Elimination of deduction for expenses may affect some pastors’ incomes

A lesser-reported aspect of the Tax Cuts and Jobs Act of 2017 is a provision that eliminates the ability of some pastors to claim deductions for job-related expenses.

Harold Loftin, chief legal officer for GuideStone Financial Resources, said deductions for unreimbursed employee expenses have been repealed by the recent tax reform bill, meaning employees will not be able to claim a deduction for their unreimbursed business expenses in 2018.

“The impact of this change will certainly vary on a case-by-case basis,” said Loftin.

The change may particularly affect some pastors of small churches who receive a flat salary and have been eligible in the past to claim deductions on their federal tax returns for expenses like mileage, meals, conferences, continuing education and books. Those deductions won’t be allowed beginning this year.

Loftin said an accountable reimbursement plan adopted by a church can be used to reimburse a pastor’s ministry expenses, thus reducing his taxable income.

GuideStone provides resources related to structuring pastors’ compensation to minimize the tax burden. For details, visit www.GuideStone.org/CompensationPlanning.

In the section of GuideStone’s compensation planning materials titled “Provide for ministry-related expenses” is the following statement: “Ministers and employees naturally have expenses related to the work they need to accomplish. However, these expenses should never be a burden to them. As such, the expenses should be fully paid for by the church and should not impact any portion of a minister’s or employee’s personal income.”