Closely Held Business Interests
Generally, shares of stock in a family-owned, partnership, sole-proprietorship or other small business interest that are gifted to Clarkson.
A portion of your business that you gift to Clarkson could generate an income tax deduction for you and may save capital gain taxes as well. Clarkson would most likely sell its interest in the business and use the cash proceeds for whatever purpose you name when you make the gift. You may gift shares of your business to Clarkson as an outright gift and receive an income tax charitable deduction. In most cases, your business would then “buy back” the shares from Clarkson. This may be a useful technique to “retire” certain shares or to help pass controlling interest in the business on to children. In other circumstances you might gift a portion of your business to Clarkson in advance of the sale of the business. The resulting income tax charitable deduction may help offset the recognition of capital gain on the sale, and Clarkson’s share would simply sell with the remainder of the business.
It is important to contact Clarkson early in the process of making a gift of shares in a closely held business to ensure that Clarkson may accept and translate the gift to cash without suffering adverse tax consequences.
Other gift options to consider include:
- Convert your business to retirement income. You create a charitable remainder trust at Clarkson and gift all or a portion of your business to the trust. You receive an income tax deduction for your gift, and you recognize no immediate capital gain on the portion gifted to the trust. The trust sells the business interest and you start receiving income from the trust. Unfortunately, businesses organized under sub-chapter S (so-called “S corps”) cannot be held in a charitable trust.
- Plan a bequest. All or a portion of a business may be structured as a gift to Clarkson through a bequest in your will or living trust, or through the governing structure of the business.
- Pass a business to heirs. In certain circumstances you may create a charitable lead trust and place the business into the trust. The trust makes annual gifts to Clarkson for a set number of years. After the trust terminates, the business passes to heirs, usually free of estate tax.
Tax and Financial Implications
While specific benefits are unique to each circumstance, you may be eligible for an income tax charitable deduction for a gift of shares in your business to Clarkson. Most important in this process is determining the value of those shares. Because small business interests are not valued on a daily basis as are shares of publicly traded stock, you may need to acquire a qualified appraisal from an independent, qualified appraiser on a timely basis to claim an income tax deduction for your gift.
This web page does not provide legal or financial advice, nor is it a comprehensive review of the topic. You should consult your legal and financial advisers and Clarkson University before making or planning your gift. (rev. 4/2014)
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