The impact of the increased standard deduction will greatly vary from one minister to another. So, the answer is, it depends.
Here’s what’s changing under the tax reform law: For a married couple filing jointly, the standard deduction increases from $12,700 in 2017 to $24,000 in 2018—it almost doubles.
To understand the true impact, let’s look at three of the most common scenarios, assuming married filing jointly:
1. Minister claims standard deduction in 2017 and 2018. For 2017, the minister had itemized deductions of about $12,000 so the minister received a larger deduction in 2017 by claiming the standard deduction of $12,700.
For 2018, the expenses qualifying for the itemed deduction were still about $12,000. The minister would gain a much larger deduction by using the standard deduction of $24,000 for 2018, potentially savings several thousands of dollars in income taxes.
2. Minister itemizes deductions in 2017 and 2018. For 2017, let’s say the minister had $25,000 of expenses qualifying for the itemized deduction, and in 2018 these qualifying expenses were again $25,000. In this scenario, nearly doubling the standard deduction has no impact on the minister because it is better for the minister to itemize deductions for both years.
3. Minister itemizes in 2017 and takes the standard deduction in 2018. For 2017, let’s say the minster’s expenses are $20,000 qualifying for the itemized deduction, and the 2018 expenses are similarly $20,000. In this instance, the minister will get only a modest benefit from the higher standard deduction in 2018 (the difference between $24,000 and $20,000).
Here is the bottom line. The near doubling of the standard deduction from 2017 to 2018 will impact ministers very differently depending on their tax situation. And, the near doubling of the standard deduction is only one of the tax reform changes impacting ministers. One must consider many other changes and project the impact for 2018 to avoid underpaying estimated income taxes or withholding.
For more information on Tax Reform and its implications for churches and nonprofits, please consider attending one of the free, in-person National Forums on Tax Reform and/or watching our free Tax Reform Webinar-on-Demand.