When Churches Own a Business (2024)

FAQs

When Churches Own a Business? ›

Nonprofit organizations can create for profit subsidiaries to carry out the taxable activities they undertake. Even churches are allowed to do this. The subsidiary would be a separate legal entity from the church.

In short, the answer is yes. The church is allowed to own a business that generates income for the church. I have always encouraged churches to actively pursue sources of income outside of the tithes and offerings. In today's changing times, opportunities for churches to create alternative sources of income abound.

One standard organizational structure for church ownership is a sole proprietorship. This type of ownership is relatively simple, requiring only a tax ID for the church.

A church receives unrelated business income (“UBI”) when it engages in a trade or business that is regularly carried on, yet not substantially related to one or more of the church's exempt purposes. There are some exceptions from the usual definition of UBI. A church may sell donated items without realizing UBI.

Only 18% require over $500k to operate, and around 15% require under $50k annually for their budget. Of course, these numbers largely depend on the size of a church and its demographics. But you can safely assume that most churches in America make over $100k and less than $1 million a year!

Deuteronomy 8:18 – But remember the LORD your God, for it is he who gives you the ability to produce wealth, and so confirms his covenant, which he swore to your ancestors, as it is today. At the end of the day, you're in business to make money – profit is how we keep score.

For churches begun in this country, such as Baptist and Pentecostal, local church property usually is owned by the congregation itself. Occasionally, congregations or portions of congregations of a church of the first type break with the denomination but claim ownership of the property.

The work of a church business administrator (CBA) is to manage the administrative and business affairs of a local church. As churches continue to grow, someone needs to oversee and coordinate the many operational areas of a church.

Even in the occasional example where a church may have some commerce, like a bookstore, the exercise and promotion of religion is the primary activity. By definition, that is a non-commercial, hence nonprofit, nature of operations. So, yes—a church is a nonprofit.

Under federal law, most ministers have dual tax status. That means you're taxed as a W-2 employee of the church, and you're taxed as a self-employed person for Social Security and Medicare. For tax purposes, you're considered a minister if: You're ordained, commissioned or licensed.

How can a church lose its 501c3 status? ›

If an organization does not file its Form 990 for three (3) consecutive years, the organization's 501(c)(3) status will be revoked.

Disadvantages of 501c3 for Churches

Those include: No private ownership: Nonprofit organizations are publicly owned, which means that 501c3 churches cannot be sold like a business or transferred to private individuals by their founders.

Small church expert Karl Vaters says, “While 45 to 55 percent of budget going to staff is healthy for mid-size to larger churches, the range is much wider for small churches.

Scripture makes it clear that those who proclaim the gospel should earn their living by the gospel (1 Corinthians 9:14), and by extension this means that the church is responsible for supporting its pastor and ensuring he is “free from worldly care and employment,” (see the OPC Form of Government chs. 22 and 23).

How do small churches make money? Small churches typically rely on tithes, offerings, and in-kind donations, but they can also explore additional income sources such as grants, sponsorships, or selling products and services. Are churches required to pay taxes? Can churches invest in the stock market?

Additionally, incorporation is a necessary stepping stone to other provisions for your church, like 501(c)(3) status. If you want official determination of 501(c)(3) status from the IRS, you'll need to ensure you incorporate properly and maintain corporate status.

Even in the occasional example where a church may have some commerce, like a bookstore, the exercise and promotion of religion is the primary activity. By definition, that is a non-commercial, hence nonprofit, nature of operations. So, yes—a church is a nonprofit.

According to the IRS, a charitable donation is a gift made to a qualifying nonprofit organization, such as a church or school. Individuals and businesses make donations without any expectation of getting anything of equal value in return.

Churches as Franchise Organizations

It is argued that it is possible to envision a continuum of church organizational structures, ranging from a branch office, through various forms of franchise arrangements (including company owned, business format, and trademark franchises) to freestanding entrepreneurial units.