L.S. Posted February 14, 2009 Report Share Posted February 14, 2009 have a pastor that has all his wages put toward housing allowance - $15,626. When completing the worksheet #1 - I put in this amount on line 4a, his actual expenses are $19,025 so that goes on 4d, on line 4g I put 24,000 and line 6 comes up with 100%. On worksheet 3 I have total from 2106 of other than meals of $2,996 and meals of 185 on line 2 on line 4 and on line 5 making line 6 zero out so none of the other deductions claimed in this return are allocable to tax-free income. I thought these amounts could be used on Sch A. What am I missing here? Thank you. Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted February 14, 2009 Report Share Posted February 14, 2009 Maybe MaMallody will chime in here as he is an expert with clergy taxes. I have done a few and find it a little strange that all of this guys income has gone toward his housing allowance. I guess it would be possible if he is a part time pastor, which by the income you show, I hope he has another job somewhere. Sorry I am not of more help. Terry D. Quote Link to comment Share on other sites More sharing options...
L.S. Posted February 14, 2009 Author Report Share Posted February 14, 2009 Yep, hoping to hear from Mike. He is a part-time ordained youth pastor and also works at the elementary school and has a wife that is a PT. Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted February 14, 2009 Report Share Posted February 14, 2009 This might be of help http://www.cyataxes.com/pdfs/clergy.pdf taxbilly Quote Link to comment Share on other sites More sharing options...
RitaB Posted February 14, 2009 Report Share Posted February 14, 2009 This might be of help http://www.cyataxes.com/pdfs/clergy.pdf taxbilly I am bookmarking this. Thanks. (Love the "out-of-towel" expenses. "cya" taxes - I thought of something besides "Confidentially Yours Accounting" heehee) Quote Link to comment Share on other sites More sharing options...
RitaB Posted February 14, 2009 Report Share Posted February 14, 2009 have a pastor that has all his wages put toward housing allowance - $15,626. When completing the worksheet #1 - I put in this amount on line 4a, his actual expenses are $19,025 so that goes on 4d, on line 4g I put 24,000 and line 6 comes up with 100%. On worksheet 3 I have total from 2106 of other than meals of $2,996 and meals of 185 on line 2 on line 4 and on line 5 making line 6 zero out so none of the other deductions claimed in this return are allocable to tax-free income. I thought these amounts could be used on Sch A. What am I missing here? Thank you. You are not missing anything. Since Housing Allowance is not subject to income tax (just SE tax), it would be double-dipping to deduct any of his 2106 ministry expenses on Schedule A for income tax purposes. His ministry income is not subject to income tax, so he's already at zero for income tax purposes. (When the worksheet and pub 517 say "tax free" they mean "income tax free.") Let's say 40% of a pastor's compensation is HA. Then, it would be appropriate to deduct 60% of his ministry expenses on Sch A, cause 40% of the compensation (HA) is already subtracted for income tax purposes. Now, you do have legal double-dipping with mortgage interest and real estate tax on schedule A (since they are housing costs). I hope that made sense. Quote Link to comment Share on other sites More sharing options...
MAMalody Posted February 15, 2009 Report Share Posted February 15, 2009 RCooper hit it on the nose. That is called the IRC 265 Limitation or Deason Rule. While pastors entire compensation may be housing allowance, when it is all used for housing, they loose the benefit of unreimbursed professional expense deduction. You may want to consider the church adjusting its budget to shift some of the housing allowance to fund a written accountable reimbursement policy. In that way, he will still get the benefit of the income, but it will not only be not taxable for income tax it will also escape the SE tax. Remember the housing allowance is subject to SE tax (asuming you do not have an approved Form 4361). This is best accomplished when the church does their annual budget. By the way, you are allowed to reduce the clergy SE taxable income by any unreimbursed professional expenses prior to the computation of the tax, regardless of whether they are deductible or not as professional expenses. It is just easier to handle per my recommendation above. For clarification purposes I am a full time senior pastor of a multiple staff church. I worked for the IRS for seven years, have owned a tax practice for 19 years and my wife and I did have a private school for 5 years during this time, however, we sold it when we moved from CA to WA for me to take a new church. It was also at this time, I went to an Internet only tax practice. I do not have any office appointments or interviews. Last year I only had 6 or 7 telephone calls, I insist that contact is via e-mail and the entire process must be handled over the internet (well, faxes are ok). While I admit that does pose some limitations on my practice (I only filed 156 returns last year), that is okay, because, I manage to keep busy with the church. I have taught IRS tax classes and do teach clergy taxes for CPE classes. You may remember my appeal for the classes I taught last year. While I do not know all there is to know about clergy taxes, that is all I do. I turn away people every year that are not clergy or religious workers. I am happy to answer questions or help anybody who asks for it in the clergy tax arena. If I can ever help you, feel free to contact me at [email protected]. You should be advised that if you should e-mail me you will not have the benefit of peer review that this board makes possible. (I have also been known to sometimes ask you a question.) Anyway, have a great day! Mike Quote Link to comment Share on other sites More sharing options...
L.S. Posted February 16, 2009 Author Report Share Posted February 16, 2009 RCooper and Mike, Thank you and bless you. This youth pastor/client is my oldest son. Quote Link to comment Share on other sites More sharing options...
RitaB Posted February 16, 2009 Report Share Posted February 16, 2009 RCooper and Mike, Thank you and bless you. This youth pastor/client is my oldest son. That's awesome! Glad to help. Quote Link to comment Share on other sites More sharing options...
Randall Posted February 16, 2009 Report Share Posted February 16, 2009 I am happy to answer questions or help anybody who asks for it in the clergy tax arena. Mike I got a call recently. He was on a mission in Africa. His church sent him two checks per month, one for his personal pay, the other for certain expenses incurred for the mission. He didn't receive a W-2 or 1099. He said the church made some tax payments for him with the 1040-ES. I wasn't sure of all that was going on, so I told him to first contact his church to see how they handled things. I asked if he was ordained and he said no, just on some type of mission. I'm not sure the church is handling this correctly. I haven't heard back from him yet. But as a heads up, how should the church be treating him in this type of case? Quote Link to comment Share on other sites More sharing options...
MAMalody Posted February 18, 2009 Report Share Posted February 18, 2009 I got a call recently. He was on a mission in Africa. His church sent him two checks per month, one for his personal pay, the other for certain expenses incurred for the mission. He didn't receive a W-2 or 1099. He said the church made some tax payments for him with the 1040-ES. I wasn't sure of all that was going on, so I told him to first contact his church to see how they handled things. I asked if he was ordained and he said no, just on some type of mission. I'm not sure the church is handling this correctly. I haven't heard back from him yet. But as a heads up, how should the church be treating him in this type of case? Hmmm. At the very least this should be on a Form 1099 Misc, but I suspect it really should be W-2 income. Hard to tell for sure just by the information presented. I have yet to see a missionary that is sent and supported by a single church be anything bu an employee. That's my two cents worth (with inflation three cents.) Quote Link to comment Share on other sites More sharing options...
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