New Tax Laws and How They Effect Not-for-Profits

At the recent Greater Washington Nonprofit Symposium, there were a variety of topics that discussed the current and upcoming changes for not-for-profits. Some of the topics that were covered include the new financial statements presentation requirements, the changes in revenue recognition, and the compliance with Federal grant requirements.

However, the most popular topic discussed was the changes in the tax laws as they relate to and effect not-for-profits. In total, there were 8 separate break-out sessions related to the recent tax reform and its impact on the not-for-profit industry.

Below is a summary of the major areas that will impact the not-for-profit industry in upcoming years.

  1. The tax rate on unrelated business income is now a flat rate of 21%.
  2. NFPs will no longer be able to offset unrelated business income from one unrelated trade or business with losses from another unrelated trade or business.
  • This change requires an organization to conduct (delete) insert “that conducts” more than one unrelated trade or business to calculate UBIT separately for each unrelated trade or business.
  1. The taxation of certain employer paid employee fringe benefits. These include:
  • any qualified transportation fringe benefit
  • any parking facility used in connection with qualified parking
  • any on-premises athletic facility
  1. The excise tax for excessive executive compensation has changed.
  • Excise tax of 21% on remuneration over $1 million during the taxable year
  • Excise tax of 21% on parachute payments in which the present value of the parachute payments equals or exceeds 3 times the employee’s base amount

The changes resulting from the Tax Cuts and Jobs Act were effective January 1, 2018. Fiscal year filers would be impacted for the portion of their fiscal year that was in 2018. Nonprofit organizations should be estimating their potential tax impact and making estimated payments to the IRS on a quarterly basis.

If you have any questions regarding the changes described above, please do not hesitate to reach out to your DeLeon & Stang advisor.