Setting up your business as a church

Накануне Старого Нового Года #2 / Old New Year's Eve #2Can you set up your business as a church?

Before I proceed, however, please reread the fine-print at the bottom of every blog post. And let me summarize what it says: I’m not telling you to break any laws. I’m not teaching you to take advantage of any tax loopholes, or trying to help you avoid paying penalties or your fair share of taxes. Furthermore, I’m just a blogger. You shouldn’t blindly follow advice you read from some blogger on the internet. Before you do anything, research carefully and consult with your own tax professional who knows you and is familiar with your business. 

One more thing – when I refer to a “church,” I am referring to a house of worship. It could be a church, a synagogue, a mosque, etc.

Now let’s have fun.

Many “businesses” serve a Higher Purpose. For example, suppose are part of a group of people who regularly worship together. That’s a church. But suppose that you sell religious books or sponsor retreats.  You run a day care center or school affiliated with a church. If your business has a spiritual element to it, and you are not overly concerned with earning profits from it, then you just might happen to have what it takes to be a church.

There are tremendous tax advantages to being a church. You don’t have to pay any federal, state or local income taxes.* You may also qualify for certain sales tax and property benefits. You can solicit tax-deductible contributions. Legally, churches are very easy to set up. Furthermore, if you have employees who happen to be clergy, then they may qualify for compensation through parsonage.

The biggest disadvantage to being a church is that it belongs to its congregation (not you), and is under the control of its board (not you). There are no shareholders. No dividends. No capital gains from selling your share of the church. If it makes sense to do so, you can establish your business as a church, and you can serve it, and you can even draw a reasonable salary from it, but you can’t own it.

Churches do not need any kind of advance permission from the IRS to become tax exempt. However, its a good idea to file for a “tax exemption letter” from the IRS, certifying that you are  tax exempt, i.e., a real church and not some tax plot that you found on the internet. Here are some simple IRS instructions about churches.

If your business has an altruistic purpose, but is not a house of worship per se, it may still qualify as a not-for-profit organization. Like a church, its income would be tax exempt,* and it can accept tax-deductible contributions. Both Wikipedia and Mozilla are run by not-for-profit organizations. Remember: if you choose to set up your business as a not-for-profit organization, you pretty much forsake any share of profits or ownership in it.

*I can’t possibly say “don’t have to pay taxes” or “tax exempt” without an asterisk. Beware because there are always exceptions.

[Image: Old New Year’s Eve #2 by AlphaTangoBravo / Adam Baker, on Flickr]

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

2 Responses to “Setting up your business as a church”

  1. Please let me know if you’re looking for a writer for your blog. You have some really good posts and I feel I would be a good asset. If you ever want to take some of the load off, I’d really
    like to write some articles for your blog in exchange for a link back to mine.
    Please shoot me an e-mail if interested. Thank

    • Thanks for the offer. Here’s my policy: I welcome well-written guest posts that are 300-600 words long with valuable information about accounting, taxes, and operations for entrepreneurs. Links must be relevant and noncommercial.


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