Industry Insights

Tax Reform – Preparing for the Effect on Your NFP

July 2017

Tax reform is a key discussion topic in Washington, D.C. Tax reform proposals affecting not-for-profits (NFP) receive considerable attention from the charitable sector and the nation at large. While health care reform is the primary focus of Congress, many forces diligently work on tax reform. With 2017 halfway over, where do we stand on tax reform related to NFPs? What should your organization consider while planning the rest of the year?

While many proposed changes appear to negatively affect charitable giving, there still are some favorable outstanding proposals such as the flat 1 percent excise tax on net investment income for private foundations, increased exemption amount for unrelated business income tax purposes and expanded qualified charitable distribution rules allowing gifts to donor-advised funds. Many of these favorable provisions have substantial support in Congress and the NFP sector. Passage will be conditioned in light of overall budget constraints.

Favorable provisions are offset by other potential tax proposals expected to decrease philanthropic giving in the United States. While many Americans favor a reduced income tax rate, this proposal is expected to hurt charitable giving. With lower income tax rates, there’s less incentive to donate. Simplifying personal income tax return preparation by increasing the standard deduction also may harm charitable giving. While about 30 percent of individual taxpayers currently itemize their deductions, that amount would noticeably decline. There wouldn’t be a direct tax benefit to nonitemizers making donations. Repeal of the estate tax also is projected to decrease charitable giving.

A few other proposed changes include:

What steps can your organization take to help offset the tax reform effects?

Also, watch for a webinar later this year hosted by BKD and the Indiana University Lilly Family School of Philanthropy. The webinar will focus on understanding donors’ charitable motives in light of tax reform. This webinar weaves the complexity of the tax law with philanthropic research insights from Una Osili, the school’s associate dean for research and international programs.

Contact your BKD advisor if you have questions.

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