Every church has different ways to categorize giving. Your Chart of Accounts just helps you sort what is given into these categories.
Your Chart of Accounts works like this: Whenever people give to your church, their donation will be imported under an account or a sub-account. The account or sub-account will dictate whether their donation is tax-deductible. You can then look back over your Chart of Accounts using reports (see Part 4 for more on Financial Reports).
When setting up your Chart of Accounts, consider the different ways that people give to your church. For example, tithes or offerings are different to missions giving, or a building fund. Generally, tithes go to the operation of the church, whereas a building fund pays for a new building. Because the money is going to two different places, you should set up a new account for both of them.
Learn how to create a new account at this link.
For each account, you can check a box to make all donations to that account tax deductible by default. For most accounts in your church, this is a useful feature. However, be aware of any accounts that are not tax deductible.
Make sure you keep up to date with the relevant laws in you state/country, and ask a legal professional if you’re unsure about whether donations are tax deductible.
Some countries allow all giving to be tax deductible so under Financial settings you can enable this option.
Sub-accounts are a great way to further categorize giving within your Chart of Accounts. They’re easy to set up (learn how at this link), and can carry across whether or not they are tax deductible based on the account they’re formed under or differ from the main account. Although you don’t have to set them up any differently, there are two main ways to use sub-accounts that you may find useful:
Sometimes, people want to give to a specific ministry. A person who wants to give specifically to your church’s feed the homeless ministry, for example, might give money under a ‘Feed the Homeless’ sub-account of a ‘One-off Gift’ account.
It is often also useful to categorize different donation drives under different sub-accounts. For example, a Missions Giving account might be made up of multiple sub-accounts for each time your church did a Missions Giving drive. If your church does Missions Giving every year, then the sub-accounts can just be 2013, 2014, 2015… and so on.
Regardless of what sub-accounts you set up (but especially when categorizing by subject), be sure that defining where money goes does not have any legal implications for your church. In some states/countries, being too specific about how donations are allocated can revoke your church’s status as a group or charity, along with any tax benefits that go along with it. Again, seek legal advice or consult the relevant laws if you are unsure.