► Business Owner Charitable Opportunity
Appreciated holdings for more than one year: If you own a company, whether in the form of C corporation stock or subchapter S stock, or a large block of public stock (free-trading or restricted), these stocks probably have appreciated and have been held by you for more than one year.
Short-term holdings: It is generally inadvisable to give charity securities in which your capital gain is short-term (i.e., securities that you have owned for less than 12 months). In such cases, the deduction will be for the cost basis of the securities, not the current market value.
Securities with a built-in loss: Rather than give a charity property in which you have a capital loss, you should sell them, establish a deductible capital loss, and then contribute the proceeds to the charity.
Contribution is made by a partnership or S corporation: If the noncash contribution is made by a partnership or S corporation, the reporting requirements are applied at the partnership or S corporation level, except that charitable deductions at the partner or shareholder level require compliance with the reporting requirements by the partnership or S Corporation.
Limitation: There is a limit on how much of an individual or a company can deduct as charitable gifts in a given tax year. Excess of your charitable contributions may be carried forward to future years. You should consult your expert tax preparer for limitations to your situation.
Example: A business owner with a $10,000,000 business regularly gives $5,000 of cash a year to his or her favorite charity. This year the gift to the charity is $100,000 of preferred stock paying a 5% dividend. The $100,000 gift with a proper valuation is deductible this year, and starts paying $5,000 a year of cash to the charity next year. The preference could be conversion only upon sale of the business, change of control, etc., to give the business owner comfort that the new stockholder charity will not be involved in the day-to-day activities.
What to expect:
By making a transfer of such stock to a charity, you would be eligible for a charitable tax deduction based on the fair market value of the stock and would avoid any potential capital gain tax on the appreciated value of the stock. Should you wish to gain control of the stock at some future time, you or the corporation may be able to buy it back, thus establishing a new cost basis for the stock. In keeping with IRS guidelines, there can be no obligation on the part of the donor or the charitable organization to buy or sell back the property at the time of the gift; otherwise the gain will be taxed to the donor.