During ANN’s annual membership meeting, several members expressed concern about the impact on nonprofits of the recently passed federal tax bill. ANN is a nonprofit ally member of the National Council of Nonprofits, which has compiled a detailed resource guide on how the new federal tax law impacts charitable nonprofits. Below, we have highlighted just a handful of the changes and issues of interest to board members, nonprofit staff and donors.
The law made major changes to the tax code, including removing personal exemptions, approximately doubling the standard deduction, and changing the tax rate. This means that nearly all employees will want to change their withholding rate by filling out a new W-4 with their employer, and that employers will need to change the amount that they are withholding from employee paychecks. The IRS released updated withholding information on January 11th, to be implemented by employers no later than February 15th.
Since donors only receive a tax benefit for charitable giving when they itemize their deductions, doubling the standard deduction will likely have a significant negative impact on fundraising revenue. The Tax Policy Center estimates that 21 million fewer households will itemize, which could decrease charitable giving by as much as $20 billion annually. In addition, the law doubled the exemption for the estate tax, and scheduled it to be completely removed by 2025. According to the Tax Policy Center, “abolishing the estate tax could reduce charitable bequests by…roughly $4 billion.”
The tax bill does raise the current cap of 50% of adjusted gross income for charitable contribution deductions to 60% for those high-income individuals that can itemize.
The Joint Committee on Taxation estimated that a even a loss of $13 billion in donations would result in the loss of between 220,000 and 264,000 nonprofit jobs across the U.S.
Previously, nonprofits with unrelated business income from several lines of business could aggregate the profits and losses to reduce their overall tax. The new tax law prevents this aggregation, likely increasing tax paid. See page 96 of this KPMG documentfor more information.
While this doesn’t necessarily apply to Nevada, deductions for state and local income taxes are now limited to $10,000. Some states, like California and New Jersey, are considering providing a tax credit to taxpayers who make contributions to a state-operated nonprofit organization in order to recapture that lost deduction in a novel way.
The resource guide is a must-read, and also includes a link to a recorded webinar, “Now What: How the New Federal Law Impacts Charitable Nonprofits”
One of the most important responsibilities of ANN is to educate and advocate for sound legislation that supports the nonprofit sector in Nevada. If you have any additional questions about the new tax law and its effect on your nonprofit, or you wish to become more involved in our nonprofit advocacy work, please contact us at info@