With the right plan, you can make a legacy sized gift.
Tax Strategy
Selling a company that a business owner has worked tirelessly to build is an exciting prospect, but it often comes with a myriad of practical, emotional, and financial complexities. For a Christian business owner, there's an added layer of spiritual significance. Among the various opportunities an entrepreneur might have to impact God's kingdom and their family, selling a successful business can be one of the most profound.
Donor Advised Fund(s)
A Donor-Advised Fund (DAF) structure provides flexibility and control, allowing an individual to donate some business sale proceeds in a tax-efficient way.
Part of the sale proceeds can be transferred to the DAF. The seller receives an immediate tax deduction based upon the fair market value of the gift.
The remainder of the proceeds go to the owner(s).
If appreciated assets are donated, the DAF is not subject to capital gains taxes when it sells those assets. This allows the full value of the appreciated asset to be available for charitable giving, rather than losing part of it to taxes.
Funds in a DAF grow tax-free over time if the benefactor chooses not to gift all of it at once.
The $10 Million Deduction
Many entrepreneurs, along with their investors and advisors, may be unaware of a benefit they could be eligible for. Under Tax Code Section 1202, taxpayers can exclude up to 100% of the capital gains from the sale of qualified small business stock (QSBS) held for at least five years.
How much can §1202 for Qualified Small Business Stock save you? The exclusion for each taxpayer is limited to the greater of (i) $10 million OR (ii) 10 times the taxpayer’s investment. This means that the exclusion for an entrepreneur may be on $10 million of gain, while the exclusion for an investor may be much greater. If, for instance, an investor invests $20 million, they may obtain an exclusion for $200 million of gain ($20M x 10 = $200M).
