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5 Reasons Why a 501(c)(3) is a Good Idea for Churches

Tag Archives: 501(c)(3)

5 Reasons Why a 501(c)(3) is a Good Idea for Churches

Many churches view having a 501(c)(3) as being ‘worldly.’  After all, churches are tax exempt anyway, right? As a tax advisor. I’ve seen the complications that arise from the lack of having a 501(c)(3). Our firm recommends taking the steps needed to be an official tax-exempt organization. Here’s why:

  1. Your donors can have confidence that you’re meeting the requirements for a tax-exempt organization. You must meet the compliance regulations that oversee a 501(c)(3) to ensure integrity. Such regulations are a watchdog and provide transparency about your church’s
    financial standing.
  2. You are able to offer donors a confident tax deduction. Actually, donations to churches are already tax deductible. However the 501(c)(3) gives you the ability to offer tax-deductible receipts for all cash and non-cash donations. While not important to some contributors, the ability to deduct charitable contributions is still a viable tax strategy for many people.
  3. You receive the protection of limited liability for directors and officers for operations of the organization, assuming you have incorporated.
  4. You avoid a recently popular scam known as a ‘corporate sole.’ This is promoted as the ultimate way to detach yourself and your church from ‘the world,’ yet maintain a legal entity. However, the assets that are transferred to the corporate sole end up in someone else’s pocket.
  5. You qualify for nonprofit postal rates when mailing over 250 of the same mail piece.

In addition to accounting and consulting for churches, Salmon Sims Thomas specializes in accounting and consulting for nonprofit organizations. We’ll be happy to walk you through the steps you need if your church is not already a 501(c)(3). Or, talk with us if you have questions regarding your tax status.

Churches and tax exemption

By stated purpose, most churches are tax exempt. but there are significant benefits to churches who apply for a 501(c)(3). Read about how to qualify.

Should churches apply for tax exempt status?

Most churches, by nature of a stated mission for religious purposes, qualify for tax-exempt status. But without the official designation of a 501(c)(3), many of the benefits of tax-exemption are lost. We have seen that some churches want to consciously abstain from anything that connects them to a government entity. However, you are subject to IRS regulations whether or not you officially apply for tax-exemption. In addition, if someone makes a contribution to your church without 501(c)(3) status, then the burden of proof is on the taxpayer to show that your church operates in a manner compliant with tax-exempt practices.

Here are the general qualifications for 501(c)(3) status from the IRS:

  1. The organization must be organized and operated solely for exempt purposes, with earnings not going to a private individual or shareholder.
  2. The organization must not use a substantial amount of its activities in an attempt to influence legislation or campaign for political candidates.
  3. The organization must not be operated for private interests. If one person has substantial influence over the organization, they may be subject to a personal excise tax.

The IRS Web Site has a step-by-step explanation of what you need to do to apply for tax-exemption with a 501(c)(3) status.