Financial advisers 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 advisers 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 steps, as well as the paperwork and legal processes. Together, with a client’s financial adviser and the DCF’s network of 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 advisers 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, financial advisers 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.
