Blessings on Blessings: The 411 on Earnings For Clergy

A familiar passage of scripture found in Luke 6:38 says: “Give, and it shall be given unto you; good measure, pressed down, and shaken together, and running over, shall men give unto your bosom…”

Although financial blessings are greatly appreciated by all mankind, men and women of the cloth should take some precautionary measures when accepting monies for their ministerial services.

Licensed, Commissioned, or Ordained ministers are considered to be common law employees of a church, employed to provide ministerial services.

Some exceptions to this classification are made to those such as traveling evangelists who are self-employed under the common law.

As a minister that performs ministerial services, all earnings, including wages, offerings, and fees received for performing marriages, baptisms, funerals, etc., are subject to income tax, whether the amount was earned as an employee or self-employed person. The way you treat these expenses (related to these earnings) differs if you earn the income as an employee or as a self-employed person.

Church Employee vs. Self-Employed

Generally, clergy is considered to be an employee if the church or organization has the legal right to control what the clergy does and how they do it, even if there is considerable discretion and freedom of action provided.

As a minister, if a congregation employs you with a salary, you are generally a common-law employee of the congregation and your salary is considered wages for income tax that can be withheld.

Amounts of money received directly from members of the congregation, including fees for performing marriages, baptisms, or other personal services, are generally earnings from self-employment for income tax purposes.

NOTE: The salary you receive from a congregation and fees received from members of a congregation are subject to self-employment tax.  

Social Security/Medicare

Regardless of a clergy’s status under common law, ministerial services performed by clergy are considered self-employment earnings and are generally subject to self-employment tax.

Deductions

If you plan to itemize your deductions when filing, you may be able to deduct certain unreimbursed business expenses that are related to your services as a common-law employee on Form 1040, Schedule A (Itemized Deductions). Other forms that you could utilize when filing are:

• Form 2106 (Employee Business Expenses)
• Form 1040, Schedule C (Profit or Loss From Business - Sole Proprietorship)
• This form is used if you are reporting self-employment income such as offerings or fees received for performing marriages, baptisms, funerals, etc.)
• Form 1040, Schedule C-EZ (Net Profit From Business - Sole Proprietorship)

Housing For Clergy

Minister’s who have been provided a parsonage (home) may exclude the fair rental value of the home, including utilities. Please note that the amount excluded cannot be more than reasonable compensation for the minister’s services.

Also, minister’s who receive a housing allowance may exclude the allowance from gross income to the extent that it is used to pay expenses in providing a home. The amount excluded cannot be more than the compensation of the minister’s services.

If a minister owns their own home, deductions can still be claimed for mortgage interest and real property taxes. If the housing allowance exceeds the lesser of the reasonable compensation, the fair rental value of the home, or actual expenses, it must be included in the amount of the excess in income.  

NOTE: The minister's employing organization must officially designate the allowance as a housing allowance before paying it to the minister. Also, the fair rental value of a parsonage or the housing allowance is excludable only for income tax purposes. The minister must include the amount for self-employment tax purposes.

Exemption from Self-Employment Tax:

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Did you know that clergy could request exemption from self-employment tax?

Yes, ministers can request an exemption from self-employment tax for their ministerial earnings, if they are opposed to certain public insurance for religious reasons. Exemption can NOT be requested for economic reasons.

In order to request this exemption, one must file Form 4361 (Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners).  This form must be filed by the due date of the minster’s income tax return (including extensions) for the second tax year that the minister has net earnings from self-employment of at least $400.

Moving Forward

As you continue to do the work of the Lord and make a difference in the lives of others daily, remove the burden of having to figure out how to file your taxes. With ExpressTaxExempt, we provide a simplified e-filing process that will suit all of your filing needs. Visit our website and save even more money when you e-file with our recently reduced filing rates! We’re available to assist you via phone at 704.839.2321 on Monday through Friday from 9 a.m. to 6 p.m. EST or reach out to us 24/7 via email at support@ExpressTaxExempt.com.

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Are Donations to Animal Rescue Shelters Tax Deductible?

Like with many other nonprofits or charities, if you make a donation, you can typically deduct the value of your contribution from your annual tax bill.

To do so, the nonprofit group you’re giving to must be officially recognized by the IRS as a section 501(c)(3) organization. You can check an organization’s tax-exempt status by searching the IRS Exempt Organization Select Check.

Are Donations to Animal Rescue Shelters Tax Deductible?

When you’re filing, you will also need to itemize the amount of your donation - this may not be worth the extra effort if you only gave a little here and there. But if you gave a significant amount throughout the year, it is best to itemize the deduction on your personal tax return.

Here are 3 things to consider when donating to an animal rescue shelter:

1. Pet Adoption vs. Donation

A common misconception most people make is thinking that payment for adopting from an animal shelter is the same as making a donation. Only donations in which the donor receives no goods or services in return can count towards a deduction.

In this case, you’re giving money in exchange for your pet - that's more of a service charge rather than a charitable contribution. However, if you paid over the cost of adoption or gave a gift outside of the adoption transaction, that counts as a valid charitable contribution.

2. Donation Value

If you’re donating items, you’ll need to estimate the fair market value for each of those items. There’s no one particular method for finding fair market values - you can look through local shops or online stores to figure out prices of similar items in the open market. For special unique gifts, such as a hand-woven, nap basket for kittens, you can get it appraised for the market value.

3. Written Proof of Donation

When you’re donating to an official 501(c)(3) organization, it’s common practice to receive a physical receipt for your donation. If your total contribution amount is at least $250, the IRS requires you to submit proper documentation along with your tax return. Like other receipts from nonprofits or charities, it should contain the description of the contribution and the amount along with the name and address of the organization.

If you received a gift or benefit from the animal shelter in return for your donation, include a description of the gift on the written receipt. Any reciprocated gifts with a monetary value should be subtracted from the amount of your contribution when reporting. A paper certificate or “Thank You” card typically don’t have cash values, but a coupon or gift card does.

Animal rescue shelters can report received contributions over $5,000 to the IRS by using a Schedule B along with their Form 990 or 990-EZ tax return. Taxpayers that want to claim an itemized deduction for their donations to an animal shelter can complete a Schedule A with their IRS 1040 form.

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How to Donate Tax Deductible Books to Libraries

One way to reduce the clutter around your office or home is to donate any old books you have to your local library - not only are you giving to a great cause, but you could also be lowering your annual tax bill.

Because the federal government classifies most libraries as nonprofit educational institutions, they are qualified charities that can receive tax-deductible, charitable contributions.

You can find information about your local library’s tax-exempt status through the IRS charity database, or speak with the library’s administrator. Here are some tips about donating books to a qualified, tax-exempt library:

Valuation of Books
Under normal circumstances, the IRS allows you to deduct the fair market value of your donated books. There aren’t many federal rules about what comprises a fair market value of an item; it’s typically an agreed price in the open market that’s considerably lower than the original value.

You can search second-hand shops or online stores to find prices for similar used items. In exceptional cases, your book may be worth more than fair market value. For instance, the author signed the cover or a page. You may want an appraisal for the book’s actual value.

Proper Recordkeeping
Like many other deductions, you need to provide proof to claim the credit. According to experts, if your contribution is less than $250, the library should give you a receipt displaying its name and address, the date you contributed, and a description of your donation. Your personal record should list the description along with how much you paid for the books and their fair market values.

With donations over $250, your receipt from the library needs to include any benefits or gifts given in return for your contribution. If your “Thank You” gift has monetary value, the IRS requires you to deduct the amount from the value of your donation. And any contributions totaling over $5,000 in books requires an appraisal for the fair market value.

Itemize Your Deduction
To properly claim a deduction for your book donations, you must itemize what you gave. Choosing standard deductions depends on your filing status and the standard changes for inflation each year - you typically want to itemize deductions if the amount is going to be larger than standard. But the choice is ultimately up to you - if you only donated a couple of novels that were just lying around, it may not be worth the extra effort to itemize.

Reporting Donations and Contributions
Taxpayers can report the value of their book donations on Schedule A, Line 17 of their personal tax return. If you’re donating a substantial monetary value, you may need to file additional forms and include an appraisal signature. For libraries reporting their received contributions, you can list donations worth $5,000 or more from any one donor on the Schedule B of your annual 990 form.

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Things To Know Before Deducting Charitable Contributions

When you make a contribution to charity, it not only helps those in need but it also provides you benefits at tax time. It is the gift that keeps on giving. The Express990 team would like to go over a few things to know before deducting your charitable contributions...

Qualified Charities
To deduct a contribution, you must donate to a qualified charity. You will not be able to deduct gifts to individuals, political organizations, or candidates. You can easily check the status of a charity via the IRS Select Check tool.

Itemized Deduction
You will need to file Form 1040 and itemize your deductions to deduct your contributions.

Benefit in Return
Your deduction is limited when you receive something in return for your donation. You will only be able to deduct the amount of your gift that is more than the value of what you got in return.

Donated Property
For property donated, the deduction is usually the item's fair market value. If you sold the property on the open market, the price you would get would be your fair market value.

Donations of $250 or more
You will need a written statement from the charity you contributed to stating the donated cash or goods of $250 or more. On the statement, it must show the amount of the donation and/or a description of any property donated. If you were provided any goods or services in exchange for your donation, the statement will need that description as well.

Form 8283
If your deduction for all noncash gifts is more the $500 for the year, you will need to file Form 8283 - Noncash Charitable Contributions.

Records to keep
To prove the amount of contributions you made during the year, you must keep proper records. The IRS doesn't exactly give a clear explanation of this other than, "the kind of records you must keep depends on the amount and type of your donation." For more information on this particular subject, you should contact the IRS directly.

Always consult with your tax professional and/or the IRS when deducting charitable contributions.

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