Tax Reform Changes to Nonprofit Net Operating Losses

Dec 4, 2018
Tax and Accounting

Welcome to Life Designers, your trusted partner in business and consumer services consulting. In this article, we will explore the tax reform changes to nonprofit net operating losses and provide you with valuable insights into how these changes may impact your organization. Our team of experts at Life Designers is committed to delivering comprehensive and up-to-date information to help you navigate through complex tax regulations. Let's dive right in!

Understanding Nonprofit Net Operating Losses

Before we delve into the tax reform changes, let's first understand what nonprofit net operating losses are. Nonprofit organizations, such as charities or foundations, often generate revenue through various activities to support their missions. However, there may be instances where these organizations experience financial losses in a given year, resulting in a negative net income.

A nonprofit net operating loss occurs when the organization's total expenses exceed its total revenue. In such cases, the organization may carry forward these losses to offset any future taxable income, providing financial relief and flexibility.

Tax Reform Changes and Their Implications

The recent tax reform introduced several changes that affect nonprofit net operating losses. These changes require careful consideration to ensure compliance and maximize the benefits available to your organization. Let's explore these changes in detail:

  1. Loss Carryforward Period

    Prior to the tax reform, nonprofits could carry forward net operating losses for up to 20 years to offset future taxable income. However, under the new regulations, the carryforward period has been reduced to 5 years. This means that any losses incurred after the implementation of the reform can only be carried forward and utilized for the next 5 years.

  2. Loss Carryback Option

    Another significant change introduced by the tax reform is the elimination of the loss carryback option for nonprofits. Previously, organizations had the choice to apply net operating losses to past tax years, potentially receiving refunds for taxes paid in those years. With this option no longer available, nonprofits must focus on optimizing their losses within the carryforward period.

  3. Limited Deductibility

    The tax reform also imposed a limit on the deductibility of net operating losses. Nonprofits can now only deduct losses up to 80% of their taxable income in any given year. This change aims to align nonprofit deductions with corporate deductions, ensuring fairness and consistency across different types of organizations.

Strategic Considerations and Planning

Given these tax reform changes, it is crucial for nonprofit organizations to adapt their financial strategies and plan accordingly. Here are some key considerations to keep in mind:

  • Review Financial Statements

    Take the time to review your financial statements and assess the impact of the tax reform changes on your organization. Analyze your previous net operating losses, their carryforward periods, and determine how you can make the most out of the available deduction limits within the new regulations.

  • Consult with Experts

    Seek professional guidance from consultants, like Life Designers, who specialize in nonprofit tax regulations and strategic planning. Our team of experts can help you navigate the complexities of the tax reform changes, optimize your financial strategies, and ensure compliance with all applicable laws.

  • Explore Alternative Funding Sources

    Consider exploring alternative funding sources to diversify your revenue streams and reduce reliance on tax deductions. Implementing fundraising campaigns, securing grants, or developing strategic partnerships can help bolster your organization's financial stability and sustainability.


In conclusion, the tax reform changes to nonprofit net operating losses have introduced new considerations and planning requirements for organizations. Understanding the implications and adapting your financial strategies are essential to maximize the benefits and ensure compliance. At Life Designers, we are dedicated to assisting you in your journey towards financial success. Contact us today to learn more about our consulting and analytic services tailored to meet your unique needs.