cost basis for stocks you donate?!
I thought you just write off the total value of the stock?
ie:
bought 1000 shares of N(ike) at $10/share.
donate 1000 shares at $11/share to the Red Cross a month later.
just write off the entire $11k??
why bother with cost basis?
Answer 1: Tell that to Vanguard and their stupid donation form writers. Please. Convincing them would make my life much easier when it comes to donations.
Answer 2: Your example is way to simplistic. If you don't mind, I'll change the buying price to make the example more clear. Suppose you bought 1000 shares of Nike (NKE) at the split-adjusted equivalent of $25/share on Jan 18, 2012. Then you also have 400 shares. But over time through reinvested dividends you will also get:
- 1.33 shares at $27.14/share from the Mar 1, 2012 dividend
- 1.34 shares at $27.05/share from the May 31, 2012 dividend
- 1.48 shares at $24.44/share from the Aug 30, 2012 dividend
- 0.85 shares at $24.61/share from the Dec 6, 2012 dividend
- 1.49 shares at $27.23/share from the Feb 28, 2013 dividend
- etc, with more shares every few months.
- Suppose you bought another $10000 of Nike at $51.57/share on May 23, 2017. That is 193.91 shares.
Now, suppose you want to donate $200 to the Red Cross. You could donate $200 of Nike Stock to do so. At today's $68.03 closing price, that would be 2.94 shares. But which 2.94 shares? Your brokerage didn't have to keep track of the cost basis as much of this stock was purchased before year 2014.
The mathematically optimal shares to donate would be 1.48 shares that you obtained on Aug 30, 2012 + 0.85 shares obtained on Dec 6, 2012 + 0.60 shares that you obtained on Jan 18, 2012 (leaving you with 399.40 shares from that date).
Why? Because you want to keep the shares with the least capital gains, which are the shares bought May 23, 2017. You don't want shares with high capital gains, which are the shares in the 3rd and 4th dividend payment in the list above. This is to avoid capital gains taxes when you do eventually sell.
This is just a simple example with a steadily growing stock. An automatic first in, first out plan would be almost as good ($25 cost basis is pretty close to $24.44). But first in, first out is terrible if the stock happened to have a sizable dip after you bought it and there were dividends paid during the dip. An automatic last in, first out plan would be really bad (as you want to keep the $51.57 shares with the least capital gains) in this example. Your brokerage didn't keep track. If you didn't keep track, then did you just screw yourself out of $51.57/share-$24.44/share = $27.13/share of capital gains tax? Even the simple dollar cost averaging method (that Vanguard will apply if you don't tell them specific shares) would be terrible as the average cost basis is well over the $24.44/share cost basis that you could use with your own tracking.
Multiply this by several stocks and several donations and the pennies you might get by investing dividends a little bit earlier automatically instead of manually isn't worth the hassle.
Facebook
Twitter