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Planning a Benevolent Exit

Giving Voice Spring 2023: Giving Matters

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THOMAS M. GRIFFITH, AEP®, CAP®, CHFC®, Vice President of Development

If you’re a business owner, at some point you may begin thinking about an exit strategy. Sometimes that strategy presents itself in the form of an unsolicited buyer. Before you engage any potential acquirers, you might want to explore the benefits of contributing an ownership interest in your business to a donor-advised fund or other type of fund at the Community Foundation.

If you’ve owned your business for several years — or decades — you could be sitting on substantial unrealized capital gains, thanks to the increasing value of the busi- ness over time. A business sale will trigger tax on capital gains, reducing the proceeds you get to keep. No capital gains tax will apply, however, to the sale of any portion of the business owned by your donor-advised fund, plus you will receive a charitable deduction for the gift of ownership.

Don’t start negotiating for your company’s sale before you’ve talked with the Community Foundation and your advisors. Otherwise, you might get caught in the trap of the IRS’s step transaction regulations that affect any presale gift to charity of real estate, closely-held stock or other alternative asset.

If you sell your business without making a gift of ownership, you still have the option of making a post-sale charitable gift of cash. While this approach doesn’t avoid realizing capital gains, it still provides a charitable deduction that can be effective at reducing your income tax due in the year of the sale.

This past year, five post-sale gifts created funds at the Community Foundation. These were the result of business sales that occurred in Syracuse where owners or employees received sale proceeds or deferred compensation. In each case, the donor was somewhat familiar with us, but was also connected by a professional advisor who knew how beneficial a charitable contribution would be for their client that year, how flexible a donor-advised fund is for charitable giving, and how we can be a resource to donors who care about Central New York.

If you own a business and want to learn more about making a presale or post-sale gift to a donor-advised fund or other type of fund at the Community Foundation, please contact us. Our team can help you and your advisors evaluate your options and ultimately prepare for the transaction. We will work with your advisors to secure a proper valuation for the charitable deduction when a portion of the business interest is contributed to your donor-advised or other type of fund.

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