If you itemize deductions and are an employee of the church, you may be able to deduct certain ministry-related expenses. Clergy Financial Resources has put together the following facts to help you determine some of the expenses that may be deducted as a ministry expense. Expenses that qualify for an itemized deduction include:
- Advertising
- Bank Charges (ministry account only)
- Clothing (not adaptable to general wear)
- Conventions
- Ministry Dues
- Education / Seminars
- Liability Insurance
- Laundry / Cleaning
- Legal / Professional Services
- Lodging
- Office Expense
- Office Supplies
- Professional Related Gifts ($25 limit per person)
- Religious Materials
- Repairs
- Rent on Ministry Equipment
- Subscriptions / Publications / Books
- Telephone
- Ministry Long Distance
- Travel
- Wages / Fees Paid
- Meals / Entertainment
- Other misc. expenses relating to the ministry
Due to the exemption from income tax for the “allowable” parsonage or housing allowance, the operation of IRC § 265 requires ministry expenses to be allocated between taxable and non taxable income. If your church reimburses you under an accountable plan, you do not include the payments in your gross income, and you may not deduct any of the reimbursed amounts. An church accountable plan must meet four requirements:
- Church must adopt a written plan
- You must have paid or incurred expenses that are deductible while performing services as an employee.
- You must adequately account to your church for these expenses within a reasonable time period, and
- You must return any excess reimbursement or allowance within a reasonable time period.
If the plan under which you are reimbursed by your church is non-accountable, the payments you receive should be included in the wages shown on your Form W-2. You must report the income and itemize your deductions to deduct these expenses. Generally, report expenses on IRS Form 2106 or IRS Form 2106-EZ to figure the deduction for employee business expenses and attach it to Form 1040. Deductible expenses are then reported on Form 1040, Schedule A, as a miscellaneous itemized deduction subject to 2% of your adjusted gross income rules. Only employee business expenses that are in excess of 2% of your adjusted gross income can be deducted. Clergy should take advantage of electronic recordkeeping programs to aid in documenting itemized deductions. Records should contain the amount, date, location, and purpose of the expense. The benefits of maintaining timely and detailed records are time saved when filing tax returns, assurance that all material expenses have been included, and avoidance of IRS adjustments if returns are subject to audit. Source: Clergy Financial Resources https://www.clergyfinancial.com Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations.
< BackClergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
For more information or if you need additional assistance, please use the contact information below.
Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369
Tel: (888) 421-0101
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com