Philanthropy with Purpose: A Strategic Guide for Businesses

Imagine a world where your favorite charitable cause had all the resources it needed to fulfill its mission. What transformative impact could be achieved if nonprofits were fully funded, free to innovate, and able to scale their operations without financial constraints? This vision lies at the heart of a powerful philanthropic strategy that goes beyond traditional cash donations. By leveraging business assets, in this post, specifically shares of C Corporations, donors have the potential to make a profound and lasting difference in the world.

This approach to giving isn't just about tax savings or financial maneuvering; it's about maximizing the impact of one's generosity and truly transforming the ability of nonprofits to achieve their missions. A compelling case study illustrates how business owners and entrepreneurs can use this strategy to potentially revolutionize their charitable giving while also reaping significant tax benefits.

In the world of philanthropy, cash donations are often the first thing that comes to mind when we think about supporting charitable causes. However, for business owners and entrepreneurs, there's a powerful alternative that can potentially maximize the impact of their giving while offering significant tax advantages: donating shares of C Corporation stock. This strategy demonstrates how thinking creatively about charitable giving can lead to win-win scenarios for donors, charities, and the causes they support.

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The Power of Asset-Based Giving

The document we're examining is a gift plan illustration prepared for a couple, presumably successful business owners considering a substantial charitable contribution. The plan outlines various scenarios for donating shares of a C Corporation valued at $50million. This approach to giving goes beyond simply writing a check; it involves strategically leveraging business assets to create a larger impact.

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Why Consider Donating C Corp Shares?

1. Tax Efficiency: By donating shares directly, donors can avoid capital gains taxes that would be incurred if they sold the shares first and then donated the proceeds.
2. Larger Gifts: Because of the tax savings, donors may be able to give more to their chosen charities than they could with a cash donation.
3. Immediate Impact: Charities receive valuable assets that they can choose to hold or liquidate, potentially funding their missions more substantially.
4. Legacy Planning: For business owners, this can be part of a larger strategy for transitioning ownership or planning for the future of their company.

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Breaking Down the Numbers

The case study provides several scenarios, each with increasing percentages of shares donated. Let's focus on the comparison between Option #1 (selling shares and donating 5% of the cash proceeds) and Option #2 (donating 5% of shares directly before selling).

Option#1: Sell, then give 5% cash

• Family receives: $34,792,360
• Taxes paid: $12,707,640
• Charity receives: $2,500,000

Option#2: Give 5% shares, then sell

• Family receives: $34,595,565
• Taxes paid: $11,876,000
• Charity receives: $3,750,000

The Difference:

• Family: $196,795
• Taxes: $831,640
• Charity: +$1,250,000

This comparison reveals a striking reality: by donating shares instead of cash, the charity receives an additional $1.25 million, while the family's position is only marginally affected. The real loser here is the tax collector, with $831,640 less in revenue.

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The Magic of Pre-Sale Giving

What makes this strategy so powerful? It's all about timing and tax treatment. When a donor gives appreciated stock to a qualified charity before a sale:

1. They avoid paying capital gains tax on the appreciated value of the donated shares.
2. They receive a tax deduction for the full fair market value of the donated shares.
3. The charity, being tax-exempt, can sell the shares without incurring capital gains tax.

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In the illustrated scenario, this creates a situation where everyone(except the IRS) wins:

• The charity receives substantially more funding
• The donor maintains nearly the same after-tax position
• More money goes toward the charitable mission instead of to taxes

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Scaling the Impact

The case study doesn't stop at 5%. It provides scenarios for donating up to 12.5% of the company's shares, showing how the benefits can scale:

• 7.5% donation: Charity receives $5,625,000
• 10% donation: Charity receives $7,500,000
• 12.5% donation: Charity receives $9,375,000

As the percentage of donated shares increases, so does the potential impact on the supported causes. This scalability allows donors to think big about their philanthropy and potentially make transformative gifts that might not have been possible with cash alone.

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The Bigger Picture: Realizing Nonprofit Missions

Beyond the numbers and tax strategies, this approach to giving speaks to a larger philosophy of philanthropy. The case study poses a powerful question: "Have you ever imagined what the world would be like if your favorite nonprofit mission was fully funded?"

This question cuts to the heart of why many people give. It's not just about tax savings or financial strategies; it's about making a tangible difference in the world. By leveraging business assets for charitable giving, donors can potentially fund nonprofits at levels that could truly transform their ability to achieve their missions.

André P. Gorgenyi, CAP®
Vice President of Philanthropy, The Granite YMCA
Founder, Profit with Purpose

Found this blogpost insightful?

Unlock the secrets to simplifying and closing complex gifts in the upcoming webinar, "Thinking Beyond Cash: 3 Proven Steps on Simplifying and Closing Complex Gifts." Led by André Gorgenyi on October 24^th, 2024 at 1pm EST. Register today.

André P. Gorgenyi, CAP®, brings over two decades of experience in fundraising, philanthropic advising, and nonprofit leadership. With a proven track record of securing seven, eight, and nine-figure gifts, André is an expert in planned giving and capital campaigns. As the Vice President of Philanthropy at The Granite YMCA and founder of Profit with Purpose, André leverages his deep expertise to help nonprofits optimize operations and maximize social impact, making him a sought-after advisor in the field.