Three charitable strategies before a business sale: Donor Advised Funds, Charitable Remainder Trusts and Private Foundations, and how each lowers capital gains.
Founders planning an exit talk about valuation, deal structure and the tax bill. Almost nobody raises charity, and that leaves one of the more effective levers untouched. Greg O'Brien and John Malone sort the options into three buckets, from the simple deduction to a foundation you run for decades.
None of this works as a pure tax play. It has to be real charity too, which means a qualifying organisation, not money to a family you like or to your own relatives. That is a gift, not a donation. In practice most appreciated business owners already give somewhere: a university, a church, a local cause, a national organisation.
Before a letter of intent you have the full tool shed. Once the LOI is signed the options roughly halve, and once the deal closes they halve again. The reason is the step transaction doctrine: move equity around days before a sale and the IRS treats the move as an avoidable step inside the larger transaction, done for tax avoidance, and disregards it. Deals arrive at Anomaly's door post signature far too often.
For the owner already under LOI or past the closing, the donor advised fund is the simplest tool available. Fidelity, Schwab and Bank of America all offer them, they open quickly, and the deduction locks in when the money goes in. Where it goes afterwards can be decided later.
One client selling for 15 million dollars, already under LOI, was a faithful tither with other causes in mind. Bunching the giving into the sale year through a DAF did not erase the capital gains bill, but it took a substantial piece out of it.
It does not have to be cash. Appreciated securities work better: you deduct fair market value and avoid the gain you would have paid on selling. Watch the AGI limits, 30 percent for securities against 60 percent for cash. Crypto also qualifies, though the rules usually force you to pay for a valuation even when the price is public.
For the owner who sees an exit coming and still has time, a charitable remainder trust does more work. You contribute an interest in the business, usually LLC interest, into the trust well before the LOI. That requires a third party appraisal of the interest, and it produces a charitable deduction on the way in.
When the business sells, the portion held inside the trust is not taxed at that moment. Put 25 percent in and sell for a million dollars, and that 250,000 dollars sits inside the trust untaxed, invested and growing.
The trust is not a black hole. By statute it pays out annually, as low as 5 percent and as high as 50, typically 5 to 6, over a term often 20 to 30 years depending on age. Those distributions are taxable income to you. At the end at least 10 percent goes to the charity you name, which can be a university, several organisations, or your own donor advised fund. An irrevocable life insurance trust is usually attached so an early death does not leave the family short.
Model it before committing. Compare selling, paying tax and investing what is left against deferring the gain and taking the income stream, and in most cases the trust comes out ahead. The real cost is access: that principal is no longer yours to touch. It works best as part of the plan, not all of it, and only on an exit large enough to justify the legal work.
This is the legacy option, and the least common. A private foundation is your own charity, with IRS approval, governance and annual compliance. A non operating foundation makes grants and scholarships. An operating foundation runs actual activity: a museum, events, programmes, with payroll and expenses.
It suits owners who plan to contribute six figures a year for years and want control, often because something in the family drives the mission. It is a poor fit for anyone wanting a single deduction in the year of sale. Most clients hear the ongoing legal, compliance and filing costs and pick a DAF or a trust instead.
Time is the asset. If the plan is to sell in 2028, the conversation starts now. Legal structures take months to build, and estate and inheritance planning sits alongside all of it. Do it early, and the structure is already in place when the LOI arrives.