About Jack Berlin
Founded Accusoft (Pegasus Imaging) in 1991 and has been CEO ever since.
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Privately held
business
interests
A tax-smart approach to maximize your philanthropic impact.
If you are a charitably minded executive or
entrepreneur, a donation of your privately held
business interests may help you achieve maximum
impact with your charitable giving. Your interest in
a private business—such as a C- or S-Corporation,
Limited Partnership (LP), or Limited Liability
Company (LLC)—likely has a low cost basis and
may have substantial appreciation, resulting in large
capital gains taxes when sold.
By the Charitable Strategies Group at DAFgiving360™
Donating a percentage of an interest held more than one year can unlock additional
funds for charity in two ways.
First, you potentially eliminate the capital gains tax you would incur if you sold the interest yourself and donated the proceeds,
which may increase the amount available for charity by up to 20%. Second, you may claim a fair market value charitable
deduction for the tax year in which the gift is made and may choose to pass on that savings in the form of more giving.
Donor-advised funds, which are 501(c)(3) public charities, provide an excellent option for donating privately held business
interests. The funds allow you to easily convert your appreciated interests into charitable contributions, in particular when a
third-party sale or buyback program enables timely liquidation.
Many donor-advised funds also have the resources and expertise for evaluating, receiving, processing, and liquidating this
type of gift.
2
Contribute appreciated interest held
over one year
• Have donor-advised fund receive
percentage interest and participate
in sale
• Potentially eliminate capital gains tax
on appreciation
• Claim current year, fair market value
income tax deduction
Invest account assets for tax-free
potential growth
• Potentially have more to grant
through investment growth of
account assets
Recommend grants from your
account immediately or over time
• Have more to grant through
contribution of non-cash assets
than contribution of cash from
sale proceeds
Donor
Charities
HOW DOES GIFTING PRIVATELY HELD BUSINESS INTERESTS TO A DONOR-ADVISED FUND WORK?
Donor-advised
fund
Please be aware that gifts of appreciated non-cash assets can involve complicated tax analysis and advanced planning.
This article is only intended to be a general overview of some donation considerations and is not intended to provide tax or legal guidance.
In addition, all gifts to donor-advised funds are irrevocable. Please consult with your tax or legal advisor.
“We have clients who have some
private investments that you can’t typically
just give to a charity” - Financial advisor
This hypothetical example is only for illustrative purposes. The example does not take into account any state or local taxes or the Medicare net investment income surtax. The tax savings
shown is the tax deduction, multiplied by the donor’s income tax rate (37% in this example), minus the long-term capital gains taxes paid. In Option 2, while the charity will receive
$1,000,000 upon sale, the qualified appraisal for tax deduction purposes will likely apply a minority discount, which is not reflected in this case study for simplicity.
Case study: maximizing charitable impact while mitigating tax exposure
Sue decides to establish a donor-advised (DAF) fund account as a
way to maximize charitable impact while potentially mitigating capital
gains tax exposure. Sue works with the donor-advised fund’s staff to
complete the necessary paperwork for the assignment of $1 million
shares of XYZ to the donor-advised fund and transfer back to XYZ
through its buyback program. The shares have a cost basis of $50,000,
and Sue’s income level would result in a 20% capital gains tax rate on
$950,000 of appreciation if she were to sell the shares or transfer the
shares back to XYZ.
In Option 1, if Sue transfers the $1 million of shares to XYZ, pays the
estimated $190,000 in federal capital gains taxes ($950,000 x 20% =
$190,000), and donates the after-tax proceeds, her tax savings are
only $109,700.
By assigning $1 million of XYZ directly to charity and utilizing the
firm’s buyback program, as shown in Option 2, Sue potentially
eliminates $190,000 in projected federal capital gains taxes. When
combined with her potential income tax deduction, Sue’s tax
savings is $370,000.
Sue, an executive at Corporation
XYZ, plans to convert a portion
of her concentrated XYZ
holdings into cash to fund her
philanthropic goals. As there is
no easily identifiable market for
XYZ stock, Sue’s company has
a buyback program in place for
shares that are donated to charity.
3
Cost basis of stock XYZ:
$50,000
Federal long-term capital gains tax rate: 20%
Fair market value of stock XYZ:
$1,000,000
Long-term capital
gains taxes paid
Charitable contribution
and tax deduction
Tax savings
$190,000
$0
$810,000
$1,000,000
$109,700
$370,000
Additional amount available to
grant to charities: $190,000
Additional amount saved
on taxes: $260,300
Option 1:
Sell stock XYZ and then
donate the after-tax proceeds
Option 2:
Contribute stock XYZ
directly to DAFgiving360
vs
4
Additional considerations
In addition to the potential tax benefits described above, the following considerations may apply.
1
Avoid prearranged sales.
If a sale of your privately held business interest is expected, the terms of the sale should still be under
negotiation. The documentation and actions must not have proceeded to the point at which the IRS
would consider it a prearranged sale. In that unfortunate instance, the IRS may deem your gift an
“anticipatory assignment of income” to the charity. As such, you may be required to pay capital gains
taxes on the sale by the charity.
2
Business gifts require due diligence by the charity and careful planning by the donor.
Many charities will not accept gifts of privately held business interests due to the complexity involved.
Donor-advised funds and other public charities that do accept these gifts likely will do so only after
performing substantial due diligence. For example, the company’s governing documents—such
as shareholder agreements, operating agreements, bylaws, etc.—must be reviewed to understand
whether there are any transfer restrictions or embedded liabilities, and to assess the time and process
to complete the charitable transfer.
There can be complexities on the donor side of the gift as well. For example, donations of indebted
interests may trigger negative tax consequences for you and the receiving charity, including tax
liability. In addition, if you itemize, the deduction for gifts of S-Corp, LP, and LLC interests may be
reduced by the amount of ordinary income that would have been realized if you had sold the interest
at fair market value on the date contributed.
The above is one example of many possible considerations. Please consult with your tax advisor prior
to donating interests in privately held businesses.
3
There are special rules for donations of S-Corp interests to charity.
The donor-advised fund or other public charity will generally be subject to unrelated business income
tax (UBIT) on its income from the sale of the S-Corp business. The charity may use the proceeds of
the sale to pay these taxes and may escrow a portion of the proceeds in a separate account for three
years to match the IRS’s “look-back” period, during which the IRS can challenge the cost basis of the
shares and the taxes paid.
4
Qualified appraisal requirements and annual deduction limits apply.
Overall deductions for donations to donor-advised funds are generally limited to 50% of your adjusted
gross income (AGI). The limit increases to 60% of AGI for cash gifts, while the limit on donating
appreciated non-cash assets held more than one year is 30% of AGI. The IRS permits a carryover for
five tax years, should your charitable deduction exceed AGI limits in a given tax year.
For gifts of privately held business interests in excess of $5,000, donors must obtain a qualified
appraisal by a qualified appraiser to substantiate fair market value for the charitable deduction.
Appraisals must be obtained no earlier than 60 days before the date of donation or no later than the
due date of the donor’s tax return (including extensions) for the year of the gift. Appraisals depend on
the facts and circumstances at the time of contribution and valuations may be discounted for lack of
marketability and/or lack of control.
https://www.schwabcharitable.org/non-cash-assets/donate-your-investments
https://www.linkedin.com/company/dafgiving360
Interested in learning more?
The Charitable Strategies Group at DAFgiving360 is a team of professionals with specialized
knowledge about non-cash asset contributions to charities. Our team stands ready to
support you and your advisors, from initial consultation through asset evaluation, receipt,
processing, and sale. We strive to provide unbiased guidance and frequent communication
at every step of the process to help you and your advisors make informed decisions and stay
aware of the time required for your transaction.
For more information about the advantages of contributing appreciated non-cash assets,
you can read an overview article or call us at 800-746-6216.
DAFgiving360™ is the name used for the combined programs and services of Donor Advised Charitable Giving, Inc., an independent nonprofit organization which has entered into service
agreements with certain subsidiaries of The Charles Schwab Corporation. DAFgiving360 is a tax-exempt public charity as described in Sections 501(c)(3), 509(a)(1), and 170(b)(1)(A)(vi) of
the Internal Revenue Code.
Contributions made to DAFgiving360 are considered an irrevocable gift and are not refundable. Once contributed, DAFgiving360 has exclusive legal control over the contributed assets.
Contributions of certain real estate, private equity, or other illiquid assets may be accepted via a charitable intermediary, with proceeds transferred to a donor-advised fund (DAF) account
upon liquidation. Call DAFgiving360 for more information at 800-746-6216.
These testimonials, statements, and opinions may not be representative of the experiences of other advisors. The testimonials are voluntarily provided and no compensation, free products
or services, or any benefits were given in exchange for the testimonials. They are not indicative of future programs, services, performance, or success. Independent investment advisors
and their firms are not affiliated with DAFgiving360. Some statements have been edited.
DAFgiving360 does not provide legal or tax advice. Please consult a qualified legal or tax advisor where such advice is necessary or appropriate.
A donor’s ability to claim itemized deductions is subject to a variety of limitations depending on the donor’s specific tax situation.
©2024 Donor Advised Charitable Giving, Inc. All rights reserved. REF (1024-ZCFV) MKT83112-09 (10/24)
00305627
Visit our website
Call DAFgiving360 at
800-746-6216
For questions or assistance
with charitable planning:
Follow DAFgiving360
business
interests
A tax-smart approach to maximize your philanthropic impact.
If you are a charitably minded executive or
entrepreneur, a donation of your privately held
business interests may help you achieve maximum
impact with your charitable giving. Your interest in
a private business—such as a C- or S-Corporation,
Limited Partnership (LP), or Limited Liability
Company (LLC)—likely has a low cost basis and
may have substantial appreciation, resulting in large
capital gains taxes when sold.
By the Charitable Strategies Group at DAFgiving360™
Donating a percentage of an interest held more than one year can unlock additional
funds for charity in two ways.
First, you potentially eliminate the capital gains tax you would incur if you sold the interest yourself and donated the proceeds,
which may increase the amount available for charity by up to 20%. Second, you may claim a fair market value charitable
deduction for the tax year in which the gift is made and may choose to pass on that savings in the form of more giving.
Donor-advised funds, which are 501(c)(3) public charities, provide an excellent option for donating privately held business
interests. The funds allow you to easily convert your appreciated interests into charitable contributions, in particular when a
third-party sale or buyback program enables timely liquidation.
Many donor-advised funds also have the resources and expertise for evaluating, receiving, processing, and liquidating this
type of gift.
2
Contribute appreciated interest held
over one year
• Have donor-advised fund receive
percentage interest and participate
in sale
• Potentially eliminate capital gains tax
on appreciation
• Claim current year, fair market value
income tax deduction
Invest account assets for tax-free
potential growth
• Potentially have more to grant
through investment growth of
account assets
Recommend grants from your
account immediately or over time
• Have more to grant through
contribution of non-cash assets
than contribution of cash from
sale proceeds
Donor
Charities
HOW DOES GIFTING PRIVATELY HELD BUSINESS INTERESTS TO A DONOR-ADVISED FUND WORK?
Donor-advised
fund
Please be aware that gifts of appreciated non-cash assets can involve complicated tax analysis and advanced planning.
This article is only intended to be a general overview of some donation considerations and is not intended to provide tax or legal guidance.
In addition, all gifts to donor-advised funds are irrevocable. Please consult with your tax or legal advisor.
“We have clients who have some
private investments that you can’t typically
just give to a charity” - Financial advisor
This hypothetical example is only for illustrative purposes. The example does not take into account any state or local taxes or the Medicare net investment income surtax. The tax savings
shown is the tax deduction, multiplied by the donor’s income tax rate (37% in this example), minus the long-term capital gains taxes paid. In Option 2, while the charity will receive
$1,000,000 upon sale, the qualified appraisal for tax deduction purposes will likely apply a minority discount, which is not reflected in this case study for simplicity.
Case study: maximizing charitable impact while mitigating tax exposure
Sue decides to establish a donor-advised (DAF) fund account as a
way to maximize charitable impact while potentially mitigating capital
gains tax exposure. Sue works with the donor-advised fund’s staff to
complete the necessary paperwork for the assignment of $1 million
shares of XYZ to the donor-advised fund and transfer back to XYZ
through its buyback program. The shares have a cost basis of $50,000,
and Sue’s income level would result in a 20% capital gains tax rate on
$950,000 of appreciation if she were to sell the shares or transfer the
shares back to XYZ.
In Option 1, if Sue transfers the $1 million of shares to XYZ, pays the
estimated $190,000 in federal capital gains taxes ($950,000 x 20% =
$190,000), and donates the after-tax proceeds, her tax savings are
only $109,700.
By assigning $1 million of XYZ directly to charity and utilizing the
firm’s buyback program, as shown in Option 2, Sue potentially
eliminates $190,000 in projected federal capital gains taxes. When
combined with her potential income tax deduction, Sue’s tax
savings is $370,000.
Sue, an executive at Corporation
XYZ, plans to convert a portion
of her concentrated XYZ
holdings into cash to fund her
philanthropic goals. As there is
no easily identifiable market for
XYZ stock, Sue’s company has
a buyback program in place for
shares that are donated to charity.
3
Cost basis of stock XYZ:
$50,000
Federal long-term capital gains tax rate: 20%
Fair market value of stock XYZ:
$1,000,000
Long-term capital
gains taxes paid
Charitable contribution
and tax deduction
Tax savings
$190,000
$0
$810,000
$1,000,000
$109,700
$370,000
Additional amount available to
grant to charities: $190,000
Additional amount saved
on taxes: $260,300
Option 1:
Sell stock XYZ and then
donate the after-tax proceeds
Option 2:
Contribute stock XYZ
directly to DAFgiving360
vs
4
Additional considerations
In addition to the potential tax benefits described above, the following considerations may apply.
1
Avoid prearranged sales.
If a sale of your privately held business interest is expected, the terms of the sale should still be under
negotiation. The documentation and actions must not have proceeded to the point at which the IRS
would consider it a prearranged sale. In that unfortunate instance, the IRS may deem your gift an
“anticipatory assignment of income” to the charity. As such, you may be required to pay capital gains
taxes on the sale by the charity.
2
Business gifts require due diligence by the charity and careful planning by the donor.
Many charities will not accept gifts of privately held business interests due to the complexity involved.
Donor-advised funds and other public charities that do accept these gifts likely will do so only after
performing substantial due diligence. For example, the company’s governing documents—such
as shareholder agreements, operating agreements, bylaws, etc.—must be reviewed to understand
whether there are any transfer restrictions or embedded liabilities, and to assess the time and process
to complete the charitable transfer.
There can be complexities on the donor side of the gift as well. For example, donations of indebted
interests may trigger negative tax consequences for you and the receiving charity, including tax
liability. In addition, if you itemize, the deduction for gifts of S-Corp, LP, and LLC interests may be
reduced by the amount of ordinary income that would have been realized if you had sold the interest
at fair market value on the date contributed.
The above is one example of many possible considerations. Please consult with your tax advisor prior
to donating interests in privately held businesses.
3
There are special rules for donations of S-Corp interests to charity.
The donor-advised fund or other public charity will generally be subject to unrelated business income
tax (UBIT) on its income from the sale of the S-Corp business. The charity may use the proceeds of
the sale to pay these taxes and may escrow a portion of the proceeds in a separate account for three
years to match the IRS’s “look-back” period, during which the IRS can challenge the cost basis of the
shares and the taxes paid.
4
Qualified appraisal requirements and annual deduction limits apply.
Overall deductions for donations to donor-advised funds are generally limited to 50% of your adjusted
gross income (AGI). The limit increases to 60% of AGI for cash gifts, while the limit on donating
appreciated non-cash assets held more than one year is 30% of AGI. The IRS permits a carryover for
five tax years, should your charitable deduction exceed AGI limits in a given tax year.
For gifts of privately held business interests in excess of $5,000, donors must obtain a qualified
appraisal by a qualified appraiser to substantiate fair market value for the charitable deduction.
Appraisals must be obtained no earlier than 60 days before the date of donation or no later than the
due date of the donor’s tax return (including extensions) for the year of the gift. Appraisals depend on
the facts and circumstances at the time of contribution and valuations may be discounted for lack of
marketability and/or lack of control.
https://www.schwabcharitable.org/non-cash-assets/donate-your-investments
https://www.linkedin.com/company/dafgiving360
Interested in learning more?
The Charitable Strategies Group at DAFgiving360 is a team of professionals with specialized
knowledge about non-cash asset contributions to charities. Our team stands ready to
support you and your advisors, from initial consultation through asset evaluation, receipt,
processing, and sale. We strive to provide unbiased guidance and frequent communication
at every step of the process to help you and your advisors make informed decisions and stay
aware of the time required for your transaction.
For more information about the advantages of contributing appreciated non-cash assets,
you can read an overview article or call us at 800-746-6216.
DAFgiving360™ is the name used for the combined programs and services of Donor Advised Charitable Giving, Inc., an independent nonprofit organization which has entered into service
agreements with certain subsidiaries of The Charles Schwab Corporation. DAFgiving360 is a tax-exempt public charity as described in Sections 501(c)(3), 509(a)(1), and 170(b)(1)(A)(vi) of
the Internal Revenue Code.
Contributions made to DAFgiving360 are considered an irrevocable gift and are not refundable. Once contributed, DAFgiving360 has exclusive legal control over the contributed assets.
Contributions of certain real estate, private equity, or other illiquid assets may be accepted via a charitable intermediary, with proceeds transferred to a donor-advised fund (DAF) account
upon liquidation. Call DAFgiving360 for more information at 800-746-6216.
These testimonials, statements, and opinions may not be representative of the experiences of other advisors. The testimonials are voluntarily provided and no compensation, free products
or services, or any benefits were given in exchange for the testimonials. They are not indicative of future programs, services, performance, or success. Independent investment advisors
and their firms are not affiliated with DAFgiving360. Some statements have been edited.
DAFgiving360 does not provide legal or tax advice. Please consult a qualified legal or tax advisor where such advice is necessary or appropriate.
A donor’s ability to claim itemized deductions is subject to a variety of limitations depending on the donor’s specific tax situation.
©2024 Donor Advised Charitable Giving, Inc. All rights reserved. REF (1024-ZCFV) MKT83112-09 (10/24)
00305627
Visit our website
Call DAFgiving360 at
800-746-6216
For questions or assistance
with charitable planning:
Follow DAFgiving360