Morgan Stanley
  • Wealth Management
  • Oct 21, 2021

Giving the Gift of Equity Compensation

Learn how gifting your equity compensation can have a positive impact on the causes you care about—and your year-end tax bill.

The end of the year is fast approaching. So as you think about holiday shopping and the resolutions you may or may not keep, it’s also a good time to explore charitable giving.

Charitable giving offers a way to support the causes you care most about, while also building your legacy and helping to manage your tax liability. Many of us are accustomed to giving online or writing a check, but have you thought about donating assets other than cash?

Many organizations accept both cash and stock gifts, so this year, consider the role your equity compensation might play in your charitable giving. Let’s look at a few important steps you should consider, along with some potential advantages of gifting stock.

Step 1: Remember that charity begins at home

Before you use your equity compensation for charitable purposes, make sure you’re on track to meet your own financial goals, including saving for retirement. And consider using your equity compensation to first take care of your family’s needs, like saving for education

Step 2: Decide what you want your legacy to be

Clarify your charitable goals and what matters most to you. For example, do you want to support social justice, health care, education, or environmental issues? Do you want to make an impact on your local community or on more of a global scale? Are there organizations or causes that are personally meaningful to you and your family? 

Do you want to make an impact on your local community or on more of a global scale?

Step 3: Determine what you can give

Even a small amount can have an impact. However, keep in mind that some types of equity compensation—including unvested restricted stock units (RSUs) and unexercised stock options—are generally not transferrable, so check your company’s policy to understand what is and is not permitted. Also, consider the timing of your gift, as donating in one calendar year versus across multiple years can make a difference tax-wise. 

Step 4: Understand the tax advantages

Gifting vested and exercised appreciated  shares offers greater potential tax benefits compared to selling appreciated stock and donating the proceeds. You’ll pay reduced capital gains tax if you hold the stock for more than one year, or for more than two years from the grant date in the case of ISO and employee stock purchase program (ESPP) shares. Even better, paying reduced capital gains tax means you may have more funds available to give to charity. Plus, you’re still eligible for charitable deductions if you itemize your deductions. 

Step 5: Choose a funding vehicle

If you’re clear about your goals and intentions, you can donate exercised or vested equity compensation directly to a qualified charity. However, if you’re planning to give before year-end but need more time to decide where to direct your assets, another option to explore is a Donor Advised Fund (DAF). A DAF is particularly worth considering if you’re donating a larger amount or thinking about giving in installments over time. Donations to a DAF can be invested with the potential to grow tax-free. And later, that can mean more money for the causes you care about. 

Step 6: Report your donations

With the many tax implications that go along with charitable giving, it’s important to carefully document your gifts. Stock donations generally must be reported on IRS Form 8283 for non-cash charitable contributions. 

There’s a lot to know, so talk to the professionals.

Using your equity compensation for charitable giving can have a number of advantages—both for you and for the causes you want to support.

But it’s important to remember that gifts of non-cash assets like equity compensation can involve complicated tax analysis and advanced planning. Make sure to consult with tax and legal advisors to understand the implications, and explore the best way to make and time your donations. For guidance on your equity compensation and workplace benefits, set up time to speak with a Financial Advisor.

Learn more about equity compensation.