Is Tithing Tax Deductible? Everything You Need to Know About Tithes
Can members use their tithe for a tax deduction?
Short answer: YES
Long answer: There are a few things we have to consider...
Read on to learn how tithes count as tax deductible and what doesn't before your members send their tax returns to the IRS!
Are Church Tithes Tax Deductible?
Tithes are tax deductible. ALL money donated to the church is tax-deductible. So whether money is given as a tithe or a special offering, the donor gets to add that to their itemized deductions and write that off on Schedule A of their tax returns.
How Do I Know if a Donation Is Tax Deductible?
The only stipulation from the IRS is that the money has to be given to a tax-exempt organization. As long as your church has a tax-exempt status, donations are exempt. It's that simple.
But there are still a few things you have to consider before tithes can be used as a tax deduction...
1. Did Donors Get Anything in Return?
If the member received something tangible in return for the donation, then it doesn't count as a donation.
If they paid to eat at a fundraiser dinner at your church, they can't write the entry fee off on their taxes. If your church holds a raffle, they can't write the cost of their ticket(s) off, either. Same with the poinsettias everyone bought for Christmas.
That's because something was exchanged for the money that was given.
If a donor receives something other than intangible spiritual benefits, the donation becomes a transaction. In that case, they can subtract the fair market value of the item they received from the amount of their donation, and then write the remainder off on their taxes. But it's up to the donor to do the math and keep track of that throughout the year.
A Quick Example
A church I attended years ago held an auction to raise money for much-needed repairs in the sanctuary. A member purchased a dining room set that a local furniture store donated.
After they received their giving statement the following January, they approached the pastor and asked why the money they spent on the table and chairs wasn't listed on the document. Imagine their embarrassment as the pastor explained that it wasn't tax-deductible because they got something in return for their money!
This rule is so important to the IRS that they require churches to add a disclosure to giving statements that "no goods or services were provided by the organization."
2. Did They Exceed 60% of Their Adjusted Gross Income?
The IRS rules that donors can deduct 100% of their charitable contributions from their taxes...
...unless...
...the total amount exceeds 60 percent of their adjusted gross income.
In other words, if someone donated 75% of their adjusted gross income, they would not be able to deduct the full amount of their donation. They can donate up to 60% of their AGI, and then apply the rest to their tax return next tax year.
Most people do not donate enough to hit that threshold. In fact, most do not donate enough to exceed the standard deduction.
3. How Was The Donation Handled By The Church?
There's a right way and a wrong way to handle church tithes.
Here's a couple of things I've seen happen at churches I've attended:
Benevolence vs Love Offering
The church collects an offering for a family in need. They pass the plate around the sanctuary, gather the money into an envelope, then hand the envelope to the family at the end of service.
This is a beautiful moment of generosity and solidarity! But this cannot be counted as a charitable donation for one reason: It wasn't counted at all!
This is why most members give via tithing. The church is more apt to receive and record those church donations. If your church doesn't count the collection, place it in an appropriate designated Fund (like a Love Offering Fund), then provide a donation receipt, the IRS can't verify anything was given.
Unrecorded Donations
I once joined a church plant. The pastor was juggling multiple roles in the first year of the church.
Here's the problem: The pastor hadn't been recording donations in a church giving software that would produce giving statements for him!
Thankfully, this was a small church with only a few donors and the donors had kept their own records, so the pastor was able to quickly fix the problem. But he could have avoided the headache by recording the donations weekly (or asking a volunteer to do it for him).
According to the IRS, without a written acknowledgment, those donors would not be able to deduct their tithes.
There’s a Right Way to Handle Tithes
All tithes need to be recorded ASAP and placed in the appropriate church fund. It's best to do this in a church giving software that will generate contribution statements to save time.
4. What About Tithes and Offerings from Online Giving?
Tithes and offerings given online definitely count as tax-deductible. But there's one thing worth mentioning...
Always Record the Full Amount
Online giving platforms charge a fee to use their service. They typically charge a small percentage of the donated amount.
Here's a quick video that breaks it down:
Here's the thing: You HAVE to record the full donated amount on the donor's giving statement, no matter how much the processor took as a percentage. The IRS doesn't care if the processor took a small fee. They allow donors to write the full amount of the donation off on their taxes, even though the church received a little less than that amount.
5. How Does a Tax Deduction Work, Anyway?
Since tithes are tax-deductible, let's cover how that affects someone when they pay taxes after they claim their church donations.
A tax deduction is different than a tax credit. A tax deduction reduces the total amount of taxable income. A tax credit is a dollar-for-dollar reduction in the tax liability.
Another Quick Example
Let's say a donor has $100,000 in taxable income after deductions and their average tax rate is 17%. That means they would pay $17,000 in taxes.
If they give $10,000 in tithes to the church throughout the year, they cannot subtract $10,000 from the $17,000 they pay in taxes because their tithes do not count as a tax credit. They are a tax deduction, meaning they reduce their taxable income.
That means they will subtract $10,000 from the $100,000 mentioned earlier. So they would pay the 17% tax rate on only $90,000 dollars, which is $15,300.
6. Final Advice: Talk To a Tax Expert
There may be special rules or regulations in your area that you need to consider.
Churches and charitable organizations need to cover their bases. Talk to an expert before it's time to file taxes, just to be on the safe side.
Tax-Deductible Tithing is Simple
Tithes are tax-deductible. As long as the donor doesn't receive anything tangible in return and the donation was properly handled by the church, donors can claim tithes as a tax deduction.