Pastor Discretionary Fund

If we setup a discretionary fund that gives the pastor full and unrestricted discretion to distribute it. The total fund is considered taxable income. But Can we deduct monies spent from this fund that are church related expenses and thereby reduce the total taxable amount of the fund?

Comments for Pastor Discretionary Fund

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Benevolence Funds Not Usually Taxable
by: Vickey

I agree with Lewis. If set up and administered correctly, a Pastor Discretionary Fund would NOT be taxable income for anyone. See this page:

BUT let me caution all Pastors....a discretionary benevolence fund must be WELL documented! With only one person in charge of those funds, it would be one of the first things examined in an audit and even to avoid all "appearance of fund mishandling" ....careful documentation would be needed to show those funds went to the needy. Otherwise it could come back on that Pastor as income.

As far as using the funds in that discretionary fund for operational cost, that would depend on if the funds were donor restricted or just part of the church's operational budget.

Pastor Discretionary Fund
by: Lewis in NC

What do you mean the "The total fund is considered taxable income."? The money spent from the discretionary fund to benefit specific individuals may be taxable. For example: if the pastor decides to spend it for personal gain or to give it to specific church members for personal gain, then a 1099 might be in order.

Discretionary Funds (in my opinion and everyone has his 2 cents worth)should be well defined as to purpose. The one with which I am familiar was designed to be given as gifts to help those in our community in dire need--a need that had to be documented in a specific way as prescribed by the church.

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