Integrity Check: Reporting ALL of Your Income

tax dodgerAre you a tax dodger?

As a pastor, you may have multiple sources of income. Most of your income will likely be reported on a W-2 from your church or denominational office. If you’ve published some books, you’ll get W-2s from your publishers. You might even get a 1099-MISC for a bigger speaking engagement.

But for many things you do as a pastor, you will not receive any tax forms reporting that income. Funerals, weddings, pulpit supply, guest speaking, book or CD sales, bonuses or gifts from the church… All are taxable, even if you don’t get the number printed on some legal-looking form. It may even be a cash payment.

But ALL income derived from your job is taxable (even housing allowance is taxable for Social Security and Medicare). You MUST report ALL of your income.

This is an integrity issue.

It would be easy for me to be lazy and “forget about” the $500 pastor’s appreciation gift the church gave me last year. I’m paid by denominational offices, so the bonus wouldn’t show up on a W-2 and it’s under $600, so they wouldn’t have to give me a 1099-MISC… I could just leave it off of my tax forms. If I had no integrity.

You may not like to pay taxes. You may somehow even think that Jesus’ command to “render unto Caesar that which is Caesar’s” doesn’t apply to you. As long as you don’t get caught. Who’s going to know?

But it’s not worth the rotting of your soul to save a few dollars on taxes. Deception is deception. Even if it’s the US Government you’re deceiving.

Jesus said it this way: “What does it profit a man if he gains the world and loses his soul?” A modern translation might as well say, “What does it profit a pastor to save a few hundred dollars on taxes when the deception rots his integrity?”

Make sure you go over all of your income from last year and report it. If you didn’t keep good records, you may need to go through your calendar and your bank statements to jog your memory. Don’t be a tax dodger. Don’t let the easy slide steal your integrity.

Assigning Value to Donations

assigning value to donationsTomorrow morning, the principal of our local church school is coming by our house with a trailer to pick up items for the annual Valley View Academy Garage Sale. We’ve got a bunch of things we haven’t used in years – some camping gear, books, printer, clothing, toys, bedding, an old refrigerator, a bicycle, skis, etc.

It used to be that you could donate things and then just estimate a total value: “I think this trunk-load of junk was worth $380.” And the Goodwill would give you a receipt and you’d assign your own value.

The IRS has gotten stricter on these things now:

To be deductible, clothing and household items donated to charity after Aug. 17, 2006, must be in good used condition or better. However, a taxpayer may claim a deduction of more than $500 for any single item, regardless of its condition, if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.

You also need to be sure you have a written acknowledgement from the charity of any single gift of $250 or more.

In fact, the IRS now requires you to actually inventory and assign value to each donated item. You might want to take a picture of everything laid out and use that for evidence of valuation (NOT the type of picture I posted above).

This has gotten so serious, Goodwill and others now give out Donation Valuation Guides to tell you what the IRS will think is appropriate valuation per item. Here’s a little glimpse.

valuation of donations

Is the deduction really worth your time? Maybe.

If you give tithes and offerings, you will be above the donation floor for itemized deductions. If you have a high marginal tax rate and if you have enough donations, it will definitely help lower your tax bill.

But you’d get more money out of a garage sale (and garage sale proceeds aren’t taxable). But then you would have to go through all the work of a garage sale.

Meh.

13 Reasons Pastors Fail in Finance

13I’ve watched as pastors have lost their homes, been fooled into bad investments, wasted $1000s on get-rich-quick schemes, lost everything to secret sins, illegally opted out of social security, quit giving tithes and offerings, tried to cheat on their taxes, failed to pay their taxes, gone bankrupt, fished around in the petty cash, and lost the respect of their church members, family, and community.

I’m glad to say that these are worst-case scenarios. They’re the type of things that end up disqualifying ministers from employment. And they’re rare.

But it’s NOT rare for clergy to struggle with their finances. It’s more common than you might think for pastors to be a little behind on their bills, to be sinking deeper and deeper into debt each month.

Here are 13 reasons it’s common for pastors to struggle with money:

Read more

Buy this book every year at tax time!

The Zondervan Minister’s Tax and Financial Guide
is a “must have” for all ministers who prepare their own taxes. Even for those who don’t, this book tells you what to expect, what to keep track of, and how to structure or restructure your compensation package to be sure you are getting the greatest tax savings.

Written by Dan Busby, CPA, J. Michael Martin, JD, and John Van Drunen, JD, CPA, this book covers the tax return, insurance, social security, housing, retirement, reimbursement plans, self-employment, salary, compensation plan structuring, and contains a bunch of sample forms.

This book also contains the “10 Biggest Tax Mistakes Made by Ministers,” including #3: “Failing to have at least a modest housing allowance designated when living in a church-provided parsonage.”

Several of the strategies in this book can save the pastor $1000s per year on taxes and cost the church $0 extra to implement!

I especially like the integrity points at the end of each chapter, helping pastors to think through the moral implications of what they are doing with taxes, social security, ordination, etc. and avoid muddy grey areas or illegalities.

You can’t beat the price and the up-to-date information. Buy the new version every year to stay on top of the different changes in the tax code!

(But you really might want to pick up this year’s copy just so you can start planning for next year.)

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