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Nonprofit Tax Deductions: Do Churches Get a Break, Too?

Churches may be nonprofit organizations. They don’t have to pay taxes like a normal business. But what about tax breaks? Are there deductions or credits that churches can take advantage of to help them balance their books every winter and spring?

As you and your ministry team members prepare to run end-of-year giving campaigns and get your church’s finances in order for a new year, here are a few tax-related thoughts to keep in mind.

Requirements and Behaviors for Tax-Exempt Status

Let’s start with the obvious. If you meet the requirements to be considered a religious organization under 501(c)(3) regulations, you automatically receive charity status. According to the IRS’s 501(c)(3) Tax Guide for Churches & Religious Organizations (publication 1828), these “requirements” include:

  • Operating exclusively for religious or other charitable purposes.
  • Not benefiting private shareholders or individuals through earnings.
  • Avoiding influencing legislation or intervening in political campaigns.
  • Not violating laws or public policies.

If a church meets these requirements, they automatically qualify as tax-exempt. However, some organizations opt to put in the extra (substantial) legwork to get formal status, especially if they want to placate donors and show members that they do qualify.

Along with a formal recognition of being a 501(c)(3) tax entity, there are other ways churches can safeguard their tax-exempt status. For example, properly instituting checks and balances and managing payroll are great ways to keep a charitable organization running smoothly as far as tax and finance are concerned.

Tax Breaks for American Churches

Okay, so if a church does the right things and meets certain requirements, it can maintain its tax-exempt status. But what about additional tax breaks? Are there any further ways churches can benefit from the way they handle their taxes?

There are actually a few different ways. While we won’t go into detail with all of these, here is a quick list of some tax breaks every church administrator and financer should be aware of:

  • Churches don’t have to pay the FUTA (Federal Unemployment Tax Act) (see IRS publication 1828 page 22).
  • Churches don’t need to withhold income tax for ministers (again, see IRS publication 1828 page 22)
  • Churches are not required to pay FICA taxes, but SECA taxes are required unless the organization is exempted (see IRS publication 1828 page 23)

Each of these represents a potential source of savings for a church every tax season. However, it’s essential that you do your homework and ensure that you are staying honest and above board with every tax break you attempt to claim.

This is where a church-focused third-party accountant can make a big difference. An experienced and informed firm like Chaney & Associates can help you identify what you qualify for and help you process those tax breaks while they’re available. This is important, as many tax breaks are beneficial but temporary. One example is the ERTC tax credit.

Working With a Church-Focused Tax Partner

The complexities and nuance of church taxes are why many religious organizations opt to work with a certified and experienced third-party financial services provider. Sometimes, using a comprehensive tool like Tithe.ly is all that’s required — especially if you have a competent staff member who understands accounting.

If your financial knowledge is limited, a qualified accountant or accounting firm can be a better choice. They can help with nuanced understanding and investment strategy and, in the area of taxes, can provide updated financial consulting rooted in their institutional knowledge and experience.The team at Chaney & Associates specializes in providing complete accounting services exclusively for churches. In fact, our motto is “We only work with Churches.”

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