As we approach the end of the year, it’s crucial for clergy members to take a moment and assess their tax situation. Remember, the outcome of your tax return largely depends on your actions before December 31. Now is the perfect time to check in with your tax professional to ensure you’re well-prepared for the upcoming tax season.
The Importance of Estimated Tax Payments
Have you paid enough estimated tax this year? This question becomes even more critical if your income has increased or you’ve lost a credit, such as a child turning 17 or graduating from college. These changes could mean owing more on April 15th. If you had to write a check last April, it’s essential to double-check that you’ve paid enough this year. The penalties for underpayment can be steep – currently set at 8%.
Safe Harbor Rules
Fortunately, there are safe harbor rules that can protect you from estimated tax penalties. Even if you haven’t paid your full tax liability through quarterly payments, you generally won’t face penalties if:
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You’ve paid at least 90% of your tax liability
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You’ve paid more than or equal to 100% of the previous year’s tax liability
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You owe less than $1,000 in taxes
Staying current with your tax payments is crucial. Once you fall behind, catching up can be challenging. Remember, the 4th quarter payment for 2024 is due on January 15th, 2025.
Mitigating Tax Underpayments
Before December 31: Consider a 403(b) Contribution
If it’s before the end of the year, clergy members should seriously consider making a 403(b) contribution. This option is particularly tax-efficient as it eliminates both federal income tax and self-employment tax due. It’s one of the most powerful tools available for clergy to reduce their tax burden.
After January 1: IRA Contributions
If you’ve missed the December 31 deadline, don’t worry. You can still make an IRA contribution to help reduce your tax bill. In 2024, the maximum amount you can contribute to an IRA is $7,000 per year, or $8,000 if you’re 50 or older. Consider maximizing your contribution by also funding a spousal IRA. While IRA contributions are subject to self-employment tax, they can still significantly reduce your overall tax liability.
Seeking Professional Help
At Clergy Tax Advisors, we understand the unique tax situation that clergy members face. With three decades of experience, we’re here to help you navigate these complex waters and ensure you’re making the most of your tax planning opportunities.
Our range of services includes:
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Clergy Tax Prep: We provide expert guidance to bring clarity to your unique tax situation. Our team is well-versed in the intricacies of clergy taxation and can help you maximize your deductions while staying compliant.
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Year-Round Clergy Tax Planning: We believe in proactive planning. By working with us throughout the year, we can implement strategies that will optimize your tax situation before the year-end crunch.
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Full Church Payroll and Clergy Tax Service: For churches, we offer comprehensive payroll services, relieving your treasurer’s biggest headache and ensuring everything is handled correctly.
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Tax Relief and Resolution: If you’re facing tax problems that seem insurmountable, we’re here to advocate for you and find solutions.
The Benefits of Proactive Tax Planning
By taking a proactive approach to your taxes, you can:
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Reduce your overall tax liability
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Avoid unexpected tax bills and penalties
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Make informed financial decisions throughout the year
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Focus on your ministry without the stress of tax uncertainties
Remember, it’s always better to keep money in your hands rather than paying it to the IRS. With a little time and resourcefulness, you might find funds to contribute to a 403(b) or an IRA, significantly reducing your tax burden.
Next Steps
As we approach the end of the year, now is the time to act. Here are some steps you can take:
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Review your estimated tax payments for the year
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Consider making a 403(b) contribution before December 31
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Plan for an IRA contribution in the new year if needed
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Gather all necessary documentation for your tax return
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Schedule a consultation with a tax professional
At Clergy Tax Advisors, we’re here to help you prosper in your calling. Our team can provide the expert guidance you need to navigate your unique tax situation, implement effective strategies, and ensure you’re fully compliant with all tax regulations.
Don’t let tax season catch you off guard. Book a call with us today, and let’s work together to optimize your tax situation. With our help, you can enter the new year with confidence, knowing that your finances are in order and you’re making the most of every tax-saving opportunity available to you.
Remember, when it comes to taxes, preparation is key. Let’s make this your best tax year yet!