The House and the Senate passed the Tax Reform Bill on December 19, 2017. This bill will change how you financially manage your nonprofit. This tax reform bill impacts several areas of taxation, including nonprofit organizations. President Trump signed the bill into law on the 22nd of December of 2017. This bill will set in motion a sweeping change that will benefit corporate America as well as educational nonprofits and much more.
Just like any other bill set in place, some things will remain the same, while other things will be changing. The biggest change that will be affecting nonprofits is the deduction limit for charitable contributions and the significant reduction in the corporate tax rate. Below, there is a summarization of the major points within the bill that every nonprofit financial manager needs to know. For a complete review of your financial management solutions, contact RBP Methods. We are happy to assist you with compliance with the new tax laws and review your nonprofit financial management strategies.
Taxation Changes that Will Affect Your Nonprofit
Many previous tax reform bills had barely any impact on nonprofits. However, this bill is different. This bill will offer many changes that you should be aware of as a nonprofit moving into the new year.
Here’s a summary of the major changes that will affect your nonprofit organization:
- The deduction limit for charitable contributions increased to 60% from the previous 50%. This may be a good time to add more donor campaigns to your nonprofit marketing and be sure to point out the increase to potential donors to encourage increases in donations.
- The corporate tax rate drops from 35% to 21%. This is a big change intended to free capital in the for-profit sector, but a change that will highly benefit your nonprofit.
- Section 529 plans are now available for both elementary and secondary education support, which may impact educational nonprofits.
- Unrelated business activities must report profit and loss as a stand-alone figure before accounting for the $1,000 deduction.
- There’s a provision in the House bill under which unrelated business income tax that includes any expenses paid or incurred by a tax-exempt organization for the following, provided such amounts are not deductible under section 274: qualified transportation fringe benefits, a parking facility used in connection with qualified parking, or any on-premises athletic facility.
- There’s a new excise tax on educational institutions. It generally applies to schools with 500 or more students with 50% of students located in the United States. The new Act includes a 1.4% excise tax on the net investment income.
- There’s a new 21% excise tax on compensation in excess of $1 million to the top five highest-paid employees at tax-exempt organizations. There are several exemptions, limitations, and qualifications for this, so you may wish to consult with the experts at RBP Methods for more details.
There are more changes in the new Act that were unable to be covered. The Johnson Amendment, for example, remains unchanged as it restricts 201(c)(3) organizations from directly or indirectly participating in political campaigns or activities.
You may read the Act in its entirety on the White House website.
Any change made to the tax code is sure to impact your nonprofit and feel disruptive. RBP Methods is here to help you understand and comply with tax changes and other issues impacting your nonprofit financial management.
RBP Methods is a nonprofit software and consulting firm that helps right-brained people navigate a left-brained world. We offer a wide range of consulting services focused on helping nonprofits manage their accounting and financial needs. Our software choices include Abila, AccuFund, and other nonprofit financial management tools. For more information, visit RBP Methods or call us at 503-648-9051.