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2020 Last-Minute Year-End Tax Strategies for Your Stock Portfolio Part 5

Writer's picture: Shari JamesShari James

Strategy 6

If you are going to make a donation to a charity, consider appreciated stock rather than cash, because a donation of appreciated stock gives you more tax benefit.4

“Whoa!” you exclaim. “Did you say more tax benefit?”

Yes. It works like this:

·Benefit 1. You deduct the fair market value of the stock as a charitable donation.5

·Benefit 2. You don’t pay any of the taxes you would have had to pay if you sold the stock.

Example. You bought a publicly traded stock for $1,000, and it’s now worth $11,000. You give it to a 501(c)(3) charity, and the following happens:

·You get a tax deduction for $11,000.

·You pay no taxes on the $10,000 profit.

Two rules to know:

1. Your deductions for donating appreciated stocks to 501(c)(3) organizations are not allowed to exceed 30 percent of your adjusted gross income.


2.If your publicly traded stock donation exceeds the 30 percent, no problem. Tax law allows you to carry forward the excess until used, for up to five years.

Strategy 7

If you could sell a publicly traded stock at a loss, do not give that loss-deduction stock to a 501(c)(3) charity. Why? If you sell the stock, you have a tax loss that you can deduct. If you give the stock to a charity, you get no deduction for the loss—in other words, you can just kiss that tax-reducing loss goodbye.

Solution. Sell the stock first to create your tax-deductible loss. Then give the charity the cash realized from your sale of the stock to create your deduction for the charitable contribution.

Example. You bought a stock for $13,000, and it’s now worth $2,000. If you give the stock to a charity:

·You deduct $2,000 (fair market value).

·The charity receives $2,000 (the value of the stock).

·You kiss your $11,000 ($13,000 minus $2,000) tax-deductible loss goodbye.

Instead, do this:

·Sell the stock.

·Collect $2,000 in cash from the stock sale.

·Give the $2,000 to the charity.

·Deduct the $2,000 charitable donation.

·Deduct the $11,000 stock loss.

Note. Whether you do this right or wrong, the charity gets $2,000. But with the second strategy—selling the stock at a loss and then donating the cash—you gain your rightful $11,000 additional tax deduction.

Look at it this way:

1.Do this wrong and deduct only $2,000.

2.Do this right and deduct $13,000—the whole enchilada.

Takeaways

Your stock portfolio provides you with the seven great tax-planning opportunities we showed you in this article.

For example, if you give money to charity, your parents, and/or your non-kiddie-tax children, you keep more tax money in your pocket (or the family’s pockets) by using appreciated stocks rather than cash.

You absolutely must plan for your opportunities inside the portfolio to offset your gains and losses. With planning, you win free money with the offsets, and you’ll find the offset game fun and easy to play.

The bottom line is that the seven strategies in this article give you straightforward ways to keep more of your money and send less to the IRS.

The end of the year is right around the corner. Because it takes time for stock transactions to settle and you don’t want to worry about settlement dates, get your portfolio tax-deduction optimized well before the end of the year—say, no later than December 20, 2020.

 

Need some assistance? SafeHarbor Bookkeeping can help you! Contact us!

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