Why are Churches Tax Free?

Tax Free Church Deductions Exempt Donate

Tax-Free Church

In the United States, for many years churches have been exempt from income taxes. The tax exempt status of churches is part of the reason why we receive deductions when we donate to churches. This is because churches and religious organizations generally operate like charities because they provide to those who are in need and also to society in general. Many also believe that churches are tax exempt because of the constitutional provision which requires that we separate church and state. Separating church and state is the government’s way of keeping its hands off of religious organizations.

While most churches are naturally tax exempt, they must follow the criteria listed below in order to be able to qualify 100 % for exemption.

Criteria:

  • Distinct legal existence;
  • Recognized creed and form of worship;
  • Definite and distinct ecclesiastical government;
  • Formal code of doctrine and discipline;
  • Distinct religious history;
  • Membership not associated with any other church or denomination;
  • Organization of ordained ministers;
  • Ordained ministers selected after completing prescribed study;
  • Literature of its own;
  • Established places of worship;
  • Regular congregations;
  • Regular religious services;
  • Sunday schools for religious instruction of the young; and
  • Schools for preparing its members.

Still not sure if your church qualifies for tax exempt status? Contact one of the CPAs in our office or simply leave your questions in the comment section below. We are available to help you in any manner we can to ensure you are getting the tax credits and deductions you need.

Image credit: Gary Ullah

Should You Set Up a Charitable Trust Now?

Everyone knows that contributing to a charity is a great way to reduce your tax bill. It’s at least partly why the wealthy spend so much time and effort contributing to good causes. Since that is the case, have you ever considered setting up your own charitable trust?TaxPapers

We are going to consider whether this may be the right option for you.

Are You Wealthy Enough?

Generally, unless you have significant assets and a six-figure income it’s not worth the time or the effort. You don’t pay enough tax to justify all the time and energy. You can reap the same benefits simply by donating to an IRS-recognized charity. You can donate at least 20% of your annual income to reduce your tax bill.

Audit Risk

Understand that the IRS knows why charitable trusts are set up. You will be considered a risk for tax fraud because it’s such a common breeding ground for dishonesty. You have to accept that you will have a higher risk of being audited.

Is that something you are comfortable with?

Protecting Your Assets

A trust, when used correctly, can be a fantastic vehicle for protecting your assets from the IRS and other family members. Nevertheless, we would recommend having a professional set it up on your behalf.

It will require an investment of time and money on your part, but such an investment is worthwhile given that you will be certain your trust complies with all the necessary rules and regulations. The penalties of using a trust incorrectly can be tough, so you have to get it right the first time.

Image credit: Calgary Reviews

  • Huddleston Tax Accountants / Huddleston Tax CPAs – Redmond, WA
    Certified Public Accountants Focused on Small Business
    8201 164th Ave NE Suite 200 / Redmond WA 98052
    425-483-6600

    Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching,
    QuickBooks consulting, bookkeeping, payroll, offer in compromise debt relief, and business valuation services for small business.

    We serve Tukwila, Auburn, Federal Way. We have a few meeting locations. If you are looking for a Redmond CPA firm, get in touch with us! Call to meet John C. Huddleston, J.D., LL.M., CPA, Lance Hulbert, CPA, Grace Lee-Choi, CPA, Jennifer Zhou, CPA, or Jessica Chisholm, CPA. Member WSCPA.