It used to be that if you paid for business expenses out of your own pocket, you could deduct them on Schedule A. When the Tax Cuts and Jobs Act passed, it eliminated the ability to deduct unreimbursed business expenses on Schedule A for all taxpayers… Fortunately, there is still another way to deduct some unreimbursed expenses for members of the Clergy.
In Revenue Ruling 80-110, the IRS concludes that members of the Clergy can deduct unreimbursed business expenses from gross income, but only when calculating their self-employment taxes on Schedule SE. This is also listed in IRS Publication 517, the instructions for the Social Security tax for Clergy and Religious Workers.
Keep in mind, reporting these expenses on Schedule A used to reduce both income tax and self-employment tax. Now it only reduces their self-employment tax. Not the best, but better than nothing. The best tax-savings actually occur under an Accountable Reimbursement Plan. Under an Accountable Reimbursement Plan, the church reimburses you for expenses as you accrue them. You get paid dollar per dollar for your expenses. This is much better than deducting them on Schedule SE, which will only save you 15.3 cents per dollar of expense.
Do you have more questions about Schedule SE or Accountable Reimbursement Plans? Clergy Financial Resources is here to help. Visit our website at https://www.clergyfinancial.com/resources/proadvisor/ to sign up for a Pro Advisor session today and get answers to your important tax questions.
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.
For more information or if you need additional assistance, please use the contact information below.
Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369
Tel: (763) 425-8778
Fax: (888) 876-5101