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Consider Contributing a Piece of Your Business
One of the most attractive gift options for business owners is to contribute stock in their closely held corporations. Here's an illustration:
Ms. Smith owns 90% of the stock in the Momandpop Corporation and decides to give us a few shares of her stock – worth, say, $10,000. The gift of stock leaves her in full control of the business and does not deplete her checking account or personal investments. Yet she is entitled to a $10,000 charitable deduction on her personal tax return, which would save her $3,500 in taxes in a 35% income tax bracket. Ms. Smith also wholly avoids capital gains taxes on her stock gift. We have no reason to keep the Momandpop stock and therefore turn the shares back to the corporation for redemption. The corporation pays us $10,000 cash and retires the stock. The key to this arrangement is that, while Ms. Smith has received a valuable benefit (a charitable deduction “paid for” by her company), she will not be considered to have received a taxable dividend from the corporation, according to an IRS ruling.
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by R&R Newkirk. All rights reserved.
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