Tithing Considerations for Business Owners

Written by Nick B. Nicholaou on . Posted in Articles

© 2006 by Nick B. Nicholaou, all rights reserved
President, Ministry Business Services, Inc.
Submitted to Leadership Handbooks of Practical Theology

Calculating a tithe for employees is easy because they receive a paycheck.  Doing so for business owners is more difficult because there are so many organization models, income sources, and accounting system standards.  The result has been that business owners are left to themselves to identify their own methods for calculating a tithe.  I hope this attempt at identifying factors for business owners to consider is the beginning of a discussion that helps many to do what our Lord challenged us to in Malachi 3:10-12:

Bring the whole tithe into the storehouse, that there may be food in my house. Test me in this,” says the LORD Almighty, “and see if I will not throw open the floodgates of heaven and pour out so much blessing that you will not have room enough for it.  I will prevent pests from devouring your crops, and the vines in your fields will not cast their fruit,” says the LORD Almighty.  “Then all the nations will call you blessed, for yours will be a delightful land,” says the LORD Almighty.  (NIV)

Over-Arching Considerations

As business owners, we wrestled through these issues and found ourselves having to work through a number of challenges.

  • If the IRS limits how much a business can write off of its contributions (10% of net profit for corporations, 50% of adjusted gross income for unincorporated businesses), should that be our guideline?  While this definitely impacts us, we asked ourselves what we would do if we lived in a country that offered no tax incentives at all.  The answer we came to was that we would honor God with our tithe regardless of any tax considerations.  Working through that one issue framed how we approached everything else.
  • Should we tithe before or after taxes are paid?  It seems clear in the Scriptures that we are to tithe based on pre-tax amounts.  Leviticus 27:30-33a says:  ‘A tithe of everything from the land, whether grain from the soil or fruit from the trees, belongs to the LORD; it is holy to the LORD.  If a man redeems any of his tithe, he must add a fifth of the value to it.  The entire tithe of the herd and flock — every tenth animal that passes under the shepherd’s rod— will be holy to the LORD.  He must not pick out the good from the bad or make any substitution.'”  (NIV)

This was told to those in an agricultural economy, and there are adjustments we need to make as we apply the principal in today’s economy.  But what it does not say is to tithe what’s left from all that your fields produce each year after you’ve paid your taxes.

  • How obligated should we feel to tithe?  2 Corinthians 9:6-8 says:  Remember this: Whoever sows sparingly will also reap sparingly, and whoever sows generously will also reap generously.  Each man should give what he has decided in his heart to give, not reluctantly or under compulsion, for God loves a cheerful giver.  And God is able to make all grace abound to you, so that in all things at all times, having all that you need, you will abound in every good work.  (NIV)  Rather than seeing our tithe as a bill to pay, we approach it cheerfully as a privilege.  In fact, giving to our church is my favorite part of worship because it is my tangible offering to our loving and gracious Lord.

Calculating a Business’ Tithe

Many business owners want their business to be a “tithing business”.  The best “first fruits” model (calculating based on gross earnings) is to have the business tithe 10% of its book net income before taxes.  This calculation should include all forms of income.

Considerations:

  • Sole-Proprietorship.  Sole proprietors might think they should use their Schedule C net profit / loss (line #31) as their tithing basis.  However, the amount on this line can be reduced by some tax incentives in a way that it is no longer “first fruits”.
  • Partnership.  A majority of partners must agree on being a tithing business.  If they don’t, individual partners should base their business tithe on their K1’s total of lines 1-11 in Part III.
  • S-Corporation.  A majority of shareholders must agree on being a tithing business.  If they don’t, individual shareholders should base their business tithe on their K1’s total of lines 1-10 in Part III.
  • C-Corporations.  A majority of shareholders must agree on being a tithing business.
  • Accrual Basis Accounting.  Accrual basis accounting refers to when income and expenses are booked.  Since this method recognizes both income and expenses when they’re incurred, the tithe should still be based on the book net income.

Calculating a Business Owner’s Personal Tithe

A business owner should personally tithe 10% of his/her income from all sources before taxes.  This includes all types of income received from the business (paychecks, rents, interest, leases, etc) and other sources.  Excluded from this calculation are any investments that have changed value— up or down— but have not yet been realized.

Business owners are cautioned from approaching the tithe like a tax.  U.S. tax regulations allow many expenses that are really personal expenses to be paid by the business.  When considering the spirit and intent of God’s challenge to tithe, however, these expenses must be backed out to arrive at an appropriate “first fruits” amount.

The goal is not to live by a strict rule, but rather to live a life reflecting the generosity we received from our Lord.  He challenges us to tithe and live generously towards his works.  These guidelines will help in working through the issues, establishing a starting point, and living the generous lives we intend.

Tags:

Trackback from your site.

Comments (16)

  • sylvia

    |

    Hi, I am a bit puzzled, should I tithe before I pay my rent and other business expenses?

    Reply

    • Nick B. Nicholaou

      |

      Hi Sylvia!
      That is a great question. I think it depends on a couple of factors, like if it’s your personal tithe or a business tithe. Also on your understanding of what “first fruits” are. My own approach is to tithe personally on my gross income (before taxes and rent, etc), and in business on net income less my income pulled before that line.
      For many, that may be something to grow towards. But I think it’s what was meant in first fruits.

      Reply

  • Kim

    |

    I have a rental property that is in an an LLC. I got my first check and was wondering if I should tithe from the business checking account before I pay myself or tithe out of my personal account after I receive it from the LLC. I want to honor God. So, I’m thinking that it wouldn’t matter how I do it. But can explain the pros and cons please?

    Reply

    • Nick B. Nicholaou

      |

      Hi Kim!
      As I understand it (though I’m not a CPA or an attorney), the LLC is a separate legal entity. If that’s true, then there are two entities that should tithe. That’s how I do it with the corporation we own. My approach is to tithe personally on my gross income (before taxes and mortgages, etc), and in business on net income less my income pulled before that line.
      I hope that helps!

      Reply

  • Jen

    |

    My current scenario is that I am the owner/operator of an LLC. My company is tiny…in the very beginning stages. My sales are just barely above my net expenses. That being said, I am not paying myself from the business, and I have no other income at this time (yes, I’m living by faith!)

    However, I’ve been a faithful “10% tither” for a number of years, plus I volunteer significant hours in ministry. Both of those things have radically changed for me in my new business environment. It feels extremely awkward to me to not be giving anything (not a guilt feeling, just seeking the right answer).

    I’m not sure at what point I’ll even be able to pay myself from the business, so I began tithing on every incoming dollar last month. That didn’t feel right, either, because I’m not paying myself and my family is not stable financially at this point.

    I certainly want to honor God in this process and I know fully well that no matter what the amount, He will honor it. However, I am looking for some clearer direction on this – any thoughts?

    Reply

    • Nick B. Nicholaou

      |

      Hi Jen,

      As the Lord supplies, we tithe. You should be tithing personally on your personal income (any income earned through all revenue streams like jobs, investments, and funds you receive from your business), and the business should also tithe. But the business tithe is calculated differently, and arriving at a ‘first fruits’ calculation is something to do prayerfully.

      We calculate our corporate tithe on net profits since we tithe personally on any income we receive from the business. We’re careful, however, to make certain that the corporate ‘net income’ tithe basis does not include expenses that would have been ‘personal expenses’ if not provided by the business (because our personal tithe is based on total income, vs the corporate tithe on net income). For instance, if the business were providing me with a car, I might back out that expense when calculating the corporate tithe.

      I hope that helps!

      Reply

  • Kristy

    |

    My husband and I own a trucking company. The company is set up as a C Corporation. I am the owner and my husband is an employee. All of our money is tied up in the company… the bills are paid through the company. I don’t receive a paycheck but I use the money whenever or however it is needed. My husband is paid weekly. We have massive overhead to keep the company running. How do I calculate our tithes? Do I deduct the overhead… or as first fruit pay 10% of all deposits.

    Reply

    • Nick B. Nicholaou

      |

      Your question has a few facets that need addressing, Kristy. The purpose of a C Corp is, in part to limit your liability should something bad happen. If you don’t conduct the corporation’s affairs appropriately (annual director/shareholder meetings, arms-length transactions, etc), the corporate veil can be pierced and a bad domino effect occurs. So it is important that whenever you ‘use the money’ that it is only for bonafide corporate expenses and not personal expenses.

      The next issue is how to calculate the tithe. For the business, the tithe should be calculated based on the net income exclusive of any personal expenses paid by the corporation other than salary. In addition, you and your husband should personally tithe based on his gross income.

      Reply

  • KIMBERLY J ANDERSON

    |

    My husband just started his own business and we want to start tithing again. So let’s say he gets 1000 for a job but we draw 500 do we tithe from the 1000?

    Reply

    • Nick B. Nicholaou

      |

      Good question, Kimberly! If your business is not a separate entity (like a corporation or LLC), then I recommend tithing on the income less the legitimate business expenses (stationary, telephone, etc). So, even though you may draw $500, the business expenses may be less than $200, meaning that you tithe on the remaining $800. If it is a separate entity, then the business tithes on its income less legitimate business expenses (including the salary you drew), and you and your husband would personally tithe on the amount that you drew.

      Reply

  • Atere C O

    |

    I have a building that I rent out but I have not collect the full construction cost in rent. Should I pay tithe on rent?

    Reply

    • Nick B. Nicholaou

      |

      Interesting question! The net of the rent received, less the current bonafide business expenses (that includes construction loan payments) should be tithed.

      Reply

  • Robin

    |

    HELP! I have been searching for help regarding tithing for the longest time and this is the first forum I have found that touches on this subject of small businesses. I have a small business, an LLC. I work for the government, primarily and only as the work is presented. One week I may bring in $250 and then next week $3000. I have two contract workers. I have no CLUE how to tithe from this. I began tithing off the gross the business brought in. My dad said that is not correct, but I he died before he could explain to me how to do this… please help. I don’t understand a lot the language you are using so can you dumb it down for me? lol Do I subtract the business expenses each month, rent, telephone, etc, and also the contract worker’s pay and then tithe on what is left? It is different each month and so I can’t give till the month is over as its difficult to calculate week by week. Does that make sense? I want to honor God more than anything but I am SO confused and want to do the right thing. Can you advise? Thanks for your time.

    Reply

    • Nick B. Nicholaou

      |

      Hi Robin,
      I’m sorry to hear of your loss… of your dad’s passing. Let me know if the following helps:
      * It’s okay for your business to tithe on a monthly basis, or even a quarterly one, once all your revenues and expenses have been calculated.
      * The business tithe is based on your net income for whatever period your tithe is based on (i.e. monthly or quarterly).
      * The only expenses to not include in the calculation are those—if any—that have gone towards what would be considered personal expenses (vs a business expense). A personal expense would be, for instance, groceries for your family. However, some groceries might be legitimate business expenses, like coffee and supplies for office staff. A good way to divide them is to picture a fully staffed office and ask, “What would they spend money on?” The answer would be office supplies like paper, pens, and so on.
      * If you take a wage or salary from the business, that can be included in the expenses too. The reason I mention it is that some small business owners don’t take a wage or salary, but instead only pull money out of the business as it is needed. The key to your personal income (the amount you take as a wage or salary) is that you tithe on it as you would any other personal income. The business tithes on its income, and you as a person tithe on yours.

      I hope that helps; feel free to ask clarifying questions.

      Reply

  • Willem Nelson

    |

    Hi there! My name is Willem Nelson. My wife and I own our own Graphic and Web Design business in sunny South Africa. We currently employe 10 people and our business is now 10 years old. For the past let say 5 years we were paying a tenth of our personal income as a tithe to our church we serve at. But until a year ago we were very unsure about how to tithe , and if wd should tithe our business income. In december 2015 our pastor started preaching about giving, and especially tithing. My wife and I like to give to other via giving money, serving at church, spoiling people around us, giving over and above our tithing. But that december the Holy Spirit spoke to me clearly that we should start tithing our business. I was clearly instructed to pay over 10% every time a client made a deposit into our business banking acount. Please understand, this is our journey with tithing, so I am not saying the Lord instruct all to do so. It must be something God has implanted in your heart to do. In any case, we started the 1st of January 2016 to pay over the tithe to our church every single time a payment came into our acount. The Word God gave me about this type of first fruit giving was the part in Bible about Cain and Abel. Both the brothers brought their offering to the Lord out of their “income” / “produce” , the difference between the two offerings was that the offering God eccepted was a “first friut” offering, the offering from Cain was not. He brought his offering not out of his first friuts. This made me realise that God did not want our “second hand” offering, He wants the offering that is exacly that – it needs to be an offering. We belief by giving our first friut like this, we take our faith away from our money and place it in God hands. We also believe that giving in this way we are taking the money paid to us by the “world” and moving it into Gods Kingdom. But let me tell you, the first 3 months doing this was extremely difficult as giving 10% of our income away has a major inpact on our cashflow, which was allready extremely tight. For the first 3 months, my wife and I could not pull our full salaries out of the business, we had just enough money to pay the bear nesessaties. It was very difficult, but we did not go hungry one day. We did not want to steal from the Lord, as He acused Isreal in Malachi. And even if we were only getting enough money to pay our major bills, we stiil kept on paying additionally our own personal tithe out of our salaries. Twice in that 3 months, we had to pay our staff a day late. It was very difficult for us, but we kept on being faithfull as we both were sure that was what we needed to do. Its now been 10 months later and our Business income has increased with 30% and its still growing. We gave the Lord 10% and He has increased our income with 30% This years has been a rough year for businesses in South Africa, companies are closing down and people are loosing their jobs but not us, by the Lords grace and His promises to open the windows of heaven, we are growing as a company. Even my wife and my own “sideline” ministries are being blessed. We are blessed with great relatinship and so many other things , that money can not buy! I want to encourage you guys to hear what God is asking you to give and stop looking unconsiously for ways not to give what is expected from you. Remember, you will and can not ever out give God! Blessing to you all and may God bless and purify your businesses to Hid glory!

    Reply

    • Nick B. Nicholaou

      |

      Hi Willem!
      Your comment is appreciated, and your response in faith to the Lord’s leading is terrific! I agree with you and in your basis, and with our personal tithe we do, indeed, tithe first fruits directly to the church with additional offerings beyond. With some business structures that have very thin margins due to ‘cost of goods sold’ it is not possible to give first fruits from every deposit. The Lord leads and directs, and requires different amounts from different companies. I am blessed by your faith and decision to follow God’s clear leading.
      Nick

      Reply

Leave a comment