Using Donations to Offset Capital Gains
How donations reduce income to owe less capital gains
ChatGPT didn't just change how we work. It quietly created a massive ticking tax bomb for tech investors. The AI boom drove unprecedented growth.
NVDA grew by 1170%, GOOG nearly quadrupled, and SanDisk is up 30x since its 2025 IPO.
Let's look at NVDA. If you bought 1,100 shares at $16 back in Nov 2022, they are now trading at an all-time high of $221. That is $205 in pure profit per share and $225,500 in gains.
Those stock profits get their own tax category called capital gains. When you hold the shares for more than 1 year, the IRS gives you preferential tax treatment and only taxes you at most 20% (most people pay 15%). For investment income above $200k there's an additional 3.8% tax known as Net Investment Income Tax (NIIT).
You might feel rich on paper, but to truly make the most of your gains, you must avoid several expensive and unfortunately common pitfalls.
For many people, donations provide a clean way to ease the tax burden.
What it costs to sell
Start with the simplest path: sell the shares, take the cash. Here's what the $225,500 gain costs you on top of what you already owe in income tax.
| Income | Tax with wages only | Tax with stock sale | Extra tax owed |
|---|---|---|---|
| $100k | $13,176 | $49,548 | $36,372.00 |
| $200k | $36,734 | $74,360 | $37,626.00 |
| $400k | $98,901 | $150,523 | $51,622.00 |
2026 federal tax estimate, single filer.
One thing the table doesn't show: the IRS doesn't wait until the following April for these taxes. They expect estimated tax payments every quarter to cover income that doesn't come through your paycheck — miss them and you'll owe penalties on top.
But the real question isn't when to pay. It's whether you have to pay this much in the first place.
Two ways to donate
There's two very interesting options for how you can give away that money.
| Donate Cash | |
|---|---|
| Sell stock first | Yes |
| Salary | $200k |
| Capital Gains | $225k |
| Total Income | $425.5k |
| Federal tax owed | $74.36k |
Sell the shares first, take the full capital gains hit, then write a check.
The IRS sees the entire $225k as gain, so $74.36k of federal tax owed, before the donation even enters the picture.
When you donate cash, you can deduct 60% against your income.
Therefore, $255k (60% of $425k) can come off the top-line income and you'll owe taxes on $170k of income.
| Donate Stock | |
|---|---|
| Sell stock first | No |
| Salary | $200k |
| Capital Gains | — |
| Total Income | $200k |
| Federal tax owed | $36.73k |
Hand the shares directly over. In IRS terms, donating stock isn't a taxable event, the gain on those shares never counts as income, never lands on your return.
When you donate stock, you can deduct 30% against your income, and since there is no capital gain, it's just 30% of the $200k, which is $60k.
By donating stock, you'll owe tax on $140k of income.
Carry forward excess balance
All 1,100 shares at current price are worth $243.1k.
However, because the overall deduction limit for stock is $60K, which is far less than the value of the stock donated, there's going to be a left over balance.
When a donation exceeds what you can use this year, the unused balance carries forward to five future years.
Five years of tax shields from a single donation. At a $200k income each year, that represents $43k in federal income tax saved.
| Year | Tax w/o Donation | Tax with Donation | Difference |
|---|---|---|---|
| Year 1 | $36.73k | $26.2k | $10.53k |
| Year 2 | $36.73k | $26.2k | $10.53k |
| Year 3 | $36.73k | $26.2k | $10.53k |
| Year 4 | $36.73k | $26.2k | $10.53k |
| Year 5 | $36.73k | $36.04k | $700 |
One thing to watch: the five-year clock is firm. If your income drops sharply during those years, you might run out of room to deduct it all before the carry-forward expires. Anything left at year five disappears.
The one-way door
A donation is final. Once those funds move to the charity, they're not coming back, not if the market drops and you regret the timing, not for any reason. The tax savings are real, but they don't reverse the gift.
If you need the funds for something else, then be mindful of donating.
One more vehicle
There's a special account called a Donor-Advised Fund (DAF) that takes this even further. You contribute the stock to the DAF now — locking in the tax benefits — but you don't have to decide which charities receive the funds until later. Years later, if you want.
It separates the tax move from the actual donation.
DAFs are a rabbit hole of their own. We'll cover them in their own letter.
What's your next move?
If you're sitting on a concentrated position with a large embedded gain and you were going to give something this year — the worst time to tax-plan is after the trade settles.
Don't sell first if you can give away.