10 Biggest Tax Mistakes Made By Ministers

10 Biggest Tax Mistakes Made By Ministers

1. Filing as self-employed for income tax purposes on your church salary, using tax benefits only available to employees, and leaving yourself vulnerable to reclassification by the IRS to employee status. (Details in Chapter 1.)

2. Failure to have unreimbursed medical expenses covered under a properly documented plan. (Details in Chapter 3.)

3. Failing to have at least a modest housing allowance designated when living in a church-provided parsonage. (Details in Chapter 4.)

4. Failure to understand the implications of the fair rental test for the housing allowance. (Details in Chapter 4.)

5. Confusing the fair rental value of a church-provided parsonage (only includible for social security purposes) with the designation of a portion of your salary as housing allowance (providing an exclusion for income tax purposes). (Details in Chapter 4.)

6. Claiming office-in-the-home treatment — rarely justified under present law. (Details in Chapter 5.)

7. Failure of minister-employees to use an accountable reimbursement plan. (Details in Chapter 5.)

8. Not documenting business expenses to reflect business purpose, business relationship, cost, time, and place. (Details in Chapter 5.)

9. Failing to keep a log of miles driven for personal use vs. church purposes. (Details in Chapter 5.)

10. Improperly opting out of social security because you don’t believe it is a good investment. (Details in Chapter 6.)

10 Tax and Finance Questions Most Frequently Asked By Ministers

1. Social security filing status. Should I have FICA-type social security tax withheld from my pay or pay self-employment social security tax calculated on Schedule SE and pay it with my income tax return? (See Chapter 1.)

2. Income tax filing status. Should I file as an employee (receiving a Form W-2 from my employer) or as an independent contractor (receiving a Form 1099-MISC) for income tax purposes? (See Chapter 1.)

3. Unreimbursed medical expenses. Which of the three approved plans should I use to get tax-free treatment for my unreimbursed medical expenses: health savings account (HSA), health reimbursement arrangement (HRA), or health care flexible spending account (FSA)? (See Chapter 3.)

4. Structuring the pay package. How should my pay package be structured to achieve the best tax benefit for me? (See Chapter 3.)

5. Fringe benefit planning. How do I determine which fringe benefits I receive are tax-free, tax-deferred, or taxable? (See Chapter 3.)

6. Housing allowance exclusion. How much can I exclude as a housing allowance for income tax purposes? (See Chapter 4.)

7. Accountable expense reimbursements. Do the payments I am receiving from the church or parachurch ministry for expenses qualify as tax-free reimbursements? (See Chapter 5.)

8. Cell phone expense. How do ministers cope with the tough IRS regulations on the documentation of the business use of cell phones? (See Chapter 5.)

9. Opting out of social security. Under what conditions is it appropriate for me to opt out of social security? (See Chapter 6.)

10. Paying income and social security taxes. Should I have enough income tax withheld from my salary to cover my income and social security tax obligation or should I pay quarterly estimated taxes? (See Chapter 6.)

Excerpted with permission from the Zondervan 2020 Minister's Tax and Financial Guide: For 2019 Tax Returns, copyright Zondervan.

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