Are We Practicing Safe Fundraising?

Written by Kristen Calicott on Oct 29, 2020 in IRS Compliance

Fundraising is an essential part of a 501(c)3 organization. Churches frequently rely on tithes and offerings from members, and the fact that they can initiate fundraisers often seems daunting. However, practicing safe fundraising can help generate income in low seasons. In addition to standard operating costs, there are times when additional ministry and church funding is needed to expand reach within the community. Many leaders can experience stress, wondering where these funds are going to come from.

Let's talk about common problems ministries and churches face regarding fundraising and how to handle this area safely and effectively.

Create multiple avenues for your church to receive donations.

Perhaps the most common way for churches to receive donations is through receiving tithes and offerings during a worship service. This may be done through the passing of a collection plate or by having a designated area where members of a church can give their donation. In addition, many churches utilize today's technology with online giving, giving kiosks, and "text to give" options. If you need help setting up a website with online giving capabilities, check out our StartSITES Service or give us a call at 877-494-4655, and we will be happy to help you! 

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In general, the more options provided to your members, the more likely they are to give. One challenge with giving for pastors and ministry leaders is to teach their members about the total stewardship of all the resources God has given them.

Most people would like to be more generous, but their personal finances are so under duress that they feel incapable of giving. We recommend taking a portion of your preaching calendar each year and spending time discipling your church on ways to handle the other 90% beyond the tithe.

1. Start a thrift store that sells only donated items.

According to Internal Revenue Code (IRC) § 513(a)(3), "[T]he selling of merchandise, substantially all of which has been received by the organization as gifts or contributions," is not subject to unrelated business income tax.

Therefore, whatever the thrift store receives from the sale of donated items is tax-exempt income a church can receive.

This is also a good fundraising option for outreach-focused ministries because it allows you to serve the community's needs while generating additional tax-exempt income.

2. Provide meals before or after service for the convenience of members.

With the busy schedules of families today, many churches provide meals before or after their services. These meals are usually offered as a benefit to the members and at an affordable price.

The revenue made from selling these meals is tax-exempt income to the church.

However, please take note that because the members are receiving something (a meal) in return for the money given, they may not claim that amount as a charitable contribution.

3. Operate a bookstore or coffee shop before or after service.

This is permissible because the sale of these items is related to the tax-exempt purpose of the church. The service provided is also for the benefit of church members.

4. Host the occasional Christian concert or dinner run by volunteer staff.

Fundraisers that generate income from the sale of tickets are appropriate as long as these activities do not take place on a regular basis.

IRC § 513(a)(3) also states that when activities are carried out by volunteer staff (those who do not financially benefit from the profits), the income is not taxable.

5. Start a for-profit arm

Sometimes fundraisers and general offerings may not cover all of the additional income your church or ministry needs to achieve its goals and projects. In such cases, there is a lesser-known but very beneficial option called a for-profit arm.

Section 502 of the IRC allows tax-exempt organizations to own the majority interest in a for-profit business and receive nontaxable income from the shares held in that business.

A church can start an event-planning business that, after taxes and business expenses are paid, transfers the church's profits through the shares of stock it owns.

As the majority shareholder, the nonprofit may control how the business operates. Remember, the business itself is responsible for complying with state and federal regulations regarding for-profit corporations


Funding to move forward to a better tomorrow

We have discussed some key pieces to help you keep your ministry going and growing.    A for-profit arm just might be the strategic component your ministry or church needs to have a steady stream of income that relieves financial stress and allows you to focus on what really matters: ministering to and meeting the needs of your members and community at large.

If you are looking for more help in establishing some of the strategies discussed in this blog, please give us a call at 877-494-4655!

Legally prepare to receive funding.

There are legal requirements for giving and receiving tax-deductible donations, including tithes and offerings, for church plants and ministries. Our StartRIGHT Service will provide you with everything you need to start your church or ministry on a solid legal foundation. Here are a few essential areas to consider:

1. Apply for 501(c)(3) tax-exempt status.

Many church planters do not realize that they can apply for 501(c)3 tax-exempt status before their first service. This critical step gives you the ability to guarantee tax deductions for the funds donated, even in your initial fundraising meetings with potential investors.

With our StartRIGHT Service, we will take care of all of the items listed above and more! Give us a call today to learn more 877-494-4655 about making sure your church plant is legally compliant!


2. Incorporate and open a church bank account.

Your validity as a church or ministry increases when you start receiving checks in your church plant's name rather than your personal name. People are more ready to give to a church than to a person. Incorporating, adopting bylaws, and obtaining a FEIN are usually the first steps needed to open a church bank account.

Your Future in Financial Clarity

We live in a world that can seem to revolve around finances, but have faith knowing that God will provide in order for you to fulfill your calling. We understand that keeping up with finances and bookkeeping is a daunting task for those who are not called to do so. At StartCHURCH, we love to help resource you and make sure you are set up for success. We have a team of ministry-minded Bookkeepers dedicated to nonprofits. Give us a call at 877-494-4655 or click the link below to schedule a call to partner with them today!

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Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Raul Rivera

And receive Book 1 of our Grow Trilogy FREE today! This series gives you the strategies you need to get started growing your church plant today!