The new Tax Cuts and Jobs Act (TCJA) resulted in widespread concern among the nonprofit community about a potential reduction in charitable giving. Because the standard deduction will increase, fewer taxpayers will itemize deductions, thus losing the tax incentive to make charitable contributions (an itemized deduction). The increased estate tax limit has also reduced most taxpayers’ needs for tax planning strategies that included charitable gifts upon death. These tax reform “gifts” to taxpayers may lead to a reduction in donation revenue, or possibly just a change in the timing or form of donations. Taxpayers may use “bunching” strategies or donate appreciated stocks to maximize their tax benefit from charitable giving. Nonprofits that rely heavily on individual donations should consider the possible impact and talk to major donors about options.
While the possible reduction in donations mainly impacts charities, nearly all nonprofits are faced with a new taxable activity as a result of the tax reform: employee parking. That’s right – the expense of providing parking for employees is now taxable to all nonprofits, including churches. This baffling concept is an attempt to create equality between for-profits and nonprofits. In order to pay for the new flat corporate tax rate, certain employee benefits (including parking and transportation) were made non-deductible by the TCJA for for-profit entities. The only way to create parity for nonprofits was to make the benefits expense taxable. Moreover, the law is vaguely written and there has been no guidance about how it will be implemented. Without clarification, many advisors are interpreting the cost of parking to include expenses beyond just transportation reimbursements to employees or a third party parking facility. The cost could potentially include the maintenance and repair cost of a nonprofit’s own parking lot where employees park. You can see how this could impact almost all nonprofits, most of whom have never filed a Form 990-T, the form to report taxable activities. Although churches are exempt from filing a Form 990, they are not exempt from filing a Form 990-T if they have taxable activities, including the new parking “activity”. If the new compliance burden isn’t enough, nonprofits are also subject to the new 21% flat corporate tax rate on taxable activities, which is higher than the lowest rate of 15% in 2017.
Bills have been introduced to alleviate the burden of these seemingly unintended consequences of the TCJA. One proposal would allow taxpayers to take the charitable contribution deduction even if they don’t itemize deductions. Other bills would repeal the transportation and parking benefits tax. Until guidance is released, nonprofits should expect to pay tax of 21% of the cost of providing transportation and parking benefits to employees starting January 1, 2018. Considering the Form 990-T cannot be e-filed (due to budget limitations per the IRS), guidance may come quickly when they realize how much paper is about to inundate the IRS offices as every U.S. nonprofit dutifully complies with the new tax reform law.
