There still needs to be some negotiations between the House and Senate to come up with a final bill but they are pretty close. My accountant even told me to make sure I pay up my back state taxes owed since 2017 is probably the last year I can deduct them.
Ok – for Nonprofits – what is the bottom line? Anything terrible? Any advice for our donors? Good, bad or ugly for planned giving?
Here is my take on a few provisions that might be relevant to nonprofits:
- The “standard deduction” is definitely going up – probably doubling. As a head of household, I will get around a $24,000 standard deduction. Seeing that I will still get the mortgage interest deduction as well as up to a $10,000 deduction on my real estate tax, I probably will still be an itemizer. In other words, donors who have significant expenses like mine will likely not be impacted. My verdict: no impact on nonprofit fundraising.
- 529 plan expansion – Under the House bill, parents may set up 529 plans for unborn children. Additionally, up to $10,000 per year of plan funds could be used for private elementary and secondary school expenses. Under the Senate bill, 529 savings plans could be used for public, private and religious elementary and secondary schools, as well as home school students. My verdict: might be very good for private schools – families with extra funds will be encouraged to park large sums in 529 plans to be used throughout private elementary and college years as a tax-free (on growth) fund. No impact on fundraising that I can see unless people tell you that they are funding 529 plans instead of giving you charitable gifts.
- Estate tax repeal – Under the House plan, the federal estate tax would be phased out and completely disappear after 2024. Under the Senate plan, the federal estate tax would remain, but the exemption for federal estate and gift tax would double. In other words, we will have an estate tax, just applying to even less people. My verdict: not great for planned gifts like Lead Trusts which are driven by estate tax avoidance but no impact on planned giving as a whole or other vehicles.
- Excise tax on big University Endowment Investment Income – Under House proposal, private universities with assets of more than $100,000 per student will pay a 1.4% excise tax on their net investment income. Small colleges will be exempt from the tax. Not sure how the Senate addressed this issue but I suspect it won’t end up in the final bill. For some reason it was not brought up in the Forbes article, it only impacts the biggest private schools (around 100 of them). My verdict: not sure.
I have been through too many “feared” tax law adjustments to be overly concerned about the impact on nonprofit fundraising. Since they are not tampering with the charitable income tax deduction, my hope is that those who benefit from the changes will be give more to nonprofits.
Still, there’s a lot of musical chairs scrambling going on here (fooling around with tax code under the current condition that is must be revenue neutral means there has to be winners and losers) so we won’t know the impact of the law for years to come.