The new tax bill signed into law last month came as a major blow to nonprofit organizations. The bill creates a number of issues for both nonprofits and the people that support them.
The tax bill includes provisions that will likely affect the amount of people giving charitable donations in 2018. These provisions include the doubling of both the standard deduction as well as the estate-tax exemption. These changes are estimated to result in a decline of charitable donations by as much as 6% or $22 billion. It is also expected to result in the loss of at least 220,000 jobs in the nonprofit sector.
Nonprofits face an even bigger challenge in the months to follow as Congress reduces the amount of money spent on safety net programs such as Medicaid, Medicare and the federal nutrition program.
The following are five things that every nonprofit needs to know about the 2018 tax bill.
The tax bill reduces the tax rate for corporations and other unrelated business taxable income (UBTI) for exempt organizations from 35% to a flat rate of 21%.
The new bill requires exempt organizations to calculate UBTI separately for each business or trade. This makes it impossible for nonprofits to use losses from one business or trade to offset the income of another.
The bill imposes a 21% excise tax on executives of nonprofits earning compensation over $1 million. It should be noted that this tax is imposed on the organization and not the employee receiving the compensation.
The tax bill eliminates carrybacks of net operating losses (NOL). It also limits NOL deductions to 80% of a taxpayer’s income.
Under the new tax bill, fringe benefits such as on-site gyms and transportation are treated equally between nonprofits and for-profits. Amounts spent on fringe benefits would increase the organization’s UBTI.
Vault Consulting offers accounting and financial management services for nonprofits. We can help you understand how the new tax bill will affect your organization. Please contact us for more information.