Generally, anything dropped in the offering plate, mailed in, donated online, cash in an envelope, etc. is a tax deductible donation.
Restricted gifts vs. gifts with preference
The idea of a charitable contribution deduction is that the donor is relinquishing or giving funds / assets to a qualified charity who then has full discretion and control over those funds. A donor’s stipulation on how the funds are to be used may cause the gift to be non-deductible if it limits or removes the church discretion and control of the fund or if the funds are earmarked for a specific individual. Let’s look at some examples. A gift that is designated for a building fund or a specific church project is called a restricted gift and the church must use the funds according to the designation. This type of gift is tax deductible to the donor because the church still has full discretion and control of the funds even though it is restricted to a specific use. A gift designated to be paid to an individual is problematic as this type of restriction results is non-deductible by the donor. The church should not act as a “conduit” for funds to be transferred between individuals as those types of gifts are non-deductible by the donor (more on this subject under the Love Offering section below). The last example would be a gift with a donor preference that the funds be used for a program or specific ministry while acknowledging that the church has full discretion to use the funds as determined appropriate. This type of donor’s preference communicates a desire or suggestion for the use of the funds as opposed to a mandate for the use of the funds. This type of suggested use of the gift is fully tax deductible by the donor.
When a church is getting started, income is low and expenses are high, so staff members are commonly responsible to fundraise their salaries. This can get complicated though, since it’s illegal for churches to raise donations that are earmarked for an individual.
We recommend this strategy as the best way to raise salary support: each pastor should set a goal for fundraising, and then church should then set a salary based on a percentage of what the pastor is projecting to raise.
In other words, the pastor is a W-2 employee with a salary set at 80% (for example) of his fundraising goal.
If the pastor reaches his fundraising goal three months in a row, the church can give him a bonus. If he does not reach his goal three months in a row, then the fundraising goal and the salary percentage can be re-evaluated.
These donations should be marked as “Salary Support” and should not have the pastor’s name on them.
The church must commit to pay the salary whether the funds are raised or not. The church board must decide if and when the salary needs to be adjusted.
Typically, when donor’s give love offerings, they have an intended specific recipient in mind. Because the gift is given with the intention of the gift benefiting a specific individual, the gift is not tax deductible. Further, the gift is taxable income for the recipient. There are exceptions, however. In the case of a “love offering” for distribution among multiple staff members, if leadership is determining the specific recipients and the allocation of funds between the recipients, then donations to that love offering fund are tax deductible. Payment of the love offering is taxable income and subject to IRS reporting.
All monies donated to missions trips are considered tax deductible donations. However, it is imperative that the church publish, in the fundraising documents, a statement saying that any monies not used for the trip will be released into unrestricted income for the church to use at their discretion. Some churches say that any monies not used for this trip will be released to the missions budget. Whichever way you choose, it’s important to know that if this statement is not included in the fundraising documents, then the donation is restricted and can only be used for that trip or it has to be refunded to the donor.