Archive for the ‘Tax Strategy’ Category

Why You Should Donate Appreciated Assets Instead of Cash

Originally published in the Pacific Grove Hometown Bulletin

March 7, 2012

Last issue I spoke about the issues surrounding charitable deductions for donated goods or services.  I mentioned at the end of the article a much better way of making donations rather than through the contribution of goods, services, or even cash – that way is through  the donation of appreciated assets.  I will use stock in my explanation below, but keep in mind this same principal generally applies to any appreciated assets including mutual funds, real estate, art work, collectibles, etc.

The donation of appreciated assets, such as stock, is an incredible tool if you 1) have some, or 2) can plan to have some for donations down the road!  Donating appreciated stock is like having your cake and eating it too: you basically get two tax benefits.  Here is how it works.  Let us assume you buy $1,000 of stock, and over time, and after a treacherous dip to $400 (!), it rebounds and climbs to $1,500.  Then let us assume your favorite charitable organizations need funds.  You could sell that $1,500 of stock and give the cash proceeds to the organization.  You would  get a $1,500 charitable donation, but you would also have a taxable gain of $500 ($1,500 sales price less $1,000 cost) since you sold the stock.

Instead of selling the stock, let us assume you transferred the stock in-kind to the charitable organization.  You still get the $1,500 charitable donation but you do not have to pay any tax on the built-in-gains of $500.   This could be a huge benefit, especially if you have stock that has appreciated substantially over many years.  You would be much better off making your charitable contributions in this manner, rather than writing checks.

For those with no appreciated stock, long-term planning might suggest opening a separate brokerage account and investing money each year in growth stocks to be used in the future for making donations in lieu of your less favorable cash.  This may take a number of years to achieve, but eventually you could turn the tables and find yourself making your larger donations in appreciated stock, saving you even more tax.

Keep in mind, if you plan to donate something other than financial assets that have a readily determinable value, you would typically need an appraisal if the value is over $5,000.

Prior articles are republished on my website at

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.

Losses on 401(k)s, IRAs, and 529 Plans

Originally published in the Pacific Grove Hometown Bulletin

September 21, 2011


The stock market seems like a pinball these days bumping off financial forecasts and being paddled by fiscal policy promises.  Unable to stomach some of the lows over the past few years more than a few people gave up the game and pulled money out of investments seeking the “security” of cash.   Others may have felt they had no choice, and cashed out their retirement savings to live on; some realizing they contributed more money to the plan than they got back!  Perhaps this happened to your retirement or education savings accounts, or will happen at some point.  But can you get a tax deduction for the loss in value you have incurred?

Well, it depends.  The chief determining factor is whether or not you have basis in your account.  Basis in a retirement or education account is created if you make contributions for which you receive no tax deduction when contributed.  For example – Roth-IRA contributions are not deductible when they are made, so the original contribution amount each year adds to your basis.  Education savings through section 529 plans and Coverdell Education Savings Accounts are the same way.   Many employers now offer a Roth contribution option within a 401(k) plan.  These contributions also create basis.

Traditional 401(k), SEP IRAs, SIMPLE IRAs, and traditional IRA contributions provide you with an immediate tax deduction, so they provide no basis.  However, if you were over a certain income threshold and tried to make traditional IRA contributions, you may have been allowed to contribute to the account, but prohibited from taking the deduction.  This is termed a “nondeductible IRA contribution;” it would have created basis; and it is tracked on Form 8606 in your tax returns.

If it is determined you do have basis, and for a strategic reason (or by necessity) you end up liquidating the IRA (all IRAs of the same type must be liquidated for this to work), and the value of the IRA is less than your basis in the account, then you are eligible to take the loss as a miscellaneous itemized deduction subject to the two percent threshold.  If you have more than one section 529 plan, the calculation is a little different.

Liquidating your retirement accounts to get a possible tax deduction is not typically an advisable course of action for many reasons, and you would want to discuss this with your tax professional and investment advisor first.  However, sometimes, this can be a strategic move.  More often, it will have been done out of perceived necessity or by accident.  If it happens, however, you certainly want to make your tax professional aware of your losses and take the deduction if you are eligible.

Two quick examples:  1) Melissa, a parent, starts a 529 account (only has one) and contributes $10,000 towards her child’s future education.  A year later, the investments have fallen, and the account is only worth $6,000.  Melissa could liquidate the account and take a $4,000 loss on Schedule A.  Then she could start a new 529 plan putting the $6,000 back into the plan.  Melissa has just harvested a $4,000 loss. 2) Joseph opened his first Roth-IRA three years ago and contributed $14,000 over the three years.  He received some bum advice from a friend and invested most of it in a penny stock mail-order belly-dancer business that went belly-up.  Joseph’s account is now only worth $1,000.  He could liquidate his Roth-IRA and take a $13,000 loss on Schedule A.

There may be other circumstances and specific rules that affect you, and you should consult with a qualified tax professional regarding your tax situation.  Prior articles are republished on my website at

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950. He can be reached at 831-333-1041.