Charitable Giving
A Smart Investment for Small-Business Owners
What does the holiday season mean to you? If you own a small business, it could mean that you're about to get busy. But the holidays are also a time for giving--and, as a business owner, you're making a smart investment when you contribute to charitable groups.
Charitable giving is a good investment in a few different ways. You get the satisfaction of supporting an organization that is helping improve your community. And during a sluggish economy charitable donations often drop, so your contributions will be especially meaningful.
Beyond these positive feelings, you'll get some more tangible rewards for charitable giving. Specifically, you'll receive some key tax benefits, including the following:
n Immediate tax deduction--You can deduct all or part of your charitable gift from your current income taxes. Generally speaking, you can deduct financial contributions to religious, charitable, scientific, educational and literary institutions, as well as other groups that are incorporated as 501(c)(3) organizations. Upon making your gift, get a receipt that lists the organization, date and amount of your contribution.
n Avoidance of capital gains taxes--If you have stocks that have grown significantly in value over the years, you may want to donate them to a charitable group. You will be allowed a charitable deduction for the full fair market value of the gift on the date of the transfer, even if your original cost was only a fraction of today's value. Furthermore, you will avoid the capital gains taxes you'd have to pay if you sold the stock.
Consider charitable remainder trust
If you want to make a charitable gift without losing total control of the assets you're giving away, you might want to establish a charitable remainder trust.
Here's how it works: You donate an appreciated asset, such as a stock or piece of real estate, to a charitable remainder trust, which then sells the asset and uses the proceeds to purchase a portfolio of securities. From these investments, you receive an income stream for life; upon your death, the charitable organization you've designated receives the remainder of the principal.
By setting up such a trust, you avoid capital gains tax, and you can claim a deduction on your current-year taxes. And because you're moving assets from your estate, your beneficiaries will have fewer estate taxes to pay.
ESOP can help your charitable giving
If your business has an employee stock ownership plan (ESOP), you may be able to use it to funnel contributions, in the form of your company's stock, to a charitable group, either directly or through a charitable remainder trust. The charity may then sell the stock back to your company's ESOP. Because these types of transactions may be complex, you'll want to consult with your tax and legal advisors before proceeding.
Get known as a good citizen
Contributing to local charitable organizations invests in your reputation within the community.
Furthermore, you can exercise some creativity in supporting charitable groups. As a business owner, you may be asked to sponsor a variety of local events and organizations--food shelf drives, literacy programs, school sports, community radio, etc. You may even be asked to serve on the board of local education, arts and nonprofit groups.
However, since your time and resources are limited, you can't say "yes" to everyone. That means you need to pick and choose the groups and activities that you'll assist. Which ones should you choose? Concentrate on charities that both you and your customers support.
If you constantly hear customers talking about high school football, consider advertising in the team's program. And you can do the same for plays and concerts, if you determine that your customers like theater and music. You may want to include your support for these activities in any sales literature that you produce.
Here's a word of caution: Don't assume your interests match those of your customers. If you support a religious or political group, or an organization that may be involved in controversial issues, you may want to contribute in private.
Charitable giving pays off for everyone
As you can see, when you make charitable contributions, you'll help your community, improve your tax situation and enhance your business' reputation. That's a pretty good return on your investment.
Paul DeBey is Branch Manager with the Plaza office of U.S. Bancorp Piper Jaffray. He may be reached by phone at 816.360.3000.
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