New Tax Rules for Ministry Expenses
New Tax Rules for Ministers’ Ministry/Business Expenses
Most ministry tax benefits haven’t been impacted by the new legislation. However, one of the biggest changes is that miscellaneous itemized deductions are disallowed and cannot be deducted on a tax return beginning in 2018.
Now more than ever ministers need to review how they’re handling business/ministry expenses. An accountable plan has always been the recommended way for ministers to account for business expenses for a variety of reasons. Today, it may play an even more critical role for ministries and non-profits going forward.
The reasons to consider an accountable plan are very compelling.
- Using a properly set up accountable plan provides a tax-free fringe benefit with state, federal and Social Security tax reduction for the minister. This is about the only way, excluding a clergy 403(b) retirement plan, to get a reduction in Social Security tax. For ministers’ in Social Security, that can mean a 15% savings even if you pay no state or Federal tax right now.
2. It doesn’t cost the church or you anything extra. It usually just requires a restructure of your pay package and designates part of what you already spend on expenses as ministry COSTS. Implementing a proper accountable plan will often increase ministers take home pay because they don’t have to pay unnecessary tax on the part of their salary that they’re spending to do their job. It differentiates the ministers’ salary from the churches cost of running a ministry, and can channel more resources into growth instead of after tax dollars.
3. It takes a one-time agreement (unlike housing designations) to implement and then it just goes on until you need to change or adjust it. We can even supply free forms and sample documents with step by step instructions so you know what to deduct, how much and when. You’ll find a whole list of other legitimate expenses beyond the usual computer/technology and car expenses that most people think of as business-related here.
4. Last but not least, these plans are designed by congress to apply to all employees, not just ministers. This is the way congress intends and encourages you to account for ministry expenses. It’s good business and stewardship.
If you don’t have an Accountable Reimbursement Plan yet or aren’t sure if the one you’re using is up to snuff, click this link to view our “How to Set Up an Accountable plan” video and download sample documents and our guide at no charge. We’re offering it free for a limited time so you and your treasurer can understand how it works and why it’s the best way to handle ministry expenses.