The New Federal Tax Law and New Jersey Implications on Nonprofit Organizations

Recent changes to federal and New Jersey tax laws have had a myriad of negative effects on local nonprofit organizations. One of the main downsides these changes have had is the way they’ve impacted the amount of donations that nonprofit organizations receive. It’s estimated that almost $20 billion of donations have been lost annually, as millions of households no longer have a financial incentive to donate. Generally speaking, these laws haven’t been well-received anywhere around the country. Let’s take a look at a few of the key reasons why and work out how this impacts your New Jersey nonprofit organization. 

Unrelated Business Income Taxes

Usually shortened to UBIT, these taxes are applied to income from unrelated business activity. For example, if a tax-exempt nonprofit organization conducts their operations in another business’s premises, such as a convenience store or a gas station, the income that they generate from this is classed as an unrelated business income.

The recent tax law changes have imposed an additional two levies on nonprofit organizations. The first is a 21 percent tax on employee’s travel-related benefits, the second is a little more confusing. It states that all income and costs that are related to the nonprofit’s unrelated business activities must be filtered through separate trades or businesses.

The Standard Deduction has Been Doubled

The federal tax law change brought about a $10,000 cap on the amount that can be deducted by individuals for taxes that they’ve paid. This fact has caused millions of households to stop itemizing their deductions.

This has had a devastating effect for charities and nonprofits throughout New Jersey, as the massively reduced tax incentives for the average citizen means that they’re simply not donating as much as they used to.

Thankfully, New Jersey recently saw two bills get serious consideration that would offer a state tax incentive in order to stimulate charitable giving in the area. Hopefully, these bills are passed and the donations that local nonprofits receive will grow once again.

Contribution Limits and Donor Disclosure

Your total charitable deductions are generally limited to 60% of your gross income. However, as only donations to certain organizations qualify for the highest limit, for example, churches and schools.

If your nonprofit receives a donation and then offer goods or services in return, you’re obligated to provide the donor with a written statement that lays out exactly how much of their donation is tax-deductible. If you’re failing to adhere to these requirements, donors could lose faith in your organization and decide to donate their hard-earned money elsewhere. The disclosure process can be pretty complex, as such, it’s best to instruct professionals to assist you.

Working with a CPA firm can change the way your New Jersey nonprofit does business. Having an NJ accountant for nonprofit businesses is essential, as it can help you with all aspects of your business’s accounting.