There are three types of taxes that churches should be aware of:

First, income taxes.​
Generally speaking, churches are exempt from federal income taxes. This means that tithes, offerings, and other income received by the church are not taxed.

Churches are presumed to be exempt; however, the only way your church can demonstrate to a donor that it has exempt status is by having the right documentation.

Only churches and ministries that have applied for and received formal recognition from the IRS can document their exemption status. Without that, you may find it difficult to prove your status when it matters most, including the instances outlined below.

Second, sales taxes.​
This is where many churches are surprised.

Sales tax exemption is handled at the state level, and you typically do not have this exemption automatically. In most cases, you must apply for it.And what do many states require that you show when you apply for sales tax exemption? You guessed it- the IRS letter of determination as referenced above.

Once approved, your church may be able to make purchases without paying sales tax—but only if you’ve taken the proper steps to secure that status.

Third, property taxes.​
This is one of the most costly areas of misunderstanding.

Many churches assume that if they own the property, it is automatically exempt. That is not always the case. In fact, that's not usually the case.

Property tax exemption usually requires an application, and that application usually requires that you attach your IRS letter of determination showing that your church is tax-exempt.

Plus, it may depend on how the property is being used. For example, land that is not yet being used for ministry purposes may not qualify for exemption.

And as you can imagine, property taxes can be significant—often thousands, or even tens of thousands, of dollars over the period of ownership.

So as you reflect on Tax Day today, I encourage you to ask:

• Do we have proper documentation of our income tax-exempt status?
• Have we applied for sales tax exemption in our state?
• Are we certain about the tax status of any property we own?

If you find yourself unsure in any of these areas, you’re not alone, and you don’t have to navigate it on your own. Feel free to reply to this email if you need help with tax-exempt status.

Plus, inside Faithful Foundations All Access, we walk through topics just like this on a regular basis—helping you understand not only what applies to your church, but what steps you should take to remain compliant and protected.

Our Spring Cohort is currently open, but only through April 30th.

If you’ve been looking for ongoing guidance, clear answers, and a trusted place to get support for your church’s legal and compliance needs, this is an opportunity to take that next step.

We would love to have you join us.

Blessings!