Clergy issue

[Margaret CPA in OH]

I've had several clergy clients over the years and managed well with Church and Clergy Tax Guide, among other resources.  This one has a weird circumstance puzzling me a bit.  All other clergy clients have had outside income from weddings, funerals, etc. and corresponding expenses so that a Sch. C was needed.  This one has no such income but does have unreimbursed employee expenses.

In 2015 she went on a trip to Italy with the bishop.  The total cost was about $4800.  The conference provided $1500 of the expense then issued Form 1099MISC.  This is continuing education/professional development but it seems as much unreimbursed (in total) employee business expense as self employment.  But the clergy worksheets don't seem to have a place to include offsetting income and link with the 1099MISC which, technically, was not from her employer.

So Schedule C and be done with it or other ideas?  If Schedule C, would the other unreimbursed expenses go there instead of clergy worksheets?  And why now - why me? (Not to mention 4 foster kids and accompanying complications)

[jasdlm]

I thought most Ministers were common law employees, and thus their unreimbursed business expenses went on Schedule A subject to the 2% haircut like all other employees.  I only have 1 minister who has any unreimbursed expenses.  I wonder if I have been doing it incorrectly.

https://www.irs.gov/taxtopics/tc417.html

MAMalady and JJStephens are likely to be helpful here.

 

[Margaret CPA in OH]

Ah, but they are self-employed for FICA purposes.  There can well be a combination of unreimbursed expenses that are on 2106 and self employment income when they are paid separately for performing various services or receive other income not from the employing church.  I would be happy to have this all on 2106 as there is no offsetting income from other services but cannot figure out how (or even if I need) to connect the 1099MISC to the 2106.  As the money was intended to mitigate the full expense of the trip, it doesn't seem quite fair to have it fully subject to SE tax while the full expense of the trip is subject to the 2% limitation.

I suppose I could code it as not subject to SE tax but that doesn't seem exactly correct either.

[RitaB]

You're both correct.  Conference is not technically employer, so they issued 1099.  I'd put the 1500 on Sch C, for sure, to satisfy IRS.  Since it's so closely related to ER wages, you could back off on p. 2 of Sch C, saying "EE reimbursement correctly reported on Form 2106, then handle it all there.  Seems most appropriate to me.  (Or, you could deduct all the expense on Sch C.  Seems like too much benefit for a trip to Italy, but that's none of my business. /s)

But most of the clergy I see are not paid by anyone other than ER church (or if they are, they don't tell me about those), so those expenses are on Form 2106.

 

 

 

[Margaret CPA in OH]

Thanks, Rita.  I hadn't thought of including then backing out to match with continuing ed expense as unreimbursed expense. 

Oddly, this is the only clergy client I've had (of maybe 6) that has NOT had outside income to put on Schedule C.  Others have performed weddings and funerals or done workshops not in their home church or as the home church employee. I have to say that one thing about our line of work is that the combinations of circumstances amongst our clients are infinitely variable and there is "always somethin' " new coming through the door!  Boring? Never! 

[RitaB]

54 minutes ago, Margaret CPA in OH said:

I have to say that one thing about our line of work is that the combinations of circumstances amongst our clients are infinitely variable and there is "always somethin' " new coming through the door!  Boring? Never! 

Yes, if tax prep were easy, everybody would be doing it. Insert eye roll at commercials that seem to indicate otherwise.

I had a new client for 2015, who missed retirement savers credit on 2014.  I amended, and she netted $240.  Had [another] situation she couldn't handle for 2015, and that's why she came.  She asks me, "So, I just need to let them know I contribute to my 401(k)?"

All I said was yes.

[JohnH]

25 minutes ago, RitaB said:

Yes, if tax prep were easy, everybody would be doing it. Insert eye roll at commercials that seem to indicate otherwise.

I had a new client for 2015, who missed retirement savers credit on 2014.  I amended, and she netted $240.  Had [another] situation she couldn't handle for 2015, and that's why she came.  She asks me, "So, I just need to let them know I contribute to my 401(k)?"

All I said was yes.

Tell her she should call them on the phone to let them know about the 401(k).  After a couple of hours on hold, she can point it out to whoever answers.  I'm sure their response will be "Oh yes, now we see it.  We had been waiting for you to contact us.  Thanks so much for calling that to our attention."

[MAMalody]

Hmmm.  There are a couple of ways this could be handled.

1.  My guess is that the church had to approve the trip with the Bishop and it could therefore be interpreted that the trip was that of a church employee (the pastor) representing his church as he acccompanied the Bishop.  In this scenario, the income would be reported on Schedule C and the expenses could be on Form 2106 because he would be  making the trip as an employee.

2.  You could report the income and expenses on the Schedule C

3.  You can report the income on the Schedule C and reference Form 2106 as mentioned earlier.

The SS base will compute out the same for all three scenarios.  Absent any other Schedule C honorariums I would probably use #1 or #3 because they will not attract as much attention as #2 (because this will probably be a loss Schedule C if I read the op info correctly). I would probably pick #1 if, in fact, the church did approve/designate him to go.

 

Just to clarify, pastors are common law employees(Reg 31.3401(c)-1) for income reporting, expense deducting and fringe beneift eligibility (therefore a Form 2106 is correct for their expenses) but they are considered self-employed for social security purposes (therefore their income is subject to the SE tax; IRC 1402(a)(8)).

[Margaret CPA in OH]

Thanks, Mike, for chiming in.  She, in all likelihood, did have to get approval to go on this trip and her note said that she was invited to go.  Yes, on Sch. C alone, it is a loss of $3300 and she does not and apparently never has had other outside income.  This would be the first Sch. C in 3 years anyway.

I opted for #3 and it seemed to work out with the clergy sheets and SE tax.  I thought it too odd to just have $1500 income only on Sch. C (especially when it was directly related to trip support) and to have a loss of $3300 when it was employee related.

Thanks to all for input!  I think so long as the bottom line is correct, it is an arguable fair treatment.

[MAMalody]

The method you have selected will work.  For what it is worth, I have about 50 or 60 this year so far with a couple thousand in honorariums on Schedule Cs with no expenses against them.  Pretty normal for me.  Have never had it questioned in 25 years, not that that means much.