Charitable Giving Under Federal Tax Laws

The number one reason why people make charitable gifts to organizations they care about is because they are committed to a mission of importance to them.  Tax considerations may be secondary, but it is important to understand the tax consequences of gifts, regardless of one’s financial circumstances.

Standard vs. Itemized Deductions and Other Tax Strategies

Since 2018, the standard deduction was increased to $12,000 for singles, $18,000 for head of household and $24,000 for couples.  This change created options for new giving strategies that can provide tax advantages to the donor, while simultaneously benefiting nonprofit organizations with charitable gifts.  While the increase in the standard deduction diminished the prior benefit of itemized deductions, effective strategies remain that offer tax advantages.

• Consider front-loading your support with a lump sum gift, with instructions that the gift should be credited to multiple years.  (Example:  if you habitually donate $5,000 per year, consider a gift of $15,000 in year one, with the understanding that the charity will apportion the gift to years one, two and three.). The donor can then continue to utilize the standard deduction under the tax laws to its maximum advantage.
• If you are 70 ½ or older, use our IRA’s RMD (required minimum distribution) for charitable gifts.  A gift made from your IRA is entirely tax free and serves to reduce your taxable income in the year that the gift is made.  The benefits apply whether or not you itemize deductions or use the standard deduction on your tax return, so the strategy is a win-win: you pay NO tax on the income that you are gifting (using the qualified charitable donation from your IRA) and your income is reduced, dollar-for-dollar, by the total amount of all gifts made from your IRA.
• Increased performance in the stock market makes it possible to gift appreciated stock, which offers a two-part benefit to the donor:  the gift may be deducted to offset income and reduce tax obligations, and the donor will be relieved of any obligation to pay capital gains tax on the appreciation of the cost basis of the stock.
• If your plan is to make charitable gifts now and for the foreseeable future, consider a donor-advised fund, created with a lump-sum gift in year one.  Future charitable gifts may be made from the fund in the current year or in future years, and in year one, you may deduct the entire amount used to establish the fund, thus using the tax laws to your greatest advantage.

Planned Gifts:  how to reduce the tax consequences to your heirs while making a planned gift

There are no limits to the amount that can be left to non-profit organizations and with the increased ceiling on estates ($11.2 million for a single and $22.4 million for a couple), 99.9% of estates will be free from federal taxes.  But some strategies are especially useful to help your heirs avoid unintended tax consequences.

• Name a nonprofit organization such as the Hartford Symphony Orchestra as beneficiary of your traditional IRA. Since a traditional IRA is funded with pre-tax dollars, if your heirs are the beneficiaries, they will be required to pay taxes on the funds distributed.  Charitable organizations, however, pay no tax on the distribution from an IRA or other retirement vehicles.
• A smart tax strategy would be to gift real estate and stock (or other appreciated assets) to your heirs, who will inherit the assets with a “date of death” value, and thus pay no tax on the gains in those assets amassed during your lifetime.
• Consider naming a charity as beneficiary of your life insurance policy, which will not trigger a taxable event.

And last – but never least:  The Hartford Symphony Orchestra would not exist without the incredible community of patrons and donors, who recognize that it takes a personal investment to create the community we desire.  It is our donors who make all the difference – individuals who care deeply and passionately about our impact on the community, the music we play, and our learning and social impact programs which inspire and uplift thousands of children each year who would never otherwise have the experiences we offer.  You make all of this possible – and together, we make beautiful music.

The Hartford Symphony Orchestra offers this information to provide general gift, estate and financial planning information.  It is not intended as legal, accounting, tax or other advice.  For assistance in planning charitable gifts, the services of appropriate advisors should be consulted to determine tax and legal implications.  Always consult an attorney if your plans require the revision of a will or other legal document.