As the deadline for filing personal income taxes approaches, the IRS is very much on the minds of nonprofits, too. This month, we are sharing information “hot off the press” from the IRS interpreting the new tax law: the importance of encouraging nonprofit employees to review and possibly adjust personal paycheck withholdings to avoid a big tax bill next year, and guidance about the new penalty for nonprofit employers that provide transportation benefits for their employees. In this issue, we also spotlight a new development in the fundraising arena, the “single portal” multi-state charitable registration project, plus we share suggestions for nonprofits that may be considering serving as a fiscal sponsor. And, finally, we want to make sure you know about the significant changes we’ll all be seeing in nonprofit financial statements that are described in our interview with the Financial Accounting Standards Board. Phew! There’s a lot going on – we appreciate your taking the time to stay up-to-date with these developments.
“Is a charitable nonprofit that uses the internet to raise funds legally required to register in multiple states?”
This question continues to flummox many nonprofits. For some nonprofits conducting certain types of fundraising over the internet in certain states, the answer will be “Absolutely!” But for most nonprofits and many other states, the answer is “It depends.” This inconsistency can be frustrating, because complying with the law should be clear. Yet charitable nonprofits spend lots of time, energy, and dollars every year trying to navigate this issue. We’ve written extensively about the aggravations and challenges of multi-state charitable registration. Has anything changed? Here’s an update:
The National Association of State Charity Officials (NASCO) just announced that the “single portal” project it has been working on for several years is moving closer to a reality. In a recent press release, NASCO, working through a nonprofit it created, Multistate Registration and Filing Portal, Inc, announced that it has joined forces with GuideStar and CityBase to create a “single system” website portal that will allow “charities and professional fundraisers to comply with fundraising requirements in one place.” This sounds great, and we applaud NASCO and partnering organizations for their efforts to help streamline the cumbersome process for nonprofits (in fact we served on the advisory committee for the project). We also want to make sure, however, that nonprofits understand that when/if they use the new system, they will still need to answer this basic question: “Which states require our nonprofit to register?”
The “single portal” project offers hope that nonprofits will get some relief from the unnecessarily complex and confusing charitable solicitation registration process in the future. But that won’t happen unless and until the underlying state laws are clarified – and that is something that technology can’t fix. Charitable nonprofits will need to get involved to advocate for updated state laws and regulations. Our blog explains what we think is needed to ensure the new system is a success, along with some recommendations for action by both charitable nonprofits and state charity officials. Read our blog to learn more: Multi-State Fundraising = Multiple States of Confusion.
P.S. About fundraising… You may know that many nonprofits get their start literally – and with fundraising in particular – through an agreement with a fiscal sponsor. Resources about fiscal sponsorship are among the most popular pages on our website. This month we’re pleased to share a guest post from Andrew Shulman, Esq. on our blog: 9 ways to be a great fiscal sponsor.
So, your nonprofit wants to encourage employees to take public transportation because it’s good for the environment, perhaps even mission-critical. Or maybe it’s a recruitment tool because job candidates in your area expect that benefit from the best places to work, like yours. As a result, let’s say your nonprofit has in the past provided financial assistance to make it easier for employees to commute to work (such as contributing to the cost of a mass-transit pass or parking). Guess what? Because of the new federal tax law, your nonprofit must now pay a penalty tax (UBIT) for providing those incentives, even if employees pay for them through pre-tax contributions via a qualified plan. This short article and podcast will give you the background and explain the new tax treatment that is effective right now – regardless of when your nonprofit’s tax year starts. We agree with many professional tax law advisors that this development isn’t good news for nonprofits, to say it politely. The National Council of Nonprofits is very concerned that this aspect of the new tax law is taking many nonprofits by surprise, and that nonprofits that have never before had to file UBIT forms with the IRS will now be penalized for late or inaccurate filings. The informal understanding is that the IRS may issue guidance during the summer, but the filing deadlines for the 990-T and quarterly estimated payments for many nonprofits are due well before then. We encourage you to join us in filing comments to the IRS explaining how this new UBIT will impact your nonprofit and its workforce. Be sure to request that the effective date be postponed until the IRS studies this more and publishes more guidance. (See comments filed by ASAE, as an example.)
The new federal tax law altered individual tax brackets, increased the standard deduction, removed personal exemptions, increased the child tax credit, limited or discontinued certain deductions, and changed the tax rates overall. Each of these changes impact a taxpayer’s withholdings. When tax time comes around in 2019, no one will want an unexpected tax liability. Nonprofit employers can help their employees avoid an unpleasant surprise by sharing these tips from the IRS:
The Withholding Calculator can help prevent employees from having too little or too much tax withheld from their paycheck. Having too little tax withheld can mean an unexpected tax bill or potentially a penalty at tax time in 2019. And with the average refund topping $2,800, some taxpayers might prefer to have less tax withheld up front and receive more in their paychecks. The Withholding Calculator compares that estimate to the taxpayer’s current tax withholding and can help them decide if they need to change their withholding with their employer. When using the calculator, it’s helpful to have a completed 2017 tax return available.
Taxpayers can use the results from the Withholding Calculator to determine if they should complete a new Form W-4, Employee’s Withholding Allowance Certificate, and, if so, what information to put on it. If an employee needs to adjust their withholding, doing so as quickly as possible means there’s more time for tax withholding to take place evenly during the rest of the year. But waiting until later in the year means there are fewer pay periods to make the tax changes – which could have a bigger impact on each paycheck.
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