For investors, 2011 has had all the charm of a box of gnats. You can make a bad year a bit better — and even make the world a bit better, too — by making some smart tax moves.
An easy way to save money at tax time is to donate something to charity. But investors can double their tax goodness by giving appreciated stocks or mutual fund shares.
Let’s say you bought 100 shares of Fly By Night, a fictional company that specializes in cut-rate red-eye flights to California. The shares cost $50 apiece, or $5,000, when you bought them in 2008.
The shares have soared to $75, or $7,500, so you have a gain of $2,500. If you sell the shares, you’ll owe long-term capital gains taxes on your gain. Long-term gains are taxed at 15%, so you’d owe Uncle Sam $375. Short-term gains — those on assets held less than a year — are taxed at your ordinary income tax rate.
If you wanted to delay the day of reckoning, you could wait until the first trading day of January. Your tax would then be due in April 2013, rather than April 2012.
A better move, if you can afford it, is to donate your shares to charity. You’d sidestep capital gains taxes entirely, and get a charitable deduction of $7,500. If you’re in the 25% tax bracket, you could shave $1,875 from your tax bill.
Most major charities are well-equipped to handle a transfer, but don’t wait until Dec. 31 to get things rolling. Even charities used to taking donated securities can slip up from time to time.
Source: USA Today | John Waggoner