Keeping your church compliant with IRS rules is a legal obligation.
But it’s also a matter of stewardship.
When donors give faithfully, they trust your organization to manage those gifts with integrity and transparency.
And when it comes to church donations, the IRS has very specific guidelines for how those gifts should be handled, recorded, and acknowledged.
This guide breaks down the key tax rules your church and donors need to know.
IRS Exempt Status For Churches: What It Means
Churches occupy a unique space in the U.S. tax system. Unlike most charitable organizations, churches are automatically considered tax-exempt under Section 501(c)(3) of the Internal Revenue Code.
That means they don’t need to submit a formal application to the Internal Revenue Service to receive tax-exempt status, and in most cases, they aren’t required to file annual information returns like Form 990.
This automatic treatment applies because the IRS presumes churches qualify as 501(c)(3) organizations.
But that presumption only holds if the church actually meets the legal requirements.
According to IRS Publication 1828, a church must still be organized and operated exclusively for religious purposes, and it can’t serve private interests or engage in disqualifying activities.
Some churches choose to file Form 1023 voluntarily to receive official IRS recognition. This can give donors added confidence that their church donations are tax-deductible as charitable contributions, especially for those who itemize deductions on their federal income tax return.
Whether a church applies or not, it must still follow the IRS’s rules for qualified organizations in order to maintain its tax-exempt status.
What Requirements Must Churches Meet To Stay Tax-Exempt?
Being automatically exempt doesn’t mean being exempt from IRS oversight.
To maintain tax-exempt status, a church must meet a specific set of requirements outlined in the Internal Revenue Code. They’re the same rules that apply to all religious organizations under 501(c)(3).
Here’s what that means in plain terms.
- Your church must operate for religious purposes only: The church must be organized and run primarily to advance religious teaching, worship, or mission work. Other activities must support that purpose, not distract from it.
- Avoid private benefit: A church’s income or assets can’t “inure” to the benefit of insiders (like pastors or board members). This means no excessive salaries, sweetheart deals, or using church funds for personal gain. The IRS treats this seriously: even one case of inurement can jeopardize the church’s tax-exempt status.
- Stay out of political campaigns: Churches are strictly prohibited from endorsing or opposing candidates for public office. While this has traditionally discouraged church leaders from endorsing candidates as private citizens, recently the IRS has stated it will not enforce this rule.
- Limit lobbying and legislative influence: Some public policy involvement is allowed (such as education or issue awareness), but churches may not devote a “substantial” part of their resources to influencing laws. The IRS considers time, money, and frequency when deciding whether a church has crossed the line.
- Avoid significant unrelated business income (UBI): Churches can conduct some business activities (like renting out a fellowship hall or operating a bookstore), but if those activities are not related to the church’s mission, and they become substantial, the church may owe taxes on that income and risk its exempt status. A good rule of thumb is to keep UBI below 30% of the church’s total revenue.
The IRS rules for church donations define how churches must operate day-to-day.
Staying within these guardrails protects both your organization’s tax benefits and your reputation as a compliant, mission-focused institution.
Recordkeeping Requirements For Churches
Just because a donation is made to a church doesn’t mean it’s automatically deductible on a donor’s tax return.
The IRS requires that churches and religious institutions keep clear, consistent records to support every charitable contribution they receive.
This is a compliance requirement.
If your church doesn’t provide proper documentation, your donors might not be able to claim a charitable deduction on their federal income tax return.
That can lead to confusion, loss of trust, and draw additional attention from the IRS.
Here’s what your church should be doing to make sure you don’t jeopardize its tax-exempt status.
Keep Accurate Records For All Contributions
Whether it’s a few dollars in the offering plate or a check for a large end-of-year gift, maintain bank records, canceled checks, and internal accounting logs for every donation.
This includes both cash contributions and non-cash donations like household items, vehicles, or stock.
Document Any Goods Or Services Provided
If your church gives donors anything of value (such as a meal, concert ticket, or book), you must subtract the fair market value of those items from the deductible portion of the gift.
Donors can only deduct the portion that exceeds the value of what they received.
It’s worth mentioning that churches must be careful with quid pro quo donations, where a gift is partially charitable and partially a transaction.
Failing to disclose the benefit’s value properly can disqualify a donor’s charitable deduction and put your church out of compliance with federal tax laws.
Track The Fair Market Value Of Non-Cash Gifts
If a donor donates property like clothing, electronics, or a motor vehicle, they may need to determine its fair market value and report it as a non-cash charitable contribution.
In some cases, they may need a qualified appraisal and attach other forms (such as IRS Form 8283) to their return.
While the donor is responsible for most of the reporting, your church must still provide written documentation that describes the item received, the date of the gift, and whether any services were provided in return.
Solid record-keeping is one of the most important safeguards your church has.
It helps protect your donors, maintain your tax-exempt status, and comply with IRS rules that apply to all qualified organizations.
Bonus: Manage All Your Church Expenses To Stay Compliant
The IRS looks at how money comes into your church, but it also looks at how money goes out.
If your church ever faces an audit or needs to file additional forms (such as for unrelated business income), clear records of spending make the process go much more smoothly.
Tracking expenses in real time helps you:
- Separate ministry-related costs from unrelated business activity
- Avoid errors in reporting or reimbursement
- Provide accurate documentation for tax filings
- Detect and prevent improper use of funds
But spreadsheets and paper receipts can only take you so far.
That’s why many churches use expense management tools like KleerCard, which offer budget controls, digital receipt capture, and real-time tracking all in one place.
Good stewardship starts with good records. And when your spending is organized, tax compliance gets a lot easier.
Issuing Donor Acknowledgments And Receipts
When a donor gives to your church, it’s your responsibility to provide the documentation they need to claim deductible charitable contributions on their tax return.
According to IRS rules, this isn’t optional. It’s a compliance requirement.
For your donors, it directly affects their ability to deduct payments and reduce taxable income.
While the IRS doesn’t require churches to use a specific form, it does require that every written acknowledgment include certain details.
Here’s what your acknowledgment should include and why it matters.
- The exact donation amount
- The date it was received
- A clear statement explaining whether the donor received any goods or services in return
If goods or services were provided (for example, a meal, event ticket, or book), the receipt must include a good-faith estimate of the item’s value.
Donors can only deduct the portion of the gift that exceeds that value. This is what the IRS calls a quid pro quo contribution.
Donors can only claim a charitable deduction for gifts of $250 or more if they receive this acknowledgment before filing their return.
If your church doesn’t send it, they could lose the deduction. Even if the gift is legitimate.
Why Proper Receipts Matter To Donors
For individuals who itemize deductions instead of taking the standard deduction, these gifts can reduce adjusted gross income (AGI).
This can also affect local taxes, eligibility for certain credits, and even how much someone can deduct expenses like mortgage interest.
Without the proper paperwork, a donor can’t deduct the gift, no matter how generous it was.
Tips For Staying Compliant
- Acknowledge gifts promptly, before donors file for the tax year in which the gift was made.
- Use a standard receipt template to ensure consistency.
- Train staff or volunteers who handle giving records (even a deacon candidate helping with bookkeeping should know the rules that apply).
Providing clear, timely donation receipts shows your church takes its role seriously in helping members steward their resources faithfully and responsibly.
How To Handle Non-Cash Donations
Not all charitable donations come in the form of cash.
Many churches receive non-cash gifts, including household items, clothing, vehicles, musical equipment, or even stock.
These can be just as valuable as cash contributions, but they come with different reporting requirements.
To stay compliant with IRS rules that apply to charitable organizations, churches need to understand how to properly acknowledge non-cash gifts.
Acknowledge What Was Donated, Not What It’s Worth
When someone donates property to your church, your acknowledgment should include:
- A detailed description of the item(s) donated
- The date the donation was received
- A statement confirming whether any goods or services were provided in return
However, do not include a dollar value for the item.
The IRS expects donors, not churches, to determine the value. When necessary, it’s also the responsibility of the donor to support it with a qualified appraisal.
Gifts Over $500 Trigger Additional Requirements
If a donor’s total contributions of non-cash items to all charities (not just your church) exceed $500 in a single tax year, they’re required to file Form 8283 with their return.
Let’s say a member donates a used soundboard to your church valued at $350, and also gives a set of chairs to a local nonprofit worth $200.
Because their combined non-cash donations total more than $500, they’ll need to complete Form 8283 to claim the full deduction.
This is where detailed acknowledgment from your church becomes especially important.
While your church isn’t responsible for filing the form, the information you provide helps the donor meet their obligations and claim the deduction correctly.
Gifts Over $5,000 May Require Appraisal
For larger items such as artwork, instruments, or vehicles worth over $5,000, the donor must usually get a qualified appraisal to support their deduction.
In these cases, your church may be asked to sign Part IV of Form 8283 to confirm that the gift was received.
You’re not required to verify the value, but you are acknowledging that the item was donated.
If your church later sells the item within three years, you may also need to file Form 8282 to report the sale to the IRS.
Below are some practical tips to help your church manage non-cash gifts.
Practical Tips For Managing Non-Cash Gifts
- Maintain accurate donation logs for each tax year, regardless of filing status or gift size.
- Keep bank statements or other documentation showing when and how the gift was received.
- If the gift involves transportation required (for moving large items), note any conditions tied to the donation.
- Consider advising donors to consult a tax professional, especially if the gift is complex or if they plan to deduct more than the same limits allowed for standard cash donations.
Properly managing non-cash gifts protects both your church and your donors and helps to make sure that annual church donations don’t create unintended tax issues.
What Churches Need To Know About Unrelated Business Income Tax (UBIT)
Being a church with tax-exempt status doesn’t mean you’re exempt from all taxes.
If your church earns income from activities that aren’t related to its core religious mission, that income may be subject to Unrelated Business Income Tax (UBIT).
This applies when a church regularly carries on a trade or business that is not substantially related to advancing its religious purpose, even if the church uses the profits to support its ministry.
Examples Of Unrelated Business Income
- Renting out parking spaces to the general public on weekdays
- Selling advertising space in a church newsletter or bulletin
- Operating a bookstore that sells commercial items not tied to ministry work
The rules apply regardless of whether the income is used for charitable purposes.
What matters is whether the activity itself directly furthers the church’s religious mission.
How Much Can A Church Earn Before Filing Taxes For Unrelated Business Activities?
If a church earns more than $1,000 in gross income from unrelated business activities during the tax year, it must:
- File IRS Form 990-T
- Pay taxes on the net income from that activity
There’s no exemption just because the organization is a church. Once that income passes the threshold, it’s treated like taxable business income.
Why Does The $1000 Threshold Matter?
Occasional small-scale activity may not be an issue, but when these business efforts grow or become a regular part of church operations, they can threaten your tax-exempt status.
The IRS looks at whether the church is still operating primarily for religious purposes, or whether it’s starting to drift into commercial territory.
If a church repeatedly ignores certain rules around unrelated business income, it could lose its 501(c)(3) status altogether.
To protect your church:
- Evaluate new programs or rentals through the lens of UBIT before launching them.
- Keep clean financial records that clearly separate mission-based revenue from unrelated income.
- When in doubt, check with a tax professional who understands IRS rules for religious organizations.
How Churches Can Stay IRS Compliant
IRS compliance is how you maintain your church’s tax-exempt status under Section 501(c)(3).
And remaining compliant is how your church donations remain tax-deductible for your supporters.
Whether you’re tracking cash contributions, receiving non-cash donations, or issuing receipts, staying organized and informed protects your ministry and your donors.
Here’s how to do it.
Keep Accurate Records Of All Donations And Expenses
Solid record-keeping is non-negotiable.
Use bank statements, internal logs, and clear procedures to track all charitable contributions. That includes cash, checks, online giving, and gifts of household items or property.
Proper documentation ensures you’re prepared in case of an IRS inquiry and helps donors confidently claim deductions on their tax return.
Train Your Team On IRS Rules For Church Donations
Anyone involved in financial administration should be trained on IRS rules for church donations, whether they’re a finance director or a helpful deacon candidate.
They should know when a written acknowledgment is required (e.g., for cash contributions over $250), how to handle donations of property, and how to describe gifts without assigning a fair market value.
Use Standard Templates For Donor Acknowledgments
Consistency is key.
Create standardized templates that include the donation amount, date, and a statement confirming whether any goods or services were provided in return.
This helps donors meet IRS requirements for charitable deduction claims, especially if they plan to itemize deductions or their deductions exceed the standard deduction.
Consult A Tax Professional When Needed
When members donate property or contribute complex, high-value items that require a qualified appraisal, your church has to adhere to more reporting rules.
A licensed tax professional can help you interpret which tax deductions apply, whether additional forms are required, and how to help donors deduct the fair market value appropriately without creating problems for your church.
By keeping accurate records, following IRS rules, and issuing the right documentation, your church protects its tax-exempt status and helps your members get the tax benefits they’re entitled to.
Know The Limits Of Business And Political Activity
If your church earns gross income from activities unrelated to your mission (like parking fees or renting out space), you may need to report it and pay tax.
Likewise, endorsing political candidates, even informally, can put your tax benefits at risk. When in doubt, review the tax laws or talk to a professional.
Political Activity And Lobbying: What’s Off-Limits
The IRS draws a firm line when it comes to churches and political campaigns. If your church is a 501(c)(3) organization — and nearly all are — certain rules apply that strictly limit your involvement in politics.
Endorsing Or Opposing Candidates Is Never Allowed
Traditionally, churches cannot directly or indirectly support or oppose any candidate running for public office. That includes making public statements in favor of or against a candidate (even from the pulpit) and donating church funds to a campaign.
If the IRS determines that your church has participated in political campaigning, you risk losing your tax-exempt status.
There are very recent reports that the IRS will not be enforcing these rules, dating back to 1954. Churches should stay updated on this issue.
Some Lobbying Is Allowed (But Only In Moderation)
Lobbying refers to trying to influence legislation.
For example, encouraging your members to contact lawmakers or take a position on a bill would be considered lobbying.
The IRS does allow churches to engage in lobbying, but only if it’s a small part of what the church does overall.
There’s no exact dollar limit, but the IRS looks at factors like how much time, money, and effort go into lobbying when evaluating whether a church has crossed the line.
If lobbying becomes a substantial part of your church’s activities, the consequences can include fines, back taxes, or loss of tax-exempt status.
What’s Okay Vs. What’s Not
Because the IRS doesn’t set a strict dollar limit on lobbying, it’s up to churches to be cautious and self-monitor.
The line between acceptable advocacy and prohibited political activity isn’t always obvious, and even well-intended actions can cross it.
Here’s a quick breakdown to help clarify what’s generally allowed and what’s off-limits.
✅ Okay:
- Hosting nonpartisan voter registration drives
- Teaching about moral or social issues from a faith-based perspective
- Inviting political candidates to speak (as long as all candidates are offered equal opportunity)
❌ Not Okay:
- Endorsing or opposing specific candidates
- Printing or distributing voting guides that favor one side
- Using church events, funds, or resources to support a political campaign
Stay mission-focused. Speak truth. Address issues that matter to your congregation.
But avoid doing anything that looks like campaign activity.
When in doubt, pause and consult a tax professional who understands the rules that apply to churches and political speech.
What Happens If A Church Violates IRS Rules?
When a church fails to follow IRS rules for church donations or other requirements for tax-exempt organizations, the consequences are usually serious.
The IRS gives churches broad freedom under Section 501(c)(3), but that freedom comes with responsibility.
If your church ignores those responsibilities, here’s what’s at stake.
You Could Lose Your Tax-Exempt Status
The most severe consequence is losing your tax-exempt designation.
If that happens, your church would be treated like a for-profit entity, meaning you’d owe income tax on all revenue, including charitable donations.
This also affects your donors.
Without exempt status, their church donations are no longer tax-deductible, even if they itemize deductions or their deductions exceed the standard deduction.
You May Owe Tax On Unrelated Business Income
If your church regularly earns gross income from activities unrelated to its religious purpose, the IRS may require you to file Form 990-T and pay income tax on that revenue. Continued violations could trigger audits and additional penalties.
Donors Could Lose Their Ability To Deduct Contributions
If the IRS determines your church failed to meet record-keeping, receipt, or acknowledgment standards, donors might not be allowed to deduct their charitable contributions on their tax return.
This could affect their adjusted gross income (AGI) and raise their taxable income. Especially for those who donate property or claim deductions for non-cash donations.
Your Church’s Reputation May Be Damaged
Beyond tax penalties, there’s a relational cost.
If your church appears careless or noncompliant with tax laws, you risk losing the trust of your congregation and broader community.
Donors want to give to churches that follow the law and handle donations with integrity.
Mistakes happen, but repeated or willful violations of IRS rules can trigger enforcement and undermine your mission.
If you’re unsure about any financial process, especially involving cash contributions, acknowledgment letters, or annual church donations, don’t guess.
Consult a tax professional and protect both your status and your people.
IRS Rules For Donors: What They Need To Claim A Deduction
Churches aren’t the only ones with responsibilities under IRS guidelines. Donors have their own rules to follow if they want to claim deductions for their charitable donations.
If members of your congregation make regular church donations, here’s what they need to know to get the full tax benefits.
Deductions Require Itemizing
To deduct a donation, the donor must itemize deductions on Schedule A of their federal income tax return. That means they’ll only benefit from giving if their total deductions exceed the standard deduction for their filing status.
Common itemized deductions include:
- Charitable contributions
- Mortgage interest
- Local taxes
- Qualified medical expenses
- Other allowed deductions
If a donor takes the standard deduction, they won’t get a tax break for their gift, even if the church is a qualified organization and the donation was otherwise tax-deductible.
Cash Contributions Are Capped At 60% Of AGI
The IRS generally allows donors to deduct cash contributions up to 60% of their adjusted gross income (AGI) in a single tax year.
If someone gives more than that, they can carry over the extra and deduct it in future years (typically up to five).
This limit applies across all qualified charities, so the donor’s annual church donations must be considered as part of their total contributions.
Written Receipts Are Required For Donations Over $250
Whether the donation is made in cash, by check, or online, the donor must receive a written acknowledgment from the church for any gift of $250 or more.
It must include:
- The donation amount
- The date it was received
- A statement about whether any goods or services were provided in return
Without this, the IRS may deny the deduction even if the donor has bank records or a canceled check.
Only The Portion Above A Benefit Is Deductible
If the donor receives something in return (like a dinner ticket or merchandise), they can only deduct the fair market value of the gift that exceeds what they received.
This is called a quid pro quo contribution.
For example, if someone donates $100 and gets a concert ticket worth $40, they can only deduct $60.
For church members who want to deduct expenses, lower their taxable income, or support their community while reducing their tax bill, understanding these IRS rules is key.
When in doubt, encourage donors to talk with a tax professional, especially if they’re making large gifts, planning to donate property, or navigating other complex giving situations.
Stay Compliant, Stay Focused on Your Mission
Churches operate with purpose. But to keep that purpose protected, your financial practices must stay in line with IRS rules.
From issuing donor receipts to tracking non-cash gifts, the steps you take today can safeguard your church’s tax-exempt status and give your congregation the confidence to give generously.
ACS Technologies provides the tools and support churches need to manage giving, maintain compliance, and steward resources well, so your team can focus on ministry, not paperwork.
If you need help keeping your church organized and compliant, reach out to ACS Technologies today.
This article was written for ACS Technologies in partnership with KleerCard, a financial platform designed to help churches simplify spending, track expenses, and stay IRS-compliant.
Frequently Asked Questions
Even seasoned church members have questions about how charitable donations interact with IRS guidelines. Below are some of the most common ones.
What Counts As A Qualified Organization?
A qualified organization is one that meets IRS 501(c)(3) requirements. Most churches qualify automatically, even if they haven’t formally applied for tax-exempt status.
Can Donors Write Off Volunteer Hours?
No, the IRS doesn’t allow deductions for volunteer hours. However, out-of-pocket expenses like supplies or transportation may be deductible with proper documentation.
Are Tithes Deductible?
Yes, tithes are considered cash charitable contributions and are tax-deductible if the donor itemizes and receives a proper acknowledgment for gifts over $250.
Can I Deduct Donations To A Church On The Revocation List?
No. The IRS regulations clearly state that you cannot deduct donations to a church on the revocation list.
Owen Hill (KleerCard)
Owen Hill is a cofounder of KleerCard and has spent 20 years in finance and operations leadership roles for nonprofits. KleerCard helps churches and nonprofits organize and control all their spending, from credit cards to bill pay to reimbursements, with one easy-to-use app. KleerCard can help you save 12-28 hours a month on managing expenses.
