We know that many clients and friends in our communities are charitably inclined. We have frequently written and spoken about the benefits of using a Donor Advised Fund or gifting a required annual IRA distribution and have assisted many of our clients with such gifts over the past several years. An additional strategy, one that applies primarily to business owners, has recently caught our attention due to the proposal currently circulating to increase income tax rates on high-bracket taxpayers.

Sale of a business, like the sale of any asset of substantial value, is a life-changing event in many ways. Significant liquidity arises from the sale, and for many charitably-inclined individuals such a windfall triggers a wish to budget part of the proceeds for charitable giving. Possibly the most tax-efficient manner of making such a gift is by donating part of the company to a Donor Advised Fund before it is sold. When that is done, tax that would otherwise be due on the donated stock or partnership interest is eliminated or substantially reduced. The charity receives a bigger donation and the seller pays less in tax.

The threat of significantly higher taxes in coming years only enhances the attractiveness of this strategy. There are several steps that must be taken to properly structure the transaction, and we work closely with clients to ensure those procedures are followed. Let us know if you or someone you know might be interested in learning more.

Leave a Comment