March 27, 2010

Office in Home Deduction for Pastors

Question:

A pastor receives a Form W-2 from the church reporting his compensation. The church cannot offer him an office at the church so he does most of his studies at home. Can he claim some of the home expenses for his church office? The pastor was told that he could do it if the church gave him a Form 1099 but not if he received a W-2.

Answer:

Employees (ones who receive Form W-2) are eligible to claim office-in-home deductions on Form 2106 if none is provided by their employers. Independent contractors who receive Form 1099-MISC from their customers may deduct an office-in-home using Form 8829.

Some churches erroneously issue Form 1099-MISC to their pastors but this does not prohibit legitimate office in home deductions. The office in home deduction may reduce his income tax by virtue of its inclusion as a miscellaneous itemized deduction (Schedule A); the calculation is determined on Form 2106 and transferred to Schedule A. (The use of a ministerial housing allowance will mandate reduction of this Schedule A amount.) Further, his self-employment income subject to SE tax on Schedule SE should be reduced by the Form 2106 unreimbursed employee business expenses, including his office in home deduction. This Schedule SE adjustment is not subject to the same partial loss of deduction experienced on Schedule A.

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