How the New Nonprofit Tax Bill Will Affect Nonprofit Organizations
Most people think that, as a tax exempt entity, nonprofits never have to worry about taxes. This is far from true. For example, there is a new nonprofit tax bill that will have a significant impact on nonprofit organizations. Learn more about how it will affect your nonprofit and what you can do about it.
Much has been written about the new nonprofit tax bill. News stories report where various politicians stand and why the new bill is necessary. However, exactly how it will affect nonprofit organizations has not been fully explained.
What’s in the New Nonprofit Tax Bill?
The new nonprofit tax bill that was just passed might affect nonprofit donations. This is especially true if your nonprofit receives private donations from people that make less than $80,000 per year. In that case, you might start getting fewer donations. This is because the Alternative Minimum Tax (AMT) has been increased from $12,000 to $24,000.
What this means is that people can just take a standard deduction of $24,000. Then, they don’t have to itemize all their taxable expenses like they had to do in the past. People making less than $80,000 who do not have a lot of write offs might not want to itemize. If they do, they may have to pay an accountant to do their taxes. Also, it might work out better from a tax standpoint.
For those who do itemize deductions, things are different. They can take a deduction for charitable gifts that equal at least 60 percent of their adjusted gross income. Before the new nonprofit tax bill, that number was just 50 percent. This is designed to be an incentive for wealthier donors to give more.
In truth, however, itemization occurs in less than 30 percent of tax returns. Experts expect that number to be even lower under the new nonprofit tax bill. Studies show that more than 80 percent of individual giving is made by people who itemize.
Also of note, giving to university athletics is predicted to fall off considerably. This is due to the fact that, with the new bill, the 80/20 rule will no longer apply. They will not be able to deduct 80 percent of the payment for a seat license at events. Moreover, preliminary reports estimate that these changes will result in a $20 billion decrease in charitable giving.
According to a study by the Lilly School of Philanthropy, this new law will have a catastrophic effect on donations. It puts charitable giving out of reach for approximately 90 percent of Americans. For instance, many nonprofits experience a burst of giving activity at the end of the year. People scramble to get their donations in to qualify for tax deductions. Without this incentive, there may be a smaller inclination to give.
There are also changes to the treatment of unrelated business income. Not for profits will no longer be able to use the losses from one unsuccessful business to offset or avoid the taxes on another unrelated business.
The law will also affect how your 501c3 organization uses bonds to refinance capital projects and construction activities. Previously, the interest on these bonds was tax exempt, which can reduce the interest payments and cost of borrowing. While this will increase federal tax revenues, it will likely have a negative effect on your bottom line.
Many in the nonprofit field believe that the new nonprofit tax bill will cause a ripple effect. It will result in cuts to many social programs. However, the need for these programs will continue to grow. Also, competition for state and federal dollars will be at peak levels. Historically, the federal government accounts for more than a third of the revenue for nonprofit organizations.
In the nonprofit world, every dollar counts. All this means that you may also not be financially able to hire the staff you need to conduct programs. Many nonprofit organizations will now need to seek new revenue streams.
American charitable giving has been steadily increasing for decades. Nonprofit experts now expect that to change.
These new changes have proven very unpopular and thousands of charitable organizations have joined together to oppose it. Overall, this new law represents the biggest changes the nonprofit world has seen since the Reagan administration.
Will the New Nonprofit Tax Bill Affect Your Organization
The AMT might matter to nonprofits because people who use the AMT method instead of write offs cannot write off money given to charity. However there is a strong possibility that it will not affect your nonprofit. To find out, ask yourself these questions:
- Do your donators give money because they get a tax write off or because they believe in your cause
- Do people who donate to your nonprofit make under $80,000 a year? It’s unlikely that many of them do because people in this category usually don’t have a lot of excess money and disposal income to donate to charity.
- Do your donors really understand that their donations are no longer tax deductible?
- Although wealthier people, who usually donate to charity in larger sums, will receive a significant tax break so they will have more money to donate, the question is: Will they?
- Since consumer confidence is at an all-time high does that mean more people will have confidence to donate?
What Can You Do to Lessen the Effects of the New Nonprofit Tax Bill?
When you are unable to raise the same amount or more money than the previous year, your nonprofit organization may suffer. You may discover that you are unable to make payroll or meet expenses. That’s when a nonprofit line of credit (LOC) comes in handy.
If you find that the new nonprofit tax bill will have a negative effect on your organization and fundraising efforts, that’s not a cause for worry. Financing Solutions (www.financingsolutionsnow.com) is the leading provider of a line of credit to nonprofits.
Many nonprofits experience problems due to a delay in government reimbursements, unexpected expenses or other emergencies. A LOC is an excellent place to turn to when your cash flow is down. It costs nothing to set up and there are no charges or fees until you actually use your line.
Once you do use your line it is very inexpensive. Best of all, a LOC from Financing Solutions requires no collateral.
Additionally, it is easy to set up and keep in place. Our application asks only 10 questions. Once you have submitted the application, we will review it and then send you a written offer to consider.
After you have been approved, your line will be set up in 2-3 days and you will instant access to funds when you need it. More importantly, you can pay the line off at any time.
New Trends and Rules for Nonprofit Success
There are numerous challenges on the horizon for nonprofits. The new nonprofit tax bill, changes in healthcare laws and requirements, and midterm elections are just a few. As a result, the future of nonprofits has never been more uncertain. You must stay on top of new trends and rules to ensure success for your nonprofit organization.
Collaboration with other organizations will be crucial. No man is an island and neither is your nonprofit. It’s likely that you didn’t get where you are without help from others. Why should your nonprofit be any different? As you work to keep your nonprofit in operation, it’s easy to develop a silo mentality. However, it is vital that you get out, cooperate and interact with others, both for profit and nonprofit companies. You can share ideas and solutions and learn about best practices.
Invest in training. Many nonprofits think they don’t have the time or resources to properly train staff. They also worry that once staff members receive training, they will leave. On the contrary, it’s even worse if you don’t train them and they stay. Your workers must know how to engage donors, understand your clientele and input data correctly. If not, that’s when disaster can strike. When you train your staff and equip them to handle any situation, your organization will quickly reap the benefits.
Don’t forget about social media. Today, most people are on some form of social media several times a day. Since that’s where they are, it is also where you need to be. When they check their Facebook page, they should see information from you. You can Tweet about your latest triumph. Use Instagram to post photos from a recent event or program. The Facebook page you create for your organization should tell your story. It should also show examples of your accomplishments and make a clear case for why you deserve support. If people care about your work, they will help you spread your messages and involve themselves in your organization.
The need to find nonprofit funding opportunities is more important than ever. Fulfilling your mission and delivery of comprehensive services is what your organization is all about. Don’t let a lack of money deter your goals. Instead, you must discover other ways to generate cash.
More and more nonprofits are finding the answer with nonprofit funding from Financing Solutions. They will help you with the money you need to start programs on time, make payroll and achieve your purpose.
If your nonprofit would like a line of credit that you can use when cash flow is down please visit www.fscreditline.com/np to learn more, to apply and to receive a written offer. A Line of Credit for your nonprofit costs zero to set up and zero until you use it, making it an excellent backup plan.