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The Ins and Outs of Clergy and Ministry Tax Deductions

by
Bret Willoughby
on
11/3/2016
The Ins and Outs of Clergy and Ministry Tax Deductions

If you are a member of the clergy, you probably see what you do as a calling rather than a job. Unfortunately, Uncle Sam doesn’t see it that way, and in addition to your ministry responsibilities you are also expected to track and report your expenses and pay your taxes accordingly.

We know that you have enough on your plate without having to become an accounting expert, so we have prepared these easy-to-understand tips to help you. In addition to guidance, we also have included a convenient expense tracker that will help you keep everything well organized.

Parsonage Allowance

If your congregation provides you with a “housing allowance”, it is essential that you keep careful track of what you spend on expenses such as utilities, property taxes, interest and more. If you are using the form we are providing, you would record those expenses here. Though there are some congregations that simply provide the parsonage and pay the bills, those that are given a cash allowance that is specifically for home expenses need to record how much of what they receive goes to these costs.

It is also important for the church administrators to specifically indicate exactly how much of what you are being paid is to cover the cost of your housing. Whether the church’s payment to you includes this type of set-aside or actually provides you with actual housing that they own, it is an important element in how you pay your taxes.

Your “housing allowance” is subject to Social Security and is reported on a Form Schedule SE for self-employment tax just like your base wage income.  But, and this is a great thing, the amount you spend on housing is NOT subject to income and should NOT be included on page one of the 1040.  The amount that you can exclude is the lower of A) the amount designated by your employer, B) the amount you actually spent on housing related expenses or C) the “fair rental value” of your home including furnishings.  Of course you should speak with a professional tax advisor regarding the unique aspects of the housing allowance.

Communication Expenses

Your ability to deduct the cost of phone calls for church business depends largely on whether or not the church is willing to reimburse you for these expenses. If they are reimbursable, then you may not deduct them.  If the church will not reimburse you for them, then they are permitted.

To make sure that you are able to claim the deduction without a problem, keep all phone records and make sure that you highlight those calls that are for business purposes. If you pay the cost of any kind of communication equipment, such as a line for a fax machine or use of a cell phone, you must keep track of what percentage of your time is spent using it for personal business and which is for church business.  As with landlines, it is important to keep all bills and carefully highlight those calls and expenses that are business related. 

Auto Travel Expenses

Though you are not permitted to deduct commuting expenses and mileage that you log between your home and your office or church, you can deduct any qualified business miles. These would include expenses for travel from one point of church business to another. It would also include expenses for traveling when you are temporarily away from your normal place of business because you are on church business.

An example would be if a congregant was at a location far from the church and was sick, and you needed to stay in a hotel in order to visit them. These expenses need to be carefully recorded, and should include the number of business miles driven, the date of the trip and the specific reason for the travel, information on where you traveled to and what your expenses were. 

You should make it a habit to record your vehicle’s odometer readings at the beginning and each of each tax year and maintain all bills and receipts having to do with any travel expenses, as well as any repayment the church may have provided.

Travel Away from Home

Expenses that you incur for out of town travel are deductible. This type of travel is defined as having to leave home overnight for work-related activities. This may be for a continuing education program or other church business that is beyond the place where you generally work, and the expenses that you can deduct include those for meals, any public transportation that you need to take, hotels, and more.

It is essential that you keep records of all of these expenses, as well as receipts – particularly for lodging – though there is officially no requirement that you keep receipts for expenses, other than lodging, less than $75 as long as you carefully record it. Even in situations where your travel is only partially for business and therefore not all expenses are deductible, you should record all of your out-of-pocket expenses. 

Continuing Education

There are only two circumstances under which you may deduct the cost of continuing education. The first is where it is required by your employer as a condition of your continued employment or pay rate. The second is where it helps you to improve or maintain your clergy skills. 

If your occupation has a minimum requirement for continuing education, then the costs for maintaining your certification are not deductible. Similarly, you may not deduct expenses for education geared towards your qualification for a new position or job title.

Equipment Purchase

Though you may be incurring expenses for general supplies related to your job, there are certain pieces of equipment that require a different type of record keeping in order for a deduction to be taken. These include telephone answering machines or pagers: if you pay for these types of supplies out of your own pocket, make sure that you log them into your expense journal separately from other expenses, and keep all your receipts.

To download our helpful organization tool for clergy expenses, click on this link.

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Bret Willoughby

Bret Willoughby

Bret Willoughby is a practicing tax preparer for expats throughout the world. He created Providence Payroll to meet the needs of Churches, not-for-profit organizations and businesses with remote workers. His web-based payroll processing service benefits both employers and remote workers with an easy way to access payroll information. Clergy have unique payroll and tax-related issues, one that Providence Payroll is qualified to manage.

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