As part of the Tax Cuts and Jobs Act of 2017, there are new rules on how to report Unrelated Business Taxable Income (UBTI). In the past, all UBTI was aggregated into one, so if you had both profitable and unprofitable activities, they would zero out. For example, say your organization has a retail store, selling merchandise at a profit. You also publish a magazine that is sold by subscription and in which you also sell advertising space. In the past, the magazine lost more money than the store netted, so overall you had a net loss and no taxable income.
Now, you have to separate the activities into separate “silos”, based on a “reasonable, good-faith interpretation” to determine whether the activities constitute multiple activities. According to that standard, you may have to account for the two activities separately and if there’s a net loss in one, it can no longer be used to offset a net profit in another. That means that the store might be subject to tax for 2018 and beyond. It’s a good time to make sure that you have a good system in place to capture and/or allocate your expenses to the multiple activities to ensure that you are reporting accurately and in the most advantageous way allowable for tax purposes.
If you have any questions or would like help sifting through all of this, feel free to email eric@ironrivervirtual.com