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While many retired clergy choose to enjoy their well-deserved season of rest, some seek ways to continue nurturing their spiritual calling.
The 2023 tax season is well underway, however it’s not too late to take advantage of some frequently forgotten tax deductions and credits.
1. Out-of-Pocket Charitable Contributions
Do you do volunteer work beyond your primary ministry? If so, the out-of-pocket costs incurred while doing charity work are tax deductible. This includes ingredients for food made for a bake sale, soup kitchen and the like along with the actual cost of gas to travel to your volunteer shift at 14 cents a mile. You need to keep all the receipts and a record of miles traveled.
2. Moving Expenses
Most Americans can no longer deduct moving expenses. However, if you are a military chaplain, active military personnel or their spouses and dependents, you can deduct moving expenses as long as it was the military who required the relocation.
3. Student Loan Interest
To deduct student loan interest, you must be liable for the debt and actually pay the loan yourself. If a parent or someone else pays the loan, it’s considered a gift. Up to $2,500 in interest can be deducted each year. Anyone who pays more than $600 in interest a year will receive a 1098-E form from the lender. The deduction starts to phase out for individuals with a modified adjusted gross income (MAGI) above $75,000, and it ends for taxpayers with a MAGI of $90,000 or more. For married couples filing jointly, the phaseout begins at a MAGI of $155,000 and ends at $185,000 or more.
4. State Income Tax
You can choose between deducting paid state and local income taxes or state and local sales taxes. If you live in a high-income tax state you may want to choose income tax, but if you live in a state with no income tax you may want to choose sales tax. You need to keep a detailed list of all the sales tax you pay throughout the year. Be aware each state has limits on the amount that can be deducted and the sales tax on big ticket items such as a car, boat or major home renovations may be all you need to reach the maximum amount.
5. Child and Dependent Care Credit
Up to $5,000 in childcare expenses can be claimed. This includes summer camps, preschool tuition and even payments to relatives who babysit as long as they are not the child’s parent, your spouse or another of your children under the age of 19.
To claim the credit, you (and your spouse, if you're married) must have income earned from a job and you must have paid for the care so that you could work or look for work.
You can claim from 20% to 35% of your care expenses up to a maximum of $3,000 for one person, or $6,000 for two or more people (tax year 2023).
6. Retirement Savings Contributions
For those who contribute to their retirement savings there is a “Saver’s Credit” up to $1,000 for single filers and $2,000 for married people filing jointly. It should be noted there are income limits on this credit. The limit for married people filing jointly is $73,000; head of household is $54,750 and single people is $36,500.
7. Jury Pay
Jury pay is taxable income, but if you had to surrender your jury pay to an employer because you were still collecting your regular pay, the amount given to your employer is tax deductible.
8. Health Care Costs
Medical related travel, long term care and health expenses are tax deductible if they add up to more than 7.5% of your adjusted gross income. The list of qualified health care costs is long. A few of them are health insurance deductibles, co-payments, contact lens supplies, breathing machines, walkers, crutches, scooters and other out of pocket medical expenses.
The list of possible tax deductions and credits is considerable and only a few are covered in this article. The deductions and credits described in this article can also be complex and are subject to many caveats and specific qualifications. It is best to discuss all your options, the qualifications and caveats with your tax professional.
The information contained herein is for informational purposes only. The information does not constitute any financial, insurance, investment, legal, or tax advice. MMBB is not liable for any success or failure that is directly or indirectly related to the use of the information contained herein.
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Translations of any materials into languages other than English are intended solely as a convenience to the non-English-reading public. We have attempted to provide an accurate translation of the original material in English, but due to the nuances in translating to a foreign language, slight differences may exist.
Las traducciones de cualquier material a idiomas que no sean el inglés son para la conveniencia de aquellos que no leen inglés. Hemos intentado proporcionar una traducción precisa del material original en inglés, pero debido a las diferencias de la traducción a un idioma extranjero, pueden existir ligeras diferencias.
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