Question:
I am a missionary in a restricted country, and a large part of my ministry is providing humanitarian and medical aid to individuals. I receive my financial support directly from my church, which issues me a Form 1099-MISC. Can I deduct my humanitarian aid expenses for income and self-employment tax purposes? I have considered using the Schedule C gift deduction, but the $25 per-client limit on deductions is highly restrictive. Also, the nature of the expenses does not seem to fit the IRS guidelines for business gifts.
Answer:
Since IRS Publications do not address every possible category of deductible expenses, general principles must be applied in this situation. IRS Publication 535 describes allowable business deductions: "To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary."
Based on this definition, humanitarian aid expenses incurred in the course of ministry-based business are deductible, as long as no personal benefit is derived (i.e. none of the expense benefits the missionary or his/her family). These expenses do not fit the definition of business gifts, and should be classified as "other expenses" on Schedule C, or in the case of a Form W-2 employee, should be deducted on Form 2106 as an employee business expense.
I am a missionary in a restricted country, and a large part of my ministry is providing humanitarian and medical aid to individuals. I receive my financial support directly from my church, which issues me a Form 1099-MISC. Can I deduct my humanitarian aid expenses for income and self-employment tax purposes? I have considered using the Schedule C gift deduction, but the $25 per-client limit on deductions is highly restrictive. Also, the nature of the expenses does not seem to fit the IRS guidelines for business gifts.
Answer:
Since IRS Publications do not address every possible category of deductible expenses, general principles must be applied in this situation. IRS Publication 535 describes allowable business deductions: "To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary."
Based on this definition, humanitarian aid expenses incurred in the course of ministry-based business are deductible, as long as no personal benefit is derived (i.e. none of the expense benefits the missionary or his/her family). These expenses do not fit the definition of business gifts, and should be classified as "other expenses" on Schedule C, or in the case of a Form W-2 employee, should be deducted on Form 2106 as an employee business expense.
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