Scott (not his real name) came up to me at an event recently.  He was excited when he told me somewhat breathlessly, “I just sold my business, and I’m ready to start giving.”

While I smiled outwardly, I didn’t have the heart to tell Scott that he had just missed a huge opportunity to reduce his taxes and increase his giving.

Let’s back up.  In many cases, the business cycle looks like this:  someone starts a business, and frankly, they are unsure if they are going to make it.  At some point, they get past the start up phase and the value of their business grows—at least on paper.  The reality is that the business owner sees the value growing but doesn’t want to acknowledge it because it hasn’t translated into cash.

But then the big day comes.  Someone—whether because a broker is involved or a strategic buyer expresses an interest—comes in and makes an offer.  There’s a lot of uncertainty around whether the deal will ever be completed, and even a certain level of denial—not wanting to believe that the financial payoff will really occur.

As such, the business owner presses on with the transaction, maybe even keeping it quiet, and limiting the advisors involved in the transaction.  Taxes are discussed but they tend to be a necessary part of the deal.  And then BOOM! Finally, it happens:  the purchase agreement is signed and monies are wired.  Enter Scott:  “I just sold my business, and I’m ready to start giving.”

But here’s the big missing piece:  if Scott had been willing to pause long enough, he could have donated stock in his business (even an S corporation), and saved money on taxes while giving more.

Here’s how it works:

1. By donating shares in his business, Scott gets to deduct the fair market value of the shares as a deduction against his ordinary income.  It typically is a 30% deduction against ordinary income.
2. At the same time, Scott avoids ALL capital gains tax on the shares he donated.  The shares then are monetized in a giving fund or a family fund. A family fund is a good way to build family unity.
3. At the end of the day, Scott gets to reduce his tax liability while increasing his giving—in many cases allowing for up to 40% more giving.

So here’s the moral of the story:  if you are selling a business, or know someone selling their business, encourage them to stop long enough to consider the power of reducing their taxes in favor of more giving.

Bill High

Bill is CEO & Founder of Vyne Legacy. He works with families to equip them with tools to build multigenerational legacies, and he teaches givers and financial advisers on transformational biblical generosity. He is the co-author with David Green of Giving It All Away and Getting It All Back Again: The Way of Living Generously.

Published September 29, 2015

Topics: Giving Strategies

BusinessCharitable GivingGiving StrategiesTaxes