Give appreciated stock, not cash, to charity

Approach your charitable giving with tax efficiency in mind. Contribute appreciated stock, not cash, to your favorite charities if possible. With shares held for more than a year, you’ll avoid paying tax on the appreciation, and you’ll still be able to deduct the full value of the stock. Call your favorite nonprofit, and the folks there will probably be able to help you with this. (If you’re looking for some new favorite nonprofits, learn about the featured charities in our Foolanthropy drive at www.foolanthropy.com.)

Review your capital gains and losses. If you’re looking at substantial capital gains on which you’ll be taxed in the coming year, you might want to sell some stock for a loss to offset some of the gain.

If you believe that your tax bracket next year will be no higher than this year, you’re itemizing your deductions and you won’t be bothered by any alternative minimum tax issues, consider making your state and/or local tax payments before the end of this year. You’re going to owe the money anyway, so if you pay now, you can take the federal tax deduction this year instead of next.

See whether your employer-sponsored retirement plan permits you to make “catch-up” contributions at the end of the year if your contribution level to date is less than the maximum allowed. (Learn more about 401(k) plans at www.fool.com/money/401k/ 401k.htm and www.401khelpcenter.com.)

Don’t overlook valuable credits that might be available to you. If you pay someone to care for your child under age 13 so that you can work, you might be eligible for the Child and Dependent Care Credit. The Child Tax Credit can save you $1,000 per qualifying child under the age of 17. The Hope Credit offers savings of up to $1,500 per student for qualified tuition and fees paid by or for the student. The Lifetime Learning Credit offers up to $2,000. If you’ve recently adopted a child, you may be able to enjoy a credit of more than $10,000.

For much more tax information, head to www.irs.gov, www.fairmark.com and www.fool.com/taxes.

Ask the Fool

Q: What’s the difference between a mutual fund and a unit investment trust? — P.D., Tallahassee, Fla.

A: Mutual fund managers invest in assets according to stated sets of objectives. Shares are issued and redeemed on demand at a specific net asset value that is determined at the end of each trading day (based on the total market value of the fund’s holdings). There’s no fixed number of shares. If many people want to buy in, the fund company will issue more shares.

Meanwhile, a unit investment trust (UIT) invests in a relatively fixed portfolio of investments. These are held until the trust is liquidated at a predetermined date in the future. Investors who want to trade shares of a UIT before it matures can often do so on the secondary market. Unlike a mutual fund, UIT share prices in the secondary market may be priced above or below the net asset value of the trust’s actual holdings. When you buy shares of UITs, you typically pay a sales fee, or load, of around 4 percent or 5 percent; many mutual funds carry no sales load at all.

Learn more about mutual funds at www.fool.com/funds and www.ici.org.

Q: Do I need to get the certificate when I buy stock? — W.G., Jackson, Mich.

A: These days, most brokerages actually hold any stock you buy in “street name” (i.e., their own name) instead of putting the shares in your name and mailing you the certificates. This is routine, and the shares still belong to you. It’s a good system for most people, as it means the shares can be sold more quickly. You don’t have to find and mail back the certificates to the brokerage.

My dumbest investment

I’m a compulsive investor, addicted to investing like most people are addicted to gambling. I was shopping around one day and saw Delta Air Lines, trading for around $1.15 per share. I thought, “OK, that sounds good.” Later I found that they were filing for bankruptcy. I’m sitting here with more than 300 shares, hoping for a turnaround. I figure I’ve got the shares, I might as well hold on and see what happens. Maybe I’ll buy some more while they’re cheap. I mean, Delta can’t stay down forever. Or at least I hope not. — Matthew Hamilton, Bromley, Ky.

The Fool Responds: Snap out of it, Matthew! Remember that most stocks selling for pennies per share are doing so for good reason. They may not yet be profitable or may have fallen in deep trouble. You may not want to hang on, either. When companies emerge from bankruptcy, many times shareholders of common stock end up with nothing. More important, ask yourself whether you have more faith in any other company. If you do, that’s a more promising place to park your money.