What are the advantages of a housing allowance? 1. All the expenses for housing except food and maid service are nontaxable.

Transcription

1

2

3 Ministers' Compensation & Housing Allowance What are the advantages of a housing allowance? 1. All the expenses for housing except food and maid service are nontaxable. 2. Everything except food and maid service that are housing expenses qualify.

4 Ministers' Compensation & Housing Allowance Example of computing FRV: FRV of house + FRV of furniture + decorator items + utilities + miscellaneous. 1. Example: If your home is appraised at $150,000, the monthly FRV could be $1,500. Annual FRV could be $18,000 ($1,500 X 12). 2. The fair rental value of furniture is more difficult to compute. Based on the amount, age, and condition, we recommend that you estimate your furniture FRV conservatively. 3. Example: Your furniture annual FRV is estimated to be $5,400 ($450 X 12). You also add utilities to this.

5 Ministers' Compensation & Housing Allowance Other considerations: 1. If you rent, own or provided a parsonage, then you owe SE tax (15.3% on the Fair Rental Value of the house what it would cost to rent the house + furnishings + utilities). 2. The amount you exclude cannot be more than the fair rental value of the home, including furnishings, plus the cost of utilities. (Rick Warren ruling 1996, 2000, 2002)

6 No report church keep receipts, if audited Housing allowance has effect on business expense percentage. Percentage of housing allowance vs. salary determines percentage of unreimbursed employee expenses. Amount on W-2 (box 14) is what is designated. It is not what was used. Housing allowance deduction formula Lesser of: fair rental value of home (plus utilities & furnishings) or designated amount per compensation agreement, or used amount and must be reasonable amount.

7 20,000 18,000 18,000 21,000 Parsonage/ rental allowance Actual Expenses Fair Rental Value

8 It includes anything spent to provide a home for the dual-status minister and his family. Regulations for Sec. 107 state that the parsonage allowance does not include food or a maid. Parsonage allowance is the tax-free treatment of a minister s personal home expenses on a cash basis. Do not use business capital asset rules. Do not depreciate home capital expenses. Parsonage allowance expenses include those for the house, its contents, the garage, and the yard. The following list shows typical expenses that are to be considered in computing the amount of parsonage allowance:

9 Rent or principal payments, cost of buying a home, and down payments. Real estate taxes and mortgage interest for the home. Also deductible again as itemized deductions. A double deduction, but allowable by IRS!! (Sec. 265(a)(6)) An amazing tax shelter! Insurance on the home and/or contents. Improvements, repairs, and upkeep of the home and/or contents. Such as a new roof, room addition, carpet, garage, patio, fence, pool, appliance repair, etc.

10 Furnishings and appliances: dish washer, vacuum sweeper, TV, DVD, stereo, piano, computer (personal use), washer, dryer, beds, small kitchen appliances, cookware, dishes, sewing machine, garage door opener, lawnmower, hedge trimmer, etc. Decorator items: drapes, throw rugs, pictures, holiday decorations, knick knacks, painting, wallpapering, bedspreads, sheets, towels, etc.

11 Utilities - heat, electric, non-business telephone, non-business cell phone, water, sewer charge, garbage removal, cable TV, non-business internet access, etc. (Show long distance business telephone calls, the business percent of cellular phone and internet access usage as a professional expense. Both income tax and self-employment tax will be reduced.) Miscellaneous - any thing that maintains the home and its contents that you have not included in repairs or decorator items: cleaning supplies for the home, brooms, light bulbs, dry cleaning of drapes,

12 shampooing carpet, expense to run lawn mower, tools for landscaping, garden hose to water lawn, etc. The expenses in the above list are often purchased at the grocery or variety store. It is a good practice to buy a supply of household cleaning supplies separately and save the receipt. An easy way to keep record of them is to use the Housing Expense section of a Professional Tax Record Book.

13 Do Not Include the following: Maid (or any labor hired for maintenance such as lawn care), groceries, personal toiletries such as toothpaste, shampoo, deodorant, laundry and dish soap, paper products; personal clothing, coats, shoes, jewelry; toys, bicycles, hobby items, CD s, computer games, computer application software, DVD movies, etc.