I often see advice like this for tax advantages of charitable donation of shares:

If the donated shares were acquired from incentive stock options (ISOs) or an employee stock purchase plan (ESPP), be sure you donate the shares after you have met the related special holding periods for ISO and ESPP stock (more than two years from grant and one year from exercise/purchase). (from Forbes)

In fact, my Etrade account won't even let me do a charitable donation of short-term ESPP shares.

However, if I just go buy stock and let it appreciate and then donate it while it's still short-term, all of the gain is tax deductible so the holding period is totally irrelevant, right? It doesn't matter whether I avoided a 30% tax rate or a 20% tax rate, for example.

So is the situation really different for ESPP, and if so, why?


1 Answer 1


So is the situation really different for ESPP, and if so, why?

If you haven't held through the required period for it to count cap gains, you're donating your salary and the rules are different. For example, you'd still be liable for taxes on gains. Only after the required holding period has passed, it becomes pure capital gain.

  • But how is that different between ESPP shares and any other appreciated shares that I donate? That's the essence of the question. Jan 26 at 4:05
  • @AllTheRage ESPP shares have a compensation component, that's exactly the difference
    – littleadv
    Jan 26 at 4:13
  • @AllTheRage the deduction for short-term stock is limited to basis, while long-term gains stock can use the FMV instead. For ISOs and ESPP shares in particular, there's a compensation component that requires a different holding period (2 years from grant AND 1 year holding period) to become a "qualified disposition".
    – Stan H
    Jan 26 at 5:39

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .