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'Meta employees can benefit from understanding that strategies like a Section 351 exchange, charitable donations, and tax loss harvesting may work together to help manage appreciated stock efficiently while aligning with broader long-term financial goals.' – Tyson Mavar, a representative of The Retirement Group, a division of Wealth Enhancement.
'Meta employees should recognize that thoughtful planning with tools such as Section 351 exchanges, gifting strategies, and tax loss harvesting can help them manage highly appreciated stock while supporting both personal and philanthropic objectives.' – Wesley Boudreaux, a representative of The Retirement Group, a division of Wealth Enhancement.
In this article we will discuss:
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How a Section 351 exchange can defer capital gains on highly appreciated stock.
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Alternative tax-efficient strategies such as charitable donations, tax loss harvesting, and gifting.
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The role of inheritance rules, step-up in basis, and combined approaches in long-term tax planning.
A Tax-Aware Q&A on How to Manage Highly Appreciated Stock
From the Section 351 exchange to other practical approaches, this Q&A addresses key considerations Meta employees may encounter when dealing with highly appreciated shares.
Section 351 Exchange: The Fundamental Approach
Q: What is an exchange under Section 351?
A: Under certain circumstances, an investor may transfer property, such as highly appreciated shares, to a company in exchange for its stock under a provision of the Internal Revenue Code that allows the deferral of capital gains or losses.
Q: What is the primary advantage of exchanging my appreciated stock through a Section 351 exchange?
A: The main advantage is tax deferral. Gains transferred to corporations may be postponed under Section 351, though this applies only if specific diversification requirements are met, especially when transferring to investment companies like exchange-traded funds (ETFs).
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Q: What is meant by the “Control Test”?
A: The investor or group of investors who use their portfolio assets to fund the new entity must own at least 80% of the voting power and 80% of the total number of shares of all other classes of stock in the new company immediately after the exchange.
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Q: When seeding an ETF, how is the Control Test usually satisfied?
A: It is typically satisfied by either a single substantial investor making a significant asset contribution or multiple investors pooling assets to create a seeding pool for the ETF’s launch.
Q: What is the ultimate tax payment date for the deferred gain?
A: The deferred gain is recognized when the ETF shares acquired through the exchange are sold; distributions from taxable funds must also be reported in the meantime.
Other Tax-Efficient Techniques
Q: What is a straightforward method, aside from a Section 351 exchange, to sell highly appreciated shares without incurring large taxes?
A: Donating shares directly to a qualified charity is one option that some Meta employees may benefit from.
Q: What tax advantages come with donating valuable stock to a charity?
A: Subject to holding period and adjusted gross income (AGI) limits, you can bypass capital gains taxes on the appreciation and may receive an income tax deduction for the stock’s full fair market value.
Q: What is a Donor-Advised Fund (DAF)?
A: A DAF allows you to donate appreciated stock, receive an immediate tax deduction, and then recommend grants to charities over time, while the assets in the DAF grow without tax impact.
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Q: Can I give a family member my appreciated stock as a gift?
A: Yes. In most cases, the cost basis from the donor carries over to the recipient.
Q: Why would I give a family member in a lower tax bracket appreciated stock?
A: If they sell the stock, the lower income could result in a reduced capital gains rate, potentially as low as 0% for long-term gains.
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Tax Loss Harvesting and Other Approaches
Q: What is harvesting tax losses?
A: Selling investments at a loss to offset gains from other sales is known as tax loss harvesting, a strategy sometimes considered by Meta employees seeking opportunities to leverage bouts of market volatility.
Q: Can I deduct a certain amount of loss from my regular income?
A: Yes. If your capital losses exceed your gains, you can use up to $3,000 per year ($1,500 if married filing separately) to offset ordinary income, with remaining losses carried forward indefinitely.
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Q: What is a Qualified Opportunity Fund (QOF)?
A: A QOF provides investors with tax incentives for investing in tracts of land designated as 'opportunity zones'. Capital gains reinvested in a QOF within 180 days of being realized can be temporarily tax deferred, while QOF investments helpd for at least 10 years may confer a permanent capital gains exclusion.
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That said, 2025 legislation changes may prompt IRS updates to this rule.
Inheritance and Step-Up in Basis
Q: What is meant by a “step-up in basis”?
A: This adjusts an inherited asset’s cost basis to its fair market value at the time of the owner’s death, eliminating capital gains accumulated during their lifetime.
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Q: If I gift shares while living, will I receive a step-up in basis?
A: No. The original cost basis transfers to the recipient without adjustment.
Determining the Right Strategy
Q: What is the best course of action for me?
A: The most suitable approach will depend on factors such as your gain size, income level, charitable intentions, and liquidity needs.
Q: Do any of these strategies call for professional guidance?
A: Yes. Given the complexity of the tax code, working with a qualified financial advisor and tax professional is strongly recommended before implementing these strategies.
Q: Is it possible to combine these strategies?
A: Yes. For example, you might execute a Section 351 exchange on part of your portfolio for tax-deferred rebalancing while donating another portion to a DAF for an immediate deduction.
Q: Is there a loophole in the Section 351 exchange?
A: No. This is a legitimate tax code provision designed for corporate restructuring and adapted for use in the ETF market. It is intended for tax deferral, not permanent tax elimination.
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- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
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Sources:
1. Kitces. ' Using Section 351 Exchanges to Tax-Efficiently Reallocate Portfolios With Embedded Gains ,' by Ben Henry-Moreland and Brent Sullivan. 12 Mar. 2025.
2. Kiplinger. “ A Donor-Advised Fund Can Give Your Charitable Giving a Boost ,” by Samuel Gaeta. 9 May 2024.
3. Internal Revenue Service. “ Topic No. 409, Capital Gains and Losses .” IRS.gov , 8 July 2025.
4. Wealth Enhancement. ' 6 Essential Tax-Loss Harvesting Tips ,' by Jim Wiley. 6 April 2022.
5. Congressional Research Service. ' Tax Incentives for Opportunity Zones ,' by Donald Marples. 26 Apr. 2022.
6. Investopedia. “ Carryover Basis: What It Is, How It Works, Gift Taxes ,” by Julia Kagan. 16 Jan. 2023.
What is the 401(k) plan offered by Meta?
Meta offers a 401(k) plan that allows employees to save for retirement by contributing a portion of their salary before taxes.
How does Meta match employee contributions to the 401(k) plan?
Meta provides a matching contribution to the 401(k) plan, typically matching a percentage of the employee's contribution up to a certain limit.
Can employees at Meta choose how their 401(k) contributions are invested?
Yes, employees at Meta can choose from a variety of investment options for their 401(k) contributions, including stocks, bonds, and mutual funds.
What is the eligibility requirement for Meta's 401(k) plan?
Employees at Meta are generally eligible to participate in the 401(k) plan after completing a specified period of employment.
Does Meta offer a Roth 401(k) option?
Yes, Meta offers a Roth 401(k) option, allowing employees to make after-tax contributions to their retirement savings.
How often can employees at Meta change their 401(k) contribution amounts?
Employees at Meta can change their 401(k) contribution amounts at any time, subject to the plan's rules.
What happens to my 401(k) plan if I leave Meta?
If you leave Meta, you can choose to roll over your 401(k) balance to another retirement account, leave it in the Meta plan, or cash it out, although cashing out may incur penalties.
Does Meta provide financial education resources for employees regarding their 401(k)?
Yes, Meta provides financial education resources and tools to help employees make informed decisions about their 401(k) savings.
Are there any fees associated with Meta's 401(k) plan?
Yes, there may be administrative fees associated with Meta's 401(k) plan, but these are typically disclosed in the plan documents.
Can employees take loans against their 401(k) balance at Meta?
Yes, Meta allows employees to take loans against their 401(k) balance, subject to specific terms and conditions.