MAMalody

Found it. http://www.irs.gov/instructions/iw2w3/ch01.html#d0e1923 Sorry for the trouble.

Can an HSA be a 125 cafeteria plan. Therefore when an employee makes a contribution it is actually deducted from theri payroll and is actually considered employer contributoin rather than employee contribution, therefore having two Code Ws in box 12. One for employer contribution and one for employee through the 125. Just ran into this and my mind is too tired to grapple with it.

I have a new client with some unusual income streams, at least for a pastor. Apparently they have a business that has been reported as a farm on a Schedule F before. The income stream comes from horse boarding and the selling of horse meat. Is that on a Schedule F? I haven't done a farm in years, thanks for helping this tired brain out.

Marital status is determined for tax purposes by state law, not any religious institution. Unless the wedding is by a judge or justice of the peace, typically a license application is completed they the clergy of the denomination in question and forwarded to the county/state to meet local legal requirements. The only exception I know to this is the federal DOMA which does not recognize marriages between same gendered couples, regardless of state law. That will probably change with the current administrations agenda, however, that is the current law. If they do not meet the local or state definition of being married, don't claim them as such. Once you asked the question in your interview you are responsible for the answer and filing out of the return....and any preparer penalties that could result. JMHO

I would try for a corrected 1099 R, but, I doubt that you will get it. Don't forget this still must meet the normal housing allowance rules. I would probably end up seeing if the full designation would be exempted and list in on line 21 (other income) as a minus figure. It should more properly be adjusted against line 16b, but, the IRS will be looking for the 1099R amount and will cause more problems that listing in on line 21. It is not subject to SE tax. This is not a perfect fix, however, it will work. I hope this helps. You can contact me at [email protected] if necessary. You should note that if you do so you will lose the benefit of peer review that this board provides.

Well, mine hasn't printed for four days now. I have rebooted at least 8 times during that time period, to no avail.

Mine won't print anything out of the ATX program. It will print out of any other program. The only fix I have so far is that I can convert it to a .pdf file and then print the file. What a pain. Good thing I have an internet based business, however, I still need to print occasionally, like when I need the supporting docs for clergy filings that go with eh F8453 to Austin.

From my experience as a prior IRS auditor, reading the Code, REgs and pubs, and three discussions with tax attorneyss is that when a W-2 is filled out for a pastor with boxes 1, 2, 3, 4, 5, 6 filled out, they are NOT considered dual status and do NOT receive the housing allowance exemption. The only exception I have found is for some chaplains. I had a case exactly like yours, except was a Greek Orthodox Priest, I referred him back to his church for a corrected W-2. The church administrator asked why, I explained the above. He didn't like it so I suggested he contact a tax attorney. He did so and a couple of weeks later a corrected W-2 showed up. The national prep firms that I have dealt with that did it wrong, when I pushed them admited that their operation manuels directed them to do it the correct way. The problem was they thought they knew it all and did not consult them and now they don't want to admit to their client that they blew it.

Let's not confuse the issue. The FRV has nothing to do with SE tax. It is only a consideration when considering how much of the housing allowance is exempt from income tax. When you get to SE tax, the cash salary and the entire housing designation minus a few minor items is subject to SE tax. Well, it is12:30AM but that is the way I remember it.

Let's go back to basic premis. The pastor is allowed the lower of FRV (+ utilites, etc), actual expenses, or the designated amount as the amount to be exempt from income tax. That is what h does. It makes that comparison. From that the determination will be made whether there is any excess housing that would be taxable for income tax purposes, which is reflected in "i". Do NOT just make f and g equal, that is a difficult position to support to the IRS. In audit, the IRS will look for you to be able to provide documentation on how you arrived at f, and to say that I just made it equal, does not cut it (at least it didn't when I was an auditor and has not in any audit I have been it). I find that about 30% of my clients (all I do is pastors and religious workers) have excess housing allowance. It is usually generated by an overdesignation in relation to the actual expenses, which is how I counsel the churches. The FRV figures usually turns out to be the limitation on the maximum that can be exempt because, once properly set up, it will be the lower of the three figures. Technically, there is one more limiting factor, and that is resaonable compensation. I have never seen that an issue in a real life situation. The court case that came form had the "pastor" performing no services at all. Just thought I would throw that in to keep things exciting. I hope this helps. I specialize in clergy taxes and if I can ever help with any question, feel free to contact me at [email protected]. You should be advised that if you do this, you will not receive the benefit of peer review that this board makes possible. Have a great day!

I like that Tom. Thanks. I wonder if I should try that......

Thank you for the well wishes. At church Sunday, they did a power point Happy Birthday with some comment about "old than some - buy younger than Moses." Hmmm.

I have not dealt with this before, however, if memory serves me correctly, per IRC 32 and 1402, earned income for EIC and Add CTC does not allow income that is exempted from social security (ex. housing allowance) to be included in the definition of earned income for credit computation purposes. So I think that you would only be allowed to consider income reported on line 7 of 1040 to be looked at when income is exempt from SS/MC. Does your situation fit this case?

<<<ended up creating a spreadsheet >>> I think that is the answser. I have seen no worksheet.

I would also be interested in this.

That is correct. His housing allowance is not be subject to income tax, to the extent used and not to exceed the FRV. However, all his clerical income would be subject to SE tax, unless he was exempted through and approved Form 4561. You may also reduce this clerical income by any unreimbursed professional expenses, irrespective of any IRC 265 limitation. Of course, any Sch C net profit would also be subject to SE tax. I hope this helps. While I do not know all the answers, I do specialize in clergy taxes, and I would be happy to help with any questions in any way I can. You may contact me at [email protected]. You should be advised, if you do contact me directly, you will lose the benefit of peer review that this message board makes availaible. Mike

No and 1-866-419-1838 Thanks.

I have a client who is thinking of starting a LLC, either Sub S or Sole Prop, and has made the follow statement: <<<I noticed that the LLC filing as an S-corp sounds most beneficial federally b/c it would allow me to take all extra profit as “distributions” & not be subject to SS & medicare taxation. Where if “Sole-prop” (even if an LLC) would mean all profits that come thru the business would be subject to this 15.3% taxation.>>> Now, my practice is so narrow that I have never done any type of LLC or Sub S...my client base just doesn't go there. My questions is, is this true? I believe that the statement about the Sole Prop is correct (even thought the % is wrong after the 1/2 SE adj.). I don't think the IRS will look at distributions the way that is being described here. Next, can someone give me a good reference to a LLC for Dummies book?

That was what I was referring to. The statement you mentioned above was used infrequently until a few years ago. While I have not seen in a court case, I believe that it is a valid statement and meets the designation criteria. Terry, if I can help in any way, feel free to contact me. Be advised, that if you do so directly, you will lose the benefit of peer review that this board affords.

Thanks.

In short, nothing changes on the operation (rules) of the housing allowance, regardless of whether the pastor has an approved Form 4361 or not. The prior referenced Publication 517 is a good source as well as the MSSP the IRS has out on clergy taxes. Both are available at www.irs.gov. All the approved Form 4361 does is determine the nonapplicability of the SE tax to clergy income, regardless of designation. In your case, if you mean the pastor is giving guidance for the ensuing year, that is okay. If you mean they are trying to do a retroactive designation, that is not acceptable and if it was done for the 2008 tax year, he does NOT have a housing allowance. That would throw the income into being subject to income tax but still probably exempt from SE tax. Now, if this is the case, be sure to read the actual desigation for 2007 to make sure it is not word in a fashion to make it applicable to 2008 also. I hope this helps.

I have a client with a legitimate dog breeding business and, to be honest, I am stuck. I cannot find any guidance on how to handle this, primarily the depreciation of the dogs. Can anybody give me a source to go to?

Hmmm. At the very least this should be on a Form 1099 Misc, but I suspect it really should be W-2 income. Hard to tell for sure just by the information presented. I have yet to see a missionary that is sent and supported by a single church be anything bu an employee. That's my two cents worth (with inflation three cents.)

RCooper hit it on the nose. That is called the IRC 265 Limitation or Deason Rule. While pastors entire compensation may be housing allowance, when it is all used for housing, they loose the benefit of unreimbursed professional expense deduction. You may want to consider the church adjusting its budget to shift some of the housing allowance to fund a written accountable reimbursement policy. In that way, he will still get the benefit of the income, but it will not only be not taxable for income tax it will also escape the SE tax. Remember the housing allowance is subject to SE tax (asuming you do not have an approved Form 4361). This is best accomplished when the church does their annual budget. By the way, you are allowed to reduce the clergy SE taxable income by any unreimbursed professional expenses prior to the computation of the tax, regardless of whether they are deductible or not as professional expenses. It is just easier to handle per my recommendation above. For clarification purposes I am a full time senior pastor of a multiple staff church. I worked for the IRS for seven years, have owned a tax practice for 19 years and my wife and I did have a private school for 5 years during this time, however, we sold it when we moved from CA to WA for me to take a new church. It was also at this time, I went to an Internet only tax practice. I do not have any office appointments or interviews. Last year I only had 6 or 7 telephone calls, I insist that contact is via e-mail and the entire process must be handled over the internet (well, faxes are ok). While I admit that does pose some limitations on my practice (I only filed 156 returns last year), that is okay, because, I manage to keep busy with the church. I have taught IRS tax classes and do teach clergy taxes for CPE classes. You may remember my appeal for the classes I taught last year. While I do not know all there is to know about clergy taxes, that is all I do. I turn away people every year that are not clergy or religious workers. I am happy to answer questions or help anybody who asks for it in the clergy tax arena. If I can ever help you, feel free to contact me at [email protected]. You should be advised that if you should e-mail me you will not have the benefit of peer review that this board makes possible. (I have also been known to sometimes ask you a question.) Anyway, have a great day! Mike

I don't see how you can claim it is hobby income and then try to take the 8829 for a homebased daycare. I would just recommend that you tell it like it is. If she says she does this as a hobby, then okay. If not, then Schedule C and 8829. (that is assuming that this was done in her home, if the client's home, do we have a household employee).