I am a minister i received a w2 not a 1099 how do i report my expenses for my car?

[arnoldchopper10]

I paid all the self employment taxes but I can't claim my car expenses for my self employment income.

[Opus 17]

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.

[Opus 17]

This assumes that you are paid properly with a W-2 containing your wages in box 1, and boxes 3-6 (social security and medicare taxable income and tax) zero or blank; and that you check the box for religious wages on the page of special circumstances.

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.

[briggsr]

I am disagreeing with the above as far as the schedule SE Adjustment Worksheet only. The Deason Rule applies to Federal & State Income Tax Deductions solely because you get a parsonage allowance that is tax free. Since it is Tax Free for Federal & State Income Tax, you must apply the Deason Rule. However, for Social Security & Medicare purposes you must add back in the parsonage allowance as Income on the SE Form and you can take the entire amount of your mileage deduction. It is not reduced by the Deason Rule. The reason is the entire Housing Allowance is Taxable for Schedule SE as it must be added back into income. Therefore, the entire amount is taxable for SE Income, therefore you can take 100% of your business deductions on the SE Form. Take a look at publication 517 in the tip section on page 10 in the middle column. It states, this: Reduce your otherwise deductible expenses only in figuring your income
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.

[Opus 17]

I think you are correct.  I have been using a different minster's tax guide which states otherwise.  Also, while the 2018 pub 517 is not very clear in the meaning of some of the labels of worksheets 2 and 3 on page 15, the 2017 version of pub 517 makes your point clear on worksheet 4, line 6, page 25.  <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-prior/p517--2017.pdf">https://www.irs.gov/pub/irs-prior/p517--2017.pdf</...>

[briggsr]

Yes, Opus. It only makes sense. You are not getting any tax free income on the SE form, therefore you should be able to deduct all of your expenses on that as an adjustment to income.  You do get tax free income on the 1040 form though, because the housing allowance is tax free and that is why you can only deduct a portion of your expenses as it relates to the tax free income. The IRS cannot make you take a portion of your expenses on the SE Self Employment form, because they make you report your housing allowance as income on that form.  Example:  Minister makes 10K and gets 5K in a housing allowance.  Minister gets to reduce on the portion related to the 5K in housing allowance on the 2106 Form, (which by the way is no longer allowable for any employment related expenses for Federal purposes, but seems to be included in Turbo Tax, because even though their is no more unreimbursed employee expenses allowed for Federal purposes, some States still allow the unreimbursed employee expenses deduction on the State Forms. So when the Federal adjusted income is pushed over to the State Forms, some of those deductions on the 2106 form may help to reduce the income on the state form. So, you would still fill out the 2106 form just like usual. You will not get a deduction on the Schedule A for anything on that form, but your income may be reduced for the beginning numbers on your state form. Keep that in mind. And yes, I did see on the 2017 guide for Publication 517 page 25 shows you how it adds back in and the 2018 517 Publication seems to just summarize main points, however under Tip page 10, middle column, Reduce your otherwise deductible expenses only in figuring your income
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.  

[Rachel6510]

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?

[RobertB4444]

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.