My question: Schedule C Expenses must be allocated against tax free income such as housing allowance.
Assume the pastor falls within guidelines as self-employed and has 100% housing allowance.
If the actual expenses that would go on Schedule C are greater than the allowance, how is that handled?
Example figures: $10,000 tax free housing allowance as opposed to $13,000 Schedule expenses.
1Comments
Housing Allowance Reported on a SCH SE
VVickey
A housing allowance is never reported on a Schedule C.
A minister's proper housing allowance amount is reported on their 1040 personal tax return on a Schedule SE, as the eligible amount is excluded from federal income tax.
(See the housing allowance page on this site for instructions on figuring that eligible amount.)
https://www.freechurchaccounting.com/housingallowance.html
In your example, you would report the 10k paid by the church as a housing allowance...if that amount was less than the FMRV (Fair Market Rental Value) of their home.
FYI: if the numbers were reversed: 13k housing allowance payments and only 10k actual eligible housing expenses...then you would report the extra 3k as "other income" and write ""Excess allowance" on that line, BUT there are NO "deductions" or expenses you can use to lower that amount.
Ministers do have to pay social security taxes on that amount...unless they have IRS approval to "opt out". That tax is figured on the SCH SE.
A Schedule C is used to report "taxable" income that is not reported on a minister's W-2 (most Pastors are considered employees of their churches and should have their compensation reported on a W-2 ...not a 1099) ... such as love offerings and guest speaker offerings at other churches.
A minister's proper housing allowance amount is reported on their 1040 personal tax return on a Schedule SE, as the eligible amount is excluded from federal income tax.
(See the housing allowance page on this site for instructions on figuring that eligible amount.)
https://www.freechurchaccounting.com/housingallowance.html
In your example, you would report the 10k paid by the church as a housing allowance...if that amount was less than the FMRV (Fair Market Rental Value) of their home.
FYI: if the numbers were reversed: 13k housing allowance payments and only 10k actual eligible housing expenses...then you would report the extra 3k as "other income" and write ""Excess allowance" on that line, BUT there are NO "deductions" or expenses you can use to lower that amount.
Ministers do have to pay social security taxes on that amount...unless they have IRS approval to "opt out". That tax is figured on the SCH SE.
A Schedule C is used to report "taxable" income that is not reported on a minister's W-2 (most Pastors are considered employees of their churches and should have their compensation reported on a W-2 ...not a 1099) ... such as love offerings and guest speaker offerings at other churches.