What your association and nonprofit needs to know about the 2025 tax changes

Tax laws often evolve. However, with the proposed 2025 tax changes and because the Tax Cuts and Jobs Act (TCJA) is soon expiring, associations and nonprofits must take extra care to stay ahead of the curve to avoid financial pitfalls and compliance risks. Understanding these risks is crucial for maintaining compliance, optimizing financial strategies, and future-proofing technology investments.

Whether your association or nonprofit is actively preparing for new tax regulations or just starting to assess their potential impact, now is the time to get informed. Your organization is essential to your community and industry. Lawmakers need to understand the potential consequences of tax reforms. Collaborating with industry groups and sharing your story can influence policies safeguarding your mission-driven work.

Our blog breaks down the most critical tax changes, highlights key compliance challenges, and explores best practices for confidently navigating legislative updates. You’ll also discover tips and resources to share your association and nonprofit’s story and support advocacy efforts.

“As association leaders, most of us recognize that working with budgets is challenging. Congress is currently trying to make up some 4.3 trillion dollars in tax gaps and they’re looking everywhere to find those dollars and cents, including associations and nonprofits. As association leaders, we shouldn’t try to do the jobs of Congress, determining how to shift budgets and allocate these dollars. However, it’s up to us to prove the value and impact of our associations.” — Nicole Bowen, CAE, Nonprofit Relationship Management RSM.

How the proposed 2025 U.S. tax changes will impact associations and nonprofits

The question of how the 2025 tax reform will impact associations and nonprofits is currently up in the air. Organizations don’t know what will come to fruition, but everything is on the table. This uncertainty can make it challenging for association professionals to stay updated with the latest news and keep all necessary stakeholders informed.

If you feel like you’re in the same situation, you’re not alone. Recently, Momentive Software asked professionals how informed they think their organizations were regarding the potential impact of 2025 tax reform on associations. In the poll, 43% of the respondents stated their organizations were somewhat informed, and 40% stated they were not informed.

Staying informed on how the proposed 2025 tax reform can impact your organization is a great way to prepare for future changes. Here are the main factors currently on the table in the proposed 2025 tax reform:

Removal of tax-exempt code

Many organizations could lose their nonprofit status if the tax-exempt code is removed or altered. This would have major financial and operational implications for associations, including the following:

• Increased tax liability: Associations would have to pay federal and possibly state taxes on previously exempt income.
• Higher operating costs: Losing tax-exempt status could make running programs, offering member benefits, or investing in growth more expensive.
• Changes in donor behavior: Donors may be less inclined to give if contributions to associations are no longer tax-deductible, reducing critical funding.

Taxation of non-charitable donations

Many associations and nonprofits receive revenue that isn’t classified as charitable donations, such as sponsorships, membership dues, investment income, or educational program revenue. If this revenue becomes taxable, many associations and nonprofits will likely face more work in staying compliant and paying additional taxes. Also, it’s likely that association members would experience higher membership dues, increasing the risk of member attrition.

Expansion of Unrelated Business Income Tax (UBIT)

UBIT applies to revenue from activities that aren’t directly related to an association’s mission. If UBIT is expanded in the 2025 tax reform, organizations may experience the following:

• More income subject to taxation: If the definition of “unrelated” is broadened, associations could be taxed on more of their revenue.
• Changes in program offerings: Associations may need to reassess revenue-generating activities to determine if they still make financial sense.
• More complex compliance requirements: New UBIT rules could require additional accounting and legal resources.

These potential tax changes underscore the need for proactive financial planning. To prepare for the 2025 tax reforms, associations must evaluate their revenue sources, reconsider their fundraising strategies, and ensure compliance with evolving tax laws. Staying ahead of these changes will help mitigate potential risks and position your association for long-term sustainability.

“Currently, think tanks and lawmakers are considering all avenues from the 2025 tax reforms including taxing associations and nonprofits. These two groups have voiced concerns about the impact of associations competing with for-profit organizations and the bad actor nonprofits taking advantage of tax changes.” — Tirrah Switzer, VP of Product Marketing, Momentive Software.

Insights into tax compliance challenges and financial considerations for organizations

While the tax reform bill has yet to be finalized, associations and nonprofits should start preparing for potential changes now. Proactive planning will help mitigate financial risks and ensure compliance, even if the final legislation differs from the initial proposals. Working closely with your organization’s financial and tax experts will provide clarity and allow you to anticipate possible outcomes.

To stay ahead of potential tax compliance challenges, consider these critical questions:

• Are your general ledger codes (GL) ready for some or all income to be taxed?
  Currently, GL codes are structured to accurately categorize and track income and expenses, but they are not specifically configured for tax reporting purposes. If tax rules were to change, your organization might need to review and update your GL coding structure to ensure compliance.
  
• Are your GL codes ready to be taxed by individual states or individual counties?
  State and local tax regulations may evolve, requiring associations to track and report taxes at more granular levels. Prepare your association and nonprofit’s financial system to accommodate these changes.
  
• Do you have a software solution allowing us to remain tax-compliant?
  Compliance requirements may become more complex, requiring financial software that can automate tax calculations, generate necessary reports, and adapt to changes in tax laws.
  
• Should you hire an in-house tax professional?
  Outsourcing a financial professional may no longer be sufficient depending on the extent of the 2025 tax changes. Having a dedicated tax expert on staff could streamline compliance efforts and reduce financial risk.
  
• Is your budget flexible enough to accommodate compliance with the proposed tax changes?
  Associations and nonprofits may face new tax liabilities, increased administrative costs, or legal fees associated with compliance. A flexible budget will ensure your organization can absorb these costs without disrupting operations.

Introducing this topic at your next board or financial committee meeting is crucial in keeping all stakeholders informed at your association. Keep the tax reforms on your meetings’ agenda to ensure all stakeholders remain informed and educated about future changes. Also, engage financial experts and legal counsel to provide insights and recommendations on compliance strategies.

What are the real-world implications of tax reforms for associations and nonprofits?

In a recent poll, Momentive Software asked professionals what area of tax reform they found most concerning. Over half (66%) the respondents said the impact on their organization’s future was most concerning, 46% said financial planning and budgeting, and 44% said compliance and regulatory issues.

While we don’t yet know the outcome of the proposed 2025 tax reforms, associations and nonprofits anticipate increased financial burdens and are planning to embrace operational strategies to future-proof their organizations. Here’s how the proposed tax changes could impact your association:

1. Operational and compliance complexities
   Associations and nonprofits may need to track and report taxes on income sources that were previously exempt, requiring more detailed accounting processes and financial oversight.
   
2. Changes in business models
   To maintain financial stability, associations and nonprofits may need to explore alternative revenue models, such as digital products, education programs, or consulting services.

Associations and nonprofits serve the public good, providing vital community services like education support, free clinics, disaster relief, and more. The tax reforms could potentially limit the impact of these organizations and reduce much-needed community services, ultimately damaging local economies and long-term resilience.

To ensure lawmakers understand the critical need for associations to support their communities, association professionals must stay informed and share their stories.

“There are many newly elected members to Congress. There’s also a constituency of Congress members who don’t understand how associations and nonprofits work. We need to shift the focus and conversation to tell that story of purpose over profits.” — Tirrah Switzer, VP of Product Marketing, Momentive Software.

Learn more about the 2025 tax reforms and prepare your association or nonprofit

As the proposed 2025 tax reforms loom, mission-driven organizations must proactively stay informed and prepared. While the final legislation remains uncertain, the potential impacts—from increased tax liabilities to shifting revenue models—underscore the need for strategic financial planning and compliance readiness.

Now is the time to assess your organization’s financial structure, reevaluate fundraising strategies, and ensure your organization can navigate potential regulatory changes. Engaging tax professionals, upgrading compliance tools, and keeping stakeholders informed will be essential in mitigating risks and maintaining stability.

Beyond internal planning, advocacy is key. Associations and nonprofits play a vital role in supporting communities, and lawmakers must understand the potential consequences of tax reforms. By working with industry groups and sharing your story, you can help shape policies that protect your association’s mission-driven work.

Tax laws will continue to evolve, but by staying proactive and informed, your organization can weather these potential changes and effectively serve your members and communities. Stay engaged, stay prepared, and be a voice for the future of associations or nonprofits.