Nonprofit Tax Impact Post-OBBBA

Understanding Form 990 Changes for 2025 in Light of the OBBBA

The Form 990, the cornerstone of nonprofit tax reporting, will undoubtedly reflect the profound changes introduced by the One Big Beautiful Bill Act. For the 2025 tax year, nonprofits should anticipate updates across various sections.

One critical area of focus will be enhanced reporting on governance practices. The IRS is increasingly interested in transparency regarding board composition, independence, and oversight, and the OBBB Act reinforces this push. Expect potential changes that require more detailed disclosures about board policies and procedures to ensure alignment with strengthened accountability measures.

Another significant area to watch is executive compensation. The OBBBA dramatically expands the 21% excise tax on excess compensation paid by nonprofits. This tax now applies to any current or former employee receiving over $1 million in compensation in a given year, not just the previously limited top five highest-paid employees. This means organizations will need to reassess compensation structures, including severance arrangements and deferred compensation, and prepare for expanded reporting requirements on Form 990, particularly for related organizations and independent contractors.

Furthermore, there could be modifications to the reporting of program service accomplishments, requiring more detailed narratives and metrics to demonstrate the impact of your organization’s activities. Staying informed about these changes will allow your nonprofit to prepare accurate and complete Form 990 filings and proactively address any new liabilities.

State-Specific Reporting Obligations: A Varied Landscape Influenced by OBBBA

Beyond federal requirements, nonprofits must also navigate state-specific tax reporting obligations. While the OBBBA primarily amends federal tax law, its provisions can indirectly influence state regulations, particularly concerning charitable giving incentives. These state-specific rules vary significantly, adding another layer of complexity.

For instance, some states require nonprofits to file annual reports with the state’s Attorney General or Secretary of State, detailing financial activities and governance structures. Charitable solicitation regulations also differ, with some states requiring nonprofits to register before soliciting donations. It is important to remember that these state-specific rules can and do change. For example, some states may be updating their rules regarding online fundraising, or the reporting of donations received through crowdfunding platforms, in response to new federal charitable deduction incentives. It is vital to consult with your state’s relevant agencies to stay up-to-date on these requirements and to ensure you are compliant with all deadlines.

Ohio, Georgia, and Indiana Compliance

Ohio

In Ohio, nonprofits must be particularly mindful of the reporting requirements set forth by the Ohio Attorney General’s office. This includes adherence to specific regulations regarding charitable trust filings and registration for charitable solicitations. Ohio also requires certain nonprofits to file annual reports detailing their financial activities and governance structures. Nonprofits should monitor how Ohio’s regulations might adapt to federal changes, particularly concerning charitable giving.

Georgia

Similarly, Georgia nonprofits face their own set of state-specific obligations, primarily overseen by the Georgia Secretary of State and the Georgia Attorney General’s office. Georgia demands registration for charitable solicitations and has specific reporting requirements for fundraising activities. Like Ohio, organizations in Georgia should closely watch for any state-level adjustments that might follow the OBBB Act’s federal changes.

Indiana

Indiana nonprofits primarily engage with the Indiana Secretary of State for corporate filings like biennial business entity reports and the Indiana Department of Revenue for sales tax exemption (requiring Form NP-20A) and potential unrelated business income tax (Form IT-20NP). Unlike Ohio and Georgia, Indiana generally does not require charitable solicitation registration for nonprofits using their own staff or volunteers, but professional fundraisers must register with the Indiana Attorney General’s Office. All Indiana nonprofits should actively monitor state regulatory changes, particularly those influenced by federal acts like the OBBBA, to ensure ongoing compliance, especially as regulations evolve for online and digital fundraising.

Ohio, Georgia, and Indiana are actively updating their regulations to address the evolving landscape of nonprofit operations, particularly concerning online fundraising and digital solicitations. Therefore, organizations operating in these states must diligently monitor updates from their respective state agencies to ensure ongoing compliance, including staying connected with the Ohio Association of Nonprofit Organizations (OANO), the Georgia Center for Nonprofits (GCN), and relevant Indiana resources like the Indiana Department of Revenue and the Indiana Attorney General‘s office.

Impact of New IRS Guidance and the OBBBA

The OBBBA itself represents a significant new wave of IRS guidance and regulations. For 2025, nonprofits should pay close attention to several key areas:

Unrelated Business Income Tax (UBIT)

While not explicitly overhauled, the OBBBA’s broader focus on transparency and potentially increased IRS scrutiny could lead to further clarification or enforcement of UBIT rules. Nonprofits should review their activities to ensure proper classification and reporting of unrelated business income.

Charitable Contribution Deductions

The OBBB Act introduces significant changes for donors, which in turn affect nonprofits.

• Universal Charitable Deduction: A permanent universal charitable deduction has been reinstated, allowing non-itemizers to deduct up to $1,000 for individuals and $2,000 for married couples in cash contributions to eligible charities. This could impact the volume and type of donations, and nonprofits should be prepared to report accordingly.
• Itemized Deduction Floors: For itemizing individuals, charitable contributions are now deductible only to the extent they exceed 0.5% of their adjusted gross income (AGI).
• Corporate Deduction Floors: Corporations now face a 1% floor on deductibility for charitable donations, meaning deductions apply only to contributions exceeding 1% of their taxable income (up to the existing 10% ceiling).

Excise Tax on College Endowments

The OBBBA revises the excise tax on large university endowments. This now applies a tiered excise tax rate (1.4%, 4%, and 8%) based on the institution’s “student-adjusted endowment,” with a broadened definition of eligible institutions.

Increased IRS Funding and Scrutiny

The OBBBA significantly increases funding for IRS oversight of tax-exempt organizations. This signals a likely rise in audits and enforcement activity in the years ahead. Nonprofits engaging in international activities should be particularly aware of potential increased scrutiny and changes to reporting requirements for foreign bank accounts and foreign grants.

Proactively monitoring IRS publications and guidance, specifically those detailing the implementation of the OBBBA, will help your organization adapt to these changes and avoid costly penalties.

Best Practices for Documentation and Compliance in the OBBBA Era

Accurate and timely tax reporting relies on meticulous documentation and robust internal controls. In the post-OBBBA landscape, this is even more critical:

• Detailed Records: Implement a system for maintaining detailed records of all financial transactions, including revenue, expenses, and asset acquisitions. This is crucial for navigating potential UBIT adjustments and new reporting requirements for compensation.
• Reconciliation and Supporting Documentation: Regularly reconcile bank statements and ensure that all supporting documentation is readily available, especially for compensation and donor contributions that fall under the new deduction rules.
• Clear Policies and Procedures: Establish clear policies and procedures for financial management, including segregation of duties and approval processes. This helps mitigate risks associated with expanded executive compensation regulations.
• Internal Audits: Conduct periodic internal audits to identify and address any potential weaknesses in your internal controls, particularly in areas impacted by the OBBBA’s new provisions.
• Stay Informed and Consult Professionals: Staying up-to-date on tax law changes is essential. Subscribe to IRS publications, attend relevant webinars on the OBBBA’s impact, and consult with tax professionals to ensure your organization remains compliant with the new requirements.

Resources and Professional Assistance in the New OBBBA Landscape

Navigating the complexities of nonprofit tax reporting in the wake of the OBBBA can be challenging, but numerous resources are available to assist you:

IRS Website

The IRS website provides invaluable publications and guidance on various tax-related topics. Look for specific guidance on the OBBBA’s provisions affecting tax-exempt organizations.

State Agency Websites

State agency websites, such as your state Attorney General’s office, offer information on state-specific reporting requirements, which may evolve in response to federal changes.

State-Specific Professional Organizations

State-specific professional organizations, such as the Ohio Association of Nonprofit Organizations (OANO) and Georgia Center for Nonprofits (GCN), offer valuable resources, training, and insights into local impacts of federal legislation. The National Council of Nonprofits is also a good reference for state-specific information.

Qualified CPA Firms

Consider engaging with a qualified CPA firm like Brady Ware that specializes in nonprofit tax compliance. Their expertise will be invaluable in interpreting and applying the nuanced provisions of the OBBBA to your organization’s unique situation.

By leveraging these resources, you can ensure your nonprofit’s tax reporting is accurate, timely, and fully compliant with the new demands of the One Big Beautiful Bill Act.

Brady Ware Nonprofit Advisors wants to help you fulfill your mission with financial health and compliance services and a network of nonprofit consultants who specialize in strategic decision-making.

Disclaimer: This article provides general information and should not be considered professional financial or tax advice. Please consult with a qualified CPA or financial advisor for guidance specific to your organization’s needs.