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Minnewaska Home Development Foundation
Business Gifts are Good for Business
Build a Better World By
Sharing the Fruits of Your Success!
Philanthropy provides business owners with wonderful opportunities, both financial and personal.
Let Your Company Pay For Your Deductions
A gist of stock in a closely-held corporation makes a very attractive gift option for business
owners. This stock has typically ballooned in value and these gifts may cost owners just pennies
on the dollar, after taxes, as the following example illustrates.
An individual owning 90% of a corporation's closely-held stock decides to give MHDF a few shares
of stock. This stock has a current FMV of $10,000. The gift of stock leaves the owner in full
control of the business and does not significantly deplete the person's level of personal
investments. Yet this gift provides a $10,000 charitable deduction on the owner's personal
income tax return, which would save $3,500 in taxes to a taxpayer in the 35% income tax bracket.
MHDF has no reason to hold the stock and therefore turns the shares in to the corporation, which
pays us $10,000 cash to redeem the stock which is then retired. The business owner avoids
capital gains taxes and receives a charitable deduction essentially "paid for" by the company.
Create a Lifetime Income Stream and Make a Gift of Stock
This same individual could transfer a large block of stock to a charitable remainder trust and
receive a 7% lifetime income from the trust. The donor would, again, avoid capital gains taxes
and also qualify for a charitable deduction for a significant portion of the FMV of the stock.
The corporation will buy back the stock from the trust at FMV with using the corporation's
excess cash. Note: An appraisal of the corporation is required for gifts of stock valued
over $10,000.
Make a Gift Prior to Selling the Business
Business owners who are selling their companies can make gifts of stock, knowing we will sell our
shares to the next owner. The donor (or current owner) can deduct the fair market value of the
stock, as well as avoid capital gains taxes, only if we are not limited in our ability to freely
sell or not sell the shares. Donors can retain a "right of first refusal" as a condition of the
gift. This would require MHDF to offer the stock for resale to the donor at the FMV before
seeking other buyers.
Businesses Can Make Gifts
A corporation can make gifts and take charitable contribution deductions, just like an individual
taxpayer. Compare your personal tax rates with the corporation’s tax bracket to determine
whether you or the corporation would save more in taxes from making a gift. Directing the
corporation to make the gift will not increase your personal taxes and your benefit – personal
satisfaction – is nontaxable!
A company can donate assets such as cash, marketable securities, real estate, inventory, unneeded
equipment or other property, and options to buy stock in the company.
Partnerships, "S" corporations, limited liability companies, and sole proprietors can all make
contributions, with all charitable deductions passing directly through to the business owners
themselves.
Creative Gift Ideas for Business Owners
Some unusual gift-planning strategies available to you or your business could include:
- A better "bottom line." Suppose a corporation owns
undeveloped land worth $150,000 for which it paid only $50,000. The corporation to transfer the
land to a charitable remainder Unitrust. The trustee will sell the land, tax free, and pay an 8% income to
the corporation for 20 years. The benefits include: raising the corporation’s income from the
property from nothing to approximately $12,000 a year for the next 20 years; creating a
charitable deduction of about $30,000; and, when the trust ends, 100% of the principal will pass
to benefit the charitable organization.
- Keeping it in the family. An individual wants to
give MHDF stock in the company as well as eventually pass on the business to children. The
children can buy back the stock from us at the FMV, avoid gift tax for the parent, and secure
for themselves a stepped-up basis in the stock. Alternatively, MHDF might agree to sell the
stock to the children after the death of the parent. This stock purchase could be financed by
the parent's life insurance.
- The end of the road. Business owners anticipating
liquidating their corporations also have an excellent opportunity to make gifts. Donors
contributing stock prior to the liquidation receive deductions for the FMV of their stock in
addition to avoiding capital gains tax.
- ESOP gifts. Business owners sometimes plan to sell
their company to their employees through an employee stock ownership plan or ESOP, which is a
form of retirement program. Majority owners can sell company stock to the ESOP and postpone capital
gains tax if they reinvest the proceeds in the stock of domestic corporations. No tax is owed
until the "qualified replacement stock" is sold. These replacement shares can also be used as
charitable gifts, providing a net result of total avoidance of capital gains taxes and
deductions for the FMV. Other owners contribute replacement stock to a charitable remainder
Unitrust which provides them with lifetime income and eventually benefits their favorite
charitable organization.
For more information, please contact us.
Minnwaska Lutheran Home
(320) 239-2217
e-mail:
info@mlh-healthcare.org
The information provides is not intended as legal, tax, or investment advice. Please consult
an attorney, tax or financial planning professional for questions specific to your financial
situation.
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