Charitable Planning for Business Owners

Chloe Quigley, CEPA, Business Exit Planning Advisor

 

What does charitable generosity have to do with your company?

Giving to charity has been engrained in my routine since I set 10% of my eighth birthday check aside for charity. I can understand how giving is a routine that takes different faces throughout a person’s life. Perhaps the time you have to serve has increased or decreased based on a change in your situation or your capacity to give financially has increased.

We all know there are certain tax benefits to donating your money. Nonprofits advertise it more and more – reminding you how your donations can be tax deductible.  But giving can mean so much more.

Benefits Beyond Finances

There are also certain psychological benefits related to giving. For example, “retirees are less likely to experience depression when they volunteer 200 hours of their time to service per year.” (source is our website listed below) Moreover, beyond the benefactors of your donations, those closest to you are also impacted by your generosity.

Gifting teaches generosity, paves the way for family legacy, and demonstrates action and accountability to the values you hold most closely. You’re teaching your loved ones that you’ve set money aside to give to others. This teaches lessons around sacrifice, priorities, as well as, very practically, a lesson around budgeting and it expands their view of the world.

Generosity as a Company Culture

As a business owner, you may also have engrained generosity in your company culture. Here are some ideas:

  • Offer employees a day off to go and volunteer.
  • Match a portion of your employees’ charitable donations.
  • Make a pointed effort to inquire about their service passions and encourage them to pursue them.
  • Engage with your team in service. It is powerful experience to do service together.
  • Set a company goal that triggers a charitable donation.  (This also increases your local profile by doing good.)

There are many ways to celebrate the value of service and philanthropy within a workspace.

Personally.

Personally, you may make a quiet effort to continue to support the organizations with causes that resonate with you and your loved ones. Depending on your situation, there may be opportunity to further maximize your donations, leveraging the tax benefit and allowing you and your heirs to give even more in the years to come.

Charitable giving can have amplified tax benefits when donating appreciated assets. For you as a business owner, this can be especially helpful when you are selling a business. There are hoops to jump through, but if you plan ahead and can handle the hoops, you can have a more tax efficient sale. For example, some charitable vehicles will accept a percentage of your business, property, and other assets to provide an income tax deduction and help you avoid capital gains taxes.  The charity can then sell to the future buyer given certain conditions.

Additionally, there are some long-term estate planning strategies that may interest you,

  • Donor advised fund (DAF) – A DAF allows you to put money into an investment fund and spread out distributions over a number of years while realizing the full value of charitable contribution in the year you invested the money. This helps many increase their itemized deductions above the standard deduction.  In other words, you would invest the annual donations for multiple years into a single fund. The fund would then disburse the donations at your cue over the years.
  • Charitable Remainder Trust (CRT) – Do you need a deduction now, but want income through your lifetime and then leave some assets to charity at death?  A CRT is a type of irrevocable trust that maintains an income stream to a beneficiary (which could be you) for a set period with the remaining assets going to a charity. There are certain parameters here that your estate planning attorney and financial advisor can lay out to make sure a CRT aligns with your goals and situation. The lifetime beneficiary payout, for example, as to be at least 5% of the trust assets, but no more than 50%.
  • Charitable Lead Trust (CLT) – A CLT is the opposite of a CRT and is far less common. A CLT generates income to a charity throughout a donor’s lifetime and the remainder then goes to the donor’s heirs. This is often motivated by gift and estate taxes, but in some cases can provide income tax relief. Selling a business can provide you with your biggest paycheck yet. A CLT may be the right option for you.

When considering any big decision, it is best to lean on the support of experts. Each planning option is an opportunity – but not all options lead to the same outcome! Your situation is unique, so are your priorities and needs. Consider talking to your accountant and financial advisor about how you can align your charitable giving and your business plan. Reach out to our team of Exit Planning Advisors today to learn more today.

Disclosures:

Chloe is a non-registered associate of Cetera Advisor Networks.

The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing such strategies.

Neither Cetera Advisor Networks LLC nor any of its representative give legal or tax advice.

Generally, a donor advised fund is a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization. Each account is composed of contributions made by individual donors. Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor’s representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account. Donors take a tax deduction for all contributions at the time they are made, even though the money may not be dispersed to a charity until much later.

This blog is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.

Sources: https://www.barringtonwealthmanagement.com/philanthropic-investors/

Business professional using his tablet to check his financial numbers

401(k) Calculator

Determine how your retirement account compares to what you may need in retirement.

Get Started

Get in Touch

In just minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Contact Us