Donations of Private Company Stock

November 11, 2022 | Showing Gratitude in Business Brian Crotty, Managing Director, HDH Advisors, LLC,

In this month of “thankfulness”, HDH Advisors is often contacted about donating certain complex assets, such as privately held C-corp and S-corp shares. While often in the context of a business owner selling their Company outright or strengthening their legacy, there can be many tax advantages to such a gift. We often utilize this mechanism whether the “exiting” shareholder is selling to an ESOP, Company management or even to a third-party.

Charitable giving and philanthropy provide an excellent example of the two disciplines coming together to create an outstanding practice of exploring how philanthropic vehicles can create the maximum charitable contribution deduction to a private foundation or a donor-advised fund.

The donation is valued at the stock's fair market value (FMV) by an independent appraiser such as HDH Advisors. When the donation of shares of stock are made prior to a transaction, the selling shareholder will not have to pay tax on the capital gains and allows the donor to include the value as a charitable contribution on their income tax return. The amount of the charitable deduction in any year can be limited based on the donor’s adjusted gross income and whether the donation is made to a donor advised fund or a private foundation.

Under both scenarios, the client can take a deduction in the current year for the donation (subject to limitations) and have the donation distributed to one or more charities over one or more years.

In any event, careful discussions should be had with your team of advisors well in advance of any transaction to make sure all benefits are maximized.