4 TIPS TO MAXIMIZE YOUR TAX SAVINGS

The year is ending, and tax time is near. Clergy taxes can be especially complicated by a dual tax status which designates ministers as both employees and self-employed. We recommend that you find a tax professional with experience in ministerial taxes to help you navigate your 1040, but you don’t have to be an accountant to benefit from these 4 tips to maximize your tax savings.

1. Pay taxes by December 31. It’s a simple and easily forgotten trick of the trade. Any amounts you have paid for your state and local income taxes by December 31 can be deducted from your taxes this year. Alternatively, you may opt to deduct state and local general sales taxes instead of state and local income taxes.
2. Maximize giving. If you itemize your deductions, donations to qualifying charities are deductible up to the value of the gift(s) made. Determine the value of your Goodwill and Salvation Army donations and remember to keep your receipts for documentation. Cash donations to qualifying charities can be 100 percent deductible, up to 50 percent of your adjusted gross income. This is an excellent way to get more bang for your buck. For example, if you are in the 25 percent tax bracket, and you give $1000 to your church, then that donation only costs you $750 since you will be able to save $250 from your taxes.
3. Get back money from your flexible spending account (FSA). If you have an FSA, get reimbursed for medical expenses before the end of the year. You will need documented proof and won’t be reimbursed for over-the-counter medicine, but you may be surprised at how many items are reimbursable. Check IRS Publication 502 for the full list of deductible expenses.
4. Take double-deductions when applicable. Ministers who own their homes and pay real property taxes can include the full amount of these taxes in both their housing allowance exclusion and as an itemized deduction on Schedule A of their 1040. Additionally, ministers who own their homes and pay mortgage interest can include the full amount of the interest in their housing allowance exclusion and fully deduct the amount of the taxes as an itemized deduction on Schedule A.

 
For complete details on handling your 2016 taxes, see the Clergy Pension Group’s 2016 Tax Guide. For more on clergy finances, please visit the Resource section on our website.