There’s been much discussion recently about how the Tax Cuts and Jobs Act, which became law on December 22, 2017, will affect charitable contributions. It’s an important conversation. But there are other issues arising from the act that nonprofits should be aware of. Here are several from the 2018 Tax Law Checklist published by the National Council of Nonprofits. To view the complete list and get more information, view the checklist and the Council’s resource page for charitable nonprofits.
As always, we offer the following for your information and not as tax advice. If you have questions, please consult an accountant or tax advisor who’s knowledgeable about nonprofit finances and taxes.
- Income tax withholding. All employers, including nonprofits, that withhold federal, state, and local income taxes from employees’ paychecks must adjust withholding rates by February 15, 2018.
- Compensation over $1 million. An excise tax of 21 percent will be levied on nonprofits whose top five employees earn more than $1 million.
- Payment of on-site gym, parking, and commuting expenses. Tax-exempt organizations must now pay a 21 percent unrelated business income tax on these expenses. Pre-qualified tax plans for these purposes are still OK.
- Unrelated business income or losses. The unrelated business income tax rate has been changed to 21 percent tax. Changes in the ways these activities are anticipated. It also appears that losses from one activity cannot be used to offset income from another.
- Net operating losses. Net operating losses are now limited to 80 percent of taxable income, which for exempt organizations would mean 80 percent of unrelated business income.
- Tax-exempt bonds. Advance refunding bonds have been eliminated.
- Specializes in a particular activity. Some colleges and universities must now pay an excise tax on investment earns. Other types of organizations may also be affected by provisions of the law.
- Tickets for college athletic events in exchange for a donation. Donors are no longer entitled to deduct payments made to a college or college athletic department in exchange for college athletic event tickets or seating rights at a stadium.
The checklist also addresses changes affecting nonprofit employees’ individual deductions, discusses how the new law may affect fundraising, and explains that requirements for acknowledging charitable donations has not changed.
Thanks to the National Council of Nonprofits for allowing us to base this post on the checklist.
Suzanne Coffman is GuideStar’s editorial director.