Minister Tax Strategies

Ministers often go into the ministry because of their love for God and passion for people. Little do they know that the nuances involved in clergy taxes are often quite complicated, leaving them to wonder why they didn’t just become firemen or teachers. Clergymen need not let their passions be doused just because of complicated minister tax laws

Ministers find themselves in a distinct position when it comes to paying clergy taxes to the federal government, which considers them both employees and self-employed at the same time. As a result, it often behooves ministers to seek professional tax preparation help so that they can take advantage of what benefits are allowed to clergymen and make sure that they’re not overpaying.

Regardless of if they choose to prepare taxes themselves or go through a professional, it’s a good idea to get started early using the following strategies.

Start Early

Procrastination is not advised. Keep good records of all business-related expenses, this means receipts, cancelled checks, letters of correspondence, etc. Some items will not be deductible for federal government tax purposes, but are considered tax deductible against Social Security liabilities.

Beginning of the Year

Negotiate any annual changes or new employment to take advantage of Minister tax laws. Ministers can ask the church to divide total compensation into tax-advantaged and non tax-advantaged categories. Housing allowance, professional accountable reimbursement plans, insurance and retirement accounts are tax-advantaged.

Ask if the church can estimate the amount of federal taxes you will owe for the year and divide it into four equal quarterly payments and arrange for the church treasurer to remit proper payment and forms by their due date.

Ask for reimbursement for anything considered a “professional accountable reimbursement”. These are things like conferences, books, mileage, etc.

It’s also important to understand how the federal government considers you both an employee and self-employed. In summation, clergy are employees for the purpose of paying federal income tax, but are self-employed for the purpose of Social Security tax.

End of the Year

Pay local and state taxes before the end of the year. Sell losing stock to offset any income gains. Make charitable contributions and donations. Add to retirement accounts and know the maximum amount allowable for contribution and final dates payments can be made to these accounts. Take advantage of medical deductions. Compare actual expenses to maximum allowable. Understand and keep track of all household expenses as the IRS will consider any unspent allowances as taxable income.

Get Help

If this all sounds a little confusing to you, it may be a good idea to hire a professional tax preparation service with experience in filing clergy taxes. Hire somebody with proven experience, plenty of training and a commitment to attend audits.

By keeping these guidelines in mind and starting early, minister tax preparation can become effortless, leaving clergy to focus on what they were meant to do, minister to the people.