EXEMPT ORGANIZATIONS & THE NEW TAX BILL Changes and implications you should understand

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1 CLICK TO EDIT MASTER TEXT STYLES EXEMPT ORGANIZATIONS & THE NEW TAX BILL Changes and implications you should understand BARB MCGUAN Principal April 23, 2018

2 CLICK TO EDIT MASTER TEXT AGENDA STYLES FEDERAL TAX REFORM UPDATE Understand the impact of tax reform on exempt organizations and individuals

3 CLICK TO EDIT MASTER TEXT TAX REFORM STYLES INDIVIDUALS 1 INDIVIDUAL TAX RATE STRUCTURE 2 STANDARD DEDUCTION 3 ITEMIZED DEDUCTIONS 4 FAMILY AND EDUCATION INCENTIVES 5 INDIVIDUAL ALTERNATIVE MINIMUM TAX

4 CLICK INDIVIDUAL TO EDIT TAX MASTER RATE TEXT STRUCTURE STYLES Rate Single filers Married filers filing joint 10% $0 - $9,525 $0 - $19,050 12% $9,525 - $38,700 $19,050 - $77,400 22% $38,700 - $82,500 $77,400 - $165,000 24% $82,500 - $157,500 $165,000 - $315,000 32% $157,500 - $200,000 $315,000 - $400,000 35% $200,000 - $500,000 $400,000 - $600,000 37% Over $500,000 Over $600,000 Rate Single filers Married filers filing joint 10% $0 - $9,325 $0 - $18,650 15% $9,325 - $37,950 $18,650 - $75,900 25% $37,950 - $91,900 $75,900 - $153,100 28% $91,900 - $191,650 $153,100 - $233,350 33% $191,650 - $416,700 $233,350 - $416,700 35% $416,700 - $418,400 $416,700 - $470, % Over $418,400 Over $470,700

5 CLICK TO EDIT STANDARD MASTER TEXT DEDUCTION STYLES INCREASED STANDARD DEDUCTION Roughly doubles 2017 amounts $24,000 MARRIED TAXPAYERS FILING JOINTLY (CURRENTLY $12,700) $12,000 SINGLE FILERS (CURRENTLY $6,350)

6 CLICK TO EDIT ITEMIZED MASTER TEXT DEDUCTIONS STYLES WHAT STAYS? Medical and dental (7.5% floor) Taxes (up to $10,000) Mortgage Interest Charitable donations

7 CLICK TO EDIT ITEMIZED MASTER TEXT DEDUCTIONS STYLES WHAT GOES? Home equity loan interest Casualty and theft losses (unless federal disaster zone) Miscellaneous deductions subject to 2% floor Job expenses Tax preparation fees Investment fees Overall limitation Also some above-the-line deductions Moving Expenses

8 CLICK FAMILY TO AND EDIT EDUCATION MASTER TEXT INCENTIVES STYLES CHILD TAX CREDIT $2,000 per qualifying child $400,000 and $200,000 phase out for married filing joint and single filers, respectively $500 nonrefundable credit for non-child dependents EDUCATION INCENTIVES Final bill retains all education incentives in current law

9 INDIVIDUAL CLICK TO ALTERNATIVE EDIT MASTER TEXT MINIMUM STYLES TAX INDIVIDUAL AMT CHANGES: AMT for individuals retained Exemption and related phase-out amount increased Will apply to fewer taxpayers

10 CLICK TO EDIT MASTER OTHER TEXT CHANGES STYLES OTHER CHANGES Individual Mandate under ACA Indexing Changes Estate and Gift Tax changes

11 CLICK TO EDIT MASTER NEW TEXT TAX STYLES BILL Exempt Organizations 1 UNRELATED BUSINESS INCOME 2 EXCESSIVE EXECUTIVE COMPENSATION 3 EMPLOYEE BENEFITS 4 EXCISE TAX ON ENDOWMENTS

12 CLICK UNRELATED TO EDIT MASTER BUSINESS TEXT INCOME STYLES UNDER THE NEW RULES You must track NOLs on separate basis for each unrelated business activity You can no longer use losses to offset income derived from another activity Only 80% of NOL can be used to offset taxable income An allowable exception is for losses generated in earlier years Organizations with more than one trade or business that generate UBI should ensure they have processes in place to account for and segregate income of each activity

13 CLICK UNRELATED TO EDIT MASTER BUSINESS TEXT INCOME STYLES TOP CORPORATE TAX RATE WILL DROP FROM 35% TO 21% Tax calculations on unrelated business income will be affected Exempt organizations with significant taxable business income may enjoy savings from the corporate tax rate reduction Many organizations with taxable income will see an increase in their tax as rate brackets have been replaced with new flat tax rate of 21%

14 CLICK COMPENSATION TO EDIT MASTER AND TEXT BENEFITS STYLES NEW EXCISE TAX OF 21% Tax on compensation that is vested, even if it hasn t been received Will be imposed on compensation exceeding $1 million paid to each of an organization s five highest paid employees Amounts are deemed paid when there is no substantial risk of forfeiture of rights to compensation Payments to licensed medical professionals directly related to providing medical or veterinary services don t count when calculating the tax

15 CLICK COMPENSATION TO EDIT MASTER AND TEXT BENEFITS STYLES Includes amounts paid by related organizations Excess parachute payments subject to the 21% excise tax even if less than $1million (severance) Excess = amount exceeding 3 times employee s base amount (5 year average) Does not include payments from qualified plans (403(b) and 457(b)) Tax rate applied to payments in excess of 1 times the base (not the amount over the 3 times threshold)

16 CLICK COMPENSATION TO EDIT MASTER AND TEXT BENEFITS STYLES Benefits Treated as UBI Funds paid or incurred after December 31, 2017 that provide employees with transportation and parking fringe benefits, as well as on-site gyms or other athletic facilities are now UBI Provision eliminates favorable treatment of these fringe benefits by subjecting them to a tax equal to the corporate tax rate Providing the benefit through a pre-tax salary deferral plan does not eliminate the tax

17 CLICK TO EDIT MASTER HIGHER TEXT EDUCATION STYLES EXCISE TAX ON NET INVESTMENT INCOME 1.4% excise tax on net investment income earned annually on assets not used directly in carrying out educational purposes Provision applies to organizations with at least 500 full-time students (with 50% of students located in the US) with qualifying assets of at least $500,000 per student, or a total of at least $250 million in applicable assets You must attribute investment income and applicable assets of related organizations to the school when determining thresholds

18 CLICK TO EDIT CONTACT MASTER TEXT BERRYDUNN STYLES BARB MCGUAN Principal