There are a lot of wonderful people in our churches wanting to help people in need. If those people are able to also cut their tax bill, they’d be able to help even more. I think that’s the heart behind 99% of all donors wanting to funnel a gift through the church to help an individual. The problem is, if you don’t understand the tax rules, that 1% will eventually come out of the woodwork to take advantage.
In the video I quickly go over the most common situations a church will face. These include:
- The Benevolence Fund: This goes by a variety of names, but it’s that fund that most churches maintain to help people out in need (groceries, utilities, rent, bus fare, etc.)
- Mission Trips: Churches often raise money to pay for short-term mission trips.
- Missionaries: Many churches have personal relationships with missionaries that they are committed to financially supporting…usually through a special offering.
- Special Appeals: When there is a tragedy in the church family or the community, the church is usually ready to help raise money to meet the need.
- Scholarship Fund: This is different than an endowment. It is a special fund that people give to and the money is distributed to students.
The key for a gift to be considered tax deductible is for the donor to give up control. If you get approached by someone who wants to funnel a gift through the church, remind them of the policy that they are making the gift to the church, and the board will take their recommendation into consideration. (By the way, your church actually needs a policy.) If they don’t like that, apologize because you won’t be able to accept their gift.
- Hammar’s Church and Clergy Tax Guide: https://store.churchlawandtax.com/2021-church-clergy-tax-guide-book/
- ECFA’s Guidance on Earmarked Gifts: https://www.ecfa.org/Content/ART-Running-Gifts-Through-the-Ministry-NP
- Brotherhood Mutual’s Guidance: https://www.brotherhoodmutual.com/legalassist/legal-q-a/finance-and-tax/q-what-should-ministry-leaders-know-about-donations-that-are-directed-by-the-donor-to-go-to-a-specific-individual-or-program/