With most of the press on tax reform focusing on businesses and individuals, it’s easy to assume that tax-exempt organizations are not affected by it. This is not the case, and there are several provisions that affect not-for-profit organizations. Below are the main provisions not-for-profits need to plan for.
Increased Charitable Deduction Limit
The good news is that beginning in 2018 the limitation on deductions for charitable donations is increased from 50% to 60% of a donor’s adjusted gross income. This may incentivize some donors to contribute more so they can claim the maximum deduction.
Employee Fringe Benefits Taxed
While the donation increase is great, there are also other provisions that make things more complicated and potentially costly for some organizations. Organizations that provide their employees with certain fringe benefits may be subject to unrelated business income tax (UBIT). Taxable income will be increased by the amount that an organization spends on parking, transit passes and other transportation benefits for their employees. Expenses related to on-premise gyms or athletic facilities will also increase taxable income. This new rule only applies to those athletic facilities that are located on the organization’s premises, are operated by the organization, and are normally used by only employees of the organization and their families.
Excise Tax for Private Colleges and Executive Compensation
Also beginning in 2018, certain private colleges and universities will have a 1.4% excise tax imposed on their net investment income. Additionally, a 21% excise tax is imposed on any organization with excessive executive compensation—typically any wages over $1 million, as well as excess parachute payments.
These new rules went into effect on January 1, 2018, so it’s critical to determine if any of the above circumstances pertain to your organization as soon as possible. Contact an Anders advisor for help with planning strategies.
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