Church Finances 101
6 Keys to Managing Church Finances
Appropriately managing your church finances is an essential part of your ministry. You are accountable not only to the church membership and the IRS but also to God.
As a church leader, we will provide the top six topics related to church finances that you need to address:
- Good record keeping of income and expenses: Without a good record-keeping system, neither you nor your church members can have confidence in the church’s financial health or integrity.
- Contributor records: Keeping an accurate accounting of contributor records serves two major purposes. It is a key component of your internal controls to ensure the financial integrity of the church’s records. And, without a proper receipt, your contributors cannot claim a tax deduction for any contribution of $250 or more.
- Compliance with payroll tax laws: There are several payroll tax laws that are unique to churches. Make sure you understand how to report ministerial salaries and housing allowances. Make sure you are filing your federal and state payroll tax returns on time.
- Compliance with informational reporting requirements: If you pay a contractor who provides services (including a traveling minister) more than $600 during the year, you may need to issue them a 1099. Same thing goes for landlords.
- Employee expense reimbursements: Employees (including ministers) should be reimbursed for their business expenses (books, mileage, conferences, travel, etc…). If you provide an expense “allowance” to an employee which is not paid pursuant to an accountable reimbursement plan, the expense allowance is taxable income to the employee.
- Federal income tax: Churches (who clearly operate as a church) are automatically exempt under 501(c)(3) and are not required to file for exemption using a Form 1023. As long as the church does not engage in any business activities which are unrelated to their exempt purposes (religion), the church is not required to file an annual Form 990. Click here to learn more about tax information for churches on the IRS website.
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