Conference nyoss1::market_investing

    Vince,

    I'll give you a quick (but I believe correct) answer.

    Your cost basis is the original $1000 plus the amount of all the
    dividends that you paid taxes on over the years.  Hopefully XYZ
    will be able to assist you with totaling up all the dividends you
    paid taxes on and then reinvested into more shares.    
    

    .1 is correct...you've already paid taxes on the reinvested dividends,
    and don't have to pay taxes on them again.  You might also be able to
    get the total from your old tax records.
    
    SteveSov

    
    Be sure to keep copies of your fund's reports to you on reinvestment or
    maintain your old tax records so you can compute the correct basis when
    you sell.
    
    If you haven't kept good records, the fund may charge you a non-trivial
    amount for old records.  The IRS can provide you copies of old returns
    for a small fee per copy, but they're not known for speediness.  If you
    just keep all the old fund statements in a folder, you can spare a
    panic some March when you sit down to calculate capital gains.

    
    I'm woundering, say I have a stock which is not performing and I'm 
    holding at a loss. (example I pay 5000 and its current value is 3000)
    Can I donate that stock to a charity and claim the $5k which I paid?
    
    Intent would be to offset other gains. This would seem to be a
    convienient way to reduce taxes. Otherwise I'd have to sell the stock
    and could only claim the $2k loss. 
    
    steve
    

> Intent would be to offset other gains. This would seem to be a
> convienient way to reduce taxes. Otherwise I'd have to sell the stock
> and could only claim the $2k loss. 

	Your net worth would still be higher if you did sell the stock
	at a loss.  If you donate the stock to charity you essentially
	have a loss of $5k.  Assuming a 31% tax bracket, you'll reduce
	your taxes by $1,550 ($1,400 if at 28%), which essentially
	goes in your pocket.

	If however you straight out sell it at a loss (of $2k), your
	reduce your taxes by $620 (at 31%, or $560 at 28%),, PLUS the
	$3k in proceeds from the sale puts $3,620 back in your pocket.
	Ie. a difference of $2,070 (tax free) to your favor if you
	sell it vs. giving it away to charity.

	In other words, make the donation to charity because you want
	to do something noble, but don't do it if you are trying to
	reduce your taxes (which it would do, but it will come out of
	your pocket, not uncle sams).
  
> I'm woundering, say I have a stock which is not performing and I'm 
> holding at a loss. (example I pay 5000 and its current value is 3000)
> Can I donate that stock to a charity and claim the $5k which I paid?

	As I indicated above, it's essentially a $5k loss from your
	perspective by donating it to charity.  To reduce paperwork
	the easiest way to do this would be do simply sell the stock,
	take the $2k loss on your Sch. D, then donate the $3k in
	proceeds to your charity and take that deduction on your
	Sch. A (assuming you already have enough other deductions, like
	property taxes, morgage interest and State income taxes, ...
	that you are alredy itemizing).  You may also have to fill out
	another form if you have over $X in deductions for charity.

	You probably also transfer the stock itself directly to the
	charity (if they accept donations in that form), in which
	case I don't know if it would all go on Sch. A or whether
	it would be like above (part Sch. A, part Sch. D).  The following
	topics will have more information ....

    21  EPIK::FINNERTY       24-JAN-1992     5  20'th Century Giftrust
   206  LANDO::OBRIEN        19-MAY-1992     5  Gifts to Minors
   678  GRILLA::LALIBERTE     9-FEB-1994     6  TRANSFERRING ASSETS/GIFTS/TAXES, etc.
   809  HELIX::SPIELMAN      13-DEC-1994     3  Gift Tax - giving near year end
   814  POWDML::DLANE         3-JAN-1995     7  Tax ? on Gift Stocks
   857  NODEX::CLBMUD::mcgre  2-MAY-1995     2  Gift to parents and tax write off
   978  AIAG::MOORE          15-FEB-1996     2  Investment Question - Uniform Gift/Transfers to Minors...

                                             
      I'm no expert, but I'll try.
    
      My understanding is that if you have held the stock for
    more then one year, the charity deduction would be based on the
    current market value.  So you would be better off to claim the
    $2k loss, and this would be the best move.
    
      If you have held the stock for less then one year the, charity
    deduction could be based on your cost, and I think the the charity
    deduction would $5k.  Now you have to look at if your tax benifit
    would be more then 3k on the 5k deduction.
    
    Darren M. Brown (new to the conf.)

        Usually one gives the shares that have Appreciated (rapidly) to
    charity to offset income or just to get it out of your estate.

    As much as I understand this "game" it would be like:

    If you bought shares at, say, $1000, and held them for 10 years and
    they were now worth $5000.  You could get a $5000 charitable deduction
    if these shares are given away.   You are NOT liable for the $4000 gain
    at that point either.   If you are in the 35% bracket, this is $1750 in 
    your pocket, with $750 tax free gain (essentially).

    If you have a real loss, and you want/need to sell, it's better to sell
    than to give it away (as shown in a previous reply).

> Usually one gives the shares that have Appreciated (rapidly) to
> charity to offset income or just to get it out of your estate.

	This still fails however, you still end up with less net worth than
	if you just realized the gains and paid taxes on it ...

> As much as I understand this "game" it would be like:
> If you bought shares at, say, $1000, and held them for 10 years and
> they were now worth $5000.  You could get a $5000 charitable deduction
> if these shares are given away.   You are NOT liable for the $4000 gain
> at that point either.   If you are in the 35% bracket, this is $1750 in 
> your pocket, with $750 tax free gain (essentially).

	Figuring it out both ways again:

	If your $1k investment is now worth $5k, and you give it away
	to charity, you get a $5k writeoff (deduction) on your taxes.
	At 35% it reduces your tax liability by $1,750.  So you've
	changed your networth by by $1,750 - $5000, or $-3,250.

	If however you sold that investment and received $5,000 cash,
	you'd pay capital gains on $4,000.  If it was a short-term (less
	than or equal to a year you've held it) then it's taxed at your
	marginal rate of 35%, or $1,400 (if it was long-term then it's
	taxed at 28% under current law, which would be $1,120).  In
	this case you've changed your networth by $5000 - $1,400, or
	$3,600 ($3,880 if it was long-term).

	So even though you are paying more taxes by selling it and keeping
	the money for yourself, you end up better off (money wise) that
	way.  Once again, you give to charity because you are "charitable",
	you can't use it to your financial advantage by doing it this way
	(and remember, anything the charity gives you in return for your
	donation is subtracted from the amount given [which isn't usually
	cash so fair market value is used]).

	Do note however that it does get tricky if the stock sale
	results in gains that pushes you into a higher tax bracket,
	or results in pushing you into the income level where your
	deduction/exemptions are reduced.  Regardless however,
	I contend that your effective tax rate would have to be >100%
	for it to be to your advantage money wise to donate the stock.
	If you were in any of these positions, the wise thing to do would
	be to defer selling the entire bundle in a single tax year,
	or use the tricks the rich use such as selling short against
	the box which delays the taxable event until the position is closed.

	BTW, I also still don't see the advantage (for the individual
	themselves) of transfering the stock itself to a charity, vs. 
	selling it and writing out a check to the charity.  And
	the only advantages I see for the charity of getting the stock
	itself vs. the cash is that if the charity was going to invest
	the cash themselves in that stock, it sames them the commision,
	or if they really want cash, but can get a better deal on
	the sales commision than you can, the charity gets a few
	extra dollars.

    
    I believe the time when donating the appreciated stocks to a charity
    makes sence if you were already planning on donating a sum to a
    charity.  For instance I already planned to give XYZ University $5000
    and I have $5000 cash and $5000 of stock which has appreciated from
    $1000. Option 1; I could give $5000 cash and get the deduction but
    still have a $4000 future capital gains hit for the stock I still own. 
    Or Option 2; I could give $5000 of stock (which has a basis of $1000) I 
    get a $5000 deduction and also off load my future capital gain hit.
    
    Greg
     

> For instance I already planned to give XYZ University $5000
> and I have $5000 cash and $5000 of stock which has appreciated from
> $1000. Option 1; I could give $5000 cash and get the deduction but
> still have a $4000 future capital gains hit for the stock I still own. 
> Or Option 2; I could give $5000 of stock (which has a basis of $1000) I 
> get a $5000 deduction and also off load my future capital gain hit.

	Again, tax wise you end up with exactly the same tax liability
	either way (transfering the stock or selling it and giving cash),
	and the same personal net worth.  The only thing that changes is
	the paperwork itself.

	I also contend that if you use an earlier assumption that the stock
	that is being donated "have Appreciated (rapidly)", that it's
	probably a volatile stock and you'd be best placing a sell order
	for the stock because you don't know what the value of the stock
	will be by the time you've requested the stock certificate from
	your broker, received it, done whatever paperwork is needed to
	transfer it to the charity, the charity receiving it, and then
	getting around to selling it (it could be more, or like alot of
	stocks with rapid runups, they come down just as fast).

	BTW, your option "1" is a little deceptive in saying "and get the
	deduction", but then saying "future capital gains hit".  Your
	deduction would occur at the same "future" time as the capital
	gains hit, ie. when you fill out your taxes your gain will go on
	Sch. D, and your charity donation on Sch. A.....

	.... the only time it makes a difference if you choose option
	1 or 2 is when you don't have enough Sch. A deductions to exceed
	the standard deduction in the 1st place (as I hinted at in .5
	when I said I was assuming you already are itemizing).  In this
	case which option is better depends on factors such as how much
	below the standard deduction your other deductions add up to
	in comparision to the value of the donation, whether the gain
	is short or long term, etc.  Ie. not clear cut as the case
	where you are already itemizing.

    
>	Again, tax wise you end up with exactly the same tax liability
>	either way (transfering the stock or selling it and giving cash),
>	and the same personal net worth.  The only thing that changes is
>	the paperwork itself.
    
    hmmm .. it seems to me in this year you have the same tax liability
    around the donation. However, your future tax liabilty is quite
    different so are the attributes of your current assets.  In one case
    you hold $5000 cash with essentially no inherent tax liability (you
    gave the future tax liability for the $4000 gain away); in the other
    you hold $5000 of stock which has a $4000 gain hanging over it.  Am I
    missing something?                                  
    
    
>	I also contend that if you use an earlier assumption that the stock
>	that is being donated "have Appreciated (rapidly)", that it's
>	probably a volatile stock and you'd be best placing a sell order
>	for the stock because you don't know what the value of the stock
    
    Lots of possibilities.  That's one.  Another is you get stocks as a
    gift which come with the original basis (for example your parents give
    you a $10,000 gift of HP stock they bought in 1954 ... I believe the
    basis your basis is the original basis and would be $100 or something). 
    I'm 65 and unloading stuff I've held for years which could well have a
    pretty substantial gain.
                                                       
    
    Greg
    

> Am I missing something?                                  

	Yes!  You're working with the assumption that you'd continued
	to hold the stock if you gave the charity cash.  

	I'm working with the assumption that would tie in with the base
	note (.4).  Ie. the assumption is that the original noter wanted to
	just give the stock to the charity and wanted to know how to
	do it.  My recommendation was it's probably easier to sell the
	stock outright and give the proceeds to the charity (or in this
	case, it's easier to spread it around to multiple charities)
	than to transfer the stock.  Either way your tax liability is
	the same (again with the assumption you already itemize).  In
	this case the reason holding the stock isn't an option is because
	the holder is bailing out in an attempt to minimize losses on
	a stock which has already lost 60%.

	Another noter (.7) later switched the scenerio to one where the
	holder has substantial gains in the stock (instead of a loss),
	but still with the assumption the holder wishes to get rid of
	the stock and give it to charity.  This is where again I believe
	whether the stock is sold outright and cash given, or the stock
	is transfered, the tax liability is the same (with the caveats
	I mentioned in my reply).

	When you introduce the 3rd option of giving the charity cash
	and the holding the stock, now we are in another ball game :-)
	In fact I contend this scenerio has nothing to do with charities
	at all, this scenerio is just a case of "when should I sell?".....

>> Am I missing something?                                  
>
>	Yes!  You're working with the assumption that you'd continued
>	to hold the stock if you gave the charity cash.  
    
    Jeff.  I think you are the one missing something.  I think the question
    (.7) was answering was:
    
    I want to give $5,000.00 to charity.  "Is it better to give $5,000.00
    in appreciated stock or sell the stock and give $5,000.00 in cash", the
    answer is to give the stock.  By giving the stock, you end up not
    having to pay the capital gains on the stock and the charity still gets
    $5,000.00.

>>> Am I missing something?                                  
>> Yes!  You're working with the assumption that you'd continued
>> to hold the stock if you gave the charity cash.  
> Jeff.  I think you are the one missing something.
> I think the question (.7) was answering was:

    Yup, I was missing something.  I was missing an example for the case
    where there is an unrealized gain on the stock (vs. the example I
    originally gave which only ran numbers for stock with an unrealized loss).

    However the the quotes from the above notes (.12) were the wrong notes to
    quote from, as I still stand by the scenerio where one continues to
    hold the stock a compleletely different scenerio unrelated to this
    discussion.

    So I stand corrected (for when it's a unrealized gain, as demostrated
    in the 2nd example below), assuming all the following is correct, that
    if you have an unrealized gain *and* you want to make a donation to
    charity for charities sake (not for the sake to simply reduce taxes 
    since you do more than just reduce your taxes, but reduce your net
    worth as well).

	First Example (using .4's numbers, ie. holding a paper loss):
	    1. Transfering the stock to charity:
		You take a $5k deduction on Sch. A, which reduces your
		tax liability by that amount times your marginal tax rate.

	    2. Selling the stock and giving the proceeds to charity:
		You take a $3k loss on Sch. D, and you take a $2k deduction
		on Sch. A.  This also reduces your tax liability by $5k
		times your marginal tax rate. (note that this scenerio also
		assumes you're net capital gains isn't a loss that exceeds
		the $3k/year limit that a net capital gains loss can offset
		ordinary income)

	    In both cases the charity receives a contribution worth the same
	    amount of money, and your taxes are the same.  And your net
	    worth in both cases decreases by $2k.

	Second Example (using .7's numbers, ie. holding a paper gain):
	    1. Transfering the stock to charity:
		You take a $5k deduction on Sch. A, which reduces your
		tax liability by that amount times your marginal tax rate,
		or since .7 says 35% rate, $1,750 as given in .7.

	    2. Selling the stock and giving the proceeds to charity:
		You take a $4k gain on Sch. D, and you take a $5k deduction
		on Sch. A.  In this case you've reduced your tax liability
		by only $630 ($1,750 minus {$4k times .28 in long term cap.
		gains tax}).

	    In both cases the charity receives a contribution worth the same
	    amount of money, however your tax liability is $1,120 less
	    if you transfer the stock.  And your net worth in both cases
	    decreases by $2,880 ($5k minus long term cap gains taxes which
	    would be accessed when you eventually sell it).