There are benefits and limitations when you decide to donate stock.
Why sell shares when you can gift them? If you have appreciated stocks in your portfolio, you might want to consider donating those shares to charity rather than selling them.
Why, exactly? Donating appreciated securities to a tax-exempt charity may allow you to manage your taxes and benefit the charity. If you have held the stock for more than a year, you may be able to deduct from your taxes the fair market value of the stock in the year that you donate. If the charity is tax-exempt, it may not face capital gains tax on the stock if it sells it in the future.1
Keep in mind this article is for informational purposes only. It's not a replacement for real-life advice. Make sure to consult your tax legal and accounting professional before modifying your gift-giving strategy.
When is donating stock a better choice than gifting cash or just selling the shares? There are several reasons to consider donating highly appreciated stock to a tax-exempt charity. For example, you may own company stock and have the opportunity to donate some shares. There also are potential tax benefits to consider if you donate appreciated securities that you have owned for at least one year.2
If you sell shares of appreciated stock from a taxable account and subsequently donate the proceeds from the sale to charity, you may face capital gains tax on any potential gain you realize, which effectively trims the tax benefit of cash donation.3
When is donating cash a choice to consider? If you provide the charity with a cash gift, there may be some limitations. Cash gifts are deductible up to 50% of adjusted gross income. As an example, if a donor in the top 37% federal tax bracket gives a 501(c)(3) non-profit organization a gift of $5,000, the net cost can work out to just $3,150 with $1,850 realized in tax savings. A donor may also need to consider possible implications of state taxes in addition to federal.2
If you donate shares of depreciated stock from a taxable account to a charity, you can only deduct their current value, not the value they had when you originally bought them.3
Remember the tax rules for charitable donations. If you donate appreciated stock to a charity, you may want to review I.R.S. Publication 526, Charitable Contributions. Double-check to see that the charity has non-profit status under federal tax law, and be sure to record the deduction on a Schedule A that you attach to your 1040.4,5
If your contribution totals $250 or more, the donation(s) must be recorded – that is, the charity needs to give you a written statement describing the donation and its value and whether it is providing you with goods or services in exchange for it. (A bank record or even payroll deduction records can also denote the contribution.)
If your total deduction for all non-cash contributions in a tax year exceeds $500, then complete and attach Form 8283 (Noncash Charitable Contributions) to your 1040 when filing. If you donate more than $5,000 of property to a charity, you will need to provide a letter from a qualified appraiser to the charity (and by extension, the I.R.S.) stating the monetary value of the gift(s).4,5
Gifting cash or securities to an organization is a wonderful opportunity. But keep in mind that tax rules are constantly being adjusted, and there’s a possibility that the current rules may change. Make certain to consult your tax, legal, and accounting professionals before starting a new gifting strategy if you intend to use the gift as a tax deduction.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 - Fidelity.com, October 9, 2019
2 - Forbes.com, October 19, 2019
3 - Schwab.com, August 13, 2019
4 - Vanguardblog.com, September 19, 2019
5 - IRS.gov, March 3, 2020
Confidence can quickly erode, but it can also quickly emerge.
Undeniably, spring 2020 has tried the patience of investors. An 11-year bull market ended. Key economic indicators went haywire. Household confidence was shaken. The Standard & Poor’s 500, the equity benchmark often used as shorthand for the broad stock market, settled at 2,237.40 on March 23, down 33.9% from a record close on February 19.1
On April 17, the S&P closed at 2,874.56. In less than a month, the index rallied 28.5% from its March 23 settlement. And while past performance does not guarantee future results, there is a lesson in numbers like these.1
In the stock market, confidence can quickly erode – but it can also quickly emerge. That should not be forgotten.
There have been many times when economic and business conditions looked bleak for stock investors. The Dow Jones Industrial Average dropped 30% or more in 1929, 1938, 1974, 2002, and 2009. Some of the subsequent recoveries were swift; others, less so. But after each of these downturns, the index managed to recover.2
Sometimes the stock market is like the weather in the Midwest. As the old Midwestern cliché goes, if you don’t care for the weather right now, just wait a little while until it changes.
The stock market is inherently dynamic. In tough times, it can be important to step back from the “weather” of the moment and realize that despite the short-term volatility, stocks may continue to play a role in your long-term investment portfolio.
When economic and business conditions appear trying, that possibility is too often dismissed or forgotten. In the midst of a bad market, when every other headline points out more trouble, it can be tempting to give up and give in.
Confidence comes and goes on Wall Street. The paper losses an investor suffers need not be actual losses. In a down market, it is perfectly fine to consider, worry about, and react to the moment. Just remember, the moment at hand is not necessarily the future, and the future could turn out to be better than you expect.
Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
In this month’s recap: Stocks rebounded sharply, fueled by a flattening of the COVID-19 curve and positive results from clinical trial investigating a treatment for the virus.
Stocks rebounded sharply in April, fueled by a flattening pandemic curve and positive results from a clinical trial investigating a treatment for COVID-19.
The Dow Jones Industrial Average, which dropped 14% in March, jumped 11.08%. The Standard & Poor’s 500 Index rose 12.68%, and the NASDAQ Composite surged 15.45%.1
Slowdown in Infections
Just as it appeared that April might be a repeat of March, stocks turned higher with signs of a slowdown in COVID-19 infections, especially in Italy and New York state. Though jobless claims were breathtakingly high, they were expected, allowing investors to focus on positive developments. A more stable bond market also helped support the rally.
The stock market struggled to move higher, as a weak start to earnings season and troubling economic data created some underlying crosscurrents.
Gains Despite Stalled Momentum
Momentum stalled as oil prices drifted lower, but accelerated again on the news of positive results from a clinical trial investigating a treatment for COVID-19.
Stocks continue to climb higher as more states begin the initial phase of reopening their economies and others have announced target reopening dates.
All industry sectors moved higher in April, with increases in Communication Services (+18.10%), Consumer Discretionary (+19.66%), Consumer Staples (+10.19%), Energy (+37.17%), Financials (+11.28%), Health Care (+17.88%), Industrials (+11.24%), Materials (+20.81%), Real Estate (+9.45%), Technology (+16.83%), and Utilities (+5.26%).2
What Investors May Be Talking About in May
The national dialogue over the COVID-19 outbreak has shifted toward restarting the economy, with state and national leaders devoting more attention to plans of loosening the shelter-in-place and social-distancing guidelines.
There are two key aspects that investors may be watching as they try to figure out the pace of the recovery.
State by State
The first factor is the nature of the reopening. The White House plan for restarting the economy involves a three-step process, but leaves the decision-making to the governors of the states. The reopening timing and process may vary depending on health experts’ assessments of the risk profile of each state as well as voter sentiment to return to their usual activities.
The second factor is the public’s confidence in resuming their pre-quarantine routines. How soon will people be showing up to work, going out to eat, and traveling? That is a clear unknown at this time.
How large should an emergency fund be? There is no “one-size-fits-all” answer. The ideal amount may depend on your financial situation and lifestyle. For example, if you own a home or have dependents, you may be more likely to face financial emergencies.
Rising global optimism worldwide propelled stocks upward, lifting the MSCI-EAFE Index to a 6.75% gain. European markets were broadly higher, with gains in France (+4.01%), Germany (+9.32%), and the U.K (+7.97%). Pacific Rim stocks saw similar gains, as Australia jumped 8.78%, Japan added 6.75%, and Hong Kong rose 4.41%.3,4,5
Gross Domestic Product: The U.S. economy shrank at a 4.8% annualized rate during the first quarter, which was the biggest drop in GDP since the fourth quarter of 2008.6
Employment: The unemployment rate jumped to 4.4%, up from the previous month’s 3.5% rate, as employers shed 701,000 jobs in March. Keep in mind that this month’s jobs report did not fully reflect the jobless claims filed during the last two weeks of March.7
Retail Sales: Spending by American consumers dropped in March, with retail sales falling 8.7%. It was the deepest decline since the tracking of retail sales began in 1992.8
Industrial Production: Industrial output fell 5.4%, the sharpest decline since 1946. Motor vehicles and parts were hit particularly hard, sliding 28%.9
Housing: Housing starts were affected by the downturn, falling by 22.3%. Existing home sales declined by 8.5% as buyer-and-seller activity slowed New home sales tumbled 15.4% in March, representing the biggest drop since July 2013.10,11,12
Consumer Price Index: The cost of consumer goods fell by 0.4% in March, led by declines in energy (-5.8%), apparel (-2.0%), and transportation services (-1.9%). Excluding food and energy, the CPI fell by 0.1%.13
Durable Goods Orders: Orders of long-lasting goods shrank 14.4%, weighed down by orders for aircraft and their corresponding parts.14
“Every individual matters. Every individual has a role to play. Every individual makes a difference.”
Minutes from the Federal Reserve’s two unscheduled meetings in March were released during the month.
The meetings resulted in a 50 basis point rate cut in the federal funds rate, followed by another 100 basis point cut. The meeting notes reflected how alarmed Fed officials were about the economic situation and the disruptions in the financial markets.15
Following the conclusion of the April 28th-29th meeting of the Federal Open Market Committee, Fed Chair Jerome Powell did not announce any new policies, but did emphasize the Fed’s commitment to using all available tools to support economic recovery.16
Sources: wsj.com, bigcharts.com, treasury.gov - 4/30/20
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year Treasury real yield = projected return on investment, expressed as a percentage, on the U.S. government’s 10-year bond.
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Michael Howell MBA | Financial Advisor
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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSEurofirst 300 Index comprises the 300 largest companies ranked by market capitalisation in the FTSE Developed Europe Index. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. Established in January 1980, the All Ordinaries is the oldest index of shares in Australia. It is made up of the share prices for 500 of the largest companies listed on the Australian Securities Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The FTSE TWSE Taiwan 50 Index is a capitalization-weighted index of stocks comprises 50 companies listed on the Taiwan Stock Exchange developed by Taiwan Stock Exchange in collaboration with FTSE. The MSCI World Index is a free-float weighted equity index that includes developed world markets and does not include emerging markets. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
1 - The Wall Street Journal, April 30, 2020
2 - FactSet Research, April 30, 2020
3 - MSCI.com, April 30, 2020
4 - MSCI.com, April 30, 2020
5 - MSCI.com, April 30, 2020
6 - The Wall Street Journal, April 29, 2020
7 - The Wall Street Journal, April 3, 2020
8 - The Wall Street Journal, April 15, 2020
9 - MarketWatch.com, April 15, 2020
10 - CNBC.com, April 16, 2020
11 - Reuters.com, April 21, 2020
12 - Reuters.com, April 23, 2020
13 - The Wall Street Journal, April 10, 2020
14 - The Wall Street Journal, April 24, 2020
15 - The Wall Street Journal, April 8, 2020
16 - The Wall Street Journal, April 29, 2020