Tips for pastors willing to take a chance
The following are the five most common ways ministers cheat on their taxes:
1. Hide your honorariums.
Pastors get honorariums for weddings and funerals. the relatives never report this income to the IRS so ministers can easily tuck the cash in their pocket (or turn the check into cash) and simply “conveniently forget” to record and report this income. The IRS considers honoraria income since it comes “for services rendered” but they would have a hard time catching you unless they get your bank financial records. Cash honoraria are almost impossible to track so long as you are willing to lie when you are audited.
2. Hide the value of your parsonage.
The IRS considers the value of a minister’s parsonage as income for Social Security purposes. We ministers don’t have to pay income tax on its value but we do get whacked with about 15% SS tax on the parsonage value. If we live in a parsonage that might rent for $500 a month the annual value of this is $6000 (plus any utilities the church pays). But how would the IRS ever catch you for not reporting the parsonage value? The church seldom reports this to the IRS so they can’t match figures. Unless an IRS agent shows up and pokes his nose around they’d never know if you simply paid social security taxes on the cash you get paid and “conveniently forget” to report the parsonage value. If you are not willing to be that brash you could at least under report the value. Say your parsonage is worth $80,000, which would make the fair rental value of maybe $700 a month. You could say, “Nah, this house would rent for only $400 a month, and report the smaller amount and save 15% SS tax on the difference. Either way you can get a 15% discount by either hiding or underreporting the parsonage value and save a bundle to boot!
3. Don’t report unused housing allowance.
No matter what the church designates as housing allowance the IRS only allows ministers to exempt from income taxes the amount we actually spent. The rest is considered “unused housing allowance” and must be reported, and income tax paid on it. This is an easy cheat. If a minister has $12,000 housing allowance and only used $10,000 just don’t report the unused $2000 and you save income taxes on that amount—presto—another way to cheat easily and save taxes!
4. Ignore the housing allowance cap.
The IRS only allows a housing allowance to be income tax
exempt up to the fair rental value plus utilities. You can cheat on this
by persuading the church to setting a huge sum (maybe even your whole salary)
as your housing allowance then “guessing” the fair rental value super
high. Say you get $30,000 designated as
housing allowance and you are buying a home worth $60,000. Generally a home’s
“fair rental value” is 1% of its value per month—in this case $600 per month.
You could “estimate” your home might rent for $2000 a month and that would use
up $24,000 of your allowance right there! How is the IRS going to know the
value of rental property in
5. Opt out of Social Security completely.
This is the mother of all cheating schemes for ministers. The IRS allows ministers to opt out of Social Security completely by filing form 4361. All you’ve got to do is sign off stating, "I am conscientiously opposed to, or because of my religious principles I am opposed to, the acceptance (for services I performed as a minister . . .) of any public insurance that makes payments in the event of death, disability, old age, or retirement, or that makes payments toward the cost of, or provides services for, medical care." Such conviction can be “worked up easily” in the face of 15%+ taxes on all income and housing! Can you feel your conscious objection rising even now? There are some hitches. You’ve got to swear under the penalty of perjury that this is true and that you have informed your "ordaining, commissioning, or licensing body." But if you are loose enough on being a CO for money-saving purposes this should be no problem to work up. This one alone could save you thousands every year—money left in the pockets of yourself, a servant of God, instead of the coffers of a wasteful worldly government.
So, why not cheat? We ministers don’t cheat because it is wrong. Yes, we hear of some fellow ministers who cheat this way, but we hear of fellow ministers who visit prostitutes and commit adultery too. So we don’t do it out of conviction and to maintain our own integrity. If we didn’t know about these laws we might be morally innocent before God but even then we’d legally still be a cheater. Now we know the law if we’ve read this column. After reading this column cheating is a willful transgression against a known law. We might defend our cheating and rationalize it in the future but we can’t say it was innocent if we understood this column.
Ad, we don’t cheat because we know we can’t insulate areas of our life. If we are willing to cheat on our taxes why not cheat on our tithe and why not cheat on our spouse? Cheaters cheat. Certainly there will come a time when cheating on our spouse will be more attractive than saving a few thousand dollars on taxes. Our integrity and character is at the core of who we are as a minister and as Christians. We resist temptation even if we think we can get away with it. We don’t cheat even when others do—even when we face ministers who brag about it at ministerial conventions and scoff at how stupid we are at paying our full taxes. Certainly, we will take every single legal deduction we can. We intend to pay as little taxes as possible, but not by cheating. We simply pay our taxes as we should. And we do this even when we are sure we’ll never get caught. Yes, we fear the IRS and the accusation of fraud or tax evasion hitting our local newspapers. But more than that, we know that we will some day face the Ultimate Auditor from which there is no appeal. When we file our taxes we can say under our breath, “as God is my witness” because he is.
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Keith Drury