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Where does a Minister deduct business expenses?

November 18, 2014

Maybe it’s Schedule A? Or is it Schedule C? Hmmm……

“Where should a minister deduct business expenses?” is a common question we hear.

Under common law rules, each church should determine whether ministers are employees or self-employed. However, the IRS almost always considers full-time ministers as employees for income tax purposes (even though they are self-employed for social security tax purposes).

When a minister is considered an employee of the church, he (she) should deduct unreimbursed business expenses and those expenses reimbursed under a non-accountable plan on Form 2106. Amounts on this form are carried forward to Schedule A of the minister’s 1040 income tax return. Most likely, the minister will lose some of his church-business deductions since the amount must exceed 2% of his adjusted gross income before they are deductible.

Something a church can consider is adopting an accountable business expense reimbursement plan to help cover the minister’s business expenses tax free.

But here’s where it gets a little tricky. If the minister performs services outside of his normal duties as an employee of the church, any associated expenses would be reported on Schedule C instead of Schedule A. The minister uses Schedule C to report income and deduct expenses directly related to honoraria (i.e. weddings, funerals, baptisms) or other expenses for services performed outside of his local church.


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