Charitable Giving

Maximize Your Giving and Minimize Your Taxes

The end of the year is quickly approaching, which may prompt a review of any final tax planning strategies to employ before December 31. The fall and winter holiday season also turns our minds to gratitude and giving. Perhaps surprisingly, these year-end considerations are not mutually exclusive.

To promote charitable giving, the IRS offers tax deductions for certain charitable donations. The most straightforward tax benefit is an itemized deduction of the amount of any cash donations to a qualifying charitable organization, up to 60% of the taxpayer’s Adjusted Gross Income for the year (with a five-year carryover allowed). If you itemize deductions, this is an easy deduction to claim and one you are probably already aware of.

But tax-aware charitable giving strategies don’t end there. For example, a special above-the-line deduction (for non-itemizers) was created just for 2020-21 for any taxpayer to deduct cash donations up to $300 for single filers or $600 for married filing jointly.

Let’s look at three additional options to maximize your giving while minimizing your taxes.

1. Qualified Charitable Distributions 

A qualified charitable distribution (QCD) is a direct transfer from your IRA (traditional, rollover, inherited, SEP, or SIMPLE) to a qualified charity. Several attractive benefits come with a QCD:

  • First, a QCD counts toward your annual required minimum distribution (RMD).
  • Second, the amount of a QCD is excluded from your taxable income. So, rather than taking a withdrawal from your IRA, having taxes withheld, and then writing a check to your favorite charity, consider making a direct transfer from your IRA to the charity. You can send the full amount to charity without having taxes withheld on the distribution.
  • Third, the tax-exemption of a QCD doesn’t require that you itemize your deductions. Normally, to get a tax deduction for charitable giving, you need to itemize your tax deductions rather than use the standard deduction. But a QCD is tax-exempt whether or not you itemize – allowing you to take the higher deduction (whether that is the standard or itemized) and get a tax benefit for your charitable contributions either way.

To be eligible for a QCD, you must be 70 ½ or older and SEP or SIMPLE IRAs must be inactive. QCDs are limited to $100,000 per year per person and may be further limited if you are still contributing to the IRA. To count toward the current year’s RMD, the funds must be transferred from the IRA by the RMD deadline (usually December 31). 

2. Donor-Advised Funds
A Donor-Advised Fund (DAF) is a fund you establish to set aside cash and other assets for charitable giving. You receive a tax deduction for the amount given to the fund in the year contributed, and the assets are available for you to donate to specific charitable organizations at any time. 

Donations of appreciated assets, such as stock or real estate, can be given to the DAF without paying capital gains taxes. Any further growth of assets in the DAF is not taxable to you since it is already irrevocably reserved for charitable gifts.

A DAF can be used in a “batching” strategy, where the tax-deductible contribution to the fund happens in one year and then donations to your chosen charities subsequently happen on whatever timeline you wish. You can fund a batch of charitable gifts in one single tax-deductible contribution. This is a great tax-mitigating tool for a particularly high-income year and a useful ongoing strategy to maximize the tax benefits of your charitable giving. 

3. Charitable Remainder Trusts

Charitable Remainder Trusts allow you to make partially tax-deductible contributions to the trust while achieving a two-fold goal: providing an income stream to yourself or another beneficiary and giving to a charitable organization.

There are two types of Charitable Remainder Trusts: a Charitable Remainder Annuity Trust (CRAT) and a Charitable Remainder Unitrust (CRUT).

  • A CRAT distributes a fixed amount to the chosen beneficiary (yourself or someone else) each year. At the end of the trust term (no more than 20 years), the remainder of the trust goes to your chosen charitable organization(s). Additional contributions cannot be made once the CRAT is established.
  • A CRUT distributes a fixed percentage of the trust assets to the beneficiary, with the remainder going to your chosen charitable organization(s). Additional contributions can be made over the life of a CRUT.

The tax deduction of contributions to a Charitable Remainder Trust is based on the type of trust, the term of the trust, the projected income payments, and the IRS interest rate assumptions. You can combine a Charitable Remainder Trust with a Donor-Advised Fund to offer more flexibility. 

CARES Act Enhancements

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) added some additional tax incentives for charitable giving in tax years 2020 and 2021. The maximum allowed deduction for cash contributions increased to 100% of AGI, with a five-year carryover allowed. The deduction allowed for corporations increased to 25% of taxable income. As mentioned previously, a special above-the-line deduction (for non-itemizers) was also created for any taxpayer to deduct cash donations up to $300 for single filers or $600 for married filing jointly.

Family, corporate, and private non-operating foundations are excluded from these enhanced benefits, along with supporting organizations under Section 509(a)(3) and donor-advised funds. These enhancements only apply to cash contributions. Contributions of appreciated assets (like stock or real estate) are subject to the same prior limit of 30% of AGI.


Immediate action items we recommend:

  • If you gave to charity in 2021, make sure you take the special above-the-line deduction (up to $300 for single filers and $600 for married filing jointly).
  • If you are over age 70 ½ and donating to charity, talk with your advisor about making Qualified Charitable Deductions from your IRA.
  • If you had unusually high income this year and/or if you are consistently giving large amounts to charity, talk with your advisor about setting up a Donor-Advised Fund.

Charitable giving is a fulfilling practice and an important piece of many financial plans. Current tax law incentivizes charitable gifts, and thus, skilled tax planning can help you maximize what you can give. Talk to your advisor or tax professional to see if any of these charitable giving strategies could help you achieve your financial goals.

Kirsten C. Cadden, CFP®

Associate Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

The IRA and the 401(k)

The IRA and the 401(k)

Comparing their features, merits, and demerits. 

How do you save for retirement? Two options probably come to mind right away: the IRA and the 401(k). Both offer you relatively easy ways to build a retirement fund. Here is a look at the features, merits, and demerits of each account, starting with what they have in common.

Taxes are deferred on money held within IRAs and 401(k)s. That opens the door for tax-free compounding of those invested dollars – a major plus for any retirement saver. (1)

IRAs and 401(k)s also offer you another big tax break. It varies depending on whether the account is traditional or Roth in nature. When you have a traditional IRA or 401(k), your account contributions are tax deductible, but when you eventually withdraw the money for retirement, it will be taxed as regular income. When you have a Roth IRA or 401(k), your account contributions are not tax deductible, but if you follow Internal Revenue Service rules, your withdrawals from the account in retirement are tax-free. (1)  

Generally, the I.R.S. penalizes withdrawals from these accounts before age 59½. Distributions from traditional IRAs and 401(k)s prior to that age usually trigger a 10% federal tax penalty, on top of income tax on the withdrawn amount. Roth IRAs and Roth 401(k)s allow you to withdraw a sum equivalent to your account contributions at any time without taxes or penalties, but early distributions of the account earnings are taxable and may also be hit with the 10% early withdrawal penalty.1  

You must make annual withdrawals from 401(k)s and traditional IRAs after age 70½. Annual withdrawals from a Roth IRA are not required during the owner’s lifetime, only after his or her death. Even Roth 401(k)s require annual withdrawals after age 70½. (2)

Now, on to the major differences.

Annual contribution limits for IRAs and 401(k)s differ greatly. You may direct up to $18,500 into a 401(k) in 2018; $24,500, if you are 50 or older. In contrast, the maximum 2018 IRA contribution is $5,500; $6,500, if you are 50 or older. (1)

Your employer may provide you with matching 401(k) contributions. This is free money coming your way. The match is usually partial, but certainly, nothing to disregard – it might be a portion of the dollars you contribute up to 6% of your annual salary, for example. Do these employer contributions count toward your personal yearly 401(k) contribution limit? No, they do not. Contribute enough to get the match if your company offers you one. (1)

An IRA permits a wide variety of investments, in contrast to a 401(k). The typical 401(k) offers only about 20 investment options, and you have no control over what investments are chosen. With an IRA, you have a vast range of potential investment choices. (1,3)

You can contribute to a 401(k) no matter how much you earn. Your income may limit your eligibility to contribute to a Roth IRA; at certain income levels, you may be prohibited from contributing the full amount, or any amount. (1)

If you leave your job, you cannot take your 401(k) with you. It stays in the hands of the retirement plan administrator that your employer has selected. The money remains invested, but you may have less control over it than you once did. You do have choices: you can withdraw the money from the old 401(k), which will likely result in a tax penalty; you can leave it where it is; you can possibly transfer it to a 401(k) at your new job; or, you can roll it over into an IRA. (4,5)

You cannot control 401(k) fees. Some 401(k)s have high annual account and administrative fees that effectively eat into their annual investment returns. The plan administrator sets such costs. The annual fees on your IRA may not nearly be so expensive. (1)

All this said, contributing to an IRA or a 401(k) is an excellent idea. In fact, many pre-retirees contribute to both 401(k)s and IRAs at once. Today, investing in these accounts seems all but necessary to pursue retirement savings and income goals.

I want to talk to someone about my IRA or 401(k)

J Rucci

Justin D. Rucci, CFP®
Wealth Advisor
Warren Street Wealth Advisors




Justin D. Rucci is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. The information contained herein does not involve the rendering of personalized investment advice but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

This material was prepared by Marketing Pro, Inc. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of the content, those securities held may change over time and trades may be contrary to outdated posts.


1 – [4/30/18]
2 – [5/30/18]
3 – [10/31/17]
4 – [9/6/18]
5 – [4/26/18]

Tax Deductions Gone in 2018

Tax Deductions Gone in 2018
What standbys did tax reforms eliminate?

Are the days of itemizing over? Not quite, but now that H.R. 1 (popularly called the Tax Cuts & Jobs Act) is the law, all kinds of itemized federal tax deductions have vanished.

Early drafts of H.R. 1 left only two itemized deductions in the Internal Revenue Code – one for home loan interest, the other for charitable donations. The final bill left many more standing, but plenty of others fell. Here is a partial list of the itemized deductions unavailable this year.(1)

Moving expenses. Last year, you could deduct such costs if you made a job-related move that had you resettling at least 50 miles away from your previous address. You could even take this deduction without itemizing. Now, only military servicemembers can take this deduction.(2,3)

Casualty, disaster, and theft losses. This deduction is not totally gone. If you incur such losses during 2018-25 due to a federally declared disaster (that is, the President declares your area a disaster area), you are still eligible to take a federal tax deduction for these personal losses.(4)

Home office use. Employee business expense deductions (such as this one) are now gone from the Internal Revenue Code, which is unfortunate for people who work remotely.(1)

Unreimbursed travel and mileage. Previously, unreimbursed travel expenses related to work started becoming deductible for a taxpayer once his or her total miscellaneous deductions surpassed 2% of adjusted gross income. No more.(1)

Miscellaneous unreimbursed job expenses. Continuing education costs, union dues, medical tests required by an employer, regulatory and license fees for which an employee was not compensated, out-of-pocket expenses paid by workers for tools, supplies, and uniforms – these were all expenses that were deductible once a taxpayer’s total miscellaneous deductions exceeded 2% of his or her AGI. That does not apply now.(2,5)

Job search expenses. Unreimbursed expenses related to a job hunt are no longer deductible. That includes payments for classes and courses taken to improve career or professional knowledge or skills as well as and job search services (such as the premium service offered by LinkedIn).(5)

Subsidized employee parking and transit passes. Last year, there was a corporate deduction for this; a worker could receive as much as $255 monthly from an employer to help pay for bus or rail passes or parking fees linked to a commute. The subsidy did not count as employee income. The absence of the employer deduction could mean such subsidies will be much harder to come by for workers this year.(2)

Home equity loan interest. While the ceiling on the home mortgage interest deduction fell to $750,000 for mortgages taken out starting December 15, 2017, the deduction for home equity loan interest disappears entirely this year with no such grandfathering.(2)

Investment fees and expenses. This deduction has been repealed, and it should also be noted that the cost of investment newsletters and safe deposit boxes fees are no longer deductible.  In some situations, investors may want to deduct these fees from their account balances (i.e., pre-tax savings) rather than pay them by check (after-tax dollars).(5)

Tax preparation fees. Individual taxpayers are now unable to deduct payments to CPAs, tax prep firms, and tax software companies.(3)

Legal fees. This is something of a gray area: while it appears hourly legal fees and contingent, attorney fees may no longer be deductible this year, other legal expenses may be deductible.(5)

Convenience fees for debit and credit card use for federal tax payments. Have you ever paid your federal taxes this way? If you do this in 2018, such fees cannot be deducted.(2)

An important note for business owners. All the vanished deductions for unreimbursed employee expenses noted above pertain to Schedule A. If you are a sole proprietor and routinely file a Schedule C with your 1040 form, your business-linked deductions are unaltered by the new tax reforms.(1)

An important note for teachers. One miscellaneous unreimbursed job expense deduction was retained amid the wave of reforms: classroom teachers who pay for school supplies out-of-pocket can still claim a deduction of up to $250 for such costs.(6)

The tax reforms aimed to simplify the federal tax code, among other objectives. In addition to eliminating many itemized deductions, the personal exemption is gone. The individual standard deduction, though, has climbed to $12,000. (It is $18,000 for heads of household and $24,000 for married couples filing jointly.) For some taxpayers used to filling out Schedule A, the larger standard deduction may make up for the absence of most itemized deductions.(1)


Cary Warren Facer

Founding Partner
Warren Street Wealth Advisors




This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Warren Street Wealth Advisors, LLC is a Registered Investment Advisor. The information posted here represents opinion and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional.  Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.


1 – [12/20/17]
2 – [12/26/17]
3 – [12/28/17]
4 – [1/3/18]
5 – [1/8/18]
6 – [12/19/17]