Skip to main content

Deductions Against Missionary SE Income

Question:

A missionary in Australia for several years receives donations from a U.S. church. He was not aware that these donations were being reported on a Form-1099, and also thought that he did not have to file a tax return since he wasn't "earning" income. He is now subject to several years of SE taxes based on the 1099s. What are some allowable deductions/expenses against this income? He paid his own housing, traveled to other countries such as Thailand and Indonesia doing mission work, returned to the U.S. to report to his home church and solicit donations, etc.

Answer:

He can deduct what are classified as business expenses against this income. He should use Schedule C of Form 1040 to report his income and deductions. Typical expenses for a missionary include 1) car expenses at the standard mileage rate both in Australia and in the U.S. during furlough trips to churches, 2) air travel to and from the U.S. and to other countries, 3) ministry supplies (e.g. books, literature, office supplies), 4) postage, 5) meals and lodging while away from his tax home overnight on business, and 6) other line items listed on Schedule C.

Housing expenses for his family in Australia are not classified as business expenses.

Based on the question, it appears that the missionary may not have had the benefit of a mission agency to advise him regarding these matters. I believe that this is one of the many benefits for both missionaries and churches to use these agencies.

Comments

  1. You really know your stuff! We have a few churches we serve and they're always interesting cases. If I have any questions I'll be back!

    ReplyDelete
  2. How does filing as SE affect filing form 2555, foreign income exclusion?

    ReplyDelete
  3. Whether missionaries' sending agencies or churches treat them as self-employed or as dual-status individuals, they still file and pay self-employment taxes on Form 1040, Schedule SE. The exception-opting out of Social Security by means of a timely filed and approved Form 4361.

    Having clarified this point, the filing of Schedule SE has no effect on a missionaries eligibility to file Form 2555--Foreign Earned Income exclusion.

    ReplyDelete

Post a Comment

Popular posts from this blog

Qualified Small Employer HRAs

On December 13, 2016, President Obama signed the 21st Century Cures Act, allowing qualified small employers to offer Health Reimbursement Arrangements (HRA) that follow certain terms.

After the Affordable Care Act was passed, the IRS originally determined that an HRA was not a qualified group health plan. The Cures Act overrules this decision. HRAs are again an option for qualifying small employers.

To be eligible, the small employer must have fewer than 50 employees and must not offer a group health plan to any of its employees.

The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) must be subject to the following terms.
No salary reduction contributions may be made (i.e., 100% employer-funded).Employer must receive proof of employee’s minimum essential coverage.Reimbursements must be for qualifying medical expenses.Reimbursements for any year cannot exceed $4,950 (or $10,000 for family coverage), which will be adjusted annually for inflation.Employer must offer the …

Housing Allowance when Bartering for Rent Payments

Question:

If a minister rents his principal residence, but he performs services (mowing the lawn, repairing the roof, etc.) in lieu of rent, can he still qualify the rent amount for a housing allowance tax benefit?

Answer:

Of course, bartering income is taxable. The Internal Revenue Code interprets that above situation as follows: tenant/minister receives taxable income for the fair market value of the services he provides, andtenant/minster pays landlord for renal of residence. The minister in this case reports taxable income for services provided in lieu of rent. It is also likely subject to self-employment tax. He may then claim as qualifying housing allowance expense equal to the amount he "pays" for rent of his personal residence. Essentially, there is no difference than if the minister and his landlord simply traded checks.

See a past MinistryCPA post regarding this topic: http://ministrycpa.blogspot.com/2016/09/services-to-church-in-lieu-of-rent-of.html

Mission Trips Involving Both Charitable and Personal Time

Question:

A church group went on a two-week mission trip, and a few of the members stayed an additional two weeks for personal time. Will the members who stayed the two additional weeks be able to deduct expenses from the trip?

Answer:

IRS Pub 526 covers the topic of Charitable Contributions and, more specifically, travel expenses associated with charitable trips. The publication states that travel expenses will be deductible “if there is no significant element of personal pleasure, recreation, or vacation in the travel.” The publication also states, “The deduction for travel expenses won't be denied simply because you enjoy providing services to the charitable organization. Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. However, if you have only nominal duties, or if for significant parts of the trip you don't have any duties, you can't deduct you…