How to Donate Business Interests Strategically

Business owners and entrepreneurs looking to make an impact while enjoying significant tax benefits may have a unique opportunity to do so through strategic donations of their business interests. Instead of simply writing a check, consider the transformative potential of donating shares, partnerships, or LLC interests.

Donating your business interests can be a bit complex, but you don’t have to navigate it alone. Greater Houston Community Foundation (Foundation) is here as your partner to help you seamlessly integrate your donations into your financial and charitable giving plans. We’re with you every step of the way, ready to provide the guidance you need to convert your professional success into meaningful contributions that uplift the causes you care about.

Explore the beneficial strategies of donating business interests and discover other charitable giving tax strategies. If you’re ready to get started and need guidance, give the Foundation a call at 713-333-2210 today. 

Key Insights

• Donating business interests like shares in corporations, LP interests, or LLC memberships can eliminate capital gains taxes that would normally be triggered when selling appreciated assets.
• Business owners who donate interests held for more than one year may claim tax deductions for their fair market value rather than just the original investment cost.
• Strategic timing of donations—such as before planned sales or during periods of high valuation—can significantly enhance both charitable impact and tax benefits.
• Donor advised funds offer a powerful solution for donating business interests by allowing flexibility to support multiple charities over time.
• Working with a philanthropic partner like Greater Houston Community Foundation provides business owners with professional guidance to navigate the complexities inherent in donating business interests.

Table of Contents

• The importance of making strategic asset contributions
• What exactly are business interests?
• Why donate business interests 
• Potential tax benefits and other implications
• Assessing eligible business interests
• Strategic planning for donating business interests
• How does donating business interests work?
• Maximizing your impact
• Partner with Greater Houston Community Foundation

The importance of making strategic asset contributions

The purpose of strategic charitable giving goes far beyond simple generosity; being strategic about your donations is about maximizing the impact of your assets by optimizing the financial benefits of charitable giving. 

For business owners with appreciated business interests, strategic donations of these diverse assets could represent one of the most efficient ways to support causes they care about. By carefully planning how, when, and what to donate, business owners can amplify their philanthropic footprint while potentially reducing their tax burden—but you’ve got to be smart about it. 

What exactly are business interests?

Business interests encompass several types of ownership (or stakes) in private or public organizations. What are examples of business interests?

• Shares in C-Corporations
• Shares in S-Corporations
• Limited Partnership (LP) interests
• Limited Liability Company (LLC) membership interests
• Other privately held business ownership stakes

Any ownership stake, whether partial or complete, in a business entity typically presents the potential for financial profits, but it also often comes with considerable responsibilities.

Why donating privately held business interests can be better than donating cash

Donating business interests—especially those that have appreciated significantly since acquisition—can unlock additional value for charitable causes and your financial plan in two main ways:

1. They mitigate taxes on capital gains. Business interests with a low-cost basis and substantial appreciation would typically trigger large capital gains taxes when sold. By donating these interests directly to a qualified charity, you potentially eliminate these taxes, increasing the amount available for charitable purposes by up to 20%.
2. They may qualify for fair market value deductions. When you donate business interests held for more than one year, you may claim a tax deduction for their fair market value at the time of donation, rather than just your original investment cost. This creates an immediate tax benefit that can be passed on in the form of additional giving.

Potential tax benefits and other implications

Although there are many ways in which donors can experience tax benefits by donating business interests, some of the main tax advantages include:

• Income tax deductions. Donors who itemize deductions can claim the fair market value of donated business interests held for more than one year.
• Capital gains tax mitigation. Direct donations eliminate capital gains tax that would be triggered by selling appreciated business interests.
• Estate tax benefits. Removing valuable assets from your estate may reduce future estate tax liability.
• Carry forward deduction. If your charitable deduction exceeds annual limits, you can carry forward the excess for up to five additional tax years.

Greater Houston Community Foundation does not provide tax advice or services. We encourage you to consult your tax professional for the tax consequences of your particular situation.

Assessing eligible business interests

Before donating business interests, it’s essential to determine their fair market value through proper evaluation, and then identify which assets will be suitable for donation.

A fair evaluation of any business interest typically comprises:

1. Earnings before interest, taxes, depreciation, and amortization
2. Revenue generated by the business
3. Cash flow of the business
4. Total asset value of everything owned by the business
5. Valuation metrics of similar businesses in your industry

Identifying which of your holdings are the best fit for donation often involves considering:

1. Whether the business is private or publicly traded
2. Market demand and liquidity
3. Ownership restrictions and agreement structure
4. The growth stage of the business
5. Debt and liabilities

Strategic planning for donating business interests

Timing your donations is a vital component of your overall strategic plan. Recognizing the ideal moments to contribute your business interests can lead to substantial financial benefits. We encourage donors to engage in early discussions with the Foundation, as this can greatly enhance your strategic planning efforts.

Donating before planned sales can help you mitigate costly capital gains taxes; however, exercise caution with prearranged sales, as the IRS can deem these donations “anticipatory assignments of income,” which might require you to pay capital gains despite the donation. Donating during periods of high valuation or years in which your income is higher can also help you balance your deductions. 

If you’re looking for a powerful, simple solution for your giving needs, donor advised funds can be an excellent option for donating your business interest because they:

• Allow you to easily convert appreciated interests into charitable contributions
• Provide flexibility to recommend grants to multiple charities over time
• Allow potential for investment growth of donated assets before distribution to charities
• Simplify record-keeping with a single donation receipt

How does donating business interests work?

Donating business interests can be quite different from donating other charitable gift types, and the process should begin with the assistance of professional advisors. 

1. Consult your financial, legal, tax, and philanthropic advisors. 
2. Review the financial and tax implications of your proposed donations.
3. Obtain any necessary partner consent and file assignments of interest, corporate resolutions, and gift agreements.
4. Obtain a qualified appraisal of the relevant business interests from a qualified appraiser familiar with your industry.

You should also be aware of any deduction limits that might impact your finances before making your donation. For instance, overall deductions for donations to donor advised funds are generally limited to 50% of your AGI. The limit increases to 60% of AGI for cash gifts, while the limit on donating appreciated non-cash assets held for more than one year is 30% of AGI. 

Maximize your impact—and your tax benefits

Maximizing your impact is often synonymous with maximizing the benefits of your financial plan. There are more than a few things to be aware of if you’re trying to get the most out of your donations, but an important decision includes determining the appropriate giving vehicle that aligns with your personal goals and charitable objectives.

Whether you’re looking to make personal donations or establish a corporate giving program, working with Greater Houston Community Foundation can give you the support you need to maximize your impact and your tax incentives and help ensure the sustainability of all of your philanthropic projects.

Partner with the Foundation to donate your business interests today

Donating your business interests is a complex yet rewarding endeavor that requires considerable professional guidance to navigate effectively. With a dedicated philanthropic partner by your side, you can effectively manage the intricacies involved and create a lasting impact on the communities and causes you care about.

Our goal is to support you in maximizing the impact of your philanthropy, ensuring your charitable contributions align with your values and long-term goals. By providing strategic guidance and professional expertise, we help you transform your generosity into meaningful, lasting change in the communities you care about. Together, we can transform your business accomplishments into a powerful force for community impact.

At Greater Houston Community Foundation, we offer far more than transactional assistance. We bring an understanding of local community needs, a vast network of other changemakers, and the expertise to integrate your financial objectives with your philanthropic vision. 

If you’re considering a donation of business interests, the Foundation stands ready to provide you with comprehensive support and guidance throughout the process. As your trusted partner, we are committed to amplifying your philanthropic impact. Call us today at 713-333-2210 or reach out directly to get started.

More Helpful Articles by Greater Houston Community Foundation: 

• What Is the Great Wealth Transfer?
• How To Get Started with Legacy Giving
• Supporting Education: A Guide to Scholarships for Donors
• How Does a Donor Advised Fund Work?
• The Power of Collective Giving

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