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.

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How Your Accountant Can Help You Get Tax Exempt Status as a Non-Profit

Tax Exempt Profit Organization CPA Accountant

Tax Exempt Status for Non-Profits

Many not-for-profit companies dream of the day when they can get tax exempt status. Receiving tax exempt status usually requires more effort than one would think, however. To receive this status, non-profits can use all the assistance they can get.

Here are several ways that your accountant can assist you in your quest to reach exempt status:

Develop a Budget & Then Determine How You’ll Store Your Records

Non-profit organizations often find themselves in how water simply because they don’t have a budget. Or, they find themselves in trouble because they don’t know how to accurately keep records. Your accountant can help you with this by providing you with the tools necessary to be able to ensure that you are properly documenting all of your finances, expenses, gains and losses.

Help You Hire a CPA Who Specializes in Non-Profit Organizations

Your accountant may know how to help your business succeed financially, but only an accountant who has specialized in non-profits will truly be able to help you when you seek to receive your tax exempt status. He or she will know exactly what to look for within your business, and best of all he or she will also know what documents are needed in order to help you properly make your case.

Help You File Your Application

Once you have all of your application materials together, your accountant can help you file your application. While you can easily do it without your accountant’s help, it may be helpful to receive that additional assistance to ensure you are not looking over anything.

What other ways have you found that your accountant can help you when you attempt to get your tax exempt status? Leave your comments below.

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5 Deductions You Should Know for Your Nonprofit

Tax Deductions Nonprofits Sign

Taxes and Nonprofits

Every nonprofit organizer knows that tax deductions are a huge boon. While larger, national nonprofits may have the fundraising game locked up, smaller nonprofits often struggle to generate generous charitable contributions. That being said, claiming every eligible deduction can be critical for the success of an organization. Here are a few that you don’t want to overlook.

Employee compensation

Yep, nonprofits can deduct the wages and salaries they pay to their employees. Such deductions include compensation paid to organization officials and employees, contributions to deferred compensation plans, and employee benefit plans.

Building operating costs

This does not include the purchase of a brand new building, but if your current office or facility requires repairs you can claim a deduction. Regular maintenance and upkeep can also be claimed as deductions.

Essential operating costs

Beyond standard business deductions such as utilities, internet, phone, and so on, you can deduct any major purchases that are essential to the operation of your organization. This includes vehicles, hardware and tools, computers, even software for said computers. If you’re planning to pick computers, just make sure that they’re being used primarily for work: the IRS will want you to demonstrate that the computers are used for at least 50% work. Also, you’re only able to deduct the percentage of cost equal to how much the computer will be used for work. Example: if the computer will be used 90% of the time for work, you can only deduct 90% of the total cost from your tax liability.

Losses

A nonprofit can report losses on form 990-T. Such reportable losses include both capital and net losses. However a nonprofit may only include losses incurred while working to generate profit through business or trade activities, not any losses related to nonprofit activities.

BONUS TIP: Your volunteers can deduct free work for their own taxes. While this is not directly applicable to nonprofit officers per se, this fact itself could be used to solicit volunteers for your organization.

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  • 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.