the program. Let's move quickly to Iowa and we'll finish up with Jolene. Go right ahead. Hi, yes. My husband and I are dairy farmers.
My husband is sixty years old. And we have an operating line of credit, we have a capital line of credit. And those you use as you need. And at times we are able to pay some off, but then we end up with having to borrow back just with the nature of dairy farming. And we've not been able to make progress on those lines as we should the last couple of years.
Now years ago when a couple of years when things are good, we did put some money in Roth IRA under his name. It's not a whole lot of money, but right now, especially with our lines of credit, our interest rates are now 8.5%. we were thinking of taking those Roth IRAs out and taking that money, putting it against our line of credit.
So we have a couple of questions about that. The first is, with it being a Roth IRA, there should be no tax consequences to that. Are we correct in that? That is correct. You can always take your original contributions out at any point.
Without any tax or penalty because you already paid income taxes on it.
So they're delighted for you to take it out and not get the tax benefits in the future.
Now, with the growth, The portion that beyond what you put in, because the market has grown, with that, as long as that account has been open for five years and you're over 59 and a half, you can take that also tax-free and penalty-free. Yes.
Okay, so then even from a regular IRA, we could take our original amount put in? No, that's only for the Roth. With a traditional IRA, you got a deduction when you put it in, and so even the first dollar, you're going to pay tax on it as income when it comes out. The only question is whether you pay the penalty. You would not have the penalty because you're over 59 and a half.
May the Lord bless you. Thanks for calling today. Thanks to Tahira, Taylor, Josh, and Dan. Have a great weekend. We'll see you next week.
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