If you are a stock investor, chances are you were not sad to bid farewell to 2022. All three major U.S. stock indexes finished the year lower than they started it. The Dow lost almost 9 percent of its value, despite a strong fourth quarter. Things were even tougher for the S&P 500, down more than 19 percent, and the NASDAQ took a whopping hit of over 33 percent.
So what do you do now? As with so many things in life, it is almost always better to evaluate your current reality than to dwell on the past — in other words, play the hand you are dealt.
Do all you can to educate yourself and seek good advice about the prospects for your investments. If a stock’s future looks positive, you will probably want to hold. However, as hard as it can be to accept a decline in value, you may want to sell if a turnaround doesn’t appear to be on the horizon.
Those people with significant charitable objectives may find that they can benefit in multiple ways from harvesting losses from stocks with bleak prospects and using the sales proceeds to fund their charitable giving.
First, if the current price of the stock has dropped to a level below its purchase price, any loss can be used to offset gain from the sale of investments that have appreciated. This will reduce the amount of gain subject to tax. If there is no realized gain or if the loss exceeds the gain, that loss can be used to offset up to $3,000 of ordinary income.
In addition, the donor will generate a charitable deduction equal to the full amount of the sales proceeds contributed — saving up to 37 percent of the amount of the contribution, depending on the donor’s federal income-tax bracket — and preserve other assets that otherwise would have been used to fund the gift.
If this strategy sounds promising, your first step is to check with your investment adviser and do an objective evaluation of your holdings. As always, we are available to discuss how your gift can support our mission.