In a series of letters, the Internal Revenue Service (IRS) provided advice to late filers, those who have extended their deadline to file until October and nonprofits. Taxpayers who missed the April 15 filing deadline should file promptly. Those who filed for an extension have until October 15 to file. The nonprofit filing date is usually May 15, 2025.
Editor's Note: If a nonprofit did not file by May 15, it should file IRS Form 8868, Application for Extension of Time to File an Exempt Organization Return. If tax is due for unrelated business taxable income, that payment is required by May 15. However, most organizations are permitted to obtain the six-month extension with no tax payments.
While the 2025 tax bill is in its initial version and there will be multiple changes by the House and Senate before the final bill is enacted, the general framework of the plan is now clear. This tax and budget bill is likely to have significant impact on all Americans. Since many tax provisions are scheduled to sunset at the end of 2025, it is essential for the House and Senate to pass a new tax bill that will establish rules and guidelines for 2026.
There are substantial provisions in the proposed bill that affect individual taxpayers.
Editor's Note: This is a brief summary of some key provisions of the current draft 2025 tax bill that impact individual taxpayers. There will be major amendments by both the House and the Senate. House Ways and Means Committee Chair Jason Smith (R-MO) believes the final bill will generally follow this framework. Your editor does not take a specific position on the many provisions of this bill. This information is offered as a service to our readers.
House and Senate leaders plan to combine the 2025 tax bill with a budget bill. The House Ways and Means Committee passed the initial draft of the tax bill. However, on May 16, 2025, the House Budget Committee rejected the initial version of the budget bill. Five House representatives voted against the bill. This was a substantial setback for the House leadership. It will make it difficult to pass the combined tax and budget bill by the Memorial Day deadline.
Representative Chip Roy (R-TX) was one of the House members who voted against the bill. He stated, "I am a ‘No’ on this bill unless serious reforms are made today, tomorrow, Sunday."
The bill was also opposed by Representative Ralph Norman (R-SC) who commented, "Sadly, I am a hard ‘No’ until we get this ironed out, and I think we can. We have made progress, but it just takes time."
The five representatives are requesting more stringent rules for qualification for Medicaid and greater cuts to the clean energy programs.
As a result, there are multiple meetings and negotiations underway. House Speaker Mike Johnson (R-LA) and House Majority Leader Steve Scalise (R-LA) are both working to find solutions.
The Budget Committee is tasked with combining the tax provisions and the spending cuts into a single bill. Leader Scalise indicated he was working on the timing provisions of various sections of the bill.
The five representatives had previously indicated they were going to vote against the bill. However, Speaker Johnson decided to proceed with the vote. The Budget Committee Chair is Representative Jodey Arrington. The House leaders and the five members will continue to work on a compromise.
An additional factor will be the positions of various Senators. Senator Josh Hawley (R-MO) published an op-ed this week indicating he will not vote for the legislation with the Medicaid cuts.
Editor's Note: This current setback in the House is a reflection of the difficult balance between spending and budget cuts. Your editor does not take a specific position on the tax and budget changes. This information is offered as a service to our readers.
With the efforts to find tax savings in order to pass the draft 2025 tax bill, there are many sections that will have an impact on nonprofits. Two sections are viewed as beneficial, and several are likely to be harmful for philanthropy.
The individual giving areas will have two significant provisions that may encourage charitable giving and several changes that are adverse for charitable giving. There is a new non-itemizer deduction of $150 for individuals and $300 for married couples in the draft. It excludes gifts to a donor advised fund (DAF). A second benefit is a provision that allows a tax credit for the lesser of $5,000 or 10% of the taxpayer's adjusted gross income for a gift to a scholarship organization. The organization must fund scholarships for private or religious schools at the elementary and secondary level.
However, there are several provisions that may adversely impact giving by individual donors. The standard deduction will increase by $1,000 for individuals or $2,000 for married couples. This increase will continue to reduce the number of individuals who itemize their charitable deductions.
In the draft bill, the Treasury Secretary will have new powers to designate any nonprofit as a terrorist supporting organization. This provision increases the potential power of the government to revoke the tax-exempt status of nonprofits without due process.
There are proposed changes in the unrelated business income tax (UBIT) sections. The ability of a charity to provide parking for employees will be subject to UBIT. In addition, income from name and logo royalties will also be taxed as UBIT.
There is also a proposal to increase excise tax on the investment income of certain private colleges and universities in the draft bill. The graduated plan creates a 1.4% tax for private colleges and universities with over $500,000 of endowment per student. Those with over $750,000 of endowment per student pay a 7% tax on income. Institutions with assets over $1.25 million per student pay a 14% excise tax. Finally, private universities with assets of over $2 million per student pay a 21% excise tax.
There will also be a graduated excise tax for private foundation income in the draft bill. With assets below $50 million, the tax is 1.39%. Private foundations with assets over $50 million will be subject to 2.78% tax. Those with assets over $250 million are subject to a 5% tax and foundations with assets over $5 billion pay a 10% tax.
Editor's Note: The non-itemizer deduction is a welcome change. However, the increase in the excise tax on private universities and foundations will have a substantial negative impact on philanthropy.
The IRS has announced the Applicable Federal Rate (AFR) for June of 2025. The AFR under Sec. 7520 for the month of June is 5.0%. The rates for May of 5.0% or April of 5.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2025, pooled income funds in existence less than three tax years must use a 4.0% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”
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