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Barbara Benware

Donating Restricted Stock to Charity

by Barbara Benware
Vice President—Investment Oversight and Risk


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For philanthropically minded executives, investment assets that have appreciated most in value can be among the most tax-advantaged items to contribute to charity. Often, their most appreciated investments are concentrated holdings of restricted stock in their companies. These holdings may have a low cost basis and significant current market value that will result in large capital gains taxes when sold.

By donating a portion of their appreciated restricted stock held for more than one year to a public charity (including a donor-advised fund), executives are able to enjoy a current year tax deduction and potentially eliminate capital gains tax liability on the sale of the asset while allowing the charities they support to receive the most money possible. Contributions of similar assets to a private foundation would generally be deductible at the lower of cost basis or market value.

Considerations include:

  • If the executive is subject to Rule 144 public sale restrictions, and/or is considered a "control person" in the company, the company's general counsel must give permission to transfer the shares. The charity will later sell the shares at acceptable times.
  • Donating restricted stock to charity or a donor-advised fund account are generally deductible at fair market value on the date of contribution.* By contrast, contributions of restricted stock to a private foundation are generally deductible at the lower of cost basis or market value. A qualified appraisal is typically required to substantiate fair market value.

Case Study—Contribution of Restricted Stock

A senior executive of a media firm has a large concentrated holding of restricted stock with low cost basis. The restricted stock is subject to strict lock-up periods and trading windows. As it is his most appreciated asset, he would like to contribute a portion of the stock to charity in order to support various philanthropic causes while minimizing taxes associated with any eventual sale or liquidation.

The executive decides to establish a donor-advised fund and gains approval from his firm to contribute a portion of his restricted shares. The donor-advised fund holds the shares until the lock-up period expires, and then sells them. The executive can then recommend grants to charities of his choice over time. He claims a fair market value deduction (as determined by a qualified appraisal).

  Sell stock and donate proceeds to charity Donate stock directly to charity
Asset Value

$1,000,000

$1,000,000

Capital Gains (100% Long-Term)

$950,000

$950,000

Taxes Paid**

$226,100

$-

Gift to Charity

$773,900

$1,000,000

Charitable Deduction

$773,900

$800,000

Donor Tax Savings

$80,364

$316,800


About the Author:

Barbara oversees Schwab Charitable's investment and complex gift acceptance programs and is responsible for its enterprise risk management. Barbara joined Schwab Charitable™ in 2009, following an 18-year tenure as a wealth management executive. Most recently, she served as Vice President of Planning & Investments and Chief Compliance Officer for Union Square Investment Company, an SEC-registered investment advisory firm. Earlier in her career, Barbara held numerous management roles in finance and product management capacities in the telecommunications industry. Barbara holds a degree in economics from American University.