Christmas is just around the corner, which means it’s time to start thinking about gifts. As you check off your list of friends and family members, you may find there’s one or two who are especially difficult to find the right present for. Or, maybe you’re just looking for something out of the box to give this year.
If you are, we at TaxGlobal have a suggestion: stock.
Hear us out. We know stock might sound like a boring gift, but think of it this way: instead of giving an object that’s going to collect dust or a gift card they’ll stick in their wallet and forget about, you could give something that will earn the recipient money and keep increasing in value. And if you already own stock, you can simply give it to them, no purchase necessary.
If you think that sounds like a good idea, here’s what you need to know about gifting stock.
How to give stock as a gift
While the process for gifting stock isn’t quite as simple as just wrapping up a box or sticking a gift card in an envelope, it’s not too complicated.
First of all, decide which stock and how many shares you’re going to give. You may want to give one that’s appreciated (more on that later).
Next, have the recipient contact their broker and ask for instructions on how to receive the stock.
Once you get those instructions, contact your broker and have them prepare for the transfer. (This might be easier if you and the recipient use the same brokerage firm.)
These are the main steps, but the process may be a little different depending on your brokerage firms. For example, some firms require a medallion signature, or a special signature from the firm that validates the transfer.
Once your firm authorizes the transfer, the recipient should receive it in a few business days.
What about taxes?
Gifting stock may have tax implications. Let’s look first at the implications for the giver.
Remember how we said you may want to give the stock that’s appreciated? That’s because, when you give it away rather than sell it, you won’t have to pay capital gains tax on it. The annual gift tax exclusion for 2023 is $17,000 for single filers, and $34,000 for married couples filing jointly. That means you can gift a stock valued at up to $17,000 (if filing singly) or $34,000 (if filing jointly) per year and not have to pay or even file any paperwork with the IRS.
If you do give away more than that, however, you’ll need to file a gift tax return. On this return, you’ll subtract the amount of the gift from the lifetime gift tax exclusion ($12.92 million for 2023).
Now let’s look at the tax implications for the recipient.
The recipient won’t have to declare the stock they receive on their taxes, and they’ll only have to pay taxes on it once, when they sell it.
How much they pay when they do finally sell it will depend on their tax rate, not yours. In other words, they may pay less than you would if their tax bracket is lower. When they calculate the cost basis, they’ll have to use the amount you (the original buyer) paid for the stock.
Other ways to gift stock
If gifting stock is too complicated, you can always sell the stocks and give the proceeds to the recipient instead. While you may not get the tax benefits you would by gifting the stock, it will be a much simpler process.
When deciding which stock you want to sell, here are a few options:
Sell stock you’ve held for more than a year: Stocks you sell after holding them for over a year get taxed at the long-term capital gains rate, which is up to 20%, whereas stock you’ve held for less than a year gets taxed at the higher short-term rate of 37%.
Sell stock that’s decreased in value: This way you won’t have to pay capital gains tax like you would for an appreciated stock.
If gifting your own stock or its profits isn’t feasible, but you still want to give the recipient a stock or finance related gift, you might try:
Giving a stock gift card: You won’t have to pay taxes on the card, and the recipient will only be able to use it to buy stocks.
Contributing to their IRA: Just make sure they’ve earned the minimum amount of or more for you to be able to contribute.
Giving them a financial planning session: Set them up with a CPA or financial planner to give them a headstart on their finances.
If you need help navigating the ins and outs of gifting stock, use TaxGlobal to find a tax professional who can help.