Should You Donate Part of Your Business Before Selling It?

Why some owners consider charitable giving before a sale—and what to understand before deciding

You have an offer for your business, or for part of it. Almost overnight, you are weighing ideas you have never had to consider, and hearing different answers from people you trust.

One of those ideas may be pre-sale charitable gifting: giving part of your ownership to a charity before the sale closes. Depending on who describes it, it can sound generous, clever, or reckless.

It can be any of those. Which one depends on facts that often are not pinned down yet. This guide explains how the idea works, where the real risks sit, and what to ask before you decide.

Why donate business stock before a sale instead of after?

If you sell first and donate cash afterward, you generally pay tax on your full gain from the sale. The later cash gift may still be deductible, but it does not undo the tax on the gain.

If a qualified charity already owns some of your shares when a buyer purchases them, the gain on those shares may belong to the charity, and many charities pay no income tax on it. You may also be able to deduct the value of what you gave. Whether that is meaningfully better than giving cash later depends on your tax situation, the type of interest, how the deal is structured, and the deduction limits that apply. In the right circumstances, more of the value reaches the cause you care about.

"In the right circumstances" is doing a lot of work in that sentence. The rest of this guide is about what those circumstances are.

Is pre-sale charitable gifting legitimate?

Yes. For decades, courts and the IRS have recognized properly structured charitable donations before a business sale, and many charities and donor-advised fund sponsors have processes for accepting gifts of business interests.

It is also an area the IRS examines closely: was the gift real, was it made in time, and was it properly valued and documented? In a 2023 Tax Court case, Estate of Hoensheid v. Commissioner, T.C. Memo. 2023-34, an owner who gave shares to a donor-advised fund shortly before closing was still taxed on the gain from the donated shares, and lost the deduction because the appraisal did not meet IRS requirements.

When is it too late, or too early, to give?

This is where most of the difficulty lies.

Give too late, and the IRS can treat you as having sold the shares yourself and donated the proceeds. Courts look at the whole picture, including signed agreements, approvals, and what conditions remain, rather than any single document. There is no bright line. An early, non-binding offer generally leaves more room than a signed purchase agreement, but neither guarantees a result.

Give too early, and you carry the risk that the deal never happens. A completed gift is permanent. If the sale falls through, the charity still owns its share of your company, with whatever rights your company documents give it. A prior agreement to buy it back can undermine the gift, and any later buyback must be handled carefully under rules that limit donor benefits.

Good planning works in the window between those two risks. That window is different in every deal.

Does it matter whether you are selling stock, assets, or a division?

This question shapes everything, and it is easy to overlook.

A gift of your shares fits most naturally when the buyer is buying shares. Many deals are not structured that way. If your company is selling its assets, or one division of the business, the company is the seller, not you. The gain arises inside the company and, depending on how the company is taxed, may be taxed to the company, passed through to its owners, or both. A charity holding some of your shares does not change who the seller is; it would simply own part of the whole company, including whatever remains after the sale. In that situation, a gift of your shares may not be practical or produce the intended benefit. Restructuring before a sale is sometimes possible, but it adds steps, cost, and timing pressure of its own.

The type of entity matters too. A gift of S corporation stock can leave the charity owing tax on its share of the sale, and can reduce your deduction. LLC and partnership interests raise their own issues, including the effect of company debt. Your shareholder or operating agreement may restrict transfers or require consent. And if the charity becomes a seller, the buyer will need it to sign the deal documents on terms it is willing to accept.

Will the charity accept it, and what documentation is needed?

Not every charity accepts private business interests. Those that do will review the company, the transaction, and the risks before agreeing, and that review takes time. Documentation rules depend on the property and the size of the deduction. Generally, a deduction of more than $5,000 for a private business interest requires a qualified appraisal by a qualified appraiser, and above $500,000 the appraisal must be attached to your return. For a substantial gift, plan on an independent, compliant appraisal from the start. You will also need a timely written acknowledgment from the charity.

The deduction has limits. Gifts of appreciated long-term capital gain property to a public charity, including a donor-advised fund, are generally deductible up to 30% of adjusted gross income, with unused amounts carried forward for up to five years. Gifts to private foundations face tighter limits. Beginning in 2026, itemizers can deduct charitable gifts only to the extent the year's total exceeds 0.5% of adjusted gross income. For taxpayers in the top 37% bracket, a separate limit on itemized deductions generally caps their tax value at about 35%.

Why do advisors disagree about giving before a sale?

Conflicting advice does not necessarily mean someone is wrong. Advisors are often answering different questions. Deal counsel focuses on closing a clean transaction, and an added party can complicate that. A charitable planner focuses on the gift. A CPA may focus on this year's return. Each view can be sound within its own frame. A decision this size needs someone looking across all of them.

When advice conflicts, ask each advisor:

• What are you assuming about my entity and how the deal is structured?
• Under your approach, what happens if the sale does not close?
• What would change your recommendation?

Before you decide, get clear on these

• What am I trying to accomplish: charitable impact, tax efficiency, my family's security, or a combination?
• What exactly is being sold (shares, assets, or one part of the business), and how is my company taxed?
• How far along is the deal, and what is still uncertain?
• Can I live with a charity owning part of my company if the sale never happens?
• Do my company agreements allow the transfer, and will the buyer and the recipient accept it?
• Are my legal, tax, deal, valuation, and charitable advisors working from the same facts?

You don't have to sort this out alone

At Roots & Wings Legal, we work with owners of family and closely held businesses through sales, ownership transitions, and succession. We help owners get clear on what they want, weigh their options, and bring the right specialists together around one plan, before decisions become irreversible. You can see examples of our work in Representative Matters.

If you are facing an offer and these questions are on your mind, we would welcome a confidential conversation: Contact us.

Sources

• Estate of Hoensheid v. Commissioner, T.C. Memo. 2023-34 (Mar. 15, 2023)
• Internal Revenue Code § 170 (charitable deduction limits, carryforwards, the 0.5% floor, appraisal and acknowledgment requirements)
• Internal Revenue Code § 68 (limitation on itemized deductions, effective 2026)
• Internal Revenue Code § 512 (tax on charities holding S corporation stock)

This guide provides general educational information about U.S. federal tax and transaction concepts as of October 2026. It is not legal or tax advice and does not create an attorney-client relationship. State law, your specific facts, and the transaction documents will affect any outcome, and no particular tax result is assured. Consult qualified advisors before acting.