Understanding the One Big Beautiful Bill’s Effects on Nonprofits

On July 4, 2025, President Trump signed into law H.R.1, commonly known as the One Big Beautiful Bill (OBBB) Act. The legislation includes several provisions that may affect charitable organizations.

Corporate Giving Floor. Under the OBBB, corporations can claim a charitable deduction only if contributions exceed one percent of taxable income. Corporations may carry forward the tax benefit for up to five years. Overall, this change could lead to fewer but potentially larger donations from corporations. Nonprofits may need to adjust their fundraising approaches and focus on building deeper partnerships with businesses.

Limits on High-Income Deductions. The legislation caps the value of charitable deductions for taxpayers in the highest income bracket. This change may reduce the incentive for some high-income donors, though charitable giving remains broadly supported. Expanding and diversifying fundraising efforts beyond reliance on high-income donor tax incentives will help offset potential declines in major gifts.

Universal Charitable Deduction. Starting in 2026, taxpayers who take the standard deduction can claim a new universal charitable deduction—up to $1,000 for individuals and $2,000 for married couples. While modest, this deduction creates a new avenue for supporters who use the standard deduction, potentially expanding your donor base and increasing overall giving.

Excise Tax Expansion on Highly Compensated Employees. Beginning with taxable years after December 31, 2026, the OBBB expands the 21 percent excise tax on nonprofit compensation exceeding $1 million to include all current employees above that threshold along with former employees employed after December 31, 2016. Organizations are advised to review their compensation structures, identify any current or former employees who may trigger the expanded excise tax, and plan proactively for compliance and potential budgeting impacts.

Expanded Estate and Gift Tax Exemption. The bill raises the lifetime gift and estate tax exemption to $15 million for individuals and $30 million for married couples starting in 2026. This change creates additional avenues for charitable bequests.

Paid Leave and Child Care Credits. Nonprofit organizations are not eligible to claim paid family and medical leave or employer-provided childcare credits on their IRS Form 990, unlike for-profit organizations. Budget planning should reflect this added expense, and it’s useful to highlight these benefits to staff as part of overall compensation.

College and University Endowment Tax. The OBBB establishes a tiered tax on college endowments based on the student-adjusted formula. Taxes start at 1.4 percent for endowments between $500,000 and $750,000 per student, rising to four percent for $750,000–$2 million and eight percent for amounts above $2 million. While smaller institutions are not affected now, the framework could expand in the future. Higher taxes on large endowments may limit resources available for institutions’ exempt purposes.

AAFCPAs will continue to monitor this legislation and future actions and provide updates as appropriate.

How We Help

AAFCPAs helps nonprofit leaders navigate the OBBB Act by offering practical guidance on compliance, strategic financial planning, and adaptive fundraising strategies. We deliver much more than the typical audit and tax services, offering comprehensive accounting and advisory solutions tailored to help nonprofit organizations navigate complex challenges and achieve their missions.

These insights were contributed by Christopher Consoletti, Esq., Consulting Attorney, Director.

Questions? Reach out to our author directly or your AAFCPAs partner.

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