Man looking at computer screen on desk as he donates restricted stock to charity

Donating restricted and control stock to charity

How donating your restricted and control stock can mean a greater gift to charity.

Instead of selling restricted or control stock¹ and donating the proceeds, it can be more efficient to donate the stock directly to charity²and you may potentially increase your tax efficiency and the size of your charitable gift.

Potentially eliminate capital gains taxes and the Medicare surtax, which combined could be up to 23.8% on the contributed shares.³

Take an income tax deduction for the fair market value of the stock (assuming it is appreciated and has been held for more than one year).⁴

Maximize support to your favorite charities.

*For contributions of complex or non-publicly traded assets, generally fair market value is determined by a qualified appraiser, in compliance with the IRS.

¹This article addresses contributions of shares in a reporting issue whose shares are traded on an exchange.

²This assumes the stock has been vested, fully paid for, and held for more than one year.

³This assumes all realized gains are subject to the maximum federal long-term capital gains tax rate of 20% and the Medicare surtax of 3.8%, and that the donor originally planned to sell the stock and contribute the net proceeds (less the capital gains tax and Medicare surtax) to charity.

⁴This assumes the donor is itemizing. Thirty percent AGI limit. Other limitations on itemized deductions may apply.

Potential tax benefits of donating private equity interests

When you contribute restricted or control stock to Fidelity Charitable as opposed to selling the stock and donating the cash proceeds, your tax deduction and your charitable gift may increase by up to 23.8%. This win-win could mean more money for the causes you care about. Consider this potential savings example:

Original cost basis of stock: $0

Federal long-term capital gains rate: 23.8%

Value of stock: $40,000⁵

Selling your restricted/control stock and donating the after-tax proceeds Donating your restricted/control stock to Fidelity Charitable

Capital gains and Medicare surtax paid on $40,000 (23.8%)

-$9,520

Total contribution to charity
(after deducting federal taxes)

$30,480

$40,000

Additional amount dedicated to charity

+$9,520

⁵Amount of the proposed donation is the fair market value of the restricted stock held more than one year that you are considering donating.

Use this calculator when considering donating your restricted/control stock, or consult a professional advisor.

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CASE STUDY

Luke has a concentrated and restricted position in company stock and is concerned about protection against tax exposure in his portfolio. He wants to donate his stock to charity. Clean water for all is a cause he wants to support but the charities he knows don’t have the resources or experience to accept or efficiently liquidate restricted stock.

Man opening a Giving Account on his laptop and contributing long-term appreciated restricted stock

After speaking with his financial advisor, Luke chooses to establish a Giving Account at Fidelity Charitable. He contributes his long-term appreciated restricted stock, and Fidelity Charitable works with the company’s transfer agent, as well as its general counsel or compliance officer, to remove the restrictive legend. Fidelity Charitable then sells the stock, and the Giving Account is funded with the proceeds. Luke is generally entitled to a tax deduction in an amount equal to the fair market value of the stock on the date of the contribution. *

By contributing the stock to Fidelity Charitable rather than selling it and then donating the after-tax proceeds, Luke eliminates capital gains taxes on the sale of the stock. Plus, due to the flexibility of a donor-advised fund, the proceeds from the sale of restricted stock can be used to support multiple charities, all at once or over time. Now Luke can recommend grants to fund clean water programs at qualified charities, recommend investments for the remainder of the funds in his Giving Account for potential tax-free growth, and research more charities to support over time.

*Please note that donors should work with their tax advisors, as a qualified appraisal may be required to substantiate the fair market value of the gift.