Shares of stock are an unusual stocking stuffer for the holidays. Gifting shares to family members who want to start investing or establish a legacy of wealth may be a strong strategy.
Gifting an investment in a company's stock is an excellent method for your recipient to keep track of its performance and see how it grows over time. A kid can inherit the investment account when they're old enough, and they'll benefit from more experience in the stock market.
When Can Stocks Be Given As Gifts?
Yes, you may give stocks as a present. A few options are available. Stock that has already been gained is the first case. If you've made a profit, the stock's value has increased, and it now costs more than you paid for it.
If the recipient is in a lower tax bracket, you may be able to avoid paying taxes on those gains by gifting them to them. CFP® and CDFA® at HCR Wealth Advisors explain that, as a general rule, you want to offer valued stock to people and charitable organizations.
How to Gift Stocks That You Already Own
In your accounts, you can move stocks, mutual funds, and other securities to other types of accounts. Again, the largest logistical challenge is that you'll need the recipient's Social Security Number or account number to set up the transfer, which might remove the surprise factor from the gift.
If obtained from a family member like a parent or spouse, extra stock in an account might be a welcome surprise for the lucky receiver. As part of your present, you might create and fund an account for them if they don't already have one.
What Accounts Do You Open for Family Members As a Gift?
There are a variety of options available. State and federal governments have set up 529 college savings plans, but bear in mind that these accounts typically only accept cash. However, you may buy equities inside of them if you'd like.
Most schools and institutions allow recipients to utilize the monies for educational expenditures. As Akin points out, "currency values are falling, and college costs are rising,” which makes this an excellent investment.
If you're looking for an alternative that transfers to the receiver when they're of legal age, custodial accounts (also referred to as UGMA/UTMA accounts) are a choice.
Giving Stock: What Are the Tax Repercussions?
Taxes are only levied on gifts that surpass $16,000, or $32,000 for couples if they aren't for a spouse and exceed the $11.7 million lifetime gift tax exemption. As a result of these substantial exemptions, a taxable event isn't triggered until the receiver ultimately sells the shares.
Income, holding duration, and gain compared to the initial purchase price are all factors in determining how much tax is paid on a successful sale.
Taxation of Gifted Stock
Be mindful of any current or prospective tax obligations before purchasing stock presents for your loved ones. If your contribution is substantial, you may have to pay the Internal Revenue Service (IRS) fee. If all goes according to plan, the receiver may have to pay capital gains tax.
The Gift Tax
The gift tax, which is a federal tax on gifts, is unlikely to be a concern for most individuals. Unless the stock donation is worth more than $16,000 (or $32,000 for couples) and exceeds the lifetime gift tax exemption, which as of 2021 is set at $11.7 million ($12.06 million for 2022), donors are not taxed on stock contributions.
This tax does not apply to spouses; therefore, if you give shares to your spouse, there is no need to be concerned.
Capital gains
Investors are taxed on any gains they make when a stock is finally sold, and the IRS must be notified, depending on the length of time it has been held and how much money they have earned from the original purchase price.
Short-term capital gains are taxed as ordinary income if the receiver sells the investment within a year at a profit. Long-term profits are taxed at lower capital gains rates, so holding onto your investment for longer often yields greater results.
What About Charitable Donations?
Charitable organizations operate in a variety of ways. "Giving stocks to a charity is the finest way to contribute to charity since it's a win-win situation for both the donor and the organization." According to Katzen, not all charities will take stock donations, so be careful to inquire if you plan on doing so.
Even if your stock investment is worth $2,000, the charity will receive all $2,000. You can deduct it as a charitable gift on your tax return as a $10,000 donation." As a result, both parties come out on top."
Summary
Giving stock as a gift is a great method to transfer wealth down through the generations. As a bonus, it's a terrific method to donate to charitable causes. You may choose from various account kinds, each with a different balance limit and transfer options. You'll need the recipient's Social Security Number or account details to conduct a transfer in most circumstances.
