stocks – Is This What You Are Looking For?

I have added this article to the latest post set because I am beginning to build a portfolio of stock that I will be donating to my foundation later on, so you are welcome to use this, but it’s really for me.

HAHAHA!

Enjoy!

___________________________________

Q. I own UPS stock. I’ve held these shares since 1986 (before the initial public offering). I want to give some shares to the church I attend. Do I need a broker? I’ve never sold stock before, but I understand the capital gains/loss issue does not exist when you give stock (in the form of cash after it’s sold) to a non-profit organization. — D.C.

A. Wait, wait — don’t sell it! If you sell it, you will create a capital gain and you will have to pay the tax on it. If you’ve owned shares of United Parcel Service (NYSE: UPS) since 1986, the capital gains will be huge! If you let the church sell it, they probably won’t have to pay any taxes on it. Much nicer. Giving stock to a charitable organization is a wonderful way to expand the amount you can afford to donate. You get a tax deduction for the gift, and the church puts it to good — and untaxed — use.

This is the season for giving, and I suspect that a lot of us will be feeling more generous than usual this year. The needs are so great. I hope that everyone reading this article will take a moment to check out our five unique and very cost-efficient charities.

Charitable giving used to be simple. Donate money, stock, old shoes, whatever, and deduct the value of the goods from your taxes. Those days are gone, but donating stock to charity is still a good idea and one that rewards you (after you jump through the appropriate hoops) with a nice tax deduction.

A donation of stock is a contribution of property in the eyes of the IRS. When you donate property, you can deduct the “fair market value,” which with stock (as opposed to that run-down heap in your driveway) is easily ascertained. Well, since this is the IRS, it’s not easy, but it’s doable. You just look up the highest and lowest trading price for UPS on the day you made the transfer and average them. (Hint: Make sure you do the transfer on a market trading day.) Multiply the average share price by the number of shares you donated, and that’s your fair market value. (For a real laugh, see IRS Publication 561, “Determining the Value of Donated Property,” for the formulas to use when the day of your donation isn’t a market trading day.)

Since you have held your stock more than one year, you can deduct the full amount (subject to limits discussed later). Donating stock that’s been held for less than a year isn’t as nice a deal. You can generally deduct only what you paid for the stock unless you pay the taxes on any capital gains.

The mechanics of the donation aren’t difficult. If you actually have in your possession the stock certificates in the correct denominations for the number of shares you wish to donate, you won’t need a broker. You can simply fill in the form on the back of the stock certificate and make it over to your church. The church can take the stock to a broker and sell it, but I suspect they won’t mind the trouble.

If your shares are held in a brokerage account, you can have the broker issue a stock certificate for the number of shares you intend to donate in your name and make it over to the church, or you can ask your broker for assistance in the transfer. (It might be a bit late to order up a stock certificate if you want the deduction for this year.)

Now we come to those limits on how much you can deduct. First, remember that you will have to itemize your deductions to get the full effect. Then, if you are donating a lot of shares, you could run into the limits on charitable giving. They are complicated. Sigh. Essentially your deduction can’t be higher than 30% of your adjusted gross income, unless you pay the capital gains taxes on the sale. (In your case, that could be disastrous!) You can deduct an amount equal to 50% of your income if you pay the capital gains tax, but it’s hard to imagine how that could work out to your benefit.

If you do run up against the limits, there is a silver lining. Anything that you can’t deduct this year can be carried forward for up to five years, so you can keep deducting until you use it up or run out of time. If the tax deduction is important and the amount is large in relation to your income, you might want to contribute some now and some in a later year. No matter what, you should read Publication 526 very, very carefully.

I’m afraid that this time I will have to refer readers to the IRS website which is a pretty good resource if you don’t mind scrolling through a list of hundreds of forms and publications to find what you need .

I may be crazy and some think I am, but I am STILL investing all the way through this thing. I actually only started investing in September after things began to crash and have been investing carefully since.

This article shares some of the reasons I have been and continue to do so.

Read on…

___________________________

As the market hovers at levels not seen in 12 years, throwing in the towel is more tempting than ever. But be forewarned: Pulling up stakes at this point only positions your portfolio for a longer, harder slog along the road to recovery.

Recouping losses requires selling into bear-market rallies and — more important — having skin in the game to profit from that eventual, elusive bull sitting somewhere over the horizon. After all, the great majority of gains in a bull market tend to come on the horns, not the tail. Missing just a dozen or so of the best days can prolong you portfolio’s losses for many years to come.

A bull market may be hard to imagine right now, but as Fidelity points out it can be very costly to miss the beginnings of one when it does happen. Researchers at the mutual fund company found that within six months of a new bull market more than a quarter of the gains have already been booked, while more than 40% of the gains come within the first year. Standard & Poor’s has found that investors on average recoup 80% of their bear market losses within the first year of the next bull.

Complicating matters is that the big returns in a bear market usually come down to a couple handfuls of trading days. Just try timing that.

To get an idea of how front-loaded bull markets are, consider this analysis by Pinnacle Group, a wealth manager in Midlothian, Va.: If you remained fully invested in the S&P 500 for the 20 years between 1987 and 2007, your average annual return came to nearly 12%. However, if you missed just the 10 best days during that span, your return fell to about 9%. Miss the 30 best days in 20 years? Your average annual return came in at less than 6%.

In other words, missing a trading months’ worth of rallies over 20 years lopped about six percentage points off the annual average return. The upshot? The fully invested saw $10,000 grow into $93,000, while those missing the 30 best days got $28,000 for their trouble.

Now get this: Pinnacle notes that investors who did nothing at the bottom of the market during the Great Depression watched their portfolios take more than four years to be made whole. On the other hand, those who plowed another $10,000 into stocks on June 1, 1932, recovered all their losses in just three months.

No one can time the market and this one looks to be range-bound, if we’re lucky, for some time. At the same time the market can pick up at the seemingly unlikeliest times. Joe Clark, managing director of Financial Enhancement Group, a financial planner in Anderson, Ind., has reduced his exposure to equities recently, but that doesn’t mean he pretends to have a crystal ball.

“The market rallied in March of 2003 with very little good news,” Clark said in a Tuesday email. “Things seemed [like] they couldn’t get any worse — similar to today. It was strange but a great time to be in the market. Markets rally at very ugly times in the news cycle and when little happiness seems to exist anywhere.”

That’s why it remains imperative that investors stick to a disciplined system like the one suggested by SmartMoney’s own James B. Stewart, who has long advocated a strategy of buying into declines and selling into rallies. That doesn’t mean you have to pounce on every movement on the way up or down, only that if you don’t participate now, it will take you that much longer to be made whole later.

Is This What You Are Looking For?

Tag: stocks

Tag: stocks

How to Donate Stock to a Charity

Pops and Drops: Why One Day Matters