The Impact of Tax Changes on Non-Profits: Navigating a Shifting Landscape

Introduction

Tax laws and regulations are constantly evolving, and these changes have a profound impact on various aspects of our financial lives. For non-profit organizations, tax changes can mean the difference between financial stability and uncertainty. Understanding the implications of tax changes and proactively adapting to them is essential for the sustainability of non-profits. In this blog, we will explore the significant impact of tax changes on non-profit organizations and how they can navigate this ever-shifting landscape.

1. The Tax Cuts and Jobs Act (TCJA)

The Tax Cuts and Jobs Act, passed in 2017, brought about significant changes to the tax code in the United States. While the TCJA aimed to stimulate economic growth, it also had several implications for non-profits:

• Standard Deduction Increase: With a higher standard deduction, fewer individuals choose to itemize deductions, potentially leading to a decrease in charitable contributions. Non-profits have had to adapt their fundraising strategies to maintain donation levels.
• Unrelated Business Income Tax (UBIT): The TCJA introduced changes to UBIT rules, affecting non-profit organizations engaged in unrelated business activities. Non-profits must carefully assess the impact of these changes on their financial planning.

2. Changes in Deduction Limits

Tax changes can directly influence donor behavior. In recent years, there have been adjustments to the limits on charitable deductions, impacting how much donors can deduct from their taxable income:

• COVID-19 Relief Acts: Temporary provisions under the CARES Act and subsequent relief acts allowed for more substantial deductions for charitable contributions. Non-profits saw a surge in donations during this period.
• Changes in Deduction Limits: Non-profits need to stay informed about changes in deduction limits as they can affect the willingness of donors to give. These changes can be a double-edged sword, with potential benefits during crises but long-term challenges.

3. Compliance and Reporting Requirements

Tax changes often come with alterations to compliance and reporting requirements for non-profits:

• Form 990 Updates: The IRS continually revises Form 990, the annual information return for non-profits. Changes in reporting criteria can impact how non-profits disclose their financial information and governance practices.
• State-Level Changes: Non-profit organizations must also be aware of state-level tax changes, which can vary widely. Complying with state tax laws is essential for maintaining tax-exempt status.

4. Advocacy and Adaptation

To navigate the impact of tax changes effectively, non-profit organizations can take several proactive steps:

• Advocacy: Non-profits can engage in advocacy efforts to shape tax policies that are favorable to their missions. Building relationships with legislators and joining coalitions can amplify their voices.
• Diversified Revenue Streams: Reducing reliance on a single revenue source, such as donations, can help non-profits mitigate the impact of changing tax laws. Exploring earned income strategies and grants diversifies funding.
• Financial Planning: Non-profits should conduct regular financial planning assessments to anticipate the effects of tax changes and make adjustments to their budgets and operations accordingly.
• Education and Communication: Keeping board members, donors, and staff informed about tax changes is crucial. Non-profits should communicate how these changes may affect their missions and operations.

Conclusion

Tax changes are an inherent part of the financial landscape, and non-profit organizations must be prepared to adapt. By staying informed, advocating for their interests, and diversifying revenue sources, non-profits can navigate the impact of tax changes and continue to fulfill their vital roles in society. In the face of uncertainty, adaptability and resilience become their greatest assets.