March 25, 2011

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.

3 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!

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

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  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.

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