Yes. I mean, I don’t know exactly, but still, yes, probably.
Depending, of course, on what benefits you see from paying for a mission.[fn1] But, from a tax perspective, it makes way more sense for you to pay.
My answer is subject to all sorts of caveats, of course. I’m assuming, among other things, that you’re a U.S. taxpayer,[fn2] that you are in favor of your child’s serving a mission, and that you are in at least as good a position as your child to save and pay for your child’s mission.
Why should you pay rather than your child? Because the amount you pay to support missionaries (whether your own child or payments to the General Missionary Fund) are tax-deductible.
So? you may ask. Can’t my child take a tax deduction?
Sure. But, unless you child makes more money than you, and continues to earn that money during his or her mission, the deduction is more valuable than you.
Think of it this way: assume your daughter earns $7,250.[fn3] Meanwhile, you and your spouse collectively earn $52,762 during the year.[fn4] That puts your daughter in the 10% tax bracket, and you (assuming you file jointly) in the 15% bracket.
With missions costing $4,800/year, your daughter could reduce her tax bill by $480. You, on the other hand, would reduce your tax bill by $720.
Which is to say, for tax purposes,[fn5] you should pay for your child’s mission.
[fn1] Note that I’m talking solely about paying for a mission—saving for a mission is something else entirely, and, imho, you should have your child save for a mission. What happens to that money after his or her mission is up to you guys.
[fn2] I’m sorry to be U.S.-centric here. I assume the same answer applies in at least some other countries, but I’m not a comparative tax guy, so I can’t say for sure.
[fn3] That’s working 20 hours a week for 50 weeks of the year at the federal minimum wage of $7.25/hour.
[fn4] That is, the median household income in the U.S. in 2007-2011.
[fn5] People tell me there are purposes beyond tax purposes, but I’m not entirely sure I believe them.
I’m curious, though, how many average LDS actually end up paying much income tax–if they make 54K, and pay tithing and fast offerings, and have a decent-sized mortgage interest deduction, and cash in on the child tax credit several times over, that 15% gets whittled down pretty fast . . .
Do joint filers at $54,000 typically itemize deductions? I don’t know, just asking.
In theory my deal with my parents was that I was supposed to reimburse them for my mission costs, but that never happened, as post-mish I jumped right back into school and I was paying the full freight for that, so they forgave the obligation.
I just read this out loud to my sister, who is debating what to do: pay for her entire mission or have my parents pay half (who really would like to help her out likely for reasons other than that footnote 5, which made me laugh) and now she feels better about it.
In 2010, 44% of joint filers with incomes between 50-75K itemized their deductions. However, if you were to do that calculation conditioned on the family being full tithepayers, the itemizing percentage would go way up, even if they are renters (based on the following calculation):
Missionary fund = 12*$400 = $4,800
Tithing = 10% * $54,000 = $5,400
State & local income taxes = $2,500 (the average for itemizers between $50-55K)
Minimum total of itemized deductions = $4,800+$5,400+$2,500 = $12,700
Standard deduction for joint filers in 2010 = $11,400
My son comes home in two weeks. He saved enough to pay for his mission and thinks he paid for it. But, we’ve been paying and he will have that money waiting for him when he returns. We pay people to do our taxes and I just sign at the all of the places with arrow sticky notes with pointing hither and yon. I was unaware we got an added tax benefit from paying for his mission. To this point I thought I had not seen any financial benefit to having a kid on a mission, not that I expected to receive even an extra penny b/c (1) he is serving or (2) we are paying.
Since you’re dispensing valuable and free tax advice, are there any tax issues from paying for medical procedures during a mission? We’ve paid several doctor bills for a variety of ailments related to the young adult invincibility syndrome otherwise known as stupidity or lack of judgment: strained knees, injured back, shoulder, vision checkups etc. Should I note those expenses for my taxes?
As to those other alleged blessings, I have not seen many of them either. Our son’s absence and incommunicado status has left a big hole in our family for two years. Since a mission is obviously all about the parents and family that is mostly cut out of the missionary’s life, its positive benefits are a bit illusory. For my son, however, it has been terrific for all of the usual reasons. (I admit I am being petulant and selfish.) Nobody warned me about the void when a missionary kid leaves and is largely incommunicado. And I write this as an RM myself. Tax benefits from paying do little to fill the void. lol.
Thanks, Last Lemming, for the numbers. I wasn’t thinking carefully about numbers (late night canning peaches plus toddler on my lap, helping me type).
EmJen, always glad to be of practical assistance!
rb, probably no tax benefit to the medical expenses; if they’re really substantial, though, it doesn’t hurt to keep the receipts and ask your tax preparer.
I know this is what you mean, but it’s probably worth a clarification that “paying for your child’s mission” means contributing to the Ward or Branch that is actually responsible for the cost of the mission. If the payments were direct to the child (as in the old days when I served) there would be questions about the tax deduction. (I do not mean to reopen an old discussion, so intentionally leave it at “questions”.)
“your daughter could reduce her tax bill by $480”
Wouldn’t she have to itemize her deductions to do that? Based on a quick sample I just ran using Turbo Tax 2012, if she were being claimed by her parents, she would be filing a form 1040EZ and owe a maximum of $131 federal income tax on an income of $7,250. If she were claiming herself, she would be filing a 1040A and owe no tax but would receive something called an American opportunity credit of $180. (I assumed in this calculation that the daughter was a full-time student and was receiving a tuition scholarship.)
Then, if she went on a mission, she would not be working and would have no income, so she should receive no tax benefit.
On the general topic of the post, I agree entirely that a child should try to save the entire cost of a mission, and that the parents should then pay for the mission if they are able, for the tax and other potential real or amorphous benefits.
For one thing, it’s much cheaper to the parents than paying for 18 or 24 months of college, and their child is out gaining important life skills. Then when the child returns from a mission, having that sum unexpectedly available will help defray the cost of getting back into college: the replacement wardrobe, the rent deposit, transportation, the initial costs of rent, food, and utilities until a new job is found, wedding expenses if applicable, etc. It will help lessen the chances of the returned missionary not making a smooth transition to post-mission life.
However, an important caveat to this whole situation is the problem of employment. A serious issue that faces my family and many families we know is that there are very few part-time jobs available for teenagers. Many teenagers bum around much of the summer or participate on swim team and attend various camps not because they don’t want to work, but because part-time summer jobs are so scarce. There is a much greater supply of part-time workers than demand for their services. So, having a child pay for a mission is not even a choice in many cases.
Chris, absolutely right. I was trying to elide that point, because I wasn’t sure the exact mechanics (is it the General Missionary Fund? or is it just the ward missionary fund?).
Amy, that’s right, both on the fact that your daughter probably isn’t itemizing (the numbers are illustrative at best) and the issue of ability to pay (both for kids and parents).
I can speak to a lot of these points; son 3 is out now, we’ve had sons on missions for 4 1/2 of the last 6 years.
Yes, you pay to the ward mission fund. Tax-wise, it is a trade-off: you don’t get the dependent deduction, you do get the donation deduction. Depending on how much you (as opposed to ward members, etc.) put in to actually fund your child’s mission, it can be an additional benefit.
Let me say this, while I’m here… our kids are much cheaper to keep on missions than any other activity at this age. No more lessons, no tuition/housing/books to contribute to. You budget $400 and you know that will be the cost. Except if they’re out of the country somewhere without a Wal-mart… then the cost of international shipping comes into play (been there done that for opposite side of world), especially when the standard clothing available in the mission area doesn’t come large enough to fit a size 12 shoe and 6’2″ man. Which reminds me of another non-deductible issue: Parents should probably plan on something between $1.5 to 2.5K for outfitting their offspring, including wisdom teeth removal and all the physical check-ups and shots (get those Hep A shots done during Junior/Senior year of high school), as well as a decent quality bicycle. The medical stuff may be deductible (ours came out of the HSA account, but dental wasn’t within the deductible, so it was still a massive out-of-pocket cost).
Julie, as for taxes, since our marginal rate is 25%, yes, setting it up to pay the church directly, thus keeping some form of deduction is a really big deal. (As it is, 45 cents of every dollar I earn — because mine is the add-on to my engineer husband’s salary, and I’m self-employed — goes away in taxes, and that’s before tithing.)
And yes, paying for is different from saving for. We have been generally following the Elder Holland Plan: https://www.lds.org/general-conference/2010/10/because-of-your-faith?lang=eng.
Good point re: pre-mission expenses. Are those tax deductible as well? Can they be considered tantamount to a couple of months of the mission or deductible as mission related expenses? If the kid has to be on the mission, then wait until he or she gets to the MTC, then load him or her up with all the mission accoutrements and write them off. Our son was close to the $2,500.00 pre-mission expenses but that included wisdom teeth. It would be nice to recoup some of that courtesy of Uncle Sam.
rb, I’m afraid not. Basically, you can deduct what you contribute to the missionary fund, but not what you contribute directly to your missionary child. I discussed the reasons and history of this here.
and of course, the way to pay for the mission is with long term (longer than 1 year) appreciated stock or mutual fund shares. the church makes this relatively easy to do, but it’s still a pita; one of the most efficient ways is to use a donor advised fund. several companies offer them.
re: footnote 5. While my daughter was on her mission my annual bonuses were each in excess of what it cost to send her out. Before and after that they were nothing to write home about.
Footnote 5 is great!
However, I think Milton Friedman’s contributions are relevant:
The pre-mission expenses are a hugely important piece of this. We know a lot of young people who haven’t been able to serve because they needed dental work done or whatever and couldn’t afford it. If you would be willing to help with that kind of expense, let your bishop know, because they can’t use church funds and cannot actively solicit.
I was very skeptical when Ronald Reagan said that he gave a lot to charity that was not tax deductible. But in fact, that kind of contribution is also not tax deductible, as well as sending youth to EFY.