Christian

A new client has come in whose wife passed on in 2019. She was a beautician and operated a small business. For 2019 the business shows a loss and , of course, was closed. The standard deduction eliminates any federal income tax for 2019. As the loss is not deductible can it be carried forward or is it simply dropped. If memory serves this matter has come up in here and the loss is simply lost.

I will photocopy the exact words from the Taxbook on the HA.What is crystal clear is the salary is fully subject to SE tax and not placed on Schedule C. Fees, baptismals, funeral services are the items placed on Schedule C and are of course allowed deductions on that. The HA not exposed to regular income tax is indicated to be fully exposed to SE tax but I will photocopy it and place it into my next submission.

P. S. I now have had time to look over what the client's former taxperson did in respect to her salary and HA. In prior years returns I noted Form 2106 showing mileage expense and a few other miscellaneous expenses incidental to being a minister such as uniform maintenance, telephone calls, etc. These expenses subject to the 2% limitation normally appear on Schdule A. A recapitilation sheet I found showed the following. An addition of the salary and HA into a single figure. The total reduced by unreimbursed employee expenses which ccomprised most of the amounts reported on Form 2106. This greatly reduced the HA exposed to SE tax although the salary remained fully taxed. In reading material in the large Taxbook I received with my ATX renewal it states that the entire HA is taxed for SE purposes and allows no deductions period. In asking how long her former taxperson had been preparing her taxes I was told twenty years. Unless I am greatly mistaken this was an egegious error but would like to hear what y'all think.

Welcome Newbie I am the chief stumbler here as some of my fellow members will attest. Abby I am glad you mentioned turning off the form and program updates something I used to do from the first and simply forgot this year.

In response to John. The church bookeeper evidently reviews the clients yearly expenses and comes up annually with a close approximation of what the church should pay. Any shortfall can be adjusted or so it would appear as the HA matches the FRV of the client's home for years. This has evidently been ok as it has not been questioned in prior years. I worked through the worksheets and now have a new client. Thanks to all for your assistance. This is a good example of the value of this forum.

I too have been considering retiring. The business is slowly downsizing due to clients passing on and the fact I rarely take morning calls anymore. Basically I have shifted all appointments to the afternoon and this is well accepted. I likely will try to go on for five more years unless bad health intervenes. To that end I am getting back into exercising more. Around here taxpreparers just quit. I don't recall anyone selling out although I probably could.

I ran the figures and her expenses were more than her allowance at least for 2019. Local real estate agent gave me a figure for the rent on her home.

I want to thank each and everyone of you who responded to my sos call. The client brought me three years prior tax returns. My confusion stemmed from the Lacerte software her taxperson used. It like ATX has a worksheet although more abrieviated than the ATX one which is a carbon copy of the one in Pub 517. It referenced unreimbursed employee expenses from Form 2106. The 2018 copy I got had no Form 2106 to reference. I realized that Form 2106 had been changed in the last tax reform legislation. The earlier returns had the Form 2106 and the expenses referenced were mostly mileage at the standard rate and minor other pastorial expenses like dry cleaning etc. In looking at the ATX worksheets mileage is denoted on the second worksheet. On each prior return the FRV is simply the full amount of the HA. So now what it comes down to is precisely what John pointed out aways back namely fill out the worksheets and I feel sure I can handle that. Although the client did in fact provide actual bills for her home expenses I saw no evidence her taxperson added any of them up. She simply reported the full HA as the home's expense so needless to say I am going that route. And now dear forum buddies the sun has come out , the Wrens in my backyard box are going crazy over their soon to be gone brood, and I thank the Lord I am just about done with the 2020 tax season. Lion I very muchh appreciate the University of Illinois Tax School info. I looked for an IRS webinar on the HA but found nothing satifactory although their written material was helpful.

I see exactly what you mean. I may simply pass on this one. I don't read that there are any expenses which reduce the full HA from SE tax. I think the former taxperson made significant errors in this regard. She somehow deducted unreimbursed employee expenses from the HA whereas these would apply only to income such as fees and other incidental income reportable on Schedule C. She is showing a leftover NOL from the income taxed on the SE with no Schedule C attached to the return. I am going to get the client to bring me her 2015 and 2016 returns to see if I can make sense of what she did but regretably I doubt I will succeed.

Here is the operativve question involved here. What are the expenses on line 4f which can be used as deductible items against the HA ? This is what I should have ask early on. Suffice it to say it's been a long and trying tax season and is still not closed out. IMG_20200615_0001.pdf

My confusion with regard to this stems in large degree from the info received from the client's former taxperson who did not provide all the info I needed and the fact she is ill with some form of cancer and really bad off. The client had no prior tax records which clearly indicated exactly how she handled this. I plan to use the Clergy 1040 form provided by ATX and go from there. I need time to look it over but it shows deductions allowabe against the HA which look to me will reduce the amount exposed to SE tax.

Margaret has pretty much cleared the clouds on this one. I'm going to print the entire disussion and place it in the client file.The client provided utility bills for her home and this along with the FRV will likely just about exempt the HA from any tax. Many thanks to all as I was in the weeds on this one. ( I am sure there are some that feel I stay in the weeds.)

I used the method my nephew's then CPA used and never had any problems. That being said the ATX worksheet approximates the one in Pub 517. By FRV of the house do you mean the Fair Resale Value ? This is a rare bird for me so it's incumbent on me to get it correct. The CPA simply put the HA on Schedule C showing him as a minister. He showed the full amount as profit which was carried to the Schedule SE but did not allow the profit to flow to the 1040 and thus avoided income tax on it. This client gets a cash payment each year annually approved by the Board of Deacons and as noted it is shown on the W-2 she receives as a church employee in Box 14.

I've been reading prior posts on this subject and have yet to gain much clarification. The clients prior taxperson added her church salary (reported on the aforementioned W-2) which no Social Security tax was withheld from and her housing allowance and then deducted expenses from the combined total. The result left the salary fully exposed to SE tax but sharply reduced the housing allowance leaving a small portion of the housing allowance to be added to the salary for inclusion on Schedule SE. The client does incur auto expenses in her ministry but I was unable to define much else. I plan on contacting her former taxperson but she is in bad health and speaking with her may be problematic. She did not report using Schedule C but derived her figures using a worksheet provided with Schedule SE. I examined the one provided by ATX and have yet been unable to quite understand it.

A new client has come in who is a minister. She lives in her own home and iis given a housing allowance which is designated on her W-2 Box 14. A nephew of mine is also a minister and receives a small housing allowance which I have reported on Schedule C not deducting any expenses and filing Form SE for his self employment tax. I then deduct the allowance on the other income line of his Form 1040 so he owes no income tax on it. The client receives a much larger allowance and her prior taxperson deducted expenses from it which are not identified and unlike me did not report the allowance on Schedule C. What expenses can be deducted from the housing allowance if reported on Schedule C. The nephew basically had none and in reading I am unclear what can be used as an expense.

That brings up a question that never ends. Why are clients so resistant to making a change on their returns that will be really helpful to them ? They will invariably insist on the same filing info year after year to the point I ususally just give up pointing out a possible problem.

I have one accepted in February and still unpaid. The client says she has received no mailed info or info request from the Service. She has submitted a request to our local Congresswoman which I have found from past experience will get the tree shaken and get it resolved fairly quickly. She has a possible issue with a dedpendency matter which I had advised her and now deceased husband to address to avoid any problem but as so often occurs they set on their hands until the possible problem becomes a reality.

My experience parallels Lions especially since it is going to be ongoing. I have had clients who wanted to overlook the SE tax who were hit a couple of years down the road. I have a client who made $19,000 which his employer reported on a Form 1099- Misc. This is a common dodge among employers so as to avoid withholding and reporting requirements. He about passed out when he got the combined federal, state, and SE tax he had to pay. I have repeatedly warned him of this but to no avail.

There is diplomacy and then there is diplomacy.

I have been listening to an IRS webinar and done some additional reading. The simple reality it's basically a judgement call. There are not a few variables that can effect it as well and frankly it will take up far too much of my time to examine them to produce the correct QBI. The fact that these guys would seemingly qualify under Sec.162 doesn't entirely cut it and on and on. What would at first appear pretty simple falls into a quagmire of sorts. Needless to say I simply don't have the time do fool with it.

I have an IRS webinar scheduled to address this when time is available. I can always file an amended return for either of them. The operative question then is if they do not meet the requirements for the safe harbor rules what Rita WOULD qualify them to use the deduction ?

I want to thank each of you who have replied. In all probability I could simply go ahead and make the deduction for them. In reading Lion's advice I recall reading the Service wanting rental owners to prepare Form 1099-Misc for payments to contractors etc. I have real difficulty in getting them off their butts at usually the END of tax season to get their figures in to prepare the returns ! The idea that I am going to EDUCATE them to prepare forms which they despise and keep time logs and the like would be a mind boggling task. One came in this year moaning and groaning about the five hours he had to spend organizing his matters and having him account for some 250 hrs spread out over the entire year good Lord !! Some time back I told him I did not have the time to sift through coffee stained, ink deficient, and crumpled up receipts and if he was unable to bring me listed costs for each property SEPARATEDLY indicated to carry it to H & R. Folks here can't even manage mileage logs very well. No I simply do not have the time to coach clients. I'll see if there is an available online seminar or webinar I can take but unless it simply involves accepting the fact these guys want to make money with their rentals without all these paperwork requirements I am not going to fool with it and everything I've read indicates the Service expects just that and not they they simply handle the rentals in a businesslike manner.

One of the clients has four rentals the other eleven. Do they spend some 250 hrs. per year on these I have no idea and I am sure other than bills presented by repairmen and the like they do not keep what looks to me to be a formidable record keeping requirement. I simply have no wish to have one of them get an audit and be on the wrong end of understanding the requirement. I know a few real estate owners who take this deduction and feel sure they are unaware of the logging requirements. They are likely going out on a limb but it really comes down to how strictly the Service is able to enforce the above requirements.

Interesting this looks to have been expanded since the last time I checked which was a long time ago. It's a seldom used benefit as not many of my folks post a profit .

Separate books and records must be maintained to reflect income and expenses for each rental real estate enterprise. At least 250 or more hours of rental services must be performed by the taxpayer or other individuals (i.e., plumbers, landscapers, contractors, property managers) per year with respect to the rental enterprise. The activities that count towards the 250-hour requirement include landlord-related duties such as repairs and maintenance, collecting rent, reviewing tenant applications, spending time with tenants, etc. The taxpayer must maintain contemporaneous records of relevant items, including time reports, logs, or similar documents. This requirement applies to tax years beginning after December 31, 2018. Relevant items for recordkeeping include hours of all services performed, description of all services performed, dates on which such services were performed, and who performed the services. This will basically disqualify the two guys I have in mind as they would never maintain these records. This is pretty much what I had expected. The record keeping requirements would likely kill their deduction as they would never comply.