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Showing posts from February, 2012

U.S. Citizens Taxed on World-Wide Income

Question:
My 22 year-old son is a missionary in north Africa. He received a W-2 for his 2011 compensation. Is it taxable in the U.S.?

Answer:
Yes, all U.S. citizens are taxed on their world-wide income. A substantial exclusion may be available to him by filing Form 2555 or Form 2555-EZ for the Foreign Earned Income Exclusion. Also, don't forget State income tax filing.

Are Unincorporated Churches Treated Differently?

Question:

A church has opted to not incorporate with its State nor file for Internal Revenue Code section 501(c)(3) tax exempt status, having adopted the stance that churches are already tax-exempt according to IRS tax codes and publications.

May such a church give occasional "gifts" to individuals (who perform ministerial services) within the church from money that was given to the church by donors who write their contributions off as tax-deductible and the recipients of these gifts not be required to report the receipts as taxable income?

Answer:

Regardless of whether a church incorporates, files for formal recognition as a tax-exempt, or utilizes many States' statutes that recognize the exempt nature of unincorporated churches, gifts to individuals who perform ministerial services represent taxable compensation to them.

In ignorance, some churches fail to file proper documents with the IRS (typically Form W-2, but in some circumstances, Form 1099-MISC). Of course, ministe…

Examples When No Form 1099-MISC is Required

Question 1:

If an individual is given money (more than $600) as benevolence is a Form 1099-MISC required?

Answer 1:

No Form 1099-MISC is required. In order to receive benevolent gifts no services are required in exchange.

Question 2:

When a member of the church receives financial support for a mission trip that exceeds $600 should a Form 1099-MISC be issued?

Answer 2:

No Form 1099-MISC is required as long as the funds are spend for travel and other costs directly associated with the individuals voluntary ministry-related activities. I recommend that the church maintain documentation of these costs.

If the gifts exceed actual costs, the church should expect excess funds to be returned by the volunteer. Otherwise, it may appear the the individual was not a volunteer and, instead, was being compensated for providing taxable services. In this case, Form 1099-MISC should be issued for the portion of compensation in excess of qualifying ministry-related expenses.