Overview

Donating equity and stock options is a tax-smart way for business owners to support charities while preserving cash and avoiding capital gains taxes that would apply if the assets were sold first. The approach works for publicly traded securities, privately held shares, and—more complicatedly—stock options and restricted equity. Each asset type has different transfer mechanics, valuation rules, and IRS documentation requirements, so planning with your CPA and counsel is essential (IRS Publication 526; Form 8283).

Why this matters for business owners

  • Tax efficiency: Donors who give appreciated long-term securities generally can deduct the fair market value and avoid capital gains tax, producing a larger net gift than selling first (IRS — Charitable Contributions).
  • Liquidity management: Donating shares lets owners give without drawing down bank reserves or triggering taxable sales.
  • Strategic philanthropy: Gifts of equity can align charitable support with business values, create legacy gifts, or fund donor-advised funds and charitable trusts to support recurring giving.

How the mechanics differ: shares vs. options

  • Publicly traded shares: Transfer is usually straightforward—move shares from your brokerage account to the charity’s brokerage account or to a donor-advised fund. If you held the stock more than one year, you may deduct its fair market value on the donation date (subject to AGI limits). For details see IRS Publication 526 and the instructions for Form 8283.

  • Privately held shares / closely held business interests: These require careful valuation and often a qualified appraisal. Some charities will not accept closely held stock because it can be illiquid and carry transfer restrictions; others will accept and later sell through negotiated processes. Documentation (including Form 8283 and possibly a Section B appraisal) is usually required for nonpublicly traded property over $5,000 (IRS Form 8283 instructions; Publication 561 — Determining the Value of Donated Property).

  • Stock options and restricted equity: Options and restricted stock have plan-specific transferability and vesting rules. Many option agreements prohibit assignment; others allow transfer only to family or with company/plan approval. Because of these restrictions, direct donation of options is frequently not possible. Common alternatives are exercising and donating the resulting shares, exercising and selling to donate the proceeds, or transferring vested shares (if permitted).

  • Incentive Stock Options (ISOs): Exercising ISOs can trigger Alternative Minimum Tax (AMT) consequences. Donating an ISO itself is uncommon; donating the underlying shares after exercise is the typical route, but it requires timing coordination with tax advisors.

  • Nonqualified Stock Options (NSOs): Exercise generally creates ordinary income; donate the shares after exercise or sell and donate proceeds if immediate liquidity or tax treatment is preferable.

(See the SEC overview of stock options for basic mechanics and constraints: https://www.sec.gov/investor/alerts/stocksoptions.htm)

Tax rules and limits to keep top of mind

  • Long-term appreciated securities: If you’ve held the security for more than one year, you generally may claim a deduction equal to its fair market value, subject to charitable deduction AGI limits (typically up to 30% of adjusted gross income for gifts of appreciated securities to public charities; cash gifts carry higher limits—see IRS Publication 526).

  • Short-term holdings: If you’ve held the property for one year or less, the deduction is generally limited to your cost basis (the lesser of basis or FMV).

  • AGI limits and carryforwards: If your gift exceeds annual deduction limits, you may carry forward the excess for up to five years (IRS Publication 526).

  • Valuation and appraisal: Nonpublicly traded securities and many business interests usually require a qualified appraisal when the claimed deduction is greater than $5,000. The appraisal must meet IRS standards and be attached to Form 8283 (see Form 8283 instructions; Publication 561).

  • Form 8283: Noncash gifts over $500 require completion of Form 8283; gifts over $5,000 generally trigger Section B (appraiser) requirements and charity acknowledgment.

Practical steps to execute a gift of equity or options

  1. Confirm transferability and plan rules. Review stock option agreements, shareholder agreements, and your company’s bylaws. If the option or shares are nontransferable, plan alternatives (exercise & donate; donate proceeds).
  2. Choose the vehicle: direct gift to charity, donor-advised fund (DAF), charitable remainder trust (CRT), or private foundation. DAFs are a common intermediary: they accept donated securities and can sell them immediately without the donor recognizing capital gain, then recommend grants to charities.
  3. Order valuation/appraisal if needed. For privately held or complex property, hire a qualified appraiser early—particularly for gifts expected to exceed $5,000.
  4. Coordinate timing with tax year and AGI: Donations must be completed (transferred to the charity) by December 31 to count for that tax year.
  5. Execute the transfer through your brokerage or legal counsel. For publicly traded securities, transfers are usually electronic; for private stock, work with counsel to transfer certificates or update ownership records.
  6. Get charity acknowledgment and complete Form 8283 when required. Keep appraisal reports, transfer confirmations, and written acknowledgments for your tax records.

Examples (illustrative)

  • Example A — Appreciated public stock: You own 10,000 shares of a public company purchased years ago with a current fair market value of $500,000 and a cost basis of $80,000. Donate the shares directly to a public charity or DAF. You claim a $500,000 charitable deduction (subject to AGI limits) and avoid paying capital gains tax on the $420,000 appreciation.

  • Example B — Stock options: You hold NSOs with $50,000 of intrinsic value but the options are nontransferable. Options can be exercised (creating income) and you can donate the resulting shares to charity. Depending on the option type and timing, you may want to exercise and immediately transfer shares to a DAF or charity to limit transaction costs and achieve the charitable deduction.

Common pitfalls and how to avoid them

  • Assuming all options can be donated: Many option plans prohibit transfer. Always read the agreement and check with plan administrators.
  • Under‑valuing private company stock: Improper valuations can trigger IRS audits and disallowances. Use a qualified appraiser and retain documentation (Publication 561).
  • Forgetting appraisal and Form 8283: Failing to file the right forms or get a qualified appraisal can jeopardize a deduction for nonpublic gifts.
  • Donating restricted or illiquid shares without a buyer: Some charities won’t accept closely held stock; confirm acceptance and sale plans before making the gift.

Strategic vehicles to consider

  • Donor-Advised Funds (DAFs): Accept public and many private securities, liquidate holdings inside the fund (without triggering capital gains for the donor), and let donors recommend grants over time. DAFs are treated as public charities for deduction limit purposes (check current IRS guidance in Pub. 526).

  • Charitable Remainder Trusts (CRTs): Fund a CRT with appreciated stock to receive income for life or a term, then leave the remainder to charity. CRTs can spread taxes and provide income planning benefits.

  • Private foundations: Can accept complex gifts, but deduction limits and control/tax rules differ from public charities and DAFs.

For related guidance on business interest gifts and special processes, see our internal overview: Charitable Gifts of Business Interests: Process and Pitfalls (https://finhelp.io/glossary/charitable-gifts-of-business-interests-process-and-pitfalls/). If you’re advising startups or gifting IP alongside equity, this page may be helpful: Charitable Giving for Startups: Donating Equity and IP (https://finhelp.io/glossary/charitable-giving-for-startups-donating-equity-and-ip/). For help matching gifts to business operations, see Charitable Strategies for Business Owners: Gifts that Align with Operations (https://finhelp.io/glossary/charitable-strategies-for-business-owners-gifts-that-align-with-operations/).

Quick checklist before you donate

  • Confirm plan/stock transferability and any shareholder restrictions.
  • Determine whether the charity accepts the type of asset.
  • Obtain a qualified appraisal for nonpublic stock when necessary.
  • Coordinate the transfer with your CPA and legal counsel and file Form 8283 if required.
  • Verify AGI deduction limits and plan for carryforwards if applicable.
  • Secure a contemporaneous written acknowledgment from the charity.

Frequently asked questions

Q: Can a charity always accept donated private-company stock?
A: No. Many charities avoid illiquid or restricted stock because converting it to cash can be costly or take years. Confirm acceptance and resale plan before making the gift.

Q: Are stock options usually transferable to charities?
A: Rarely. Most option plans restrict transfers. If the option is transferable, the plan documents will specify permitted transferees and any approvals required. Often the practical alternatives are to exercise and donate shares or donate the proceeds of a sale.

Q: How is the value determined for a private-company share?
A: The value must reflect the fair market value on the donation date and, for large nonpublic donations, a qualified appraisal is usually required (IRS Publication 561).

Final professional tips

  • Start early: Plan gifts months in advance when private company stock or options are involved.
  • Use intermediaries: DAFs and CRTs simplify transfers and give you time to design grant strategies.
  • Coordinate tax and estate planning: Equity gifts can serve both philanthropic and succession-planning goals. In my practice, aligning a gift plan with an estate plan and tax projection typically yields the best outcomes.

Disclaimer

This article is educational and does not constitute legal, tax, or financial advice. Rules for charitable contributions, stock options, and business interests are complex and fact-specific. Consult a qualified CPA, tax attorney, or financial advisor before making major gifts.

Sources and further reading

(Updated guidance verified through IRS publications and SEC resources as of 2025.)