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  • Writer's pictureMichelle R Brown

Navigating the IRS Maze: Building Strong Financial Foundations for Your Church

Are you a church leader feeling overwhelmed by financial compliance? Welcome to Part 2 of our series on Navigating the IRS Maze: Tips for Church Financial Compliance. From maintaining accurate records to staying up-to-date with IRS filings, we've got you covered. Get ready to streamline your financial processes and gain peace of mind. I’m so happy to have you join me today!


First, here is today’s episode quote by Craig Groeschel. In his fabulous latest book, “Think Ahead,” Craig says “If you want to become more consistent, define your why. Go deep. Pray. Look within. Tap into your passion. Start with why.”


Now let’s continue from Part 1 with another critical aspect of compliance, which is maintaining accurate records and documentation. From contribution statements to expense receipts, keeping thorough records is essential for both compliance and accountability. Additionally, staying up-to-date with IRS filings, such as your Quarterly Form 941 payroll reports, along with state and local payroll reporting is crucial to maintaining tax-exempt status.


You are also likely required to file an annual report with your State. Additionally, if you have unrelated business income you will need to file an annual Form 990-T with the IRS.


Maintaining accurate records and documentation is vital for ensuring compliance and accountability in managing church finances. Let's delve deeper into this critical aspect.


Thorough Record-Keeping:

Accurate records and documentation serve as the backbone of financial management for churches. This includes maintaining detailed records of all financial transactions, such as contributions received from members, expenses incurred for ministry activities, payroll records for staff, and any other financial activities. Use what you gotta use to get the job done. But make it consistent and easy for others to understand.


Contribution Statements and Expense Receipts:

Keeping thorough records of contributions is not only a legal requirement but also essential for fostering trust and transparency within the congregation. Providing contribution statements to donors not only acknowledges their generosity but also helps them with their tax deductions. As you know, if you’ve been with me the past year, I recommend doing a quarterly, or at a minimum a bi-annual, contribution statement.


This statement serves three purposes:

1. It catches any errors in record keeping.

2. It notifies the donors if any intended donations have been missed.

3. It helps donors “buy in” to the ministries their contributions are helping to support.


Please note that the IRS does have specific requirements for contribution tracking and you should include the following:

  • Name of individual giving

  • Check # if applicable

  • Date of contribution

  • Amount of the contribution

  • Statement that goods or services, if any, that the organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.


Similarly, documenting all expenses with receipts ensures transparency and accountability in how church funds are utilized. ALL credit card receipts should be turned in on a monthly basis and reconciled with the credit card statements. Any requests for reimbursements absolutely should include a receipt. No receipt, no reimbursement given. And, if the credit card receipts are not turned in….. The amount of the charge is to be added into the staff member’s income or taken out of the employee's paycheck. Seriously! Put it in your credit card policy and have all employees sign upon hiring and/or being issued a church credit card for use. This practice allows church leaders to track expenditures, verify budget allocations, and demonstrate fiscal responsibility to the church members.


Staying Up-to-Date with IRS Filings:

Maintaining tax-exempt status requires churches to stay current with IRS filings, including Quarterly Form 941 payroll reports and state and local payroll reporting. Timely and accurate submission of these reports ensures compliance with tax laws and regulations governing employment taxes.


Additionally, churches are typically required to file an annual report with their state regulatory agency, providing information about their activities and financial status. Failure to file these reports could result in penalties or jeopardize the church's legal standing.


For churches engaging in unrelated business activities, such as debt-financed rental income, filing an annual Form 990-T is necessary to report and pay taxes on unrelated business income. This is a whole other series for the future. I always say, “When it doubt – ask!” It's crucial for churches to understand their tax obligations and fulfill them promptly to maintain compliance.


Be a Proactive Organization:

Staying proactive and organized is key to avoiding headaches and potential compliance issues down the road. Establishing systems for record-keeping, implementing regular financial reviews, and staying informed about regulatory changes can help your church stay ahead of potential challenges. To put it simply… staying proactive and organized can save a whole lot of headaches down the road.


So let’s summarize… maintaining accurate records and documentation is foundational to ensuring compliance and accountability in managing church finances. From thorough record-keeping of contributions and expenses to staying up-to-date with IRS filings and state regulations, churches must adhere to legal requirements and fulfill their tax obligations promptly. By staying proactive and organized, church leaders can navigate the complexities of financial management with confidence, promoting transparency, and fulfilling their mission with integrity and accountability.


So until next time my friend, let’s all strive to make an impact and not just an income. Take care and remember to always look your best, do your best and be your best.


To hear the podcast episode for this topic check out the Church Finance and Minister Tax podcast on your favorite podcast app or here.

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