Prior to the Tax Cuts and Jobs Act of 2017, certain business expenses were deductible if, in aggregate, they exceeded 2 percent of the taxpayer's adjusted gross income (AGI), said Richard Hammar, tax attorney, CPA, and senior editor of Church Finance Today.
Some expenses subject to the 2 percent AGI floor included:
- overnight out-of-town travel;
- local transportation;
- meals (subject to a 50 percent AGI floor);
- entertainment (subject to a 50 percent AGI floor);
- home office expenses;
- business gifts;
- dues to professional societies;
- work-related education;
- work clothes and uniforms if required and not suitable for everyday use;
- malpractice insurance;
- subscriptions to professional journals and trade magazines related to the taxpayer's work; and
- equipment and supplies used in the tax- payer's work.
The Tax Cuts and Jobs Act, however, "suspends all miscellaneous itemized deductions that are subject to the 2 percent floor," Hammar said.The inability to itemize and deduct business expenses "will hit some clergy hard," Hammar said. He suggested this possible workaround: "Churches could reimburse employees' business expenses under an accountable expense reimbursement arrangement."