By Bill Saylor, CPA firstname.lastname@example.org
If you are an executive director or accountant for a nonprofit, you likely already know about the changes effective this year for calendar and fiscal year nonprofits related to financial statement accounting and reporting. For everyone else, here is the 30,000 foot summary.
There are changes to the classification of amounts received with donor restrictions and restrictions imposed by boards. There are enhanced disclosures around transparency and liquidity of cash. Starting this year all nonprofits are required to present expenses by both natural expense category (for example, salaries, rents, etc.) and by function (that is, program activities, management and general, and fundraising). Previously, only certain nonprofits were required to present the functional expense information.
More narrowly, organizations with endowments with losses are required to report additional information in the financial statements including the original gift, the current fair value, and the amount of any deficiency. And, nonprofits that receive donations of property and equipment are now required to release any such items from donor restrictions when they are placed in service instead of releasing them ratably over time.
Be sure you’re allowing extra time this year for the audit and that you are planning to allocate additional staff time and resources to support the process this year. Much of the additional information mandated by the new standards will have to be researched and determined by the organization.
And that’s just on the accounting side.
On the tax side, the Tax Cuts and Jobs Act changed certain employee benefits routinely provided to nonprofit employees such that they now must either be included in nonprofit employee wages or be reported as unrelated business taxable income (UBTI) to the nonprofit. These include any items that are considered qualified transportation fringe benefits (bus passes, parking passes or reimbursements, etc.) as well as any parking facility used for employee parking including, potentially, any parking lot you own or lease, and any on-site athletic premises used by employees. Additionally, UBTI is now required to be reported by each separate business line by the nonprofit.
Finally, changes under the TCJA will likely make it beneficial for fewer individual taxpayers to itemize their tax deductions. For middle income taxpayers that are now using the standard deduction, that could result in fewer charitable contributions across nonprofits broadly. While we know that most folks donate based on ideology, the tax benefit doesn’t hurt!
Overall, its going to be exciting so buckle-up and settle in for the ride!