One of the most common questions I get from prospective senior missionaries is about the tax deductibility of expenses incurred while serving a mission. To answer this question, imagine 3 buckets of different expenses. Each bucket has different tax implications.

Mission-Related Expenses

The 3 buckets are:

1. Housing and Travel: This includes accommodation, basic internet, and travel expenses, both for reaching your mission location and local transportation. These payments are typically made directly to your ward’s mission fund.
2. Health Insurance: Maintaining adequate health coverage is essential. While you may retain your current insurance, including Medicare, most policies lack international coverage. The church provides a senior missionary insurance plan as an option if you serve internationally, paid directly to the insurer.
3. Daily Living Expenses: These encompass everyday costs like food, clothing, laundry, and personal items. This comes directly out of your personal funds.

Tax Implications

Each category has distinct tax implications:

1. Housing and Travel: Since this is paid directly to the church and is not refundable, it may be tax-deductible as it is considered a donation by the IRS. In order to deduct these costs, you must itemize your deductions.
2. Health Insurance: Premiums may be deductible if you itemize and your total qualified medical expenses exceed 7.5% of your Adjusted Gross Income (AGI). If these conditions are met, you can deduct the amount above the 7.5% AGI threshold.
3. Daily Living Expenses: These are not tax-deductible, as they are considered personal expenses that would be incurred regardless of mission service.

As you can see, depending if you itemize your deductions or take the standard deduction, and the amount of qualified medical expenses, can make a difference to how your tax bill shakes out. It also means that with some planning, you can maximize the deducibility of your service. I cover some of those ideas in this blog.

Alan B. Faerber CFP®, CRPC®