Read the latest article on giving your ESPP shares to charity.
If you have been following the series on Employee Stock Purchase Plans, you’ll likely have read You have an ESPP now what, then learn to configure your account for selling ESPP shares, then read up on what to do with all those dividends and option premiums in your ESPP account, then reporting ESPP taxes. After the ESPP tax article came out, I had a few questions around gifting ESPP and charitable giving ESPP shares. These are good questions and I promised to answer it in a post.
If you have ESPP shares and would like to gift those shares to a friend or family member, standard gift taxes apply and form 709 should be used. This means that if your basis in the shares was greater than $13k, the gift would be reportable due to the gift tax and would reduce your lifetime $1m gift exclusion before gift taxes are due. Once you understand this component, the treatment of the transfer is next. The basis and holding periods would transfer to the recipient and they would need to deal with the taxes in the same way that you would’ve had to deal with them (as outlined in reporting ESPP taxes).
If you are participating in an ESPP and are interested in donating your shares to charity – good for you! Nothing better than to take advantage of the discount on the shares your employer is offering and being charitable at the same time. You are also in luck that the basis is transferred and you do not need to pay a gift tax.
The first thing to understand is that when you donate shares to charity, they are excluded from the standard gift taxes (the same is true of gifting to political organizations, educational institutions, or medical institutions).
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If I gift my ESPP stock to a charity, do I pay tax on the ordinary income from the original purchase?
The basis is transferred so there aren’t taxes that you are responsible for. So if you purchased them at a 10% discount to fair value, the charity you are gifting to receives them at a 10% discount to fair value.
Josh, giving to charity, stock and otherwise, doesn’t result in gift tax and is not reportable on form 709. See 709 instructions.
Also note that the you may owe income tax when you dispose of espp shares through a charitable gift. This is a disposition, and any income tax owed on the disposition is owed. Any LTCG is avoided
Transferring ESPP shares to charity avoids tax on the gains. However, ordinary income tax is due on the ESPP purchase price discount. [1] says, “Gifting ESPP stock does not let you escape the ordinary income tax that is based on the discount spread at the start of the offering.”
[1] https://communications.fidelity.com/sps/fidelityinvestor/2014/OCT/BB/article3.html