Transcripts

Kevin McCormally's Tax Tips-Taking Stock In Giving

SUSIE GHARIB: They say it's better to give than to receive and that's true when it comes to your taxes, as well. As we continue our series of year-end tax tips, we look at giving away appreciated assets. Here's our tax guru, Kevin McCormally, editorial director of "Kiplinger's Personal Finance."

KEVIN MCCORMALLY EDITORIAL DIR., "KIPLINGER'S PERSONAL FINANCE": If you're in a giving mood this holiday season, here's a tax-saving tip: put away your checkbook. No, I'm not trying to stifle your spirit of generosity. Rather, I suggest you take advantage of an opportunity to give and get at the same time. Instead of donating cash to your favorite charity, consider giving appreciated stock or mutual fund shares.

Assuming you've owned the securities for more than a year, you not only give away the money; you also give away the tax bill that has built up since you bought the shares. Let's say you plan to give $20,000 to a capital campaign of a favorite charity. If you give $20,000 in cash, the charity gets 20 grand and you get to deduct $20,000 on your tax return, saving you $5,000 if you're in the 25 percent bracket.

Instead, let's say you give $20,000 worth of stock that you purchased years ago for $5,000. The charity still gets $20,000. You still get a $20,000 deduction and the $5,000 of tax savings that go along with it. And you get away from the tax bill you'd owe on $15,000 of profit if you sold the shares. That saves you an extra $2,250 in capital gains taxes.

What if you don't want to part with the stock, because you expect it to continue to do well? Give it away anyway. Then go back into the market to buy shares in the same company with the cash you otherwise would have given to the charity. That way you'll only be taxed on profit that builds up in the future. I'm Kevin McCormally.

KANGAS: Tomorrow night, Kevin looks at how you can give your child a holiday gift that will keep on giving to you both.