If you are looking for a business that is not taxed to death then consider starting a not-for-profit church. This type of business will not be subject to general taxation, however, some exception do apply to this situation. Fortunately, if set up properly, you can run a very profitable and charitable organization that not only provides you with a low tax base business, but that also provides valuable services to your community.
In order to reap the most tax savings from your church organization you need to set it up as a not-for-profit organization. This means that you will need to incorporate your organization and then file for exempt status with the IRS, this is not as easy as forming an llc. Incorporation will require that you have a board of trustees, a written set of bylaws and a well organized church structure that includes oversight committees and other managing and monitoring positions. Once approved as a not-for-profit organization, or NPO, you will be required to file an annual information return (instead of a tax return) and you will also be required to undergo annual or biannual professional audits. The completion of these requirements will cost you money, so you will need to weigh the cost of tax return preparation and audits against your tax savings.
Clergy and Taxable Income
You may have heard that clergy members do not need to pay taxes. This is not entirely true. They are required to file an annual tax return just like everyone else. On their tax return they will be required to claim all of their income sources from their clergy duties including fees paid for performing ceremonies, wages earned, bonuses, tips, jury fees, retirement pay and commissions. The main tax advantage given to clergy members is that they have the option of paying into the Medicare and Social Security program. However, it should be noted that if the clergy member declines to contribute to these programs that they will not be able to draw benefits from them when they retire. Another tax benefit of being a clergy member is that housing allowances are generally not included in their gross income. This can save you hundreds of dollars in taxes each year.
Setting Up Your Church Organization
To get the most tax benefits from your church organization you will most likely want to start out as a for profit organization. Once your earning exceed $100,000 a year you will then need to reorganize your church as an NPO. This will provide your organization with a tax exempt status and save you on your higher income. In order to gain the tax advantages of a clergy member you will need to be ordained or licensed as a minister, depending on the requirements of your state. This professional status will entitle you to tax breaks and benefits when filing your personal income tax return.