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Showing posts with the label Expense Deductions/Reimbursements

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 …

2017 Standard Mileage Rates

The IRS issued 2017 standard mileage rates. These rates begin on January 1, 2017. The rates apply to the use of a car, van, pickup or panel truck.
53.5 cents per mile for business miles driven (down from 54 cents for 2016)17 cents per mile driven for medical or moving purposes (down from 19 cents for 2016)14 cents per mile driven in service of charitable organizations (no change from 2016) More information is available on the IRS’s webpage.

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…

Missions Work Away from Tax Home

Question:

A missionary is doing mission work for less than one year away from his tax home. 
1.) Is he considered to be on a business trip the whole duration of the trip? 2.) What deductions is he able to take?
3.) May a self-employed person use the standard meal allowance?
Answer:
In this situation, the missionary is considered to be on a business trip/temporary assignment according in to IRS Publication 463. On page 4 the publication states, “Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less." 

One must then consider what expenses are allowable as deductions for a temporary assignment. Pub 463 states, “You can deduct ordinary and necessary expenses you have when you travel away from home on business. The type of expense you can deduct depends on the facts and your circumstances.” Table 1-1 in the publication provides a quick summary of deductible business expenses. 

According to page 6 of Pub…

2016 Standard Mileage Rates

The IRS issued the 2016 standard mileage rates. These rates for the use of a car (also vans, pickups or panel trucks) begin on January 1, 2016.
54 cents per mile for business miles driven, down from 57.5 cents for 201519 cents per mile driven for medical or moving purposes, down from 23 cents for 201514 cents per mile driven in service of charitable organizations More information is available on the IRS’s webpage.

Office-in-home Deduction for Overseas Missionary

Question:

I am a missionary overseas. I do not have an office at church, but I use a portion of my home as an office. What are the requirements for an Office in Home deduction?

Answer:

A home office qualifies for a deduction if the space is used “exclusively and regularly as your principal place of business” according to IRS Publication 587. In order to fulfill the exclusive use test, the office area must be limited to a separate and recognizable area that is limited only by business use. For example, if your wife and children use a desk in the corner of the living room for homeschooling and you use the same desk for ministry work, the entire living room office space is disqualified from the deduction since you partake in both personal and business use in the area. In order to fulfill the regular use test, the office space must be used on a consistent, regular basis. If the space is used only occasionally, it is disqualified from the deduction.

However, if the desk and additional off…

Church Pays for Camp Fee - Is it Taxable?

Question:

Our church pays 100% of registration fees for our pastor staff's children to attend youth camp in the summer. The children of the staff do not have to complete an application to get the full registration scholarship. Staff children are responsible for paying their transportation fee. Would the cost of the camp registration be considered a taxable fringe benefit to the pastor? 

Answer:

Tax-free fringe benefits are so classified based on statutory authority. To our knowledge, there is no statutory authority on this benefit based to be nontaxable.

While the benefit is certainly generous and most likely appreciated by the staff families, the policy's current state leads to taxable income.

If staff members are receiving this benefit similar to other families of the church, however, it may be possible for them to enjoy tax-free assistance. For example, the church could establish a scholarship fund to sponsor children and teens of the church or local community to attend summer c…

In-home Meal and Entertainment Expenses

Question:

A church pastor is wondering how to deduct meal and entertainment expenses when he and his wife host gatherings at their house. Is there a set amount he can deduct for each meal served? Or does he need to deduct the actual costs? 

Answer:

Meal and entertainment expenses are deductible or reimbursable (by the employer) if they are ordinary and necessary and are either directly related to or associated with the pastor's responsibilities. If the pastor is reimbursed by the church, he cannot claim the expenses as a deduction.

Since it is difficult to precisely document the cost of meals served in the home, a reasonable cost per meal is generally allowable. Here is a quote from page 67 of Worth's Income Tax Guide for Ministers, 2012 Edition

A reasonable amount per meal, depending on your actual circumstances and services practices, might vary between $8.00 to $11.00 per meal. Those afternoon meetings with refreshments, or after evening service snacks for the youth group, et…

New Standard Mileage Rates Now Available; Business Rate to Rise in 2015

Yesterday, the Internal Revenue Service issued the 2015 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be:
57.5 cents per mile for business miles driven, up from 56 cents in 2014 23 cents per mile driven for medical or moving purposes, down half a cent from 2014  14 cents per mile driven in service of charitable organizationsThe standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.

Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than t…

Can a Motorhome Qualify as a Principal Place of Residence?

Question:

I am a minister and I have lived in a parsonage for 40 years. I hope to retire soon and travel around as a non-paid volunteer to assist small churches in rural areas. 

I am considering buying a motorhome (or RV). Can a motorhome qualify as a principal place of residence?

Answer:

Many individuals who own a motorhome ask this similar question: "Can my motorhome count as my second home?" The reason people ask this question is because there are tax benefits to claiming a motorhome as a second (or only) home. For example, the interest on a loan for the motorhome can qualify as a tax deduction, and an individual may be able to deduct a portion of the sales tax paid on a new motorhome. Also, some states allow a portion of the RV's vehicle registration to be deducted. 

There are a few basic requirements that must be met to claim a motorhome as a second (or only) home. For example, it must have on-board permanently mounted sleeping, eating, and bathroom facilities; these cha…

Cell Phone Reimbursement by Church

Question:
One of our pastors recently upgraded his iPhone and submitted for reimbursement through a professional account. Is it proper for the church to refund him fully as a non-taxable reimbursement? 
Answer:
The italicized excerpt below is taken from IRS Publication 15-B. We have added some of our own comments, which are in parenthesis and underlined. 
The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis (non-taxable) fringe benefit.
Noncompensatory business purposes. You provide a cell phone primarily for noncompensatory business purposes (the cell phone should not be a disguised way to give the pastor more compensation) if there are substantial business reasons for providing the cell phone. …

Unreimbursed Minister's Expenses

Question:

A church has an accountable plan in place to reimburse its minister for business expenses. Unfortunately, the church often does not have the funds available to reimburse its minister at the end of the year. How can it address this issue?

Answer:

The easy answer for the church is to simply reimburse as much as possible; the minister could then deduct any unreimbursed expenses on Form 2106 for federal tax purposes. However, there are two difficulties for the minister in this scenario:
Unreimbursed business expenses for an employee can only be deducted on Form 2106, which flows through to Schedule A. Schedule A deductions only benefit a taxpayer who itemizes rather than taking advantage of the standard deduction. Also, unreimbursed business expenses are only deductible to the extent they exceed 2% of the taxpayer's adjusted gross income (AGI). For instance, a taxpayer with $50,000 of wages and no other deductions would have an AGI of $50,000, and could only deduct on Schedule A…

No Tax Credit for Reimbursed Education Expenses

Question:

As an executive at a mission agency, I am working on a doctorate. In 2013, I incurred $1,200 of qualified education expenses (tuition, fees, and books). My employer paid these education expenses directly as part of an educational assistance program. Can I claim any kind of education credit or deduction for these expenses?

Answer:

Unfortunately, no. According to IRS Publication 970, "You cannot use any of the tax-free education expenses paid for by your employer as the basis for any deduction or credit, including the American opportunity credit and lifetime learning credit."

Generally, "Qualified expenses are amounts paid for tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution" (irs.gov). Qualified expenses paid by an individual may be eligible for tax deductions or credits.

Humanitarian Aid as a Business Expense

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…

Gifts Paid as Part of Expense Reimbursement Plan

Question:

Are reimbursements for gifts of a non-religious or benevolent nature allowed under an accountable reimbursement plan for a church? For example, could a pastor who purchases flashlights for the members of a Sunday School class be reimbursed?

Answer:

Gifts are a normal business expense, and are clearly addressed by IRS Publication 463: "If you give gifts in the course of your trade or business, you can deduct all or part of the cost." As such, they are allowable as expenses to be reimbursed if they satisfy the requirements of that publication. However, according to the publication, "You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year."

For more details, see  IRS Publication 463.

Safe Harbor for Home Office Deductions

Question:

As a minister, I have an office in my home because I do not have an office at the church. I heard there is a simplified method for deducting home office expenses on my 2013 tax return. Is this true? If it is true, is there an advantage to using the new method?

Answer:

The IRS has provided a safe harbor method for deducting home office expenses. The safe harbor method may be used for tax years beginning on or after January 1, 2013. Similar to the actual-expense method, the safe harbor method only permits a home office deduction if the office is used “regularly and exclusively” for business purposes.The office must also be for the convenience of the employer.

Just because the safe harbor method is available does not mean it is the best option for you. The safe harbor method has advantages and disadvantages.
Advantages Utilities, insurance, repairs and maintenance, and other expenses do not need to be tracked.Allowable mortgage interest and real estate taxes may still be claimed as a…

Church Car Purchase for Pastor

Question:

A church would like to purchase a car for the pastor's use. What is the best method to accomplish this goal? Should the car be titled in the pastor's name? What will be the tax consequences of this arrangement?

Answer:

The church has two main alternatives for this purchase: 
Title the car in the pastor's name and reimburse him for business expensesTitle it in the church's name and treat personal use as taxable compensationThere are fewer immediate tax consequences for the latter. Since both are viable options, we will discuss both situations in this post.

If the church chooses to give the car to the pastor and register it in his name, he is free to use it for whatever personal use he desires with no tax consequences. However, the fair value of the car is taxable as compensation at the time it is given to the pastor. Internal Revenue Code section 102(c) clearly states that gifts given to employees by their employers are taxable compensation. The church can reimburs…

Travel and Meals for Volunteers

Question:

Are volunteer miles deductible? If so what are the limitations on taking a deduction for these miles? If an individual stops for lunch on the way to volunteer can he no longer count the miles? If he has a meal provided for him for volunteering does the meal cancel out any deductible miles?

Answer:

The Instructions for Schedule A deal with charitable deductions. Specifically for charitable miles it says, "If you drove to and from the volunteer work, you can take the actual cost of gas and oil or 14 cents a mile. Add parking and tolls to the amount you claim under either method. But do not deduct any amounts that were repaid to you."

Meals provided to volunteers in the conduct of their service are not taxable to the volunteer.  According to IRS Publication 526,  

"You cannot deduct personal, living, or family expenses, such as the following items.

-- The cost of meals you eat while you perform services for a qualified organization, unless …

Travel Expense Reimbursement to Special Speakers

Question:

Is payment of airfare, hotel expenses, etc. considered taxable income to special speakers? How should these amounts be reported?

Answer:

Compensation to non-employees is reportable on Form 1099-MISC in box 7. According to theInstructions for Form 1099-MISC, the amounts mentioned in the question above are examples of payments which may be reportable in box 7 of Form 1099-MISC:

Reportable as taxable income:

"A fee paid to a nonemployee, including an independent contractor, or travel reimbursement for which the nonemployee did not account to the payer, if the fee and reimbursement total at least $600 [is reportable in box 7]. To help you determine whether someone is an independent contractor or an employee, see Pub. 15-A." IRS Publication 463 affirms this interpretation.

NOT reportable as taxable income:

However, if the special speaker does account for his expenses in accordance with the documentation requirements of Publication 463, then the reimbursements may be excluded f…

Short-term Mission Support: Church Policy

Question:

A local church congregation intends to raise designated gifts in support of a member embarking on a short-term mission trip of less than one year. The funds will cover the member’s expenses, including personal living expenses. How should these funds be administered? What are the Internal Revenue Service reporting requirements?

Answer:

Since the member will be supported above and beyond his or her direct travel, lodging, and meal costs, he or she is not classified as a volunteer. True volunteers receive no support for their personal living expenses. However, they may be reimbursed for actual travel costs without being required to recognize the reimbursements as taxable income. Reimbursements in excess of actual costs are taxable to a volunteer (IRS Publication 526).

We believe that there are two alternatives for the church to administer the support.

Local Church Gives Member 100% of Funds Collected With No Accountability

The full amount of the support is classified as non-employee …