The 1986 Tax Reform Act, the 1987 Omnibus Budget Reconciliation, Technical Correction Act of 1988, and the 1993 Reconciliation Act made the most sweeping changes in almost 50 years. The law is not simple. Your salary package is the most important factor in determining your annual tax liability. At year end, you are limited in the number of ways in which you can reduce your taxable income. The best salary package should contain the following non-taxable items: housing or parsonage/manse allowance, professional accountable reimbursement plan, and fringe benefits. The proper combination of your salary package can often reduce your tax liability with little or no cost to the congregation. This is one area that should never be overlooked. The best time for tax planning is “now” or when you have just finished reviewing the state of your finances in the course of filing your tax return. The best tax-saving strategies are best put into effect early in the year, not at year end. Ministers are treated differently under the tax code than virtually anybody else in the country. They have advantages and disadvantages that no one else has. The reason for this unique treatment is that their employment situation is very different than most other people. It’s very important that the church board cooperates with the minister so he/she can benefit from tax advantages that were designed for him/her. One of the biggest hurdles that the clergy must often overcome in order to maximize the use of a housing allowance and other deductions is the attitude of some lay leaders who object to the tax exclusion benefits of IRC 107. Some lay leaders believe it to be inappropriate, or even unfair, for clergy to receive such potentially significant tax benefits. Thus, they are often reluctant to arrange the housing allowance or other deductions to maximize the tax benefits available. As with any other tax planning procedure available to other taxpayers, the attempt is to reduce, not evade, the payment of taxes. No person is required to pay more tax then they owe, including clergy. The proper use of the housing allowance and other deductions can help clergy in a dramatic way to reduce taxes legally. Please do not view this guide as a substitute for professional advice. The new laws are too complex to allow a casual approach. Source: Clergy Financial Resources https://www.clergyfinancial.com Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations.< Back
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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