Industry Insights

What Not-for-Profits Should Know About Potential Tax Changes

March 2017
Author:  Joyce Dulworth

Joyce Dulworth

Partner

Tax

Health Care
Not-for-Profit & Government
Private Client Services

200 E. Main Street, Suite 700
Fort Wayne, IN 46802-1900

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The political climate in Washington, D.C., along with recent remarks from congressional leaders and White House officials, seem to indicate the environment is ripe for tax change in 2017 and beyond. Even so, there are differing opinions about these major issues:

  • When legislative language would be drafted and introduced
  • How the legislation will read
  • If there will be efforts to garner bipartisan support
  • If the reform legislation would be retroactive to the beginning of 2017

Resolving the many differences within the current political agenda may make tax reform difficult to accomplish.

Though there have been many tax reform proposals, those put forth by House Republicans and President Trump are most likely to heavily influence tax change with Republicans in control of both Congress and the White House. If we see tax reform, the House Committee on Ways and Means Better Way for Tax Reform Blueprint (House Blueprint) is a likely starting point. Further, recent statements from House Speaker Paul Ryan and House Committee on Ways and Means Chairman Kevin Brady indicate these efforts may already be underway. Although the two proposals provide insight into how tax reform may look, they aren’t yet fully developed—and legislative language will be necessary to understand how the concepts would operate. Read “Election Results May Lead to Tax Changes in the New Year” to learn more about these proposals and how they compare to current tax law.

Despite the facilitative political environment, it’s difficult to predict the possibility or substance of tax reform without detailed proposals given plenty of differing opinions. Even so, possible tax reform can affect you, and understanding potential outcomes is important for your tax planning strategy.

To help you navigate uncertainty surrounding tax reform, here are some key areas and planning considerations in the not-for-profit (NFP) industry that BKD’s tax professionals will be watching for in possible tax reform legislation:

  • The benefit of charitable contribution deductions to donors would decrease with the overall lower income tax rates proposed by both President Trump and the House Blueprint. Planning techniques such as charitable remainder trusts and front-loading contributions to donor-advised funds are charitable giving considerations for those who expect a lower tax rate environment in 2017 or beyond. Read “2016 Charitable Giving Guidelines” to learn more about issues surrounding tax-deductible charitable contributions.
  • The tax proposals also call for additional general limitations on or eliminations of itemized deductions as well as an increased standard deduction, which would further reduce the benefit of the charitable contribution deduction benefit to donors.
  • Although the House Blueprint would generally decrease the incentive for charitable giving, House Blueprint co-sponsor Brady has made statements favoring finding ways to encourage additional charitable giving as part of tax reform.
  • We’ll watch for additional provisions affecting charitable giving and NFP organizations when the House releases legislative language on tax reform. Recent House tax reform* plans have included these proposals that may be considered in drafting tax reform legislation:
    • For NFP organizations, a 25 percent excise tax on certain executive compensation greater than $1 million
    • For unrelated business income, restrictions limiting the ability to allocate expenses, prevention of the offset of income/losses from unrelated activities and the broadening of the unrelated business income definition, including eliminating the qualified sponsorship payment rules
    • For charitable endowments, a 1 percent excise tax on net investment income of private colleges and universities with endowments greater than $100,000 per full-time student
    • For donor-advised funds, a requirement that funds be distributed within five years

While it’s still too early to predict the timing and substance of possible tax reform, reviewing your tax plan with your BKD advisor on an ongoing and regular basis will help prepare you for potential tax changes.

* Based on former House Ways and Means Committee Chairman David Camp’s proposed legislation titled the Tax Reform Act of 2014.

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