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What Is Faith-Based Investing? (And Should You Do It?)

by Monday, February 3, 2020
Picture of a woman reading the Bible with blog post title: What Is Faith-Based Investing? (And Should You Do It?)

When you think of investing, you probably think of trying to grow your money as much as possible without doing anything too risky. That is what investing has traditionally focused on; growing money. However, things are changing.

Our culture has evolved to a point where people want their investments to do more than just make them money, they want them to reflect their values. Because of this, there has been a recent surge of values-based investing. 

Types Of Values-Based Investing

Have you heard of any of these terms before?

  • Faith-based Investing
  • Values-driven Investing
  • Values-based Investing
  • Biblically Responsible Investing
  • Ethical Investing
  • ESG (Environmental, Social, and Governance)
  • Socially Responsible Investing (SRI)
  • Impact Investing
  • Sustainable Investing
  • Responsible Investing


Those are all types of values-based investing. Values-based investing is simply investing in companies that reflect your values instead of just focusing on growth potential. The first five are based on religious values and the last five are based on secular values. There is a lot of overlap between the two but also some stark differences.

Differences Between Faith-Based Investing & Secular Values-Based Investing

Some of their commonalities between faith-based investing and secular values-based investing would be things like avoiding companies that exploit the poor or damage the environment. Both would favor companies with high ethical standards and legal compliance and that give back to and lift up their communities. 

Where they would diverge would be on things like LGBTQ issues or abortion. Investments based on religious values would shun companies that supported those things while those based on secular values would favor them. Faith-based investing also usually avoids companies involved in tobacco, gambling, and pornography while secular values-based investors may see nothing wrong with those.

Arguments In Favor Of Faith-Based Investing

The arguments in favor of faith-based investing are simple. Earning a financial return on our investments is a huge part of stewardship, but there is more. We are responsible for how our money is used. We need to ask ourselves, What am I investing in and are there ethical or moral implications? 

The Scriptures address some of the questionable behaviors that modern-day companies participate in. Proverbs 10:2 says, “Ill-gotten treasures have no lasting value, but righteousness delivers from death.” You don’t want your investment income to be ill-gotten treasures. Also, we can see from the way that Jesus threw tables around the temple in Mark 11 that he doesn’t appreciate those in positions of power profiting off the backs of the poor and powerless. In Matthew 25:45, when Jesus says, “Truly I tell you, whatever you did not do for one of the least of these, you did not do for me,” he assigns us the responsibility for how we act (or don’t act) towards others. And that spills over into how the companies that we finances with our (really God’s) money act towards others as well.

To proponents of faith-based investing, the Bible makes it clear that we have a responsibility to ensure that our money is not financing anti-biblical activity. We are responsible for how our money is used even after we invest it in a company.

Arguments Against Faith-Based Investing

While the arguments in favor of faith-based investing are compelling, so are those against it. They ask, How much responsibility are we called to take on? None of us are Jesus and are prepared or called to take on the weight of the entire sinful world. 

If we don’t want our money funding things that we don’t agree with, doesn’t that mean that we should boycott all businesses that act against our beliefs? All for-profit companies that provide health insurance pay for contraceptives and many pay for abortions. If you buy their products or services, you are giving them money to pay for those things. Does that mean you can only shop at the Salvation Army or small businesses that cannot afford health insurance?

What about the government? They pay for abortions, sex changes, and all kinds of other anti-biblical things. Does that mean you shouldn’t pay your taxes? In Matthew 22, Jesus told the people to pay their taxes to Caesar, even though Caesar used the money to do some terrible things. 

Is Faith-Based Investing Right For You?

The question you have to ask is, How far does my responsibility go? And you have to ask it of God, no one else. You see, there isn’t one right answer to that question. It is a matter of personal conviction between you and God. What he asks of one person will be different than what he asks of another person.

A great example of this is the different lifestyles of John the Baptist and Jesus. According to Jesus in Matthew 11, “John came neither eating nor drinking” and “The Son of Man came eating and drinking.” Which was wrong? Neither. They each did as God had called them to do, they just had different calls. 

So, pray about it. Ask God what he has called you to do. Don’t let anyone try to guilt you or pressure you one way or the other. John ate locusts in the desert and Jesus partied with choice food and wine, but they were both faithful to the call of God on their lives in doing so. Don’t compare yourself to others, just be obedient to what God has called you to. 

Where To Find Faith-Based Investments

If you are interested in faith-based investing, here are some of the options available to you: 


Remember, each organization or investment uses different standards. Just because it’s called faith-based doesn’t mean it will necessarily align with your personal values. Make sure you do your homework to learn about each investment. You are the steward of the resources God has entrusted to you. You are the one that will answer to God for what he has called you to, not your investment company. 

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The Best Tax Software For Clergy (& Your Other Filing Options)

by Monday, January 27, 2020
Picture of a woman with a laptop computer and calculator with blog post title: The Best Tax Software For Clergy (& Your Other Filing Options)

Today is the big day! The IRS has officially opened the 2020 tax filing season for individual filers. We should throw a party!

Better yet, let’s talk about how to go about filing those tax returns that they are now accepting. As a pastor, you have unique tax issues like the housing allowance and being dual status, so it’s not as easy for you as it is for others. You can’t just use any old tax software and trust that your taxes will be prepared correctly. 

Awhile back, I was asked which tax software is best for pastors. I didn’t actually know, so I turned the question over to my readers. This article is the result of my completely unscientific study with a small sample size. If you would like to contribute to our collective knowledge, please share your experience in the comments!

Tax Preparation Software Programs For Pastors

According to my readers, TurboTax wins as the best software for pastors. Tawn shared, “We use TurboTax. It has been very helpful to have it walk us through options step by step. They are aware of SECA and housing allowance for clergy.”

Joicy said, “TurboTax for home and small business has been my go-to method, and the program addresses pastoral needs pretty well. They walk you through it, and also identify any possible errors or ‘red flags’. I would definitely recommend it.”

Quickbooks online was mentioned but it probably isn’t a good choice for most pastors. Jeremiah told me, “There’s not a lot of help for clergy specific information so you have to do your own research outside of Quickbooks. If you’re looking for taxes done for you without much thinking involved this probably isn’t the best solution. If you have a relatively simple tax return, this should be good.”

Preparing Your Own Taxes

If you’re going to do as much work as Jeremiah had to with Quickbooks, then you might as well just prepare and file your taxes on your own. That’s what reader DeAnn does with the free fillable forms from the IRS website. 

In a rural area with no CPAs who understand pastoral issues, she doesn’t have many other options. She said that the only issues she has had are making sure to claim all of the deductions they are eligible for as they missed the savers’ credit for a few years. It hasn’t been too much of a burden for her, though, as she says, “If you can follow all the steps and take your time, I would recommend doing it yourself.”

David doesn’t necessarily agree with her. He says, “Get help— you’re not as smart as you think and the IRS can hurt you.” He knows from personal experience, though he said he had a good experience with the IRS when he had to deal with them. 

Hiring A Professional

General Tax Preparers

It’s true, the IRS can hurt you. But do you know what else can hurt you? A tax professional who doesn’t know what they are doing but charges as if they do. Joicy learned this, as she told me, “The first couple of years, I tried going to accountants and was greatly disappointed. Most know very little about pastors’ taxes and I was doing as much work (if not more) than if I just did them all myself. So that’s what I ended up doing (and saved some bucks).”

Pamela had a similar experience. She and her husband were working with a knowledgeable CPA through H&R Block who had to retire due to health reasons. She explained, “The guy last year just didn’t seem to know as much about our unique situation (minister plus self-employed income) and they raised their prices from $400 to $600…so we are going to try something else next year.” Smart move, Pam. 

Specialized Tax Preparers

Not all tax preparers are expensive and clueless. As Pamela told me, when she worked with a CPA that understood her unique situation it was well worth the price. A tax professional that specializes in helping clergy is almost always worth the fees that they charge. As one reader said, “I won’t go anywhere else, they have saved me THOUSANDS over the years (and lots of grey hairs too!)”

All of my readers that work with professionals who understand ministerial issues have said that it is worth it. Scott said about his CPA of 15+ years that he has had, “very positive experiences on many issues he has advised me on and saved me money also. He serves many pastors and missionaries so he knows our issues with MHA, etc. I sleep much better by trusting his judgment and expertise to handle our taxes.”

How To Find A Tax Preparer Who Understands Pastoral Issues

I found that many pastors are “extremely happy” with their tax preparers. So, how do you find one of those and not the clueless guy from H&R Block that costs $600? Here are two questions to ask a potential tax preparer:

  1. Are pastors employees or self-employed for Social Security tax purposes?
  2. Is a pastor’s church salary subject to income tax withholding?

If they don’t answer these two questions correctly, run far, far away. You’ll be better off on your own. Here are the answers:

  1. Pastors are always self-employed for Social Security tax purposes. Learn more.
  2. Pastors are not subject to income tax withholding. Learn more.

Keep looking until you can find a tax professional that knows the answers to those questions off the top of their head. Here are some that were recommended by my readers. Now, I have not personally worked with any of these so I will not vouch for them and I don’t even know if they are taking on new clients. But, it doesn’t hurt to check them out, since other pastors are happy with their services. 


In conclusion, if you want to prepare your own taxes using prepackaged software, TurboTax is the best bet for pastors. Doing it on your own without software is tedious and time-consuming but not impossible, especially if you’re a detail-oriented person or can’t find a CPA that understands pastoral issues. However, thanks to the internet, you should be able to find a professional to help you that understands your situation. When it comes to tax professionals, those that don’t understand clergy taxes are a huge waste of time and money and those that do are worth their weight in gold. 

Happy tax filing! And please share your tax preparation experiences— either good or bad— with us in the comments so that we can all learn from you, too.

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How To Determine If A Pastor Is An Employee Or Self-Employed For Federal Tax Purposes

by Monday, January 20, 2020
Picture of a red and a blue pill with blog post title: How To Determine If A Pastor Is An Employee Or Self-Employed For Federal Tax Purposes

Tax season is just around the corner and that means I’m about to be inundated with tax-related questions. Today, I’m going to try to get ahead of the game and start answering the questions before you ask them. Up first, when is a pastor an employee or self-employed?

Pastors Are Always Self-Employed For Social Security Taxes

We’ll start with the easy part. When it comes to Social Security and Medicare taxes, also known as payroll taxes, you are always considered self-employed. Pastors are always self-employed for Social Security taxes and pay under the SECA system. You have no choice in the matter and there is no debate. You’re always considered self-employed. You can read more about why and what that looks like here. 

When A Pastor Is Self-Employed For Federal Income Taxes

Because pastors are always taxed as if they are self-employed for Social Security purposes, that brings a lot of confusion into the income tax side of things. If I work at a church but pay payroll taxes as if I’m self-employed, does that mean I’m considered self-employed for everything else? What’s the difference? Why is this so confusing?

Most pastors, though self-employed for Social Security, are still common law employees for income tax purposes. If you work for a church that tells you what to do and how to do it, you are an employee. I know, it’s confusing to be told you’re two different things, but that’s the way it works. It’s called dual-status taxation.  

Some pastors truly are self-employed, though. Think of a traveling evangelist or someone else whose ministry is not tied to nor directed by a specific church. You see, for the IRS, employment status all comes down to control. Is someone else controlling your methods and your results? Then you’re an employee. 

The US Tax Court has developed a 7-factor test to determine when a pastor really is self-employed for federal income tax purposes. Here are the seven factors that they look at:

  1. How much control the employer exercises over the details of the work
  2. Who invests in the work facilities
  3. The pastor’s opportunity for profit or loss
  4. Whether or not the employer has the right to fire the pastor
  5. Whether the work is part of the employer’s regular business
  6. How permanent the relationship is
  7. The relationship that both parties believe they are creating


This is what they look at to see who is in control of the relationship. Based on these seven factors, most pastors are employees. At least for the work they do for their churches.

Can A Pastor Be Both An Employee And Self-Employed?

Even if you’re a common-law employee of your church, you may still be self-employed at times. What about when you perform a wedding for a friend and they give you $100? Your church didn’t give you the money. They didn’t tell you to perform the wedding. They might not even know you did it! 

Clearly, in that case, you were not acting as an employee of your church. You were acting as a self-employed person. Just like a lot of workers have self-employment side-gigs outside of their normal jobs, when you perform ministerial services outside of your church you are acting as a self-employed person. These could be things like performing weddings or funerals or guest speaking engagements. They are services performed outside of your church where others are paying you for them. 

Let me summarize it for you:

All of your income is taxed as a self-employed person for Social Security and Medicare taxes.

Your church income is taxed as employee income for income taxes.

Your side income from outside of the church is taxed as self-employed income for income taxes.

Employee income is reported to you on Form W-2 and self-employment income is reported to you on Form 1099. If it’s something like $100 that an individual gave you for a wedding, they aren’t going to report it at all and it’s your responsibility to track it. To learn more about how these different types of income are taxed, read this article. 

I hope that helps clarify things for you at least a little bit. Let me know if you have any other questions!

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Free Resources To Help You Master Your Personal Finances In 2020

by Monday, January 13, 2020
Picture of a hand holding an I'm A Winner sign with blog post title: Free Resources To Help You Master Your Personal Finances In 2020

It’s a new year, a new calendar, and many are hoping, a new beginning, too. The sense of a fresh start with the new year leads a lot of people to make new year’s resolutions. How about you?

Since 51% of 2019 new year’s resolutions were to save money, I figure some of you are looking to tackle your finances this year and I want to help. Below, I’ve listed 15 different free resources ranging from budgeting systems and high-yield savings accounts to Social Security estimators and housing allowance tools. There’s quite a variety, so there’s something for everyone. 

Basic Financial Management

Easy-To-Use Budget Template

The same study I referenced above found that 35% of new year’s resolutions were to stick to a budget. That’s a lot. Budgeting is the foundation of any successful financial life. It looks like people realize the importance of budgeting but they struggle to do it.

One of the reasons budgeting is hard is because you’re often trying to track 20+ different spending categories. I don’t know about you, but I can’t track that many things at once. That’s why I only have 2 kids. 

Ben Wacek, CFP™, of Guide Financial Planning uses an innovative way of budgeting where you don’t have to do that. Instead of burning out attempting to track a bunch of different spending categories, you only focus on the handful that you really have control over. If you’ve ever struggled with budgeting, then you’ll love his system. You can download it in exchange for your email address here and he even made a video that will explain the whole process to you.

High-Yield Savings

Do you have your emergency fund sitting in a savings account earning 0.03% interest? You can do much better than that! If you transfer your money to an online high-yield savings account you can earn 60 times as much in interest. (No, that is not a typo. It is sixty.) The best part is that those accounts are FDIC-insured just like your current bank account, so you’re earning higher interest without taking on any additional risk.

Ally Bank is an online bank that offers high-yield accounts. If you click that link, they also have a great savings comparison tool that shows you the difference in interest earned among the most popular savings accounts. I moved my emergency fund from Bank of America to a CapitalOne 360 account and am now earning hundreds of dollars instead of just dollars in interest. It’s pretty cool.

Online Financial Management Tool

If organization is your priority this year, then Flourish Financial Planning has a great tool for you here. It’s a free online financial management tool where you can input all of your information to see your whole financial picture in one place. It also includes software that can help you visualize the effects of different financial situations and decisions you may be facing using your own personal numbers. 

Unclaimed Property

Did you know that you may have money that you’re not even aware of? There are billions of dollars of unclaimed property out there. It could be anything from forgotten bank accounts and 401(k)s to unclaimed refunds or lawsuit settlements. 

Each state has a database that you can search and you can access them all at Unclaimed.org. In addition to the 50 US states, that site also links to searches for Washington, DC, Alberta, British Columbia, Kenya, New Brunswick, Puerto Rico, Quebec, and the US Virgin Islands. Sadly, I don’t have any unclaimed property, but I found that my aunt has $40 in “misc unclaimed checks.” 

Clergy Issues

Pastor’s Wallet Resource Page

A lot of you find your way to this website because you have questions about clergy-specific financial issues. There aren’t a lot of resources for pastors like you online, which is why I’m here. I just put together a brand new page chock full of free resources, including housing allowance and net worth calculators, downloadable housing allowance worksheets, a checklist for getting your finances in order, and several other housing allowance-related tools. You can check out the new page here.

Pocket Guide To The Clergy Housing Allowance

Another new resource I just created is the Pastor’s Wallet Pocket Guide To The Clergy Housing Allowance. The housing allowance is one of the most misunderstood and under-utilized financial opportunities for pastors. This is not a comprehensive guide (that would take a book, which I’m working on right now), but more of the Cliff Notes for the housing allowance. All of the most important information is presented in simple bullet points and easy-to-reference facts. It’s a special treat for those who sign up for my updates, so even if you’re already on my mailing list, go ahead and use the bar at the top of the page to get access.

Clergy Tax Withholding Calculator

One thing that gets more complicated when you become a pastor is your taxes. Because pastors are dual-status taxpayers, traditional tax calculators that you find online don’t always work. The people over at StartCHURCH had compassion on you and developed a tax withholding calculator designed for clergy and your unique issues. It’s even state-specific and you can check it out here.

Tax Resources For Pastors And Churches

Taxes are a big deal and it’s hard to find a CPA or tax professional who actually understands the intricacies of how they apply to pastors. Wayne Vinson, CPA of Vingroup, however, is well versed in taxes and how they apply to both pastors and churches. They have a resource page with helpful tax forms and a good Request for Housing Allowance that you can personalize.

Church Accounting Help

The fact that clergy taxes are complex and confusing is a thorn in the side of most church bookkeepers. Also, IRS rules regarding churches are different than for other organizations and there isn’t a lot of reliable information out there. Freechurchaccounting.com is a wonderful resource for anyone involved in church finance. The site has an amazing amount of information and, best of all, it is actually accurate!

Debt

Debt Repayment Calculator

When it comes to your financial life, debt is like a giant millstone that you have to drag around with you everywhere you go. It affects the calls you can answer and how you make financial decisions. Most people just pay their minimum payments and dream of the day that their debt will go away. 

It doesn’t have to be that way, though. If you have specific goals in mind, then you can adjust your payments to allow you to reach those goals. This debt repayment calculator lets you look at debt repayment based on payment amount or desired payoff date. It also shows you how much interest is paid over time and how increasing or decreasing your balance would affect things. The calculator works for everything from credit cards to student loans. 

Student Loan Income-Driven Repayment Calculator

When it comes to student loans, you often have various options for repaying them. The government has several different income-driven repayment plans that base your monthly payment on your income. This calculator, built by a family-focused financial planning firm, will show you what your payment would be under each program so that you can decide the best program for you and your family. 

Investing & Retirement

Investment Calculator

Once you free yourself from the burden of debt, it is important to focus on saving for the future. This investment calculator, brought to us by the famous Dave Ramsey and crew, will show you what to expect of your investments based on your time horizon and expected returns. There are a lot of investment calculators out there, but I like this one because of the way it is laid out and the graphs it provides that show the power of compounding interest. 

Dave likes to use a 12% rate of return for his calculations, but if you invest in anything other than stocks or use a target date fund, there’s a slim chance that you’ll get such high returns. It’s safer to be conservative in your estimates. Also, it’s important to remember the effects of taxes when looking at your final expected returns. 

Social Security Retirement Estimator

In addition to your personal investments, Social Security benefits will be an important part of your retirement planning if you didn’t opt out or are eligible for spousal benefits. For planning purposes, you can use this estimator from the Social Security Administration to get an idea of what to expect. You should also review your Social Security earnings history regularly by setting up an account at ssa.gov to make sure they have the right numbers for your estimates. 

Retirement Savings Calculator

If you want to calculate how much you need to be saving for retirement, then here is a calculator for you. You can input your age, your current income and savings, when you plan to retire, and how much you expect to receive in Social Security benefits. It will tell you how much you should be saving to reach your goals, in dollars and as a percentage of your current income. It shows a graph of how your money will grow and then be spent down in retirement and tells you how much more you’ll need to save if you put it off. 

Retirement Withdrawal Calculator

There is a lot of focus on saving for retirement, but what happens when you actually retire? You have to switch things around and start spending down your accounts instead of saving into them. That can be really scary. 

If you want to know how long your money will last you in retirement, then this calculator can help you. Enter the balance you will be starting retirement with, the interest you’ll be earning on the money, and how much you’ll be taking out each year. Then the calculator will tell you how long your savings will last. It’s a great calculator to play around with because you can look at the effects of increasing your savings or decreasing your retirement spending.

Professional Help

Sometimes things are beyond your DIY abilities and you need to consult with a professional to master your personal finances. Professional help is not free, but it can be more than worth it. If you’re at the point where you need to talk to a professional, you can find one here:

  • XY Planning Network– These advisors are highly-trained Certified Financial Planner™ professionals who swear to work in their clients’ best interests and also offer virtual services so that your location doesn’t matter.

  • Fee-Only Network– These are advisors who do not accept commissions, so their advice is less conflicted and more likely to be in your best interest.

  • Garrett Planning Network– These are fee-only (no commission) advisors who are willing to work on an hourly basis.

  • Kingdom Advisors– These are Christian financial professionals who have received in-depth training on the integration of the Bible with finance.
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How The SECURE Act Affects Pastors

by Monday, January 6, 2020
Picture of books and binders with blog post titel: How The SECURE Act Affects Pastors

Back in 2017, the president timed things just right so that I spent the first day of my family’s Christmas vacation researching the tax reform bill and how it affects pastors. Now, almost two years to the day, he signed into law another sweeping financial reform just in time for me to fly down to visit my family for Christmas. Thanks, Congress, I really appreciate your timing.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019, as part of a year-end appropriations bill to keep the government running. It makes significant changes to retirement plan rules that affect most Americans. Also included in the 1,770-page bill was the Taxpayer Certainty and Disaster Relief Act of 2019, which could affect how you file your tax return in the coming months. While there are no changes to the laws as they relate to pastors specifically, there are a number of other changes that might affect you.

Changes That Affect Your 2019 Taxes

Tuition And Fees Deduction

The above-the-line deduction for tuition and fees that had expired has been reinstated for 2019 and 2020. Up to $4,000 of qualified tuition and fees can be deducted. For 2019, you will need to choose between taking the deduction and the American Opportunity Credit or Lifetime Learning Credit. 

Mortgage Insurance Premium Deduction

Mortgage insurance premiums may once again be included as an itemized deduction for 2019 and 2020. If your mortgage bank requires insurance on your loan and the loan qualifies, you can include it on Schedule A.

Medical Expense Deduction Threshold

The percentage of your income that medical expenses have to exceed to be deductible was supposed to increase to 10%, but that has changed. The threshold will remain at 7.5% for 2019 and 2020. Any expenses above 7.5% of adjusted gross income can be deducted.

Mortgage Forgiveness

Usually, when a debt is forgiven, the amount forgiven is counted as income and you have to pay taxes on it. The new law makes it so that qualified primary residence indebtedness that is forgiven can be excluded from income so that no taxes will be due on it.

Federally Declared Disaster Areas

Taxpayers living in federally declared disaster areas have been allowed to take penalty-free money out of their retirement accounts for 2018 and 2019. In addition, the new law gives taxpayers living in those areas an automatic 60-day filing extension. This applies to all current and future disaster areas.

Changes That Affect Retirement Accounts

Traditional IRA Contribution Age Limit

Starting in the 2020 tax year, there is no longer an age limit for traditional IRA contributions. Previously, you had to stop making contributions at age 70 ½. Now, you can continue making contributions as long as you have earned income, regardless of your age. You still cannot make contributions for 2019 if you are over 70 ½. 

Graduate & Post-Doctoral Student IRA Contributions

Previously, graduate and post-doctoral students could receive taxable stipends and non-tuition fellowships that were included in gross income but didn’t count to allow them to contribute to an IRA. (You or your spouse must have income to be able to contribute to an IRA.) Thanks to the SECURE Act, that taxable income now makes them eligible to contribute to an IRA.

Required Minimum Distributions

Up until December 31, 2019, once a person turned 70 ½ they were required to start taking withdrawals from their retirement accounts (except for Roth IRAs). These are called required minimum distributions (RMDs) and a 50% penalty is imposed on any amounts not withdrawn in time. 

The new law changes the age at which RMDs must be taken to 72. It only applies to those turning 70 ½ after December 31, 2019, though. If you turned 70 ½ before then, you must start taking withdrawals already.

Birth And Adoption Withdrawals

You can now take up to $5,000 out of your IRA to cover qualified birth and adoption expenses penalty-free. The distribution must be made after the actual birth of the child or the adoption is finalized. However, you can use it to pay yourself back for your initial adoption expenses or money you spent preparing for your new child. 

The $5,000 is a per-person, per-child limit. That means that both parents are eligible to take $5,000 withdrawals and they can take them for each of their children. There is also a provision in the law where you can repay your retirement account the amount that you removed in relation to a birth or adoption, but regulations have not yet been issued to clarify how or when that must be done.

Inherited Retirement Account Distributions

Previously, when someone inherited an IRA or another retirement account, they were required to start taking distributions calculated so that they would last over the heir’s lifetime. Many people with money to spare would leave their retirement accounts to grandchildren because of this so that the money could continue to grow over the 60-80 year life of the youth. 

Under the new law, those inherited retirement accounts must be emptied within 10 years (though there is no requirement for how much must be taken each year). The only exceptions are spouses, disabled individuals, and individuals not more than 10 years younger than the account owner, who can still stretch out the distributions for their lifetime. Minor children of the original account owner have a special exception, but only until they reach the age of majority, at which point they have to empty the account within 10 years.

Changes That Affect Educational Savings

529 Plan Usage

The new law allows up to $10,000 from a 529 plan to be used to pay down student debt without taxes or penalties. This is a per-person limit and in addition to the 529 plan beneficiary, the siblings (of any age) of the beneficiary are also eligible for up to $10,000 to pay down their loans. Also, apprenticeship programs have been added to the list of institutions where 529 plan funds can be used, as long as they are registered with the Department of Labor. This part of the law is effective January 1, 2019, so you can use it retroactively for expenses incurred last year.

In earlier versions of the SECURE Act, there was a provision to allow 529 plan funds to pay for homeschooling expenses. However, that did not make it into the final version of the bill which has become law. 

There are a number of other provisions in this law that became effective January 1, 2020, but most of them do not relate to you as an individual. The above changes are the most important parts of the law as they affect individual taxpayers. 

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The 10 Most Popular Financial Articles For Pastors Of 2019

by Monday, December 30, 2019
Picture of a man reading Pastor's Wallet on his computer with blog post title: The 10 Most Popular Financial Articles For Pastors Of 2019

Here we are again, wrapping up another year. I’ve made a tradition of using the last post of the year to look back and see which articles were the most popular so that you can go back and read them if you missed them. (Just click the title to read each article.)

This year’s articles ranged the spectrum from side hustles to taxes and, of course, the housing allowance. Ranked according to the number of views over the past year, these are the most popular articles of 2019:

1. Secular Jobs For Pastors: 9 In-Demand Skills You Already Have

This article was in third place in 2018 but has gained the lead with nearly 3,000 more views than its closest competitor. It describes the different skills that most pastors have and how they can be communicated in a way that the secular world will understand. 

This is great for any pastor looking to create a resume for a secular position. As a pastor, you have a lot of highly desirable skills but you’ll never make it to an interview if they aren’t communicated clearly in your resume. 

2. Business Ideas For Pastors That Want To Make Extra Money

This second-place article addresses the same needs as the first, except it is for those who want to start their own business instead of getting a more traditional job. It covers 15 different options that you can do on your own with little startup costs and that can work around your church’s schedule. 

3. Are Pastors Eligible For Public Service Loan Forgiveness?

Americans, nearly ⅙ of the adult population, owe a total of $1.5 trillion in student loans. And, thanks to the cost of seminary tuition and low pay of entry-level ministry jobs, many pastors are among them. The federal government created the Public Service Loan Forgiveness Program to help those who are dedicating their careers to the greater good. This article covers how and when a pastor can be eligible to have their student debt forgiven under this program. 

4. Why Don’t Churches Pay Payroll Taxes For Ministers?

There is a lot of confusion surrounding how taxes apply to churches and pastors. One of the things that makes a pastor’s taxes so unique is the fact that churches aren’t allowed to pay payroll taxes for pastors. This article explains why that is and how it affects you.  

5. Are Pastors Eligible For The 20% Qualified Business Income Deduction?

One thing that came out of the Tax Cuts & Jobs Act of 2017 was a 20% deduction for small businesses and self-employed individuals. Since many pastors actually file taxes as if they were self-employed, this could be a big tax break for them. This article explains the law in detail, when it applies to pastors, and how a pastor can take the deduction.

6. How The Final Tax Bill Affects Pastors

Speaking of the Tax Cuts & Jobs Act, this article explaining how it affects pastors still made the top 10 two years after it was written. If you want to know the changes that affect you without having to wade through boring legislation, then this is the article for you.  

7. How Medicare Works For Pastors Who Have Opted Out Of Social Security

Did you know that part of your payroll taxes covers the cost of Social Security? So, if you have opted out of Social Security you are not paying Medicare taxes either. This can create a lot of confusion once you hit 65 and need to enroll in Medicare. This article explains Medicare eligibility and the effects of opting out on how much it costs. 

8. Can Pastors Opt Back Into Social Security?

Speaking of opting out of Social Security, some pastors do so and then regret it. Is it possible to change your mind? This article answers that question (NO) and discusses other ways that pastors have of obtaining Social Security benefits. 

9. How To Get The Most Value Out Of Your Housing Allowance

The housing allowance is a great tax benefit for pastors and the next three articles all relate to it. This article answers all of the main questions you’ve had about the housing allowance in a Q&A format. 

10. It’s Time To Submit Your 2019 Housing Allowance!

Rounding out the top 10 is another housing allowance article. This one goes into detail on all of the things you need to take into consideration as you calculate your housing needs and request a housing allowance for the coming year. Even though it says 2019 in the title, everything in it applies to your 2020 housing allowance as well. 

Honorable Mention: How To Take A Ministerial Housing Allowance In Retirement

This article just missed the top 10, but I decided to include it anyway because I think it has very important information for all pastors. The housing allowance is a great tax benefit that you can even carry into retirement. However, common financial planning advice can actually mess this up for pastors and forfeit their chances of tax-exempt housing in retirement. This article explains what common advice needs to be ignored and how to take a housing allowance in retirement. 


What do you think? Is there something that you think should have made it onto the list? If you have an idea for an article that you would like to see in 2020, let me know!

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Are Christmas Gifts To Pastors Taxable?

by Monday, December 23, 2019
Picture of Christmas gifts with blog post title: Are Christmas Gifts To Pastors Taxable?

Every year, my church used to do a special offering in December as a Christmas gift for our senior pastor. As they said, why should he get a bunch of $10 gifts that he doesn’t even need when we can pool our resources so that he can buy something bigger that he really does want?

It’s a good approach for everyone involved, even the IRS. You see, just because you and I call something a gift doesn’t mean the IRS doesn’t see it as taxable income. In my example, the Christmas gift we raised for our pastor would indeed be considered taxable compensation for him. In most cases, Christmas gifts are taxable income for the pastor who receives them. 

Gifts From The Church Organization

If your church as an organization gives you a Christmas gift or bonus, it is almost always a taxable gift. When an employer gives an employee something, it is considered additional salary. There are a few exceptions, such as the de minimis rule where an employee can receive tax-free things that are too small to account for, such as the use of the copy machine for personal reasons once in a while or a free turkey at Thanksgiving. 

However, a Christmas gift of cash, gift cards, or even a new car (you wish!) is considered compensation and taxed as such. Just about the only time a church can give their pastor a cash gift without it being taxable is when the pastor retires and there are still a lot of restrictions related to that.

Gifts From Church Members

It’s a little bit different when you receive a gift from a church member directly and it doesn’t pass through the organization of the church. When that happens, both the intent and the circumstances surrounding the gift have to be considered. Why did the person give the gift? And why did they give it to you specifically?

Characteristics Of A Gift

The IRS has much stricter definitions for what constitutes a gift than most of us do. For them, a gift must:

  • Come from a detached and disinterested generosity
  • Be made out of affection, respect, admiration, charity or like impulses


Something is not a gift if:

  • It is given primarily from the constraining force of any moral or legal duty
  • It is received in a regular and structured manner
  • There is an anticipated benefit of an economic nature
  • It is given for services rendered even if the giver receives no economic benefit

How Taxability Is Determined

That last point is a big one for pastors. Most gifts are given to pastors because of the pastoral relationship. Ask yourself, Would I be getting this gift if I wasn’t the pastor? If the answer is no, then it is taxable. 

Your mother’s Christmas gift is not taxable because she would give it to you whether or not you pastored her church. Most church members, though, would not be giving you gifts if you weren’t the pastor. 

One of our staff pastors is in my small group. If I gave each small group member a $50 Amazon card, then that would not be taxable to him because it would be based on his membership in my group, not his pastoral role. However, if I gave only him a gift card, then it would be construed as based on the pastoral relationship and considered taxable income in the eyes of the IRS. 

Any gift that is part of a collection organized by church leaders is taxable. Also, any gift made because the giver doesn’t think the pastor gets paid enough or to keep him or her from leaving the church is taxable as additional compensation. 

Basically, the safest thing is to assume that all the gifts you receive are considered taxable compensation by the IRS. If you have a strong argument for why something should not be treated as income, feel free to act accordingly. However, many generous church members have been overruled in the US tax court. 

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2020 Housing Allowance For Pastors: What You Need To Know

by Monday, December 16, 2019
Picture of a hand opening a door with blog post title: 2020 Housing Allowance For Pastors: What You Need To Know

The new year is just around the corner, so it’s time to be thinking about your 2020 pastor’s housing allowance. Here are a few things to keep in mind as you make your plans.

Your Housing Allowance Should Be Approved In December

The housing allowance for pastors is not and can never be a retroactive benefit. Only expenses incurred after the allowance is officially designated can qualify for tax exemption. Therefore, it is important to request your housing allowance and have it designated before January 1 so that it is in place for all of 2020. 

If your expenses are pretty regular from year to year, it is a good idea to use language such as “this designation shall be effective until modified by…” That way, you don’t have to request a new allowance each year.

It Is Limited 

You may not be able to claim all of your housing expenses for tax exemption. The housing allowance for pastors is limited to 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 that represents reasonable pay for your ministerial services.


You can learn more about how much housing allowance pastors can claim and how to calculate the rental value of your home by following the links in this sentence.

The Housing Allowance Can Affect Your Child Tax Credit

One of the best parts of the Tax Cuts & Jobs Act for parents was that it doubled the Child Tax Credit. Our little boogers are now worth $2,000 apiece instead of $1,000. On top of that, up to $1,400 of that is refundable, meaning the government will give you the money even if you don’t owe any tax. 

One thing that I discovered when reviewing one pastor’s taxes, though, is that the housing allowance can actually hurt your eligibility for the refundable portion of the child tax credit. That’s because the housing allowance for pastors lowers your taxable income and the additional child tax credit is limited to a percent of your taxable income. If you have kids and claim a housing allowance, you should really read this article so that you’re not missing out on free money. 

Your Side Gig Might Affect Your Housing Allowance

While parents have a few extra things to consider regarding the housing allowance, entrepreneurs do too. If you run a side-business out of your home or rent out part of your home, that will affect your housing allowance. The portion of your home used to generate income is not eligible for the clergy housing allowance. You can read all about how that works here. 

You Can Change Your Housing Allowance Mid-Year

I know that I told you it’s really important to get your housing allowance in place before January 1, but that’s not really a magical date. The truth is, you can change or request a housing allowance at any time during the year. I recommend having it in place by January 1 so that you don’t miss out on any of the year. 

However, if your situation changes mid-year, so can your housing allowance. All you have to do is request a new one. Or, if you enter the ministry mid-year, you don’t have to wait until January to start claiming a housing allowance. Get it officially designated as soon as possible and start saving on taxes. This article explains how it works in greater detail. 

You Can Claim A Cash Allowance Even If You Have A Parsonage

The cash housing allowance and parsonage allowance are not mutually exclusive. You don’t necessarily have to choose one or the other. If you live in a parsonage but still pay some housing expenses out-of-pocket, then you can have both. You can read about how to do that here. 

You Can Claim A Housing Allowance In Retirement

Did you know that just because you retire your housing allowance doesn’t have to as well? That’s right, you can claim a housing allowance in retirement. You can only do so if you have your retirement money in a qualified church retirement account, though. If you want to learn more about saving on taxes in retirement by claiming a minister housing allowance, read this article.

It’s Okay To Overestimate

Since none of us can predict the future, there’s really no way to know exactly what your housing expenses will be in a given year. I didn’t expect to replace my roof, paint my house, or fix carpenter ant damage in January of the years that I did them. Houses have a way of surprising you sometimes.

How do you request a housing allowance for an unknown future? Overestimate. Now, there are a lot of times in life when you don’t want to overestimate. Overestimating on things like how far you can jump across a ravine or guessing your fiance’s weight will get you into trouble. But, the consequences are pretty minor for overestimating your expected housing expenses. 

All you have to do is add the excess allowance back into your taxable income when you file your return. It’s pretty simple. This article will give you step-by-step instructions on how to do it. It’s not a lot of work and it sure beats paying extra taxes because you underestimated.

How To Calculate Your 2020 Housing Allowance

So, are you ready to calculate your 2020 housing allowance now? I’ve got some tools to help you out!

Pastor’s Wallet has our very own calculator that you can use for free here.

I’ve also created a worksheet that you can either open in Excel or print and fill in.


2020 Housing Allowance for Pastors Worksheet (.pdf)Download
2020 Housing Allowance for Pastors Excel WorksheetDownload


I hope you find these tools useful and if you have any questions as you go, don’t hesitate to email me at amy@pastorswallet.com!

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Health Insurance For Pastors: What Are Your Options?

by Monday, December 9, 2019
Picture of a stethoscope with blog post title: Health Insurance For Pastors: What Are Your Options?

We are nearing the end of open enrollment on the Obamacare healthcare exchanges. If you are not satisfied with your current health insurance (or lack thereof), now is the time to address it. Health insurance is a big topic among pastors because many churches do not have the resources to provide insurance the way large for-profit employers do. 

What is a pastor to do? Here are your options, depending on whether or not your church is willing and able to help you out in this area. 

On Your Own

Many churches struggle to pay their pastors a salary and only dream of being able to help with healthcare costs. If you’re serving one of those churches, you still have some options. While in the US healthcare is often tied to employment, it doesn’t have to be.

Pay Cash

The most basic option available to you is to just pay cash for your healthcare needs, the way you do for your groceries or haircuts. Healthcare costs a lot more than groceries and haircuts, though, so this is not a popular option. Also, some medical providers only work with insurance companies so your options may be limited if you self-pay. The Affordable Care Act, or Obamacare, imposed a penalty tax on people who just pay cash and don’t have insurance, but after 2018 that will be gone. 

Health Sharing Ministry

A non-insurance option that exempts you from the Obamacare penalty is participating in a health sharing ministry. In a health sharing ministry, a group of people (usually Christians) help pay each other’s medical expenses. 

With some, you pay a monthly fee to the organization and then they help cover your medical costs. With others, you send your money directly to the other members who have medical needs at the time. This follows more of an Acts 2 model where everyone helps to take care of each other. You can read more about the top medical sharing ministries and how they work here. 

Individual Health Insurance

Another option is to buy your own individual health insurance. You can do this directly with a health insurance company or through the healthcare exchanges, or marketplaces, established by the Affordable Care Act.
 

If you purchase insurance through the marketplace, then you may also be eligible for premium tax credits to help offset the cost of your insurance premiums. Eligibility is based on income and family size. One nice thing for pastors is that the housing allowance does not count as income for the premium tax credit calculations.

Medicaid

If your income is low enough, you may be eligible for Medicaid, which is the government program that provides health insurance for low-income people. There is also CHIP, or the Children’s Health Insurance Program. It is another government program that does the same for children. As with the premium tax credits, your housing allowance is not included in income when calculating eligibility (unless eligibility is based on blindness, disability, or being over age 65).

Spouse’s Employer

The final way to get healthcare coverage on your own is to get it through your spouse’s employer. If your spouse works and has access to group health insurance, then that may very well be your best option. 

If The Church Will Help

When your church is willing and able to help with your health insurance needs, then you have more options.

Informal Stipend

Some churches choose to simply give their pastor some extra money to go towards healthcare costs. All that the church provides is money, the pastor has to choose one of the above options and implement it.

This arrangement is nice in that the church is helping out and the pastor has complete freedom to make decisions. However, from a tax perspective, it is not very efficient. Because the payments made to the pastor are not a part of an IRS qualified plan, they are considered income and taxed accordingly. A $1,000 stipend can quickly dwindle down to $600 after federal and state income taxes and SECA (Social Security taxes). 

Qualified Reimbursement

There are ways for a church to reimburse a pastor for healthcare expenses without having it count as taxable income. Health reimbursement arrangements (HRAs), also called health reimbursement accounts or personal care accounts, are set up according to IRS rules to do just that. Most churches would offer a solo employee HRA (for only covering 1 employee) or a qualified small employer health reimbursement arrangement (QSEHRA), which is designed for organizations with fewer than 50 employees.

This is how they work:

  1. The church sets a reimbursement allowance.
  2. The pastor pays for health expenses.
  3. The pastor submits proof of expenses to the church.
  4. The church reimburses the pastor for the expenses, up to the preset limit.


For QSEHRAs, the church must offer the same reimbursement to all eligible employees. The one exception is differentiating between single coverage and those with families. For 2019, the annual limit for single employees is $5,150 and for employees covering their families is $10,450. As long as the plan is offered fairly among employees and the expenses are qualified under IRS rules, then the reimbursement money is tax-free.

One thing to keep in mind, though, is that qualified reimbursements offset premium tax credits if you purchase insurance through the exchange. Your tax credit will be lowered based on your church’s reimbursement. Thus, you could end up in a situation where the church is simply paying instead of the government and the pastor receives no added benefit. 

Group Health Insurance

Churches or denominations with the available resources can offer group health insurance just like many companies do. Group health coverage usually has lower premiums than individual insurance policies. This is because there is more room for negotiating and the risk is spread among more people. 

Even if your denomination does not offer group insurance or your church cannot afford it on their own, you may be able to join with another group to reap the benefits of group insurance. Some churches are eligible to participate in group insurance through Christian organizations like Guidestone. Others have been able to obtain group coverage through organizations like their local chamber of commerce.

Obamacare Small Business Health Options Program

Another church-sponsored option is an Obamacare Small Business Health Options Program (SHOP). This works much like the individual insurance marketplace set up by Obamacare but is for small businesses (and churches). There are some participation requirements that churches must meet to participate and they would have to help cover the costs of the insurance as well. 

Employer Medical Cost-Sharing Ministry

Just as there is a small business option on the Obamacare exchange, there are also options for churches among medical cost-sharing ministries. Two that offer them are Sedera and Aliera Healthcare. 


Those are your options if you’re a pastor looking for health insurance. Remember, starting in 2019 there is no individual mandate, or penalty tax for not having insurance. It’s still a good idea to be covered, though. Hopefully, one of the options above is a good fit for you and your family.

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Can A Church Provide A Pastor With A Parsonage And A Cash Housing Allowance?

by Monday, December 2, 2019
Picture of a modern living room with blog post title: Can A Church Provide A Pastor With A Parsonage And A Cash Housing Allowance?

One of the greatest financial benefits available to pastors is the ministerial housing allowance. Unfortunately, it is also one of the most misunderstood aspects of a pastor’s finances. Most pastors are aware of its existence and benefits but still have questions, like:

Who is eligible to claim a ministerial housing allowance?

How much housing allowance can a pastor claim?

How do you calculate a housing allowance?

If you want to know the answer to any of those questions, just click on the link. Today’s article discusses one of the biggest fallacies of the housing allowance, that you can only claim a parsonage or cash allowance, but not both.

The Difference Between The Parsonage & Cash Housing Allowance

The ministerial housing allowance is a way for ordained, licensed, or commissioned religious leaders to avoid paying federal income taxes on their housing expenses. It only applies to federal income taxes and not Social Security and Medicare taxes.

The housing allowance appears in two different forms; the parsonage allowance and the cash housing allowance. The parsonage allowance is for those who live in a church-provided parsonage and covers the cost of the parsonage (and any utilities or furnishings provided by the church). The cash housing allowance covers all other qualified housing expenses. 

Typical Pastoral Housing Expenses

If you think about it, you have a lot of housing expenses beyond just your rent or mortgage payment. There are utilities, furnishings, equipment necessary to maintain the home like lawnmowers and snow shovels, and the list could go on and on. All of these things are eligible for the ministerial housing allowance.

A number of churches provide their pastor with a parsonage. Some of them even pay the utilities or provide furnishings. However, few churches cover all of the expenses related to providing and maintaining the home. It just isn’t practical. Because ministers that live in parsonages often pay for other housing expenses out of pocket, it is possible to be eligible for both a parsonage allowance and a cash housing allowance. 

Both kinds of housing allowance need to be available to keep things fair. If a pastor had to choose only one or the other, then some pastors who live in parsonages would end up paying income taxes on the money they spend on utilities while those without parsonages would get them tax-free. That isn’t very fair, is it?

No Double Dipping

Thus, it is possible and entirely legal to claim both a parsonage allowance and a cash housing allowance. You just can’t claim both for the same expenses. That would be illegal.

Anything your church pays for is covered under the parsonage allowance. This would include the fair market rental value of the parsonage and any utilities or other expenses the church covers. 

Anything that you pay for out-of-pocket is covered under the cash housing allowance. Every expense must be assigned to one or the other, never both. If you try to claim a cash housing allowance for something that your church pays for, that is tax evasion and you’ll end up in big trouble with the IRS. Don’t do it.

How To Request A Cash Housing Allowance

A lot of ministers who live in parsonages don’t realize that they can also be eligible for a cash housing allowance as well. If that’s you, this is your lucky day! You can request a cash housing allowance today and keep more of your money in your own pockets instead of giving it to the IRS. 

Requesting a cash allowance is simple. All you have to do is:

  1. Calculate your estimated out-of-pocket expenses for the coming year.
  2. Request that your church officially designates that amount as a cash housing allowance for 2020.
  3. Track your expenses throughout the year. 



For more information on requesting the cash housing allowance, read this article. For help calculating your anticipated expenses, read this article. If you have any other questions, ask them in the comments or email me!

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