If you’ve ever dreamed of starting a new ministry, there’s a simpler way than the traditional and costly 501(c)(3). Here’s some exciting news. There is an option that’s generally less expensive and a lot simpler start a new ministry. We call it a Charitable C. It isn’t as well-known as a 501(c)(3), but for many, it can be a wonderful alternative to begin a new ministry or spinoff from an existing one.
This isn’t an entirely new idea, but it does need to be implemented with a knowledgeable clergy tax specialist. It can be adapted to work for ministries so that one can start and operate quickly and less expensively than applying for nonprofit status. The greatest benefit in using a properly set up and administrated Charitable Corporation for ministry is that the minister can keep Ministry Tax Status and benefits:
- Ministers’ Housing Allowance
- Clergy 403(b) Retirement Plan
- Social Security Exemption – Exempt status is available for ministers who have opted out of Social Security and received an approved Form 4361.
Tax Guidance with a clergy tax advisor familiar with this kind of ministry entity is necessary so you fully understand how to manage it what the limitations are. It’s ‘front-loaded’ so to speak and is really pretty simple to grasp with coaching in the beginning. We recommend a clergy tax advisor very familiar with clergy tax benefits and corporations to set it up and help you use it for the first year. Under these conditions we’ve seen it work really well for a variety of ministries; counselors, authors, consultants, speakers or anyone receiving royalties, are all examples of individuals who have successfully implemented a Charitable Corporation for their ministry work and befitted greatly.
Because it is not subject to the IRS rules for tax-exempt organizations, in the right situation it can provide significant benefits that are not available to tax-exempt organizations. The corporation will pay income tax on any net income but this can be avoided or minimized with proper tax planning. (We stress tax planning as a critical component to making it work well). It can even be set up to allow charitable deductions from donors.
Another of the fringe benefits of any corporation is the opportunity to use an Accountable Reimbursement Plan. If the employee/minister pays for ordinary and necessary business expenses from a personal account, the qualifying expenses can be reimbursed tax-free through that expense plan. Reimbursed expenses are deductible by the corporation.
Additionally, if the minister is the only employee of the Charitable C Corporation, a Health Reimbursement Arrangement (HRA) can be implemented. This can provide tax-free reimbursement for any healthcare related expenses including premiums for health insurance or long-term care insurance.
It may not be the right vehicle for every ministry but it has the potential to be a significant benefit to many. Discuss your ministry aspirations with a clergy tax specialist in a free, no obligation consultation to determine if this could be the right option for you. We’ve designed a complete and streamlined process that includes complete set up and guidance to help manage the ministry through the first year with personal coaching. Learn more or schedule a free consultation.