One of my key employees is interested in purchasing it and has arranged for financing. The problem is that although this is a tidy sum, I would net significantly less after capital gains taxes.
This business is my retirement fund for my wife and I. We have no children and would like whatever is left in our estate to go to charity. Is there some type of planning we could do to make our sale a little less taxing?
Answer: That depends on how your business is owned. If it's C Corp stock, or a qualified partnership, you may want to consider gifting it now to a charitable remainder trust (CRT) that names your favorite qualifying charity as the final beneficiary. The CRT then places the business on the market and entertains bids.
By specifying you want preference given to interested employees, the trustee has some guidance to help meet your objectives and avoid self-dealing issues.
As a qualified charity, the CRT can sell the business without paying capital gains tax, leaving more net proceeds to generate income for you. Since the primary purpose is to make an irrevocable gift to charity and provide income to the donors, the gift achieves all of your objectives now.
You also receive a current tax deduction for the present value of the projected future gift to charity. There are limitations as to how much can be written off in one year, and you will not receive a full deduction for the value of the business because you are retaining a right to the income.
It may be possible the next time somebody asks you to make a gift that, instead of telling them you gave at the office, you can tell them you gave the office. Ruth Forsyth is an investment advisor associate and registered representative with The Advisors Group. Reach her at (412) 922-4360 or at firstname.lastname@example.org.