11 Common Myths About Pastors’ Tax Returns
By Kristen Alexander
4 Minute Read
In this day and age, seemingness endless options exist when it comes time to file your taxes. Almost all of them boast convenience and ease of access, and for most people, these options are a simple solution to an annual headache.
But when pastors use these simple solutions, they can end up paying more on their taxes than they should. This is because pastors and ministers can save the most money out of all tax-payers.
Before you seek a tax preparer or a CPA to partner with, keep a few things in mind. Let's take a look at 11 common misconceptions about tax preparers.
1. "Any CPA is a good CPA."
CPAs often file returns for pastors under general rules. However, pastors fall under special IRS rules that change yearly. These rules often provide tax benefits for pastors. Only a CPA staying up to date on these will bring you value as a minister.
If you want to save the most money on your taxes, and have them filed correctly, hire a tax preparer experienced in ministerial returns.
Many tax returns are prepared by people who claim to be professionals but are not "Certified" Public Accountants. Do your research before you work with a tax preparer. Make sure your tax preparer is indeed certified.
3. The misconception of 50%
Many tax preparers believe that only up to 50% of the pastor's total income can be deemed housing allowance. This misinformation is based on old laws. If a tax preparer isn't up to date, the pastors they serve end up paying more on their taxes.
According to the Housing Clarification Act of 2002, a minister may claim up to 100% of their total income as a housing allowance if the minister has the proper proof of substantiation.
To learn more housing allowance myths, read our blog here.
4. Tax-free Status
It is a common belief that ministers don't have a tax responsibility. This leads them never to report or pay their legal amount of taxes, leaving them liable for severe penalties or worse.
Ensure your CPA understands the proper filings required for pastors, such as Form 941 and Form 4361. Be sure they also properly document housing allowance on your W-2 form.
When it comes to filing taxes, many pastors believe the CPA is responsible if something goes wrong. But this, too, is not true.
Upon signature of the tax return, the minister assumes full responsibility for the accuracy of the return. The minister also falls under perjury laws in some cases.
6. Cost Equity
There is no set standard pricing for personal tax returns. CPAs can charge whatever they want for an individual tax return without additional schedules created for an individual's return.
Just because someone is a "high-priced CPA" does not mean that he or she is the best for your specific situation. The more experienced a CPA is with ministerial taxes, the more beneficial he or she will be to you.
7. Personalized Strategy
Recently, a pastor was evaluating a proposed raise from his local church. Before the board voted on the new salary, the pastor ran it by one of our CPAs. They reviewed and confirmed the numbers and gave insight into reducing the pastor's overall tax burden.
Unfortunately, not all ministers have this experience. There is more to your relationship with your CPA than a once-a-year visit. Hire a CPA familiar with your specific circumstance and available to you for tax advice throughout the year.
When looking for a CPA, ask yourself, "Is this person readily available for tax advice?"
Many tax professionals disappear after tax season. If you have questions during the year, these tax professionals and other big tax companies can be hard to reach. Finding a CPA who is available throughout the year is a tremendous benefit to have.
9. Audit assistance
Thousands will go through some kind of audit this year. This is usually a complex process. It is a common assumption that if they are audited, they will get assistance from their CPA. Like the previously mentioned misconception, many tax preparers do not offer support beyond filing your tax return.
With the StartCHURCH Minister's Tax Return Service, you won't be alone in the face of an IRS audit.
Save on Money on Your Taxes!Click Here
10. Stock trading reports
A common misconception is that not making a profit on their stock trades means there is no need to report that activity on a Form 1099. If you don't record your stock trades accurately on the correct 1040 schedule, the IRS will assume that 100% profit was made.
Ensure your CPA knows both the typical streams of income and the extra ones. This will ensure your reporting is both legally accurate and fiscally sound.
11. Rounded up deductions
Many pastors "round up" itemized deductions for their returns. Often, a pastor will write "40,000" for his mileage, but this total isn't accurate. Seeing a sum rounded like that on your return creates skepticism, potentially leading to an audit.
Make sure your tax preparer understands IRS rules and regulations. Your tax return must be an accurate statement of your numbers and meet IRS requirements.
Finding the right tax preparer
Just because someone works as a tax preparer or a CPA does not mean they are an expert in ministerial taxes. You deserve to have your taxes filed correctly. At StartCHURCH, we believe those who do so much for God's Kingdom should have it easy when it comes to filing taxes. That's why we offer a tax service for pastors and ministers.
Over the years, we have served thousands of pastors with their income tax returns. Our CPAs are experienced in handling taxes for clergy. Give us a call today at 877-494-4655 or click the link below to find out more about how we can serve you this tax season.