TaxSlayer Blog is your source for tax preparation news, tips and advice.
In order to get the largest refund possible as a minister, it is important to understand the basics of how a minister’s tax return may be different from other returns. 1. Most ministers are considered employees for Federal Income Tax purposes and are paid on a W-2. However, some ministers are self-employed such as some traveling evangelists and interim pastors. In these cases, you would receive a 1099- MISC and you would be required to report your income and expenses on a Schedule C. Also, many ministers that are employees of the church may be self-employed for other reasons such as speaking at guest appearances at other churches or performing services directly for individuals (such as weddings and funerals). 2. Even if you are considered an employee of the church and you receive a W-2 you will have to pay self-employment taxes on the income. Minister must pay self-employment tax unless they have filed a timely exemption application, Form 4361. You may file a timely form 4361 if you are opposed on the basis of religious consideration to the acceptance of benefits under the Social Security program. However, you are not exempt from paying Social Security Tax or Medicare tax on income you receive as a minister in any duty you perform that is considered self-employment income (such as weddings, funerals, and guest speaking appearances at other churches). 3. If you itemize and you are paid as an employee you may be able to deduct unreimbursed business expenses you incurred on your Schedule A. 4. You will need to use Schedule C or Schedule C-EZ to report earnings from marriages, baptisms, and funerals. 5. One of the most important benefits of being a minister is that you can qualify for a housing allowance. A housing allowance is used to pay for housing related expenses which include mortgage payments, rent, utilities, repairs, furnishings, insurance, property taxes, additions and maintenance. Ministers who own or rent their home do not pay Federal Income Taxes on the amount of compensation that their employing church designates as a housing allowance ahead of time. Although you do not have to pay Federal Income Taxes on your housing allowance it is subject to Self- Employment tax.
While the rest of us are dreaming of tax deductions, you, as a member of the Armed Forces, are likely trying to figure out which of your military pay is excludable from taxable income. You are probably aware that combat pay is not taxable while serving in a combat zone. Knowing where your other exclusions are is as important as your tax deductions in getting the income tax refund you want. Of course, certain type of pay is fair game on your income tax return, such as hazardous duty pay, drills, hardship duty, and submarine pay. The exception to this is if you perform these duties in a combat zone. There are many categories that are excludable items from your pay. These types of pay are either a reimbursement or allowance. There are generally 8 categories of excludable items and they include: Combat Zone Pay, Other Pay, Death Allowances, Family Allowances, Living Allowances, Moving Allowances, Travel Allowances, and In Kind Military benefits. For a detailed list of these items please visit IRS Publication 3: Armed Forces Tax Guide. Not only may you receive excludable pay on your Federal Income Tax Return but some states have military taxable exclusions as well. For example in 2010, the state of Virginia allowed service members to subtract the amount of combat pay for service in support of Operation Joint Endeavor that was included on their Federal Income Tax Return. Be sure to check your states deductions to ensure you are getting the maximum state income tax refund!
You have finally decided to make some long awaited improvements on your home. As you finalize your plans you should really consider taking advantage of potential tax credits for your home. Make sure you incorporate upgrades that not only will improve the look of your home but its energy effectiveness. There is still time to take advantage of the Residential Energy Credits that have been around for the last few years. This is the last year for tax payers to take advantage of them unless Congress decides to extend it once again. The following products below are eligible for tax credits through 2011 on your primary residence: Product Credit Biomass Stoves $300 HVAC $50- $300 Insulation 10% of the cost up to $500 Roofing 10% of the cost up to $500 Water Heater (non-solar) $300 Windows, Doors and Skylights 10% of the cost up to $500 but windows are capped at $200 As you plan where to start your remodeling, remember to begin with the products that you can benefit from on your tax return. These Residential Energy Credits are due to expire in 2011 and you must have your energy efficient improvements installed and ready for use prior to the end of the year in order to take the credit. Keep in mind if you have already claimed $500 or more in Residential Energy Credits from 2006- 2010 you are not eligible for anything more.
Earned Income Tax Credit (EITC) is a refundable credit. Refundable credits can actually increase your federal refund. Think of EITC as a ‘payment’ the Federal government gives to low- to moderate- income workers to get a break when they do their taxes. The catch is not everyone qualifies for EITC. Let’s go over the basics of qualifying for EITC on your tax return. Just as everything in life, you can’t win if you don’t try or in this case you can’t qualify for EITC if you don’t file a tax return. In some cases, you may qualify for EITC even though you aren’t required to file. If you don’t file for it, you won’t get it. The basic guidelines that everyone must follow are your adjusted gross income (AGI) must be below $48,362, have a valid social security number, cannot file Married Filing Separately, must be a U.S. citizen or resident alien all year, cannot file Form 2555 or Form 2555-EZ, investment income must be less than $3,100 and you must have earned income. AGI and earned income restrictions are based on whether you have children or not. With three or more qualifying children, you must make less than $43,352, or $48,362 if married filing jointly. For two qualifying children, it’s less than $40,363, or $45,373 if married filing jointly. With one child, it’s less than $35,535, or $40,545 if married filing jointly. With no children, the amount is $13,460, or $18,470 if married filing jointly. The number of qualifying children you have also affects the maximum amount of earned income credit you can receive on your tax return for this tax year. Three or more qualifying children may give you $5,666 in EITC. Two may give you $5,036; one may give you $3,050 and with none you may still be able to get $457. Filing your taxes with TaxSlayer.com makes it a cinch because it does all the necessary calculations for you. Filing online with TaxSlayer.com can really help so you don’t miss credits and miss getting your maximum refund.