Nonprofits Must Navigate New Hurdles When Preparing Tax Forms

The Trump administration’s massive 2025 tax package buried several provisions that have downstream consequences for nonprofit finance teams, particularly those responsible for tax compliance and Form 990 reporting.

The legislation underscores a broader trend in nonprofit regulation: Financial reporting is becoming more interconnected with tax policy, federal funding rules, and donor incentives.

Nonprofit CFOs and finance teams can’t just focus on assembling numbers when preparing Form 990. They also must understand the policy environment shaping those numbers. The organizations best positioned to navigate the changes treat compliance as an ongoing strategic priority rather than as a once-a-year task.

Shifting Compliance Landscape

Filed annually with the IRS, Form 990 provides regulators, donors, and watchdog organizations with a detailed picture of an organization’s finances, governance, and activities.

Though last year’s tax package didn’t change the filing deadline itself, it introduced new tax rules and reporting requirements that finance teams must evaluate before filing. This includes changes to charitable deduction rules that could affect donor behavior and, indirectly, nonprofit reporting.

Under the law, a charitable deduction for taxpayers who don’t itemize is allowed up to $1,000 for single filers and $2,000 for married couples filing jointly, effective for tax years beginning after Dec. 31, 2025.

Certain provisions also introduce floors on deductible contributions for taxpayers who itemize and corporations. Individual itemized deductions may be subject to a 0.5% floor based on the taxpayer’s contribution base, while corporate charitable deductions may face a 1% floor tied to taxable income.

Any shift in donor incentives has operational consequences for nonprofits. If giving patterns change, finance teams need to be able to explain those changes clearly in their reporting.

Considerations for Universities

The new tax law expanded the federal excise tax on university endowments and introduced additional reporting requirements for affected institutions. Certain private universities subject to the endowment excise tax are now required to report information used to calculate the tax, including the number of tuition-paying students.

The federal excise tax on university endowments under IRC Section 4968 applies to large private colleges and universities that meet all of the following: they have at least 3,000 tuition-paying students, more than 50% of students in the US, and endowment-type assets of at least $500,000 per student.

If subject, the institution pays a tax on net investment income, with rates ranging from 1.4% to 8% depending on the size of assets per student.

The legislation also changed how certain types of income are treated, expanding the taxable categories to include previously exempt items, such as student loan interest and royalties from federally funded research. While the tax itself applies only to institutions with relatively large endowments, affected universities face increased compliance expectations.

Finance teams must now ensure that supporting data such as student counts, endowment valuations, and related income streams are properly documented and reconciled for the purpose of the endowment tax calculation.

Regulatory Pressure

The compliance environment has become even more complicated because the new tax legislation went into effect not long after some other regulatory shifts affecting nonprofits.

For example, 2024 updates to federal grant guidance and administrative rules have changed the thresholds and requirements for organizations receiving federal funding. The threshold triggering a single audit increased from $750,000 to $1 million effective for fiscal years beginning on or after Oct.1, 2024.

While this change reduces the audit burden for smaller organizations, it doesn’t eliminate compliance obligations. Nonprofits below the threshold must still comply with the administrative and cost requirements for federal awards. For organizations preparing Form 990, this means federal grant reporting still requires careful documentation, even if a single audit is no longer required.

Nonprofit leaders are also navigating broader policy uncertainty tied to federal funding and executive actions affecting grants and government programs. Changes in agency staffing and funding priorities have already led to slower grant processing and operational disruptions for some organizations.

Strategic Roles

Historically, the Form 990 process was often viewed as a compliance exercise completed after the fiscal year closed. It has now become a strategic reporting tool requiring coordination across departments. Finance teams must now monitor legislative changes, donor trends, and grant policies throughout the year to ensure accurate disclosures and financial reporting.

As a publicly available document, Form 990 is not only is reviewed by regulators, but also widely used by donors, charity watchdogs, and rating agencies to evaluate nonprofit performance and governance. Errors or inconsistencies can damage donor confidence or invite additional scrutiny.

With the next round of Form 990 deadlines approaching, organizations are reviewing donation data and revenue classifications to understand how changes in charitable deduction rules may affect reporting.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Alex Zhang is a partner at UHY who leads audit, review, compilation, and other special services.

Brian Kearns is a partner and not-for-profit practice leader at UHY, national accounting and advisory firm.

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