Whenever I speak or write about business sales and giving business interest gifts, I always emphasize the importance of giving BEFORE the sale of the business. Every year, I will receive a call from an advisor, attorney, or accountant saying, “My client is selling a business next week (or some other shorter time period). Can we still do a gift before the sale?” It happens often!
In an attempt to answer this question, here are three quick pointers you should know:
1. Why is it important to gift business interest before a sale?
By giving business interest to a donor advised fund before the sale, the business owner may receive a tax deduction and minimize capital gains tax on the sale. This potential tax savings means the business owner may have more to give to the causes they care about most.
See how it works.
2. When is it too late to gift a business interest before a sale?
A great lawyer would answer, “It depends.” There cannot be a “binding obligation” to sell the business, otherwise the IRS will not allow the gift and considers the transaction “prearranged.” Most of the time, this means the business owner must complete the gift before a purchase agreement is signed.
3. Can S corporation shares be gifted to The Signatry?
Yes! The IRS taxes nearly 80% of all non-publicly traded companies as S corporations, and therefore approximately 80% of The Signatry’s business interest gifts are S corporation shares. There are certain restrictions on select S corporations of who can be a shareholder. However, in 1996, Congress passed the Small Business Job Protection Act, allowing public charities to qualify as an S corporation shareholder. All S corporation gifts go into our charitable trust, which is a 501(c)(3) public charity.
When a client is selling a business, you do not want to wait until the last minute to start planning to be generous. If you have business owner clients who might sell their business with the next 2-5 years, or even in the next few months, remember to incorporate generosity! Give before the sale of the business, and call The Signatry.