Clergy Tax Facts
Clergy Tax Tips:
The length of time you should keep a document depends on the action, expense, or event the document records. Generally, you must keep your records that support an item of income or deductions on a tax return until the period of limitations for that return runs out.
What to Keep and How Long
Tax records should be kept on a year-round basis, not assembled just for your annual tax appointment. Without tax records, you can lose valuable deductions by forgetting them on your tax return, or you may have unsubstantiated items disallowed if you are audited.
Generally, returns can be audited for up to three years after filing. However, the IRS may audit for up to six years if there is substantial unreported income. The three and six year limits start with the filing of a tax return; if no return is filed, the time limit never starts to run.
Which records are important?
- Records of income received
- Expense items, especially ministry or work-related
- Home improvements, sales, and refinances
(for homes with profit potential of $250,000 or more) - Investment purchases and sales information
- The documents for inherited property
- Ministry related mileage
- Medical expenses
- Charitable contributions (records vary with value of gift)
- Interest and taxes paid
- Housing expenses
- Church minutes designating housing allowance
- Records on nondeductible IRA contributions
How long should records be kept?
Just how long you should keep records is partly a matter of judgment and a combination of state and federal statutes of limitations. Federal tax returns can be audited for up to three years after filing (six years if underreported income is involved). It is a good idea to keep most records for six years after the return filing date.
There are some records worth keeping permanently, partly due to long-term needs and partly because they take up very little room. Consider permanently retaining a copy of each year's tax return. Contracts, real estate buy/sell records, and records of property improvements should be retained for seven years after the property is sold.
What should I do with my records for nontax purposes?
When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. For example, your insurance company or creditors may require you to keep them longer than the IRS does.
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Get a better understanding of U.S. tax laws as they relate to pastors and churches with the Church & Clergy Tax Guide |
Every church and its employees want to feel confident that their compensation plan is reasonable and fair. |
To accomplish your church's mission and vision for ministry you need to effectively manage your church's finances |
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Clergy should not view this information as a substitute for professional advice. This information is subject to change, due to administrative rulings or interpretations and or technical corrections by the IRS. If legal advice or other expert assistance is required, the services of a competent clergy tax professional person should be sought.
