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Tax Myths For Preachers

Apr 11, 2024 | Culture, Featured

As I write this article it is what we call “tax season.” I got to thinking of all the things my fellow preachers do concerning taxes that are either illogical or downright unethical. As a fun way of listing this I thought I might give a “Top 10 Tax Myths for Preachers” list. Brethren let’s be “wise as serpents, harmless as doves” (Matthew 10:16). The usual disclaimers apply. That is, you have to keep abreast of changes in government’s law and code, man’s laws are often ambiguous, etc.

Here we go:

  1. “You can just ask an accountant of some kind (or a tax service) for how to get your taxes done.” Wrong, I have had them make all kinds of false assumptions about preacher taxes and most (but by all means not all) of the mistakes can be traced to the next myth. Almost none of them know anything about the church and thus the nature of the organization for tax purposes.
  2. “A preacher (even one in the church of Christ) needs to be treated like a regular employee.” Doubly WRONG. By all means if you WANT to have the treasurer pull his hair out by drawing out for SS and such, prepare you a W2, give you regular expense checks, etc. then by all means do. You will make an enemy for life in that brother for absolutely no reason. Listen people and listen good: the tax code specifically allows for churches to not withhold or go through all those hoops – take advantage of it. 
  3. “Preachers in the church of Christ are considered the same as preachers for denominational churches (Methodist, etc.)” Wrong, Preachers in the church CONTRACT with local congregations to preach for them. The IRS looks on us like Community churches. Make your contract read as such and there will be no problem with the IRS when it comes to filing just like a professional business owner. If you just WANT to be getting a W-2 and give more money to the government, be my guest. However, don’t be telling other preachers in the church they HAVE to do it that way too.
  4. “You should ‘opt out’ of Social Security.” Maybe, maybe not. Anyone who thinks form 4029 is clear and unambiguous simply don’t know how man-made documents and tax forms work. The IRS did not mean for it to be simple so that they could make individual determinations and later Revenue Rulings. How dare a man think he can be a judge of another man’s conscience on doubtful language in secular documents. Let each person figure out if they are going to use the form or not (you must decide within the 1st two years of preaching). If you decide you can use it, it would be practically foolish of you not to have catastrophic (nursing home) insurance to make up for the loss of Social Security and Medicare, but YOU decide whatever you want.
  5. “All churches should be giving every speaker for them a W-2, or at least a 1099.” Wrong. The congregation will NOT get into trouble even if they give you nothing. However, you MUST report the income on Schedule C. The church can simply say you are receiving an honorarium or some such and it is up to you to record it. Quit scaring congregations and making more treasurers despise you. You can’t name a single congregation that ever got in trouble over such a thing with the government or lost their tax-free status. Tax preparers and accountants may ACT like you are getting into trouble, but the IRS doesn’t care and never has. It is the responsibility of the preacher to report his income, period. If the church has a written contract with you is it wise for them to give you a 1099 or W-2 depending on how you file? Sure! Maybe there could be hassles without a 1099, and it is easy to prepare and give to the regular preacher or even to visiting preachers, though I rarely get one.
  6. “You can just take 80% of your mileage off as a standard mileage deduction.” Wow, I’m going to give this one the rare triple wrong: Wrong, Wrong, Wrong. They ask you the question about “is there evidence…is the evidence written…” on Schedule C for a reason. You simply have to record your mileage. I have tried to do it manually, it is a hassle. Take advantage of modern technology which will coordinate with your smartphone and record your trips with a minimum of effort. I use MileIQ, but there are a bunch of apps out there that will do it for a modest price.
  7. “The IRS is out to get preachers.” No, I have seen no evidence of that. IRS agents are ignorant of the tax facts just like other people. Thus this article. I have had various written inquiries sent to me by the IRS through the years. Just respond with the facts and then they will leave you alone. Most of my problems have come from the lack of formality when it comes to parsonage allowance and what is subject to Soc. Security tax. All that leads me to my next one…
  8. “The IRS lets the church supply a home for you.” Well, they do, but not tax free they don’t. You MUST figure the Fair Rental Value of the home given by the church and pay taxes as if you got that as income from the church. “Not fair” you say? Well, you’re right. I didn’t see a dime of that money but that’s the law. The preacher’s house is for preachers who don’t have one, buy a house if you can gentlemen.
  9. “Preachers don’t have to pay income tax.” I’m going to surprise you on this one because in most practical cases the answer is “True.” If you are not making more than 50k a year and you are paying income tax as a preacher, give me a call. You are doing something wrong. If you have a full family and you are not making more than 70k a year and paying income tax – same thing. That just means you’ve got to know how to take your deductions. Note that I did not say Social Security tax. That is a whopping 15.3% in principle (but you get to adjust it down some) of your profits. I have no shame in telling church members about paying several thousand a year in Social Security tax, because they have no clue. I have gotten out of it only a few years by qualifying for special deductions and credits through my children. Even then I still had to pay a hefty amount.
  10. “If the church forgot to give you your 1099 in time you can just file Form 4868 and do your taxes 4 months later.” True, but you must PAY by April 15th or you will be penalized. However, the penalty is not much if you are not rich. I personally have not sent in quarterly payments in many years because it’s just too much trouble. The penalty is miniscule compared to my time.
  11. I know I said “10” but this is just a bonus tip. Aside from the car expense the biggest expense for the preacher and his wife is probably Meals and Entertainment. That is only deductible at 50% (see Schedule C). HOWEVER, if you set up a simple system with the church to designate an expense check to cover such then it is deductible at 100%! If you don’t use all your expense check then you just report it as income on Schedule C. You’re welcome. If you get a W-2 you can’t use Schedule C and you will have to route everything through Form 2106. 

-Tim McHenry, TBC Online Instructor