Turning Executive Compensation into Charitable Gifts

Executive pay, such as stock options, RSAs and RSUs, aren’t typically transferrable to a nonprofit, but they can be used for charitable giving after exercise or vesting your shares of stock.

When donating executive compensation, it is usually best to wait at least a year after exercise or vesting so that you can receive a fair market value (FMV) deduction for the gift and avoid capital gain on the donated shares.

See our quick reference guide on giving executive compensation below.

Stock Options

Stock options allow you to purchase company stock directly from your employer at a discounted price. That purchase of shares is called an exercise. Once options have vested, they can be exercised any time before their expiration date.

When you exercise stock options, you recognize ordinary income tax on the difference between the discounted option price and the value of the stock on the day of the exercise. That difference is called the spread.

If you sell the stock immediately, there is little to no capital gains tax to be recognized, because your basis is equal to or very close to the sale price. You will, however, have to recognize ordinary income tax on the spread. A charitable gift of some of the sales proceeds could help to off-set that additional tax.

Restricted Stock Units (RSUs)

Restricted stock units (RSUs) allow you to receive a specific number of shares of company stock from your employer at a future date and sometimes after certain metrics have been met. At the time of vesting, you can recognize ordinary income tax on the stock's value.

If you choose to sell the stock immediately upon vesting, there is little to no capital gains tax to be recognized because the basis is equal to or very close to the sale price. You will, however, still be able to recognize ordinary income tax on the value of the stock you received. A charitable gift of some of the sales proceeds in the year of vesting could minimize that extra income tax.

Restricted Stock Awards (RSAs)

Restricted stock awards (RSAs) allow you to purchase shares of company stock directly from the employer on a specific date for fair market value, at a discount, or at no cost.

At the time of acquisition, you can recognize ordinary income tax on the difference between the purchase price and the fair market value (unless a Section 83(b) election was made). If you choose to sell the stock immediately, a charitable gift of some of the sales proceeds could minimize that extra tax.