Options Abound for Gifts by C Corporations

Owners of businesses operating as C corporations have the opportunity to make gifts from their companies, saving corporate income tax and creating goodwill that helps the business.

  • Income tax deductions are available up to 10% of taxable income, with a five-year carryover [Code §170(d)(2)(A)].  Compare the owner’s personal tax rate to the corporation’s highest rate in deciding who should give.

  • There are no adverse tax results for the business owner from the corporation making the gift unless controlling shareholders receive economic benefit from the gift (Ltr. Rul. 8606009).

  • Gifts may be deductible as business expenses (Code §162), avoiding the 10% deduction ceiling if the gift satisfies a business purpose.

  • Choices of gift property include cash, marketable securities, real estate, inventory, “white elephant” property or options to buy stock in the company.  Gifts of options are deductible when exercised by the charity, or when the option is sold to an unrelated charity (Ltr. Rul. 8826008).  The deduction is the difference between the option price and the fair market value of the stock at the time of exercise.

  • Corporations can be grantors and/or beneficiaries of charitable remainder trusts.  For example, a corporation owns undeveloped land worth $150,000 with a $30,000 basis.  The corporation can transfer the property to a 10% charitable remainder unitrust for a 20-year period.  The corporation can deduct almost $18,900, assuming quarterly payments and a 2.6% §7520 rate.  In addition, the company avoids the capital gains tax when the property is sold.  The corporation goes from owning real estate with a negative cash balance (real estate taxes, insurance) to receiving $15,000 in the first year.


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