Could You Be Causing Your Minister to Pay Unnecessary Taxes?

If your minister’s compensation package is not structured properly, he may be paying unnecessary taxes or underpaying his taxes. Poor stewardship or underpaying taxes are poor options.

Vehicle business mileage, business long distance, books, periodicals, conventions, seminars, education, overnight travel, etc., are necessary for the minister to accomplish his mission of winning the lost and caring for the flock. Moneys spent for these items represent a significant portion of the average compensation package. The burden of expenses is increased if undue taxes must be paid because of failure to comply with current tax regulations.

Unless reimbursed under an accountable plan, your minister’s business expenses will be partially or–
in some situations–even totally non-deductible, thereby resulting in an overpayment of taxes.

One method of reimbursing expenses commonly used a decade ago was simply to deduct all professional expenses each payday from taxable income. Since 1991, that method is no longer acceptable for the reimbursement of expenses.

All expense reimbursements must now meet the current guidelines of an accountable expense reimbursement plan. IRS Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, lists these requirements.

The IRS is also now applying Sec. 265 (prorating of expenses between taxable and nontaxable income). This ruling, which has been upheld in the tax courts, results in additional unnecessary taxes if an accountable reimbursement plan is not implemented.

If your minister lives in a parsonage or rents a home for his family, the importance of how expenses are handled is further increased. Without the mortgage interest deduction available to homeowners, it is rare for a minister to be able to itemize his deductions on Schedule A. Thus, his business expenses will be of little or no advantage to him on his tax return. This means that income taxes (federal, state, and local) will be owed on the money the minister spends on his professional expenses.

Current tax laws make the use of an accountable expense plan even more important.

The financial leaders of your congregation need to give prayerful consideration to their ministry of handling the church’s finances.

Through adequate knowledge of tax law you can be better stewards of those dollars required to provide for your minister’s financial needs and, at the same time, allow your congregation to expand its outreach in to your community.

Please contact us for more information. We can help.

Posted under Church Taxes

This post was written by burbrink on September 10, 2008

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