Financial advisors often turn to lesser-known financial tools to help their clients achieve their financial 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 discrete 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 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, the DCF is familiar with the necessary steps, as well as the paperwork and legal processes. Together, with a client’s financial advisor and the DCF’s network of reliable experts, we 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.
Mike DiPaolo is the vice president for southern Delaware at the Delaware Community Foundation.
