Section 179 for Clergy (new church assets)

[aprcox20]

My husband is a Pastor of a new church plant, not receiving any income for yr2023.  However, in yr2024 he will begin getting a W2 from the church he pastors.  For yr2023 we are listing expenses it cost us for setup to begin the church.  For each expense asset, I am being asked whether or not to spread the deduction over several years or take the full value (if the business will show profit). 

Assets:  Sound system, mikes, wireless mikes, mobile phone, projectors
These types of assets do depreciate over time, so I don't understand what it means if I take the full value, and the item is not used at any point within its lifetime, I may be charged.  Maybe I am not understanding this correctly. 

I don't know what the best path to take is in my situation as my husband is not in this for profit, church is non-profit.  But he will begin receiving a salary beginning in 2024 via W2.

[JM158]

Hi, I may not have enough info, but Section 179 exists so you can take the immediate deduction. The question is being asked to ensure that's what you want to do and that you do not want to take depreciation over the life of the equipment (which is probably about 5-7 years). The warning of taking the immediate deduction is to remind you that you are supposed to use the equipment during its expected life, which could be shorter than what I stated above due to set up/tear down week after week. I'm also guessing that the expense of the sound equipment is relatively small. That said, you should probably just take the full deduction now.

Another factor to consider is that your husband's filing status will change in 2024. Because he will be receiving a W2, he will be considered an employee of the church (for income tax purposes) and will have to file a 1040. If you depreciate each year, you would have to again file a Schedule C. It seems to me that the problem with that would be that the business for which you are filing in 2023 (your husband's "business" of church planter) will end because he will become the pastor and employee of the planted church in 2024, meaning he would no longer be the business. Another reason to take the full deduction now. (I know that he will still be a church planter because it takes time to get the church up and running, but for the IRS, he would be getting a W2, thus an employee.

Hopefully that helps

[aprcox20]

Thank you so much, this is what I was hoping you would say.   

[aprcox20]

@JM158  Now that we are in 2024, we still have a few things we are purchasing for the church.  Now that my husband is considered an employee of the church, how do we claim those items for 2024?  do we need to track those differently?

[TiredRetired]

Were the "assets" used in 2023? Why take an expense if you have no income from this church in 2023? If they were indeed used in 2023 you should depreciate them instead of doing the Sec 179 in a year when you have no income. Then they can be depreciated in years when you do have income from the church.

[JM158]

@aprcox20 Unfortunately, there is a minimum limit to what your husband has to spend so that he can deduct business expenses as an employee. It would be best for the church to make those expenses so that he does not have to take the loss. However, if these expenses are not based on his income and are from funds that you received (say from a planting agency) to start the church, you should be tracking that separately, and there are ways to account for those expenditures apart from your husbands W2 income. I recommend that you reach out to your denomination or church planting agency for tax advice on that. If that is not an option, then Google something like "tax help for ministers." There are some great organizations/ministries that know the nuances of ministry/ministers and taxes, and I bet they can help you for a minimal fee or even no cost.

[aprcox20]

@JM158 @TiredRetired  Every expense made in 2023 was for a new church plant out of our pockets.  no planting agency is involved.  No income was received for or from this church in 2023.  My husband will begin receiving W2 in 2024 and filing status will change.

I am not sure I understand selecting depreciating over time, since my husband will become an employee of the new church as of Jan 2024.

If we purchase anything in 2024, I am thinking we should list these items as donated if not reimbursed by the church.

[JM158]

I would be doing the same thing for 2023 that you are doing by taking the immediate write off since you paid from your 2023 personal income. It's a little last minute, but it still wouldn't hurt to get advice from a tax professional on that.

In 2024, you could do what you are thinking by making equipment/materials purchases as donations. These would be donations-in-kind rather than cash donations, so the value of the donation would have to be verified in some way, and if the equipment is above a certain amount, the church would have to verify the donation amount (more paperwork). Keep in mind that making a donation this way would not be a one-for-one reduction of your income by doing so. It would be better not to receive the pay and have the church pay for the equipment. That way, you don't report any income or donation.

If you are making these purchases for the church from a different revenue source (say personal savings rather than the W2 income from the church), donating and writing off is what you will need to do. The best way to do it would be to donate the cash to the church to make the purchase and issue you a gift receipt for the cash to avoid the gift-in-kind hassle. The church will need to be a 501(c)3 religious non-profit so that the cash gift can be tax deductible, and the cash must be used for the ministry needs of the church, meaning your husband will not receive personal gain from the gift.

Again, find a tax professional who understands minister and church tax nuances and make them your best friend.