Charitable Deductions “Paid For” by Your Company

One of the most attractive gift options for business owners is to contribute stock in their closely held corporations. Such stock typically has ballooned in value, and gifts may cost owners just pennies on the dollar, after taxes. Here's an illustration:

Mom owns 90% of the stock in the Momandpop corporation and decides to contribute 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.

We have no reason to keep the stock and therefore turn the shares in to the corporation. The corporation pays us $10,000 cash and retires the stock. Mom avoids capital gains taxes and receives a valuable benefit: a charitable deduction “paid for” by her company.

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