New Tax Law’s Impact

The newly-approved tax legislation aims to create a more attractive environment for business investment through a number of policies, including reducing the corporate tax rate by 14 percentage points, allowing businesses to immediately write off new capital investments, and switching to a territorial system of taxation. The hope is that these measures will encourage companies to bring a larger share of the profits they have held offshore for tax purposes back onshore to reinvest in the domestic economy, thereby spurring growth.  Key provisions for non-profits are as noted:

Donor-Advised Funds

No changes were made to policies regulating Donor Advised funds.

Standard Deduction

The standard deduction taxpayers can take without itemizing was doubled to $12,000 for singles and $24,000 for couples, vastly expanding the number of taxpayers who will choose the standard deduction rather than itemizing. For those taxpayers, the legislation eliminates the tax incentive for charitable giving.

Limit on Deduction for Cash Gifts  

Donors will be able to receive a charitable tax deduction for cash gifts of up to 60 percent of their adjusted gross income, up from the current limit of 50 percent.

Estate Tax

The estate tax exemption was doubled to about $22 million for couples, shielding all but the wealthiest from the levy. Charities say the estate tax is an incentive for people to donate their money, so the higher exemption will hurt giving.

University Endowments  

The law places a new 1.4 percent excise tax on investment income on some private colleges and universities with very large endowments.

Highly Paid Nonprofit Employees  

Charities will be hit with an excise tax of 21 percent on compensation above $1 million for a nonprofit’s top five highest-paid employees.

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