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 ...

From time to time I read Thom Rainer’s blog to stay up to date on the issues that pastors are facing today. The most enlightening part is the comments that pastors leave on his articles. When I read the comments on his financial posts, my heart breaks.  There are so many challenges that pastors face that it makes me want to round you all up, give you big hugs, big thanks, a check for a million dollars, and a free week-long vacation on a private island with your spouse or family. And then go to your congregation and give some of the people a talking to.  But I can’t really do that, so I’ve chosen just one area, personal finance, where I feel I can actually make a positive impact on your lives. That’s why this blog exists. What Pastors Regret Most About Their Personal Finances In reading the comments on his articles and ...

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 InvestingValues-driven InvestingValues-based InvestingBiblically Responsible InvestingEthical InvestingESG (Environmental, Social, and Governance)Socially Responsible Investing (SRI)Impact InvestingSustainable InvestingResponsible 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 ...

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 ...

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 ...

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 ...

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 ...

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 ...

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 ...