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When a pastor receives a sabbatical for the summer and the…

when a pastor receives a...
when a pastor receives a sabbatical for the summer and the amount will be $49,000. How will this be taxes? How should taxpayer prepare for tax liability?
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Answered in 2 minutes by:
3/25/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,622
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

Hi. …. My name’s Lane,

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

I’m reading your question now.

Bear with me a moment while I type up my response.

….

Then if you have further questions we can go from there.

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Yes, this is taxable. If taxes are not being withheld, you'll need to add this to any other income you'll have for the tax year, and make quarterly estimated payments so as not to have an underpayment penalty come tax time.

...

If you'll provide some ballpark numbers (total income for the ax year) and how you file (married, single, etc.) I can run some projections for you

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Customer reply replied 3 months ago
Is it treated as self-employment tax? They file married and jointly. Basically about $80K and 5 dependents. Does it matter if it is in a foreign country? Are they able to take any expenses against this income?

If this IS self-employment (only the individual and the church can answer that) then the PROFIT - after expenses - IS subject to self employment tax.

...

And yes, any out of pocket expenses needed to get the job done can be deducted on schedule C, which WILL reduce that gaxable number that flows to line 12 of he return.

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On the foreign country piece, no if the individual is a US citizen, green card holder, or passes the substantial presence test, all worldwide income is taxable.

...

Now if he/she can meet the VERY high hurdles of the FEIE (Foreign Earned Income Exclusion) they may be able to exclude the foreign earned income

...

Let me show you the requirements there

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A qualifying individual may claim the foreign earned income exclusion on foreign earned self-employment income. The excluded amount will reduce the individual’s regular income tax, but will not reduce the individual’s self-employment tax (Social Security and MEdicare)

...

To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:

  • A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
  • A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
  • A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
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Customer reply replied 3 months ago
This is a 2018 issue for my client and they wanted to know what the tax implications will be so I am safe to explain that if it will be treated as self-employment then they need to expect to pay self-employment tax and income tax less any expenses needed to get the job done.

Yep, this is simply additional income ..... and if the payer isn't treating them as an employee, they'll be able to reduce the taxable income AND the self employment tax by listing expenses that are ordinary for the activity on the schedule C.

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Customer reply replied 3 months ago
if the payer is treating them as an employee then that will all be taken care of through a W-2 form, correct?

That's right ... the withholding would be

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,622
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane and 87 other Tax Specialists are ready to help you
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Customer reply replied 3 months ago
Perfect. Thank you for your help.

Thanks much for the rating.

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