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schwartz financial

Newsletter from Matt Schwartz of Schwartz Financial Services

LPL Independent Investor

December 2012

 

Making a Charitable Choice

 

The greatest benefit of charitable giving is the knowledge that you’ve made a positive contribution to others. At the same time, charitable giving can also provide tax breaks so long as you are aware of some rules and keep track of what you’ve donated.

 

Choosing a Charity

The first step is to identify an organization you wish to support. There are thousands of charitable organizations to choose from, supporting such causes as environmental protection, curing illness or improving the lives of children. Start by identifying what is most important to you.

 

Next, you will want to do some research. If you want to claim a tax deduction for your gift, you’ll need to make sure that you are dealing with a registered charity to satisfy IRS rules. Your local Better Business Bureau (BBB) can provide information on charities.

 

Once you have a short list of registered organizations, contact each one and ask for a copy of its annual report. This report explains the charity’s mission, lists its key personnel, and provides a breakdown of how donations are spent. Pay careful attention to marketing and administrative expenses, which can vary widely among organizations. You will probably want the majority of your money to go to those who need it. Keep in mind, however, that high expenses related to awareness campaigns are designed to educate the public and increase donations, so they might not be cause for concern.

 

The BBB Wise Giving Alliance also provides independent evaluations of popular charities. These reports are available online at www.give.org. You can also request written reports by writing to BBB Wise Giving Alliance, 4200 Wilson Boulevard, Suite 800, Arlington, VA 22203.

 

IRS Rules for Giving

You are free to give as much to charity as you like. However, you will need to follow IRS rules and keep records of your gifts to claim tax deductions. Monetary contributions are the easiest to report. Always pay by check and make the check payable directly to the charity. Ask for a receipt and save it along with your canceled check and your bank account statements.

 

A deduction is no longer allowed for monetary gifts unless accompanied by a bank record or a written receipt from the charity indicating the amount of the contribution, date of the donation and name of the charity. If your contribution exceeds $250, either in cash, certain property or out-of-pocket expenses that are attributable to volunteer work, you will also need to obtain a written description of your gift. This description must contain an acknowledgement from the charity of your contribution, a description of noncash items donated, a statement of whether the charity provided goods or services in exchange for the donation and—if goods or services were provided—a good-faith estimate of their value.

 

The IRS has ruled that the fair market value of goods and services should be deducted from any charitable contributions used to offset taxes. Keep in mind that fair market value may differ from what you pay for the goods or services offered. A good example of this is the popular practice of selling candy bars. As an example, say that you pay $2 for a candy bar to benefit a local school. The fair market value of the candy is actually $1 were you to purchase it at a local store. That $1 is deducted from your contribution, leaving you with a deduction of $1. To simplify your tax reporting, it might be best to turn down any goods or services of more than nominal value that a charity offers in exchange for your gift.

 

Noncash Gifts

To declare charitable gifts of certain noncash items worth more than $500 (such as used clothing or furniture), you must supply cost and acquisition information for the items given. When claiming single noncash gifts worth more than $5,000 (excluding publicly traded stock), you must include an appraisal of the gift’s value with your tax return.

 

Two such gifts to carefully consider are used items and time. Items such as computers and clothing are subject to depreciation over time, so you won’t be able to declare your purchase price as a deduction. Time spent volunteering typically isn’t deductible; however, expenses associated with volunteering, such as transportation and materials, are deductible.

 

Appreciable Gifts Are Best

Items with the potential for appreciation are the best gifts for tax-conscious charitable givers. You can avoid capital gains taxes by donating assets that have appreciated in value. Outside of a charitable trust or foundation, this is one of the most effective ways to reduce taxes through charitable contributions. You can donate appreciated stock, artwork, antiques, collectibles or other noncash items as long as you have owned them for at least one year. You can deduct the full fair market value of the gift from your taxes, and any appreciation will escape taxation.

 

Consider selling appreciable assets you have owned for a year that have lost value, with the proceeds of the sale donated to charity. This allows you to remove the full fair market value of the assets from your taxes while still claiming a capital loss on the depreciation.

 

In addition to direct gifts to charity, other options include a charitable remainder or charitable lead trust or setting up a private foundation. However, complex rules govern the creation and maintenance of these vehicles. Thus, tax and legal advisors are necessary to determine if a trust or foundation is appropriate for your situation.

 

Charitable donations are an excellent way to reduce your taxes and make a difference in the lives of others. And while it’s natural to consider charitable giving during the holidays or at tax time, it’s also important to remember that the need to help others lasts year round.

 

This article was prepared by S&P Capital IQ Financial Communications and is not intended to provide specific investment, tax or legal advice or recommendations for any individual. Please consult me, a qualified tax or legal advisor if you have any questions.

 

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness, or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special, or consequential damages in connection with subscribers’ or others’ use of the content.

 

Tracking #: 1-120755

 

 

Matthew M. Schwartz

Financial Consultant

 

Schwartz Financial Services, Inc.

3 Baldwin Green Common #209

Woburn, MA 01801

 

[email protected]

 

Tel: (781) 932-3289

Fax: (781) 998-3099

 

Website:  SchwartzFinancialServices.net

 

Professional LinkedIn Profile: linkedin.com/in/SchwartzMatt

 

Professional Facebook Profile:  facebook.com/SchwartzFinancial

 

Personal Facebook Profile:  facebook.com/SchwartzMatthewM

Pay Yourself First—and Regularly—With Dollar Cost Averaging from Matthew Schwartz of Schwartz Financial

LPL Independent Investor

September 2012

 

Pay Yourself First—and Regularly—With Dollar Cost Averaging

 

To remain financially responsible, everyone must pay bills on a regular basis. These bills include mortgages, utilities, car loans and credit cards. Unfortunately, many people do not also heed the oft-quoted advice to pay themselves first.

 

The reality is that a steady saving and investing plan is sometimes necessary to help pursue such financial goals as paying for a wedding or new car, buying a house and funding retirement. One strategy that can help you develop a systematic investing plan, while potentially saving you money and easing your mind along the way, is dollar cost averaging (DCA).

 

DCA Defined

Dollar cost averaging is a technique in which investments of defined amounts are made on a regular basis.1 As a long-term, disciplined strategy, DCA can help you take advantage of the benefits of compounding to potentially build a sizable sum.

 

Aside from offering a disciplined, trouble-free way to save and invest, another potential benefit of using DCA is that it ensures that your money purchases more shares when prices are low and fewer when prices are high. Over time, the result could be that the average cost to you may be less than the average share price. For example, consider the accompanying chart, which shows the result of investing $50 in stocks every month for 12 consecutive months.2

 

As you can see, every month the share price fluctuates a bit, and by the end of the 12-month per iod, your $600 would have bought you 42.7 shares. The average price per share, as calculated by adding up the monthly price and dividing by 12, would have been $14.25. However, the average cost that you would have actually paid, as calculated by dividing the total amount invested by the number of shares, would have been $14.05 per share. Over the years, this method could potentially save you a lot of money.

 

The Benefits of DCA

Month

Share Price

Shares Bought

Jan.

$15

3.3

Feb.

$13

3.8

Mar.

$12

4.2

Apr.

$14

3.6

May

$13

3.8

June

$12

4.2

July

$13

3.8

Aug.

$14

3.6

Sept.

$16

3.3

Oct.

$16

3.1

Nov.

$17

2.9

Dec.

$16

3.1

Total Shares

42.7

Average Price Per Share

$14.25

Average Cost Per Share using DCA

$14.05

 

Dollar cost averaging also can offer the psychological comfort of easing into the market gradually instead of plunging in all at once. Although DCA does not assure a profit or protect against a loss in declining markets, its systematic investing “habit” helps encourage a long-term perspective, which can be soothing for people who might otherwise avoid the short-term volatility of riskier, but potentially more profitable, investments, such as equities.

 

And last, DCA may help you make savvy investment decisions if you stick with it. For example, if your investment rises by 10%, you will likely post big gains because of the shares you have accrued over time. And if it declines by the same amount, take comfort in knowing that your next investment will purchase more shares at a less expensive price—shares that may regain their v alue and even exceed the higher price in the future.3

 

Regular Investing Makes Sense

As a long-term strategy, you may find DCA can help to potentially lower your average cost per share, while allowing you to feel more comfortable during uncertain markets. Keep in mind, however, that you should consider your ability to purchase over long periods of time and your willingness to purchase through periods of low price levels.

 

1Periodic investment plans do not assure a profit and do not protect against loss in declining markets. Dollar cost averaging is a strategy that involves continuous investment in securities regardless of fluctuating price levels of such securities, and the investor should consider their financial ability to continue purchasing through periods of low price levels.

 

2Source: Standard & Poor’s. Stocks are represented by the S&P 500 index.

 

3Past performance is no guarantee of future results.

 

This article was prepared by S&P Capital IQ Financial Communications and is not intended to provide specific investment advice or recommendations for any individual. Consult your financial advisor, or me, if you have any questions.

 

Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness, or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special, or consequential damages in connection with subscribers’ or others’ use of the content.

 

Tracking # 1-095838

 

Matthew M. Schwartz

Financial Consultant

 

Schwartz Financial Services, Inc.

3 Baldwin Green Common #209

Woburn, MA 01801