Churches & Ministries, CPA & Tax Services

Why Churches and Ministries in Dallas Need a Specialized CPA

Churches and ministries operate under a unique set of IRS rules that most general CPAs rarely encounter. Your organization is tax-exempt under Section 501(c)(3), but that exemption does not protect you from payroll tax mistakes on minister compensation, mishandled benevolence funds, or unrelated business income tax (UBIT) on facility rentals. One misstep with a minister’s housing allowance or a love offering that goes undocumented can trigger IRS scrutiny, back taxes, and penalties that put your ministry’s finances at risk.

At AG Freideman, we have spent over 30 years helping Dallas-area churches, ministries, and faith-based nonprofits handle these exact issues. Al Freideman, a licensed CPA, personally manages every church engagement. No junior staff, no hand-offs. We understand the intersection of nonprofit compliance, clergy tax rules, and Texas-specific requirements, and we handle all of it so your leadership team can focus on the mission.

If your church needs help with minister payroll, housing allowance calculations, or any compliance question, call us at (972) 893-3481 or book a free consultation to get started.

How Does Minister Dual-Status Payroll and the Housing Allowance Work?

Minister compensation is the single most misunderstood area in church accounting. Under IRS rules, ordained ministers have a “dual tax status”: they are treated as employees for income tax purposes but as self-employed individuals for Social Security and Medicare (SECA) tax purposes. This means a church does not withhold FICA taxes from a minister’s pay, but the minister must pay self-employment tax on their own through quarterly estimated payments.

The housing allowance (also called the parsonage allowance) under IRC Section 107 is one of the most valuable tax benefits available to ministers. It allows a minister to exclude a portion of their compensation from federal income tax, provided three conditions are met:

• The church’s board must officially designate the housing allowance amount in advance, before the tax year begins (or before the minister’s start date).
• The amount excluded cannot exceed the lesser of: the actual housing expenses, the fair rental value of the home (furnished, plus utilities), or the officially designated amount.
• The minister must use the funds for qualifying housing expenses, including rent or mortgage payments, utilities, furnishings, insurance, and repairs.

Here is where churches get into trouble: if the board fails to pass a resolution designating the allowance before January 1 of the tax year, the minister loses the exclusion for that entire year. We see this mistake frequently with Dallas-area churches that change pastors mid-year or simply forget the annual vote. We help your board set up the proper documentation and ensure the designation is recorded in official minutes every year.

Ministers must also remember that while the housing allowance is excluded from federal income tax, it is still subject to self-employment tax. We calculate the correct SECA liability and set up quarterly estimated payment schedules so your ministers are never surprised at tax time.

What Are the Rules for Church Benevolence Programs?

Benevolence payments (sometimes called “care funds” or “mercy funds”) are distributions a church makes to individuals in financial need. When properly administered, these payments are not taxable income to the recipient and are legitimate charitable expenditures for the church. When handled incorrectly, they can be reclassified as taxable compensation or trigger penalties for the organization.

The IRS requires that a benevolence program meet specific criteria to remain compliant:

• The church must have a written benevolence policy approved by the board, outlining eligibility criteria, application procedures, and approval authority.
• Recipients must demonstrate genuine financial need. The church should collect and retain written applications documenting the individual’s situation.
• Payments must go directly to the need (rent to a landlord, utility bills to the provider) whenever possible, rather than as cash to the individual.
• Benevolence funds cannot be directed by the donor to a specific individual. If a donor gives money “for Pastor Smith’s car repair,” that is not a tax-deductible charitable contribution, and it may be taxable income to the pastor.
• The church must maintain detailed records of every distribution, including the recipient, amount, purpose, and documentation of need.

We help Dallas-area churches draft compliant benevolence policies, set up proper documentation workflows, and review distributions before they create problems. This is one of those areas where getting it right from the start is far easier than fixing it after an IRS inquiry.

Does a Church Owe Taxes on Facility Rental Income?

Yes, in many cases. Even though your church is exempt from income tax on activities related to its religious mission, the IRS imposes unrelated business income tax (UBIT) on income from activities that are not substantially related to your exempt purpose and are regularly carried on. Renting your fellowship hall, gymnasium, or parking lot to outside groups on a recurring basis is one of the most common UBIT triggers for churches.

Under IRC Section 512, rental income is generally excluded from UBIT, but that exclusion disappears if the property was financed with debt (a mortgage). If your church carries a mortgage on a building it rents out, the rental income allocable to the debt-financed portion is subject to UBIT at standard trust tax rates. For 2026, the top trust tax rate reaches 37% on income over $15,450.

Even for debt-free properties, if the church provides significant services along with the rental (setup, cleanup, AV operation, catering coordination), the IRS may reclassify the income as payment for services rather than passive rent, making it subject to UBIT.

We review your church’s rental arrangements, identify which income streams may trigger UBIT, and file Form 990-T when required. Many churches in the Dallas-Fort Worth area rent their facilities regularly without realizing they have a filing obligation. We make sure you are covered.

How Should Churches Handle Love Offerings and Special Gifts to Pastors?

Love offerings collected by a church and given to a pastor are taxable compensation to the pastor in almost every case. The IRS position is clear: when a congregation collects funds through the church’s regular channels and directs them to a staff minister, those funds are wages subject to income tax (and self-employment tax for ordained ministers). The church must report love offerings on the minister’s Form W-2.

The only exception is a gift made directly from one individual to the minister with no church involvement. If a church member personally hands the pastor a birthday gift from their own funds, that is a personal gift excluded under IRC Section 102. But the moment the church collects, pools, or distributes the funds, it becomes compensation.

We help churches establish clear policies for love offerings, ensure proper reporting on W-2s, and educate church leadership on the distinction between personal gifts and church-channeled compensation. Getting this wrong is one of the fastest ways to create a tax liability your pastor was not expecting.

Churches and Ministries Tax Mistakes We Fix

After 30 years of working with faith-based organizations, we see the same costly errors come through our door repeatedly. Here are the most common mistakes we correct for Dallas-area churches:

• No board resolution for the housing allowance: The minister claims the exclusion, but the church never passed a formal designation before the tax year started. We draft proper resolutions and build an annual calendar so this never gets missed.
• Misclassifying ministers as independent contractors: Some churches issue a 1099-NEC to their pastor instead of a W-2. Ministers who perform ministerial services for a church are employees for federal income tax purposes under IRS guidelines, regardless of what the church calls them.
• Failing to file Form 990-T for UBIT: Churches are exempt from filing Form 990, but they are not exempt from filing 990-T when they have unrelated business income over $1,000. We identify the obligation and handle the filing.
• Treating directed benevolence as tax-deductible donations: Donors who specify a recipient for their “gift” do not receive a charitable deduction, and the payment may be taxable to the recipient. We restructure these programs to protect both the church and the donor.
• No documentation for accountable reimbursement plans: Pastors receive flat monthly “expense allowances” without submitting receipts. The IRS treats unsubstantiated allowances as taxable wages. We set up accountable reimbursement plans that comply with IRS requirements.

Why Dallas Churches Choose AG Freideman

We work with churches and ministries across Dallas, Plano, Frisco, McKinney, Allen, Richardson, and all of the North Texas suburbs, both in person at our Preston Road office and through virtual appointments for congregations anywhere in Texas. Every engagement is handled personally by Al Freideman, a licensed CPA with over 30 years of experience. Our 52 five-star Google reviews reflect the kind of personal attention and accuracy that church leadership teams depend on.

Our transparent pricing means no surprises. Monthly bookkeeping with payroll processing runs $300 to $600 per month. Business tax preparation for churches filing informational returns and minister W-2s starts at $1,000 to $2,000 depending on complexity. Tax planning sessions for minister compensation structuring start at $197.