Get ready for tax preparation this year

The people at my-pastor.com say you might need more information about clergy tax issues if you hear yourself or someone else at your church say:

• “Pastor Jones always had us do it this way.”
• “When Tim was treasurer, he didn’t keep those records.”
• “Do we give pastor a W-2 or a 1099?”
• “Do we put parsonage allowance on the pastor’s tax forms?”
• “What do you mean by ‘accountable reimbursement?’

Pastors must finally sign at the bottom of the tax forms, some without fully understanding the nuances of clergy tax issues – but hoping for the best. This year, how are you preparing your taxes?

There are also some brave, self-educated souls who are comfortable preparing their own tax forms. Dave Sutter, senior pastor at Kern Road Mennonite in South Bend, Ind., has used tax preparation software for years.

“For many years I used Clergy Tax, originally developed by Parson’s Technology, the creators of the well-known Bible software, Quickverse,” Dave said. “Then Parsons was bought out, and the tax information was sold to Turbo Tax. There were a couple of years when I was without Clergy Tax, and I was not very happy with Turbo Tax.

“But (now), if you answer the questions in the interview correctly, I find Turbo Tax handles the housing allowance and miscellaneous income stuff pretty well,” Dave said.

What you need to know
With the constant changing of church treasurers, poor corporate memory, or only verbal exchanges on clergy tax issues, a pastor may discover inaccurate information is costing his or her household significant money or worse, leading to violation of tax law. If any of the statements listed at the beginning of this article are in your recent memory, and you aren’t ready to prepare your own taxes like Dave, there are options for walking in the light:

1. Consult a competent local tax preparer, CPA, or attorney. Even then, and with all due respect, ask if they know about ‘parsonage allowance’ and ‘dual status’ of ministers before you work with them.

   Some pastors have found it necessary to work at self-education so they know how to ask these questions! This option generally lowers the risk of audit and violation of tax law; however you may find it more expensive than other options.

2. Educate yourself. You may need to do this – not to be your own tax preparer – but to clarify issues related to clergy taxes. This may also include educating your church treasurer and church administrative group.

Here are suggestions for starting the education journey:

• irs.gov and enter Tax Topic 417 in the search box.
• my-pastor.com and go to sidebar link “Pastor Taxes”
• FreeChurchAccounting.com and click on clergy tax.
• 2009 Church and Clergy Tax Guide, by Richard Hammar (ChurchLawTodaystore.com)
• Zondervan 2009 Minister’s Tax & Financial Guide, by Dan Busby (Zondervan)
• Clergy Tax for 2008 Returns, by David J. Epstein (Gospel Light)
• Worth’s Income Tax Guide for Ministers: 2009 Edition (Evangel Publishing)

  Note that some resources – for example, Busby’s books – have a minister’s version and a church treasurer version.

  Final note: This article doesn’t constitute legal tax advice, but is meant to encourage pastors who are ‘hoping for the best’ at tax time and to provide suggestions for encouraging church treasurers.