Wolters Kluwer Tax & Accounting Takes a look at the tax issues not-for-profit organizations need to consider on 2021 returns
What: Like for-profit businesses, not-for-profit organizations have been impacted by the Coronavirus pandemic and the tax legislation that has resulted therefrom. Many of the tax assistance measures adopted by Congress are also available to the non-for-profit community. However, those measures also came with a number of tax complications. Not-for-profit organizations also have some unique tax issues to deal with on 2021 returns.
Why: Not-for-profit organizations on 2021 returns will need to deal with the expiration during 2021 of many of the Covid-related employment tax breaks as well as changes to the rules on deductible charitable contributions. Some of the potential tax issues facing not-for-profit organizations include:
- Paycheck Protection Program loans. Although a program under the Small Business Administration rather than the IRS, many not-for-profit financial employees and advisors became PPP experts during the pandemic on how to apply for the loans and how to apply for forgiveness of the loans. The tax issue for PPP loans was whether the expenses paid with PPP loans were deductible. For not-for-profit organizations, this issue impacted unrelated business income. The issue was unsettled through 2020, but the deductibility of those expenses has been clearly established for 2021 tax returns
- Shuttered Venue Operators Grants. Not-for-profit organizations were eligible to receive grants under the Shuttered Venue Operators grant program
- Enhanced charitable deductions. Many more individual taxpayers were eligible to make deductible charitable contributions in 2020 and 2021 due to the new charitable contribution deduction for non-itemizers. Individuals who itemized were also eligible in 2020 and 2021 for expanded limits on itemized charitable contribution deductions. For 2020 and 2021, there were also enhanced charitable contribution deduction limits of 25 percent of taxable income for C corporations and for food inventory. At present, these expanded tax breaks have expired after 2021
- Unrelated business income silos. Since 2018, not-for-profit organizations have been required to calculate unrelated business income tax separately for each trade or business, with final regulations issues in November 2020
- Form 990-T. Tax law changes have also resulted in changes to reporting on IRS Form 990-T, with each silo reported on a separate Schedule A
- Social Security taxes. Several tax provisions were enacted to help businesses as well as not-for-profit organizations with Social Security taxes during COVID, including expanded paid sick and family leave, the employee retention credit, and Social Security tax deferral. All of these were available for at least part of the 2021 year, with half of the Social Security deferred taxes not being due until December 31, 2022
Who: Tax expert Mark Luscombe, JD, LL.M, CPA, is available to discuss the tax law changes impacting not-for-profit organizations on 2021 returns.
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