2018 Will be a Busy Year for Not-for-Profit Organizations

Jill S. G. Palmeter, CPA, Principal (Feb, 2018)

If your organization has a December 31st year-end, thoughts (or nightmares) of your upcoming financial statement audit and IRS Form 990 filing can’t be too far away.  For many CFOs the workpaper preparation process has already begun.  Also, if your organization is required to submit a Consolidated Fiscal Report to New York State, then there’s that May 30th extended due date looming as well.

With all of this on your mind it might be easy to only be thinking of the new Federal Tax Cuts and Jobs Act as it relates to you personally in 2018, and not how some of the new provisions may affect your not-for-profit agency with regard to charitable giving.

  • High-income earners/donors can now deduct certain cash contributions to public charities and other tax-exempt organizations of up to 60% of the individual’s adjusted gross income (AGI), up from 50%.  The increased percentage may be an incentive for donors to give more to such charities.
  • Another new provision of the law eliminates the “Pease Limitation”, which capped the amount of itemized deductions for high-income earners.  Donors wishing to reduce their income tax liability will now have greater flexibility in using itemized deductions and more of an incentive for larger contributions.
  • While both of the above changes may increase charitable giving, the provision increasing the standard deduction to $12,000 for single filers and $24,000 for married filing joint filers may be a disincentive for many smaller donors.  If it is financially advantageous for tax filers to claim the higher standard deduction rather than itemizing their deductions (including charitable donations), a decrease in overall charitable giving may result.  Donors might also choose to “bunch” their contributions, giving two years’ worth every other year, perhaps in January and December.  This may help them surpass the standard deduction and enable them to itemize deductions every other year.
  • Another adverse effect may relate to the doubling of the estate, gift and generation-skipping tax exclusions now up to $11.2 million for couples after indexing for inflation.  There would now be less financial incentive for charitable planned giving for estates between $5 - $11.2 million.

These are just some of the more common provisions that may impact your organization.  So depending on your donor base, some budget planning to mitigate adverse situations may determine the best way to move your organization forward.

Lastly, new financial reporting standards for December 31, 2018 year-ends will be here before you know it.  We will be helping to advise you of many of the more significant changes regarding the classifications of net assets, as well as new information in the financial statements and footnotes regarding functional expenses, financial performance, cash flows and liquidity.  Please reach out to your advisor at Dermody, Burke & Brown if you have any questions.

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The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.