An important part of incorporating your place of worship is ensuring that when the organization is formed, it is formed under the correct entity. Choosing the correct entity will set up your organization for success by capitalizing on relevant tax breaks, protecting your assets, and putting your organization in the best position to raise capital. For many places of worship, this will mean incorporating your organization under the entity of a 501(c)(3).
The IRS includes “religious” among the tax-exempt purposes recognized by Section 501(c)(3) of the Internal Revenue Code, and churches and religious organizations can usually obtain 501(c)(3) tax-exempt status. The following information outlines the four of the major benefits of incorporating places of worship: limited liability status, tax-exempt status, lower postal rates on bulk mail, and eligibility for grants and discounts.
1. Limited Liability Status
Limited liability status refers to the legal status in which a person’s financial liability is limited to a fixed sum. If a company with limited liability is sued, then the claimants are suing the company, not its owners or investors. Without forming a legal entity, the members’ and directors’ personal assets are at risk in a lawsuit. Incorporating your place of worship provides limited liability protection, which means only the organization’s assets can be targeted in a suit.
2. Tax Exempt Status
Churches and religious organizations, like many other charitable organizations, qualify for exemption from federal income tax under IRC Section 501(c)(3) and are eligible to receive tax-deductible contributions. To qualify for tax-exempt status, the organization must meet several requirements. Firstly, the organization must be organized and operated exclusively for religious purposes. Net earnings may not be solely advantageous to any private individual, and no substantial part of its activity may be attempting to influence legislation. Additionally, the organization may not intervene in political campaigns. Lastly, the organization’s purposes and activities may not be illegal or violate fundamental public policy.
…a place of worship can apply for federal, state and private grants to secure additional funding for their programs and services.
With a tax-exempt status, places of worship do not need to pay a federal income tax and may be eligible for exemption from state income tax, sales tax and employment tax.
3. Lower Postal Rates on Bulk Mail
Reduced postal rates may sound like a small benefit at first, but this discount can be especially cost-effective in the long term for places of worship. Oftentimes, places of worship rely on fundraising and support from parishioners or perhaps send out regular newsletters to keep their community informed. Both fundraising and newsletters require sending out bulk mail several times a year, which can be a costly expense when paid at full price. The lower postal rates benefit saves places of worship and other 501(c)(3) entities significant money that can then be directed towards other uses.
4. Eligibility for Grants and Discounts
When a place of worship becomes certified as a 501(c)(3) organization, it can then apply for federal, state and private grants to secure additional funding for their programs and services. These grants never need to be paid back and can be put towards a variety of expenses such as repairs, building an addition onto the place of worship for extra space, or other costly expenses. The United States government has a database of over 15,000 faith-based grants available for 501(c)(3)s. Additionally, once a place of worship secures 501(c)(3) status, it may also qualify for discounts with specific vendors. For example, many advertising platforms, such as Google Ads, provide discounts to places of worship. The ability to seek out vendors that provide such discounts is another benefit that is cost-effective in both the short and long term.
Call South Florida Law
Do you work for a place of worship or an organization that may qualify for 501(c)(3) status? Take proactive measures and consult an experienced entity formation lawyer from South Florida Law. The team at South Florida Law will ensure your organization is set up under the correct entity and help you incorporate to save on taxes. Reach out to South Florida Law at (945) 900-8885 or via our contact form.