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Minister - W-2 and schedule C - new client

josephfolsomcpa
Level 4

I have a new client who is Minister.  I haven't prepared a minister tax return before and I'm educating my self on what is involved.  He receives a W-2 with taxable income, box 1, and no FICA or Medicare withheld as well as a housing allowance.  My understanding is that all the W-2 income and the housing allowance are subject to self employment tax since he has not filed to have them excluded from FICA.  I'm reviewing the prior year tax return and the prior CPA also included a schedule C to deduct the minister's small amount of minister expenses (no income shown on this).  The schedule SE shows the net of the W-2 income, housing allowance, and the expenses reported on schedule C which appear correct. 

I don't see an option in proseries that will flow the expenses from a schedule C to the schedule SE.  What is the correct procedure in proseries to flow these expenses to the schedule SE to net against the minister's income subject to self employment tax?

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6 Replies 6
TaxGuyBill
Level 14

Have you checked the boxes on Schedule C for "Materially Participate" and "All Investment is at Risk"?  Those should trigger the SE income to be reduced.  I just did it on a test return and it works for me.

 

As a side note, I have heard that this link is a very detail publication about clergy tax returns, so you may want to glance through it for any questions that you may have.

http://www.ecfa.org/PDF/2016-Preparing-Tax-Returns-For-Clergy.pdf

 

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TAXOH
Level 11
Level 11

I have never used Schedule C to deduct the expenses.  I use the Schedule SE Adjustments Worksheet, Part II line 5C and list the deductions there where is says Less clergy business expenses.

TaxGuyBill
Level 14

Good point, Schedule C would reduce income taxes too, and that isn't allowed, is it?  I don't do clergy returns, so I would need to look up the rules.

josephfolsomcpa
Level 4

Thanks for the info from both of you. I'm still doing due diligence since this is the first pastor tax return I've done in the many years I've done taxes.  Also since this is a new client, I normally go through the prior year return that the other person did and see if it was prepared correctly.  The prior preparer reported the expenses on a schedule C, but not the income on that schedule C. The income since it was on a W-2 went to line 1 on the 1040 and also to the SE tax form.

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IRonMaN
Level 15

You can quit looking - the prior preparer did it wrong.

I'm keeping this job. But I am selling surplus anvils on the side. If you are interested please call 867-5309
Greta
Level 7

Part II of W-2 worksheet pertains to clergy data. I also use SE, after deducting clergy expenses.