Publication 517
taxmap/pubs/p517-008.htm#en_us_publink100033652Rev. John White is the minister of the First United Church. He
is married and has one child. The child is considered a qualifying child for the
child tax credit. Mrs. White is not employed outside the home. Rev. White is a
common-law employee of the church, and he has not applied for an exemption from
SE tax.
The church paid Rev. White a salary of $31,000. In addition,
as a self-employed person, he earned $4,000 during the year for weddings,
baptisms, and honoraria. He made estimated tax payments during the year totaling
$7,000. He taught a course at the local community college, for which he was paid
$3,400.
Rev. White owns a home next to the church. He makes a $650 per
month mortgage payment of principal and interest only. He paid $1,800 in real
estate taxes for the year on the home. The church paid him $800 per month as his
parsonage allowance (excluding utilities). The home's fair rental value for the
year (excluding utilities) is $9,840. The utility bills for the year totaled
$960. The church paid him $100 per month designated as an allowance for utility
costs.
The parts of Rev. and Mrs. White's income tax return are explained
in the order they are completed. They are illustrated in the order that Rev.
White will assemble the return to send it to the IRS.
taxmap/pubs/p517-008.htm#en_us_publink100033653The church completed its
Form W-2 for Rev. White as follows.
The church entered Rev. White's $31,000 salary.
taxmap/pubs/p517-008.htm#en_us_publink100033655
The church left this box blank because Rev. White did not request federal income
tax withholding.
taxmap/pubs/p517-008.htm#en_us_publink100033656Rev. White is considered a self-employed person for purposes
of social security and Medicare tax withholding, so the church left these boxes
blank.
taxmap/pubs/p517-008.htm#en_us_publink100033657
The church entered Rev. White's total parsonage and utilities allowance for the
year and identified them.
taxmap/pubs/p517-008.htm#en_us_publink100033658The community college gave Rev. White a
Form W-2 that showed the following.
The college entered Rev. White's $3,400 salary.
taxmap/pubs/p517-008.htm#en_us_publink100033660 The college withheld $272 in federal income tax on Rev. White's
behalf.
taxmap/pubs/p517-008.htm#en_us_publink100033661
As an employee of the college, Rev. White is subject to social security and
Medicare withholding on his full salary from the college.
taxmap/pubs/p517-008.htm#en_us_publink100033662 The college withheld $210.80 in social security taxes.
taxmap/pubs/p517-008.htm#en_us_publink100033663 The college withheld $49.30 in Medicare taxes.
taxmap/pubs/p517-008.htm#en_us_publink100033664Some of Rev. White's entries on
Schedule C-EZ are explained here.
Rev. White reports the $4,000 from weddings, baptisms, and honoraria.
taxmap/pubs/p517-008.htm#en_us_publink100033666
Rev. White reports his expenses related to the line 1 amount. He paid $87 for
marriage and family booklets and drove his car 490 miles for business, mainly in
connection with honoraria. Rev. White used the standard mileage rate to figure
his car expense, as follows.
| | | | |
| | 490 miles × 50 cents = | $245 | |
| | | | |
These expenses total $332 ($245 + $87). However, he cannot deduct
the part of his expenses allocable to his tax-free parsonage allowance.
First, Rev. White uses Worksheet 1 (see
Attachment 1
on page 22) to figure what percentage of his business expenses are not
deductible. Then he completes Worksheet 2 (see
Attachment 1
on page 23) to show that 23% (or $76) of his business expenses are not
deductible because they are allocable to his tax-free allowance. He subtracts
the $76 from the $332, enters the $256 difference on line 2, and adds a note at
the bottom of the page to see the attached statement.
Rev. White attaches Worksheets 1 and 2 to his return. This is
part of his required statement. See
Attachment 1 on pages 22 and 23.
He enters his net profit of $3,744 on both line 3 and Form 1040,
line 12.
taxmap/pubs/p517-008.htm#en_us_publink100033668 Rev. White fills out these lines to report information about
his car.
taxmap/pubs/p517-008.htm#en_us_publink100033669Rev. White fills out
Form 2106-EZ
to report the unreimbursed business expenses he had as a common-law employee of
First United Church.
Before completing line 1, Rev. White fills out Part II because he used his car
for church business. His records show that he drove 2,774 business miles, which
he reports in Part II. Then, he figures his car expense for his line 1 entry.
| | | |
| 2,774 miles × 50 cents = | $1,387 | |
| | | |
taxmap/pubs/p517-008.htm#en_us_publink100033671 He enters $231 for his professional publications and booklets.
taxmap/pubs/p517-008.htm#en_us_publink100033672
Before entering the total expenses on line 6, Rev. White must reduce them by the
amount allocable to his tax-free parsonage allowance. After completing Worksheet
3 (see
Attachment 1
on page 23), he finds that $372 (23%) of his employee business expenses are not
deductible. He subtracts $372 from $1,618 and enters the result, $1,246, on line
6, adding a note at the bottom of the page about the attached statement. He also
enters $1,246 on Schedule A (Form 1040), line 21.
Rev. White fills out
Schedule A as explained here.
He deducts $1,800 in real estate taxes.
taxmap/pubs/p517-008.htm#en_us_publink100033675 He deducts $5,572 of home mortgage interest.
taxmap/pubs/p517-008.htm#en_us_publink100033676
Rev. and Mrs. White contributed $4,800 in cash during the year to various
qualifying charities. Each individual contribution was less than $250 and they
have the required records for all donations.
taxmap/pubs/p517-008.htm#en_us_publink100033677
Rev. White enters his unreimbursed employee business expenses from Form 2106-EZ,
line 6.
taxmap/pubs/p517-008.htm#en_us_publink100033678
He can deduct only the part of his employee business expenses that exceeds 2% of
his adjusted gross income. After he completes page 1 of Form 1040, he fills out
these lines to figure the amount he can deduct.
taxmap/pubs/p517-008.htm#en_us_publink100033679
The total of all the Whites' itemized deductions is $12,712, which he enters
here and on Form 1040, line 40.
taxmap/pubs/p517-008.htm#en_us_publink100033680After Rev. White prepares Schedule C-EZ and Form 2106-EZ, he
fills out
Schedule SE (Form 1040). He reads the chart on page 1 of the schedule and determines
that he can use
Section A—Short Schedule SE
to figure his self-employment tax. Rev. White is a minister, so his salary from
the church is not considered church employee income. Thus, he does not have to
use
Section B—Long Schedule SE. He fills out the following lines in Section A.
Rev. White attaches a statement (see
Attachment 2, Worksheet 4, on page 24) that explains how he figures the
amount ($43,850) to enter.
He multiplies $43,850 by 92.35% (.9235) to get his net earnings
from self-employment ($40,495).
taxmap/pubs/p517-008.htm#en_us_publink100033683The amount on line 4 is less than $106,800, so Rev. White multiplies
the amount on line 4 ($40,495) by 15.3% (.153) to get his self-employment tax of
$6,196. He enters that amount here and on Form 1040, line 56.
taxmap/pubs/p517-008.htm#en_us_publink100033684Rev. White multiplies the amount on line 5 by 50% (.50) to get
his deduction for one-half of self-employment tax of $3,098. He enters that
amount here and on Form 1040, line 27.
taxmap/pubs/p517-008.htm#en_us_publink1000211765Rev. White fills out Form 1040,
Schedule M, to claim the making work pay credit as follows:
Rev. White checks the "Yes" box to indicate that he had earnings of more than
$12,903 and enters $800 on line 4.
taxmap/pubs/p517-008.htm#en_us_publink1000211767 He enters his adjusted gross income from Form 1040, line 38.
taxmap/pubs/p517-008.htm#en_us_publink1000211768 He enters $150,000 for married filling jointly.
taxmap/pubs/p517-008.htm#en_us_publink1000211769 He checks the "No" box on line 7 and enters $800 on line 9.
taxmap/pubs/p517-008.htm#en_us_publink1000250596He checks the "No" box and enters 0.
taxmap/pubs/p517-008.htm#en_us_publink1000250597He subtracts line 10 from line 9 and enters the result of $800
on line 11. He also includes this amount on Form 1040, line 63.
taxmap/pubs/p517-008.htm#en_us_publink100033685After Rev. White prepares Form 2106-EZ and the other schedules,
he fills out Form 1040. He files a joint return with his wife. First, he fills
out the address area and completes the appropriate lines for his filing status
and exemptions. Then, he fills out the rest of the form as follows.
taxmap/pubs/p517-008.htm#en_us_publink100033686
Rev. White reports $34,640. This amount is the total of his $31,000 church
salary, $3,400 college salary, and $240, his excess allowance. The two salaries
were reported to him in box 1 of the Forms W-2 he received.
taxmap/pubs/p517-008.htm#en_us_publink100033687 He reports his net profit of $3,744 from Schedule C-EZ, line
3.
taxmap/pubs/p517-008.htm#en_us_publink100033688 He enters $3,098, half his SE tax from Schedule SE, line 6.
taxmap/pubs/p517-008.htm#en_us_publink100033689 He enters the total itemized deductions from Schedule A, line
28.
taxmap/pubs/p517-008.htm#en_us_publink100033690
The Whites can take the child tax credit for their daughter, Jennifer. Rev.
White figures the credit by completing the Child Tax Credit Worksheet (not
shown) in the instructions for Form 1040. He enters $1,000 credit on line 51.
taxmap/pubs/p517-008.htm#en_us_publink100033691 He enters the self-employment tax from Schedule SE, line 5.
taxmap/pubs/p517-008.htm#en_us_publink100033692
He enters the federal income tax withheld, as shown in box 2 of his Form W-2
from the college.
taxmap/pubs/p517-008.htm#en_us_publink100033693 He enters the $7,000 estimated tax payments he made for the
year.
taxmap/pubs/p517-008.htm#en_us_publink1000211764 He enters $800 for the making work pay credit.
taxmap/pubs/p517-008.htm#en_us_publink100033694He wants to have any overpayment of tax applied to his 2011 estimated
tax.
taxmap/pubs/p517-008.htm#en_us_publink100033695
Attachment 1
(Worksheets 1, 2, and 3) shows the computation of expenses that are
nondeductible because they are allocable to tax-free ministerial income and the
allowance deductions.
taxmap/pubs/p517-008.htm#en_us_publink100033696
Attachment 2 (Worksheet 4) shows the computation of net self-employment
income.
taxmap/pubs/p517-008.htm#id2010_w01_illus
Attachment 1—John E. White 011-00-2222
Worksheet 1. Figuring the Percentage of Tax-Free
Income
Note. For each line, enter the appropriate amount in
all boxes that are not shaded.
| |
Source of Income
| (a)
Taxable
| (b)
Tax-free
| (c)
Total
| | 1 | W-2 salary as a minister (from box 1 of Form W-2) | 1 | | 31,000 | | 31,000 | | 2 | Gross income from weddings, baptisms, writing, lecturing,
etc. (from line 1 of Schedule C or C-EZ) | 2 | | 4,000 | | 4,000 | | Note. Complete either lines 3a–3e or lines 4a–4i. | | | | | • If your church provides you with a parsonage,
complete lines 3a–3e. | | | | • If, instead of providing a parsonage, your
church provides you with
a rental or parsonage allowance, complete lines 4a–4i.
| | | | 3a
| FRV* of parsonage provided by church | 3a | | | | | b
| Utility allowance, if any | 3b | | | | | c
| Actual expenses for utilities | 3c | | | | | | d | Enter the smaller of line 3b or 3c | 3d | | | | | e
| Excess utility allowance (subtract line 3d from line 3b) | 3e | | | | | 4a
| Parsonage or rental allowance | 4a | 9,600 | | | | | b | Utility allowance, if separate | 4b | 1,200 | | | | | c | Total allowance (add lines 4a and 4b) | 4c | 10,800 | | | | d
| Actual expenses for parsonage | 4d | 9,600 | | | | | e | Actual expenses for utilities | 4e | 960 | | | | | f | Total actual expenses for parsonage and utilities (add
lines 4d
and 4e)
| 4f | 10,560 | | | | | g | FRV* of home, plus the cost of utilities | 4g | 10,800 | | | | h
| Enter the smaller of line 4c, 4f, or 4g | 4h | | | 10,560 | 10,560 | i
| Excess allowance (Subtract line 4h from line 4c) | 4i | | 240 | | 240 | 5
| Ministerial income (for columns (a), (b), and (c), add lines 1
through 4i)
| 5 | | 35,240 | 10,560 | 45,800 |
6
| Percentage of tax-free income:
Total tax-free income $ 10,560
Total income $ 45,800 | = | 23 %**
|
| * FRV (Fair Rental Value): As determined objectively
and between unrelated parties, what it would cost to rent a comparable home
(including furnishings) in a similar location.
| | ** This percentage of your ministerial expenses will not
be deductible. Use Worksheets 2 and 3 to figure your allowable deductions. |
|
taxmap/pubs/p517-008.htm#id2010_w0203_illus
Attachment 1—John E. White 011-00-2222
(continued)
Worksheet 2. Figuring the Allowable Deduction for
Schedule C or C-EZ Expenses
1
| Percentage of expenses that are nondeductible (from Worksheet 1, line 6):
23 %
| 2
| Business use of car: 490 miles × 50¢ (.50)
| 2 | | 245 | 3
| Meals and entertainment: $ × 50% (.50)
| 3 | | | 4
| Other expenses (list item and amount) | a
| Marriage and family booklets | 4a | 87 | | b
| | 4b | | | c
| | 4c | | | d
| | 4d | | | e
| | 4e | | | f
| Total other expenses (add lines 4a through 4e) | 4f | | 87 | 5
| Total Schedule C or C-EZ expenses (add lines 2, 3, and
4f) | 5 | | 332 | 6
| Nondeductible part of Schedule C or C-EZ expenses (multiply
line 5 by the percent in line 1) | 6 | | 76 | 7
| Deduction allowed.*
Subtract line 6 from line 5. Enter the result here and on Schedule C, line 27,
or Schedule C-EZ, line 2.
| 7 | | 256 |
| * None of the other deductions claimed in this return
are allocable to tax-free income. |
Worksheet 3. Figuring the Allowable Deduction for
Form 2106 or 2106-EZ Expenses
| | Column A | Column B | | 1 | Percentage of expenses that are nondeductible (from Worksheet 1, line 6):
23 %
| | 2 | Use of car for church business: 2,774 miles × 50¢ (.50)
| 2 | 1,387 | | | 3 | Meals and entertainment | 3 | | | | 4 | Other expenses (list item and amount) | | a | Professional publications and booklets | 4a | 231 | | | b | | 4b | | | | c | | 4c | | | | d | | 4d | | | | e | | 4e | | | | 5 | Total expenses. In column A, add lines 2 and 4a through
4e and enter the result. In column B, enter the amount from line 3. | 5 | 1,618 | | | 6 | Enter reimbursements received for other expenses (Column
A) and meals and entertainment (Column B) that were
not included in box 1 of Form W-2
| 6 | | | | 7 | Total Form 2106 or 2106-EZ unreimbursed expenses (subtract
line 6 from line 5) | 7 | 1,618 | | | 8 | In Column A, enter the amount from line 7. In Column B,
multiply line 7 by 50% (.50) | 8 | 1,618 | | | 9 | Add the amounts on line 8 of both columns and enter the
total here | 9 | 1,618 | | | 10 | Nondeductible part of Form 2106 or 2106-EZ expenses (multiply
line 9 by the percent in line 1) | 10 | 372 | | | 11 | Ministerial employee business expense deduction allowed.*
Subtract line 10 from line 9. Enter the result here and on Form 2106, line 10,
or Form 2106-EZ, line 6.
| 11 | | 1,246 |
| * None of the other deductions claimed in this return
are allocable to tax-free income. |
|
taxmap/pubs/p517-008.htm#id2010_w04_illus
Attachment 2—John E. White 011-00-2222
Worksheet 4. Figuring Net Self-Employment Income
for Schedule SE (Form 1040)
1
| W-2 salary as a minister (from box 1 of Form W-2) | 1 | | 31,000 | 2
| Net profit from Schedule C, line 31, or Schedule C-EZ,
line 3 | 2 | | 3,744 | 3a
| Parsonage or rental allowance (from Worksheet 1, line
3a or 4a) | 3a | 9,600 | | b
| Utility allowance (from Worksheet 1, line 3b or 4b) | 3b | 1,200 | | c
| Total allowance (add lines 3a and 3b) | 3c | | 10,800 | 4
| Add lines 1, 2, and 3c | 4 | | 45,544 | 5
| Schedule C or C-EZ expenses allocable to tax-free income
(from Worksheet 2, line 6) | 5 | 76 | | 6
| Total unreimbursed employee business expenses after the
50% reduction for meals and entertainment (from Worksheet 3, line 9)
| 6 | 1,618 | | 7
| Total business expenses not deducted in lines 1 and 2
above (add lines 5 and 6) | 7 | | 1,694 | 8
| Net self-employment income. Subtract line 7 from line 4. Enter here and on Schedule
SE,
Section A, line 2, or Section B, line 2.
| 8 | | 43,850 |
|
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