By: Daniel D. Busby

Rarely do you save money on income taxes at the time you fill in your tax return. Tax-smart moves made before the tax year begins usually render the most savings.

Consider: Any dollars you can honestly rescue from the tax coffers in 1992 will feel like the equivalent of a raise. Here, then, are sound ways to cut your taxes for 1992.


Start by putting your pay package on paper. Important: Separate your salary from fringe benefits and from professional-expense reimbursements. Note: Reimbursements are not compensation but simply a form of church operating expenses.

Suggestion: With your lay leadership, structure your pay plan by determining expense reimbursements, fringe benefits (especially those that are tax-free), and salary, in that order. Goal: To minimize the amount of gross taxable compensation by removing true reimbursements and by making as much compensation as possible a fringe benefit.


The housing allowance is truly the minister’s best friend.

Key Advice: Every minister should have the maximum allowable housing allowance. Reason: Even ministers in parsonages have some housing expenses, and properly designated in advance, these expenses are not subject to income tax.

Caution:Play fair with the IRS. The housing allowance is not an automatic exclusion. The exclusion is limited to the lowest of:

*The amount used to provide the home.

*The amount officially designated in advance.

*Reasonable compensation, as defined by the courts (Jim Bakker’s was unreasonable!).

*The fair rental value of the home, including furnishings and utilities.


If you substantiate your professional expenses that the church reimburses, and if you return any unused payments or cash advances, you have an accountable reimbursement plan. Result: These reimbursements keep your taxes lower, because the payments needn’t be reported to the IRS as income.

Caution: Your plan is non-accountable and all your reimbursements become taxable compensation if either applies:

*The church allows you to keep excess reimbursements by calling them a “bonus.”

*You aren’t required to document your expenses and their business purpose in order to be reimbursed.

Key advice: If you haven’t shifted to an accountable expense-reimbursement plan, do so at once.


Some churches determine a single dollar amount for combined salaries and reimbursable expenses and then simply deduct the total of expense reimbursements from the salary they report to the IRS. Apparent benefit: Employees keep as salary what they don’t verify as expenses.

Problem: The IRS calls that plan recharacterization of income and taxes employees for both the reported salary and all the reimbursements.

Key advice: Do not fund reimbursements via salary reduction. Best: Keep the salary and reimbursement figures separate. Have the church pay a set salary from one budget item and reimburse substantiated professional expenses from another.


Get the best deduction for your business auto. Next to your salary and housing allowance, the auto-expense reimbursement is the most important part of your pay package.

Method #1: If you love record keeping and drive a newer, larger car, keep track of your actual auto expenses (fuel, repairs, etc.). Turn in the information to your church and get reimbursed for the business portion of the expenses.

Method #2: If you loathe keeping payment records, you can use a mileage method. Note: Reimbursements from the mileage method may be a little lower, but its simplicity is compelling. Here’s what to do:

*Log auto miles, with columns for business and personal use.

*Turn in the business-mileage records monthly and get a reimbursement from your church (based on 27.5 cents per mile for 1991).

Tip: The old commuting rule (the first trip from home and the last trip to home are personal-not business-miles) is no longer true in some situations. Talk to your tax adviser about this possibility.


Keeping track of miles driven and business expenses-especially those paid in cash-is no fun. Yet tax deductions are at stake.

Suggestion: Have a file or portfolio handy to hold your receipts. Note unreceipted cash expenses in a notebook or your pocket calendar.

Guideline: The IRS is satisfied if you note just three items on the back of your receipt:

*Business purpose.

*Business relationship (including names of persons present).

*Time and place.


Whether you file as an employee or self-employed (for income-tax purposes) on your church income determines how several elements of your pay and fringe benefits are treated for tax purposes.

Suggestion: File as an employee (which most pastors are by common law) and enjoy these results not available to the self-employed:

*Health-insurance premiums paid by the church are tax-free.

*Generally, only employees qualify for tax-sheltered annuities (TSAs), also known as 403(b) plans. Benefit: Money diverted to a TSA isn’t currently taxable.

*Group term life insurance of $50,000 or less provided by the church is tax-free.


If your estimated tax payments for 1992 equal 90 percent of your 1991 tax liability, you won’t be hit with underpayment penalties. Tactic: Don’t give the IRS more money than necessary too early in the year. Reason: They don’t pay interest on excess holdings.

Suggestion: Review your estimated tax payments and fine-tune the amount for 1992 to reflect your expected tax liability. Aim: To come out even with the government on April 15, 1993.

(The above material appeared in a November/December 1991 issue of YOUR

Christian Information Network