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Stock gifts can help young people learn about money and investing.
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Gifting stock can be more valuable than cash and a way to pass down wealth or give to charities.
Stock gifts valued at less than $16,000 remove tax liability from the gifter.
The recipient may be subject to capital gains tax, though the rate depends on their taxable income.
Though cash is often the go-to gift when you’re not exactly sure what to get someone, giving stock could be a better gesture for both you and the receiver.
Being in the giving spirit might be the simplest motivation. But there are also a lot of benefits to sharing the love in this way. Avoiding capital gains taxes, educating children and other family members about investing, or maximizing a charitable donation could all be potential reasons you might choose stock as a present.
Benefits of gifting stocks
Anyone can gift stock to whomever they choose. However, it’s often done within families, especially from parents to children, says Dondrea Owens, CPA and founder of The Creative’s CFO.
“A lot of parents and grandparents don’t necessarily want to buy toys or just give kids money, but they will give them stock because it’s a way for them to start building wealth at a very early age,” Owens explains. With the added value of time, gifting stock to kids and young adults could maximize the potential return. For some, it may even be a valuable tool used to educate loved ones about money and investing.
As the gifter, you can enjoy zero capital gains tax on the appreciated value of the investment. “If you’re gifting something that’s less than $16,000 [up from $15,000 in 2021], you shouldn’t have to worry too much,” says Dennis LaPorte, a partner at UHY and the accounting firm’s leading estate and gift taxation advisor.
Gifting stock may also offer the opportunity to give a more valuable gift. “If I give a low cost basis stock, one advantage of doing that would be maybe I’m giving $100,000, but it was only $1,000 in my pocket,” LaPorte notes.
As far as charitable giving goes, there are also quite a few benefits of doing this through stock instead of cash. For one, as the gifter, you’ll be able to receive a charitable deduction for the total value of stock. “If I paid $1,000 for this stock and now it’s worth $25,000, I will still get a charitable deduction for $25,000,” Laporte explains.
This way, you’ll also be able to give more to the organization than you would by selling the stock, paying tax on the appreciation, then gifting whatever is left.
How to gift stocks
One of the most common ways to gift stock is by transferring it from one brokerage account to another. Of course, to do this you’ll need the recipient’s account information, this could add difficulty if you’re hoping for a complete surprise. To initiate the transfer, you may have to contact your brokerage firm directly if you don’t see the option within your account.
“The other way is through custodial accounts,” Owens says, “And anyone can have them.”
A parent, grandparent, aunt, or uncle may all have separate custodial accounts they manage for the same child. You’ll then be able to transfer funds directly into that account.
Alternatively, you could look into gift cards through companies like Stockpile. They’re “almost like a transfer of an amount of cash, then [the recipient] chooses where it goes,” Owens explains. You could also purchase single shares of a company’s stock through services like GiveAShare, and UniqueStockGift.com. These options even come with a certificate.
Quick tip: Trust accounts for beneficiaries may provide better control to the guardian and protect the child from outside creditors. It can be helpful to speak with an accountant about the tax implications of a trust or custodial account.
Can you gift stocks on Robinhood?
Gifting stock you’ve purchased through investing apps may be possible, but could cost additional fees. For example, with Robinhood, you can transfer assets out of the app and into other brokerages, but there is a $100 fee on all partial or full transfers.
What are the tax implications of gifting stocks?
When gifting stock, there will be tax implications for both the giver and the receiver. Luckily, it may be possible for both parties to come out on top. In general, when you sell an asset for more than the price you paid for it (or, your cost basis), you’re subject to a tax on the capital gains. The rate is determined both by how long you hold the asset and your taxable income
However, once the gifter transfers ownership of the stock, they no longer have to worry about capital gains taxes. “When you decide to gift it, there’s really nothing to be taxed,” says Owens.
Still, transferring stock from one person to another won’t take capital gains tax out of the equation completely. Someone will have to pay it eventually, or at the very least report the gain.
The Internal Revenue Service explains it like this: “If you were given stock that the donor had purchased for $10 per share (and that was his/her basis), and you later sold it for $100 per share, you would pay income tax on a gain of $90 per share.”
An important thing to remember with regards to capital gains taxes when you’re giving a stock you own as a gift is to let the recipient know what you originally paid for it, LaPorte notes.
The value of your stock gift is also a major caveat. The IRS allows you to give away $16,000 tax free per year, per person for 2022, increasing to $17,000 in 2023. The same holds true for stocks, if you’re gifting more that $15,000 worth to one person, as the donor, you may be subject to a gift tax. Ultimately, every situation is different, and it’s best to consult with a professional about your potential tax liability before making any decisions.
Quick Tip: Holding assets for longer than a year ensures you’ll be taxed at long-term capital gains rate, which could be as low as 0% depending on your taxable income and filing status. Short-term capital gains are taxed like ordinary income, potentially up to 37%.
The bottom line
Gifting stock can be a great way to educate children about money and investing, defer capital gains taxes, and make charitable donations. Though there are plenty of avenues for stock gifting, most commonly it’s done by transferring shares from one brokerage account to another or creating a custodial account and funding it for children and minors.
If you’re giving stock, it’s helpful to gather any upfront documentation, such as the cost basis of the shares, and provide that to the recipient for their future use. As the receiver, “Keep really accurate documentation of what you received and what its valuation is at any point in time,” Owens explains.
Gifting stock to someone with less taxable income may be a way to minimize the capital gains tax paid, if any at all. Consulting with a tax professional can help strategize the timing of your gift and determine any tax liabilities you may have.