The Impact of Nonprofit Tax Policy on Organizations & Donors
Despite financial instability, staffing challenges and general uncertainty over the last few years, many nonprofits are continuing to push forward and achieve their missions. Additionally, there are numerous reasons to be optimistic about what the next few years could bring. Reports indicate that donors have continued to give generously even through the worst of the pandemic, and we have not seen any new shifts in nonprofit tax policy that would dramatically affect the way nonprofits function.
Nonprofits and their donors should discuss how to prepare for any unpredicted alterations that could arise in 2023 and beyond.
A Relatively Quiet Year for Nonprofit Tax Policy & Accounting Principles
After several years of pandemic-related chaos, 2022 has been a relatively stable year for nonprofit tax policy. Some of the most noteworthy nonprofit tax policy headlines this year focus primarily on what did not happen or has not happened yet.
The CARES Act provisions that allowed individuals to increase their charitable contribution deductions for 2020 and 2021 were not renewed this year. Contribution deduction limits dropped to their pre-pandemic levels, and donors lost the ability to deduct up to 100 percent of their AGI for certain charitable donations.
2025 is fast approaching, which is when many of the provisions created by the Tax Cuts and Jobs Act expire for individuals. We can anticipate that people may be more incentivized to make charitable gifts when those provisions expire and taxes rise. However, that deadline is still far enough away that nonprofits can not yet do concrete planning around a post-TCJA tax environment.
The enactment of ASU 2020-07 was an additional minor piece of recent nonprofit tax policy news. The FASB issued this accounting standards update in 2020, and we shared its requirement with you last year. If you are unfamiliar, ASU 2020-07 created presentation and disclosure requirements for nonfinancial assets that nonprofits receive, such as fixed assets, services and materials. This ASU is effective for annual periods beginning after June 15, 2021.
The Inflation Reduction Act Became Law
Some nonprofits should see an impact from the Inflation Reduction Act that President Biden signed in August. The $739 billion spending package addresses a range of climate, health and tax measures. One piece of the Act could help nonprofits cut energy costs by securing tax breaks for installing energy-efficient systems. And for organizations that work on climate change, sustainability and environmental justice, this legislation may be a game-changer. These nonprofits may be able to secure grants from the $27 billion Greenhouse Gas Reduction Fund created by the Act.
Donors Continue to Give Generously
Individuals, bequests, foundations and corporations gave $484.85 billion to U.S. charities in 2021, which represented a 4 percent increase in giving over 2020, per Giving USA. Of those donations, nearly 70 percent came from individuals.
Wealthy individuals have avoided the tax policy changes that the Build Back Better Act would have created - for now. No one knows what the future will hold regarding tax reform, but many wealthy individuals are being proactive about working with their CPAs and advisors to prepare for an uncertain tax environment. Creating tax-advantaged charitable giving strategies and preserving family wealth using tools like dynasty trusts may allow donors to continue supporting their favorite nonprofits for years to come, no matter how tax policy shifts.
The nonprofit industry and accounting & auditing teams at L&H are here to help organizations navigate all the nonprofit tax policy issues that affect their work. We also work with wealthy families and individuals who want to maximize charitable giving in tax-advantaged ways. Contact us today if you have questions about nonprofit tax policy or charitable giving.
Wendi Haynes, CPA, serves as Livingston & Haynes’ Managing Partner and has been with the firm for over 30 years. Wendi has extensive experience providing accounting, auditing, tax, and advisory services for small businesses, nonprofit organizations, and employee benefit plans.