This post breaks down all of the major types of income a pastor can earn and explains how the IRS treats them for Social Security, income tax, retirement plan and payroll tax purposes. It is based on IRS Publication 517. View post

Like many all over the globe, pastors did a lot of work from home last year. Whether you already had a dedicated space or had to claim a corner of the dining room table, last year was the year of the home office. Does that mean you get to claim a home office deduction on your taxes? I’m sorry to say, probably not. Some strict requirements must be met in order to claim the home office tax deduction, and the majority of pastors likely will not qualify.  Requirements to Claim the Home Office Tax Deduction Self-Employed vs. Employee The first rule, which knocks out almost everyone, is that employees cannot claim the home office tax deduction. Even if all of your work is always done from a home office. If you are an employee of a church or other organization, you cannot claim the deduction (even though you pay some taxes as if self-employed). ...

Any time you want tax-free housing! While that answer is true, here is an excerpt from my book, The Pastor’s Wallet Complete Guide to the Clergy Housing Allowance, that will provide a bit more depth:  Timing Timing is very important when it comes to the housing allowance. A housing allowance can only be paid prospectively, not retroactively. That means you cannot go back in time. You can only take a housing allowance after it has been designated; any expenses incurred prior to the official designation are ineligible. That is why leaving the designation open-ended is a good idea. Then you don’t have to worry about missing out on the housing allowance because you forgot to get it officially designated on time. You know you will always have it available to you and you only need to worry about the amount rather than the timing. Many churches designate housing allowances by the calendar year since that ...

About seven years ago, I decided I wanted to be able to help people with money. I had begun listening to Dave Ramsey to stave off the boredom of spending 12 hours a day alone with an infant and it was life-changing. I didn’t know much about money because my parents didn’t know much. All I knew was to work hard and save because eventually you always need money.  I also knew that finances have a profound impact on your life and your relationships. My mom was a single parent with six kids in southern California, so I had experienced firsthand the levels of stress and anxiety that can come from financial struggles. In listening to Dave Ramsey, I realized that helping someone get control of their finances can change their life, their marriage, their family, and their future for generations to come. I wanted to do that. Two Avenues For Financial ...

As we all know, nothing went quite as expected in 2020. In fact, for most of us, nothing went anywhere close to expected! Maybe you were planning on doing some work on your home and things got shut down because of COVID-19. Perhaps you were planning on spending some money on items for your home, but COVID-19 made you tighten your budget. Or things just didn't go according to plan and it had nothing to do with COVID-19! (But we're blaming everything on COVID-19 these days, right?) While altering your plans is always annoying, it is a bit more significant for pastors when it comes to housing expenses. At the beginning of the year, you have to carefully estimate your yearly housing expenses in order to avoid paying taxes on them with the clergy housing allowance. You meticulously calculate your anticipated rent, utilities, home purchases, and big projects. And then something ...

A lot is said about the tax-deductibility of charitable contributions. After all, that is why your church went through the trouble of gaining 501(c)(3) status with the IRS. So that donors could get tax breaks. Not everyone gets a tax break for their charitable giving, though. It all depends on how you file your taxes.  Itemizing for Charitable Deductions Usually, in order to get a deduction for your giving, you have to do something called itemizing deductions. It means that you list out all of the different things you are eligible to deduct and add them up. You have to fill out an additional tax form and track your giving, state and local taxes, medical expenses, and things like that. The other option is to take a standard deduction, which is a lot easier. For 2020, the standard deduction for a single person is $12,400, for a head of household it is $18,650, and ...

Every year, the federal government hands out money for free. However, one out of five people who are eligible doesn’t claim it.  That sounds crazy, right? Who foregoes free money? And how can you be eligible to get it? For all you know, you might be one of the crazy ones. This free money I’m talking about comes in the form of the Earned Income Tax Credit (EITC). In 2020, the government handed out $57 billion in EITC alone. That means there was $14.25 billion last year up for grabs and some of it could have been yours. What Is The Earned Income Tax Credit? The EITC is the government’s attempt to offset some of the payroll taxes for lower-income workers. Everyone pays payroll taxes at a flat rate (more or less). It is not a progressive system like income taxes where those with more earnings pay a larger percentage of their income. To ...

This is an excerpt from my book, The Pastor’s Wallet Complete Guide to the Clergy Housing Allowance:  Pastor Housing Allowance Responsibilities Pastor, when it comes to the housing allowance, you’re the man (or woman). If you want the tax savings that the clergy housing allowance provides, it’s on you. It’s not the church’s responsibility, it’s yours. You are the one who has to calculate your anticipated expenses for the year, submit them to your church, and make sure they approve it in time. Also, it’s your job to track your expenses throughout the year to substantiate the housing allowance that you claim. Unlike an accountable reimbursement plan where you have to submit receipts to the church, hang onto your receipts. If you get audited by the IRS, you are the one that will have to answer to them, not your church.  Church Housing Allowance Responsibilities The church or denomination is responsible for officially designating the ...

After keeping the nation on its toes for a week, President Trump signed a new stimulus bill into law on December 27, 2020. The stimulus bill was actually only a small part of the 5,000+ page Consolidated Appropriations Act of 2021 that funds the government until September. In addition to the stimulus bill, there were also some tax law changes tacked on to it as well. While you probably already know about the stimulus checks it authorized (and the political battle being waged over their amount), there are also other aspects of the bill that might affect you and you should be aware of. While none of it is pastor-specific (your housing allowance is still safe!), these are the parts that may impact you: Stimulus Checks Everyone’s favorite part is a new round of stimulus checks to be mailed out immediately. Though similar to the checks sent out this spring, there are ...

We’ve made it to the end of 2020. For the last blog post of every year, I provide a list of the top ten posts that have received the most views during the year. It gives you a chance to catch up on anything important that you may have missed during the year and it gives me the chance to slack off and write an easy post over the holidays. It’s a win-win, don’t you think? Combined, these posts have been viewed around 60,000 times this year. What is everyone so interested in? Here they are in order of popularity: (Each title is linked to the article, so you can read them.) 1. Secular Jobs For Pastors: 9 In-Demand Skills You Already Have This article was in the top spot last year as well and ranked #3 in 2018. I think it has become even more important this year as high unemployment rates ...