As you plan for life and ministry in the coming year, use these 2 housing allowance tips to save the most on your taxes:

#1 Create a Good System

You need to have receipts to prove your expenses come tax time. Hopefully the IRS will never ask for them (yeah, that would be an audit), but you’d better have them together if they do.

The biggest expenses should be easy enough: rent, utility bills and furniture purchases shouldn’t be so hard to dig up. But if you’re writing off cleaning supplies, light bulbs and other items used to repair or maintain the home, it’s easy to misplace a receipt from the store during the course of the year.

Here are some ideas for keeping everything in one place:

• put receipts in a shoebox as soon as you get home
• get a receipt scanner and scan your receipts and invoices onto your computer
• use your mobile device to snap pictures using an app like Evernote or Genius Scan

#2 Guess High

Even if you calculate how much to designate as housing allowance, that doesn’t mean you’ll hit that amount exactly. You almost certainly won’t, ‘cuz life is crazy.

When the year is over, the IRS says you can claim the lesser of:

1. Your actual expenses (supported by your receipts and records)
2. The fair rental value of the home, furnishings and utilities
3. The amount your Board approved

Let’s use Joe Planter’s scenario to look at the implications of the 2 probable outcomes:

Joe Guessed Low

His Board approved an $18,000 housing allowance designation for the prior year (limit #3 above). He did his homework and made his best projection.

He’d already figured out the fair rental value by adding rent, utilities, and calling the local rental center to find out what it would cost to rent furniture & appliances equivalent to what he owns. That was going to be $23,000+ (limit #2 above). He knew that was going to be too high.

Unfortunately, during the year, Joe’s washer & dryer both kicked the bucket and his landlord increased the rent, things he hadn’t foreseen. When he added up all of his actual expenses, it came to $20,000 (limit #1 above).

By IRS rules, he can only use the $18,000 figure. So that leaves him with $2,000 that he paid higher taxes on than he needed to. Bummer.

Joe Guessed High

In a parallel universe, Joe had the same approved housing allowance of $18,000 (limit #3 above).

The fair rental value was still $23,000 (limit #2 above).

But when he added up his receipts, they only came to $17,000 (limit #1 above). That’s all he can claim. But all he has to do is functionally ‘move’ the excess $1,000 over to his salary bucket and make up the small difference he owes from the higher tax rate. He squeezed every available drop of tax savings out of his housing allowance designation. And he would have had to pay the income tax on the $1,000 if he’d have accurately guessed in advance anyway.

So as you calculate your advance housing allowance designation each year, it’s better to guess a little high from a tax-savings standpoint.