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Learn how stock options, executive pay and other compensation could be part of your giving plan.

By Jeremy Wells, Senior Vice President of Philanthropic Services

Did you know your executive pay could be part of your charitable giving strategy? If you are an executive or serve in a top management position, your compensation can be used to support your charitable giving.

Executive compensation typically refers to financial and non-financial benefits you receive in exchange for your work. Beyond your salary and bonuses, you may receive stock options, restricted stock units (RSUs) or Restricted Stock Awards (RSAs).

Even though these types of executive compensation can rarely be given directly to nonprofits, they still offer an excellent opportunity to achieve charitable giving goals. If you consider pairing your executive compensation with a donor advised fund, it can increase your giving potential and minimize income taxation.

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.

Executive Compensation Quick Reference Guide

Compensation Type

Tax Details

Charitable Deduction

Stock received after exercise of options

Ordinary Income Tax on FMV minus purchase price

FMV if held > 1 year

Stock received after RSUs vested

Ordinary Income Tax on value of stock on vest date

FMV if held > 1 year

Stock received after RSAs acquired

Ordinary Income Tax on FMV minus purchase price

FMV if held > 1 year

Pair Your Executive Pay with a Donor Advised Fund

After selling company stock, you may want to set aside some of the sale proceeds for future giving — perhaps in the years following retirement when income isn’t as high. A contribution of cash to your donor advised fund allows you to receive a charitable deduction when it is most tax-advantageous and keep those dollars set aside for future giving.

If you want to support your favorite causes with a gift of company stock, check to see if those nonprofit organizations accept both publicly traded and privately held stock. If not, or if it would be an additional burden to those nonprofits to process these sorts of gifts, a donor advised fund can accept both and liquidate tax-free, making the proceeds available to grant to your favorite nonprofits now or in the future. One gift of stock can be used to support multiple organizations easily and efficiently.

Furthermore, if you expect to exercise more stock options or receive more stock from RSUs or RSAs in the future, your donor advised fund will be there to accept more gifts of stock and/or cash at any time.

As always, our team of experienced gift planners are available to work with you to craft a gift. To contact a gift planner, call 651.244.5463 or email us at philanthropy@spmcf.org.

The Saint Paul & Minnesota Foundation does not provide tax, legal or accounting advice. Please consult your own tax, legal and accounting advisors regarding your individual situation before engaging in any transaction.

Jeremy R. Wells serves as senior vice president of Philanthropic Services at the Saint Paul & Minnesota Foundation, Minnesota’s largest community foundation. In this role, Jeremy serves as the chief fundraising and donor stewardship strategist. Jeremy has spent his entire career working in philanthropy. He holds both a master’s degree in philanthropy & development and his CFRE certification. Jeremy is an adjunct faculty member at the University of St. Thomas and is a frequently requested speaker and author on a variety of philanthropic topics, including development planning, utilizing volunteers, donor engagement, stewardship, ethics and charitable gift planning.

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