14 Mar 2019

Why Pastors' Tax Returns Are Often Wrong

Bella Simonetti

No one enjoys filing their taxes. That’s why every year when tax season comes around, we often seek out the most convenient solution to get our taxes done. This may look like using an online program, paying a big tax company, or using a local CPA. For most people, these options work well enough. 

But when pastors reach for these simple solutions, they can end up paying more money on their taxes than they should. The fact is, out of all taxpayers, pastors and ministers can save the most money. 

Many pastors’ tax returns are often wrong because they hired a tax preparer who wasn’t fully aware of the unique tax benefits available to ministers. However, a little bit of knowledge on the subject of ministerial taxes and asking a few questions can go a long way.

Before you seek out a tax preparer or a CPA to partner with you, you’ll want to 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.”

"Any CPA is good enough for a pastor."

Ever heard that before? Maybe you’ve thought the same thing when considering hiring a CPA for your taxes. 

CPAs often file returns for pastors under general rules, which causes pastors to pay more in taxes than necessary. However, pastors fall under special IRS rules that change yearly. These special IRS rules often provide tax benefits for pastors. Only a CPA staying up to date on these rules 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 who is experienced in ministerial returns. 

2. 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 on housing allowance, 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 his or her total income as housing allowance, if the minister has the proper proof of substantiation. 

Discover How to Maximize Your Housing Allowance Benefit

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3. The misconception of certification

“If they call themselves a tax professional, then they must be certified.” 

This just isn’t true. 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. 

4. The misconception of pastor’s tax-free status

Many pastors believe they don’t have tax responsibility. This leads them never to report or pay their legal amount of taxes, leaving them liable for severe penalties or worse. Uninformed CPAs often make this situation worse. 

Whichever tax preparer you use, make sure they understand 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. 

Pastors also often think that a "love offering" is nontaxable income. This also isn't correct. According to the IRS, "love offerings" are considered taxable income. This has led many pastors down the path of unintentional tax evasion. If your CPA doesn't have an accurate understanding of today's financial and legal landscape, they can do more harm than good to a pastor's economic status.

5. The misconception of responsibility

"If my taxes are filed wrong, my CPA is responsible." 

When it comes to filing taxes, many pastors believe their 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. The misconception of 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. The misconception of personalized strategy 

The Bible says that there is wisdom in advisors. Many pastors look to their tax preparer in hopes that he or she will help them develop a personal tax strategy. 

Recently, a pastor was processing through a proposed upcoming raise from his local church. Before the board voted on the new salary, the pastor felt it was best to run the numbers by one of our CPAs at StartCHURCH. The CPA reviewed and confirmed the numbers were good and gave insight into reducing the pastor’s overall tax burden. 

Unfortunately, not all ministers have this same experience with their tax preparer. There is more to your relationship with your CPA than a once-a-year visit. Your tax return might be filed once a year, but your taxes are a result of your day-to-day decisions. 

Make sure you take advantage of every benefit available to you. Hire a CPA who will be familiar with your specific circumstance and will be available to you for tax advice throughout the year.

8. The misconception of availability

When looking for a CPA, ask yourself, "Is this person readily available for tax advice?" 

Many tax professionals disappear for nine months out of the year. If you have questions about your taxes during the year, these tax professionals and other big tax companies can be hard to reach. Finding a CPA who is available to answer your questions throughout the year is a tremendous benefit to have. 

9. The misconception of audit assistance

No one likes to be audited. Yet, thousands of taxpayers will go through some kind of audit this year. This is usually a long and arduous process. Many pastors believe if they were to get audited, they would get assistance from their CPA. Unfortunately, this isn’t always the case. Like the previously mentioned misconception, many tax preparers do not offer support beyond filing your tax return. 

A poor tax strategy is having your taxes prepared by a seasonal department of a chain retailer. Most likely, they too will not be available for audit assistance.  

With the StartCHURCH Minister's Tax Return Service, our tax professionals are available to help you through an audit process. You won't be alone in the face of an IRS audit.

10. The misconception of stock trading reports

"I didn't make any profit on my stock trades, so I don't have to report it." 

Many pastors believe if they don't make a profit on their stock trades, there is no need to report that activity on a Form 1099. But this is incorrect. 

If you don't record your stock trades accurately on the correct 1040 schedule, the IRS will assume that 100% profit was made.

Make sure your CPA knows both the common streams of income and the extra ones. This will ensure your reporting is both legally accurate and fiscally sound.

11. The misconception of rounded up deductions 

Many pastors "round up" their itemized deductions for their returns. Often, a pastor will write "40,000" for his mileage, but this mileage total isn't accurate. Seeing a sum rounded like that on your return creates skepticism for the IRS. This can potentially lead to an audit. 

Make sure your tax preparer understands IRS rules and regulation. Your tax return must be an accurate statement of your numbers and must meet IRS requirements.

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Finding the right tax preparer 

Just because someone works as a tax preparer or a CPA does not mean he or she is an expert in ministerial taxes. Before you make a final decision on who you want to prepare your tax return, please consider the misconceptions above and ask your potential tax filer questions. 

You deserve to have your taxes filed correctly. Make sure you hire someone to do your taxes who is well experienced in completing tax returns for those in ministry.

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 personal income tax returns. Our CPAs are well experienced in handling taxes for clergy. Give us a call today at, 877-494-4655 to find out more about how we can serve you this tax season. 

Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Blessings,
Raul Rivera

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