Church Donation Software – Do you Need It?

This post was last updated on April 28th, 2023 at 03:59 pm.

Why Do Churches Need Donation Software?

We will explore the many reasons ‘why’ churches need church donation software. It goes without saying that donations are the primary revenue channel for the church. Through this collected revenue, the church continues its missions within the communities and outreach to the world.

Why can’t churches just collect the money and move on without recording it in a church donation software? Here are a few reasons below:

• Churches must record donations to meet IRS regulations.
• Donors need certain paperwork for their taxes.
• The donors might stop contributing if they don’t get the proper donation statements from the church.
• To show transparency to the congregation and build a trusting relationship.

The legal ramifications for not keeping donor records are straightforward. If you don’t follow the law, you pay a fine or worse- lose your organization’s tax-exempt status. Let’s focus on the less tangible issues noted above such as donors who stop giving, and showing transparency.

Keeping Your Donors Year After Year via Tax Records

A donors’ first thought when they are giving, isn’t some paperwork from the church they may need later on for taxes. They are emotionally connected to the story, sermon, or whatever else they are experiencing at the moment. Some donors, like the elderly, may feel a sense of obligation, instead of emotional attachment whereas the younger generation donates more from the emotional side. The deeper the donor’s emotional connection to the church’s mission, the better chances the church will see donations from that donor, year after year.

Even though a donor’s first thought when giving isn’t the records they need to file taxes, it certainly comes up when they are gathering their tax information at the end of the year. During tax season, many taxpayers have one thing in mind when doing their taxes — reduce their tax burden income as much as possible, legally. One of the ways to do this, is donating to various organizations like churches and taking itemized deductions in addition to all the other deductions that taxpayers get. These itemized deductions are what reduces their taxable income. Let’s look at a simple example.

Income tax example

You work for a company and make 100K per year. If there were no deductions in the US tax code you would pay taxes on the full 100K salary, or about a 15.009% tax rate in federal taxes, which is about $15,009 — using the wage bracket method from IRS Publication 15 — 2021. But in the US, we love our deductions and complex tax codes! 🙂

So let’s see how deductions work out to our benefit and the churches.

Deduction	Amount	Itemized Deduction
Health Insurance Premiums	$13,200.00	No
Health Saving Account	$7,000.00	No
Donations to Churches	$11,000.00	Yes
Roth Retirement Accounts	$6,000.00	No
Property Taxes	$15,000.00	Yes
Total Deductions	$52,200.00

Note: Although certain deductions above are not itemized on the individual’s tax return, they do affect the overall income that is reported to the IRS using the W2 report that they must file. In essence, they lower the individual’s income as well.

Without getting too far into the weeds, we will lump all of these deductions into one total but be aware of the following. Sometimes people take a standard deduction ($24,800 for married filing jointly) instead of itemizing deductions because their itemized deductions are less than the standard. However, in the case above, we will itemize deductions as they are more than $24,800. In other words, it pays to itemize this person’s deductions. Using this example, the taxable income is $47,800.00, which is the result of the equation $100,000 — $52,200 (total deductions above).

All of this isn’t possible without church donation software to track donations for each family which then sends statements to them for their taxes. Families need to have these statements to get these crucial itemized deductions.

How much would the taxpayer save in federal taxes?

Thus, the taxpayer would pay taxes on an income of $47,800.00, instead of the full $100K. The tax on the $47,800.00 would be about $2,365.00 instead of the original $15,009.00, giving a tax savings of $12,644.00. Additionally, the tax rate decreases from 15% to 2.365% — an 84% tax savings. Keep in mind this is only the federal income tax savings, as the person also saves on state, Medicare, and Social Security income tax.

Why are these tax savings important?

Simply put, people can choose how to spend their own money. For example, by donating to the church they will put that money toward a cause they believe in rather than letting the government decide what to do with it. It’s good to live in a country where the government recognizes goodwill and awards it with tax deductions. Now you can see why donor receipts are important to taxpayers.

Showing Transparency and Building Trusting Relationships

Recording donations into a church donation software builds trust into the process for the donors and church leadership. Why is this trust important? Donors want to ensure there is a concerted good faith effort to further the stated mission of the organization. When donors give money to churches they will hold them to a higher standard of transparency and accountability. When churches are accountable for this money and the donors see it spent wisely, it builds trust.

Think about it this way. When someone exchanges their money for a product and the product fails, the person has some ability to fix it. They can get a new product under warranty or they could return it. However, if churches do a lot of things wrong with donations, the donor’s only recourse is to stop giving. Donors can’t do much about the donations given in the past.

As donors, we need to remember that churches are led by imperfect humans and we need to give the church grace. In other words, mistakes will be made that you may not agree with. Thus, the question is how frequently do mistakes happen? Are they doing anything unethical or immoral with donations, and so on? Newer-forming churches are bound to make more mistakes than a church that’s been around for a hundred years.

Using Church Donation Software Helps Keep Your Donors

Church donation software, like IconCMO, helps retain your donors year after year. How does church software help? As we just discussed, donors give initially for the emotional connection and as the connection becomes deeper, they often give more.

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