How would the 2017 federal tax reform bill, known as the Tax Cuts and Jobs Act, affect nonprofit organizations and philanthropic giving? Some estimates of the impact would be devastating to the nonprofits funded by our clients, and so we are sharing information provided by philanthropy-supporting organizations.
These excerpts from the National Council of Nonprofits, Associated Grant Makers (AGM), and the Council on Foundations (CoF) describe pieces of the legislation that affect public charities. The descriptions are general and provided to encourage further, detailed attention to the issues.
Nonprofit Nonpartisanship
The legislation includes language that would weaken the protection from partisan politics that has enabled charitable nonprofits, houses of worship, and foundations to remain focused on their missions and problem-solving in their communities. As written, the new provision grants a partial exemption from the Johnson Amendment to houses of worship and their auxiliary organizations. The Johnson Amendment, signed into law by President Eisenhower, prevents 501(c)(3) organizations from endorsing or opposing candidates for public office or diverting charitable assets from mission to fund partisan campaigns.
GMA Foundations joins AGM and CoF in their publicly-stated positions of support for keeping the Johnson Amendment intact.
Charitable Giving Incentives
The tax reform legislation would nearly double the standard deduction to $12,000/individual and $24,000/couple. Single filers with at least one qualifying child could claim a standard deduction of $18,000. These amounts would be adjusted for inflation. The bill nominally retains the existing itemized deduction for charitable donations, but by nearly doubling the standard deduction, it effectively puts this important incentive to give out of reach for 95 percent of American taxpayers. This decrease in the number of people who itemize is estimated to result in a decrease in charitable giving in the U.S. by up to $13 billion annually, according to a study from the Lilly School of Philanthropy. The measure fails to include a universal deduction or other incentive sought by a broad coalition of nonprofits and foundations that would enable all Americans to receive a tax incentive for giving back to their communities.
The Urban-Brookings Tax Policy Center estimates the impact of the legislation on charitable giving.
Donor Advised Funds
Under the legislation, donor advised funds would be required to disclose annually their policies on inactive donor advised funds as well as the average amount of grants made from their donor advised funds.
Foundation Excise Tax
The tax reform bill streamlines the excise tax on foundation investment income by setting a single rate of 1.4 percent instead of the current two rates of 1 percent and 2 percent. (Estimated to raise $0.5 billion.)
Estate Tax
The Tax Cuts & Jobs Act would immediately double the exemption for the federal estate tax and repeal the tax after six years. Doubling the exemption excludes from coverage estates of individuals valued at under about $11 million and about $22 million for couples’ estates. Again, experts predict substantial losses in charitable giving as a result, as well as a substantial loss of revenue for the government.
Contact Mary Phillips or your GMA relationship manager to discuss the tax reform bill as it relates to your giving.