What’s In the New Tax Bill: Summary of Provisions
The new tax bill contains a number of provisions that affect fundraising and charities, both directly and indirectly. You can read about some suggested strategy and tactics for fundraising in light of the new bill here. Here, AFP has rounded up all the parts of the bill that affect fundraising and the charitable sector.
The following provisions will affect fundraising and the fundraising process, either directly or indirectly:
- Doubling the standard deduction, from $6,000 to $12,000 for individual taxpayers, and from $12,000 to $24,000 for couples. With the higher standard deduction, fewer taxpayers will itemize (including charitable contributions). Research shows that giving could drop between $12 - $20 billion annually because of this change, though see here for more perspectives on what might happen in 2018.
- Reducing the corporate tax, including the unrelated business income tax, to a flat rate of 21 percent. For many corporations, this will be a significant drop in their tax rate.
- Increasing the adjusted gross income (AGI) limitation for cash gifts from 50 to 60 percent, but only for those donors who still itemize.
- Expanding the estate and gift tax exemption to $11 million (for individuals) and $22 million (for couples) for estates of decedents dying and gifts made after December 31, 2017, and before January 1, 2026.
- Eliminating the Pease Limitation, which acted as a surtax on high-income taxpayers by reducing the value of their itemized deductions by three percent.
- Repealing a provision in the tax code that allowed the IRS to create an optional tax return that nonprofits could file in lieu of providing donors with written acknowledgment of contributions. With the repeal of this provision (for which the IRS was still in the process of developing regulations), donors must continue to substantiate any contribution of $250 or more for which they take a deduction with a written acknowledgement, as has been previous practice.
- Repealing special rules related to a deduction if a taxpayer received the right to purchase tickets or seating at an athletic event, allowing the taxpayer to take some of the payment as a charitable deduction. With the repeal, no portion of the payment can be treated as a charitable deduction
The following provisions affect charities and nonprofits directly, but don’t affect fundraising.
- Creating a new 1.4% excise tax on net investment income of nonprofit colleges and universities with assets of at least $500,000 per full-time student and more than 500 full-time students.
- Imposing a 21% excise tax on compensation for certain nonprofit executives making over $1 million annually, and a 21% tax on excessive severance payments (defined as three times the individuals’ annual wages).
- Requiring organizations to determine their unrelated business taxable income separately for each such unrelated business activity. Previously losses from one unrelated business activity could offset gains from another. Now, a net operating loss deduction is allowed only from the unrelated trade or business from which the loss arose.
- Imposing unrelated business income tax on organizations that provide transportation and/or parking benefits to employees. Employees can still receive these benefits tax-free, but charities must now pay unrelated business income tax, in addition to the cost of providing those benefits.
- Elimination of the deduction for individuals who itemize memberships in trade and professional associations, or with charities that have dues-paying members. However, membership dues can still be deducted as business-related expenses.
Seek a qualified attorney for a full understanding of each provision and how it might affect your organization. For how some of these provisions will affect your fundraising, click here!
Related AFP ResourcesSummer 2009 Public Policy Update
Senate Passes Bill Tax Reform Bill Without Universal Charitable Deduction
Tax Reform Bill Would Reduce Giving, Repeal Johnson Amendment
Charitable Giving Coalition Sends Letter on Trump Tax Plan
AFP Statement on the 2016 Elections