8/3/2016. Presented by: John L Crandell EA MBA CTRS

Transcription

1 Presented by: John L Crandell EA MBA CTRS 1 2 1

2 At the end of this webinar, you should be able to: Understand what Clergy means Understand what a Housing Allowance is Be able to calculate Self Employment tax for Clergy Be able to divide income and expenses between Regular and Self-Employment 3 Additional Reading: Publication 517 Social Security For Members of Clergy Publication 17 Your Federal Income Tax Publication 535 Business Expenses Schedule C Profit or Loss from Business (Sole Prop) Form 2106 Employee Business Expenses 4 2

3 5 F _ I C _ A_ S _ E _ C _ A 6 3

4 7 8 4

5 SECA Tax: Citizens Resident Alien Non-Resident not covered unless by treaty 9 Employment Status for Other Tax Purposes. Even though a member of the clergy is considered a self-employed individual in performing his or her ministerial services for social security tax purposes, he or she may be considered an employee for income tax or retirement plan purposes 10 5

6 Employees and FICA: Wages subject to FICA Form 8274 Church doesn t pay FICA Employee can opt out SECA replaces FICA Earnings above $ Minister or Employee? 12 6

7 13 Ministerial Service: The service you perform in the exercise of your ministry, the duties as required by your religious order, or the profession as a Christian Science practitioner or reader. 14 7

8 15 Two Ways to Become Exempt: Form 4361 Form

9 Who: Member of Clergy, Religious Order or Christian Science When: Filed by 2 nd year that: $400 or more Do not have to be consecutive years Retroactive Why: Exempt from FICA/SECA 17 Who: Member of Religious Sect Opposed to accepting public benefits Waive rights to SS & disability payments Commissioner of SS must approve When: Anytime Why: Exempt from FICA/SECA 18 9

10 Overpayments of SE tax: Recovered through 1040X 3 years from due date of return 19 Exempt from SS / SE Taxes if: Timely filed Form nd year made $400 or more Opposed on the basis of religious considerations May still purchase life insurance May participate in nongovernment retirement plan Must be accepted by IRS Decision is irrevocable Must still pay SE tax on self employment 20 10

11 Amounts Included in Gross Income to Figure Net Earnings Salaries and fees for qualified services, Money received for marriages, baptisms, funerals, masses, etc., The value of meals and lodging provided to the taxpayer for the employer s convenience, The fair rental value of a parsonage provided to the taxpayer (including the cost of utilities that are furnished), the rental allowance (including an amount for payment of utilities) paid to the taxpayer, and Any amount a church pays toward the taxpayer s income tax or SE tax, other than withholding from the taxpayer s salary. This amount is also subject to income tax. 21 Housing Allowance: Represents Compensation Does not exceed compensation Represents actual payments Does not exceed agreement Does not exceed FRV + Utilities 22 11

12 Housing Expenses: Mortgage Payments Rent for home, storage, garage Real Estate Taxes Property Insurance Utilities Furnishings & Appliances (Purchase & Repair) Structural Repairs and Remodeling Yard Maintenance & Improvements General Maintenance (pest control, etc.) HOA Fees Down payment if paid after occupied 23 Housing Allowance Housing Costs: FRV Mortgage $15,000 Rent $18,000 Utilities $3,000 Utilities $3,000 Maintenance $3,600 $30,000 $21,600 $21,

13 Retired Ministers: May exclude from gross income the fair rental value of a home, plus utilities, furnished by a church as a part of the minister s pay for past services or the part of the minister s pension that was designated as a rental allowance. 25 Salary $30,000 Housing Allowance $10,000 Housing Costs $9,000 Fair Rental Value $12,000 Exclude Lower of the 3 $9,000 Add extra to Income $1,

14

15

16

17 33 Evangelical or Traveling Clergy is: Ordained, Commissioned and/or Licensed Not assigned to any church Is an Independent Contractor 34 17

18 7 Questions Emp./SE status: 1.The degree of control 2.Who has facilities 3.Opportunity for profit / loss 4.Can one party fire other 5.Is work part of regular business 6.How permanent is the relationship 7.Relationship parties believe they have 35 18

19 37 Self Employment Activities: Speaking Weddings Funerals 38 19

20 Item Amount W2 $30,000 Housing $10,000 Self Employment $2,000 Expenses ($3500 / $500) $4, Employee: Accountable Plan Non-Accountable Plan 2106 Self Employed: Schedule C 40 20

21

22 Business Code:

23 It s Not All Deductible! 45 Tax Free Rental or Parsonage Allowance (or other tax free income) All Income (taxable & tax free) earned from the ministry 23

24 47 24

25

26 51 How do they pay their taxes? 52 26

27 Who can help with my taxes? 1. MFJ 2. 2 children 3. TP $76K Salary 4. SP $45K Salary 5. HA $26K 6. SE $ Love Gift $ Excess LI $ Education Costs 10. SE Expenses

28

29

30 59 Any other number will not calculate tax free income After tax free calculation 60 30

31 61 Re-issue Send W2 Send to all agencies Put on Schedule C Enter total as expense Enter on Line

32 IRS audit guide tell examiners to look for: Tax-preparers incorrectly figuring the tax free housing allowance and failing to pay SECA tax on it. Deducting business expenses that are attributed to tax-exempt income