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Answer:
Dear
BuyandHolder,
Well,
among the advantages -- first of all, you'd be doing
a good deed! And second, it could be a smart tax move.
Here are the three key considerations to keep in mind.
(1)
Finding a legitimate organization
Your
first step is to make certain you donate your stock
to a legitimate charity. That's not only because you
don't want to be caught up in a scam, but also because
in order for your contribution to be tax deductible,
it must be given to an IRS-approved charity. Specifically,
that means to a 501c (3) organization.
So
the first step is to check the charity's status with
the Internal Revenue Service. IRS Publication #78,
available at: www.irs.gov,
lists all approved organizations. However, it's unwieldy
and using it is time consuming...so I recommend starting
with Guidestar (www.guidestar.org)
which has a data base consisting of thousands of IRS-recognized
nonprofits or with the American Institute of Philanthropy
(www.charitywatch.org),
a very active watchdog group that rates charities
and posts timely alerts.
(2)
Donating your shares
Once
you've found a legit charity, don't just donate any
old stock. You want to donate only stocks (or mutual
funds) that have gone up in value and that you've
owned for over one year. Here's why...
With
securities held over a year, you can deduct their
market value rather than the amount you paid for them.
And, neither you nor the charity will have to pay
capital gains taxes. That's a nice tax break for both
you and the nonprofit.
CAUTION:
If you donate securities you've owned less than a
year, your deduction will be limited to the dollar
amount that you paid for them not their appreciated
value.
What
if your securities have gone down in value since you
purchased them? There's really no point in donating
them because you cannot deduct losses on donated property.
Instead, you could sell them and donate the dollar
amount you receive. Then, when you file your 1040,
you can deduct that amount as well as up to $3,000
in losses.
(3)
Itemizing
In
order to deduct your contribution you must opt to
itemize your deductions on Schedule A of your 1040.
For most taxpayers, itemizing makes sense only if
one's itemized deductions exceed the standard deduction.
(The standard deduction is a dollar amount given by
the IRS to all taxpayers who do not itemize.)
Even
if your charitable donations throughout the year do
not equal the standard deduction, it still may pay
to itemize if you have other qualified deductions
-- such interest on a home mortgage -- that add up
to more than the standard deduction. Check with your
tax preparer.
Donating
cash
If
after reviewing your BUYandHOLD portfolio, you decide
not to sell your stock, here's some good news about
donating cash.
Ordinarily,
charitable deductions are limited to 50% of a taxpayer's
adjusted gross income. However, between August 28
and January 1 of this year, due to the destruction
of the Gulf States from the hurricanes, that limit
has been raised to 100% of AGI.
Good
luck!
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