How High W-2 Earners Can Cut Taxes by 50%+ by Donating Appreciated Assets (2026 update)
TL;DR (Quick Summary)
High W-2 earners in high-tax states can often unlock an effective 50%+ tax benefit by donating appreciated assets (like stock or crypto) instead of selling first: you may be able to deduct the fair market value (if you itemize) to reduce ordinary income, and also avoid the capital gains tax you would have triggered by selling—so the same $100,000 gift can deliver surprisingly large total tax savings while still funding causes you care about.
If you’re a high W-2 earner in a high-tax state like California or New York, you already know the problem: your largest tax bill is usually ordinary income tax, not capital gains.
That’s why this one move can feel like a cheat code when you first see the math:
donate appreciated stock or crypto (instead of selling first), typically using a donor-advised fund (DAF).
It can stack two benefits at once:
you may avoid capital gains tax you would have paid if you sold first
you may deduct the fair market value of the donated asset (if you itemize), reducing taxable income
A quick personal note: I regret that for nearly 20 years of W-2 income, I donated cash without knowing this strategy. That likely cost me a huge amount in avoidable taxes—money that could have stayed with my family or gone to causes I care about. I’m writing this out so other high-income earners can legitimately save taxes while giving more effectively.
The 50%+ moment: the math (the part most high earners never see)
Let’s use a clean, realistic high-income example.
Assumptions (illustration only, not tax advice):
W-2 income: $500,000 (high marginal bracket territory)
Appreciated asset fair market value (FMV): $100,000
Cost basis: $50,000
Embedded long-term gain: $50,000
The “50%+” effect comes from stacking:
ordinary-income tax saved on the full $100,000 charitable deduction (if you itemize and the gift qualifies), plus
capital gains tax avoided on the embedded $50,000 gain (because you donate the asset instead of selling it).
Step 1: ordinary-income tax savings (the big driver for high W-2)
If you itemize and your $100,000 gift is deductible, your taxable income may be reduced by $100,000.
High-income earners in high-tax states often face combined marginal rates (federal + state) around ~40% to ~45% (varies by state, filing status, and your return).
Using 45% as a simple illustration:
$100,000 × 45% = $45,000 of potential ordinary-income tax reduction
Step 2: capital gains tax avoided (the “leak” you don’t want)
If you had sold the asset first, the $50,000 embedded gain would typically be taxed at long-term capital gains rates federally (often 15% or 20% depending on income), plus potentially the 3.8% net investment income tax for high earners, plus state tax (California, New York, etc.).
A realistic combined capital gains rate for many high earners in high-tax states can land around ~25% to ~30% (not a rule—just common when you stack federal + NIIT + state).
Using 28.1% as an illustration:
$50,000 × 28.1% = $14,050 of capital gains tax avoided
$45,000 (ordinary tax reduction) +
$14,050 (capital gains tax avoided)
= $59,050 total benefit on a $100,000 gift
That’s ~59% effective tax leverage.
A quick way to sanity-check the “50%+” claim
Effective benefit ≈ (your ordinary marginal rate) + (gain ÷ FMV) × (your capital gains rate)
Here:
ordinary marginal rate ≈ 45%
gain ÷ FMV = $50k ÷ $100k = 0.5
capital gains rate ≈ 28.1%
So:
45% + 0.5 × 28.1% = 45% + 14.05% = 59.05%
Even with more conservative assumptions—say 40% ordinary and 25% gains:
40% + 0.5 × 25% = 52.5%
That’s why this often lands in “50%+” territory for high W-2 earners in states with meaningful state income tax.
Why this works especially well for high W-2 earners in high-tax states
High-income W-2 earners often have two things at the same time:
high ordinary income tax rates
large unrealized gains in stock/crypto/other assets
Donating appreciated assets attacks both:
it reduces taxable ordinary income (where the tax bite is biggest)
it eliminates the “sell tax” on the built-in gain (which is pure leakage if you were going to donate anyway)
This is why the strategy is especially compelling in high-tax states like California and New York where the state layer makes selling even more expensive.
The part most people don’t know: you don’t have to choose the charity right away
A donor-advised fund is basically a giving account:
you contribute the asset now (which is when the tax event happens, if eligible)
you recommend grants to charities over time
That separation is a huge psychological and practical win for busy high-income households:
you can lock the tax move in a high-income year
you can decide the “where” later, thoughtfully
This also sets up one of the most asked questions: can you invest the balance inside the DAF before you grant it out? I cover that here: Can You Invest Your Donation Before Giving It to Charity? (DAF Rules Explained) (suggested slug: /invest-your-donation-before-giving-daf-rules-explained).
2026 update in plain English (and why you should care)
Starting in 2026, the charitable landscape changes in a few ways:
there’s a new small deduction for people taking the standard deduction
Some filers may be able to deduct a limited amount of cash donations even if they don’t itemize.
Itemizers now face a new “floor”
Some charitable giving may only be deductible above a threshold tied to AGI.
top-bracket itemizers may see reduced value per dollar deducted
Some high earners may find each additional dollar of deduction is worth slightly less than before.
I’m keeping the details and examples in the dedicated post so this pillar stays readable:
2026 DAF Deduction Limits: What High-Income Earners Need to Know (suggested slug: /2026-daf-deduction-limits-high-income).
What kinds of assets this can work with (beyond public stock)
Most people think this strategy is “for stock only.” In reality, many donors use it with:
public stock
crypto
certain alternative or complex assets (handled case-by-case depending on sponsor)
The practical guide (with examples) is here:
How Donor-Advised Funds Work for Crypto, Real Estate, and Alternative Assets (suggested slug: /daf-crypto-real-estate-alternative-assets).
Closing (soft ebook mention, 1–2 sentences)
If the math in this post clicked for you, the premium step is choosing the right administrator. In my ebook, I share the exact DAF and CRT administrators I screened, the criteria I used (fees, investment flexibility, and support for crypto/complex assets), and the real-world friction points I hit so you don’t waste months repeating the same research.
FAQs
Do I need to itemize to get the deduction?
Yes. The charitable deduction benefit generally applies when you itemize deductions. If you take the standard deduction, your deduction may be limited depending on the rules in effect.
Does donating appreciated stock or crypto eliminate capital gains tax?
When you donate appreciated assets directly (instead of selling first), you generally avoid realizing the capital gain that would have been triggered by a sale, which can reduce or eliminate capital gains tax you would otherwise owe. This benefit is strongest for long-term capital gains assets held more than one year, because donations of long-term appreciated property are typically valued at fair market value for deduction purposes, while short-term appreciated assets are commonly limited to a deduction closer to cost basis—meaning you lose much of the “appreciation” deduction advantage and effectively eliminate one of the main benefits of donating appreciated assets.
Can I donate ESPP shares or stock options?
Many people donate appreciated shares from brokerage accounts, including shares acquired through ESPP. Stock options typically need to become donated shares (after exercise/holding, depending on the situation) before a donation is possible.
How long do I have to grant money out of a DAF?
DAFs are designed to let you contribute now and recommend grants to charities over time. Specific timelines and policies can vary by administrator.
Can I invest the donation inside the DAF before granting?
Some DAF administrators allow the balance to be invested before you recommend grants, subject to the administrator’s investment options and policies.
Is this strategy only for California and New York?
No. The strategy can apply broadly, but the impact is often most noticeable for high W-2 earners in high-tax states where combined tax rates are higher.