What expense category is Church Management Software (ChMS) Subscriptions?

For the modern church, managing a congregation effectively requires specialized tools. Church Management Software (ChMS) is an essential platform for tracking membership, managing donations, coordinating volunteers, and organizing events. The recurring subscription fees for these systems are a fundamental and necessary cost of ministry operations.

For church administrators and treasurers, it is crucial to categorize these expenses correctly for accurate financial reporting and compliance with IRS requirements. This guide will clarify how to classify Church Management Software subscription fees based on standard accounting principles and how to track them for transparent stewardship.

Church Management Software (ChMS) Subscriptions Category

The monthly or annual fees you pay for a Church Management Software subscription are an ordinary and necessary operating expense. Since you are paying for the use of a software platform that you do not own, these costs are best classified under dues and subscriptions or rent expense, based on the principles in IRS Publication 535.

For a church's functional accounting, these costs are typically categorized as a management and General (Administrative) Expense, as the software supports the overall infrastructure of the organization.

Important Considerations While Classifying Church Management Software Subscriptions

The most critical factor for nonprofit compliance is to accurately allocate the cost of the software based on how it is used.

Subscription vs. Perpetual License

• Subscription (Deductible Now): Your recurring fee for Church Management Software is a currently deductible operating expense.
• Purchased License (Capitalize): In the rare case you were to buy a perpetual software license outright, IRS Publication 946 states that this is a capital expense that must be capitalized and depreciated, typically over 36 months.

Functional Expense Allocation

This is a key principle for nonprofit accounting. A Church Management Software often serves multiple functions. For accurate reporting on the Form 990, you should allocate the cost of the software based on its use:

• Management and General: For functions like membership tracking and general communications.
• Fundraising: For functions like donation processing and campaign tracking.
• Program Services: For functions like volunteer coordination for a specific ministry or event registration for a church camp.

The Prepayment Rule

If you pay for a multi-year Church Management Software subscription in advance, you cannot deduct the entire cost in the year of payment. IRS rules require you to prorate the expense and deduct only the portion that applies to the current tax year.

Tax Implications and Recordkeeping

Properly accounting for your Church Management Software subscription is essential for your organization's financial statements and annual IRS reporting.

How to Report the Expense

For organizations that file a Form 990, the cost of the ChMS subscription is reported in Part IX (Statement of Functional Expenses). The total cost is allocated across Column (B) Program services, Column (C) Management and general expenses, and Column (D) Fundraising expenses, based on your allocation methodology.

What Records to Keep

You must have documentary evidence to substantiate the expense. Your records should include:

• The software subscription agreement.
• Monthly or annual invoices from the Church Management Software provider.
• Proof of payment, such as credit card statements.
• A reasonable, documented methodology for how you allocated the cost across functions.

How Fyle Can Automate Expense Tracking for Church Management Software Subscriptions

Fyle helps you manage and document your software subscriptions, ensuring every payment is captured and correctly allocated for financial reporting.

• Centralize Invoices: Forward and attach your Church Management Software provider invoices directly to Fyle for automatic and accurate data capture.
• Automate Recurring Payments: Fyle’s real-time credit card feeds can instantly capture recurring monthly subscription fees.
• Allocate Joint Costs: Easily split a single software invoice between program, administrative, and fundraising categories within Fyle.
• Automate Your Accounting: Sync all categorized and allocated expenses directly to the correct GL accounts in QuickBooks, Xero, NetSuite, or Sage Intacct.