MAMalody

If the only W-2's issued are to clergy, there is no F941 requirement. As to the preparation of W-2s, I would recommend that proper W-2s be prepared. After all, that is the way is should be done. If they have already issued Form 1099 Misc, then I indicate to them that you can prepare the returns for them using those, however, in 2008 and future years they need to do W-2. When you prepare the return, report the income on Schedule C and then back it off as other expense". I usually use a statement like "Reported in error on 1099 Misc, should be W-2 income. See line 7 of Form 1040." Move the income and then prepare the return as if it was W-2 income. The only thing left on the W-2 should be honorarium type income. I believe the worksheet #4 is the one with the error in relation to the IRC 265 limitation. Anyway, this is my two cents. Mike

I sure hope he doesn't forget the ATX to Mel conversion program.

No. You cannot e-file with a current year death. You will have to paper file the return.

Jeez. They sent me 84 acknowledgments yesterday PM. Only problem was they were repears of prior acknowledgments, nothing current.

You should try to call ATX. The software should be set so that a copy of the F4868 is attached if the state needs it.

Not keyman. Client not an employer. I thought I was thinking it through. Thanks for the help. Mike

I have a new client and he sent me a copy of last years professionally prepared return and that preparers tax organizer. On the return it shows $851 in term life insurance premiums as a professional expense and it is also an item they check in their organizer. Have I missed something? I must be tired, however, I don't remember term life insurance premiums be a deductible item. Can somebody striaghten me out. Mike

Per 1402(a)(8) it is not subject to SE tax.

As I have read it, the housing allowance ceases at the death of the pastor, therefore, in the example stated (he died in January) there would only be a partial year housing allowance. The designation is not relevant at that point. There has been no guidance that I have seen that indicates an annual consideration but whether the designated recipient is alive.

I always carry them separately, and didn't even think of putting them back together for the dispostion since the 121 exclusion applies. Thanks. Mike

I can't get this thing to work out. I have a pastor who moved a couple of years ago and rented out his house for two years. 2007 he sold it. Meets the requirements for IRC121 exclusion but must recover the depr. I can't get this thing to flow right. The house and land were separated on the Asset Entry sheet. I can get the exclusion to work on the house, but how do I get it to flow for the land. Do I just override the exclusion figure on the 4797 to accomodate the land?

Can somebody provide a link or info on the extension of time to pay based upon your circumstances for 30-120. This was referred to in IRS Tax Tip 68. I don't seem to be very successful in finding the criteria for this or how it works. Any help would be appreciated. Mike

<<<Just out of curiosity, if you do not check the f4361 box on Sch SE, how do you have "Exempt 4361" appear on line 58 (SE tax) of 1040 as the IRS requires?>>> When I have done it because there was not other SE income, I overide the form and type it in. Your way is probably better, except it is not called for. I view this as another ATX programming glitch. BTW, I don't run across many who specialize in clergy taxes. May I add you to my list of those I ask questions of when I am stumpted? If so, please send me your e-mail, etc to [email protected]. have a great day! Mike

<<<If you check the 4361 box on sch SE in the program, you can enter zero on worksheet 4 on the 1040 clergy and everything is correct. It will show Exempt 4361 on pg 2 of the 1040 where required and zero out the SE tax. At the beginning of the season I tried 6 or 7 times to get ATX to update SCH SE or the 1040 clergy to get the program to zero it out once the box on Sch SE was checked, but you can imagine how that went. No response. I have just been doing it manually. You can actually read about it on this forum back in Jan. Make sure you are sending in 8453 with 1040 clergy for efiles. >>> That's my point. Unless I misunderstand your posting, I am doing the same thing. However, you should not have to override the worksheets to make them work. Technically, the F4361 box on the SE form should not be checked unless there is other SE income. So if the pastor did not have any other SE income it would be left unchecked. Also we still don't know what the IRS will do when they get the F8453 with the modified worksheets. My guess is they will be filed away and nobody will actually look at them, but, who knows. There could be some major correspondence in 8 to 16 months from now. It there happens to be somebody that has software other than ATX, does you software handle this differently? Mike

That can work. It does leave the door open for questions, but the lack of boxes 2, 4, 6 should clear the way for an appropriate housing allowance.

Be careful of the 1040 Clergy Worksheets, there are errors on them. For example, they are not designed to accomodate a pastor with an approved Form 4361. This has been communicated to ATX, however, to date they have not adjusted the worksheet to handle this situation. Also, they do not properly accomodate the IRC 265 limitation, or lack thereof, on Worksheet #4. I guess the real problem here is that ATX simply took them from Publication 517 without reviewing them for their program applications. I hope this helps. Mike

You have a problem here. If boxes 3-6 are filled in on the W-2 the pastor does not qualify for dual status and therefore cannot have a housing allowance. While you can list the housing in box 14, I don't actually do it. It is not required, but it is okay. For SE purposes you would add the cash salary, the lower of designated housing, actual amount spent or the fair rental value less business protion of tax preparation cost, business % of auto interest and taxes less any unreimbursed professional expenses, irrespective of the IRC 265 limitation. If you pastor had 31K income and 1800 housing allowance, his W-2 should have 31K in box 1 and the rest should be blank. You could put 1800 in box 14 and of course you would have any appropriate state boxes filled out. If his housing (1800) is part of the 31K I would try to have the W-2 corrected. Failing that, I would enter the qualified housing expense in line 21 of the 1040 as a negative number.

I would differ here a little. I think the most appropriate place for unused housing allowance would be an addon to line 7 of the 1040. That is where we would but the excess reimbursements for F3903, taxable tips off F4137, etc. There is not a lot of difference here. Also from a pragmatic sense, in a live audit, you are waving a flag in front of the auditor (who can open this issue), when they probably will never even know that line 7 exceeds the total of box 1 on the W-2s. I would have to go back and look it up, however, I believe this is actually what the IRS recommends also. If the housing allowance is listed in box 1 of the W-2, my request is always to have the pastor go back to the church and get a corrected W-2. I have about a 85% success rate here. Failing that, I would back out any qualified housing, per the limitations, on line 21 of 1040. In answer to the question about overdesignating the housing allowance, my reasons (I hope it is correct) is as follows: 1. All the pastors compensation is subject to SE tax, whether it be housing allowance or cash salary (assuming no F4361 on file). So where it is in the pie at this point makes no difference. 2. By overdesignating, the pastor is assured of getting the maximum amount of nontaxable (for income purposes) possible. It will not change his SE tax whether he has 10K salary and 20K housing, or if he has 6K salary and 24K housing. The SE base (30K) would be the same. It will make a little difference, possibly, in the IRC 265 limitation (remember 85% of pastors are unable to itemize). 3. With a 100% housing allowance, then, of course, it won't make any difference because all that is coming in is already designated as housing. If I misinterpreted the questions, please repost and I will try again. Mike

Let me answer your question in a little different way. I may repeat some things that have been said before, but once I am on a roll, unless I go over the edge I sort of dump the whole load. 1. Generally, pastors are considered dual-status. They are common law employees for income tax, fringe benefit and retirement purposes. They are considered Sefl-employed for Social Security purposes. Therefore they receive a Form W-2, however, no deductions are taken out. 2. A pastor can request a church to make withholdings form them, however, the church is not required to do so. They can choose to do so if they wish. 3. If a church provides their "1/2 of Social Security" for the pastor, it is considered additional taxable componsation and should be included in box 1 of the W-2. This is commonly called a social security offset. 4. A pastor can opt out of Social Security only if they complete Form 4361 by the filing deadline of the second year (including extensions) in which they have clerical income of $400 or more. If your pastor has made more that $400 for at least two different years from the pastorate they are NOT eligible to be exempted for social security. By-the-way, this is a theological decision not an economic decision. 5. If they are not exempted from Social Security, the income they have that is subject to the SE tax is: cash salary, designated (and paid) housing allowance, social security offset, honorariums, royalties, recapture of auto depreciation; less any unreimbursed professional expenses, business portion of tax prep fee, and business % of auto interest and personal property tax. The worksheet that the IRS uses and ATX uses has an error in it. It mistakenly does not allow the IRC 265 limitation as a reduction for the SE computation while the code and regs do. 6. The pastor is NOT required to provide any documentation to the church to support their housing allowance request, designation or grant. 7. It is a good idea when the pastor makes the request to the church that he adds about 20% to the amount that they think they will use. Since this is a use it or lose it proposition, the pastor and church lose nothing by making the figure larger that actually used. However, it cost them money, if the designated amount is not more than what they expect to use. 8. The housing amount that is not subject to income tax is the lower of (1) designated amount, (2) amount actually spent or (3) the fair rental value. So if the amount designated and fair rental value is less than what is spent, the pastor is paying income tax on income that could have been exempted. If the amount spent is less than the amount designated or the fair rental value, then the difference between the designated amount and what was spent becomes subject to income tax and is added to line 7 of Form 1040. As you can see it does not hurt to overdesignate but hurts when you underdesignate. 9. Be careful when you compute the EIC if they have it. The ATX worksheet is good, however, make sure you read the earned income worksheet carefully, it will change you computation. 10. This is not relevant in your current situation, however, mortagage interest and property taxes can be used on Schedule A and for housing at the same time. Cool huh. 11. The housing amount is NOT required to be listed on the W-2, however, the pastor will always need to know what it is so their tax return can be properly prepared. I hope this helps, that between others and myself your questions has been answered and I have not muddied the waters. Mike

Since he did not receive a Form 1099 Misc, I would go ahead and report it on line 7 of Form 1040, use Form 2106 and so on like normal. The IRS will always accept an amount larger on line 7 that the W-2s show. The big thing for them is if line 7 is less that the total of W-2s. While I don't know everything, I do specialize in clergy taxes and if you have further questions feel free to contact me at [email protected]. Be advised, if you contact me directly you will not have the benefit of peer review this board makes available. I hope this helps. Mike

Actually, this only applied to IRAs. The individual may make a tax-free "qualified charitable distribution" of up to $100,000 from an IRA to a church or other charity. There are three basic rules that apply here. 1. A qualified charitable distribution is any distribution from an IRA directly by the IRA trustee to a charitable organization, including a church, that is made on or after the date the IRA owner attains age 70 1/2. 2. A distribtuion will be treatd as a qualified charitable distributin only to the extent that it would be includible in taxable income without regard to this provision. 3. This provision applies only if a charitable contribution deduction for the entire distribution would be allowable under present law, determiend without regard to the generally applicable percentage limitations. For example, if the deductible amount is reduced because the donor receives a benefit in exchange for the contribution of some or all of his or her IRA account, or if a deduction is not allowable because the donor didn't have sufficient substantiation, the exclusion is not available with respect to any part fo the IRA distribution. I hope this helps. Mike

I use .pdfFactory to make an initial file and then convert it to a Word doc that can be filled in on their computer. In this way I not only password protect it but they can e-mail it back as an attachment. Less paper for them and for me. Mike

I'm with KC on this one. In fact, she said it better than I could. Hmmm.

With vehicles a Form 1098-C is to issued by the donee organization within 30 days of the transfer to a private party. The amount deductible will be the gross sales price when the organization sells the donated vehicle. The amount deductible will be the blue book value (determined by the donor) when the organization retians the vehicle for its usage.

Thanks. I think that is it. Mike