Mini Case Study: Using RSUs for Charitable Giving
This week, we helped one of our equity-compensated employees in San Ramon, CA, reduce his tax bill.
Here’s what that looked like:
Matt is married and an employee at a successful biotech company, for which he has received and continues to receive compensation in the form of RSUs and NSOs.
Matt, like many others, is aware that being a high-income earner residing in California is not very fun when it comes to taxes.
Matt is also charitable and has regularly written checks to his charities of choice over the years. Some years, this has pushed him above the standard deduction, allowing him to itemize his deductions (mortgage interest, state and local taxes, charitable giving), and other years, he ended up taking the standard deduction regardless of his charitable giving.
With the recent increase in the SALT cap, itemizing his deductions is now the “norm”. But there was a wrinkle in the new tax law: a 0.5% floor on charitable deductions. For a high earner, this means that thousands of dollars of charitable giving can now be “irrelevant” for tax purposes until they start counting towards itemized deductions.
Instead of Matt's normal charitable giving, which is writing checks for about $5,000-$10,000 a year, he will donate some of his legacy RSUs into a donor-advised fund. Front-loading his charitable deductions allows him to get more tax benefit while avoiding capital gains taxes.
By donating $25,000 worth of stock, he avoids paying capital gains taxes on ~$15,000 worth of gains (his cost basis is ~$10,000). He is also able to deduct the full $25,000 (above his 0.5% income floor), providing him with a double benefit.
The best part is he will continue giving to the charities of his choice and can spread out the donations as he normally would. The only difference is that now, the checks will be written from his Donor-Advised Fund rather than his personal checking account.
Send me an email (dustin@swrpteam.com) or book a time on my calendar (https://calendly.com/dustin-swrp/60min) if you’re dealing with a similar situation and need a trusted Advisor that can help.
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