Selling a Business, Making a Difference
When it's time to sell a business, MCF may be able to help your clients save thousands of dollars in taxes and also fulfill their charitable goals.
At the Marin Community Foundation we have experience with many kinds of business interests, including closely held and restricted stock, LLPs, and income property — and with a variety of transactional situations, from intra-family transfers to IPOs. When your clients are contemplating a business transfer, consider working with MCF to match your clients' financial needs with their philanthropic impulse.
Making a charitable gift, whether outright or to a charitable remainder trust prior to the sale of a business provides maximum tax advantages. By giving an ownership interest or equity, the donor may avoid capital gains tax on the portion of the business that is donated, as well as claim an income tax deduction based on the fair market value of the gift. The seller simply gives the interest in the business to a donor-advised fund or charitable remainder trust, and the buyer then makes the purchase from the charity, which is of course, tax-exempt. By contrast, when a gift is made from proceeds of the sale, the donor will have paid capital gains tax on 100% of the sale price, so the tax benefit comes solely from the income tax charitable deduction.
A client who creates a donor-advised fund at a community foundation may claim an immediate income tax charitable deduction, and because the gift is to a community foundation rather than a private foundation, the donor is entitled to all the tax benefits available for gifts to public charities. Since a business liquidation typically results in an increase in the owner's income that year, maximizing tax benefits is particularly important.
And, with all the concerns related to the business situation, by working with MCF it's possible to separate the timing and financial arrangements related to a charitable gift from decisions about which charities to benefit — and when.
MCF provides donors with information about organizations that match their charitable interests, does due diligence on potential grant recipients, and offers administrative assistance. MCF can also provide a layer of anonymity, and donors benefit from the services of MCF's money managers to maximize the value of their charitable dollars.
However, because most people are unaware of the tax-saving strategies available in connection with selling a business, too often the opportunity is lost. Fortunately, community foundations and professional advisors have increasingly become partners in charitable planning, and MCF has the resources to help structure these transactions.
How does the process get started? Typically an advisor who anticipates a client's upcoming business liquidation or transfer would mention the charitable opportunity and then call MCF to discuss the various options. This is a way for advisors to add value to the services they provide their clients and a way for the community foundation to assist business owners...and that's good for everyone.
