Have Tax Questions? Ask a Tax Expert for Answers ASAP
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Please see http://www.ministrymaker.com/beginners-guide-to-church-planting/
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Thank you for your answer. It was very helpful ministrymaker site but after read it I have some questions?
1) In a church is allowed that the pastor be compensated?
2) If yes, how much would be his reasonable compensation?
3) What type of expenses or payments would be the normal expenses?
4) If at the end of the year its net income is large what would be the way to handle that situation?
First, yes, you are absolutely allowed to compensate your pastor. You would pay him on a W2
Reasonable compensation is based on the area you live in, the size of the church, and frankly, how much is in your budget.
You would need to factor in whether or not the job comes with a parsonage (value of which is NOT in the W2)
For expenses, The clergy housing allowance provision of Section 107 of the Internal Revenue Code is perhaps the most important vehicle available to clergy for reducing individual income subject to Federal income taxes. The housing allowance provision enables clergy to exclude (rather than deduct) from taxable income a portion of the pastor’s income used to provide housing.
Clergy housing allowances are referred to by many names, including housing allowance, utilities allowance, utilities/housing allowance, parsonage allowance, rental allowance, housing allowance in lieu of parsonage, and possibly others. Each of these terms is subject to the provisions of Section 107. Housing allowances for incidental housing expenses and utilities expenses are commonly provided in addition to the rent-free use of a local church parsonage.
Please see below:
Your final question re: net profit is best answered here:
I sincerely XXXXX XXXXX helps
The last question: Does the clergy have a special treatment in his personal taxes?
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Thank you so much for all your help
The last related question: Does the clergy have a special treatment in his personal taxes?
The gross income of a licensed, commissioned or ordained minister does not include the fair rental value of a home (a parsonage provided), or a housing allowance paid, as part of the minister's compensation for services performed that are ordinarily the duties of the minister.
A minister who is furnished a parsonage may exclude from income the fair rental value of the parsonage, including utilities. However, the amount excluded cannot be more than the reasonable pay for the minister's services.
If you (the minister) own your home, you may still claim deductions for mortgage interest and real property taxes. If your housing allowance exceeds the lesser of your reasonable salary, the fair rental value of the home, or your actual expenses, you must include the amount of the excess as other income.
A minister who receives a housing allowance may exclude the allowance from gross income to the extent it is used to pay expenses in providing a home. Generally, those expenses include rent, mortgage interest, utilities, repairs, and other expenses directly relating to providing a home. The amount excluded cannot be more than the reasonable pay for the minister's services.
The minister's employing organization must officially designate the allowance as a housing allowance before paying it to the minister.
The fair rental value of a parsonage or the housing allowance is excludable from income only for income tax purposes. No exclusion applies for self-employment tax purposes.
Most ministers get paid as self employed for things like weddings, funerals, guest speaker, etc.
For employment tax purposes, a duly ordained, licensed or commissioned minister is self-employed. This means that your salary on Form W-2, the net profit on Schedule C or C-EZ, and your housing allowance, less your employee business expenses are subject to self-employment tax on Form 1040, Schedule SE (PDF), Self-Employment Tax.
I hope this helps