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How do I expense a ministers expenses when he is the owner of the church as well

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Level 2

I have a minister that just opened his first church he is trying to expense the repairs and supplies for the contractors will this be the K-1?

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Level 12

"he is trying to expense the repairs and supplies for the contractors"

If you are describing Building improvements, that isn't expense. It is Asset investment.

He "owns" a church, but that doesn't describe if he also owns Property or Real Estate.

It would be more helpful if you gave description and details. For instance, is this person renting a building and improving it to use for church services and operations?

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Level 12

Oh: A K-1 is a form that comes from an entity's tax return, such as 1120S (S corp) or 1065 (partnership). Nothing you described helps us understand what is the tax return or entity type of the Church? Perhaps the Church is filing using Form 990?

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Level 2

Thank you,  the Pastor purchased the building and they renovated the building.  I am aware that the minister can only expense certain things in his Schedule C as this is his first year with the new building and expenses.  Will the church itself have to file a separate return in order to not mix the renovations and church expenses on the Schedule C (Hope that explains it better)

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Level 2

The minister has the church entity as under a Non -Profit.  He gave my office a EIN and a DBA information and a list of receipts for the renovation.

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Level 15

Who paid for the renovations? The church or the pastor?

Why does the pastor have a Schedule C?

Does the church pay rent to the pastor for use of the building?

And many more questions.


ex-AllStar
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Level 2

The church paid for some renovations $60,000, and the pastor paid 40,000 out of pocket (personal loan) hence the use of the schedule C as well as the pastor starting salary of $10,000 self employed. Pastor also used his own vehicle to transport members to service.  

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Level 15

Why Schedule C and not Schedule E for the building that the pastor owns? What K-1 is being created? Oh, so many questions. 


ex-AllStar
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Level 15

He makes $10,000 but personally dumped $40,000 into the building?  It sounds like this guy may have a better story than Jesus feeding the multitude with a couple of fish and a few loaves of bread.

ex-AllStar, ex-Lutefisk taste taster, ex-ACME product tester
and ex marks the spot where those rocks and anvils hit me.
Highlighted
Level 2

The church was formed in November of 2018. So the 10,000 is a month and a half of income. Pastor does have a everyday 9-5 with 6 figures so I didn't find it odd he placed own finances into church. Was provided an interest statement of the bank loan for 40,000. Was just stuck when he gave receipts for the renovation but no return for the church just his own information

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Level 15
That simple statement says that the Pastor should have a Schedule E. $10,000 gross rents. $40,000 interest expense. Depreciation on the Cost of the Church (less land) and Depreciation (or maybe amortization) on the renovation expense.
The Church is separate from the Pastor. The Church files it's own tax return. The church will not be issuing a K-1 to anyone, only GOD can do that, but he/she does not need to file as he/she is not physically present in the USA.

ex-AllStar
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Level 15

The lord works in mysterious ways, especially when it comes to tax questions.  I think that was $40,000 of improvements, not $40,000 of interest.  

ex-AllStar, ex-Lutefisk taste taster, ex-ACME product tester
and ex marks the spot where those rocks and anvils hit me.
Highlighted
Level 12

Here is your mistake in your initial thought process, as stated:

"The church paid for some renovations $60,000,"

That's not Expense. You are confusing Expense and Expenditure. Expenditures to improve buildings and property are still right there in front of you. Instead of money in the bank, you see new doors, windows, flooring, pavement, ramps, kitchen, etc. This is Never put onto taxes as Expense. Expense is when you buy printer paper, pay for electricity = Poof! Already Gone. All used up. What you are describing is Improvements with a Useful life per the IRS, as new Asset.

"and the pastor paid 40,000 out of pocket (personal loan):

That doesn't mean the Pastor paid for Improvements, though. The Pastor provided funds, first. Don't leap over the interim steps.

"hence the use of the schedule C"

But that's not the reason to use Sched C. Putting money into something is not, by definition, Sched C. Sched C is, by definition, running a business operation as a Sole Proprietorship. Needing money to do so, or not needing money to do so, has nothing to do with the need for filing Sched C as part of a 1040 tax return.

"Was just stuck when he gave receipts for the renovation but no return for the church just his own information"

You have Improvements, not Expense. Now it matters who is considered to have done the improvements. Not who Financed them, but who Owns them. Example: I rent a building from you, and I improve it to meet my needs. I can pay for it, get a loan from a bank, or even from You. They still would be My Improvements, as Tenant incurred, and I put them on my business taxes as Leasehold Improvements (because I don't own the Property). Or, you improve the building prior to finding a new tenant, and as the landlord that made the improvements, you put them on your tax return as part of your basis in your property.

"as well as the pastor starting salary of $10,000 self employed."

Self-Employed has no Salary; there is no payroll for this person as Self-Employed.

Have you got someone that can mentor you through all of this?

And your Pastor needs some professional guidance on Church management and Church accounting, as well.

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Level 15

l also wonder if this a real church. Is there a congregation?


ex-AllStar
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Level 2

I looked it up to confirm it is a real church. Thank you for helping, I think these people will need someone else for the church taxes because they are not in order at all

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Level 15

Um, most churches don't need to file tax returns unless they have unrelated business income. They do need to file W-2s and 1099s as appropriate.


ex-AllStar
Level 12

It's too bad that he owns the building personally, because a Church owning the property typically avoids property taxes. What it seems to be, is that this person has Property, and there is a Church using it, and he also works for that Church. Which means all of this should have been better thought out.

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