Top 4 Changes to Nonprofit Tax Law

The Tax Cuts and Jobs Act of 2017 established a number of changes to the tax code. While few of these changes will affect the day-to-day operations of most nonprofits and faith-based institutions in 2019, these overhauls are still expected to significantly impact giving trends among individual donors. For instance, the National Council of Nonprofits estimates that nonprofits may see donations shrink by as much as $13 billion next year.   

Here are four changes to the tax code that nonprofits should be aware of in 2019:

1. Standard deduction and itemization of charitable contributions

The 2017 Tax Act raised the standard deduction to $12,000 for single taxpayers and $24,000 for married couples filing jointly. In addition, many deductions have been eliminated altogether. As a result, the number of filers who itemize and write off charitable deductions—currently estimated at 30 million—is expected to drop to as few as 5 million, or 13% of total filers.

As Forbes points out, “charitable giving has never only been motivated by tax deductions… [but] those deductions have been an important part of the planning process and have often defrayed significant portions of the costs of donating.” In the coming year, nonprofits may see a downturn in contributions—including cash and like stock—from individuals who no longer receive a substantial tax break from their charitable giving.

2. Increased giving capacity among individuals

In prior years, individuals were permitted to donate up to 50% of their Annual Gross Income (AGI) to public charities and private foundations. In 2019, this percentage will increase to 60%—providing a significant incentive for individuals to increase their giving. In the coming year, nonprofits may see larger-than-average gifts from individuals, particularly their most loyal and high-wealth donors.

3. Unreimbursed business expenses for employees

In the past, employees could deduct business expenses amounting to greater than 2% of their AGI. This was a helpful benefit to employees of nonprofits and faith-based organizations, who often used this deduction to offset costs for business-related mileage, travel, and other expenses. In 2019, individuals will no longer be able to write off these types of expenses. Nonprofits should consider establishing accountable reimbursement plans that allow employees to receive reimbursement from the organization itself for these types of expenses—without paying FICA, Medicare, or SECA taxes.

4. Work-related moving expenses

In 2019, individuals will no longer be able to write off work-related moving expenses. Nonprofits and faith-based institutions should keep this in mind for employees who accept work positions far from their current location, as well as clergy members who move frequently.