You're about to experience a major financial milestone—an IPO, acquisition, or tender offer. And you're thinking about giving back.
Maybe you've always supported certain causes. Maybe you want to establish a family giving legacy. Or maybe you just want to do something meaningful with this windfall beyond paying taxes and buying things.
Here's what most people don't know: the timing of your charitable giving can make a meaningful difference in both how much you can give and how much you keep.
Give before you sell, and you can potentially reduce or eliminate capital gains taxes, depending on your specific tax situation, while maximizing your charitable deduction. Wait until after the sale, and you've likely missed the window for the most tax-efficient strategies.
In our diversification post, we talked about selling stock strategically to reduce concentration risk. Now we're covering how charitable giving—done right—can amplify your impact while reducing your tax bill.
The Golden Rule: Give Before the Sale
This is the single most important thing to understand about charitable giving during a liquidity event:
Once you sell the stock, the opportunity for maximum tax efficiency may be significantly reduced. When you donate appreciated stock held in excess of one year before selling it, you can:
- Potentially avoid paying capital gains taxes on the donated shares
- Receive a charitable deduction for the full fair market value (subject to AGI limits)
- Give more to the causes you care about—at a lower personal cost
When you sell first and donate cash later, you've already triggered the capital gains tax. You can still get a deduction for the cash donation, but you've severely limited the ability to avoid the gains tax entirely.
The difference can be substantial in some cases—potentially tens or hundreds of thousands of dollars depending on the size of your gift and your tax situation.
Why Timing Matters: Donate Before You Sell
Let's say you hold stock that's about to become liquid through an IPO or has recently gone public. The current fair market value is significantly higher than what you paid (or your strike price if you exercised options).
Once your stock is publicly traded, donating becomes straightforward—clear valuation, easy transfer, any charity will accept it.
But here's the critical timing decision: you need to donate the shares before you sell them.
If you're charitably inclined, donating shares while you still own them allows you to:
Lock in the tax benefit now Even if you're not ready to decide exactly which charities to support, you can donate long term held publicly traded stock to a Donor-Advised Fund (DAF) and take the deduction immediately. The key is donating the actual shares rather than selling first and donating cash. More on DAFs below.
Offset high-income year Liquidity events often create your highest-income year ever. Charitable deductions can help offset some of that tax burden.
Avoid state taxes too In high-tax states, avoiding capital gains may mean avoiding both federal and state taxes on the appreciation.
What Is a Donor-Advised Fund (DAF)?
A Donor-Advised Fund is a practical tool for charitable giving during a liquidity event.
Here's how it works:
- You donate long term held appreciated stock to the DAF before selling it
- You receive an immediate tax deduction for the fair market value (subject to AGI limits)
- The DAF sells the stock tax-free (since it's a charitable entity)
- You recommend grants to charities over time on your own schedule
The key advantage: you get the tax benefit now, but you don't have to rush to decide which charities to support. You can take years to make those decisions.
This is especially valuable during a liquidity event when you're dealing with multiple competing priorities and don't have time to research and vet charities.
DAF Benefits
Immediate deduction in a high-income year Take the deduction when it's worth the most to you—during the year of your liquidity event.
No pressure to choose charities immediately You can think strategically about your giving over time rather than making rushed decisions.
Easy to set up and manage Major providers like Fidelity Charitable, Schwab Charitable, Vanguard Charitable and local community foundations make this simple.
Family involvement Many families use DAFs to involve children in philanthropy, teaching values while making real-world giving decisions together.
Flexibility for future giving You can grant to multiple charities over many years, adjusting as your priorities evolve.
What Types of Equity Can You Donate?
Not all equity is equally easy to give. Here's what you need to know:
✅ Publicly-traded stock (post-IPO) Easy to donate, straightforward to value, immediate deduction based on market price. This is the simplest scenario.
⚠️ Private company stock (pre-IPO) Possible, but more complex. You'll need:
- Company approval (many private companies restrict transfers)
- A qualified appraisal to establish fair market value
- A charity willing to accept illiquid shares (many won't)
- Time to execute before the liquidity event
If you're considering donating pre-IPO shares, start the conversation with your company's legal team and your advisors well in advance.
❌ RSUs (Restricted Stock Units) RSUs cannot be donated until they vest and convert to actual shares. Once they vest, they're immediately taxed as ordinary income. After that, you can donate the shares—but you've already paid the income tax at vesting.
⚠️ ISOs (Incentive Stock Options) Long term held ISOs may be able to be donated after you exercise them and they become actual shares. But remember: exercising ISOs triggers Alternative Minimum Tax. The charitable deduction may help offset some of that, but the mechanics are complex and require careful planning.
⚠️ NSOs (Non-Qualified Stock Options) Like ISOs, NSOs can only be donated after exercise. And exercising NSOs triggers ordinary income tax immediately. You'll get a charitable deduction for the donation, but you've already paid tax on the exercise spread.
As we discussed in the Pre-IPO Planning Checklist, understanding which equity you can actually donate—and when—is critical to executing these strategies effectively.
When Charitable Giving Makes the Most Sense
Charitable giving strategies work particularly well when:
You're having a high-income year Liquidity events often spike your income dramatically. Charitable deductions can help manage that tax burden.
You're already charitably inclined If you give regularly, doing it strategically during a liquidity event lets you give more efficiently.
You want to involve family in giving A DAF can become a platform for teaching children about values and making real-world decisions together.
You want to give now but distribute over time A DAF allows you to "front-load" your giving in a high-income year but spread the actual grants across many years.
You're looking for flexibility Maybe you know you want to give, but you're not sure which organizations. A DAF gives you time to figure that out.
Beyond DAFs: Charitable Remainder Trusts (CRTs)
For larger, more complex situations, a Charitable Remainder Trust can offer additional benefits—but it's not for everyone.
How a CRT Works
- You contribute long term held appreciated stock to the trust before selling
- The trust sells the stock deferring most capital gains (the taxation depends on the trust structure)
- You receive income from the trust for life or a set term (the income is taxable as you receive it, typically as ordinary income or capital gains depending on the trust's earnings)
- You receive a partial charitable deduction upfront based on the calculated remainder value that will eventually go to charity
- After the trust term ends, the remaining assets go to charity (or to a DAF you control, giving you flexibility in directing grants)
When a CRT Makes Sense
You want income, not just a lump sum A CRT can provide a steady income stream for years or even life, while still supporting charitable goals.
You have highly appreciated long term held assets The larger the unrealized gain, the more valuable the capital gains deferral becomes.
You're comfortable with complexity CRTs require legal setup, ongoing administration, and coordination between your advisor, CPA, and attorney.
You want to blend tax planning, income, and philanthropy A CRT allows you to defer capital gains, generate income, support charity, and potentially take an immediate deduction—all in one structure.
One effective strategy: name your DAF as the remainder beneficiary of the CRT. This gives you maximum flexibility in directing grants after the trust term ends, rather than having to choose specific charities now.
Gifting Stock to Family vs. Charity
Some people confuse gifting to family members with charitable giving. They're different strategies with different tax implications.
Gifting to family:
- No charitable deduction
- May reduce your estate if you're planning for estate tax purposes
- Transfers future appreciation out of your estate
- Subject to gift tax rules (annual exclusion and lifetime exemption)
Donating to charity:
- Charitable deduction (potentially lowering your current tax bill)
- Avoids capital gains tax on appreciated stock
- No gift tax implications
- Asset goes to charity, not family
We'll cover family gifting and estate strategies in detail in our next post. For now, just know that they serve different purposes—both can be valuable, but they're not interchangeable.
How to Execute This Strategy
If you're approaching a liquidity event and want to incorporate charitable giving, here's your action plan:
☐ Decide if charitable giving aligns with your goals Give because you care about the cause—the tax benefit is a bonus.
☐ Determine how much you want to give Consider your overall financial plan, your liquidity needs, and your charitable priorities.
☐ Choose your giving vehicle For most people, a DAF is the simplest and most flexible option for deferred giving. For larger situations, explore a CRT with your advisors.
☐ Verify you can donate your shares If you're donating private company stock, confirm with your company's legal team that transfers are allowed and confirm the charity is willing to receive it. If you're donating post-IPO stock, this is usually straightforward.
☐ Get an appraisal if required Private company stock requires a qualified appraisal to establish fair market value for tax purposes.
☐ Execute before the sale This is critical. Once the stock is sold, you've lost the capital gains avoidance benefit.
☐ Document everything Keep records of the donation, the fair market value at the time of the gift, and your tax deduction.
☐ Coordinate with your CPA Make sure your CPA is modeling the deduction limits (AGI-based) and carrying forward any excess unused deductions.
How We Help
This is where integrated planning makes all the difference.
At Brickley Wealth Management, we help clients coordinate charitable giving strategies alongside their broader financial and tax plan:
- Model the tax impact of different giving scenarios before you execute
- Coordinate timing to maximize deductions in high-income years
- Work with your estate attorney to set up structures like CRTs if appropriate
- Help reduce the risk of oversights by integrating charitable planning with your investment and tax strategy
Whether you're giving $50,000 or $5 million, the principles are the same: plan early, give strategically, and make sure your generosity improves both impact and tax efficiency.
Ready to explore charitable giving strategies? We help clients integrate philanthropy with tax planning and investment strategy to maximize impact and efficiency.
Next in this series: Estate Planning and Gifting Strategies During a Liquidity Event—because giving to family has different rules, different benefits, and different timing considerations.