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New Tax Law FAQ: What Can Nonprofits Expect?

By Steve Anseth, CPA

The Tax Cuts and Jobs Act of 2017 has been a hot topic in the nonprofit world since it first began to take shape last year. Changes it introduces could affect how donors give in 2018 and in the years to come. Here are a few of the ways we expect it to impact the nonprofit community. 

Donors may now choose lump contributions over annual giving. 

One of the most significant changes brought about by the new law is the nearly doubling of the standard deduction to $12,000 for individuals and $24,000 for married couples filing jointly coupled with a maximum deduction of $10,000 for state income taxes and property taxes combined. For nonprofits, this means there may be no tax savings for donors who make a charitable contribution—at least not in the manner they have experienced in the past. In light of the new law, it may make more sense, from a tax standpoint, for donors to lump payments together rather than giving smaller amounts annually or over a longer period of time. 

For example, say a donor pledged $50,000 over five years. Giving $10,000 each year might prevent this donor from seeing any tax savings from their contributions. Instead, the donor may wish to lump several years' contributions together, for example, $25,000 in two different years or a donation of $50,000 every five years. 

Remember, in Minnesota, taxpayers who do not itemize deductions on their federal return may be able to subtract a portion of their charitable contributions from taxable income on their state return. This means donors may still see a tax advantage to annual giving.

At the moment, consider educating your development staff about the new law, particularly as it relates to the standard deduction, so they can give your donors options for securing a tax benefit. 

Corporations may "share the wealth" with nonprofits.  

Many corporations have announced plans to increase charitable giving as a result of the lower corporate tax rate, which is great news! Now may be the time to put more effort into seeking contributions from corporations of all sizes, especially those with corporate foundations. 

Certain nonprofits may see other impacts.

The new tax law has a few other potential impacts for nonprofits that appear to be focused on raising additional tax revenue for the IRS. Although these changes do not apply to all nonprofits, they could be quite substantial: 

•    There is a new 20 percent excise tax on certain salaries over $1 million for nonprofit employees. 
•    Organizations that have several “business lines” generating Unrelated Business Income Tax can no longer use the losses from one line of business to offset gains in another. 
•    Certain large universities could now see a 1.4 percent investment excise tax on investment earnings. 

Be informed—and be ready to change your approach to fundraising. 

The new tax law is effective for the 2018 tax year, which means this year's giving will be affected. Be sure to meet with your nonprofit CPA as soon as possible, so you can get up to speed about the changes that will directly—and indirectly—affect how donors support your mission.