Tax Changes Impacting Accounting for Nonprofits

The House and the Senate passed the tax reform bill late in 2017, and it will change accounting for nonprofits. This tax reform bill impacts many areas of taxation, including several that will impact nonprofit organizations. President Trump is expected to sign the bill into law, which will enact some sweeping changes that benefit corporate America as well as educational nonprofits, and more.

Some things remain the same, while others are changing. The biggest changes affecting nonprofits include the increase in the deduction limit for charitable contributions and the significant reduction in the corporate tax rate. Below, a summary of major points nonprofit financial managers needs to know. For a complete review of your nonprofit finances, contact Beck & Company. We are happy to assist you with compliance with the new tax laws and reviews and audits of your current financials.

Taxation Changes that Affect Accounting for Nonprofits

Many previous tax reform bills had little, if any, impact on accounting for nonprofits. This one, however, will offer many changes that you should be aware of as you move into the new year.

Here’s a summary of the major changes that will affect accounting for nonprofit organizations:

  1. The deduction limit for charitable contributions increased to 60% from 50%. This may be a good time to add a few donor campaigns to your nonprofit marketing and add this fact to encourage increases in donations.
  2. The corporate tax rate drops from 35% to 21%. This is a big change intended to free capital in the for-profit sector, but one that will also help your nonprofit.
  3. Section 529 plans are now available for both elementary and secondary education support, which may impact educational nonprofits.
  4. Unrelated business activities must report profit and loss as a stand-alone figure before accounting for the $1,000 deduction.
  5. There’s a provision in the House bill under which unrelated business income tax that includes any expenses paid or incurred by a tax-exempt organization for the following, provided such amounts are not deductible under section 274: qualified transportation fringe benefits, a parking facility used in connection with qualified parking, or any on-premises athletic facility.
  6. There’s a new excise tax on education institutions. It generally applies to schools with 500 or more students with 50% of students located in the U.S. The new Act includes a 1.4% excise tax on the net investment income. That’s not yet defined, so you’ll need to check back to see how this ripples through the new year.
  7. There’s a new 21% excise tax on compensation in excess of $1 million to the top five highest-paid employees at tax-exempt organizations. There are several exemptions, limitations, and qualifications to this, so you may wish to consult with the experts at Beck & Company for details.

There are, of course, more changes in the new Act, and some things are untouched. The Johnson Amendment, for example, which restricts 501(c)(3) organizations from directly or indirectly participating in political campaigns or activities remains unchanged.

You may read the Act in its entirety on the White House website.

Any change to the tax code is sure to impact your organization. Large or small, such changes can feel disruptive. Beck & Company is here to help you understand and comply with tax changes and other issues impacting accounting for nonprofit organizations.

Beck & Company

Beck & Company is a certified public accounting firm serving the greater Washington D.C. area and the Eastern seaboard. We offer consulting services, auditing, and software selection to help nonprofits with their accounting needs. Contact us today for more information or assistance.

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