Q: I’m a pastor of a local church and have some questions about groups and individuals that come to the church to do musical performances. I’d like to know what our requirements are as a church regarding the legal and tax requirements.
Churches often host music groups or individual performers for special events, raising questions about legal and tax obligations. Below, we address key considerations for churches when organizing such events.
Can We Collect an Offering to Offset Expenses?
Yes, churches may collect offerings to offset expenses such as travel, meals, and other performance-related costs. However, it is important to document the purpose of the offering and ensure it complies with the church’s tax-exempt status.
What Are the Rules for Collecting Offerings?
You can collect offerings in various ways, such as passing a collection plate, accepting contributions at the door, or using online donation platforms. Ensure transparency regarding the purpose of the offering.
Can We Sell Tickets to the Performance?
Yes, churches may sell tickets to performances, but this may trigger unrelated business income tax (UBIT) if the event is not directly related to the church’s religious mission. Consult a tax professional for guidance on UBIT implications.
What Should We Call the Offering?
It is acceptable to call the offering a “love offering” or “suggested donation,” but the terminology should not mislead donors. Clearly communicate whether the offering is tax-deductible or used to support specific expenses.
Do We Need to Issue Receipts or Tax Forms to Performers?
If performers are compensated with part or all of the offering, you may need to issue IRS Form 1099-NEC if payments exceed $600 for the year. Verify the tax status of the performers and maintain proper documentation.
Should We Explain the Purpose of the Offering?
Yes, explaining the offering’s purpose ensures transparency and compliance. Clearly state whether the funds will offset costs or support a specific initiative, and document this for recordkeeping.
Key Questions to Address Before Hosting
- Is the music group recognized as tax-exempt or a taxable entity?
- Is the church providing only the venue, or is it a church-sponsored event?
- Does the event align with the church’s religious mission?
- Is there a written agreement detailing the terms of the event?
Important Legal and Tax Considerations
Churches must avoid practices that jeopardize their tax-exempt status. For example:
- Avoid agreements to pass all collected offerings to performers without oversight.
- Limit compensation to reasonable amounts and document expenses.
- Ensure events comply with IRS guidelines for tax-exempt organizations.
For further guidance on love offerings and tax compliance, consult the Church & Clergy Tax Guide.
FAQ Section
1. Can the church keep a portion of the offering for expenses?
Yes, churches can allocate a portion of the offering to cover event-related costs, but this must be communicated to donors.
2. Are ticket sales always taxable?
Ticket sales may be subject to UBIT if the event is not directly related to the church’s mission. Seek professional advice to determine tax implications.
3. What if the performers are volunteers?
Volunteers who receive no compensation do not require tax reporting. However, reimbursed expenses may still need documentation.
4. Can the church promote the event on social media?
Yes, but ensure promotional materials align with the church’s mission and clarify any ticketing or donation procedures.
