Congress has officially passed the One Big Beautiful Bill Act, a sprawling piece of tax legislation with major implications for nonprofit organizations and their supporters. While some of the most controversial proposals were left on the cutting-room floor, the final law still ushers in a new tax environment that affects charitable deductions, scholarship donations, endowment taxes, and executive compensation.
Here’s what nonprofits and donors need to know:
Charitable Deduction for Non-Itemizers
- Taxpayers who do not itemize can now deduct up to $1,000 (individuals) or $2,000 (married couples filing jointly) per year for cash donations to qualified charities.
- This deduction does not apply to contributions to donor-advised funds.
Permanent 60% AGI Limit for Itemizers
- The temporary 60% limit for cash gifts to public charities, introduced in 2017, is now permanent.
New Limits and Reductions for Itemized Charitable Deductions
- Itemizers can only deduct charitable contributions that exceed 0.5% of their adjusted gross income.
- Those in the highest tax bracket will see a reduction in their total itemized deductions.
Corporate Giving Faces a New Floor
- Corporations may now only deduct charitable contributions that exceed 1% of taxable income.
- The 10% annual cap on corporate charitable deductions remains unchanged.
New Tax Credit for Scholarship Donations
- Individuals can now claim a tax credit of the greater of $5,000 or 10% of AGI for gifts to qualified scholarship-granting organizations supporting K–12 students.
Higher Endowment Taxes for Certain Private Colleges and Universities
Institutions with endowments above $500,000 per student face a tiered excise tax on net investment income:
- $500,000 to $750,000 per student: 1.4%
- $750,000 to $2 million per student: 4%
- Over $2 million per student: 8%
Excise Tax on Compensation Now Applies More Broadly
- The 21% excise tax on compensation over $1 million now applies to all current and former employees of tax-exempt organizations.
- Previously, this tax only applied to the five highest-paid employees.
Notably Absent Proposals
Equally important to nonprofit and charitable organizations are key provisions that were deleted from the bill prior to passage.
- Proposed tax brackets for private foundation investment income were dropped; the tax remains a flat 1.39%.
- Provisions on unrelated business income related to parking and transit benefit and name and logo royalties.
- Controversial revocation provisions (from last fall’s HR 9495) were also omitted.
These omissions are significant wins for nonprofits, many of whom had lobbied against the proposed changes.
With the new law in place, nonprofit leaders can shift from speculation to strategy, adjusting their fundraising, compensation, and compliance approaches to align with the updated tax landscape.
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