Originally Posted by pembroke
I always thought his presentations were sharp and lucid - better than SJ's in fact. Selling 95% sends out a non- confidence message alright. But who knows, perhaps he wants the funds to donate to charity, or to build some schools somewhere?
If Scott Forstall wanted to donate to charity, he wouldn't have sold the shares. When you donate fully appreciated securities to a charity here in the USA, you write off the fair market value of the stock but neither you nor the recipient needs to pay capital gains taxes on the difference between the fair market and acquisition prices.
Let's say you bought 100 shares of AAPL at $100 and donate them when they are worth $600. The charity gets $60,000 (which you would claim on your tax return) yet your out-of-pocket expenses were $10,000. Now if you sold those shares at $600, you'd have to pay capital gains taxes on the earnings ($50,000) before you could donate. Let's say you're in Forstall's tax bracket, 35%. The long-term capital gains tax rate is 15%, meaning you'd have to shell out $7,500 to the feds. Thus your out-of-pocket expenses are $17,500 and the charity gets $52,500.
Here's the Motley Fool's capsule summary on the topic:
That's why major charities have forms for the transfer of securities. It's better for both parties.
Here's an example of the American Red Cross's instructions for donating stock and mutual funds:
Most likely, Forstall's remaining $1.8M in AAPL holdings are earmarked for charity. He can give freely in the future (from April 2013) to offset his tax burden.
That's how smart Americans make major donations. Don't write a check, give property (vehicles, real estate, securities). Donating securities is the easiest as there is very little disagreement about the fair market value of the donation. Things like vehicles and real estate are far trickier.
Note that this is probably what Laurene Jobs does. The family's Disney holdings were transferred to a revocable living trust -- probably called the Steven P Jobs Trust -- at some point prior to his death. She was a former Merrill Lynch analyst, she would know this common tax strategy.
If you have plans to donate on a regular basis in the future, you should think about earmarking some your equities for charity. You could buy an ETF like SPY, QQQQ, IWM, or in a blue-chip stock like AAPL, GOOG, INTC, IBM, ORCL, DIS, T, whatever and hold onto it for at least a year.
Note that there's no minimum donation, and that you don't have to donate the entire lot. If you bought a hundred shares of ORCL in 2008 and wanted to donate 20 of them to the Red Cross tomorrow, that's fine.
At least, that's how it works in the USA. Does the UK have similar avenues for charitable contributions?
Edited by cvaldes1831 - 5/2/12 at 2:06pm