Tax Questions & Answers
This Tax Preparation Q & A is an excerpt from GBM Tax Workbook for Ministers & Lay Ministers. Below is the endorsement from Ann Shroll, President of Advanced Tax Centre, Inc. Glory Bound Ministries highly recommends Ann to those in ministry, both ordained as well as lay ministers for your tax preparation needs. Ann can be reached by e-mail at ashroll@advancedtaxcentre.com or by phone at 321-636-8561. Please let her know you were directed to her thru this website.
Thank you! Advanced Tax Centre, Inc. www.advancedtaxcentre.com
“I have reviewed this excellent workbook published by Glory Bound Ministries and I’m very impressed with the quality of the information presented. Mary Branche has put together a very good example of information needed by ministers for their tax preparation. If all ministers would follow this guideline, they would find their tax preparation to be simplified and in addition, would probably find they owe less tax because of the better preparation. Susan Branche, EA, CFP, has summarized some very important points in the question and answer forward. My compliments to Glory Bound Ministries for a resource that is not only well done, but should be beneficial to all ministers using it and helpful to their tax preparers as well.”
E. Ann Shroll, Enrolled Agent, Rockledge, FL
Ann Shroll has been in the tax preparation business since 1970. Ann is a principal in the firm Advanced Tax Centre, Inc. in Rockledge, Florida. They provide tax preparation and bookkeeping for individuals, small businesses, rentals and representation before the Internal Revenue Service. Ann is Past President of the National Association of Enrolled Agents and the Florida Society of Enrolled Agents. She was honored as Enrolled Agent of the Year on two occasions by the Florida Society of Enrolled Agents and received the prestigious Founder’s Award from NAEA. Ann is a graduate Fellow of the NAEA Education Foundation’s National Tax Practice Institute.
Questions asked of Susan Branche, Enrolled Agent, to help you, the minister, prepare for your tax return.
Glory Bound: Why do some ministers hesitate in filing their tax returns, or not file at all?
Susan: Two words come to mind: perfection and procrastination. Many of us want to be sure we do everything perfectly, so we don’t start a project unless we feel that we can do it correctly. As a result, we don’t get started at all and before we know it, a year has passed and the problem has compounded. The information for filing is available, but most of us don’t have a clue as to how to access it. On the other hand, occasionally we have the information already but have our priorities set so that something new, like filing the return, doesn’t have room. How do we work around this? First, get your resources in order so you have the information. Make an appointment to work on organizing your income and expenses. Perhaps you work best under pressure. If that’s the case, give yourself a deadline and put it in your calendar.
Glory Bound: Susan, what is the biggest mistake you see ministers making concerning their taxes?
Susan: Ministers often don’t realize what expenses can be included in the housing allowance. The housing allowance is made up of the fair rental value of the home, including utilities, or the amount actually used to provide a home. A minister shouldcommunicate effectively with their Board of Directors to maximize this benefit.
Glory Bound: Regarding Housing Allowance, why is the board of directors, who has oversight over the ordained minister, required to approve a housing allowance and note it in their meeting minutes before an ordained minister can legally receive a housing allowance?
Susan: The church or organization that employs the minister must officially designate the payment as a housing allowance before the payment is made. It must be designated before the payment is made and it must be a definite amount. If you are paid by a local church, a resolution by the national board does not affectively designate a housing allowance for you. The local congregation must officially designate the part of your salary that is to be a housing allowance. A really great loophole is that you can receive this portion of your income without income tax, and if you have opted out of the social security system you will not pay self-employment tax on that amount either. You can then take the mortgage interest and real estate taxes off as an itemized deduction. What is the amount you actually used to provide a home? Think about all of your maintenance and utilities. If you planned renovations this year, this amount would be included in addition to the mortgage payments and utilities.
Glory Bound: Some people have asked, “I’m a minister, but I’m not ordained. What’s the difference in a minister and a lay minister?”
Susan: In the Internal Revenue Code, ministers are defined as individuals who are duly ordained, commissioned, or licensed by a religious body constituting a church or church denomination. They are given the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of that church or denomination. If a church or denomination ordains some ministers and licenses or commissions others, anyone licensed or commissioned must be able to perform substantially all the religious functions of an ordained minister. Ordained ministers are eligible for the housing allowance, where ministers who are not ordained-lay ministers-are not eligible for the housing allowance.
Glory Bound: Susan, many ministers supplement their income by “tent making” side jobs. Many find they are unprepared to pay the required self-employment taxes. Can you explain how a minister calculates how much to set aside for self-employment taxes on the money they earn from these side jobs?”
Susan: This one is a little tricky. If your tent making is related to the ministry, it is subject to the same rules as your ministry income. However, if you have revenue that does not qualify as ministry income, you are subject to regular income tax and self employment tax on that amount. Self employment tax is 15.3% of 92.5% of your self employment profit. So, if you have non-ministry income and you are in the 15% tax bracket, set aside 30% of every dollar of profit. If you’re in the 20% bracket, set aside 35% of every dollar of profit. Here’s an example: In addition to her ministry, Janet sells real estate. She estimates her profit to be 70% of the gross income. Janet is in the 20% tax bracket. For every $10,000 Janet makes in real estate commissions, she sets aside $2450 (70% of $10,000 = $7,000 x 20% income tax + 15% self employment tax).
Glory Bound: How did you determine what categories to list in this workbook for ministers?
Susan: This list is a start. As a minister, you’re spending money on items that may or may not be deductible. Having all of this information allows your qualified tax advisor to determine ways to improve your situation.
Glory Bound: Some ministers haven’t filed a tax return for years. Some were in business for themselves before they started in ministry, without filing any tax returns, and may owe the IRS a large amount of back taxes. They are afraid to file. What can you tell them?
Susan: Find a reputable tax advisor, like an Enrolled Agent (EA), someone with experience in working with ministers. The benefit to the lay/minister in using an Enrolled Agent as their tax preparer is that EAs are licensed by the US Department of Treasury to represent people before the Internal Revenue Service for audit or collection. Coming forward voluntarily helps when it comes time to negotiate either an installment agreement or an Offer in Compromise. You may even have no taxes due once you thoroughly research your tax savings opportunities. You have to prepare the returns to know where you stand. The burden of not filing is usually much worse than the tax itself (really).
Glory Bound: Susan, how does a lay/minister connect with a qualified tax preparer?
Susan: I always like a personal referral when you can get one. Ask other ministers who they work with, and how they feel about their advisor. If you don’t have a referral, try checking http://www.naea.org/ (National Association of Enrolled Agents) or other professional organizations which list members and their specialties.
Susan D V Branche, EA, CFP®
Susan is an Enrolled Agent and Certified Financial Planner ™. She was President of Advanced Financial Solutions, Inc which provided tax and financial services to individuals and small businesses throughout Central Florida through 2010. Currently, Susan is honored to serve with the Hurricane Protection team rebuilding Louisiana.
