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Equity Compensation

Advanced Tax Strategies for Donating Equity Awards

Discover which types of equity compensation can be donated to charity, and what the potential tax benefits of those donations may be.
August 18, 2026•Caleb Lund • Advanced

Key takeaways

  • Donating appreciated company stock directly to charity may help reduce capital gains taxes while potentially increasing the amount available for charitable giving.
  • Equity awards generally must be vested or exercised before they can be donated, and holding period rules can affect the potential tax benefits.
  • Some equity compensation awards may be better suited for charitable giving than others, depending on the award type, appreciation, cost basis, and holding period.
  • Donor-advised funds can be a flexible way to donate company stock, but these gifts are irrevocable and may involve complex tax considerations.

Many people who have equity compensation are both concentrated in their company stock and are charitably minded. What if you could manage both by donating stock?

Equity compensation can make an excellent gift to charity because of the potential charitable impact and tax benefits available to the donor. If you donate these stock awards directly to charity (rather than selling them first and then donating cash proceeds) you may be able to eliminate any capital gains tax you would have paid, resulting in up to 20% more available to donate to charity. In addition, you may claim a fair market value (FMV) deduction for your gift.

Donor-advised funds sponsors, which are 501(c)(3) public charities, are an excellent gifting option for donations of company stock awards, as donor advised funds typically alleviate the tax burden on what is often highly appreciated stock.

Image illustrates how a donor can donate vested or exercised awards to a donor-advised fund where account assets are invested for tax-free potential growth and can ultimately benefit a charity.

Source: Schwab

For illustrative purposes only.

Please be aware that gifts of appreciated non-cash assets can involve complicated tax analysis and advanced planning. This article is only intended to be a general overview of some donation considerations and is not intended to provide tax or legal guidance. In addition, all gifts to donor-advised funds are irrevocable. Please consult with your tax or legal advisor.

Equity compensation awards generally aren't transferable until vested or exercised

The most common forms of equity compensation awards are restricted stock units (RSUs), restricted stock awards (RSAs), non-qualified stock options (NQSOs), and incentive stock options (ISOs). The awards themselves generally are not transferable and therefore cannot be given to charity. However, once these awards are vested and/or exercised—and the underlying stock is held for more than one year—they can be a tax-efficient way to make a charitable gift.

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What types of equity compensation can be donated to charity?

Not all equity compensation awards are treated the same when it comes to the charitable income tax deduction. As illustrated below, ideal gift options should meet IRS holding period requirements of at least more than one year and have high appreciation above your cost basis.

Such gifts enable you to potentially eliminate capital gain tax on the difference between fair market value on the date donated and FMV when vested or exercised, while also claiming a charitable income tax deduction.

Equity compensation awardsTax treatment upon vesting or exerciseYour charitable gift optionPotential tax benefitsGift rating
Vested Restricted Stock Units (RSUs) and Restricted Stock Awards (RSAs) held greater than 1 year from vesting§§Ordinary income tax on difference between FMV at vesting and amount paid for your stockEliminate capital gain recognition on difference between cost basis and FMV at gift dateDeduction at FMV, up to 30% of your adjusted gross income (AGI), with 5-year carryoverGood
Stock received upon Nonqualified Stock Option (NSO) exercise held greater than 1 year from exerciseOrdinary income tax on the difference between the exercise price and the stock's FMV at exerciseEliminate capital gain recognition on difference between cost basis and FMV at gift dateDeduction at FMV, up to 30% of your AGI, with 5-year carryoverGood
Stock received upon Incentive Stock Option (ISO) exercise held greater than 1 year from exercise and 2+ years from grant§No ordinary income tax, although Alternative Minimum Tax (AMT) may applyEliminate capital gain recognition on difference between cost basis and FMV at gift date**Deduction at FMV, up to 30% of your AGI, with 5-year carryoverGood
Vested RSUs and RSAs held 1 year or lessOrdinary income tax on difference between FMV at vesting and amount paid for your stockNo advantage to selling your stock and donating cash proceeds††Deduction at lesser of cost basis and FMV, up to 50% of your AGI, with 5-year carryoverGood
Stock received upon NQSO exercise held 1 year or lessOrdinary income tax on difference between exercise price and your stock's FMV at exerciseNo advantage to selling your stock and donating cash proceeds††Deduction at lesser of cost basis and FMV, up to 50% of your AGI, with 5-year carryoverGood
Unvested RSUs and unexercised ISOsNot transferrable to charityNot transferrable to charityNot transferrable to charityUnacceptable
Unexercised NSOsNot applicableGenerally, not transferrable; exercise by charity may result in ordinary income tax to youDeduction at lesser of cost basis and FMV, up to 50% of your AGI, with 5-year carryoverUnacceptable
Vested Performance Stock Units (PSUs) and Performance Stock Awards (PSAs) held greater than 1 year from vestingOrdinary income tax on difference between FMV at vesting and amount paid for your stockEliminate capital gain recognition on difference between cost basis and FMV at gift dateDeduction at FMV, up to 30% of your AGI, with 5-year carryoverGood
Vested PSUs and PSAs held 1 year or less from vestingOrdinary income tax on difference between FMV at vesting and amount paid for your stockNo advantage to selling your stock and donating cash proceeds††Deduction at lesser of cost basis and FMV, up to 50% of your AGI, with 5-year carryoverGood
Employee Stock Purchase Plans (ESPPs) Tax-qualified ESPPs held greater than 1 year from purchase and greater than 2 years from the grantNo ordinary income tax, although you must meet holding period requirements prior to gifting or there may be income recaptureEliminate capital gain recognition on difference between cost basis and FMV at gift date. Recognize ordinary income on the discount amountDeduction at FMV, up to 30% of your AGI, with 5-year carryoverModerate
Stock Appreciation Rights (SARs) Generally, not transferrable; any transfer may result in adverse tax impact to you Unacceptable

Case study: Charitable tax planning opportunity

Cheryl is a senior executive of TechCo, a technology company that recently went public. She has accumulated a significant amount of restricted stock from the vesting of RSUs that she has held for more than one year.

Cheryl is eager to plan for her family's future and charitable giving is a big part of her goals. In addition, she has always been charitably minded and will have an unusually high income this year (AGI of 3.5M), so a charitable gift could help her to minimize tax exposure.

After speaking with her financial advisor, Cheryl learns about how she can easily fund a donor-advised fund account to receive a current-year tax benefit while making more money available to charity over time.

Cheryl decides to fund a donor-advised fund account with $1 million of company stock, with a cost basis of $50,000. By donating $1 million of TechCo stock directly to charity, as shown in Option 2 below, Cheryl eliminates $190,000 in projected federal capital gains taxes and this money is instead available to grant to charities through her donor-advised fund. She also has an additional $343,895 in estimated tax savings from her claimed income tax deduction.

This graphic illustrates how Cheryl can potentially eliminate $190,000 in projected federal capital gains taxes allowing for an additional $190,000 available to grant to charities and generate additional estimated tax savings of $256,504 by contributing stock versus cash.

Source: Schwab

For illustrative purposes only.

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This material is intended for general informational and educational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The securities, investment products and investment strategies mentioned are not suitable for everyone. Each investor needs to review an investment strategy for their own particular situation before making any investment or trading decisions.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

For illustrative purposes only. Individual situations will vary. Not intended to be reflective of results you can expect to achieve.

Investing involves risk, including, for some products, more than your initial investment.

This information is for educational purposes only and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, you should consult with a qualified tax advisor, CPA, Financial Planner, or Investment Manager.

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