What the new tax rules mean for your non-profit and how you can use them to your advantage.

The recent changes to the tax code have left many non-profits wondering how these new rules will impact their operations and financial planning. While navigating these changes might seem daunting, understanding the key aspects can open up opportunities for your organization to thrive. Here’s a breakdown of what the new tax rules mean for your non-profit and how you can use them to your advantage.

1. Increased Standard Deduction and Charitable Giving

One of the most significant changes is the increase in the standard deduction. This adjustment means fewer taxpayers will itemize their deductions, potentially reducing the incentive for individual charitable contributions. However, this can be turned into an opportunity. Non-profits can emphasize the importance of charitable giving by educating donors about the benefits of bunching donations. By making larger contributions in a single year and itemizing those deductions, donors can maximize their tax benefits. Hosting informational sessions or providing resources on strategic giving can encourage this practice and maintain donation levels.

2. New Provisions for Corporate Giving

The new tax rules have increased the limit on corporate charitable deductions from 10% to 25% of taxable income. This change presents a valuable opportunity for non-profits to enhance their relationships with corporate donors. Non-profits should proactively reach out to businesses, highlighting the increased tax benefits of charitable giving. By showcasing the positive impact of corporate donations and offering partnership opportunities, non-profits can secure more substantial and consistent support from the business community.

3. Impact on Unrelated Business Income

The new tax code introduces changes to the treatment of unrelated business income (UBI). Non-profits now need to separately calculate UBI for each unrelated business activity, rather than aggregating income and losses. This means that losses from one business activity can no longer offset the income from another. To manage this change, non-profits should conduct a thorough review of their revenue streams and consider restructuring or divesting unprofitable ventures. By focusing on the most lucrative activities and ensuring compliance with the new rules, non-profits can optimize their tax position.

4. Excise Tax on Executive Compensation

A new 21% excise tax on executive compensation exceeding $1 million per year has been introduced for non-profits. While few organizations are directly affected by this rule, it underscores the importance of transparent and reasonable compensation practices. Non-profits should review their executive compensation packages to ensure they are justifiable and align with industry standards. Transparent reporting and justification of salaries can help maintain donor trust and avoid potential penalties.

5. Expanding Donor-Advised Funds

The popularity of donor-advised funds (DAFs) is expected to grow under the new tax regime. DAFs allow donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants over time. Non-profits can benefit by building relationships with DAF sponsors and advisors. By engaging with donors who utilize DAFs, non-profits can secure long-term commitments and cultivate a steady stream of future donations.

6. Advocacy and Education

Finally, non-profits should not underestimate the power of advocacy and education. By staying informed about ongoing and future tax changes, non-profits can actively participate in policy discussions that affect their sector. Additionally, educating donors and stakeholders about the implications of tax changes and the importance of continued support can reinforce donor engagement and commitment.

In conclusion, while the new tax rules present challenges, they also offer strategic opportunities for non-profits to enhance their operations and fundraising efforts. By understanding these changes and proactively adapting, non-profits can continue to thrive and make a meaningful impact in their communities. Stay informed, be strategic, and leverage these new tax provisions to your advantage.