3 Tax Privileges Every Pastor Should Have

By Raul Rivera

Every year we have the privilege of helping hundreds of ministers file their taxes. Because of the tax benefits and privileges afforded to ordained ministers, when utilized correctly, ministers are the least taxed individuals in America.

But when ministers do not correctly utilize these tax benefits and are unprepared come tax season, they can become the most taxed individuals in America.

I realize it is only December, and the infamous April 15th tax deadline is still several months away. In fact, I am willing to bet that filing your taxes is not even on your radar right now. But I want to encourage you to take some time to start preparing for tax season now.

In this blog, I want to provide you with an easy step that you can take right now that will help make life easier for you when the time comes for you to file your taxes in 2018.

Before I do that, however, I want to provide you with the top three tax privileges and deductions available to ministers.

3 tax privileges and deductions every minister should utilize

1. Maximize your housing allowance.

Maximizing your housing allowance takes some planning and careful documentation upfront. Once you have done the hard work on the front end, it becomes quite simple to manage each year. 

The key to maximizing the housing allowance is to set it up as a designation of salary and not necessarily as an additional form of compensation.

Due to the IRS' "least of these" rules, when a minister receives a housing allowance payment instead of a designation, he/she will likely leave money on the table each year when it comes to taxes. 

The reality is that you can designate up to 100% of your compensation as housing allowance? At all of our conferences we provide a detailed teaching on how you can legally maximize your housing allowance.

You may be thinking that what I am saying does not make sense. It may take time to fully grasp this concept. Trust me; once you learn it, you will be blown away at how much you will save each year.

(Recommended reading: “3 Things Every Minister Should Know About Housing Allowance”)

2. Secure your self-employment tax exemption.

This is a big one. 

Over the last several years, many of the tax professionals with whom I have spoken were not familiar with the rules concerning the self-employment tax exemption afforded to ordained ministers.

To the surprise of many ministers, one can apply for an exemption from paying the 15.3% self-employment tax without losing Social Security benefits. 

Additionally, why not take that 15.3% that you would have otherwise paid in taxes, and invest it in a retirement fund that has a higher return? 

Once the majority of ministers gain a proper understanding of the term “public insurance,” they will easily qualify for the self-employment tax exemption.

(Recommended reading: “Should Ministers Opt Out of Social Security?”)

3. Deduct business miles from your home.

For ministers who do not have a self-employment tax exemption, this is the next best tax benefit. 

Did you know that if you meet certain requirements, you are able to deduct mileage driven from your home to the church office? 

From our experience in helping ministers with their tax returns, this is the deduction that many ministers do not know exists.

In Revenue Ruling 99-7, the IRS ruled that travel between your home office and the church office (or other ministry-related travel) is a deductible expense. When 100% of all your miles from your home office to your church office are deductible, it can help lower the amount of self-employment tax you owe.

(Recommended reading: “Is Your Home Office Deduction Legal?”)

Next, we will take a look at the easiest way you can get ready for tax season.

How to get ahead before tax season

You may think that you don’t have time right now to get ready for tax season, but the advice I have for you is actually quite simple - begin gathering documents now.

It is easy to put this task off until a later date, but from our experience, the reason ministers either file their taxes late or have to file an extension is because they did not give themselves enough time to gather all of the necessary documents needed.

In fact, the IRS suggests that the best way to ensure that you file a complete and accurate tax return on time is by making sure you have all necessary documents, including your 2016 tax return, on hand prior to filing.

Documents to begin gathering include Form W-2 from your employer(s), Form 1099, Form 1095-A from the Marketplace for those claiming the Premium Tax Credit, receipts for business expense deductions, and giving receipts. 

Typically, tax forms, such as your Form W-2, start arriving by mail in January. When you receive them, be sure to check them over carefully to make sure all information on the form is correct. If you notice any inaccuracies, be sure to contact the payer right away for a correction.

Gathering necessary documents ahead of time will help avoid a delay in filing your taxes, a delay in receiving a refund, and the need to file an amended tax return later.

There is one last thing you should start considering now before tax season arrives, and I’ll explain it next.

Finding the right tax preparer for you

Oftentimes, when filing taxes, a minister will utilize the services of someone who has “done taxes before.” However, the tax service provider has never completed a tax return for a minister or has only minimal experience with ministerial tax returns.

Due to the uniqueness and complexities of ministerial taxes, it is imperative that every minister utilize the services of a tax preparer who has experience completing tax returns for ministers. 

Throughout the years, we have served thousands of pastors with their personal income tax returns through our minister's tax service. Our experienced CPAs/accountants know taxes for churches and ministers. 

With our minister’s tax return service, you can confidently know that you are taking advantage of every tax benefit available to you as a minister. I encourage you to give us a call at 877-494-4655 to find out more about how we are able to serve you.

Recommended blog articles for you:

• “5 Common Myths Surrounding Ministers’ Taxes”
• “7 Big Mistakes Ministers Make with Their Taxes”
• “How Ministers Can Prepare for Retirement”

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