Hacker News Reader

Comment by mochizuki | Hacker News Reader

I don't entirely understand why he donated shares of Facebook instead of dollars, can they sell the shares all at once and use the money or is there a catch to that? Did it cost him less money to donate shares in the long run? It's probably my lack of understanding of stocks and economics but it seems like it would be easier for everyone to just donate money.

View on HN

Community Foundations[1] such as the Silicon Valley Community Foundation can receive stock donations that are tax-deductible to the owner. If the donation was in dollars it would also be deductible for the owner, but the owner would need to sell the stock first, which would mean paying capital gains taxes.

1. Differences between Community Foundations / donor-advised funds and Private Foundations can be found here: http://www.programforgiving.org/charitable/pages/considering...

Foundations can get tax-deductible gifts, they just have slightly different other rules.

You're right - updated comment

Additionally, if the entities receiving the shares happen to be C corporations (which I believe can have 501(c)(3) status), they can deduct the lesser of: (i) 70% of dividends received on the stock; or (ii) 70% of the corporation's taxable income. As such, the implied tax rate on any dividends received from the shares would only be 11.88% (30% * 39.6%), assuming the corporation is in the 35% ordinary income bracket. This is important for 501(c)(3)'s, too, because there are plenty of exceptions to the general notion of "tax exemption" associated with that code section (See, e.g., 26 USC §§ 507-09, 511-15, and 527).

EDIT: of course, this only applies if the company issues a dividend

I'm not sure if the organization has the option to keep or sell the stock (I think they can do either). For the donor, there are tax benefits- besides the usual lowering of adjusted gross income, you don't have to pay capital gains on stock you donate.

Let's say Mark plans on donating $500M to an organization and this month he also wants to buy $300M of Christmas presents. He only has about $600M lying around, but he has a lot of FB stock. He can donate $500M cash, then sell stock to have enough money to buy the presents but he'll pay capital gains. Or he can donate the stock, avoid taxes, and use his cash for the presents instead.

Stock can be used as collateral to get a bank loan (the uber rich use this to avoid capital gains taxes). I would imagine that is what they'll do to generate cash for disbursements from the foundation (they have to pay out at least 5% per year).

I would be shocked to find they sold the shares. I'm sure them keeping them for a long period of time (possibly forever) and Zuck retaining voting power over them was a key part of this transaction.

Reply on news.ycombinator.com