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Donor-advised fund simplifies client's giving after business sale

Tom Kotick
Tom Kotick

Good business owners are known for their ability to capitalize on opportunity. This is especially true when deciding to sell their business. More and more business owners are using what is likely their largest influx of income as the charitable opportunity of a lifetime. 

"Business owners are faced with what to do after the sale and also how to cope with one of the biggest expenses in their lifetime, which is the income tax on gains from the sale," says Thomas A. Kotick, CPA, CFP®, senior director at BDO. "That gets a lot of people talking about what to do to minimize the impact of those taxes. It's a good time for business owners to reflect."

According to Kotick, business owners may consider including charity as part of their exit strategy since charitable gifts can significantly reduce their income tax burden.

"Depending on how much the business is worth, selling a business could boost the owner's net worth to a point at which he or she is subject to estate tax," he said. "Anyone with more than $5.34 million in assets is subject to a 40% estate tax. By giving away part of the income from a sale, the owner has less estate tax exposure."

But financial benefits aren't the only driver he sees. 

"The community in which a business operates is a big reason for its success, so charitable giving is most often a token of gratitude for the community's support," he said.

While there are multiple ways for his client's to give to charity — such as donating directly to a nonprofit or establishing a private foundation —  often Kotick recommends creating a donor-advised fund.

By giving an irrevocable gift to Akron Community Foundation, the donor earns the same tax deduction as a gift direct to a nonprofit — the most favorable allowed by the IRS — but does not have to decide where the distributions will go immediately. And unlike a private foundation, there is no required 5% distribution either. 

"This allows time for their money to grow, giving their chosen charities more dollars in the end," said Kotick. "It also gives them time to decide which charities and causes they want to benefit if that's not something they're ready to decide right away."

In addition, the community foundation handles the administration of the donor-advised fund, like processing gifts and investing funds, so that the donor can focus on helping their favorite causes, rather than getting bogged down in paperwork.

If you'd like to learn more about the benefits of starting a charitable fund as part of a business sale, contact Laura Lederer at 330-436-5611 or

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