Recently, I met with a prospective client who plans to sell his business within the next year. He’s charitably inclined and wanted to donate a portion of the sale proceeds to a donor-advised fund (DAF). His goal was to minimize taxes while using his wealth for charitable impact. I asked him something he hadn’t considered: “Have you thought about gifting some of the company stock directly to a donor-advised fund before the sale?”
Why Gifting Stock Beats Gifting Cash
When you transfer shares of your company before the sale, the new owner (whether a charity or a donor-advised fund) receives the sale proceeds for those shares. This approach offers two major tax advantages:
- Full Charitable Deduction – In most cases, you can claim the fair market value of the gifted shares as a tax deduction. If this is done in conjunction with the sale of a business, the tax benefits can be significant in the same year.
- Minimize Capital Gains Tax – By donating the shares directly, you bypass the capital gains tax you would have owed if you sold the shares first and gave cash instead.
This enables you to make a bigger impact with your wealth by directing more to charity and having more for your family to enjoy as well.
Plan Ahead
If you are planning to sell your business in the next few years, make sure you plan ahead as the gift must be completed before a sale is legally locked in. You’ll need a proper valuation, the right paperwork, and help from your CPA, attorney, and financial advisor. But with the right planning, this strategy can be a double win: less to the IRS and more to the people and causes you care about. If a business sale is on your horizon, talk to your advisors now about whether gifting stock before the sale makes sense for you.
For more information about this strategy, reach out to Luke Brooks at lbrooks@bmsswesson.com.