Not-for-profit organizations were not among the “winners” under the new tax law. The law will affect organizations directly, such as provisions expanding the unrelated business taxable income (UBTI) category and indirectly, such as changes to charitable contribution deductions.

1. TOP PLANNING OPPORTUNITIES FOR NOT-FOR-PROFIT ORGANIZATIONS
Unrelated Business Taxable Income
Organizations will need to evaluate UBTI sources and accounting. UBTI has been expanded to include certain transportation and athletic
facility fringe benefits for employees, and it will be subject to the 21% corporate tax rate. Not-for-profits are also required to present and
calculate categories of UBTI separately. A specific, $1,000 deduction is available to offset the aggregate of all UBTI activities.
Individual Tax
Individuals will be able to deduct cash contributions up to 60% of their income, but they cannot deduct payments for college event
seating rights. The enhanced standard deduction may also result in fewer people itemizing their deductions, which is a disincentive
to donate. Charitable organizations should consider opportunities to help donors optimize deductibility.
Estate Tax
Review your sources of charitable giving to determine how much of your support comes from estates. Estate and gift tax thresholds
are doubled through 2025 to roughly $11.2 million per person, which may affect charitable giving strategies.
Tax-Exempt Bonds
Not-for-profits must include interest from “advance-refund” bonds issued after Dec. 31, 2017, in their gross income and should
consider how that will impact their financing strategies. Advance refunding bonds issued before Dec. 31, 2017, are excluded from
gross income.
Endowment Income
Private colleges and universities and certain public charities will need to forecast the effect of the new 1.4% excise tax on net
investment income. The provisions takes effect for private colleges and universities with at least 500 students and $500,000 in
investments per full-time domestic student.
Executive Compensation
Not-for-profits with highly paid executives will need to model the impact of the new executive compensation excise tax. Organizations
will pay a 21% excise tax on compensation of $1 million or more paid to the top five highest paid covered employees. The tax
excludes medical professionals acting as such.
Health Care Reform
Bad debt and uncompensated care may be on the rise for health care providers because of the repeal of the ACA individual
mandate. Starting in 2019, the penalty is eliminated for individuals who fail to obtain minimum health coverage.
Not-for-profit organizations were not among the “winners” under the new tax law. The law will affect organizations
directly, such as provisions expanding the unrelated business taxable income (UBTI) category and indirectly, such as
changes to charitable contribution deductions. Many of the tax law’s most stringent provisions, such as the excise tax on
executive compensation and the tax on endowment income, may only impact large not-for-profits in certain subsectors.
Nevertheless, every organization, no matter the size, should prepare now for the impact of the new tax law.
Understanding
New Tax Lawthe
NOT-FOR-PROFIT & EDUCATION