Charitable strategies before the sale: turning a tax bill into a legacy

An owner sells a $30 million business and writes a $1 million check to their church the following year. The tax bill on the sale was $7.2 million. If the owner had moved $3 million of company stock into a charitable structure 90 days before the LOI was signed, the church would have received more, the tax bill would have been smaller, and the owner's after-tax wealth would have been larger. The mechanism is not aggressive. The mechanism is the part of the tax code Congress wrote specifically to encourage charitable giving by owners of appreciated assets.

A surprising share of business owners have charitable intent. A larger share underestimate how much they will give over their remaining lifetime. And almost all of them learn about the difference between giving cash after the sale and giving company stock before the sale only after the LOI has closed the window.

This is not an article about whether to be charitable. That is a personal decision. This is an article about how to do the charitable giving you have already decided to do in a way that costs you less and gives more.

The leverage point: appreciated stock is worth more to charity than to you

Inside the closely held business is decades of unrealized capital gain. The owner's basis (the original investment, plus reinvested earnings already taxed) may be $500,000. The business sells for $30 million. The $29.5 million difference is taxable gain at federal capital gains rates plus state tax plus, in many cases, the 3.8 percent net investment income tax.

Two scenarios. The owner can sell the stock, pay tax, and donate the after-tax cash to charity. Or the owner can donate the stock to charity, the charity sells the stock, and because charities are tax-exempt, no capital gains tax is paid on the donated portion. The same dollar of pre-sale value lands differently depending on which path it travels.

Look at the table for a second longer than you usually would. Path 2 sends roughly $580,000 more to the charity, costs the owner roughly $390,000 more in net dollars, and produces a larger income tax deduction for the owner. The math is not trivial. The owner is genuinely out more out-of-pocket dollars in Path 2 because they are giving away the un-taxed dollars rather than the taxed-and-shrunk ones. But if the owner was always going to give the equivalent of $3M to charity at some point, Path 2 delivers more to the cause for less total economic cost across the lifetime of giving.

For owners who plan to give meaningful amounts during retirement anyway, front-loading some of that giving in the pre-sale window is one of the few moves in tax planning where the math meaningfully shifts in everyone's favor at the same time.

The three vehicles that do the work

Donating stock directly to a single charity is the simplest version of the strategy. Most owners use one of three structured vehicles instead, because the structured vehicles solve problems the direct donation cannot.

Most owners do not need a private foundation. The DAF is the workhorse of mid-market charitable planning because it captures most of the tax benefit at a fraction of the operational burden. The CRT is the right tool when the owner wants ongoing income from the donated assets and is willing to lock the remainder in. The private foundation makes sense for the largest givers who want a permanent family entity to outlive them.

For many owners the answer is not one vehicle but two: a DAF for the bulk of pre-sale giving and a CRT for a slice of the donation that the owner wants to convert into a retirement income stream.

The LOI cutoff: the rule that ruins late charitable planning

The tax benefit of donating appreciated stock instead of post-sale cash depends entirely on the donation happening before the owner becomes contractually obligated to sell. If the IRS can show that the owner's right to receive sale proceeds was already fixed at the time of the donation, the IRS treats the donation as a donation of cash after a deemed sale. The capital gain is recognized at the owner level, the tax is owed, and the charity receives the same amount but the tax benefit collapses.

The doctrine is called the assignment of income doctrine. The case law is mature and the IRS applies it consistently. The trigger is not the date of the eventual closing. The trigger is the date the sale becomes so certain that the owner is effectively just passing through the cash.

Practically, this means:

• Before LOI is safe. Stock contributed to a CRT, DAF, or foundation before a binding letter of intent is signed clearly qualifies for the appreciated-stock deduction without capital gain recognition.
• After signed binding purchase agreement is dangerous. By that point the sale is contractually committed and the IRS will likely apply the doctrine.
• The gray zone is signed LOI to signed purchase agreement. A non-binding LOI is generally safer than a binding LOI. The legal analysis depends on the specific facts: how binding, what diligence remains, what kill rights exist. Tax counsel should be the one drawing that line, not the owner and not the M&A attorney.

A worked example at the $30M business level

Owner expects to sell a C-corporation for $30 million. Basis is $1 million. Owner plans to donate roughly $3 million across their lifetime to a combination of their church, alma mater, and a community foundation.

Strategy: 10 percent of the stock (worth $3 million pre-sale) is contributed to a DAF four months before the M&A process formally begins. The contribution happens cleanly, before any LOI, before any active buyer conversations beyond informal market checks.

• Owner receives a $3 million charitable deduction in the year of contribution, usable against ordinary income up to 30 percent of AGI, with a five-year carryforward.
• The DAF holds the stock until the company sells. At closing, the DAF receives roughly $3 million of cash (its share of proceeds).
• The owner pays no capital gains tax on the donated 10 percent. The $2.9 million of avoided gain saves roughly $690,000 of federal capital gains tax plus state tax.
• Over the next 10 years, the owner recommends grants from the DAF to chosen charities at a pace that matches their giving intent.

Compared with paying tax on the entire sale and then donating the same total of after-tax cash from a personal account, the DAF route delivers roughly the same $3 million to charity, saves the owner approximately $690,000 of capital gains tax, and produces a $3 million income tax deduction usable against other income. Net to the owner: roughly $1 million of additional after-tax wealth, while giving the same total to charity.

What this strategy does not solve

Three honest limitations are worth stating up front.

Charitable giving is not a tax loophole. The owner gives up real economic value when they donate stock. The math works only for owners who would have given the equivalent amount to charity at some point anyway. For owners with no charitable intent, this is not a tax strategy; it is a tax-flavored donation. The choice has to be made independently.

The deduction is capped by AGI. The deduction in any one year is limited to 30 percent of AGI (for appreciated property to public charities) or 20 percent (for private foundations). High-AGI owners can use the deduction in the year of sale; lower-AGI owners may need to carry it forward across five years. This needs to be modeled. A $5 million deduction is less valuable to an owner with $300,000 of annual ordinary income than to one with $3 million.

Some non-publicly-traded stock is harder. Contributions of closely held stock require a qualified appraisal. Some sponsoring charities will not accept private company stock (they prefer cash or marketable securities). The CRT and the private foundation can take private stock; many DAF sponsors will too, but the diligence is heavier. Plan the contribution mechanics with the sponsor early. Most large DAF sponsors have done this many times and have established procedures.

The five questions to bring to your advisor

1. What is my realistic lifetime charitable giving total? If the answer is meaningful, the case for pre-sale charitable structuring is strong. If the answer is zero or near-zero, this is the wrong strategy for you.
2. How much of my expected after-tax sale proceeds do I need for personal goals (lifestyle, family gifts, reserves)? Whatever is comfortably above that floor is the working pool for charitable structuring.
3. Do I want income from the donated assets in retirement, or am I willing to give them away outright? Income need points toward a CRT. Outright giving points toward a DAF or foundation.
4. What is the timeline to the LOI? If the answer is "within 6 months," the planning window is closing fast. If "12 to 24 months," there is room to do this carefully.
5. Have I coordinated with the M&A team? Your deal counsel, tax counsel, and the receiving charity's gift counsel all need to be talking to each other. Charitable planning that surprises the M&A team mid-process is rarely well-executed.

Charitable strategies are one of the few places in exit planning where the same dollar can do meaningfully more for the family and meaningfully more for the cause at the same time. The cost of admission is doing the work before the LOI, not after. The cost of skipping the work is a tax bill that funds the same charitable intent at lower efficiency.

Sources: Internal Revenue Code Sections 170 (charitable contribution deductions), 664 (charitable remainder trusts), 4940-4947 (private foundation excise taxes), 4945 (taxable expenditures), and 4941 (self-dealing). IRS Publication 526, Charitable Contributions. National Philanthropic Trust, Donor-Advised Fund Report (2025). Fidelity Charitable, Giving Report 2025. American Endowment Foundation, Complex Asset Donations Practice Guide. Tax Cuts and Jobs Act and One Big Beautiful Bill Act provisions affecting charitable AGI limitations. Examples and commentary are the work of the Next Chapter Wealth editorial team and are general in nature. Specific charitable plans require analysis by qualified tax counsel and qualified appraisers for closely held stock.