Tax reform votes this week! What’s in the bill, and what orchestras can do
December 18, 2017
This week, the House and Senate plan to vote on a final comprehensive tax reform package that will have immediate implications for orchestras and the broader nonprofit community. Orchestras are continuing to communicate with their elected officials to call attention to the impact on charitable giving as Congress and the White House aim to have the final bill signed into law by the end of this week. House and Senate negotiators have come to agreement on a final tax package, and we've just updated the League's Summary of Key Policy Issues to reflect what is in the bill. Here are several highlights:
- No charitable deduction for growing ranks of non-itemizers: While the charitable deduction is preserved for those who itemize their tax returns, the number of itemizers is expected to fall dramatically as the standard deduction is nearly doubled in an effort to simplify tax returns. Charitable giving has been projected to decline by up to $13 billion per year if only 5% of taxpayers itemize their returns, and nonprofits are also deeply concerned about the long-term impact if a habit of giving is no longer cultivated among taxpayers early in their earning years.
- Limitations loosened on charitable deductions for itemizers: For taxpayers who would continue to itemize returns, both the House and Senate bills raise the limit on the deductible amount from 50% of adjusted gross income to 60%, potentially incentivizing more giving by those who had reached the 50% cap. Both bills would also repeal the "Pease limitation," which currently reduces total itemized deductions for high-income tax payers.
- Estate tax exemptions doubled: The bill would preserve the estate tax, but double the amount exempted from taxation.
- Protects the non-partisanship of 501(c)(3)s: What started as an effort to allow more partisan speech by churches was expanded to impact all 501(c)(3) organizations, as the House and White House proposed removing the protection in law (called the Johnson Amendment) that prevents nonprofits from being pressured into partisan activity. The broad charitable and philanthropic communities successfully spoke up in strong opposition to repealing the Johnson Amendment, and the provision remains in place in the current tax package.
- Changes to UBIT calculations: Where Unrelated Business Income Tax (UBIT) is concerned, changes are less severe than originally proposed in earlier House tax reform frameworks. Under the current bill, organizations that operate more than one trade or business must calculate net income for each business separately, rather than in aggregate. A loss can only be applied to the tax liability from the business where it occurred.
- Retains historic preservation tax credits and private activity bonds.
What can you do now? Four things:
- Keep speaking up on the universal charitable deduction. Many provisions in the tax package expire at the end of the 2025 tax year, and a number of key tax topics didn't fit into the bill. Congress is expected to take up legislative proposals in 2018 that may relate to tax reform. Your voice can help to ensure that Congress knows how charitable giving will be harmed in the tax reform proposals, and you can encourage elected officials to support a solution. The League's online campaign provides a sample message that you can (and should!) customize very easily.
- Stay tuned for more analysis. The League is partnering with our colleagues in the nonprofit sector to parse through all aspects of the 1,100-page reform bill to help you understand what it will mean for how your orchestra operates and serves its community. We will keep you posted as we learn more about how various provisions will be implemented. In the meantime, remember to check our summary here.
- Consider how to communicate with your donors. Some donors may be incentivized to give more now, before tax policies change. We've noted that a number of nonprofits are reminding donors to check in with their tax advisors soon. The League will also be sharing information with orchestras as more is understood about how the full array of tax changes may change nonprofits' approach to fundraising.
- Start thinking now about how to track the impact of reform, and keep us updated. While the tax reform bill is not yet law, it's never too soon to start thinking strategically about next steps. Any effort by orchestras and other nonprofits to seek future improvements to tax policy will depend on solid data about the impact of proposed reforms. Start considering how your orchestra will monitor any increased costs and any changes to charitable donations.
Thank you. The League will continue to keep you informed as next steps in tax reform unfold.