According to a recent poll, an impressive 90 percent of small-business owners contribute to their communities, according to the National Federation of Independent Business.
As a small-business owner, you probably receive a number of requests to lend support to worthy causes throughout the year. And if you’re a typical business owner, you’ve given your time and/or money to one or more of these causes.
Most business owners give back to their communities for personal reasons, but businesses reap many other benefits from these contributions ?enhancing the businesss reputation, creating a better business climate, and free publicity ? to name a few.
One way to reap even greater rewards is by implementing a charitable giving strategy. If structured properly, this approach can result in a reduction in income taxes and, potentially, estate taxes. A reduction in your tax liability could also help free up more of your assets to donate to charity.
Two popular methods for structuring charitable giving involve setting up a trust.
Charitable remainder trust (CRT): When a CRT is established, the donor names a beneficiary to receive the assets in the trust upon his or her death. The donor may receive income generated by the trust during his or her lifetime, while the trust assets are typically excluded from the donor’s estate. Any assets transferred to the trust may be partially tax deductible and are exempt from any current capital gains tax.
Charitable lead trust (CLT): When you set up a CLT, income generated by the trust assets is directed to the charity of your choosing. This can help reduce any current income taxes due on trust income, and the remaining trust assets can be passed to heirs upon your death.
As you review these strategies, also consider whether to donate personal or business assets. The appropriate choice will depend on a number of factors, including how your business is structured, your estate conservation strategy, and current level of giving.
Before you write another check, consider the additional benefits that a structured giving strategy can provide.