Someone wrote to me recently with some questions about Form 4361 that is used by clergy to opt out of Social Security. One of the questions was, how hard is it to get Form 2031 approved to revoke Form 4361 and opt back into Social Security? That is a very important question, so today we are going to address it.  What Is IRS Form 2031? Let me start by explaining these forms. Form 4361 is what pastors use to opt out of participating in the Social Security system. Click on that sentence to learn more about it.  IRS Form 2031 is used to revoke Form 4361 and opt back into Social Security. It is an irrevocable election that makes you liable for self-employment tax and includes your ministerial earnings in Social Security and Medicare coverage.  Can You Use IRS Form 2031 Right Now? I have heard from a number of pastors that opted out of ...

With businesses shutting down and church services closed, you may find yourself reassessing your financial situation. Which expenses are mandatory and which can you do without? What resources do you have available to you that you don’t usually access? As you’re taking stock of your situation, I’d like to let you know about a few changes that the CARES Act stimulus bill makes to the rules about your retirement savings. 2020 Required Minimum Distributions Waived This is one that really only helps those who already have more than enough to live on. Required minimum distributions (RMDs) from traditional IRAs, SEP IRAs, SIMPLE IRAs, and 401(k), 403(b), and governmental 457(b) plans are waived for the year 2020. The waiver applies to beneficiary account owners in addition to original account owners. Basically, no one has to take RMDs for 2020.  If you’ve already taken an RMD that you really don’t need, the law allows you ...

By law, a minister’s housing allowance must be designated by a church or church denomination. But what does that mean? Surely a mosque or synagogue would count since the government isn’t allowed to discriminate between religions. The IRS uses a different meaning for church than most of us do in our everyday language. Church for them has more to do with an organization’s religious purpose than their actual religion or common vocabulary. The truth is, Section 107 of the Internal Revenue Code that lays out the clergy housing allowance does not actually define the term church.  How The IRS Identifies A Church  Since the law doesn’t spell things out, there have been disagreements that have led to court cases throughout the years. The decisions in those court cases are what the IRS has used to develop a list of characteristics that they attribute to churches. This is what the IRS looks for to ...

On Friday afternoon, President Trump signed into law our nation’s largest-ever economic stimulus package, the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The bill will cost around $2 trillion and includes nearly $500 billion for rebate checks for individuals and families, another $500 billion to support severely damaged industries, nearly $400 billion dollars to provide tax credits for wages and payroll tax relief, over $300 billion to assist state and local governments, and almost $150 billion to support hospitals and the healthcare system.  This article will only look at the rebate checks, but you can read a full run-down of how the entire bill affects individuals and families here. The rebate checks are perhaps the most eagerly anticipated part of the bill for individuals, so today we are going to answer all of your questions about them. Who Gets Rebate Checks? Basically, there are only three kinds of people who are not ...

I’m pleased to announce that my first book is now available for sale on Amazon! The Pastor’s Wallet Complete Guide To The Clergy Housing Allowance is a comprehensive look at all things housing allowance.  The Story Behind The Book Last February, I sat down to put together a downloadable resource about the housing allowance since it is a common topic of reader questions. As I started my research, I thought to myself, you could write a whole book about this stuff!  And so I did.  I spent hours in research, reading through IRS documents, tax court cases, and the Internal Revenue Code. If you think that sounds incredibly boring, you’re right. I would much rather read a John Grisham novel than anything put out by the IRS.  But I’ve met too many pastors who are paying taxes unnecessarily because they don’t understand how the housing allowance works. And I’ve heard from too many financial professionals ...

As you have likely noticed recently, our world is currently in an upheaval. We just had our worst week in the stock market since 2008. The historic bull market that we have been enjoying for the past 11 years is now officially over. Gatherings of over 250 people are being banned all over the country and schools are closing left and right.  Things just aren’t normal right now. You are likely being inundated with messages about the coronavirus. Some are saying just calm down and stop buying toilet paper while others are saying go into hibernation, the world as we know it is over. It’s hard to sift through the messages to find the truth. And it’s even harder to find actionable advice that will make a practical difference in your life.  Today I’d like to offer you some practical action steps that will be of great help to you if the coronavirus ...

This is an excerpt from The Pastor’s Wallet Complete Guide to the Clergy Housing Allowance, now available for purchase on Amazon. Everyone wants a clear list of what is permissible and what is not allowed for the housing allowance. Unfortunately, that is still being figured out. Right now it just allows “expenses directly related to providing a home” and only specifically prohibits food and servants. That clear-cut list that everyone wants is still out there somewhere with unicorns and the Easter bunny. Good luck finding it. The specifics that we do have come from IRS rulings and case law. There are a few things that have been decided for sure qualify or don’t, but the thousands of other possibilities out there simply have not been addressed by the IRS yet.  How To Determine What Qualifies For The Clergy Housing Allowance There are only three ways to find out for sure if something qualifies. You ...

Today we’re taking a break from tax season technicalities to discuss something a little bit more fun but often more stressful: children. Actually, children and money. That doesn’t sound very relaxing, now does it?  Today’s post was inspired by my daughter who will be turning 6 ½ in two weeks. She has decided that she wants to make YouTube videos with me where we talk about finances. But first, she needed to learn about finances. So that’s what we discussed all weekend. What? Isn’t that what all first graders are into? I was actually amazed at how much a 6-year-old can learn and understand about finances. I explained budgeting to her and she immediately turned around and re-taught the lesson to her older brother. She now understands insurance, taxes, and compound interest. She’s really excited to start investing. She has $7.08 and wants to open an investment account already. Now, my daughter might ...

I recently received an email from a pastor’s wife of 15 years asking for clarification on how their taxes were paid. She was too embarrassed to ask their tax preparer after all this time, so I was a safe place to turn. (If you have any questions, no matter how dumb you may think they are, I’d be happy to help!) She felt dumb asking, but it was unwarranted. Taxes for pastors are unusual and it’s very rare for someone to actually explain them to you when you enter the ministry. It took me a while to figure out how they all work, so I don’t fault anyone else for not knowing.  Today we are going to go over the three different options that pastors have for paying their taxes. Five Facts About Ministerial Taxation Before we get too far in, though, we need to lay the foundation for what we are going to ...

We usually think of taxation as just a way for the government to raise funds for their many activities. But did you know that one of the stated purposes of taxation is to try to influence people’s behaviors? There are some things that the government feels are good for society and they want to encourage people to do them. How do they encourage them? Through tax breaks. Do you know why you get to deduct property taxes and mortgage interest when you itemize deductions? Because the government thinks it’s good for people to own homes. Do you know why the saver’s credit exists? Because the government wants to encourage even low-income earners to save for retirement. The government uses taxation to encourage certain behaviors that they feel are beneficial to society.  One way to encourage people to do something is to let them avoid paying taxes on it. They say, “We want ...