President Donald Trump signed the new Tax Cuts and Jobs Act into law on December 22, 2017, that went into effect January 1, 2018. The provisions of the act impact individuals, businesses, corporations, and nonprofits, with certain provisions having moderate to significant impact on nonprofits.
Major Changes to Taxes, Summarized
Clearly, a detailed analysis of the implications of all that is contained within the new law is outside the scope of this article. However, there are major points which are important for all to note. These include:
- All the changes that affect individuals expire in 2025.
- New tax tables and rates are in effect from 2018 through 2025.
- The system for taxing capital gains and qualified dividends did not change under the act, except that the income levels at which the 15% and 20% rates apply were altered (and will be adjusted for inflation after 2018).
- During 2018 the 15% rate will start at $77,200 for married taxpayers filing jointly, $51,700 for heads of household, and $38,600 for other individuals. The 20% rate will start at $479,000 for married taxpayers filing jointly, $452,400 for heads of household, and $425,800 for other
- The standard deduction increased through 2025 for individual taxpayers to $24,000 for married taxpayers filing jointly, $18,000 for heads of household, and $12,000 for all other individuals. The additional standard deduction for elderly and blind taxpayers was not changed by the
- The act repealed all personal exemptionsthrough 2025. The withholding rules will be modified to reflect the fact that individuals can no longer claim personal
For a complete breakdown of the act’s changes, see this document from the National Association of Tax Professionals.
Changes to Charitable Contributions
The good news for nonprofits is that the act increased the income-based percentages limit for charitable contributions of cash to public charities to 60%. The act repealed a prior-law provision that had never been put in effect because regulations were never issued. The provision that provides an exception to the contemporaneously written acknowledgment requirement for certain contributions that are reported on the organization’s return.
With the news that the act increased income-based percentages limits for contributions of cash, now might be a great time to increase your donor outreach and relations programs. Although tax savings may be a small incentive to donors in the bigger scheme of things, with items such as mission and services more important to donors, it may incentivize donors who are on the fence about giving to your organization.
Remember that any changes in the tax laws impact disposable income for consumers. These changes may make potential donors feel more inclined to give, as a little extra cash hits their paychecks and wallets. This also underscores that now is the right time to increase donor relations programs.
Are further changes expected? The Tax Cuts and Job Acts was a major move by the Trump Administration and a sign of their intention to keep campaign promises. It is unknown what further actions the President may take especially as they pertain to nonprofits and charities. However, given that these changes will be in effect until 2025, it is certain that nonprofits can move forward at least for the next several years with a better understanding of the current taxation situation.
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.