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Minister's Tax & Financial Guide – 2021 Edition

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Minister's Tax & Financial Guide – 2021 Edition 2021 MINISTER’S TAX & FINANCIAL GUIDE Appreciation This guide is a successor edition of a guide originally authored by Dan Busby. The availability of this guide today would not be possible were it not for Dan’s original authorship of it and his improvements to it over the years. ECFA is most grateful for Dan’s vision in creating this resource and for his contribution of its content to ECFA for publication of subsequent editions. ECFA expresses our sincere appreciation to Mr. Michael Batts, CPA, and managing partner, Batts Morrison Wales & Lee, P.A., Orlando, Florida, and the staff of the firm for their valued assistance in reviewing the two sample tax returns included in this guide. 2021 Minister’s Tax and Financial Guide © 2020 by ECFA (Evangelical Council for Financial Accountability) Requests for information should be addressed to: ECFA, 440 West Jubal Early Drive, Suite 100, Winchester, VA 22601 ISBN 978-1-949365-27-6 Publisher’s note: This guide is published in recognition of the need for clarification of the income tax laws for ministers. Every effort has been made to publish a timely, accurate, and authoritative guide. The publisher, author, and reviewers do not assume any legal responsibility for the accuracy of the text or any other contents. Taxpayers are cautioned that this book is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. Readers should seek the professional advice of a tax accountant, lawyer, or preparer for specific tax questions. References to IRS forms and tax rates are derived from preliminary proofs of the 2020 forms or 2019 forms, and some adaptation for changes may be necessary. These materials should be used solely as a guide in filling out your 2020 tax return. To obtain the final forms, schedules, and tables for filing your return, contact the IRS or a public library. All Scripture quotations, unless otherwise indicated, are taken from The Holy Bible, New International Version®, NIV®. Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.® Used by permission of Zondervan. All rights reserved worldwide. www.Zondervan.com. The “NIV” and “New International Version” are trademarks registered in the United States Patent and Trademark Office by Biblica, Inc.® Any internet addresses (websites, blogs, etc.) and telephone numbers in this book are offered as a resource. They are not intended in any way to be or imply an endorsement by ECFA, nor does ECFA vouch for the content of these sites and numbers for the life of this book. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means—electronic, mechanical, photocopy, recording, or any other—except for brief quotations in printed reviews, without the prior permission of the publisher. Printed in the United States of America ii Contents How to Use this Minister’s Tax and Financial Guide . vi Recent Developments . 1 1 Taxes for Ministers . 5 • Ordaining, licensing, or commissioning ministers . 7 • Performing ministerial services . 9 • Individuals not qualifying for ministerial tax treatment . 14 • Income tax status of ministers . 14 • Importance of the employee vs. self-employed decision . 16 • Social Security tax status of ministers . 18 2 Compensation Planning . 21 • What is a minister’s true salary? . 22 • Plan the compensation package . 22 • Use fringe benefits wisely . 27 • Use accountable expense reimbursements . 29 • Routinely evaluate compensation . 31 • Checklist for churches demonstrating integrity in compensation-setting . 33 3 The Pay Package . 35 • Avoiding the nondiscrimination rules . 36 • Tax treatment of compensation elements . 37 • Reporting compensation, fringe benefits, and reimbursements . 60 iii 2021 MINISTER’S TAX & FINANCIAL GUIDE 4 Housing Exclusion . 63 • Types of housing arrangements . 67 • Establishing and modifying the housing designation . 68 • Reporting the housing allowance to the minister . 72 • Accounting for the housing exclusion . 72 • Other housing exclusion issues . 74 • Housing exclusion worksheets . 77 5 Business Expenses . 81 • Accountable and nonaccountable expense reimbursement plans . 82 • Substantiating and reporting business expenses . 85 • Travel and transportation expenses . 86 • Auto expense reimbursements . 91 • Other business expenses . 99 • Allocation of business expenses . 102 6 Retirement and Social Security . 105 • Preparing for retirement . 106 • The fundamentals of Social Security . 110 • Taking out retirement money . 112 • The two Social Security tax systems . 112 • Computing the self-employment tax . 114 • Both spouses are ministers . 116 • Self-employment tax deductions . 116 • Use of income tax withholding to pay Social Security taxes . 117 • Opting out of Social Security . 117 • Working after retirement . 122 • Canada Pension Plan . 123 iv ➣ CONTENTS 7 Paying Taxes . 125 • Voluntary tax withholding . 126 • Estimated tax . 127 • Excess Social Security withheld (FICA) . 130 • Earned income credit . 131 • Extension of time to file . 132 • Extension of time to pay . 134 • Offers in compromise . 137 • Filing an amended tax return . 138 Form 1040 – Line-by-Line . 141 Sample Returns . 164 • Sample Return No. 1 Active minister . .164 • Sample Return No. 2 Retired minister . .179 Index . 189 Projected 2021 Filing Dates . ..
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