With the January 1, 2018, implementation of the Tax Cuts and Jobs Act, the landscape will change for many nonprofit organizations and their donors alike. Here are a few of the changes that have received the most attention:
- Many nonprofits engage in business activities that have little or no connection to their core, nonprofit purpose. Revenue from such activity is taxed as unrelated business income. Under the Act, even small nonprofits could face greater tax liability on this income.
- For larger nonprofits, organizations that pay any of their top five compensated executives $1 million or more may incur a new 21% excise tax.
- Certain private colleges and universities will face a new 1.4% excise tax on net investment income (including earnings on endowment funds).
- On the donor side, the standard deduction has been increased, other deductions have been eliminated or capped, and the estate and gift tax exclusion amounts have been raised significantly. While this is certainly good news for taxpayers, many in the nonprofit sector fear that reduced tax incentives will ultimately result in fewer donations.
The consequence of these and other changes will likely be increased tax obligations for many nonprofits, which, at the same time, may experience a reduction in income from donations.
The attorneys at Wright Beamer are privileged to represent a number of nonprofit clients and to sit on the boards of others. Now, more than ever, it is vitally important for all nonprofits, regardless of their size, to work closely with their attorneys and accountants to keep abreast of and in compliance with changes in the law. If you need help, call our office at (248) 477-6300.