The recently enacted tax law has both direct and indirect effect on nonprofits. The indirect effect is the decreased tax incentive for charitable contributions that results from doubling the standard deduction, decreasing individual and corporate tax rates, and increasing the estate tax exemption. It is difficult to know how these will affect charitable giving, but the huge increase in online giving at year-end (The Chronicle of Philanthropy reported that online donors gave 38% more to charities during the last week of 2017 than in the last week of 2016) indicates that tax incentives do impact charitable giving. The fact that individuals can now deduct cash contributions to qualified charities up to 60% of adjusted gross income (previously 50%) isn’t likely to do much to offset these disincentives.
Unrelated Business Income
Although lower rates will apply to nonprofits paying unrelated business income tax, a new provision restricts losses from one unrelated activity from being offset against other activities.
Unrelated Business Income Taxation will also be applied to certain fringe benefits paid for by tax exempt organizations for qualified transportation fringe benefits, or for on -premises athletic facilities. There is also an excise tax on certain nonprofit salaries exceeding $1 million.
Moving Expense Deductibility
If your organization pays moving expenses for new or current employees, these are no longer excludable from taxable income. This may require nonprofit employers to pay more to make their employees “whole”.
Provisions That Did Not Make It into the Final Law
Several provisions did not make it into the final law, including:
- repeal of the Johnson amendment,
- changes to private foundation excise taxes,
- reductions to qualified tuition plans and employer-provided educational assistance,
- taxing the value of housing for the convenience of the employer,
- unrelated business income tax on royalties from licensing an exempt organization’s name, and from research activities where results were not made publicly available,
- enhanced donor advised fund reporting, and
- taxing interest on certain private activity bonds.