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CGCPA
CGCPA, CPA
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My son has just started a ministry. He will not be getting

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My son has just started a ministry. He will not be getting paid for the ministry (at least until the ministry is actually making money) but will be taking in donations and paying expenses from the donations for rent, etc. He plans to open a bank account with the donation/offering money so that all funds can be accounted for -- of course, the account will be in the name of the ministry. I know that he will need to get an EIN. Does he need to incorporate? Help!
Submitted: 3 years ago.
Category: Tax
Expert:  CGCPA replied 3 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

 

His ministry need not be incorporated but to be recognized as a charitable organization/church it should be registered with the IRS and he should apply for exempt organization recognition. Without that donations are not tax deductible for contributors and it will be considered a business subject to all the taxes that apply to a business.

Customer: replied 3 years ago.
If he registers it as a charitable organization (because it will not be a church - although a church might grow from it), if the ministry grows to the point that he could be paid as speaker, is that possible. Right now, it is a small group of supporters that will be giving to support the ministry and he will not be paid as speaker (except to reimburse for expenses, if necessary) but who knows what the future holds so we just weren't sure how to handle the money and certainly want to be able to account for everything!
Expert:  CGCPA replied 3 years ago.

You should consider this as a full grown entity and plan accordingly. That will enable you to look forward and not get any negative surprises.

 

If you envision it growing as a church then register it as such and seek IRS recognition as such. If it is to be a business all receipts will be taxable to your son but not all expenses will be able to be used as offsets (deductions) against those receipts. If he is to be paid personally as a speaker those payments will be taxable to him. He will be allowed to deduct expenses to travel to the speaking assignments but not anything beyond those costs. His rent (place to live) and personal food costs will not be deductible. That is why I recommend doing it all the way by the book even at this early stage.

 

Obtaining IRS recognition as a church is difficult but not impossible. It happens regularly. The forms to be submitted must clearly show that he is not doing this for personal gain but has devoted his efforts to a clearly defined purpose. I do recommend that you seek competent professional assistance with the paperwork so that it gets accepted with minimal time delays. Please remember that, until the IRS recognition is granted, contributors will not be able to claim charity status for their contributions on their tax returns and your son will need to declare these contributions as taxable income. To maximize the use of the contributions in his ministry you need to do this the right way by the law. Otherwise, taxes will reduce their utilization.

Customer: replied 3 years ago.

 

I understand what you are saying but am concerned and a little confused as to what happens if a church doesn't actually form but my son is asked to speak at conferences, revivals, etc. because at this point we just don't know what to expect. Does the IRS make distinguishments between charitable organizations and churches?

Expert:  CGCPA replied 3 years ago.
Yes, the IRS does have a number of charitable organization sections. Churches are just one of them. If your son does not seek charitable organization recognition all his revenues from outside sources will be considered taxable income to him and he will not be able to deduct all his expenses just those directly related to his work. Rent is a major expense that will not be allowed as a deduction if it is for his residence. If you also wish to protect the deductibility of contributions for those helping him in his work some form of charitable organization recognition will be required.
Customer: replied 3 years ago.

Obviously I am not familiar with the types of charitable organization sections of the IRS but I definitely understand that my son needs to seek charitable organization recognition so if not a church, what other charitable organization should he seeking?

 

Expert:  CGCPA replied 3 years ago.

You can consider social welfare organization as well. The other types do not apply to your son's situation as you have described it.

 

Customer: replied 3 years ago.

Obviously there isn't a cut and dry answer because it is not a social welfare organization any more than it is a church.

 

Expert:  CGCPA replied 3 years ago.

It would seem that you need local professional assistance at this point. The key is to do it right from the beginning and avoid the problems that can come later from doing otherwise. You may wish to gain some knowledge before seeing someone for assistance so that you go in prepared with all the questions. You can review some of this at www.irs.gov or simply do a web search on charitable organizations.

 

Please feel free to ask if you need additional help.

CGCPA, CPA
Category: Tax
Satisfied Customers: 3742
Experience: over 40 years experience in tax matters
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