The Church

When the Lord Jesus Christ instituted the law of tithing in the modern Church, He commanded that the members of the Church should “pay one-tenth of all their interest annually.” Church leaders have instructed that “interest” means “income,” but no other clarifications have been issued.

Of course, the payment of tithing is an offering to the Lord for His work, and He has promised great blessings for those who pay an honest tithing (Malachi 3:7-12). Consequently, He has left to us and our own conscience what an honest tithing is. When bishops conduct the annual tithing settlement they simply ask whether the member has paid a “full,”  “part,” or “no” tithing, without asking for copies of tax returns or W-2 forms, or asking detailed questions, relying solely on the member to make a truthful declaration.

Nevertheless, ambiguous situations do arise, and there exists in the Church some folklore that sometimes becomes confusing in trying to pay an honest tithe. Many of the same questions recur. While I served as a bishop’s counselor, bishop, stake president’s counselor, and stake president conducting temple recommend interviews, I heard many questions asked by faithful Church members seeking to understand the Lord’s will. While I usually declined to answer those questions for the members asking them, leaving the decision to the individual member, I have over the years formulated some opinions on certain issues, including my own approach to paying tithing.

For example, a common question was whether a person should pay tithing on his or her “gross” or “net” wage income. The best answer I have heard was given by a General Authority who was asked that question during a stake leadership meeting: “Well, that depends on whether you want gross or net blessings.” I will say this: I was comfortable in giving temple recommends to Church members who paid tithing on their net wage income. I have heard some argue that we should pay on the gross because a portion of our wages goes to the government, and we receive that money back in the form of government services. However, in some cases, for example, if a person dies before receiving any Social Security income, or if the person does not receive the government services that the money which is withheld and paid to the government is used for, that person has paid tithing on income he or she never received. However, if a person did not pay tithing on his or her gross income, later, when he or she receives Social Security income, it seems to me they should pay tithing on that income.

Another common question relates to the correlation between income for federal tax purposes and income for tithing purposes. This raises a number of sub-issues.  In the federal tax return, the first section requires the taxpayer to list all of his or her items of income, including wages, interest, dividends, capital gains and business income, which total to the “gross income.” Then, a number of special deductions are allowed, such as moving expenses, tuition, and alimony paid, which results in the “adjusted gross income.” Finally, after deducting personal exemptions and itemized deductions, including taxes, certain medical expenses, mortgage interest paid, charitable contributions (including contributions to the Church), and casualty losses, the result is called “taxable income.” It is on the “taxable income” that a taxpayer calculates the taxes owed to the government.

The question is: Should tithing be paid on the “gross income,” “adjusted gross income,” or “taxable income?” For me, with the exception of business income (which is discussed below), the answer has always been the “gross income” since this was income I actually received; the other deductions may be allowed by various “loopholes” in the tax law, but it does not change the fact that I did receive the income. It would be particularly strange to deduct the amount paid in charitable contributions to the Church in the previous year for income tax purposes in order to calculate one’s income for this year for the purposes of determining how much tithing should be paid.

Another way in which tithing varies from federal taxable income relates to gifts received. The tax laws do not require gift income (money or assets) to be declared and no tax is paid on such gifts (except in the case of fairly large gifts where the person giving the gift must pay a gift tax). Nevertheless, I have never felt that gift income I receive should be excluded from tithing. It is pretty straight forward when the gift is cash, but it does get more difficult if the gift is an asset.

For example, if someone gives me an unexpected gift, say a car, and the fair market value of the car is determined to be $4,000, it may require the sale of the car to get the money to pay tithing on the gift. Moreover, if I already have three cars, the value of the car to me may not be $4,000, but something less. In such cases, it might be left to the recipient to determine a value on which the recipient could pay an honest tithing. Of course, if the recipient sells the car, whatever price is accepted for the sale would be the value for tithing purposes.

Inheritances are similar to gifts. For tithing purposes I have never seen any real difference between receiving a gift and receiving an inheritance—both seem to me to be tithable income. In some cases, this may be a much larger amount than a gift, but the size of the income should not be a consideration in determining whether tithing is owed.

Inheritances do raise another common problem. Sometimes I have heard that it is not necessary to pay tithing on money received as a gift or inheritance because that money has already been tithed by the person giving the gift. I believe the responsibility to pay tithing is placed on each individual by the Lord. If I receive income, the fact that someone else paid tithing on that money when they received it as income is not relevant. Sometimes, people say that missionaries don’t pay tithing because the money they receive from their parents “has already been tithed.” I don’t believe that is the correct principle. I believe the reason missionaries do not pay tithing is that they are already living the law of consecration by dedicating all of their time, talents, and money to the Lord’s work.

Business income does require different treatment, in my mind. Obviously, any business has expenses, and it is only after the payment of those expenses that there may be a profit which could be considered income. Consequently, in my view, no tithable income arises until the owners of the business take the money out of the business for personal use. This necessitates that a separate bank account be maintained for the business income. This applies whether the business is operated as a sole proprietorship, a limited liability company, a general or limited partnership, or as a corporation. Even though federal tax law requires a person operating a business as a sole proprietorship, limited liability company, general partnership, limited partnership, or “S” corporation to report and pay taxes on the income each year (Schedules C or E) whether or not any of the money is actually taken out or paid out to the owners of the business, it seems to me the owners do not have an obligation to pay tithing on such money until they actually take it out of the business for personal use (which includes any salary paid to that person from the business income).

  Until such time, one year’s profits in the business may be eaten up in next year’s expenses. When the business is operated in a corporate form (“C” corporation), no income arises for tax purposes (or tithing purposes) until money is paid out to the shareholder in the form of dividends or salary.

Finally, transactions which amount to an exchange of assets do not necessarily give rise to tithing income, in my opinion. Tax laws allow persons to make “like-kind exchanges” of assets and such exchanges do not give rise to a taxable event. I can, however, distinguish two different situations: First, suppose a person owns a home, for which he or she paid $100,000, then it is sold for $150,000 and the money is used to buy another home to live in for $200,000. Has there been any income to the homeowner? In the sense that that person is now living in a nicer home, certainly the person has improved his or her wealth and on that basis may choose to pay tithing, but I am quite sure most bishops would be comfortable in allowing the person paying tithing on the $150,000 received to deduct the $100,000 he or she had previously paid before calculating the “income” from the sale, and the fact that the homeowner needs a place to live and actually spends more for the new place leaves me comfortable with no payment of tithing on that transaction.

On the other hand, if the property is not that person’s sole residence, but is a second home, vacation home or condo, or property purchased for investment, I think that the investor recognized $50,000 of income on the sale of such property that should be tithed. The decision to spend even more money to invest in a different property, again as an investment property, is a personal business decision that does not change the fact that the investor did receive more for the sale of the property than he or she paid for it. If a person is in the business of buying and selling real estate, the transactions should be treated as business income (or loss)  and tithing paid on it when money is taken out of the business for personal use.

Should a person pay tithing if it means that the only way that person can meet their living expenses is to ask the Church for welfare assistance? My answer to that is, “Yes.” When I was a bishop, the persons who needed welfare assistance that I most cheerfully helped were those who had been tithe payers. When a person declines to pay tithing because “I need the money,” he or she is showing lack of faith that God will bless them if they keep this commandment. Furthermore, they have a problem with pride because they are unwilling to receive help from the Church. Lastly, if they receive Church welfare assistance they may receive valuable help in the form of counsel from the bishop or his designee as to how to rearrange their finances to more adequately cover their expenses.

There are many other situations that can arise that challenge us to evaluate what we think an honest tithing is. Each of us can ask the opinions of our bishop and other faithful Church members we respect in order to study it out in our mind; we can ponder the issue; and we can pray about it, seeking guidance from the Holy Ghost. My rule is: when in doubt pay tithing on it.