If you are a minister, chances are you spend a lot of time on the phone, especially during the Pandemic. Fortunately, ministers can deduct these expenses on their schedule SE, but there are several things you have to keep in mind.
First, you have to be subject to self-employment tax in order to take the deduction. Some ministers have opted out of the Social Security system, so they don’t have self-employment taxes and they don’t have a schedule SE. If you don’t have a schedule SE, you can’t take the deduction.
Next, you have to keep a clear record of your expenses. If IRS ever audits your return, you will want to be able to prove the deduction or they might disallow it. IRS generally recommends keeping supporting documents for six years after filing your return.
Lastly, if you use your cell phone for ministry and personal use, you have to prorate the usage. For example, if your cell phone expense for the year is $1,000, and you use the phone for ministry purposes 30% of the time, then your deduction would be $300.
You may be wondering how to determine the percentage to use for prorating. The easiest way is to keep a log for a week of all your cell phone use, then use that percentage for the rest of the year. Another option is to track the minutes you use the phone for ministry calls versus personal minutes. Regardless of what method you decide to use, you need to be able to show IRS your rationale for why you chose the percentage of use.
One last item- cell phone usage is NOT a deduction that you can use for the housing allowance. The housing allowance can only use expenses for your principal residence, and since a cell phone is not tied to your home, you can’t use the expense. If you want to have phone usage count for the housing allowance, it is limited to land lines only.
Cell phone deductions are just one of the many deductions we discuss during a tax return review. If you are interested in hiring Clergy Financial to complete a tax return for a previous year or for the coming year’s return, visit our website at https://www.clergyfinancial.com/services/clergy-tax-preparation/ for more details.
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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