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. 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.
- “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.
- 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.
- 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 certified.
- 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 941and 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.
- 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.
Click here to read what the other six misconceptions are about tax preparers.
Today’s guest post comes to us from Bella Simonetti for StartCHURCH. StartCHURCH is America’s #1 church planting service.
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