All Income to a Church May Not be Tax-Free

The 2017 Tax Reform Act (H.R. 1) reveals many surprises for Churches. One of these is the Unrelated Business Income section. In the past, a Church was allowed to have fund-raisers and other Unrelated Business Income (UBIT) without a requirement to report it to the Internal Revenue Service if all of that income for the year equaled less than $1,000. This has changed.

In the new tax code, Churches may no longer aggregate the Unrelated Business Income but must list each separately. The Council for NonProfits interpreted the effect of the recent change as:

• Only the first $1,000 of unrelated business income is exempt from taxation under previous law, so the proposed changes would affect many organizations of varying sizes.
• The change to UBIT could increase taxes on nonprofits, taking revenue away from nonprofits’ mission-related programs and services.1

The Affect On the Average Church

The average church in the USA has a regular Sunday attendance of about 70 people. Only about three percent tithe and only about 11% give in the offering. Their irresponsibility to tithe and give demands Churches to do what they must to pay the monthly bills, and sometimes this includes paying the Pastor.

The Church then initiates fund-raisers to make up the difference. I know of one Church where the tithe and offerings are usually within that 3—11 percent. That Church built a brand new addition with only three percent tithing and 11% percent giving any offering. When I asked the Pastor how they could do it with such small weekly support, he replied: “We have five dinners per month—one every mid-week service and one large one on the last Saturday of each month. The members donate all food and time, and then every member is charged $20 for the weekly meal and $25 for the monthly meal.” The members will not tithe and give offerings as they should but will donate food and their time and then pay for the meal they provided.

The new change in UBIT will require Churches to report all fund-raisers and income (other than tithes and offerings) regardless of the previous law’s $1,000 annual exemption.

Some Churches May Not Survive

With the new tax changes in place, the average Church fund-raiser, yard sale, carwash, and even CD and DVD sales may no longer be profitable for the average size Church. Once time and expense are calculated, and the tax is paid on the net, the average Church will realize a net loss rather than a net gain for the Church bank account.

However, if those Churches do not take other action, they will soon have difficulty paying monthly expenses and then have to choose between paying monthly bills or doing ministry.

Why You Must Call us Today

Chitwood & Chitwood is the premier Church Management firm in the nation because we have 80 years of experience. We know how to bring Churches into compliance without breaking the bank and how to generate a steady flow of income for the Church to do ministry.

This is why it is imperative for every Pastor, Pastor’s Spouse, and Church Leader to attend the next Church Management Conference. To register, please call 800-344-0076. If there is not a conference near you, call and speak with Dr. Ronnie Shaw as to how to bring a private conference to your area so your Church can be taught how to tap into funds that are available to assist you with the ministry God has called you and your Church to do. By doing it our way, it is possible to avoid the UBIT.

^{1. https://www.councilofnonprofits.org/sites/default/files/documents/tax-bill-summary-chart.pdf}