How to Handle a Decrease in Giving

By Stephen Rawlings

Let's face it; times are tough right now, and finances are a tough subject to talk about. 

But no matter how tough things become, we can rest assured that God has provided a way, and many churches will come out of this pandemic stronger than ever. 

What practical steps can we take to protect what God has given us? 

In this blog, we will discuss five different forms of fundraising and church-owned businesses. These five forms of fundraising can help diversify your church's monetary support and help protect your ministry. 

Public support

Before we jump into fundraising strategies, it is important to acknowledge why raising money is so important. 

One of the requirements of maintaining tax-exempt status for a charity is to be publicly supported. 

Therefore, outside of needing funds to operate, nonprofits also need incoming funds from the general public to be tax-exempt under section 501(c)(3). 

According to Treasury Regulation 1.170A-9(f)(2), an organization is considered publicly supported if it normally receives a substantial part of its support directly or indirectly from the general public, from a governmental unit or a combination of these sources. 

The public support requirement is known as the public support test, and the term "substantial" in this instance means that at least 33 1/3% of the organization's finances come from public support. 

The public support test proves that a 501(c)(3) organization is not a private foundation and therefore, may receive charitable contributions.

Five fantastic forms of fundraising 

Below are five, out-of-the-box ideas to help you come up with ways to increase funding for your church. 

1. Create multiple avenues for your church to receive donations. 

One of the most common ways for churches to receive donations is through the receiving of tithes and offerings during a worship service. 

For most churches, this means the passing of a collection plate or having a designated area where members, and non-members, can give their donation.

In addition, many churches utilize today's technology with online giving, giving kiosks, and "text to give" options. In general, the more options given to your members, the more likely they are to give. 

If your church or ministry doesn't have a website yet, check out StartSITES. You can increase donations by 32 percent when you create an online giving platform. And StartSITES makes it easy for you to create your customizable website in one hour.

2. Start a thrift store

Thrift stores sell second-hand items at below fair market value. According to IRC § 513(a)(3), "the selling of merchandise, substantially all of which has been received by the organization as gifts or contributions," is not subject to unrelated business income tax. 

Now, you must be thinking, "Cool. What does that mean, and how does that apply to my church?" 

Essentially, proceeds or revenue that thrift stores receive from the sale of donated items is tax-exempt income that a church or other nonprofit organization can use. This is also a good fundraising option for outreach-focused ministries because it allows the needs of the community to be served, while also generating additional tax-exempt income.

3. Provide meals before and after service for the convenience of church members.

Between work, school, church activities, sports, and the myriad of activities that one family has to manage, many families are looking for an easy lunch option after church.  

Some churches have found that providing meals before and/or after their services is not only a blessing to their members but also a way to generate additional income for the church. 

These meals usually are offered at an affordable price.

Because the activity is offered for the members' convenience and it coincides with church activities, the revenue made from the sale of these meals is tax-exempt to the church. 

However, because the members are receiving something in return (a meal), they cannot receive a charitable receipt on the price they pay for the meal. 

4. Operate a bookstore or coffee shop before and/or after service. 

Similarly, operating a bookstore or coffee shop around service times is beneficial to congregants, and the sale of Christian literature is related to the church's tax-exempt purpose.

Aside from the extra cash the church can bring in, an added bonus to operating a coffee shop is having church-goers be awake and energized during the early service! 

5. Host the occasional Christian concert, or dinner, run by volunteer staff. 

Fundraisers that generate income from the sale of tickets are acceptable, as long as these activities do not take place on a regular basis. 

IRC § 513(a)(3) also states that when activities are carried out by volunteer staff (those who do not financially benefit from the profits), the income is not taxable.

How much is too much fundraising?

Though the IRS doesn't specify a dollar amount as "too much," it is crucial that certain fundraising activities not become substantial. 

According to IRC § 513(a), when a tax-exempt organization carries out a "trade or business" that is not "substantially related" to the organization's exempt purpose, the income may be subject to unrelated business income tax, which can jeopardize an exempt organization's tax-exempt status with the IRS.

Furthermore, IRC § 512(a)(1) states that "the term 'unrelated business taxable income' means the gross income derived by any organization from any unrelated trade or business . . . regularly carried on by it." You can read more about unrelated business income here.

While all of these are excellent fundraising methods, when a coffee shop, bookstore, or other fundraising activity takes on a life of its own, it might be time to invest in a for-profit arm. With the For-Profit Arm Service, you can provide a means for your ministry to generate tax-free income, so you won’t have to solely rely on tithes, offerings, or donations.

When fundraising isn't enough

Fundraising is an excellent place to start, but it may not be enough to cover all additional income your church or ministry needs in order to carry out its goals and projects. 

A church can start any legal business and transfer the profits, after all taxes and business expenses have been paid, to the church in the form of dividends, tax-free. Some examples of successful for-profit arms include cafes, videography, event planning, and lawn care services. By being the majority shareholder, the nonprofit may control how that organization operates. 

We call it a “For Profit Arm.” In Section 502, the IRS calls it a “Feeder Corporation,” and describes it as a business operated for the primary purpose of carrying on a trade or business for profit even if the profits are distributed to your church.

Remember that the business itself is responsible for complying with state and federal regulations regarding for-profit corporations.

Funding the future

Regardless of where you are in your ministerial journey, understanding different ways to bring in revenue can be instrumental in your success. 

But, it can be somewhat daunting to keep up with your finances regularly, so give us a call at StartCHURCH and ask us about our Bookkeeping Service! 

Times are tough, but God has provided avenues for your organization to thrive. Don't let a lack of money be a set back for your church. 

I encourage you to give us a call at 877-494-4655 to explore additional ideas to fund the future of your church or to discuss how your church can start a for-profit arm.

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