The Tax-Smart Way to Diversify Concentrated Stock: Give the Shares, Not the Cash

If you've worked at Google, Meta, SpaceX, or another successful company for several years, your equity may have turned into something you never intended: a large, concentrated position in a single stock, and a potentially significant future tax bill.

Most employees know they should diversify to reduce risk. The challenge is that selling their oldest shares often triggers substantial capital gains taxes because those shares have appreciated dramatically over time.

If you're already planning to make charitable donations, there's a smarter approach.

Instead of selling your most appreciated shares and donating the cash, consider donating the shares directly to a qualified charity or a donor-advised fund (DAF). This simple change can make your charitable dollars go further while significantly improving your tax outcome.

Donating appreciated shares can accomplish three goals at once:

• Reduce your concentrated company stock position.
• Eliminate capital gains tax on your most highly appreciated shares.
• Generate a charitable deduction in the year it's likely to be worth the most.

The Problem with Selling Shares and Donating Cash

Suppose you want to donate $20,000 to charity this year and plan to fund that gift by selling some Google stock.

If you sell the shares first, you'll likely owe federal long-term capital gains tax (up to 20%), the 3.8% Net Investment Income Tax, and if you live in California state income tax of up to 13.3% on the appreciation. Depending on your income, more than one-third of the gain could disappear to taxes before your charitable gift is ever made.

Instead, donate the shares directly to a qualified charity or donor-advised fund.

If you've held the shares for more than one year, you generally receive a charitable deduction equal to the fair market value of the stock. Because qualified charities and donor-advised funds are tax-exempt organizations, they can sell the donated shares without recognizing capital gains tax. As a result, neither you nor the charity pays tax on the appreciation embedded in the donated shares.

Which Shares Should You Donate?

Not all shares are created equal.

The best shares to donate are typically your lowest-cost-basis, most highly appreciated shares.

Your charitable deduction is based on the current fair market value, not your original purchase price. By donating your oldest shares, you not only receive the same deduction as you would for newer shares, but you also permanently eliminate the largest embedded capital gains.

A share that vested last year may have relatively little appreciation. A share that vested ten years ago may have appreciated several hundred percent.

Diversification strategy tip

When reducing a concentrated stock position:

• Sell your higher-basis, long-term shares to minimize the taxable gain on the shares you sell.
• Donate your lowest-basis shares to permanently eliminate the largest embedded gains.

Coordinating these two decisions often produces a significantly better after-tax outcome than simply selling whichever shares happen to come first.

A Simple Example

Suppose you're diversifying a concentrated Google position this year. You're considering donating 250 shares from your earliest vests, with a cost basis of $100 per share and a current fair market value of $300 per share.

Bottom line: By donating the shares directly instead of selling them first, the charity receives approximately $18,500 more, and your charitable deduction is approximately $6,250 larger.

Why Use a Donor-Advised Fund?

Donating directly to a charity works well if you already know exactly where you'd like your gift to go.

A donor-advised fund provides additional flexibility.

A DAF allows you to contribute appreciated stock today, receive the tax deduction this year, and recommend grants to charities over future years.

This separation between the timing of the tax deduction and the timing of charitable giving can be especially valuable during unusually high-income years.

For employees with concentrated stock positions, pairing a DAF with appreciated stock often provides the best of both worlds: immediate tax benefits and long-term flexibility.

Timing the Deduction: Why Bunching Matters in 2026

Whether charitable giving produces meaningful tax savings depends on two important rules.

First, charitable gifts only provide additional tax savings if your total itemized deductions exceed the standard deduction.

Beginning in 2026, there's another consideration: only charitable contributions exceeding 0.5% of Adjusted Gross Income (AGI) are deductible.

For someone with a $900,000 AGI, that threshold is $4,500. A $100,000 stock donation would still produce a deductible charitable amount of $95,500, but a $3,000 donation would produce no deduction because it never exceeds the threshold.

For many high-income households, bunching several years of planned charitable giving into a single donor-advised fund contribution is one of the most tax-efficient approaches.

Putting It All Together

The year you're diversifying a concentrated stock position is often the ideal year to make appreciated stock donations.

Imagine your diversification plan includes selling recently vested shares with relatively high cost bases while donating your oldest, lowest-basis shares to a donor-advised fund.

Your stock concentration declines. Your taxable gains are reduced. The donated shares permanently eliminate their embedded capital gains. And your charitable deduction offsets income during one of your highest-earning years.

Rather than treating diversification and charitable giving as separate decisions, coordinating them can significantly improve your overall after-tax outcome.

Who Should Consider This Strategy?

This approach may make sense if you:

• Are charitably inclined.
• Hold employer stock with substantial unrealized gains.
• Have owned those shares for more than one year.
• Expect a high-income year because of RSU vesting, stock sales, or bonuses.
• Are planning to diversify a concentrated position.

A Few Important Reminders

• Confirm the donated shares have been held for more than one year.
• Use specific-lot identification so the correct (lowest-basis) shares are transferred.
• Start early. Brokerage transfers, donor-advised fund processing, trading windows, and Rule 10b5-1 plans can all affect timing.
• Keep proper documentation. Gifts over $5,000 generally require IRS Form 8283 and appropriate substantiation.

Key Takeaways

• Don't automatically sell your oldest company shares first.
• If you're already planning to give to charity, consider donating your lowest-basis, most appreciated shares instead.
• Sell higher-basis, long-term shares as part of your diversification strategy to minimize taxable gains.
• A donor-advised fund can help you maximize the tax benefit in a high-income year while allowing your charitable giving to occur over time.
• Coordinating diversification and charitable giving can reduce concentration risk, eliminate capital gains tax on donated shares, and improve your overall tax outcome.

Where to Go From Here

Many employees think about diversification, taxes, and charitable giving as separate planning decisions.

In reality, they're often strongest when coordinated.

With the right strategy, you may be able to reduce concentration risk, eliminate capital gains tax on your most appreciated shares, and maximize the value of your charitable giving—all in the same year.

If you're planning to diversify employer stock from Google, Meta, SpaceX, or another equity-heavy company, we'd be happy to show you how this strategy could work using your own numbers.

Schedule a complimentary introductory call to discuss your options.

This article is intended for general educational purposes only and should not be construed as individualized tax, legal, or investment advice. Advisory services are offered through New Wave Financial Services, LLC.

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