After last year's rally, many think that the stock market is due for a crash. If you're among them, then there's one thing you might not want to wait long to do: give to charity.
In many people's eyes, the season for charitable giving ended when the Big Apple dropped at Times Square last weekend. But you can still make a big difference even before you've had a chance to turn the first page on your brand new calendar -- and doing so might do you some good, too.
Giving to stiff the tax man
Most charities receive a huge percentage of their gifts toward the end of the year. That's due in part to the fact that you can use charitable donations as tax deductions, and since most people only start thinking about their taxes toward the end of the year, charitable gifts during November and December tend to be a lot more prevalent than during other parts of the year.
Waiting until the last possible moment to make a charitable gift can work out well for you, too. If you're smart and take the opportunity to make gifts using stock that has gone up in value, then you can both earn a valuable tax deduction as well as avoiding the capital gains that you'd owe if you sold the stock. That double benefit works especially well during years like 2009, when the stock market finished the year much higher than where it started. If the shares you own rise in value, then it takes fewer of them to make your planned gift -- or, if you intend to give a fixed number of shares, their higher value will get you a bigger tax deduction.
Hedging your bets
Of course, that trick can work both ways -- and that's why an early gift can make sense. Consider, as an example, the terrible market year of 2008. Riding the bull market that started in early 2003, investors had a lot of stocks that had substantially risen in value. Using those stocks for charitable giving would have saved you a ton of money in taxes.
But by the end of the year, the broad market was down almost 40%, and the giving power of your stocks had fallen dramatically. Just consider these examples:
|
Stock |
Shares Needed for $1,000 Gift in January |
Value of Those Shares by December |
Shares Needed for $1,000 Gift in December |
|---|---|---|---|
|
ConocoPhillips
|
11.38 |
$589.37 |
19.31 |
|
PotashCorp
|
6.84 |
$500.82 |
13.66 |
|
iShares Silver Trust
|
65.88 |
$737.81 |
89.29 |
|
Vale
|
30.57 |
$370.22 |
82.58 |
|
Bank of America
|
24.65 |
$347.14 |
71.02 |
|
Morgan Stanley
|
19.63 |
$314.82 |
62.34 |
|
Dow Chemical
|
25.81 |
$389.42 |
66.27 |
Source: Yahoo! Finance.
By the end of that year, some of your shares didn't even go half as far toward your charitable purposes -- meaning that you faced the unappetizing dilemma of either giving a smaller amount or having to pony up more shares to preserve the dollar value of your donation.
Reading the future
Nobody knows what the future will bring in 2010. But after last year's big rise for stocks, many are looking for a pullback. And whether a correction comes sooner or later, you can count on it coming at some point.
So one thing to consider is making a charitable gift early in the year. Not only will it help protect against a future market downturn, but it will also support worthy charities at a time when most donors have already done everything they can.
Here at the Fool, we believe that charitable work is a year-round endeavor. That's why this year, our Foolanthropy campaign is focusing on a local public charter school, the Thurgood Marshall Academy. Through a combination of financial and volunteer support, we hope to make a difference in the lives of hundreds of teens by giving them the foundation to be smarter about their finances.
Regardless of which charities you help, making a gift now can make a huge difference. If it can also help you protect against a financial downturn, then that's just icing on the cake.
Look to see the latest on what the Fool community is doing to support financial education. Christopher Barker has the scoop as Foolanthropy sprints toward the finish.
