A pastor would like to have his tithe deducted from his paycheck by the church as a pre-tax reduction. Because he believes that this would entitle him to a charitable donation deduction and help him avoid paying income and self-employment tax, he feels that this would be a beneficial arrangement. What are your thoughts?
While it is true that an employee could agree with his employer for a cut in pay, in fact, we do not believe that the situation described here qualifies. First, constructive receipt rules require taxpayers to report all earnings that are made available to them, regardless of actual physical receipt.
Second, it would likely appear to some in the congregation who do not have full knowledge of the situation that the pastor has simply ceased giving to the church. Based on these considerations, this is certainly not a strategy we would endorse, nor, most likely, would many tax authorities who became aware of the situation.
Additionally, if a church does decide to pursue this ill-advised strategy, it would undoubtedly be inappropriate for the pastor to receive a receipt reporting cash contributions that were never made.