How can a church legally pay less in taxes?

Churches, which are religious groups that don't make money, get a lot of tax breaks. But to get the most out of legal tax breaks while staying inside the law, you need to know the rules, have a plan, and follow the rules. Churches often miss out on tax breaks that may save them a lot of money, or they put themselves at risk by not keeping good records and not following the rules.

Understanding the Tax-Exempt Status and Limits of Churches

If a church meets certain requirements, it immediately qualifies for tax-exempt status under IRS Section 501(c)(3). This means that it doesn't have to pay federal income tax on money it makes that is relevant to its religious mission. But being tax-exempt doesn't mean you don't have to pay any taxes or file any reports.

Ways that churches can save money on taxes

How to Use Housing Allowances Correctly:

Designated housing allowances can keep a lot of money from being taxed.

Accountable Reimbursement Plans:

Reimbursements for ministry expenses that aren't taxed.

Maximizing Deductions and Credits:

Payroll, benefits, operational expenditures, and philanthropic activities.

Managing Unrelated Business Income:

Separate and report to lower UBIT.

Tax and Strategic Pay Planning

Structures for salaries, housing allowances, and benefits that are fair. Audits of executive pay to make sure it is fair and legal. Reviews of pay every year.

Tax Savings through Governance and Documentation

Formal policies and decisions made by the board. Keeping detailed records and making contracts. Clear rules for managing money.

How Tier 2: THE FOUNDATION PLUS PLAN Helps You Save on Taxes

Full legal audits and reports. Reports on tax savings for pastors. Access to an elite network of experts. Services for protecting trademarks.

Examples that work

• Adoption of a formal housing allowance.
• Implementation of the accountable plan.
• Separating income from unrelated businesses.

Disclaimer of Legal Responsibility

This blog article is only for information and should not be used as legal advice. Get personalized tax advice from a professional lawyer.

Links Inside

• Church Legal Audit and Compliance Report
• Foundation Plus Plan Details
• Pastoral Compensation Legal Strategy

Links to Other Sites

• IRS Tax Information for Charities: https://www.irs.gov/charities-non-profits
• ECFA Tax and Compliance Resources: https://www.ecfa.org/Content/Tax-Compliance
• Nonprofit Quarterly Tax Articles: https://nonprofitquarterly.org/tag/taxes/