How Long Should A Church Keep Financial Records?
As a pastor who loves to shepherd, teach, and connect with my congregation, it’s kind of hard to get excited about record retention guidelines and policies. Alas, church financial records are a necessary part of running every church. When done poorly, the consequences are steep:
- Inaccurate records can lead to missed tithes, untracked donations, and errors in budgeting, which disrupt your church's financial health.
- Failing to keep proper records could result in non-compliance with tax laws and audits, putting your church at risk of fines or penalties.
- Poor record keeping can lead to a lack of transparency, causing your people to lose trust in church leadership and your stewardship capabilities.
So, even if ledgers and worksheets are not your thing, hang in there. I've gathered recommendations and steps for you that will clarify the why’s and how-to’s of record retention. For starters, having effective church-giving software tools can make financial record-keeping simple (and you don’t have to be a tech nerd to be able to use them.)
General Recommendations
Records need to be maintained to show the supporting documents that the church complies with all tax rules and charitable requirements. You will need to be able to show a record of all receipts and expenditures for the year in question if ever audited. Keep records for as long as the statute of limitations runs on the return filed.
You may be asking, how long is that? Well, it depends.
IRS Guidelines:
Knowing how long to hold onto church financial records depends on the event or action that the record is documenting. The IRS has laid out guidelines for your reference.
Some records need to be kept permanently whereas others can be destroyed after only 3 years. However, before pitching those older records, make sure you don’t need to keep them for other purposes, such as for state or local taxes, insurance policies, or creditors.
What Types Of Church Records Should be Kept?
Here is a list of the types of records that should be kept and a timeline for how long to keep them:
Keep permanently:
- Application for recognition of tax-exempt status
- Determination letter recognizing tax-exempt status
- Corporate records and by-laws
- Board minutes
- Property records
Keep all records that support income and deductions reported on your tax returns. The retention period for these records is as long as the statute of limitations runs. The statute of limitations ends when the church can no longer amend the return and the IRS can no longer assess additional tax. In general, this period runs for 3 years after the return is due or filed (whichever is later).
Hold onto the following for 3 years:
- Financial statements
- Bank statements
- Checks, reconciliations, and canceled checks
- Accounts payable and receivable records
- Receipts for all expenses paid by the church
Employment information must be kept for four years after filing the fourth quarter for the year. This includes:
- Payroll tax records
- Employee expenses reimbursed
- Time cards
Digital Records vs Physical Records:
With all the advances in technology, keeping electronic records may seem like the way to go. Before making any decisions, check out this pros and cons list so that you can make an informed decision about what’s best for your church.
| Physical records | |
| Pros: | Cons: |
| Digital Records | |
| Pros: | Cons: |
Practical Steps for Record-Keeping
Church record-keeping can be less daunting with a list of solid practical steps to guide you. Follow these steps and you will be well on your way to creating and maintaining your records like a champ.
1: Establish a Records Retention Policy
A record-keeping policy establishes clear guidelines on which records should be kept, how they should be stored, and for how long. These records will include permanent records, such as by-laws, articles of incorporation, and board meeting minutes. There will also be non-permanent documents such as employment records and information filed for tax returns.
A record-keeping policy should include directions on how to dispose of records properly to maintain the confidentiality of sensitive information. Make sure the policy is laid out and simple to follow so you don’t need a PhD in Library Sciences just to understand it.
2: Use Secure Storage
Whether you keep a hard copy of everything or electronic records, you need to ensure that the documents are stored in a secure and organized location. Much of the information being stored may contain sensitive information.
Physical files should be kept in a locked cabinet or room with a limited number of people granted access to the information.
If your records are electronic, they should be password-protected or stored in a private drive where only the necessary people can access them.
At our church (New Life Fellowship, in Cambridge, Ontario), as with many I’m sure, we have a combination of physical and electronic records, depending on the nature of the document. Having one or another, or both, isn’t good or bad, so long as your church has a policy in place (see above).
3: Categorize and Label Records
There is nothing more frustrating than walking into a storage room (or computer drive) to find a document without structure or categories to help you search. It’s always in the last place you look, am I right?
Hours can be lost in the search that could have been avoided if the records had been organized and labeled properly. This is never more important than if/when you are being audited by the IRS. Save yourself some headaches by setting up an easy to use and clearly labeled file structure. You’ll thank me later.
4: Regularly Update Records
Keeping up to date with records is always the way to go. As churches grow and technology evolves, change is inevitable. Chances are that the mission and by-laws from 1972 are going to seem pretty outdated and irrelevant for today. It’s important to keep up to date on this information so your church can thrive in the time and culture we are living in today.
Not only that but keeping updated records will ensure that you are disposing of records that you aren’t required to keep anymore. This will help with storage limitations and make sure that the important information you may need is not cluttered and difficult to find.
5: Ensure Compliance with Legal Requirements
Familiarize yourself with local laws, and state, and federal requirements for record-keeping and filing of tax returns. Seek out legal advice where applicable. (This can be a daunting task to take on, especially if you are like me and you didn’t get into pastoring because of your passion and heart for library information sciences.)
Finding the right people to have on your church finance committee (or board of directors) is key to maintaining proper records and ensuring compliance with all regulating bodies in your area. I’m so thankful for the board of directors at my church (New Life Fellowship). I know I can trust them with the details of the church finances, and it takes a load off me (mentally and physically) to be able to leave it in their hands.
6: Train Staff and Volunteers
Now that you have established a clear and well-rounded record-keeping policy, it’s time to train all relevant church staff and volunteers on how to follow these guidelines. Make the policies readily available for them to see and regularly communicate the procedures outlined so they know how and when to implement them.
Looking For More Information?
Managing financial records is just one aspect of pastoring a church. If you want more resources on this or other aspects of financial management, I’ve got you covered.
- Increase your online giving with effective online donation web pages
- Effectively ask for donations at your church with short offering messages
- Discover what Scripture does (and doesn’t!) say about giving in the bible
- Discover the great benefits of utilizing best church accounting software tools
Conclusion
Knowing how long to keep church records depends on the retention requirements of that record.
It’s not always a straightforward answer, but if you follow the steps outlined above, you will be well on your way to establishing and maintaining reliable and efficient church records for years to come.
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