TCJA, the new tax reform laws that took effect the beginning of 2018, may negatively effect many churches and nonprofits! One of them may cause some churches to file and pay taxes for the first time!
We will briefly go over some of the major changes this new tax act is bringing about in this article. I will be adding updates as they become available as several of the new laws are being challenged.
I didn't mention the parking tax when I first wrote this article because I was sure that it would be repealed. BUT unbelievably the IRS issued some guidelines for the tax on December 10, 2018.
Even more crazy is the fact that despite going all year with nary a word from the IRS ...now they are saying that the tax applies to applicable parking expenses incurred from January 1, 2018 forward, regardless of an organization’s fiscal year.
In its simplest form, the parking tax is a federal income tax on charities, churches, and other nonprofits on the cost of providing employee parking. Exactly which nonprofits/churches it will affect and for how much is MUCH more complicated!
The best article I found for explaining this was written by BMWL CPAs: The Nonprofit Parking Tax The article includes an awesome flowchart that will help you determine if you are going to be affected by this ludicrous tax.
The effect on charitable contributions with the doubling the standard tax deduction is not widely known yet. Many tax experts were predicting with less itemizing their deductions, churches and nonprofits would in all probability see a decline in donations.
Others have predicted that with the increase in take home pay that contributions may actually increase.
Some tax experts are advising their clients to "bunch" their charitable contributions. Which means donors will skip one or two years and give larger amounts in one year in order to itemize.
What can you do?
1. Pay attention to giving. Do a monthly comparative analysis by creating and reviewing financial statements that compare the present reporting period to previous years.
2. Communicate with your donors regarding your needs.
3. Don't automatically assume that a decline in donations is from the Tax Act. It could be other factors such as a decline in membership or changes in several members employment status.
4. Budget and spend wisely...especially until you have a chance to see the full ramifications of the new tax laws.
5. Maintain adequate cash reserves and liquidity. Most experts agree that churches and nonprofit organizations should have at least three to six months of operating costs in reserves. For organizations with substantial long term debt, an additional year of debt payments is advised.
Besides the much debated effect on donations with the doubling of the standard deduction discussed above ... one of the tax changes (elimination of the ability to claim unreimbursed employee expenses) will affect your staff claiming those unreimbursed expenses on their personal tax return.
This may hurt many ministers and small nonprofit administrators that felt their organizations could not afford to reimburse them for their personal business expenses such as mileage and resource books.
But there are ways you can lessen the negative effect of this new tax law on your staff and volunteers. Create and set up an Accountable Reimbursement Plan for them. Some very small churches and nonprofits may have to adjust some salaries to be able to reimburse mileage and other reimbursable business expenses, but those business expense reimbursements can be totally tax free and lessen your employee/volunteer tax burdens! Please consult a knowledgable tax professional for your best course of action.
SIDE NOTE: If you have been reading my posts, newsletters, and articles very long, you know that I harp on NOT paying a guest speaker with a “honorarium” or “love offering” WITHOUT getting a W-9 from them first, as you are REQUIRED to send them a 1099...if you pay them $600 or more in a calendar year. (Even if you don't intend on paying them at least $600 ...you still need a completed and signed W-9 form from them to keep on file).
BUT...did you know that there are some instances where you can cover their expenses such as lodging, airfare, and other travel expenses and it will be considered nontaxable to them like I mentioned above for your staff?
Now, I know that many guest speakers report that 1099 income on a Schedule C and will STILL be able to deduct thier travel expenses...but I still feel that covering your guest speaker's travel costs can be very beneficial to them and StartChurch has an excellent article on how to do that: How Much Should Churches Pay Guest Speakers?
A little known tax code rewrite that was hidden in the new tax act has surfaced and causing an outcry in the nonprofit world!
It is a requirement that churches and nonprofits begin paying a 21 percent tax on some types of fringe benefits they provide their employees such as parking, transportation, and other related benefits. This crazy requirement will cause many churches and nonprofit organizations to file federal and in some instances state income tax returns for the first time and possibly pay federal (unrelated business income) and state taxes.
"The cost of compliance for churches and nonprofits could run into the tens of thousands of dollars annually", according to ECFA (Evangelical Council for Financial Accountability) Read their article: Tax Reform Provision Surprises Churches and Nonprofits with Tax on Parking and Other Benefits
NOTE: Texas Rep. Conway has introduced legislation to kill this absurd tax on churches and nonprofits. There is a link in the article above to add your church or nonprofit organization to a position statement opposing the tax or click here: Stop the Tax on Nonprofit Employee Parking — Sign on to Position Statement
As a bookkeeper for churches and nonprofits, this tax law makes my head hurt! How in the world are we suppose to determine the value of those parking spaces many churches and nonprofits provide for their employees? Even the top nonprofit tax experts in the US are not sure =(
One article I read states "the main benefits affected are transportation-related, like free parking in a lot or a garage and subway and bus passes. It also targets meals provided to workers: Republican tax law hits churches
This new tax requirement is wrong on so many levels and I hope all of you will stand behind and prayerfully support those trying to get this tax rescinded!
You can no longer reimburse your employees for their moving expenses TAX-FREE!
Before TCJA, an employee could itemize and deduct their unreimbursed moving expenses. The employer could also reimburse them for some or all of their moving expenses tax free.
With the new tax law, you can still reimburse them for moving expenses BUT now you have to include all of those reimbursements as taxable income.
Final Note: I will continue to research and keep this page updated as the "tax experts" continue to unravel and figure out how churches and nonprofits will be affected by TCJA, so please bookmark this page and subscribe to my newsletter as I will provide updates through both.