tax question?

In theory it is all taxable. In practice, unless the "love offering" is counted and reported . . . cash is cash. Every person can "give" up to $12,000/ a year to any other person without it being reportable.

 

What is the ethical thing to do?

 

You need to find a good Christian CPA for the best tax advice and what deductions you are legally entitled to take, such as mileage on your auto, etc.

 

If a friend wants to give you less than $12/year because he loves you it is not reportable. If your friend goes to church with you . . . should it make a difference? Is he paying you to do a specific job or putting you on a retainer?

 

I don't have time to get into all deductions. I will later.

All money you receive because of your functions of or status as a minister are income for tax purposes. You must pay ordinary income tax plus SECA (Self employment tax, the SE version of OASDI/SS and Medicare).

That thing about people giving cash to whomever does not apply here. We're not talking about slipping a nephew some bonds or giving a grandkid some money. The IRS has ruled that "love offerings," churches paying ministers by buying a car, etc., is a taxable, salaried event.

Zondervan publishes a great tax guide. Also, "Clergy Tax" is very good and the SBC (Guidestone) puts out a great guide for ministers every year. Hammar is also a good resource. Take these and become experts. Most CPAs I have dealt with and almost ALL tax preparers are ignorant of clergy taxes because they are an animal all to themselves.

I'm a tax preparer, pastor, and (almost) M.B.A. Trust me here. I've been round and round with the IRS and learned a lot by the hard way. 90% of what some people tell you and 80% of what some churches do will kill you at tax time. Take heed to the resources I referred you to. I'll post about the deductions later. PM if you have any specific questions.

 

Okay, first, your church should be paying you a housing allowance. That money is free from income tax if you use it all to pay for housing expenses (almost everything counts here except food and maid service). You do have to pay SECA (SS tax) which is roughly 15.3%. Still, it's the best tax shelter for ministers. You can exclude from ordinary income tax the LESSER of what the church declares or what you spend on housing items (furniture, cable, lightbulbs, phone service, utilities, appliances, etc.). Or the fair rental value, but let's let that one alone.

Against ordinary income, you can deduct mileage you travel, books, subscriptions, and the like. Office supplies. You name it. If your hubby has an office at home, you may qualify for a home office deduction (if you don't get a housing allowance, but you should). Contributions to your own 403b self funded count as well.

Again, I'm open for questions. Check the resources I recommended.

 

403b is like a 401k (so named for that section of the tax code). 403b funds are for ministers or employees of non-profit type orgs, such as hospitals, schools, etc. If your denomination does not have this type of arrangement, or if you are not Southern Baptist who has Guidestone administer a 403b for pastors and missionaries, chaplains, and other ordained SB ministers (since SB churches are independant), then your likely only option is an IRA. Start with a traditional IRA first. There are a couple other options, but unless you're saving more than 5-6K a year, an IRA is your best and simplest bet.

Since I'm SB, the 403b through Guidestone is a good thing because even after retirement, I can draw out my 403b funds as a housing allowance, freeing me from income tax on the dollars (of course I have to pay SECA, but at least I pay the same % regardless).

 

403's, though (E on box 12) does not help with the retirement credit on the standard form.

 

Well...not sure how you mean that.

Retirement contributions to 401ks and 403bs don't "help" directly as in a credit on line X, but they reduce your taxable income. So if you have a 401k/403b, your W-2/1099 is less, thus your income reported on you 1040 is less, so your form gets help.

I believe the retirement savings credit that was enacted in 2001 thanks to EGTRRA will expire, and I know the current President/Congress has no desire to see it return.

 

The "saver's credit" along with all the other retirement plan and IRA changes made by EGTRRA were made permanent with the Pension Protection Act of 2006. The saver's credit would've expired at the end of '06, if not for PPA '06. The other aspects of EGTRRA, like the tax rates (and the child tax credit which is immensely helpful to the middle class) and death tax rates are set to expire at the end of 2010. We'll see how much the current Congress and Pres. let's us keep.

 

A. That is correct that at minimum it reduces your taxable income.

B. The retirment savings credit is still active this year.

 

Thanks. Last year, I did no taxes where that came into play so I truthfully didn't keep up with what happened. And I'm getting older and more forgetful. I only have so much room in my head, and all those Big Red Machine statistics have priority in my brain. :smilewinkgrin: