Investors Have Time to Make Moves

Investors who want to take a capital gain or loss on an investment this year still have four trading days to do so.

For tax purposes, the Internal Revenue Service considers the trade date of a transaction to be the effective date. So investors who sell a security as late as Monday--the final day of 2001--would record any gain or loss in this tax year, even if the trade isn’t settled until 2002.

Stock trades normally take several days to settle, meaning when the seller receives payment from the buyer.

U.S. stock markets will be open for a full session on New Year’s Eve, unlike on the day after Thanksgiving and Christmas Eve, when trading ended three hours early.

If you’re planning to sell mutual fund shares, however, be sure to call the fund company to find out what’s required. Many funds allow telephone redemptions, in which case an investor usually can call any time before the end of a trading day to have the sale executed at the closing value that day.

But some funds require a letter of instruction from the investor, which would have to arrive no later than Monday.

Vanguard Group, one of the nation’s largest fund companies, allows investors in its popular “index” stock funds to place sell orders by phone, but only for outright redemptions--meaning the proceeds would be mailed in check form to the seller.

To sell a Vanguard index fund and shift the money to another Vanguard fund, such as a money-market fund, requires a letter from the investor, spokesman Brian Mattes said.

Investors selling mutual fund shares should remember that there are four different methods that can be used to figure the “cost basis” of the shares, for purposes of figuring your net gain or loss. Many major fund companies explain the accounting choices on their Web sites.

At Vanguard’s site (www.vanguard.com), click first on “personal investors,” then “Education, Planning and Advice” in the header. From there, go to “Taxes and Mutual Funds,” then “How to Calculate Your Taxes.”

Whether selling individual stocks or mutual funds to take a loss, beware the “wash sale” rule: The Internal Revenue Service will disallow any investment loss for tax purposes if you buy the same security, or a “substantially identical” one (that’s the IRS’ term), within 31 days of the sale.

As with security sales, taxpayers looking to make charitable contributions and take a deduction this year have until Monday to make the payments.

The IRS considers a contribution to be made when it is delivered to the charity, and mailing a check on Dec. 31 would constitute delivery in 2001, accountants say.

One way to make deductible contributions if you’re temporarily short of cash is to charge them on a credit card. Proof of the contribution--including the date the gift was made--is provided on your credit card statement.

If you are contemplating major charitable contributions and own appreciated stock, consider giving the stock instead of cash. You get a deduction for the current market value of the security, but the charity doesn’t have to pay capital gains on the appreciation.

Consider someone who wants to give a gift of $10,000 to charity, for example. The person can give that gift in cash or donate shares originally purchased at $1,000 that are now worth $10,000. If that person gives the shares directly to the charity, he or she saves capital gains tax on the $9,000 gain--an $1,800 savings at the long-term capital gains tax rate of 20%.

If you don’t have cash, but you’ve got a closet full of good-condition clothing that you no longer wear, you can donate these items to charity and take a 2001 tax deduction for their value.

The deductible value is often more than what people think, according to the makers of a software program called It’s Deductible (www.itsdeductible.com). For instance, a good-condition men’s sports coat is currently deductible at $183 and a toddler’s dress coat at $28, said company spokeswoman Dorothy Endacott, who says the software is updated to this year’s thrift-store prices.

But be aware that if you donate a single item worth more than $5,000, the value must be documented with an independent appraisal.