Overview

Donating closely-held stock (shares in a private company, S‑corp, LLC, or other non-public entity) is a powerful philanthropic strategy for business owners and investors who want to support charities while managing tax exposure. Unlike selling the stock first and donating cash, a direct donation can let the charity receive the full market value of the asset and let the donor potentially deduct the gift’s fair market value (FMV) without recognizing capital gains—subject to IRS rules and practical complications.

This article explains practical steps, tax rules current as of 2025, common pitfalls, and professional strategies you can use to maximize impact and limit risk. It’s educational information and not individualized tax or legal advice—consult a CPA and an attorney before making a gift.

(Author note: In my practice working with closely-held business owners, the most common success factors are early planning, a qualified appraisal, and clear communications with the charity about liquidity and sale timing.)

Why donate closely‑held stock instead of selling first?

  • Tax efficiency: If the stock is long‑term appreciated property (held >12 months) and you give it directly to a qualified public charity, you may be able to deduct its FMV while avoiding capital gains tax that would arise on a sale (IRS, Charitable Contributions: https://www.irs.gov/charities-non-profits/charitable-contributions).
  • Bigger gift to charity: The charity receives the full value and can liquidate the asset to fund programs.
  • Estate and legacy planning: Gifts of business interests can advance philanthropic and succession goals concurrently.

Key IRS rules you need to know (short summary)

  • Long‑term holding requirement: To claim FMV deduction for appreciated property, you generally must have held the asset for more than one year so it qualifies as long‑term capital gain property (IRS guidance, see Publication 561 and Charity pages).
  • Deduction limits: Deductions for appreciated long‑term capital gain property given to a public charity are generally limited to 30% of your adjusted gross income (AGI); gifts to private foundations have lower AGI limits (typically 20%)—excess may be carried forward for up to five years (IRS, Charitable Contributions).
  • Appraisal and substantiation: For non‑publicly traded securities with a claimed deduction over $5,000 you must obtain a qualified appraisal and complete Form 8283, Section B; the charity typically must sign the form (see IRS Form 8283 Instructions and Publication 561: https://www.irs.gov/forms-pubs/about-form-8283; https://www.irs.gov/pub/irs-pdf/p561.pdf).
  • Charity rules differ: A public charity normally can accept and sell donated securities without tax, but private foundations face special rules (e.g., excess business holdings, self‑dealing) that make closely‑held stock gifts more complicated (IRS Private Foundations guidance).

Practical step‑by‑step process

  1. Inventory and intent
  • Identify the exact class of shares you plan to donate (common vs. preferred, voting vs. non‑voting, membership or LLC interest).
  • Consider how donating the shares affects ownership control and any shareholder agreements, buy‑sell covenants, or restrictions on transfer.
  1. Check legal/contractual transferability
  • Review corporate documents, shareholder agreements, operating agreements, and any right of first refusal or approval provisions. Many private companies require board or other owners’ approval before a third party (including a charity) may receive shares.
  1. Select the recipient carefully
  • Confirm the organization is an IRS‑qualified 501(c)(3) eligible to receive tax‑deductible gifts.
  • Ask whether the charity accepts private securities, whether it can hold them, and how it plans to monetize the gift. Some charities prefer not to accept illiquid or controlling interests.
  1. Obtain a qualified appraisal (if required)
  • For gifts of non‑publicly traded securities with a deduction > $5,000 you must obtain a qualified appraisal prepared by a qualified appraiser (Publication 561). Appraisal timing rules are strict—engage the appraiser early.
  1. Document the transfer and complete Form 8283
  • Prepare and file Form 8283 (Noncash Charitable Contributions) with your tax return for the year of the gift. Section B (done for property > $5,000) requires donee acknowledgement and appraiser information.
  1. Plan the charity’s exit/liquidity path
  • Work with the charity and your advisors to determine whether the charity will sell immediately, hold the position, or use another vehicle (e.g., convert the gift to a Donor‑Advised Fund). Ensure the charity’s board understands sale risks and any potential conflicts.
  1. Follow up for tax reporting
  • Keep all closing documents, appraisals, letters from the charity stating the gift description and date, and any correspondence about restrictions. Your CPA will need these to substantiate the deduction.

Strategic options to consider

  • Donor‑Advised Fund (DAF): Contributing privately held stock to a DAF sponsored by a community foundation or financial institution gives you an immediate tax deduction (subject to limits) while allowing you to recommend grants over time. Learn more in our guide to donor‑advised funds: Donor‑Advised Funds: How They Work (https://finhelp.io/glossary/donor-advised-funds-how-they-work/).

  • Charitable Remainder Trust (CRT): A CRT can accept closely‑held stock, sell it within the trust (usually at no immediate tax cost to the trust), produce income for you or beneficiaries, and ultimately pass the remainder to charities. Compare CRTs with DAFs here: Charitable Remainder Trusts vs Donor‑Advised Funds: Choosing the Right Vehicle (https://finhelp.io/glossary/charitable-remainder-trusts-vs-donor-advised-funds-choosing-the-right-vehicle/).

  • Partial interests and partnership transfers: Transferring only part of a business interest raises complex valuation and tax questions. Many partnership and LLC rules limit deductions for partially retained interests; treat these with counsel.

Common mistakes and how to avoid them

  • Failing to confirm transferability: If the company’s documents block transfers, the gift may be void or delayed. Always get legal clearance first.
  • Skipping the appraisal: Without a qualified appraisal and properly completed Form 8283 you risk an IRS disallowance for non‑public securities.
  • Giving a controlling block to a charity that is unwilling or unable to manage a business interest: This can create governance and operational problems for both the charity and the business. Consider selling to a DAF or establishing a CRT that can manage sale timing.
  • Overlooking private foundation rules: Gifts to a private foundation can trigger excess business holdings or jeopardize tax status—seek specific foundation counsel.

Example (illustrative)

A business owner holds 10,000 shares valued at $200,000 with an unrealized gain of $40,000. If marketed and sold before donating, the owner would recognize $40,000 in capital gain and pay tax on that gain. If the same owner donates the long‑term shares directly to a qualified public charity and meets appraisal/substantiation rules, they may deduct the $200,000 FMV (subject to AGI limits) and avoid paying capital gains tax on the $40,000—leaving more for the charity and a better net tax result for the donor. (This is an illustrative example; actual tax benefits depend on AGI limits and individual circumstances.)

Documentation checklist

  • Qualified appraisal (if claimed deduction > $5,000) — Publication 561 guidance
  • Form 8283, completed and signed by the charity (and appraiser for Section B)
  • Charity written acknowledgement with gift description and date
  • Copies of governing documents showing transfer permissions or restrictions
  • Correspondence showing charity’s plan for monetizing or holding the gift

When to involve which professionals

  • CPA or tax advisor: Deduction limits, carryforwards, reporting.
  • M&A or corporate attorney: Transferability, shareholder agreements, control effects.
  • Qualified business appraiser: Fair market value of non‑public securities.
  • Charity development officer or CFO: Acceptance policy and liquidity plan.

Additional resources

Bottom line

Donating closely‑held stock can be tax‑efficient and highly impactful for charities, but it requires careful planning—especially around valuation, transferability, and the recipient organization’s ability to accept and monetize private securities. Start the conversation early, document everything, and work with a qualified team (tax, legal, appraisal, and the charity) to protect both your tax position and the charity’s mission.

Professional disclaimer: This content is educational and not individualized tax or legal advice. Consult a qualified tax professional and attorney to apply these concepts to your situation.