Got a new client that is a pastor in a small church. The pastor's W2 shows around $13k in box 1 and $15k for housing allowance. The pastor told me that he tithed $7k and has a statement from his church documenting this amount. I thought the amount of tithes seemed excessive based on the W2 and asked him about it. He told me that the church holds out his tithe from his salary. As a result, the W2 box 1 amount is the gross earnings less the tithe amount. I'm certainly not an expert in clergy taxes but this doesn't seem reasonable (or legal) to me. I'm I missing some obscure tax law that allows clergy to deduct tithes pre-tax?
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Page 14 on the above link discusses this... -
No, this is not "legal." Charitable contributions, if deducted from a salary, should be on an after-tax basis. Then he can deduct on Schedule A if he can itemize. So the full amount of salary goes in Box 1. They may or may not withhold any taxes.Last edited by Burke; 03-16-2015, 05:54 PM.Comment
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Just curious, will you have the church correct the w-2 or fix on Schedule C? Whoever is preparing his w-2 needs to know this does not need to be done anymore.Originally posted by Burke View PostComment
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I'd just add the $7K to his W-2 earnings, reporting $20K on line 7 and then proceed as normal.
Chances are the W-2 Copy A wasn't sent in to IRS anyhow, and even if it was, as long as his Line 7 entry exceeds the W-2 amount, IRS won't really care.
There are a couple of reasons line 7 can be higher that the W-2 totals, even under normal circumstances."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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I wouldn't just add the amount to line 7 without client consent. Instead, tell client that you believe that would be the proper treatment, and if he wants you to prepare the return that is how you will handle it.Originally posted by JohnH View PostComment
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True, but I won't do anything material on a return without client consent - that's implied in any of my posts."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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Sorry if post came across as offensive. That was not the intent.Comment
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No offense taken - just thought I'd clarify my shorthand."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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