As a new administration takes office after Inauguration Day, nonprofits often face a period of uncertainty. Changes in leadership can result in shifts in tax policy and enforcement, affecting everything from reporting requirements to tax deductions. Have no fear! We are here to give you the low down on what nonprofits can expect in terms of tax compliance after Inauguration Day.
7 Changes Nonprofits Should Anticipate After Inauguration Day
1. Increased Scrutiny on Tax-Exempt Status
Nonprofits, particularly those with tax-exempt status under section 501(c)(3), can expect increased scrutiny on their compliance with eligibility requirements. This includes ensuring that activities are primarily charitable, educational, religious, or other exempt purposes, and that the organization does not engage in excessive lobbying or political activities. A shift in administration could lead to changes in IRS enforcement priorities. Under the previous administration, for instance, there was a focus on reviewing the political involvement of nonprofits. A new administration may revisit these areas, potentially increasing oversight or adjusting enforcement protocols.Action Steps:
- Review your organization’s compliance with IRS guidelines for 501(c)(3) status.
- Ensure that political activity and lobbying efforts remain within legal limits.
- Keep accurate and detailed records of all activities related to your tax-exempt purpose.
2. Potential Changes to Charitable Deductions
One area that could see significant changes involves charitable deductions for individual and corporate donors. Under the CARES Act (2020), temporary enhancements were made to charitable giving deductions, such as allowing taxpayers to deduct up to 100% of their adjusted gross income (AGI) for cash donations to public charities. As we move beyond Inauguration Day, it is possible that the new administration may either extend, modify, or phase out these provisions, especially in light of ongoing economic recovery efforts. This could have a direct impact on your organization’s fundraising efforts, as tax incentives often motivate donors.Action Steps:
- Monitor potential legislative changes related to charitable giving.
- Communicate with donors about any changes to deduction limits, as they may adjust their giving based on tax incentives.
- Stay in touch with tax professionals to assess how changes in tax policy could affect your organization’s financial planning.
3. Increased Focus on Transparency and Accountability
Expect continued or increased focus on transparency after inauguration day, particularly in terms of nonprofit spending and reporting. The government may push for stronger reporting standards or more detailed financial disclosures, which could affect Form 990 filings. Nonprofits may face new regulations requiring additional transparency about how funds are used and whether the nonprofit is meeting its stated goals. Nonprofits that fail to comply with reporting requirements risk penalties or, in extreme cases, loss of tax-exempt status.Action Steps:
- Ensure your Form 990 is accurate, complete, and timely filed.
- Be prepared to demonstrate how funds are being allocated and whether they are being used to further the organization’s mission.
- Review the IRS’s guidelines for required disclosures and consult with a tax professional to confirm compliance.
4. Changes in Grant Reporting and Compliance
For nonprofits that rely on government grants, there may be shifts in compliance rules and reporting requirements after inauguration day. A new administration could bring about modifications to how federal and state grants are administered, including new reporting obligations and compliance standards. Additionally, grantmaking priorities could change, which might influence your nonprofit’s eligibility for certain funding opportunities. Nonprofits should be proactive in staying informed about any changes to grant guidelines, especially as related to funding for programs and operational costs. Action Steps:- Review your current grant agreements and be aware of potential changes in grant rules.
- Stay updated on any new grant opportunities or programmatic shifts.
- Prepare for possible changes to reporting formats or deadlines.
5. Increased Focus on Wage and Employment Compliance
New leadership might also bring new expectations for nonprofit employee wage and labor compliance. This could include changes to minimum wage laws, overtime regulations, or employee benefit requirements. Nonprofits are not exempt from these requirements, and failure to comply with labor laws can lead to significant penalties. There could also be revisions to the treatment of contractors versus employees, especially with the growth of gig economy workers and nonprofit organizations relying on part-time or contract labor. Action Steps:- Review your employee classification (exempt vs. non-exempt) to ensure compliance with federal and state labor laws.
- Update your nonprofit’s policies regarding employee compensation, benefits, and overtime.
- Stay abreast of any executive orders or legislative changes related to employment law.
6. Possible Tax Reform and Impact on Funding Strategies
The new administration may advocate for broad tax reforms that could alter tax incentives for individuals and corporations, affecting your nonprofit’s funding strategies. Changes in tax rates, new credits, or deductions could make it more or less attractive for donors to contribute. This could impact both individual giving and corporate sponsorships, so nonprofits must be prepared to adjust their fundraising strategies based on the broader tax environment. Action Steps:- Consult with a tax advisor to understand how tax changes could impact your donors and your nonprofit’s financial strategies.
- Be proactive in educating your donor base about how these changes could affect their charitable contributions.
- Diversify your funding sources to hedge against potential shifts in the tax landscape.
7. Possible Expansions of Social Programs and Partnerships
A new administration may bring a focus on expanding social programs or creating partnerships between nonprofits and government agencies. There could be new opportunities for collaboration, with a potential increase in government funding for public services. Nonprofits may find new avenues for collaboration with federal and state agencies, especially in areas related to public health, education, and poverty alleviation. Action Steps:- Monitor policy statements from the new administration regarding social programs and government funding opportunities.
- Assess how your nonprofit can align with new federal or state initiatives to access additional funding or form strategic partnerships.
- Stay connected with government agencies and other nonprofits to explore collaboration opportunities.