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If you are selling your business or appreciated stock, you should consider
establishing a Community Support Organization (CSO). There are many
variations of the basic strategies that are outline below. The individuals
circumstances and their overall financial plan must be carefully considered.
Options that might be considered when selling a business include the
following:
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Donate the stock of the corporation to the
CSO. This provides you with a tax deduction for the fair market value
of the stock as a charitable contribution, deductible at up to 30% of your
adjusted gross income, and allows the CSO to sell the stock and have no
taxable income.
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Donate certain appreciated property to the CSO
(if the business being sold is a Sub-S or other "pass through"
entity) then sell the stock to the buyer. This provides the
opportunity to receive a deduction for the property fair market value
without recognizing gain or recapturing depreciation, to minimize the gain
reported on your 1040 for the sale of the stock of the business, and to use
the charitable deduction to further minimize the taxable income generated by
the sale.
Options that might be considered when selling appreciated stock might
include the following:
-
Donate the stock to the CSO and gain a tax
deduction for the fair market value of the stock. The CSO would then
sell the stock and have no taxable gain. The result is that all
of the proceeds are in the CSO, an asset-protected tax-exempt trust that may
provide economic benefit to the donor.
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Donate a portion of the stock to the CSO, then
sell the remainder and report the gain on your 1040. When the
individual holds some equities with substantial gain and some with little or
no gain, this strategy may have a very powerful application.
Donate the shares with substantial gain to the CSO, gaining a tax deduction
for the market value and reporting no income. Sell the shares
that have little or no gain, then donate the cash received to the
CSO. The net effect should be calculated prior to taking the
decision, but it could generate substantial tax savings because the shares
sold generate less income than deduction. The deduction is at
50% of adjusted gross income. Plus, there is a 30% of AGI for the
donated shares.
There are a number of other variations that may be utilized when a
business, or when business assets are to be sold, or stock is sold, whether it
is marketable securities or small business stock. Care must be taken
to distinguish the tax benefits that relate to the sale of stock by a CSO from
the somewhat diminished benefits that are available for the sale of assets that
are received as a contribution, but the use of which is not related to the the
purpose of the CSO.
If you are considering selling your business or selling any other
investment, please e-mail us with the details and we will correspond with you
about the sale. There are also powerful strategies that may be
utilized which do not involve the use of a CSO. We have a very
specialized program that utilizes the Employee Stock Ownership Program (ESOP)
and combines it with a Family Limited Partnership and with a program to
permanently defer gain on the sale, yet allow the seller to take up to 90% of
the proceeds out as a non-recourse non-callable loan from a very successful
hedge fund.
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