Are you a small business owner? If so, you're likely already making a difference for your community. Over 90% of small business owners support charities and community activities. But are you maximizing the tax benefits while creating meaningful change?
Donating your business interests to charity can be a powerful strategy that achieves both your financial and philanthropic goals. Here's what you need to know:
Choose The Community Foundations Over Private Foundations: When you donate closely-held stock to The Community Foundation, you can typically deduct the full fair market value (up to 30% of your adjusted gross income) and avoid capital gains tax. With a private foundation, you're limited to deducting only your cost basis (up to 20% of AGI)—a much less favorable outcome.
Timing Is Everything: Plan your charitable gift before reaching out to potential buyers and definitely before finalizing any deal. This separation is crucial because it allows you to avoid significant unrealized capital gains that have accumulated over the years. When done correctly, your charitable fund receives 100 cents on the dollar for its portion of the stock, and your deduction remains valid.
Get Proper Valuation: Always obtain a professional valuation for charitable deduction purposes when contributing business interests. This has become even more important following the recent Supreme Court decision in Connelly v. United States, which could result in higher taxable estates for business owners—creating additional incentive to include charitable giving in your planning.
Ready to explore how your business success can create lasting community impact? Contact our General Counsel & Senior Philanthropic Advisor, Tiffanie Purvis at [email protected] to discuss how charitable giving can work for your specific situation.