Financial advisors often turn to lesser-known financial tools to help their clients achieve their goals.
One tax-advantaged option for people who are in the process of exiting a business is to make a gift of S-corporation stock.
An S-corporation, or shareholder-led company, is a very specific type of corporate entity. Shareholders not only have a say in the management of the business, but also have the right to receive ownership profits. When a shareholder – or owner – wishes to exit an S-corporation, the remaining owners must buy them out.
This presents a tax-advantaged opportunity for the departing shareholder to leverage their assets to make a charitable impact. The Delaware Community Foundation can be a knowledgeable and discreet partner in this process, working with financial advisors and their clients to shepherd a gift of S-corporation stock.
Making a gift of S-corporation stock can be a strategic way to significantly reduce capital gains exposure. Following the valuation of the stock, the full, fair market value can be claimed as a tax deduction by the shareholder.
However, giving away S-corporation stock isn’t as easy as giving away standard C-corporation stock. That should not deter individuals who wish to turn their dedicated years of service into a generous act.
While the process can be complicated and lengthy, DCF is familiar with the necessary steps, as well as the paperwork and legal processes. Together, a client’s financial advisor and the DCF’s network of reliable experts can ask thoughtful questions to properly navigate the valuation of S-corporation stock and direct philanthropy to a nonprofit organization or cause the client cares about.
For those who have worked hard during their lifetimes to establish or help build a private corporation, the decision to transition – by moving on to a new role, stepping back, or retiring – can be an especially emotional one. Financial advisors are incredible allies during such a transition, and can offer key insights to clients. The DCF can be another ally.
By partnering with the DCF today, or at the right time in the future, financial advisors and their clients may be able to turn S-corporation stock into both tax advantages and a transformational gift to the community.