Skip to main content

"Tax Home" Clarification

Question:

A missionary to a foreign country has received some contradictory advice: "When we started our deputation, I was told by Tax Preparer 1 that since we did not have a 'tax home' we could not claim travel expenses as deductions." Tax Preparer 2 advised the missionary "that since s/he was self employed, s/he did not need a tax home for travel deductions." Could you please clarify this confusion or provide a list of resources where an answer could be obtained?

Answer:

First, let me suggest a couple of helpful resources: 1) IRS Publication 463, and, perhaps less so, 2) type "Tax home" in the search window of this blog.

While a minister is self-employed for purposes of self-employment (SE) tax, this status has no relevance to the determination of deductibility of travel expenses. Tax Preparer 2 is incorrect. Publication 463: "Travel expenses defined. For tax purposes travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job" (emphasis added). Whether traveling for a "business" as a self-employed individual or for a "job" as an employee s/he must be traveling "away from home."

Whether Tax Preparer 1 is correct depends on the facts and circumstances of a missionary's deputation situation. (Once a missionary is "on the field" his tax home is most likely his personal foreign residence or his "mission station," if he has one.)

Once again, Publication 463 is helpful: "As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home." I run into this concern most often with my itinerant evangelist clients. They tend to own no permanent residence. Rather, they purchase a travel trailer and move from location to location. Their meals, for example, cooked in their own travel trailer are not considered travel expenses since they are not "away from home." A missionary on deputation using the same accommodations as an itinerant evangelist will not be able to deduct his travel expenses (the Publication provides a list of these expenses).

However, as is the experience of all of my missionary clients, during deputation they establish a home base from which they conducted their "business" of raising support. It may be in a church "missionary house" or in a home they own or rent. But they return there between trips. This becomes their "tax home" and travel costs while out-of-town, overnight are deductible. Generally, trips they take within a day (and return home at night) offer only car expense write-offs.

Comments

Popular posts from this blog

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 expenses Title it in the church's name and treat personal use as taxable compensation There 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...

Can Form 4361 be filed after the deadline?

Question:   Is it possible to opt out of Social Security after the 2-year deadline? Answer:  Unlike other employees, a licensed or ordained minister has the option to opt out of Social Security and Medicare (FICA). If a minister wants to opt out they must file Form 4361 by the tax deadline including extension, in the second year in which they have received ministerial income of $400 or more. This election is final, and the minister cannot opt back into FICA taxes.  At MinistryCPA, we have received questions from ministers who have exceeded the two year deadline and desire to opt-out. There have been several court cases which provide guidance in answering this question. Some have argued that the minister was unaware of the deadline, had mistakenly believed they had filed a timely election, were given incorrect advice by an IRS employee, or their opposition to participate in Social Security and Medicare did not arise until after the 2-year deadline had passed. In each of th...

Rental of a Church Parsonage to a Non-Minister

Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a...