Churches are considered to be 501 (c) (3) organizations, which means they enjoy all the benefits of being a nonprofit, including being exempt from state and federal taxes. But they also have the responsibility to track the money received by their church (donations, fundraisers, capital campaigns) and the money they spend—which includes everything from typical operating expenses (rent/mortgage, utilities, office expenses, staff payroll, insurance), to outreach expenditures (charitable causes, missions, social events).

 

There also some accounting challenges that are unique to churches. For example, there are specific payroll rules that apply to tax withholding on clergy, and confusion on issues such as income tax on housing allowances. Churches also sometimes lack internal controls, which are a set of accounting standards designed to ensure the reliability and integrity of the churches’ books, e.g. the proper handling of cash, specific requirements for disbursement of expenditures, etc. Often, however, churches think they don’t need internal controls—but unfortunately, sometimes even a trusted individual can compromise things or take advantage.