On notice: Three observations about pending tax legislation for nonprofits

Over the last few weeks, our team at the community foundation has talked with dozens of nonprofit leaders and people who serve on charities' boards of directors about the "Big Beautiful Bill" (H.R. 1) that passed the House of Representatives by a narrow margin on May 22. Understandably, many nonprofit organizations are concerned that this legislation might impact their work.

Among many troubling elements are provisions that could affect fundraising strategies to attract annual gifts, major gifts, endowment gifts, and planned gifts. Here are three provisions that are especially important to watch.

Corporate giving

What's the provision?

The proposed legislation introduces a 1% "floor" on corporate charitable deductions, meaning corporations could only deduct charitable contributions that exceed 1% of their taxable income, up to the existing 10% cap.

What's the concern?

This provision could discourage corporate giving, particularly for companies that typically donate less than 1% of their income, as their contributions would no longer be deductible unless they surpass that threshold. The uncertainty over whether corporations can deduct the full value of their contributions or only the amount above 1% adds further ambiguity, potentially leading to reduced corporate support for charities.

Is it all bad news?

Many corporations support charities through sponsorships that come out of their marketing budgets, not their charitable giving budgets. The proposed legislation does not impact a corporation's ability to deduct marketing expenses.

Private foundation giving

What's the provision?

The pending bill would restructure and increase taxes on private foundations, specifically the net investment income tax. The bill replaces the previous flat rate with a graduated structure, imposing higher rates on larger foundations—up to 10% for those with assets exceeding $5 billion.

What's the concern?

The proposed increase in tax liability could potentially reduce the amount of funding available for charitable grants, as private foundations may have fewer resources to distribute after accounting for the higher taxes. Additionally, increased compliance costs associated with these new tax structures could further divert funds away from charitable activities and into administrative overhead.

Is it all bad news?

Donor-advised funds could become an even more important source of funding if the new laws cause some donors to shift away from private foundations as their primary organizing structure for their philanthropy. In the case of donor-advised funds held at the community foundation, this could be good news because the community foundation actively works with donors to use their donor-advised funds to keep charitable dollars flowing to charities in our community.

Individual giving

What's the provision?

The proposed legislation affects individual giving by extending provisions of the Tax Cuts and Jobs Act of 2017 that were scheduled to sunset at the end of this year. Specifically, the standard deduction is slated to remain high under the proposed legislation, as is the estate tax exemption.

What's the concern?

The chilling effect on charitable giving of a higher standard deduction and higher estate tax deduction is likely to continue.

Is it all bad news?

The bill includes a modest charitable deduction for non-itemizers, allowing up to $150 for single filers and $300 for married couples.

Collectively, these changes potentially could make fundraising more challenging for charities. What's important to keep in mind, though, is that nothing is set in stone–yet. Significant changes to the bill are likely as the Senate starts reviewing the bill in June. The process could stretch into July or August as both the House and Senate work out their differences before sending the bill to President Trump for signature. We'll keep you posted as the situation develops.

This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.

If you have questions and would like to learn more, please contact Brian Reitz at breitz@akroncf.org.