Question

The Reverend Smith receives a rental allowance from her employing church. The allowance is excluded from income. She also has unreimbursed expenses from operating her ministry. Rev. Smith also has self-employment income related to her ministry. Which of the following statements is most accurate?

Rev. Smith must allocate part of the expenses to the excluded allowance.

The excluded allowance covers the expenses. Nothing is deductible.

The expenses can be claimed as an adjustment to income.

Rev. Smith does not need to claim any of her income.

Answer 1

Housing allowance is one of the tax benefit for ministers. "The Reverend Smith receives a rental allowance from her employing church."

Ministers for tax purposes are allowed housing allowance. People who are not Ministers for tax purposes are not allowed for housing allowance. A taxpayer who is a Minister for tax purposes is determined by IRS.

Churches designate a housing allowance to these Ministers. According to IRS, taxpayers must determine whether they are eligible for housing allowance or not. Ministers must pay self employment taxes in their housing allowance or their fair rental value. "Rev. Smith also has self-employment income related to her ministry. "

Eligible expenses include mortgage payments, rent payments, pest control utilities, furniture expenses etc. Cleaning services, domestic help etc. are not eligible expenses to be excluded as income.

In the question, the most accurate statement is "Rev. Smith must allocate part of the expenses to the excluded allowance."