Charitable Planning for Business Owners

Jul. 16, 2020

By Jordan Richardson, CAP® | Director of Charitable Giving

As a business owner, exit planning can be a daunting task. It often requires collaboration among a variety of professional advisors to ensure all aspects of the transition are considered. In many cases, charitable planning can play a powerful role. A charitable giving fund at the Community Foundation, for instance, could serve the dual purpose of providing immediate tax benefits at the time of the business sale while providing the flexibility for your clients to give to causes they care about for years to come.

I had a conversation earlier this year with Greg Weber of BCC Advisers. Greg reminded me that, like gifts of publicly traded securities, there are generally two charitable tax motivations to consider. First is the opportunity for a charitable tax deduction. He sees this most often with individuals retiring from a business and divesting their shares over a period of years. In this scenario, the business owner contributes a portion of their shares each year as a strategy to build up a charitable giving fund balance, while qualifying for a charitable tax deduction each time they contribute.

The second motivation speaks to capital gains tax relief. Greg sees this motivation shine brightest with one-time transactions such as a business sale. In this case, the business owner is likely to realize significant capital gains. Choosing to donate a portion of the business to a charitable giving fund could provide significant relief to an otherwise large capital gains tax bill.

In addition to sharing these tax benefits, be sure to counsel your clients about securing a proper valuation for their business interest – a requirement in order to claim a charitable tax deduction. In addition, it is critical there is no deal on the table at the time of the contribution. As always, our Community Foundation team is available to you as a resource to answer questions and join the conversations you are having with clients.