QUIZ: Charitable Giving charitable giving

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A. 32% or higher

True

False

December is the month with the highest percentage of charitable giving.

A. 7% or higher

B. 6.99% or less

C. The state my client resides in has no income tax

What’s your client’s state income tax rate?

A. Hedge fund investments with high turnover and high net realized gains

B. A mix of taxable portfolios with modest turnover and retirement accounts

C. Only IRAs and a company retirement plan

What types of investments does your client hold?

A. Mostly individual stocks

B. Mostly ETFs and mutual funds

C. Little to no equities

What sort of equity exposure does your client have?

Oh, dear

You got just one out of the six questions right. But don’t despair: You can always brush up on your knowledge and try again.

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Take our quiz:

A. The client is OK with high tracking error

B. The client wants to stay reasonably close to the benchmark

C. The client wants to perfectly mirror an index

For your client’s equity holdings, how important is it that they track the client’s chosen benchmark?

Four true-or-false questions to help every advisor advance their knowledge.

YOUR RESULTS

Sad trombone sound

YOUR RESULTS

You answered two of the six questions correctly. But look on the bright side: It means there’s room for improvement!

You’re halfway there

YOUR RESULTS

You got three of the six questions correct. Want to try again?

This information has been provided for discussion purposes only. It does not purport to address all the financial, tax, and legal considerations relevant to investors. No representation or warranty can be given with respect to the accuracy or completeness of the information contained herein. Parametric does not provide legal, tax, or accounting advice or services. Investors should consult with their own tax or legal advisor prior to entering into any transaction or strategy described herein. The views and strategies described may not be suitable for all investors.

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NEXT QUESTION

CORRECT Harvesting losses effectively means doing it continuously—all year round and not just at the end of the year, by which time key opportunities may have already been missed.

True

False

Tax-loss harvesting opportunities shrink over time.

NEXT QUESTION

CORRECT Over time, especially under bull-market conditions, a portfolio will eventually become highly appreciated and there will be fewer losses to harvest. However, the benefit of the deferred taxes continues to compound and accrue to the investor. The value of tax losses comes from their ability to offset short-term capital gains and defer those taxes into the future. When the gain is eventually realized, it will qualify for the lower long-term tax rate. And don’t forget about estate planning, charitable gifting, and other ways to continue to reduce even highly appreciated portfolios’ tax liability.

NEXT QUESTION

INCORRECT Over time, especially under bull-market conditions, a portfolio will eventually become highly appreciated and there will be fewer losses to harvest. However, the benefit of the deferred taxes continues to compound and accrue to the investor. The value of tax losses comes from their ability to offset short-term capital gains and defer those taxes into the future. When the gain is eventually realized, it will qualify for the lower long-term tax rate. And don’t forget about estate planning, charitable gifting, and other ways to continue to reduce even highly appreciated portfolios’ tax liability.

True

False

You can’t harvest losses and maintain similar market exposure at the same time without violating the IRS’s wash-sale rules.

NEXT QUESTION

CORRECT You can sell a security at a loss, then immediately purchase a set of similar securities that, from a risk perspective, match the security you sold. You just have to make sure you don’t buy back the same security within 30 days.

NEXT QUESTION

INCORRECT You can sell a security at a loss, then immediately purchase a set of similar securities that, from a risk perspective, match the security you sold. You just have to make sure you don’t buy back the same security within 30 days.

True

False

Harvesting losses works the same way in an SMA as it does with an ETF or mutual fund.

NEXT QUESTION

CORRECT You can harvest a loss in an ETF or mutual fund only if the entire fund’s value falls below its cost basis. And due to the fund structure, excess losses harvested by the fund manager can’t be passed through to the investor and must be used to offset gains within the fund. Whereas with an SMA, the investor owns the individual underlying securities, unlocking the loss-harvesting potential of each individual stock.

NEXT QUESTION

INCORRECT You can harvest a loss in an ETF or mutual fund only if the entire fund’s value falls below its cost basis. And due to the fund structure, excess losses harvested by the fund manager can’t be passed through to the investor and must be used to offset gains within the fund. Whereas with an SMA, the investor owns the individual underlying securities, unlocking the loss-harvesting potential of each individual stock.

NEXT QUESTION

INCORRECT If your client has capital gains elsewhere— in hedge-fund investments, real estate, and other holdings—those gains can, with some restrictions, be offset by the losses harvested in their equity portfolio. Under certain circumstances they can even offset ordinary income.

True

False

You can harvest losses in your equity portfolio to offset gains in other holdings, such as real estate.

NEXT QUESTION

CORRECT If your client has capital gains elsewhere— in hedge-fund investments, real estate, and other holdings—those gains can, with some restrictions, be offset by the losses harvested in their equity portfolio. Under certain circumstances they can even offset ordinary income.

True

False

You can harvest losses even when the market is rising.

SEE RESULTS

INCORRECT Even when the market is broadly up, certain stocks may be down. For example, in 2017, a year when the S&P 500® Index saw a total gain of close to 22%, 122 names in the index showed a loss for the year. If your client is invested in an SMA, and thus has access to the individual underlying stocks in the portfolio, those losses can be harvested to offset gains elsewhere in the portfolio.

SEE RESULTS

CORRECT Even when the market is broadly up, certain stocks may be down. For example, in 2017, a year when the S&P 500® Index saw a total gain of close to 22%, 122 names in the index showed a loss for the year. If your client is invested in an SMA, and thus has access to the individual underlying stocks in the portfolio, those losses can be harvested to offset gains elsewhere in the portfolio.

Were you even trying?

YOUR RESULTS

You got zero out of the four questions right. Zip. Nada. Zilch. You can do better than that, can’t you?

YOUR RESULTS

So close

YOUR RESULTS

You got five out six questions correct. Just shy of perfection!

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Nicely done

YOUR RESULTS

You harvest well—you got all six questions right! Use your superpowers responsibly.

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How much do you know about charitable giving?

According to Nonprofits Source, in 2018, 30% of all giving occurred in December, and more than 10% took place in the final three days of the year.

There’s no tax difference between donating stock or cash to charity.

For taxpayers who itemize deductions, the deduction is the same whether the donation is made in cash or stock, but a stock donation has the benefit of avoiding the stock’s embedded tax liability. Investors should keep in mind, however, that a donation in appreciated stock is limited to 30% of their adjusted gross income.

In the context of a tax-managed portfolio, replenishing a stock gift with cash has additional benefits.

Choosing to donate cash produced from the sale of appreciated stock versus donation of the stock itself has no effect on the amount of the donation.

When investors donate stock to a charity, they get the added benefit of receiving a tax deduction for the stock’s full fair-market value. This approach, compared to selling the shares and donating the cash, can result in a gift more than 10% larger, since investors avoid paying the capital gains tax incurred if they were to sell the shares first.

Oh, dear

You got just one out of the four questions right. But don’t despair: You can always brush up on your knowledge and try again.

You answered two of the four questions correctly. But look on the bright side: It means there's room for improvement!

You can do better

You got three out of four questions correct. Just shy of perfection!

So close

You’re quite gifted—you got all four questions right!

Nicely done

According to Nonprofits Source, in 2018, 30% of all giving occurred in December, and more than 10% took place in the final three days of the year.

Donating stock from a portfolio, then depositing into the portfolio an amount of cash equal to the value of the stocks gifted, means the portfolio manager can use the deposited cash to purchase stocks that allow the portfolio to maintain the investor’s chosen market exposure while also reducing tracking error. Additionally, the cash has a higher cost basis than the gifted shares. This higher-basis investment increases the potential for eventual tax-loss harvesting, which should help reduce future tax payments.