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How contributing private S-Corp stock to charity can maximize your gift by minimizing taxes
Do you own S-Corp stock in a privately held business that may be sold? Or are you planning to take part in a stock buy-back or corporate redemption program? In any case, consider donating a portion of your S-Corp stock directly to charity, and potentially increase your tax efficiency and the size of your gift.
Potentially eliminate capital gains taxes and the Medicare surtax, which combined could be up to 23.8%.
Take an immediate income tax deduction in the amount of the full fair-market value,* if you itemize your deductions.
Maximize support to your favorite charities.
*For contributions of complex or non-publicly traded assets, generally fair market value is determined by a qualified appraiser, in compliance with the IRS.
When you donate business interests directly to charity, the receiving organization gains full proceeds from the sale, and you potentially eliminate capital gains exposure. This win-win could mean more money for the causes you care about8. Consider this potential savings example:
S-Corp shares owned with zero cost basis valued at $20,000,0001
Federal long-term capital gains rate: 23.8%2
Effective UBIT: 10%3
Value of shares donated: $2,000,0004
Long-term capital gains tax paid
-$476,000
$0
Effective UBIT paid
-$200,000
Values discount
8%
(due to minority and lack of control)5
Charitable contribution/charitable deduction
$1,524,000
$1,840,0006
Amount available for granting
$1,524,000
$1,800,0007
Additional amount dedicated to charity
+$276,000
Use this calculator when considering donating your privately held S-Corp stock, or consult a professional advisor.
John was looking to sell an S-Corp that was founded years earlier.
One or more private equity firms had expressed interest in buying the S-Corp; however, the deal was not complete, and terms were still being negotiated. Because John was thinking of making a donation to support a new domestic violence shelter and also would face a large capital gains tax on the sale of the S-Corp, his advisor suggested contributing some of his interest in the S-Corp to charity before selling the corporation.
John chose to establish a Giving Account at Fidelity Charitable, an independent public charity. Fidelity Charitable conducted due diligence on the proposed contribution and the exit strategy and decided to accept the S-Corp shares. John’s tax deduction was determined by the appraised fair market value (FMV) of the property on the date of the contribution.
John’s Giving Account was funded with the proceeds of the sale, less the UBIT and other costs incurred by Fidelity Charitable in accepting and liquidating the contributed shares.
By using a Giving Account, John’s capital gains taxes were eliminated on the contributed shares. He was eligible to take a tax deduction, based on a qualified appraisal and, according to IRS regulations, of up to 30% of his adjusted gross income (AGI). (If the tax-deductible value of the contribution was greater than 30% of his AGI, he may have been able to “carry forward” the remaining deduction for up to five years.)
John was able to recommend a larger grant from his Giving Account to the domestic violence shelter because he made a direct donation of S-corp shares to Fidelity Charitable. And John’s Giving Account has the potential to grow more over time in Fidelity Charitable investment programs, thereby allowing him to provide future support.
Start making a difference today by opening a Giving Account—no minimum required.
Fidelity Charitable will generally look to limit its ownership to a minority interest in an S-Corp.
Timing is essential to donating private business interests. Fidelity Charitable encourages donors to engage in a conversation with our Fidelity Charitable planning experts and the donor’s own tax and legal advisors as soon as they start exploring a business sale, or learn of a possible liquidity event. It is never too early to have the conversation, but it may be too late. (It is important to start the conversation before a business sale progresses too far).
Not necessarily. The IRS requires that donors receive an appraisal to determine the fair market value of the asset on the day it was received by the charity. There will likely be some discounts for lack of marketability and control.
As a shareholder, Fidelity Charitable may be subject to unrelated business income tax (UBIT) on any income it derives during its period of ownership and on its gain from the sale. As discussed more fully in the Complex Asset Contribution Form, UBIT Questionnaire and Fidelity Charitable Program Guidelines, any/all UBIT will be deducted from the applicable Giving Account.
Fidelity Charitable accepts a wide range of financial assets, from cash and checks to stocks and even non-publicly traded assets. See what you can donate.
Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Fidelity Charitable does not provide legal or tax advice.
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Opening a Giving Account is fast and easy, and there is no minimum initial contribution.
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