Accounting for nonprofits will be impacted by the new Tax Cuts and Jobs Act signed into law by President Donald Trump on December 22, 2017. The act went into effect January 1, 2018. Although the new law impacts corporations, individuals, and nonprofits, the impact on nonprofit organizations is minimal. If you handle accounting for nonprofits, you’ll want to pay particular attention to the new provisions in the Tax Cuts and Jobs Act to ensure compliance with the law as well as utilizing every possible advantage.
A Summary of Major Changes.
A detailed analysis of the full law isn’t possible within this article. However, if you’d like more information, you can:
- Read the full document on the gov website.
- Review highlights of major changes from the National Association of Tax Professionals.
- Read an analysis of the act from the Brookings Institute.
Let’s take a look at the major changes impacting all, and especially nonprofits, from the Tax Cuts and Jobs Act.
- Changings affecting individuals expire in 2025.
- New tax tables and rates are in effect from 2018 through 2025.
- The system for taxing capital gains and qualified dividends did not change under the act, except that the income levels at which the 15% and 20% rates apply were altered (and will be adjusted for inflation after 2018).
- During 2018 the 15% rate will start at $77,200 for married taxpayers filing jointly, $51,700 for heads of household, and $38,600 for other individuals. The 20% rate will start at $479,000 for married taxpayers filing jointly, $452,400 for heads of household, and $425,800 for other
- The standard deduction increased through 2025 for individual taxpayers to $24,000 for married taxpayers filing jointly, $18,000 for heads of household, and $12,000 for all other individuals. The additional standard deduction for elderly and blind taxpayers was not changed by the
- The act repealed all personal exemptionsthrough 2025. The withholding rules will be modified to reflect the fact that individuals can no longer claim personal
Changes to Charitable Contributions of Note for Accounting for Nonprofits
The biggest change for those handling accounting for nonprofits is the changes to income-based percentage limits for charitable contributions. The income-based limit is now 60%.
The act also repealed provisions that provide an exception to the written acknowledgment requirement for certain contributions that are reported on the done organization’s return — a prior-law provision that had never been put in effect because regulations were never issued. That’s good news for those doing accounting for nonprofits.
The news that income-based percentage limits for contributions of cash might inspire donors to give more. This might be an excellent time to increase donor outreach, marketing efforts, and donor relations programs.
Mention the new income-based percentage limits in your outreach communications. Although the tax savings may not be the big reason why people give your nonprofit, all points, including your organization’s mission, vision, tax exempt status and effectiveness in its given area contribute to the overall impression it makes on donors. It can either encourage them to give more or turn to another charity.
Another thing to keep in mind is that changes to the laws also change the disposable income available to consumers. In other words, potential donors have a little more cash to spend or give as they see fit. Although some certainly want to spend or save it, others will give, and give generously. You may want to tie in your marketing programs to the changes and remind people to give now, before the end of the fiscal year, so they can claim charitable deductions on this year’s taxes.
The President hasn’t said if more changes are expected, so if you handle accounting for nonprofits, it’s fairly safe to assume that the tax laws now in effect will remain stable, at least through the end of the current administration’s term in office. Most of the changes found in the Tax Cuts and Jobs At will remain in effect until 2025, giving you plenty of time to adjust to them. You can move ahead with certainty on your plans to maximize the new law’s impacts for potential donors.
Beck & Company
At Beck & Company, we have extensive experience and a tradition of creative thinking, technical expertise, and a collaborative spirit that can help your nonprofit achieve its goals. Whether you want to increase donor confidence and support through transparent accounting practices or find a partner for your annual audit, we can help. Contact us today or call 703-834-0776.