@cdrway wrote:
If I use this method of splitting my w2, what do I do with business expense? I'm guessing I would put them on the form SE for the W2 income without Social Security/medicare withholding? What percentage can I deduct?
This is like the 20th response to an old discussion, and I don't know your facts. Since you are talking about splitting a W-2, I will assume for this argument that you were employed by a church as a lay person with social security and medicare withholding, then at some point became a clergy member (licensed, ordained) and the social security and medicare withholding stopped. And you are going to follow the advice to create 2 W-2s, one with your lay wages and withholding, and one with your clergy wages and withholding.
For unreimbursed business expenses, they are not deductible on your federal tax return. You can still list them, and they will flow to your state if your state allows this deduction. The amount you should list is the amount of unreimbursed expenses adjusted according to the Deason rule. This looks at your non-taxable parsonage or housing allowance. For example, suppose your total box 1 wages for the entire year are $40,000 and you have a $10,000 housing allowance that started when you were ordained. Your total compensation is $50,000 with 80% being subject to income tax, so you would enter 80% of your work expenses. Turbotax doesn't do this calculation, you have to do it; keep records for 3 years in case of audit. You can combine your expenses from the lay position and clergy position.
Then additionally, you can include the expenses as an adjustment to your clergy income subject to self-employment tax on schedule SE. Here, you can only include expenses from when you were in a clergy position, and you must do a separate Deason calculation. For example, suppose your wages for your clergy position only were $20,000 and your housing allowance is $10,000. You can take 66% of your expenses as an adjustment on schedule SE. To take this adjustment, you must be using Turbotax installed on your own computer from a CD or download (the desktop version). Switch to Forms mode, find the Schedule SE Adjustment Worksheet, and enter the amount on line 5c.
