Donating to Charity is normally listed as an itemized deduction on Schedule A, but some Churches also require a tithe in their terms of employment. Is mandatory tithing deductible for clergy as an unreimbursed business expense against self-employment taxes?
The question matters a lot. With the increased standard deduction of the Tax Cuts and Jobs Act, most people will no longer be able to itemize deductions, which means charitable donations won’t actually change the amount of taxes owed. If there’s a place other than Schedule A to be able to claim mandatory tithes, it would help to reduce the amount of tax owed.
This situation has been previously discussed in Tax Court, in “Forbes v. Commissioner, T.C. Sum. Op. 1992-167”. This case concluded that tithes mandated by an employment policy are considered business expenses rather than a charitable contributions. However, since this case involved less than $50,000 and was resolved under an expedited process, it can’t be used as precedent and IRS is completely free to ignore the results if the same situation comes up again. Since there is no “safe harbor” established by legal precedent, claiming tithes as anything but a charitable donation comes with an element of risk.
The safest choice is to use required tithes as charitable donations on Schedule A, along with your other offerings. The more aggressive position is to claim them as a business expense and deduct them on your Schedule SE, but this comes with the risk that IRS could review and disallow the deduction. Clergy Financial generally recommends the safer approach, in which case the tithes and offerings will be listed on your Schedule A and used for your itemized deductions.
There are many complicated questions when it comes to deductions for clergy. CFR offers Pro Advisor support for those difficult or confusing situations where it isn’t quite clear how things should be reported. Visit our website at https://www.clergyfinancial.com/resources/proadvisor/ for information on scheduling a Pro Advisor call today.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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