The Tax Cuts and Jobs Act of 2017: How to Plan for Charitable Giving

The Sky is Not Falling!

Now that the new tax law has been read and reviewed, there are multiple options and strategies to help sustain and even encourage charitable giving to non-profit organizations such as the Hartford Symphony Orchestra.

Happily, the final version of the new tax law introduced no specific limitations to the charitable contribution deduction, allowing taxpayers to continue to utilize the deduction to support vital nonprofit organizations, while continuing to receive a significant tax advantage for doing so.

And, most importantly, 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.  Changes in the tax law do not alter that commitment.

Impact of changes to the standard deduction:

Although some believed the increased standard deduction ($12,000 for singles, $18,000 for head of household and $24,000 for couples) might reduce the incentive for people to make charitable gifts, three factors show this is inaccurate:

  • In 2018, the new law will give most employees increased spendable dollars per paycheck which are available for donations to non-profit organizations, even if they opt to utilize the enhanced standard deduction when filing their taxes at the end of the year.
  • Prior law reduced itemized deductions for certain high income tax payers by up to 80%.  Under the new law this limitation has been removed, allowing donors to receive the benefit of 100% of all itemized deductions.
  • Retirees will likely see increased spendable income overall, due to the reduction in the tax rates across the board, making heightened charitable giving possible.

Benefits of charitable gifts:  

Many potential donors may well benefit by the changes in the tax law as follows:

  • The contribution limit of 50% of adjusted gross income (AGI) was increased to 60% of AGI for gifts of cash.
  •  The contribution limit of 30% of AGI for gifts of property was unchanged.

These two important changes could well enhance the value of charitable deductions for the individual donor, resulting in an even greater incentive to make charitable gifts.

Four Suggested Strategies Will Help Support Those Institutions Important To You:

  • Consider “front-loading” your support with a lump sum gift, with instructions to spread the gift out over multiple years.

Example:  If you habitually donate a total of $5,000 per year, consider a gift of $15,000 in year one (2018), with the understanding that the gift will cover three years.  A lump sum amount will allow you to itemize deductions, taking the full tax advantage of the entire gift in the first year.  For the next two years (2019, 2020) using the increased standard deduction will help utilize the new tax law to its maximum advantage.

  • If you plan to make charitable gifts now and for the foreseeable future, consider a “donor-advised” fund, created with a lump-sum gift in year one, from which future charitable gifts will be made. You may deduct the entire amount placed in the fund, getting the full tax benefit of the gift.  (Having received a tax benefit for the full amount used to establish the fund, you can use the fund to make annual gifts in each ensuing year, thereby using the tax law to your maximum advantage.)
  • If you are 70 ½ or older, use your IRA’s RMD (required minimum distribution) for charitable gifts. A gift made from your IRA is entirely tax free and also serves to reduce your taxable income in the year the gift is made.  You can reap these tax benefits regardless of whether you itemize deductions or use the newly increased standard deduction on your year-end tax return.  This strategy is a win-win:  you pay NO tax on the income that is gifted and your income is reduced, dollar-for-dollar, by the total amount of all gifts made from your IRA.
  • Overall increased performance in the stock market makes it possible to make gifts of appreciated stock, providing a two-step 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 in the stock’s cost basis.

Please remember:  you can always reduce taxes by leaving a portion of your estate to a non-profit organization, thereby creating an enduring legacy:

  • The estate tax deductibility of charitable gifts is unchanged. Unlike the Income Tax System, there are no limits to what can be left to non-profit organizations. With the increased ceiling on estates ($11.2 million single and $22.4 million couple,) 99.9 percent of estates will be free from federal tax.
  • Estate tax changes will allow donors to leave more to both non-profits and their heirs.

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 our 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 music education programs which inspire and uplift thousands of children each year who would never otherwise have the experiences we offer.  Our donors make all of this possible – and together, we make beautiful music.

The Hartford Symphony Orchestra used information from The Sharpe Group in preparing this document. The purpose of this document is to provide general gift, estate and financial planning information. It is not intended as legal, accounting or other financial advice. For assistance in planning charitable gifts with tax or other financial implications, the services of appropriate advisors should be obtained. Consult an attorney if your plans require revision of a will or other legal document.