501(c)(3) designation for your church does many things. It can encourage people who might not otherwise give to do just that because of the tax deduction. While I believe the 501(c)(3) designation is good for churches, it can be a double-edged sword. There are certain requirements that come with your nonprofit determination, and the first is that you need to keep records.
A quick note – recently there was a case involving whether or not churches had to submit their giving on a Form 990 (the nonprofit tax return forms). While the court held that they do not, it is still encouraged that all churches keep track of their giving, as this situation could change quickly. While it “may” not be required at the time of this blog post and having the information and deciding not to complete your Form 990 may be your choice, re-creating the information later would be nearly impossible, not to mention that your parishioners may need the information, as we will see below.
One of the things you need to do is keep records of all giving that your church receives. Anonymous cash gifts do not need to be attributed to any one person but do need to be counted and separated on your giving totals. The remaining gifts by check, electronic giving, or even cash when the giver is known (i.e. when an envelope is used) need to be credited to that giver, and yearly totals need to be accrued. There are many software programs that can help you with this task.
Here are just a few software programs to check out. QuickBooks, as a general accounting software program, is one of the most commonly used. There are also church management software programs such as Servant Keeper and Church Office Online that can help keep each members giving accounted for. They will also generate an end of year giving statement, important to your members because it is what they use to report their giving on their taxes.
Your church members and others who gave gifts need to receive this statement by the end of January each year to be able to use this on their past year’s taxes. One point of planning is to make sure you are keeping up with the giving electronically so it can be generated in a relatively short period of time. The timeframe to distribute giving statements out to your members is short and can sneak up on you at the end of the year. While you may not need to file the Form 990 as a church, you should know it exists. If churches are required to file Form 990 again, it can be one of the pitfalls you need to avoid to keep your 501(c)(3) in good standing. Each year the informational report is due, and if you do not file it for three years, it will invalidate your 501(c)(3). This is why it is a good idea to file the report, and there is not going to be any tax owed.
Three types of Form 990 filings churches should be aware of:
- Form 990N: This is an e-postcard that can be filed when your 501(c)(3) has less than $50,000.00 given in your physical year.
- Form 990 EZ: This is an abbreviated filing that needs to be completed when your church receives less than $200,000.00 in a physical year AND when you have less than $500,000.00 in assets.
- Form 990: This is the full filing, and it must be completed when you have more than $200,000.00 given or MORE than $500,000.00 in assets.
Knowing the 501(c)(3) filing requirements is important. While your church may not have to file these right now, it is good practice to keep all the records as if you had to file the reports because there is no guarantee on when you will need to start.