Could Your Church or Nonprofit Be Subject to Income Tax?
As the clergy, staff or board member of a church or charity, your priorities likely include philanthropic endeavors and providing aid to those in need. As such, your organization is granted a unique status in American society: the IRS generally exempts nonprofits such as yours from income tax.
To maintain your tax-exempt status the following guidelines must be considered:
- No individual in your organization may benefit from the funds generated;
- Your church or philanthropic group must not affiliate or involve itself in legislation or politics;
- Your activities must not serve the private interests of any individual or group;
- No unreasonable compensation can be paid to your employees, board members, clergy or any other representative of your nonprofit.
If your tax-exempt group engages in non-core-mission, income-producing activities, be careful the activities aren’t a substantial part of the organization’s identity.
In a recent ruling by the IRS, a church-led coffee shop was determined to be unqualified for the tax exemption. Regulators found the church coffee shop to be indistinguishable from a for-profit coffee house.
In determining if a church-led business retains its tax-exempt status, ask yourself, do you:
- Charge money for products?
- Pay your employees?
- Remain open during non-church hours?
If you answer, “Yes” to any of these questions, then the income-producing activity becomes an unrelated business and subject to taxes.
For more tax information on unrelated business income and other topics, see IRS Publication 1828, Tax Guide for Churches and Religious Organizations (https://www.irs.gov/pub/irs-pdf/p1828.pdf).
At Online Stewardship Accounting and Consulting Services, we maintain a special commitment for faith- and community-based groups.
We help you manage the business aspects of your nonprofit so you can focus on your core mission. Contact Lynn@OnlineStewardship.com or 904 398-4747.
