Tips on taxes

How the new tax act could affect your nonprofit

By Brandon A. Perry

Nonprofit organizations across America have been on alert since passage of the new Tax Cuts and Jobs Act. The law contains the most sweeping changes to the tax code in over 30 years, which affects both nonprofit organizations and their donors.

Charitable giving is expected to decrease by at least $13 million due to changes to the standard deduction, according to recent research by the Indiana University Lilly Family School of Philanthropy. The same report, however, found that a new charitable deduction for non-itemizing taxpayers may generate up to $4.8 billion in additional giving.

Given the pros and cons of the law, the long-term impact of the act is unpredictable. However, experts say there are several steps charitable and nonprofit groups can take to prepare for the changes.

 

Seek professional guidance

Seeking advice from a professional tax consultant is one of the best ways a nonprofit organization can prepare for the changes. This can free up more time for an organization’s cause and prevent costly mistakes from not observing changes to the tax code.

 

Prepare for reductions in contributions

Perhaps the best-known effect of the new tax law on nonprofits is the potential decrease in donations. An increase in the standard deduction on personal tax returns could cause charitable giving to fall significantly. The deduction increased from $6,350 to $12,000 for single individuals and from $12,700 to $24,000 for married couples. The IRS says about 30 percent of taxpayers currently itemize their deductions. 

 

Adjust to new UBIT

The new tax act changes how the unrelated business income tax (UBIT) is calculated. Nonprofits should immediately begin tracking all sources of UBIT. They should also review different trades and businesses that generate UBIT and consider consolidating them for lower taxes. Some fringe benefits and rewards offered to employees will be subject to UBIT for the first time. Nonprofits should consider whether offering increased compensation would be a more tax efficient option.

 

Watch for changes to state tax laws

The Tax Cut and Jobs Act State caps local income taxes and property taxes. Some states and counties may face budget shortfalls because of this and could create new taxes on nonprofit organizations to make up for any loss in revenue. Tax caps and budget cuts could also lead to the reduction or elimination of state and local social programs. Nonprofits will be expected to fill the void.

 

Revamp you donor outreach and fundraising plans

Nonprofits can protect themselves from possible changes from the tax act by creating a new and energetic fundraising plan. This plan could be based on a successful communications model that will excite donors about contributing to an organization’s cause, regardless of the possible tax benefits.

Refresh newsletters, social media posts, brochures, fundraising events, press releases and websites. Treat donors and volunteers as valued, caring partners — not just faceless, nameless sources of donations and labor. Revamp plans to expand the volunteer roster, which may help your organization save resources and get people excited about actively supporting a meaningful cause. Taking these steps can offset any potential impact of the new tax act.

 

Sources: Indiana Department of Revenue, Indiana University Lilly Family School of Philanthropy and Peterson/Sullivan. I