Ministers can prepare their own tax returns. While ministers' taxes present several unique rules, these rules are not complex. Unfortunately, many people confuse uniqueness with complexity. With a little effort most ministers should be able to comprehend these rules sufficiently to prepare their own tax returns. The information provided in my Church & Clergy Tax Guide, together with IRS Publication 17 (Your Federal Income Tax), should be all you need in most cases.
Of course, some ministers will prefer, for a variety of reasons, to have someone else prepare their tax returns. If that is your choice, be sure you select someone with experience in the preparation of ministers' tax returns (preferably a tax attorney or a CPA). You may wish to share a copy of the Church & Clergy Tax Guide with the person you select.
Before you decide to hire a tax preparer
Before deciding to have someone else prepare your tax return, consider the following:
- More than half of all income tax returns prepared by paid preparers contain errors, according to an IRS study. What were the most common mistakes? Failing to claim the standard deduction; entering dollars and cents in the area for dollars; failing to claim (or incorrectly stating) the amount of a refund; failing to total the multiple entries on Schedule C; filing a Schedule SE even though net self-employment earnings are less than $400; using the wrong filing status (joint, head of household, etc.); and failing to check the age/blind box.
- Paid preparers are subject to a penalty of $1,000 per return (or 50 percent of the income they earned for preparing the return, if greater) for any understatement in taxes that is due to an "unreasonable position," which is defined by law to mean a lack of a reasonable basis. IRC 6694. As a result, competent paid preparers generally avoid overly aggressive positions when completing ministers' tax returns.
- The IRS has established a Return Preparer Program that can trigger audits of all returns prepared by certain return preparers who intentionally or negligently disregard federal tax law (code, regulations, and rulings). Ministers and church staff should be cautious when dealing with nonprofessional or "mail-order" return preparers, especially those who promise significant tax savings or are not attorneys or CPAs. See IRS Internal Revenue Manual § 4.11.51.
Adapted from the Church & Clergy Tax Guide.
This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations."
Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.