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Mixing business and charity: Keep it ethical, legal, and transparent

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Mixing business and charity: Keep it ethical, legal, and transparent

Your clients who are corporate executives have likely wondered at some point about the benefits of aligning their companies with philanthropy, whether specific causes or particular organizations.

In general, a community engagement strategy can be good for business, if well-executed. For example, almost half of consumers view a brand favorably when the brand supports a charitable cause. Community engagement programs can help with employee retention, too.

But what are the risks involved in mixing business with charity?

In the spirit of aligning doing good with doing well, some companies would love to set up their own nonprofit organizations as “charitable arms” of their enterprises. Corporate leadership may like the idea of efficiency, control, and tight alignment between the company’s offerings and the charity’s mission. For example, a company that makes swimming pools might think it’s a great idea to set up a charity to build swimming pools at community centers to give more kids access to water sports. The company would like to donate tax-deductible dollars to the charity and ask its suppliers and customers to do the same. The company’s executives would serve on the board of the charity, and the charity would purchase swimming pools from the company to carry out its mission.

Is this a good idea?

No. This strategy plays fast and loose with the rules. Beyond setting up an obvious conflict of interest, this practice would mean that a company effectively would be using charitable funds to benefit itself. This is not a “charitable purpose” in the eyes of the IRS and could result in the loss of the charity’s tax exemption. Plus, if the news got out about this structure, the company could suffer reputational damage.

The company, its executives, and the community are all better off if the company pursues more transparent and ethical charitable strategies such as establishing a corporate fund at The Community Foundation, setting up a volunteer program for employees, establishing a matching gifts program, or aligning with wholly-independent charities on cause-related marketing partnerships.

Reach out to The Community Foundation to learn more about effective corporate philanthropy strategies. We are here to help as you work with your clients to achieve their charitable goals both at home and in the workplace.

Thank you for the opportunity to work together! Give us a call at 540-432-3863.

 

This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. 

Celebrate variety: Many assets make great gifts to charity

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Celebrate variety: Many assets make great gifts to charity

When your client is getting ready to make a contribution to a fund at The Community Foundation or other charity, remind them not to automatically reach for the checkbook! Here are other (and typically more tax-savvy) options to consider.

Marketable securities

Gifts of long-term appreciated stock to a donor-advised or other type of fund at The Community Foundation is always one of the most tax-savvy ways to support favorite charitable causes because capital gains tax can be avoided. Gifts of publicly-traded stock, for example, are easy to transfer to a fund. The Community Foundation team can provide you and your clients with transfer instructions to make the process simple.

As is the case with a cash gift, The Community Foundation will provide a receipt for tax purposes, and the gift of stock will be valued at the shares’ fair market value on the date of transfer. When The Community Foundation sells the shares, the proceeds flow into the client’s fund without any reduction for capital gains taxes. This is because The Community Foundation is a 501(c)(3) charitable organization and therefore does not pay income tax. That would not have been the case, however, if the client had sold the stock first and then transferred the proceeds to a fund at The Community Foundation; the client would owe capital gains tax on the sale. Especially in cases where the client has held the stock a long time and it’s gone up significantly in value, the capital gains hit can be big.

Closely-held business interests

The Community Foundation team is happy to work with you and your client to explore how the client might give shares of a closely-held business to a fund at The Community Foundation. Not only will transfers be eligible for a charitable deduction during the year of transfer (and at fair market value if the shares are held for more than one year), but also these gifts could potentially reduce income tax burdens triggered upon a future sale of the business. Be sure to talk with our team well before any potential sale is in the works; otherwise, you could lose out on tax benefits. Gifts of closely-held business interests are powerful but can be tricky to administer.

QCDs from IRAs

As always, keep in mind that the Qualified Charitable Distribution (“QCD”) is a very smart way to support charitable causes. If your client is over the age of 70 ½, the client can direct up to $105,000 (in 2024) from an IRA to certain charities, including a field-of-interest, designated, unrestricted, or scholarship fund at The Community Foundation. If your client is subject to the rules for Required Minimum Distributions (RMDs), QCDs count toward those RMDs. That means your client avoids income tax on the funds distributed to charity. Our team can work with you and your client to go over the rules for QCDs and evaluate whether the QCD is a good fit.

Real estate

Your client’s fund at The Community Foundation can receive a tax-deductible gift of real estate, such as farmland or commercial property, in a variety of ways. An outright gift is always an option; lifetime gifts of real estate held by the client for more than one year are deductible for income tax purposes at 100% of the fair market value of the property on the date of the gift, which also avoids capital gains tax and reduces the value of your client’s taxable estate. Other ways to give real estate include a bargain sale or a transfer to a charitable remainder trust which produces lifetime income for the client and the client’s family.

Life insurance

Don’t overlook life insurance as an effective charitable giving tool, whether by naming a client’s fund at The Community Foundation as the beneficiary or, in the case of whole life policies, naming the fund as beneficiary and transferring the policy itself. If your client transfers a policy, the client may be able to make annual, tax-deductible contributions to The Community Foundation to cover the premiums.

Other “alternative” assets

The Community Foundation is happy to work with you and your clients to explore options for giving other non-cash assets to funds at The Community Foundation, including:

  • Oil and gas interests
  • Negotiable instruments
  • Cryptocurrency
  • Artwork
  • Collectibles

We look forward to working with you to explore all the options!

 

This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.