The ministerial housing allowance is one of the greatest tax benefits available to pastors and now is the time to get yours approved for 2019.
With Christmas services, children’s programs, holiday parties, and family traditions, December is the busiest time of year for most pastors. You barely have time to think, much less think about something as boring as taxes.
What, taxes? It’s not tax season yet! That can all wait until next year!
While most people have the luxury of enjoying the holidays and waiting until “tax season” in the spring to care about the IRS, pastors do not. And not taking the time to think about them right now could cost you a lot of money.
What you need to be thinking about for taxes right now is your 2019 housing allowance. You know, that wonderful tax benefit that may not be around for much longer? It is currently being challenged in the courts, so you should really take advantage of it while you still can. (Note: There have not been any updates since the linked article was published.)
Here are some tips that will help you maximize your 2019 housing allowance:
Get Approval Before 2019
Your church must approve your housing allowance ahead of time. You can request one anytime, but if your housing allowance isn’t approved until March 1, it can’t cover any of your January and February expenses. Housing allowances do not work retroactively. Therefore, if you want to take advantage of this benefit for the entire year, you need to get it approved before 2019 begins.
Don’t Underestimate
You can only take your approved housing allowance amount. If it turns out that your expenses are higher, you’re simply out of luck. However, if they are lower, then you can easily fix that by adding the excess housing allowance back into your income on your tax return. So, it is better to overestimate expenses than underestimate them. When you underestimate, you basically leave free money on the table.
Remember The Little Things
Little things that you use to make your house a home count towards the housing allowance. That includes things like curtains, paint, cleaning supplies, and the framed scripture that you hung in the entryway. If you want to get the most value out of your housing allowance, don’t just add up your utilities and mortgage payment and stop there, remember all of the little things.
Remember The Big Things
Two years ago, we had to get a new roof, paint our house, and unexpectedly fix some carpenter ant damage and rot in one of our walls. Suffice it to say, it was an expensive year for being a homeowner. While there was no way for us to foresee the carpenter ant damage, we knew ahead of time about the roof and the painting. When calculating your housing expenses, make sure to include large one-time expenses that you know are coming.
Keep It Legal
The Internal Revenue Code specifies that you can take a cash housing allowance of the least of:
- the amount actually used to provide or rent a home;
- the fair market rental value of the home (including furnishings, utilities, garage, etc.);
- the amount officially designated (in advance of payment) as a housing allowance; or
- an amount which represents reasonable pay for your services.
That means that even if your mortgage payment is $2,000 a month if you could easily rent the home for $1,500 your housing allowance has to be the lesser amount. Trying to get around these rules is not being creative, it’s lying. And we all know who the father of lies is.
Create A Paper Trail
I come from a long line of hoarders whose favorite keepsake is paper. These are the kind of people that the IRS loves. Make sure you keep receipts and other documentation of your expenses throughout the year. If you ever get audited, the thicker your paper trail the better.
Well, I hope this helps and you’re able to carve out a little bit of your time to get your 2019 housing allowance approved. If you’re lacking motivation, just think of how much money you will save in taxes. Compared to your salary, it will probably be the highest paid hour of work you do all year!
If you have further questions about the housing allowance, please read this article or don’t hesitate to send me a message!
