How to Deduct Expenses as a Minister and Save Big time

By Raul Rivera

I want you to take a moment to contemplate the seriousness of properly saving receipts and strategizing next year's taxes starting today. I analyzed the tax returns this year of several ministers. I compared the tax returns of ministers who were in the same income brackets and had the same number of dependents, and what I found was astonishing.

Separated by thousands of dollars in taxes

The current tax code was written to favor ministers. However, the law only favors ministers if they know those laws.  Unfortunately, for many ministers, their tax accountants do not know those laws either. Let me give you an example.

The current tax code was written to favor ministers. However, the law only favors ministers if they know those laws.

Two ministers each made $55,000.00 last year. Married with four kids, they each had very different results on their tax returns. Below is the difference.

1. Minister 1 with a salary of $55,000.00 and 4 kids - had to pay $5,875.00
2. Minister 2 with a salary of $55,000.00 and 4 kids - received a refund of $9,167.00

What a dramatic difference. These two ministers had similar sized churches with similar circumstances. The difference was that one minister had good consulting, which allowed him to better steward his finances for tax purposes. Below are three things you can focus on to better stweard your personal finances and maximize your tax return.

3 tax advantages every minister should utilize

1. Deduct business miles from your home: 

For ministers that do not have a self-employment tax exemption, this is the next best thing. Did you know that if you meet certain requirements, you are able to deduct your miles from your home to the church office? From our experience in helping thousands of ministers with their income tax returns, this is the deduction that many ministers do not know exists.

If you meet certain requirements, you are able to deduct your miles from your home to the church office.

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

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

2. Maximize the 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 a part of compensation. We give a fully detailed teaching at all of our conferences on the StartCHURCH way of setting up the housing allowance.

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

Because of 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.

You may be thinking that what I am saying makes no sense. It may take a little bit of time soaking in this concept to fully get it. But trust me, once you learn it, you will be blown away at how much you will save each year.

3. Obtain self-employment tax exemption:

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

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

Using the example of the two ministers who both made $55,000.00 per year, we can gather that an exemption from having to pay the self-employment tax means a tax savings of more than $8,000.00 because of the EIC rules that apply. 

That is big! 

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

(Recommended reading: “4 Reasons Why Ministers Should Opt-Out of Social Security”)

It's time for you to step up and step out in faith

Each year pastors all across America work hard and are underpaid. Statistics show that the average pastor is severely underpaid...more than in any other profession. Still, too many pay much more in taxes than they should.

Too many pastors pay much more in taxes than they should.

I believe that one of the reasons why this happens is because many ministers today started their churches not knowing if they would ever receive a salary. This led them to believe that they did not need to make any plans for minimizing taxes. Now years later, they find themselves trying to figure out how to get it right, only to realize that the longer one waits the harder it is to make changes.

With our minister’s tax return service you can know with confidence that you are taking advantage of every tax benefit available to you as a minister. I want to encourage you to give our office a call, toll free, at <span class=rTapNumber227338>877-494-4655</span> to find out more about how we are able to serve you.

Handpicked articles for you:

• "How to Solve Your Church's Financial Crisis"
• "How to Simplify All of Your Church's Filing Requirements"
• "How to Hire Church Employees the Right Way; Part 1"

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