Clergy - Sch C Expenses

[Crank]

I have a new client who is a Pastor. This is my first experience with clergy taxes. I read up and understand the federal income tax free parsonage allowance (he rents a house) and that it is taxable for social security purposes.

The area I am confused with is how ATX is handling the Schedule C expenses. We are filing a Schedule C for cash income received from funerals. Its only $500 and the associated expenses are mileage. The part that I confused about is that ATX is only allowing 17% of the mileage expenses to flow to the Schedule C.

I believe this is because only 17% of the Pastors income is taxable. He had church wages of $3,093 and a parsonage allowance of $15,100. So $3,093/($3,093+$15,100)=17% taxable federal income. So when I report a mileage expense of $192.50 for 350 miles (350 * $0.55 = $192.50) only $33 ($192.50 * 17% = $33) flows through to the Sch C expense section.

Is this correct? Are clergy Sch C expenses limited to the taxable portion of the pastors income?

Any help is appreciated. Thanks.

Edit - It looks like this is the correct method of treating these expenses according to Pub 517,

Thoughts and comments are still encouraged and appreciated. :)

[Gail in Virginia]

One of the Clergy worksheets in ATX calculates this information for you, and causes it to flow to the appropriate places. I believe this worksheet is also not e-file-able until April1, but I could be mistaken on that point.

[JohnH]

It's called the "Deason Rule" if you care to learn more about it. And I think you figured out exactly right - the idea is that clergy work-related expenses have to be adjusted downward according to the ratio of taxable income to non-taxable income. Makes sense when you think about it, as you obviously did.

[Crank]

OK, I appreciate the comments. Thank you. :)