Nonprofits Increasingly Feel the Impact of the Tax Cuts and Jobs Act

Change is in the air, in the nonprofit arena. The Tax Cuts and Jobs Act (TCJA) was enacted at the end of 2017, but its impact is only just beginning to be felt in many areas. A recent article from The NonProfit Times examines what is in store for nonprofits.

Funding – The biggest item of the TCJA that impacts nonprofits is the increase of the standard deduction. As a result of the increase, fewer taxpayers are itemizing their deductions—and fewer are choosing to donate to non-profits in order to reach the threshold for itemizing. This disproportionally impacts middle-income donors, because wealthier taxpayers will still itemize their deductions.

In addition to the change in the standard deduction, the TCJA cut the tax incentive for bequest income, removing another incentive to make charitable donations. While this has not had a huge impact yet, it is expected to in the future, as taxpayers revise their wills.

While charitable donations from private taxpayers have been impacted, the TCJA did not change corporate and foundation giving. That said, with experts predicting a fall in the stock market, it is possible that philanthropic support from corporations will also take a hit in the near future.

Expenses – For most nonprofits, paying employees is the largest cost. This will hold true now that the Fair Labor Standards Act (FLSA) has gone into effect. The FLSA mandates overtime pay for employees earning less than $35,568 annually.

On the other side, nonprofits are breathing a sigh of relief as the qualified transportation fringe benefit tax included in the TCJA is likely to be eliminated. This tax required many nonprofits to file a Form 990-T for the first time.

Lastly, the Internal Revenue Service (IRS) has indicated that it is planning to address the impact of the TCJA’s unrelated business income tax provisions on nonprofits.

Electronic Filing – Another requirement of the TCJA that impacts nonprofits concerns Form 990 informational returns. As of the calendar year 2020, the IRS will only accept Forms 990, 990 PF, 990-EZ, and 990-T electronically. The goal of this requirement is to increase public access to the data included in these forms (which is made much easier when they are all submitted electronically). This is impactful for nonprofits in two regards:

1. For nonprofits who have not field Form 990 returns electronically in the past, there will be a learning curve, and
2. Since the forms will be more readily available to the public, nonprofits will need to pay more attention to how they present themselves.

For more details, read the article in full at The NonProfit Times.