Tech Employee Saves $47K Donating Appreciated RSUs to Donor-Advised Fund

The Problem

This client was a senior engineering director at a publicly traded technology company earning $400,000 in base salary and bonus plus $200,000 in RSU (Restricted Stock Unit) vesting income. The RSUs vested quarterly and were immediately sold through the company's brokerage platform, triggering ordinary income tax on the full vesting value. Beyond the vesting events, the client held $180,000 in previously vested shares that had appreciated from a cost basis of $95,000 to the current $180,000 market value, representing $85,000 in unrealized long-term capital gains.

The client and spouse were charitably inclined, donating approximately $35,000 per year in cash to various nonprofits. However, donating cash meant the client was writing checks from after-tax dollars while simultaneously holding appreciated stock that would eventually trigger capital gains tax when sold. The prior CPA had never suggested donating appreciated stock instead of cash, nor had they discussed donor-advised funds (DAFs) as a vehicle for concentrating charitable deductions into a single year to exceed the standard deduction threshold and maximize the tax benefit of giving.

AE Tax Strategy

1. Appreciated RSU Donation to DAF Under IRC §170(b)(1)(C)

We advised the client to donate the $180,000 in appreciated RSU shares (held more than one year) directly to a donor-advised fund at a major brokerage. Under IRC §170(e)(1), donating long-term appreciated stock to a public charity (or DAF) allows the donor to deduct the full fair market value of the shares without recognizing the $85,000 in capital gains. The donation avoided $85,000 x 23.8% (20% federal long-term capital gains + 3.8% NIIT) = $20,230 in federal capital gains tax plus $85,000 x 13.3% = $11,305 in California capital gains tax. Total capital gains tax avoided: $31,535.

2. Charitable Deduction Bunching Strategy Under IRC §170

By concentrating $180,000 in charitable contributions into a single tax year (instead of the usual $35,000/year spread), the client's itemized deductions exceeded the standard deduction by a much larger margin. We structured the strategy as a two-year cycle: Year 1 donated $180,000 to the DAF (providing funds for approximately 5 years of the client's charitable giving), and Year 2 took the standard deduction. The incremental charitable deduction benefit (above what would have been deducted with annual $35,000 gifts over 5 years) was approximately $15,465, producing additional tax savings of approximately $7,000 at the combined federal and state marginal rate.

3. DAF Grant Strategy and Post-Donation Planning

The donor-advised fund allowed the client to recommend grants to qualifying charities over the next 3-5 years, maintaining the same charitable giving pattern without needing to itemize in future years. We also implemented a go-forward strategy for future RSU vesting events: instead of automatic sell-to-cover, the client would hold shares for at least one year to establish long-term capital gains treatment, then donate appreciated shares to the DAF annually. The ongoing strategy was projected to save approximately $8,400 per year in combined capital gains avoidance and incremental charitable deduction benefits.

Before & After Comparison

Tax Category	Before	After	Savings
Federal Capital Gains Tax Avoided	$20,230	$0	$20,230
California Capital Gains Tax Avoided	$11,305	$0	$11,305
Net Investment Income Tax Avoided	$3,230	$0	$3,230
Incremental Charitable Deduction	$0	$15,465	$7,000
California Charitable Benefit	$0	$0	$5,235
Total	$47,000	$0	$47,000

Key Takeaways

• Donating long-term appreciated stock to a DAF eliminates capital gains tax AND provides a full fair-market-value charitable deduction — a double tax benefit.
• Charitable deduction bunching through a DAF is particularly powerful in California, where the 13.3% state tax rate amplifies the federal benefit.
• The 30% AGI limitation on appreciated property donations under IRC §170(b)(1)(C) means high-value donations may need to be spread across multiple years or supplemented with cash donations (subject to the 60% AGI limit).
• RSU holders should evaluate donation timing carefully — shares must be held for more than one year from the vesting date to qualify for long-term capital gains treatment and full FMV deduction.