Dear Friend of the Arts:
Last week, we wrote to you regarding the House version of tax reform legislation, the Tax Cuts and Jobs Act (outlined below). The Senate reform bill, released on November 9, also retains the charitable deduction and, like the House bill, doubles the standard deduction. (It also increases the limit on charitable gifts from 50% of adjusted gross income to 60% of AGI, which would support giving from high-income donors.) As reported last week, doubling the standard deduction means that 95% of taxpayers would not itemize, leading to a possible reduction in giving of $13 billion annually.
On November 14, Senator Jim Lankford (R-OK) introduced the Universal Charitable Giving Act, which creates a universal charitable deduction in addition to the standard deduction for individuals and married couples that do not itemize, mirroring the House companion bill introduced last month by Representative Mark Walker (R-NC). Both of these measures would cap deductibility for non-itemizers at one-third of the standard deduction. On November 12, Senators Debbie Stabenow (D-MI) and Ron Wyden (D-OR) offered an amendment to support increased giving by proposing a universal charitable deduction.
The House and Senate will be voting THIS WEEK on new tax laws that will impact charitable giving for years to come. Arts leaders have been contacting their elected leaders throughout 2017, and we're asking you to please reach out once again and join nonprofit organizations nationwide as we urge Congress to help Americans support their communities through charitable giving.
For additional information and a complete summary of the tax bills, including how they impact the arts please see below or follow this link to the National Council of Nonprofits website
We ask you to please take a minute to urge Congress to support a universal charitable deduction. Every message you send makes a difference. If you contacted your elected officials in response to our most recent Action Alert, thank you--and please take action again today.
Here is how the Senate tax reform bill(s) impacts several key issues:
- No charitable deduction for growing ranks of non-itemizers: The legislation does preserve the charitable deduction. However, it also doubles the standard deduction, which is projected to reduce the number of people who itemize from 33% down to 5%. It is estimated that this would reduce contributions to nonprofits by $13 billion annually. 95% of taxpayers will not have access to this deduction, to the detriment of the charitable sector and the communities we serve.
In response to earlier proposals to increase the standard deduction, advocates have been seeking a "universal charitable deduction" available to non-itemizers. (Representative Mark Walker (R-NC) introduced a variation of this.) Unfortunately, this was not included in the initial House bill. Advocates are asking Congress to adopt this strategy to protect giving.
Deduction limits eased for itemizers: For those still itemizing their returns, the bill would increase the limit on charitable deductions for cash gifts from the current level of 50% of adjusted gross income to 60%, potentially incentivizing more giving by those who had reached the 50% cap. The bill also would repeal the "Pease limitation," which currently reduces total itemized deductions for high-income taxpayers.
- UBIT: There is some good news as the House bill does not include previously-considered proposals that would have substantially altered Unrelated Business Income Tax (UBIT) calculations and subjected corporate sponsorships to new UBIT requirements. The bill does include a provision to tax certain fringe benefits offered to nonprofit employees, such as parking, transportation, or onsite gyms.
Executive compensation: A 20% excise tax would be applied for compensation exceeding $1,000,000 for an organization's five highest-compensated employees.
Charities would need to treat name and logo royalties as unrelated business taxable income.
Charities would also need to separately compute unrelated business taxable income for each trade or business. (Under current law, charities are taxed by aggregating the income and deductions across all lines of businesses. This could lead to additional costs for charities. (These final two provisions were not included in the House version of the bill).
- Finally, the Artist-Museum Partnership Act, was not included in tax reform legislation. The Performing Arts Alliance members has advocated alongside the arts community for congress to introduce this legislation, allowing artists (including composers, designers, etc.) to take a fair market deduction when contributing their works to a charitable collecting institution.
The Performing Arts Alliance member organizations continue to monitor the situation, along with our colleagues in the broader nonprofit community, and will provide you updates as developments occur.
Speak Up For the ARTS in Your Community!