I paid all the self employment taxes but I can't claim my car expenses for my self employment income.
This is complicated.
There used to be 2 places to deduct car expenses as clergy. The first is as a miscellaneous itemized deduction subject to the 2% rule. This deduction was eliminated in tax reform.
The second place is to deduct your mileage against your income subject to self-employment tax on Schedule SE. You need to be using the desktop program installed on your own computer, and you have to calculate the amount yourself and make a manual entry. Note that making manual entries voids the accuracy guarantee.
First, you have to determine the deductible amount according to the Deason rule. If you have a housing allowance or live in a parsonage, you have to adjust your deduction based on your percentage of taxable income. Suppose you have a taxable salary of $20,000 and your housing allowance or parsonage is valued at $30,000. Since only 40% of your income is considered taxable, you can only deduct 40% of your work expenses, this is called the Deason rule.
Mileage is at 54.5 cents per mile. You have to calculate your own mileage deduction and then adjust it by the Deason rule. Then click the forms icon to switch to Forms mode, and locate Schedule SE Adjustment Worksheet (Schedule SE Adj Wks). You enter your deductible expenses on line 5c.
The IRS requires that if you deduct expenses in this way, you can't e-file. You are supposed to print and file by mail, and attach a written statement explaining how you determined the amount of your adjustment.
If your church withheld social security and medicare tax, they are paying you incorrectly, and you and your church finance people should discuss the situation with a competent tax professional.
tax, not your SE tax.
Then look at the worksheets in the Same Publication 517. Worksheet 1, figures the percentage of tax free income that must be applied to the pastor/minister's expenses thereby reducing it.
Worksheet 2 applies that percentage to the expenses.
Now look at Worksheet 3. Notice that line 6 on this line, states Total business expenses not deducted in lines 1 and 2 above (amount from line 5) . And look at Schedule C or C-EZ expenses allocated to tax-free income (from Worksheet 2, line 6). Line 6 in worksheet 2 is Nondeductible part of Schedule C or C-EZ expenses (multiply line 5 by the percent in line 1).
What is happening here is that Worksheet 3 is adding your W-2 income to the net profit of your schedule C which would include the Minister's expenses less the deduction, then it is adding back in the un-allocable portion which is the Non Deductible part of the expenses. Then it takes the income from the W-2 plus the housing allowance an any utility allowance and counts it all as income and deducts all the ministers expenses. It would be just common sense that the Deason Rule apply to Tax Free Income, which is for Federal Income and State Tax Deductions, but the Deason Rule does not come into play for the SE Schedule as all income is Taxable. There is no tax free income applied to the SE Schedule. It is all taxable, therefore the pastor gets to take his full deductions, or course limited to meals deductions of 50% and .545 multiplied by his mileage. The Deason Rule has not changed it's course. Note that Zondervan's 2019 Minister's Tax and Financial Guide, states, "Since the housing Allowance is not tax-exempt for self-employment purposes the IRS takes the position in their Minister Audit Technique Guide the the Deason Rule does not apply to the computation of a minister's self -employment taxes."
Also, in Turbo Tax you have an explanation statement that is sent with the tax forms regarding how you computed the tax deductions and you can e-file this. There would be an accounting tax control in Turbo Tax if you could not do that.
tax, not your SE tax. This is also clear, You must reduce any deductible expenses by the Deason Rule for Income Tax purposes, which means Federal Income Tax, however, don't reduce the expenses for your SE tax.
Can a clery member deduct car maintenance expenses to include oil changes and tires if:
1) The vehicle is used for both personal and clergy use?
2) The church reimburses for milages when used for clergy use?
Maybe, but probably not.
Car expenses are deductible. You can deduct the percentage of expenses equal to the percentage of business use of the car. Then, once you have come up with the deduction amount, you have to add in the mileage reimbursement. If the mileage reimbursement is greater than the expenses (and it should be - it's designed to be) then you will have no deduction.
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