Filing Your Income & Social Security Taxes

A Training Track Tool, written by Chris Bushnell in Louisville, KY, as a guidesheet for Team Expansion Missionaries and Forwarding Agents TN00602A1.gif (1584 bytes)

Introduction

Taxes! This 5-letter word often strikes terror in our hearts. But - not any more. If you are a typical Team Expansion missionary this guide sheet will lead you Step by Step through the process of filing and paying your income and social security taxes. It will probably take less time than you think!

One of the secrets to wise tax planning is something Team Expansion missionaries are already doing - monthly reporting. This makes the end of the year job of filing taxes quite simple. By completing accurate monthly financial reports you are making sure throughout the year that all of your ministry/business related expenses are accounted for in the non-taxable ministry areas (lines 200-900 in the Team Expansion Expense Recap Form and in the Expense Summary of TRAK). This way your salary and other taxable expenses are as low as possible.

So, grab the proper forms (see below), a pencil, a calculator and your W-2 from Team Expansion and let's get to work. AG00021_.GIF (14873 bytes)

The Tax Process: An Overview

The tax process includes two major areas. The first area is estimating what you will owe in the upcoming year and dividing

that total by four. These are your quarterly payments you will need to make throughout the year. The second area is figuring out what you actually owe on the past year (using the W-2 Team Expansion sends) after subtracting what you have already pre-paid (in estimated tax).

The four quarterly payments are due (approximately - see form 1040-ES for actual dates each year) April 15, June 15, September 15 and January 15. This means on April 15 you have two tax bills to pay. The first bill is any tax due from the previous year, this includes both Federal income tax and Social Security (see Part I below). The second bill due on April 15 is the first quarterly payment for the new year (see Part II below).

Note: the following instructions were written for missionaries who have not opted out of Social Security. If you have opted out of Social Security note the instructions in Step 19 and disregard Steps 7-12 and all references to Schedule SE.
Tax Forms pe00554_.wmf (10392 bytes)

The forms you will need from the IRS are: Form 1040, Schedule SE, and Form 1040-ES (Estimated Tax for Individuals).

Part I: Income Tax

Steps for Filing Form 1040 for Income Tax and Social Security
  • Step 1: Fill out the Label information at the top of 1040. Use the pre-printed label if possible.
  • Step 2: Put an X on the appropriate line 1 or 2 for your filing status.
  • Step 3: Put an X on the appropriate line 6a,b and children's information and total the number of exemptions on line 6d.
  • Step 4: From your Team Expansion W-2 (plus any other W-2s you may receive from other employers) fill in line 7 with the amount of Salary indicated in the Wages box of your W-2.
  • Step 5: Add any taxable interest you may have received on personal savings on line 8a. Your bank or Savings and Loan will issue you a statement.
  • Step 6: Add lines 7 and 8a and place the amount on line 22.
  • Step 7: Now go to Schedule SE and on Section A - Short Schedule SE write the following in the space between lines 2 and 3: "W-2 Salary Plus Housing Allowance"
  • Step 8: Total the amount of wages on your W-2 plus the amount of Housing Allowance in the Other Box of the W-2 and write this amount on line 2 of Schedule SE, and again on line 3.
  • Step 9: Follow the instructions on line 4: Multiply line 3 by .9235 and write the amount on line 4.
Don't forget to follow the instructions! bd07139_.wmf (16224 bytes)
  • Step 10: Multiply line 4 by .153 and write the amount on line 5.
  • Step 11: On line 6 enter the result of line 5 multiplied by .5 (or one half).
  • Step 12: Now, going back to Form 1040, write on line 26 the amount of line 6 of Schedule SE (Short-form). Write the amount again on line 32.
  • Step 13: Subtract line 32 from 22 and write the amount on line 33. This is your adjusted gross income. Write the amount again on line 34.
  • Step 14: On line 36 enter the amount of your Standard Deduction.
  • Step 15: Subtract line 36 from line 34 and write the total on line 37.
  • Step 16: On line 38 write the amount of your personal exemptions.
  • Step 17: Subtract line 38 from line 37 and write the amount on line 39. If line 38 is more than line 37, enter 0 on line 39.
  • Step 18: If you are typical, you will have a "0" on line 38. That's a good thing! If you do have taxable income still, and if you have lived overseas for 330 days in the previous tax year - or if you have established residency in a foreign country, you simply need to claim the Foreign Earned Income Exclusion. That's a good thing too! For instructions on taking this exclusion see the instructions on Form 2555. Again, many Team Expansion missionaries do not make enough in taxable income to even have to bother with this form.
    If you have taxable income and you do not qualify for the exclusion you will need to figure your income tax from the tax table. However, if you have spent a portion of your year in a foreign country, you can still receive a pro-rated Foreign Earned Income Exclusion based on the amount of time you were out of the country. See Form 2555 for details.
    Write the amount of income tax you owe, using the tax tables in the Form 1040 booklet, on line 40. If it is nothing, write "0."
  • Step 19: You might be able to take the Child Tax Credit (line 43) if you owe tax on line 40 and qualify. To see if you qualify fill out the worksheet in the 1040 booklet. Write the total lines of lines 41 thru 47 on line 48. Subtract line 48 from line 40 and write the total on line 49.
You might be able to take the Child Tax Credit! AG00318_.GIF (8494 bytes)
  • Step 20: On line 50 write the amount of Self-Employment tax from Section A – Short Schedule SE, line 5. If you are exempt from Social Security and have an approved Form 4361, write: "Exempt - Form 4361" on this line.
  • Step 21: Add lines 49 and 50 and write the total on line 56. This is your total tax.
  • Step 22: On line 57 write any income tax withheld as shown on your W-2. If your only W-2 is from Team Expansion, there will be no tax withheld.
  • Step 23: On line 58 write the total amount of Estimated Tax payments you made throughout 1998 (due in April, June, September and January '99).
  • Step 24: If you lived in the US for 6 months or more you might be able to benefit from taking the Earned Income Credit on line 59 (see instructions in the 1040 booklet and be careful to follow the instructions for clergy). If you lived outside of the US for 6 months or more you are not allowed to take this credit. Also, if you file Form 2555 (Foreign Earned Income Exclusion) you are not allowed to take the credit. If you do return from the field and plan to spend over 6 months in the USA and are hoping to take this credit - make sure you establish your residence in the USA by officially notifying the IRS of your change of address. You will need to use a special form for this procedure provided by the IRS.
  • Step 25: If you have 3 or more kids you can probably benefit from taking the Additional Child Tax Credit (see instructions in the 1040 booklet).
  • Step 26: Total lines 57, 58, 59a, and 60 and write on line 64.
  • Step 27: Subtract line 64 from line 56 to determine the amount of income tax you owe and write the amount on line 68. If you paid in too much will be entitled to a refund. That amount goes on line 66a. You can apply that amount to your first quarterly payment on line 67.

Note that those living outside of the US should send tax payments to a special PO box noted in the Form 1040 booklet.

Congratulations! You just finished filling out Form 1040.

Congratulations! You just finished filling out Form 1040. bd07657_.wmf (14686 bytes)

Part II - Estimated Tax

Steps for filling out Form 1040-ES (Estimated tax for the upcoming year).

This form is a worksheet to help you determine what your quarterly payments should be in order to pre-pay enough taxes to avoid penalties and interest. This form also comes with 4 payment vouchers you will send with your four quarterly payment checks. After you have done this the first year the IRS should send you a 1040-ES each January along with pre-printed payment vouchers.

On the worksheet, lines 1 - 10 deal with determining Income tax. Self-Employment tax begins on line 11.

  • Step 1: On a scrap sheet of paper estimate how much you think you will spend in the following Team Expansion account categories for the year (Jan 1 - Dec 31).
  • Line 100-Salary
  • Line 121- Investment Life Insur.
  • Line 130-Social Security Payments
  • Line 180-Contributions (Tithe)
  • Write this total on Line 1 of the 1998 Estimated Tax Worksheet (found in Form 1040-ES).
  • Step 2: Write in your Standard Deduction on line 2 then subtract from line 1.
  • Step 3: Multiply your exemptions and write on line 4 then subtract from line 3 and write the total on line 5. This is the amount of taxable income you expect to have subject to Income tax. If it is a negative number write "0" on line 5 and again on line 6. If it is greater than 0 then you use the Tax rate schedule on the bottom of the page to determine how much you expect to pay in Income tax in the upcoming year. Please refer to the discussion on Step 18 of Part I above on the Foreign Earned Income exclusion. If line 5 is greater than 0 and you qualify for this exclusion you can write 0 on line 5 and again on line 6.
  • Step 4: Write the amount of line 6 on line 10.
  • Step 5: We are now ready to determine Self-Employment tax. In the blank to the left of line 11 enter the estimate of self-employment earnings in the upcoming year. To do this add the amount on line 1 (Team Expansion account categories 100, 121, 130 and 180) plus what you expect to spend in Housing and Utilities in the upcoming year (Team Expansion account categories 150 and 160). Now multiply this total by .153 and write the amount on line 11 and again on line 13a.
  • Step 6: If you will qualify for the Earned Income Credit (see Step 23 in part I above) then write your estimated credit on line 13b.
  • Step 7: Subtract line 13b from 13a and write on 13c - this is your total estimated tax for the upcoming year.
  • Step 8: On line 14a multiply the amount on line 13c by .90 and write the amount on line 14c. The reason for Step 8 is this: the IRS requires that you pre-pay at least 90% of the tax you owe by the last quarterly payment date (January 15th). If you pay less than 90% you might be penalized.
  • Step 9: Divide line 14c by 4 - this amount is your minimum quarterly payment. Pay this amount, using the 4 quarterly payment vouchers that came with your Form 1040-ES. Note that those living outside of the US should send tax payments to a special PO box noted on Form 1040-ES.
  • Step 10: Divide line 13c by 12 - this is the amount you should set aside each month for your taxes.

We recommend that you show the amount in Step 10 going out each month on your Team Expansion report on line 130 (Social Security). This is considered personal money and can be set aside in your personal checking account. If you do that, you will not show the quarterly payments on your Report because you are showing it going out each month. Use this pool of money that collects throughout the year to pay your tax bills.

We hope this guidesheet helps you. Feel free to write or call if you have any questions about taxes. We'll do our best to answer them or refer you to someone who can.

Chris Bushnell
Team Expansion
3700 Hopewell Road
Louisville KY 40299-5002
(502) 297-0006
ChrisBushnell@XC.org		 busc99.gif (15868 bytes)

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