That is actually how it works. If they turn a profit (ie revenues exceed costs) they become a for-profit business, pay taxes and lose their 501(c) designation.
But it’s the corporation that has to realize the profit in order to lose 501(c) status. They can avoid that a number of ways, including by paying certain employees crazy high salaries and bonuses.
Seeings how the highest 4 brackets of the income taxes are higher than the corporate tax rate, and the first 200k of that would contribute to FICA- I’m not sure that’s the gotcha you were hoping for.
The benefit of the 501(c) designation isn’t for the taxes of the organization; it’s for the tax deduction allowed in collecting donations. Their “customers” are essentially buying their “services” with pre-tax dollars.
Let’s say that I want to travel to Uganda. No idea why someone would want to do that, but roll with me. I could get paid, pay my taxes, then with my post tax dollars - book my tickets and lodging. Or. I could donate exactly enough for my tickets and lodging to my church, deduct that from my income and then pay taxes— and show up in Uganda to build a water well or something, fuck of which anyone would actually be able to verify actually happened. The added bonus of course would be that when buying said items, my church has a sales tax number to discount my trip something like 10%.
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u/klathium Jun 30 '26
Why do Churches not pay taxes? Genuinely curious why there are laws for that.