Potential Impact of the Tax Proposal on the Arts

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Tax reform legislation has been introduced in the House of Representatives with potentially significant implications for the not-for-profit sector. While there are likely to be many revisions before anything is enacted, it is possible that a new bill will be signed into law effective for 2018.

Here are some of the key provisions related to philanthropy.

  • A doubling of the standard deduction to $12,000 for single taxpayers and $24,000 for married couples filing jointly.
  • For those who itemize deductions, an increase from 50 to 60% of adjusted gross income on the limit of cash gifts to qualified charities and from 30 to 60% on gifts to foundations. The 30% limit for gifts of capital gains property would remain.
  • Removal of the limit on deductions for higher-income taxpayers.
  • An increase of the current estate tax minimum of $5.9-million to $10-million with the tax phased out in 2024.

There are other provisions impacting the nonprofit sector such as a 20% tax on compensation over $1-million among the five highest paid employees of a not-for-profit organization; tightened rules on donor advised funds; replacing the two-tier excise tax on foundations with a flat 1.4%; and, requiring foundations accepting donations of art to exhibit each piece for at least 1,000 hours each year.

The impact of any one of these provisions is still being sorted out. Some preliminary estimates are that they might cause giving to drop by as much as $14-billion from the $390-billion given in 2016. Some changes, such as the increase in giving limits and the removal of deduction limits might increase giving, while some might reduce it. The impact of others, the elimination of estate taxes for instance, may not be as clear.

With the House bill drafted to go into effect January 1, 2018, many organizations are already well into their planning for the 2018-19 year. While we don’t know what will eventually come out of Congress, one thing is for sure: It is better to have a plan and not need it than to arrive at January 1 with no plan for dealing with a new reality that promises to confuse donors and discourage charitable giving to our arts organizations.

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