Financial Triage for Start-Up Church Plants

If your church is a start-up plant or a re-start, and resources are tight you need to maximize every dollar.

If you've grown to the point where you can afford to start paying a pastor, congratulations!  Supporting a pastor is a landmark to celebrate.  Make sure that you prioritize payments in the most tax efficient way.  

First and foremost, make sure your pastor's ministry expenses are funded 100%.  You need to fund reimbursable expenses before you move onto employee benefits, housing allowance, salary or retirement planning.  They're all important, but our goal is to triage payments to maximize tax benefit.

There a several reasons to emphasize covering ministry expenses as a priority.

Honor to whom honor is due

First, you will give honor to whom honor is due.  Many big-hearted pastors work out of their own pocket to see needs met and ministry ambitions realized.   I often hear from pastors who cover an expense simply because they want to bless the people they're seeking to reach, and they trust the Lord to provide in all things.  They are servants at heart living in God's economy, and that's where we all should be.  Please honor your pastor's sacrifice by making sure that they are reimbursed for legitimate ministry expenses.  

Understand the real cost

Second, we will understand the real cost of ministry.  Oftentimes, we don't realize everything that goes into running active, effective outreach efforts.  If we don't know what the pastor is covering out-of-pocket, then we will not adequately forecast the needs for future ministry. 

Be tax efficient

Finally, when we reimburse our pastor for legitimate ministry expenses, we put needed cash back in their pocket with no tax implications or tax reporting required.

Some treasurers are reluctant to take on expense reimbursement due to the confusing guidance surrounding accountable reimbursement plans.  The good news is that is doesn't have to be complicated.  Accountable reimbursement plans do not have to be written, and they need only follow three basic requirements:

The expenses must be ministry-related;

The expenses must be substantiated within a reasonable period; and

If funds are advanced, the employee must return any money not spent to the employer.1

One other important caveat is that the reimbursement must not be tied to salary in any way.  If the pastor's salary is reduced by the reimbursement amount, the entire plan is disqualified, and the expense reimbursement will be considered taxable.  The lesson is to set realistic amounts for expense reimbursement and salary on the church budget and keep them separate.

To summarize, ministry expense reimbursement is the tax-efficient priority when resources are tight.  You can help your pastor simplify and streamline their tax return by keeping ministry expenses on the church budget where they belong and out of pastor's income.

To learn more about maximizing the benefit of accountable reimbursement plans, expense tracking and adequate accounting, please give us a call at 937-234-7780 or info@clergytaxadvisors.com