On May 18, the U.S. House Budget Committee advanced the Republican tax cut bill, which includes provisions that could have significant effects on the nonprofit sector. Although there are certain to be changes before a bill moves to the full House for consideration, it’s important for nonprofits to stay current.
“While much of the attention is focused on the tax aspects of this bill, there are several items that could have a major impact on nonprofit organizations, said Bobby LaCour, Partner, Aldrich CPA + Advisors. “When combined with some of the recent nonprofit funding cuts by the federal government, these potential changes mean that leaders should be actively scenario planning for a range of potential outcomes in order to sustain their mission.”
Temporary Charitable Deduction for Non-Itemizers
The proposed bill would allow individuals who don’t typically itemize their deductions to take a temporary deduction for charitable cash donations of up to $150 ($300 for married couples) from 2025 to 2028. This provision encourages smaller contributions to qualified charities, excluding donations to donor-advised funds.
Expanded Tax on Excessive Pay
The bill seeks to broaden the scope of a tax on excessive compensation at nonprofits. Instead of applying only to the top five highest-paid employees, this provision would extend to any employee earning over $1 million. Larger organizations may face increased compliance requirements as a result.
Investment Income Tax for Private Colleges
The bill also proposes treating income from nonprofit name and logo sales as taxable, which was previously exempt. This could have implications for nonprofits engaged in licensing agreements, increasing the tax burden and compliance complexity.
Increased Tax on Larger Private Foundations
Private foundations with assets above $50 million may see higher excise tax rates on their investment income. The proposed tiered system could lead to taxes as high as 10% for foundations with assets exceeding $5 billion. Foundations may need to reassess their investment strategies to mitigate the impact of these higher taxes.
Royalties on Name and Logo Sales Now Taxable
The bill also proposes treating income from nonprofit name and logo sales as taxable, which was previously exempt. This could have implications for nonprofits engaged in licensing agreements, increasing the tax burden and compliance complexity.
Planning Ahead
As these provisions are further debated, nonprofits should be prepared to adapt their strategies. For specific questions, contact an Aldrich nonprofit tax advisor.
