What Church Leaders Need to Know about the GOP Tax Bill Just Passed

What are the greatest benefits to pastors (and church workers)?

Frank Sommerville (CPA, attorney, and editorial advisor for Church Law & Tax): Pastors will benefit along with 80.4 percent of other Americans. Nothing affects the pastors differently from the other population.

Ted Batson (CPA, partner and tax counsel of CPA firm CapinCrouse): There are no specific provisions in the new legislation that target pastors or church workers. So any benefits that a pastor or other church worker will experience will be the same benefits that other taxpayers experience. In addition, the significant differences that exist between the individual circumstances of one family or individual over another mean that provisions that will benefit one taxpayer may have little effect on another. Here are some representative examples:

There are new tax brackets with lower tax rates. This will likely mean that many pastors will see a reduction in their taxable income even if nothing else changes (an unlikely scenario given the broad reach of the new tax act).

For pastors that have significant mortgage interest, charitable contributions, state and local taxes, and medical expenses, the doubling of the standard deduction may have little impact. Although the new $10,000 cap on deducting the combined total state and local property taxes and income taxes (or sales tax in some states) may impact some pastors.

For other pastors, the doubling of the standard deduction may be a significant benefit. If, in prior years, their personal exemptions plus their itemized deductions were less than the new $24,000 standard deduction, they will see an immediate benefit.

For families with children under age 16, the increase in the child tax credit to $2,000 will produce a new benefit. Moreover, for some, the increase of the refundable amount of the credit to $1,400 may increase the tax benefit the pastor receives.

Mike Batts (CPA, managing partner of Batts Morrison Wales & Lee, P.A.): The benefits to pastors and church workers parallel those for other taxpayers… with the most significant benefit being lower taxes generally.

What are the greatest benefits to churches?

Sommerville: Since most of the church members will receive an increase in their take-home pay starting in February 2018, members will have a greater capacity to give in 2018. While other charities complain [that] the increased standard deduction will decrease the incentive to give, most members give out of their religious beliefs—not out of some perceived tax benefit. In fact, some [of our clients who do charitable giving] refuse to claim the charitable contribution on their tax returns. The same motives exist for members who remember the church in their will. I do not think the increased standard deduction and increased exclusion from estate taxes will impact giving at churches. The tax decease will definitely benefit the church.

The expansion of Section 529 plans to private K-12 schools will present a new opportunity for those churches that operate Christian schools. This greatly expands the funding options available to parents and grandparents.

Batson: There are no discernible benefits to churches or other nonprofits. If anything the potential negative impact on charitable giving, estimated to be $13 billion in a study performed by the Indiana University Ruth Lilly School of Philanthropy, means churches and charities are a loser from this legislation.

Batts: I wouldn’t characterize any aspect of the law as benefitting churches or other nonprofits particularly. The law is directed at helping individual taxpayers and businesses. Despite predictions that the higher standard deduction for individuals and lower rates will result in decreased charitable contributions, churches and other nonprofits can still hope that the economic impact of the tax reductions, together with economic growth, will spur an increase in giving.

What are the drawbacks for both groups—churches and those employed by the church?

Sommerville: Some are disappointed that the Johnson Amendment [prohibiting certain political activity by churches] was not repealed. Some are concerned that the tax cuts will lead to reductions in the grants given to charities to assist the poor. The changes to the unrelated business income will negatively [affect] a few churches that have multiple sources of unrelated income.

Batson: Churches may experience a decline in giving. This is because the doubling of the standard deduction will mean that some parishioners will not benefit from itemizing their deductions, of which the charitable deduction is one…However, churches may see less of an impact than other nonprofit organizations where tax considerations may have larger bearing on charitable giving. For churches that teach tithing as an act of worship, tax benefits of giving will likely be a secondary consideration.

For some pastors that have claimed deductions for unreimbursed employee expenses, this deduction was suspended, so those pastors will lose a deduction that may or may not be valuable depending on how much they benefit from the increased standard deduction.

For pastors that move in 2018 through 2025, they will no longer be able to deduct their moving expenses, nor with their church be able to reimburse these expenses on a tax-free basis.

Batts: Some studies have predicted that the increase in the standard deduction and the decrease in tax rates will result in decreased overall charitable giving. But it is not at all clear that such studies have adequately considered the impact of economic expansion on their assessments.

Republicans have said they hope to make the tax cuts for individuals permanent rather than letting them expire in 2025 (as currently written). If that is not achieved, what will happen once the tax cuts expire?

Sommerville: According to the nonpartisan Tax Policy Center, over 80.4 percent of individual Americans will receive a tax cut, while only 4.8 percent will see an increase.

Batson: The vast majority of the changes that impact individuals (e.g., the doubling of the standard deduction, the suspension of the personal exemption deduction, etc.) are set to “sunset” on December 31, 2025. That means that on January 1, 2026, those changes will revert back to the law as it exists today. However, the amounts will be adjusted for inflation factors that would have applied had the law as it is in effect today remained unchanged.

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77 Responses to What Church Leaders Need to Know about the GOP Tax Bill Just Passed

  1. Troy Day February 20, 2018 at 6:53 pm #

    What are the drawbacks for both groups—churches and those employed by the church? Jim Price Steve Maxwell Link Hudson Jimmy Humphrey

  2. Link Hudson February 20, 2018 at 7:00 pm #

    it’s not really my area, but I think most of the folks from the CoG (Cleveland) denomination take the standard deduction and don’t give to church to get a tax deduction.

    If you give to an evangelist, you can also give personally rather than through the plate and say, “This is one of those personal gifts you do not have to pay tax on” to keep the IRS from taking a cut of an offering for him.

  3. Troy Day February 20, 2018 at 7:03 pm #

    Link Again which cog ? All US cogs serve tax deduction letters per tithes by the end of January of each year. You probably mean Indonesia which is not really a cog but amalgamated into their international structures.Non-profit evangelists also report to IRS and have IRS number to be able to return receipts that are tax deductible. Arent you a PhD in economix or something ?

  4. Link Hudson February 20, 2018 at 7:05 pm #

    I mean US. I haven’t read the demographics of the COG, but a lot of people in the ‘working class’ and middle class brackets, I would imagine, take the standard deduction.

    I have a PhD in business administration, but tax is a speciality. Some accountants, not all, specialize in that. I’m not an accountant.

  5. Troy Day February 20, 2018 at 7:06 pm #

    Well cog congregations like our aog have to serve tax deduction letters by law Some cog pastors may confirm

  6. Grover Katzmarek Sr February 20, 2018 at 7:06 pm #

    When the standard deduction doubles that’s 6,000.00. So how much additional would one have it give. Ill gladly trade for the new deduction

  7. Link Hudson February 20, 2018 at 7:07 pm #

    A larger standard deduction may mean even fewer people trying to keep all those receipts all year. Self-employed people keep receipts, or should, but they can still fill out a schedule SE and a schedule C and take the standard deduction.

  8. Troy Day February 20, 2018 at 7:07 pm #

    Standard deduction doubled will be 13K Grover

  9. Link Hudson February 20, 2018 at 7:08 pm #

    I thought the article said $24,000 standard deduction. Maybe that’s what it was for me with four kids last time. When you have a few kids, the standard deduction starts looking pretty good. Do COG people tend to be married with kids?

    • Troy Day February 20, 2018 at 7:11 pm #

      it will be 24 next year – The standard deduction for single taxpayers and married couples filing separately is $6,350 in 2017, up from $6,300 in 2016; for married couples filing jointly, the standard deduction is $12,700, up $100 from the prior year; and for heads of households, the standard deduction is $9,350 for 2017 They are changing the child tax credit / deduction next year Link Hudson

  10. Troy Day February 20, 2018 at 7:09 pm #

    Link lets see if we can get some cog pastors to confirm. I am pretty sure each congregation by law must issue tax letter to each tithe paying member. Does it make a difference if the local congregation is incorporated? Ed Brewer David Lewayne Porter Jimmy Humphrey Daniel Rushing 50K for a single filer Grover

    • Daniel Rushing February 20, 2018 at 7:17 pm #

      Any 501c3, incorporated or not, must provide an end of year giving statement to every donor. It must be post marked no later than 1/31.

    • Troy Day February 20, 2018 at 7:17 pm #

      That’s what I thought Link Hudson

    • Link Hudson February 20, 2018 at 7:18 pm #

      I’ve never actually needed the letter, personally, though churches do send them out in the US.

    • Troy Day February 20, 2018 at 7:19 pm #

      Link BTW the article did say 24K and it lost me there. 24K will be the standard deduction for couples filing jointly in 2019 Will 24K be for single ministers too 🙂

    • Ed Brewer February 20, 2018 at 7:23 pm #

      There is no requirement for ANY church to issue a ‘tax letter’ or other instrument as a matter of IRS policy – publication 1771 governs the requirements for deductability of contributions, but it has no legal standing to compel a church to provide such information. The onus is on the donor to receive ‘contemporaneous’ proof from the donee in order to substantiate the gift, and if they refuse there is no regulatory relief– obviously any church SHOULD provide that information in a format to meet the deductability requirements for its donors, and whether or not they do should be considered by the donor before he or she makes their contribution. As to your question, the status of local incorporation has no bearing on this matter.

    • Troy Day February 20, 2018 at 7:24 pm #

      hahah you tell this to any of your members bro Ed and dont give them that letter and see what they will tell you come your next paycheck 🙂

    • Ed Brewer February 20, 2018 at 7:25 pm #

      Daniel Rushing – your information is incorrect – churches are given specific exemption to the reporting requirements of section 501(c)3

    • Troy Day February 20, 2018 at 7:25 pm #

      501(c)3 does not require churches to pay their pastors either 🙂

    • Daniel Rushing February 20, 2018 at 7:31 pm #

      Ed Brewer No sir. Perhaps you misunderstood me. But if your 501c3 received money from donors, you must give those donors a statement for them to use as proof when they file their personal taxes.

    • Troy Day February 20, 2018 at 7:32 pm #

      arent you all under one single 501c3 cog letter

    • Daniel Rushing February 20, 2018 at 7:32 pm #

      It is possible that it’s not a legal requirement, though. Perhaps I’ve just always worked for churches that had it in their by laws to do so.

    • Daniel Rushing February 20, 2018 at 7:33 pm #

      Troy Day Yes.

    • Link Hudson February 21, 2018 at 8:10 am #

      That would be nice for them. Some of em could dedect all their income.

    • Troy Day February 21, 2018 at 8:21 am #

      Link Catholic priests have done it with great success ever since there were Catholics in America

  11. Troy Day February 20, 2018 at 7:21 pm #

    Daniel Rushing 501c3, incorporated or not – then we have 501s that are registered with the state but never got through IRS registration http://www.pentecostaltheology.com/should-churches-stop-being-501c3/

  12. Troy Day February 20, 2018 at 7:28 pm #

    bro Ed come to think about it you may be wrong on this one because single donations of $250.00 adhere to IRC 170(f) (8) (A) (B) (C) which I have listed below:

    • No deduction shall be allowed under subsection (a) for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph (B).

    • Ed Brewer February 20, 2018 at 7:32 pm #

      The onus is on the taxpayer, not the church

    • Troy Day February 20, 2018 at 7:33 pm #

      Actually this is from the cog Church Treasurer’s Manual
      2009 Edition I just found on the net It says this

      Written Acknowledgment

      If a donor claims a tax deduction on any single gift over $250.00, the church must provide
      written acknowledgment of the gift to the donor. The substantiation requirements vary according
      to the type of gift (i.e., cash, property, personal items). However, individual cash contributions
      of $250 or more must receive a written acknowledgment. The law specifies that a written
      acknowledgment must include the following information:
      a. The donor’s name (a social security number is not required).
      b. Value of any goods or services provided by charity – the statement must
      indicate whether or not the church provided any goods or services to the
      donor in exchange for the contribution, and if so, the statement must also
      include a good faith estimate of the value of those goods or services.
      c. If the church provides no goods or services to a donor in exchange for a
      contribution, or if the only goods or services the church provides are
      “intangible religious benefits,” then the receipt must contain a statement to
      that effect.
      The written acknowledgment from the church is required to be in the donor’s possession prior to
      the donor claiming the deduction. To facilitate giving, the church treasurer should attempt to
      have all year-end donor statements out by no later than the end of January. Interim quarterly
      statements are helpful for donors to track their giving. However, the year-end statement should
      be comprehensive with at least the above information included.

    • Ed Brewer February 20, 2018 at 7:40 pm #

      Again, this is not based on a legal requirement on the church, but on what is required for the donor to receive credit for the deduction – it is a Church Of God policy directive, not a legal requirement.

    • Ed Brewer February 20, 2018 at 7:42 pm #

      Notice it doesn’t mention the ‘quid pro quo’ directions for gifts in kind and real property donations, but the $75 rule still applies for credit, not as a legal directive.

    • Troy Day February 20, 2018 at 7:48 pm #

      isnt policy directive like a legal requirement?

    • Daniel Rushing February 20, 2018 at 7:57 pm #

      Yes. If your organization’s by laws state it, you have to do it.

    • Ed Brewer February 20, 2018 at 8:13 pm #

      They don’t have the force of law, but they do carry the vulnerability for liability.

    • Ed Brewer February 20, 2018 at 8:14 pm #

      A policy manual is not the same as bylaws

    • Ed Brewer February 20, 2018 at 8:17 pm #

      It is simply operating instructions and procedures- accounting procedures should NEVER be included in the bylaws – setup to cut your own throat

    • Daniel Rushing February 20, 2018 at 8:17 pm #

      Ed Brewer It can be. There is legal precedent. Better safe than sorry.

    • Ed Brewer February 20, 2018 at 8:28 pm #

      Daniel Rushing I’d like to see that precedent – as far as I know there has never been a successful enforcement action of this type that has withstood appeal except for cases where the conduct explicitly ‘pierced the corporate veil’ – conduct that ran counter to express legal strictures of duly accepted bylaws. That’s another reason not to take the bait of the ambulance chasers that want to make it blindingly complex for churches to focus on their purpose instead of living in fear of ‘what if’.

    • Ed Brewer February 20, 2018 at 8:31 pm #

      There is broad constitutional protection for churches that supersedes subordinate instructions and procedural interference

    • Ed Brewer February 20, 2018 at 8:34 pm #

      Daniel Rushing I’m not – we give em every year – detailed ones that meet the requirements for contemporaneous proof we’ve mentioned — what I’m passionate about is government meddling in the affairs of the church in any way, and the money is the camel’s nose under the tent

    • Ed Brewer February 20, 2018 at 8:37 pm #

      We do it because it’s right and beneficial for our people, not because some beurocracy says we have to.

  13. Troy Day February 20, 2018 at 7:49 pm #

    Link most cog I know itemize and even record millage 🙂 now that this one is resolved what else did you see for churches

  14. Grover Katzmarek Sr February 20, 2018 at 7:50 pm #

    That’s why all self employed people needs to be incorporated either in a LLC or a sub s like me

    • Link Hudson February 20, 2018 at 8:35 pm #

      There are some legal advantages, but someone still has to save the receipts.

    • Grover Katzmarek Sr February 20, 2018 at 8:37 pm #

      Yes but most of mine are online like revenue, fuel etc

    • Troy Day February 20, 2018 at 8:37 pm #

      more work for Mrs Grover Katzmarek 🙂

    • Grover Katzmarek Sr February 20, 2018 at 8:40 pm #

      No she doesn’t understand most of it so on Saturday once a month I sit down and enter everything on QuickBooks usually less than an hour.

    • Troy Day February 20, 2018 at 8:40 pm #

      ha-a QuickBooks was the last one to receive IRS forms this year Itemizing does help US ministers a lot Link

    • Grover Katzmarek Sr February 20, 2018 at 8:42 pm #

      By the way I was released to go back to work this week after my open heart surgery week of thanksgiving, it was a triple bypass

    • Link Hudson February 20, 2018 at 8:48 pm #

      Troy Day You can also keep track of receipts for a schedule C and take the standard deduction, depending on what you do. Ministers might benefit from itemizing, depending on what they do. I’d imagine sales people would, too. But I doubt many people in the pews who work at factories (rarer these days), offices, retail outlets, etc. and nearly all their income comes from paychecks need to bother with it.

    • Troy Day February 20, 2018 at 9:00 pm #

      I disagree. The new increase in standard deduction comes namely from most people having to itemize

    • Grover Katzmarek Sr February 20, 2018 at 9:03 pm #

      I looked it up on H&R website it said standard was single 12,000.00, head of household 18,000. Married filing joint 24,000.00

    • Link Hudson February 20, 2018 at 9:04 pm #

      Troy Day That may be the case, but I do not see how that is disagreeing with something I said.

      It would make sense for the IRS’s workload that if much of the population were getting large deductions on average by itemizing, for the government to increase the standard deduction to save IRS agents, individual tax payers, and accountants time and hassle. I suspect the government doesn’t because so logically, though. I think the increase in the standard deduction comes from politicians wanting to please the people, stimulate the economy, help working Americans, etc.

    • Link Hudson February 20, 2018 at 9:04 pm #

      Grover Katzmarek Sr So that’s all doubling?

    • Link Hudson February 20, 2018 at 9:05 pm #

      Btw, is our country just going to borrow more money from China in the form of T-bills, etc. to pay for our programs?

    • Grover Katzmarek Sr February 20, 2018 at 9:05 pm #

      No more than doubling for some, double for a single

    • Troy Day February 20, 2018 at 9:07 pm #

      yes 24k I posted it above WHY the article says 24K per minister is a mystery for me

    • Link Hudson February 20, 2018 at 9:07 pm #

      Do you know married filing joint under the new law?

      (Btw, if it passed and was signed, it’s not just a bill, up on capitol hill. “He signed yah, Bill. Now you’re a law.”

      Someone needs to make a comedy video about executive orders.

      https://www.youtube.com/watch?v=FFroMQlKiag

    • Link Hudson February 20, 2018 at 9:08 pm #

      Troy Day Maybe the author just assumed they would all be married filing jointly. That’s odd.

    • Troy Day February 20, 2018 at 9:08 pm #

      married filing joint under the new bill => 24K however child credit will be removed or modified + EIC

    • Link Hudson February 20, 2018 at 9:09 pm #

      Troy Day The poor can get money back from the child tax credit, even if they do not owe. But this may discourage ‘welfare mamas’ from having more kids.

      I think EIC can give money to poor working people, even if they do not owe, too.

    • Troy Day February 20, 2018 at 9:10 pm #

      This is the part that is changing + food boxes instead of food stamps

    • Link Hudson February 20, 2018 at 9:11 pm #

      They preselect the food to give out?

      What kind of health restrictions are on food stamps? Can they buy coca-cola, snickers, and chewing gum with them?

      I’ve heard a lot of the poor in the inner cities do not eat enough vegetables. Requiring a certain pre-set menu with some flexibility may make more sense.

    • Link Hudson February 20, 2018 at 9:14 pm #

      The food box thing is still under debate, right? It sounds inefficient if the government has to deliver food or pay companies to do it. They could just put restrictions on what people are allowed to buy. Just fruit, vegetables, bread, meat, pasta, generic brands, etc.

    • Troy Day February 20, 2018 at 9:15 pm #

      mhm- they are getting meat – steak and lobster

    • Link Hudson February 20, 2018 at 9:21 pm #

      There could be a way to do this and save money, like get foeld corn out of the supply chain early. From farmer to an approved vendor. Field corn isn’t bad really.

  15. Grover Katzmarek Sr February 20, 2018 at 7:53 pm #

    Our church accou,rant is on a mission trip to Guatemala right now ill see what he says when he returns

  16. Troy Day February 20, 2018 at 8:38 pm #

    Ed Brewer what else benefits churches/ministers in the new GOP Bill?

    • Ed Brewer February 20, 2018 at 8:47 pm #

      I’m not an expert on the bill, but from what I’ve been told there’s nothing that profoundly affects the church other than some peripheral disincentive caused by the increased standard deduction

    • Troy Day February 20, 2018 at 9:01 pm #

      nothing that profoundly is probably very much so

    • Ed Brewer February 20, 2018 at 9:08 pm #

      Why Troy Day! You don’t trust our benevolent big brother?

    • Troy Day February 20, 2018 at 9:09 pm #

      I hope you dont mean Trump here 🙂

  17. Troy Day February 21, 2018 at 8:12 am #

    Ricky Grimsley Grover Katzmarek Sr Jim Price Ed Brewer Link Hudson David Rollings David Lewayne Porter Daniel Rushing SHOULD CHURCHES STOP BEING 501(C)3 then? http://www.pentecostaltheology.com/should-churches-stop-being-501c3/

    • Link Hudson February 21, 2018 at 8:14 am #

      So churches have to form 501c3s to be tax exempt?

    • Troy Day February 21, 2018 at 8:16 am #

      Yes, if they want to be able to give federal receipts OR be under their main organization/denomination exempt

    • Link Hudson February 21, 2018 at 9:12 am #

      Churches existed before 501c3. I’ve read a differing opinion. Individuals might have to fight to get deductions, but would a church that isn’t 501c3 be taxed?

    • Troy Day February 21, 2018 at 10:05 am #

      I am not aware of any church that can issue receipts today without 501c3 FEDERAL status – not just state

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