Congress approved the H.R.1, The Tax Cuts and Jobs Act on December 20. This bill reforms the tax code by lowering tax rates for many individuals and businesses, repealing tax credits and deductions, and reducing federal revenues by $1.5 trillion over the next decade. Votes by Colorado's delegation split among party lines.
The National Council of Nonprofits released a 2018 Tax Law Checklist to help nonprofits keep up with the expected changes
Colorado Nonprofit Association actively communicated with Colorado's members of Congress to advocate for allowing all taxpayers to deduct their charitable contrributions. Also, we opposed changes that would allow nonprofits to engage in partisan political activity (thereby weakening the Johnson Amendment).
Key Provisions Affecting Nonprofits
Charitable giving and Volunteerism
- Charitable Deduction- reduces the percentage of taxpayers who itemize and can claim the charitable deduction to 5 percent
- Currently, 30 percent of taxpayers itemize
- Neither bill allows non-itemizers to deduct charitable contributions
- The bill allow donors to deduct charitable giving up to 60 percent of Adjusted Gross Income (AGI) rather than 50 percent currently
- Estate Tax- doubles the estate tax exemption to $11 million individuals/$22 million couples between 2018 and 2026
- The estate tax provides an incentive for families to make major gifts or bequests to reduce their estate tax liability
- Donor Acknowledgment- both bills repeal a provision allowing charities to file an IRS form in lieu of providing an acknowledgement letter to donors
Taxes on Nonprofits' Activities and Investments
- Unrelated Business Income Taxes (UBIT) apply to:
- Each separate trade or business
- Transportation fringe benefits for employees and employee access to on-site gyms
- Investment income tax on nonprofit colleges and universities
- 1.4% excise tax on schools with at least 500 full time students and assets of $500,000 per full time student
- More than 50 percent of students must be located in the United States
- Highly Compensated Employees- a 21% excise tax on those earning $1 million or more per year
Individual Tax Provisions
- Individual Tax Rates: seven tax brackets with rates of 10, 12, 22, 24, 32, 35, and 37 percent until 2026
- Personal Exemption: eliminated and incorporated into the larger standard deduction
- Standard Deduction: increased to $12,000 for individuals and $24,000 for joint filers
- Itemized Deductions: eliminates most itemized deductions and makes changes to the following:
- Mortgage interest- Retains existing $1 million cap for home mortgages. House bill lowers the cap to $500,000
- Sales and Local Tax (SALT) Deduction- Limits SALT to $10,000 for the total of the taxpayer's income and property taxes.
- Medical expenses- lowered to 7.5% for the next two years
- Graduate School Tuition Waivers- retained
- Adoption Tax Credit- retained
- Child Tax Credit: increases to $2,000 for children up to age 18 and makes it available to joint filers earning up to $400,000 per year ($1,400 refundable)
- Individual Mandate: Zeroes out the individual shared responsbillity payment starting in 2019
Business Tax Provisions
- Corporate income tax rate- reduced from 35 percent to 21 percent
- Corporate Alternative Minimum Tax (AMT) - eliminated
- Pass-through entities (partnerships, LLCs, S Corporations)- allows a 20% deduction of pass-through income
- Paid Family and Medical Leave Employer Credit (Senate bill only)
- 12.5 percent of wages paid to employees on Family and Medical Leave (FMLA) if the employer pays at least 50 percent of the employee's wages.
- Increases the credit by 0.25 percent (up to 25 percent) for each percentage point over 50 percent of wages
Arctic National Wildlife Refuge (ANWR)- authorizes an oil and gas program in the non-wilderness portion.