By Delano Sherley
Continuing the topic of “accountable reimbursement plan” rules when reimbursing business expenses:
Proper documentation is a key requirement for any expense that an employee charges to a church debit/credit card or requests to be reimbursed for. This would include meals and entertainment expenses. The employee should document who was present, the business purpose of the meeting, and a general description of what was discussed.
Often, rather than requesting reimbursement for business expenses such as meals, mileage, study materials, etc., the pastor instead opts to write off the expenses on his tax return as an “unreimbursed business expense” (form 2106). While this is an option, consider the following:
First, the deduction is reduced by 2% of the minister’s adjusted gross income. Thus, someone with an AGI of $50,000 would automatically lose $1,000 of the deduction. The deduction is further reduced by the percentage of non-taxable income (housing allowance) to total income.
Assuming someone is in a 15% tax bracket, the tax savings is 15% of the remaining deduction after the reductions above. The full amount of the deduction without any reductions reduces the amount of self-employment income.
I have seen what could have resulted in $8,400 of reimbursement to the pastor turn into a tax savings of only $1,400. Contact us if you would like a review of your personal scenario.