To ensure that your ministry is protected in the event of an audit, tax returns and other important records may be needed to quickly provide evidence that your church is operating transparently and legitimately. Regardless of whether tax-exempt status has been officially recognized by the IRS, all churches and religious organizations must maintain accounting records to justify a claim of exemption.
The following is a standard record retention policy for churches and other religious organizations.
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The most common types of required records that are typically kept by churches are minute books, banking records, property records, general ledgers, payroll records, and bylaws.
Your ministry does not necessarily need to retain every document that comes your way, but this is an area where the saying “Better to be safe than sorry” applies. The smart strategy when it comes to your church record-keeping is to determine what you need to keep. Then devise an organized way to file and maintain the records so they are easily accessible down the road.
When it comes to church records retention, the retention period typically falls into two timeframes: seven years or permanently. Why seven? This goes back to protecting yourself and your ministry. If your church is somehow audited, the IRS can go back a maximum of seven years when performing their investigation.
Items you will want to keep for seven years include payroll tax records and registers, Accounts Payable and Accounts Receivable records, bank statements, checks and reconciliations, acquisitions and disposition of property, contribution records, and other relevant employee records, such as payroll deductions, employee expense reports, and any records related to church staff.
Items you will want to keep indefinitely include your Articles of Incorporation, bylaws, congregation meeting minutes, board and committee meeting minutes, insurance records and payments (for property, worker’s compensation, etc.), all W-2s, W-3s, 1099s, and 1096s, your financial statements, your general ledger detail, and any tax-exempt documents.
There is no standard way for how organizations should keep records on file. This is purely up to your ministry. Those who prefer to keep things old school or are not very tech-savvy may choose to keep a hard copy of tax records and other documents of importance in a trusty filing cabinet or two. If your staff tends to rely more on technology, and you would rather keep things digital, you may choose to routinely save an electronic backup of each of the above documents in PDF format.
Whether you are new to keeping records for your church or are experienced in records retention, the process can be both frustrating and time-consuming when you need to tackle this challenge unassisted.
Fortunately, Aplos has created a solution that was specifically designed for church and nonprofit accounting situations just like this. Learn more about how Aplos can help save time and reduce stress for you and your ministry.
*The above information is merely a guide, and in no way represents legal advice. Please consult with an attorney to ensure that your church is 100% compliant and protected against an IRS audit.
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