The “One Big Beautiful Bill Act’s” Effect on Nonprofits
A Comprehensive Look at How the OBBBA's Tax Reforms Impact Nonprofit Organizations' Operations and Financial Strategies
The “One Big Beautiful Bill Act” (OBBBA), a significant tax reform package signed into law on July 4, 2025, introduces sweeping changes that will reshape the operational and financial strategies of nonprofit organizations nationwide. We look into the impacts of the OBBBA, covering critical areas from charitable giving incentives and R&D provisions to shifts in foundation taxation and federal funding for key programs like Medicaid, providing essential insights for nonprofits adapting to this new landscape. Here’s a breakdown of the key effects.
Universal Charitable Deduction
Non-itemizing taxpayers can now deduct up to $1,000 for individuals and $2,000 for married couples for charitable contributions (effective Tax Year 2026). This change encourages broader giving amongst those who previously didn’t receive a tax benefit for their contributions.
Itemized Deduction Caps
New floors on deductions (0.5% of AGI for individuals and 1% for corporations) and a 10% cap on corporate donations take effect. Additionally, the tax benefits of itemized charitable deductions for top bracket taxpayers are capped at 35% (effective Tax Year 2026).
Infrastructure & R&D Incentives
The OBBBA presents a mixed bag for nonprofits regarding infrastructure and R&D. While the permanent R&D expensing could benefit research-intensive nonprofits and the expansion of community development grants offers new funding avenues, the accelerated expiration and increased restrictions on clean energy tax credits, along with the rescinding of certain IRA program funds, pose significant challenges. Nonprofits involved in clean energy projects will need to adapt quickly to tighter timelines and new limitations, while others should explore opportunities within the expanded grant programs and assess the implications of R&D expensing if applicable to their operations. See Clean Energy Tax Credit Shifts below.
Increase in Standard Deduction
The OBBBA increases the standard deduction (effective Tax Year 2025), which could mean more taxpayers opt for it instead of itemizing, because their total itemized deductions (including charitable contributions) fall below the new higher standard deduction amount. This means they no longer receive a direct tax benefit for their charitable donations. Historical data following the 2017 Tax Cuts and Jobs Act, which boosted the standard deduction, showed a notable decrease in households claiming charitable deductions, leading to billions less in overall giving.
“The OBBBA introduces sweeping changes that will reshape the operational and financial strategies of nonprofit organizations nationwide.”
Increased Taxes on Foundations
The flat 1.39% excise tax on a private foundation’s (with assets exceeding $50 million) net investment income is replaced with a tiered system based on the foundation’s asset value. This new structure imposes higher rates for larger endowments, potentially reaching up to 10% for the largest foundations. This is a significant change aimed at generating revenue, and critics argue it could reduce funds available for charitable grants (effective Tax Year 2026).
Medicaid Cuts Jeopardize FQHCs
The OBBBA includes stricter eligibility requirements, funding caps, and work mandates for Medicaid, which could impact Federally Qualified Health Centers (FQHCs) and other nonprofits that rely on Medicaid funding to serve vulnerable populations.
Expanded Excise Tax on Highly Compensated Employees
The OBBBA expands the existing 21% excise tax on excess compensation (over $1 million) to apply to all employees earning above that threshold, not just the top five earners, according to JD Supra. This could increase operational costs for nonprofits with highly compensated employees (effective Tax Year 2026).
Clean Energy Tax Credit Shifts
Many clean energy tax credits are accelerated for expiration, with various termination dates between September 30, 2025, and June 30, 2026, depending on the specific credit. Wind and solar projects that began construction before July 5, 2026, qualify for existing credits, but those after that date must be placed in service by December 31, 2027. An anti-abuse rule for lessor-owned solar water heating and wind property applies to taxable years beginning after July 4, 2025.
In summary
The OBBBA presents a mixed bag for nonprofits. Nonprofits should carefully review the specific provisions of the OBBBA and consider how these changes may impact their financial strategies, fundraising efforts, and program delivery. It is advisable to consult with tax and legal professionals to understand the specific implications for your organization and to adjust strategies accordingly. We’re still assessing the full impact of the OBBBA on nonprofit organizations and will continue to provide timely updates and guidance as details unfold.
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Disclaimer: The information provided is for educational purposes only. Nothing contained herein constitutes financial, legal, tax, or other advice. Consult your tax and legal professional for details on your situation.
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Twana is the leader of Brady Ware’s nonprofit services, showcasing her 25+ years of specialized service in accounting, audit, and financial reporting matters. She also serves as Brady Ware’s Accounting and Assurance Services Quality Control Director, playing a pivotal role in upholding the firm’s commitment to excellence.