Donate Stock to Save Taxes

So you've finished your taxes (or gotten an extension), and you're wondering how to save tax money next year. Here's one easy way.

I've alluded to this in previous posts, but haven't given the details. If you donate money or goods to charity, you get a tax deduction (if your total itemized deductions are high enough to exceed the standard deduction). But if you donate appreciated stock, it's even better.

Say you have stock you bought for $1,000, and now it's worth $2,000. If you sell it and donate the proceeds, you have to pay tax on the $1,000 gain, but you get a deduction of $2,000. However, if you just donate the stock outright, you pay no tax on the gain but you still get the $2,000 deduction. It's like getting a double benefit.

Of course there are certain rules. The most important one is that you must have held the stock for over a year.

To do this, just contact the charity and find out their broker and account number. Then contact your broker and have them transfer the stock directly to the charity. Most brokers will do this, and they have a special form to fill out.

A few specialized brokers, such as my favorite, Interactive Brokers, won't do this. But you can first transfer the stock to a "general purpose" broker that does allow it, and then transfer from there to the charity.

Get Your Money

Just a short note today. The market comments of last week pretty much still apply. If you've been watching the weekly MACD indicator, you know it hasn't signaled a buy yet for the major indexes, although it's extremely close for the Russell 2000 small-cap stocks, and pretty close for the Nasdaq 100. It's got further to go on the large-cap indexes.

Meanwhile I normally talk about income taxes this time of year, but due to the market scare I've been concentrating more on that. But I do have two short tax tips:

1. Don't ignore the phone tax refund! This is free money (basically $30 to $60) for almost everyone, but many thousands of taxpayers have not claimed it. There's even a special line near the end of the tax form: "Credit for telephone excise tax paid." So fill it in and get your money.

2. You have till the tax-filing deadling (Tuesday, April 17) to make your IRA contribution for 2006, and then it goes away forever. If you mail it in, it just has to be postmarked by April 17. Don't ignore this tax break. The limit for 2006 is $4,000 (which is reduced for higher-income taxpayers), but if you turned 50 or more during 2006 you can contribute $1,000 extra.

Signs of a Positive Market

The Labor Dept. employment report Friday showed big job gains and a drop in unemployment. Traders are already celebrating; stock index futures are solidly higher in Sunday evening trading.

What I'm hearing now is that although it would be unlikely for the market indexes to just keep on higher without one more downside scare, that doesn't mean it's impossible. The market always likes to fool the maximum number of people, so we may not get that final decline (or at least, not till later).

More than one of my sources are saying it's time to buy, at least partial positions, and at least for the next couple of weeks. They are generally also looking for gains between now and year-end, no matter what happens in between.