Charitable Giving Enhanced by an Employee Stock Ownership Plan (ESOP)
By using an ESOP, a shareholder can make a stock donation to a charity, create positive cash flow, by receiving a personal tax deduction, and provide a cash gift for charity. The stock is given to charity and the ESOP subsequently purchases the stock from the charity.
Assumptions
- Stockholder in 40% individual bracket. (federal and state combined)
- Taxpayer is shareholder of company
- Company has or will install an ESOP
Without an ESOP
- Stockholder gives $1,000,000 in cash to charity.
- Charity has $1,000,000 in cash.
- Stockholder saves $400,000 in taxes.
- Net cash cost to stockholder is $600,000.
With an ESOP
- Stockholder gives $1,000,000 of stock to charity.
- Company contributes $1,000,000 to the ESOP in place of making the
contribution to a different retirement plan. - Charity sells stock to ESOP for $1,000,000.
- Stock in the ESOP is allocated to all eligible employees, typically full-time.
(Note: The sale to the ESOP is normally spread over several years.)
Results
Corporation uses tax-deductible or tax-free dollars to fund the charitable gift the donor desires to make, and also provides an outstanding employee benefit.
1. Charity has $1,000,000 in cash.
2. Net cash flow to stockholder is +$400,000.
3. Company receives a $1,000,000 tax deduction.
East Coast Office
251 Albevanna Lane
Scottsville VA 24590
Phone: 434-286-3130
esop@esopservices.comWest Coast Office
P.O. Box 420563
San Diego CA 92142
Phone: 858-292-4819
paige@esopservices.com