Investors purchase shares of stock with the intention of generating income in the future. This income arrives as dividends paid to the investor or by selling the stock for more than the investor paid. Sometimes an investor chooses to donate her shares to a charitable organization. This transaction needs to be recorded in the investor’s financial records and on the investor’s tax return. Many investors choose to calculate their value of the stock using the first-in first-out (FIFO) method. This value applies when the investor calculates her gain on her financial statements. It does not apply when recording the donation on her tax return.
1. Review the receipt from the charity that lists the number of shares donated.
2. Retrieve your stock purchase records. Each entry should include the number of shares, the date of the transaction and the amount paid. Compare the quantity of the shares acquired with the first purchase to the amount donated. If the amount donated exceeds the amount acquired, highlight that purchase.
3. Subtract this quantity from the total donated. Compare the remaining amount to the next purchase. If the amount donated exceeds the amount acquired, highlight that purchase.
4. Continue until the remaining amount no longer exceeds the amount acquired. Separate this purchase into two sections. The first section equals the quantity remaining and the price paid for those shares. Highlight this section.
5. Add the total highlighted amounts. Deduct this amount from the company’s investment account in the accounting records.
6. Review the stock pages for the date of the donation. Locate the market price of the stock.
7. Multiply the market price by the number of shares donated. This equals the amount of tax deduction the company is entitled to take on its tax return.
- Many investors choose to keep separate sets of records. One set maintains dollar values for his financial reporting. The other set maintains dollar values for tax reporting. This allows the investor to use the records that apply for any situation.
- Do not mix up the records. The FIFO valuation usually equals a lesser amount than the fair market value of the stock. This lowers the investor’s tax deduction and increases his tax liability.
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