Shares are the true gift that keeps on giving. If you want to give stock as a gift this holiday season—to loved ones or to charity—there are some things you ought to know. How do you buy stock as a gift, and how do taxes work in that situation? We’re giving you the rundown in this guide to gifting stocks, so you can do it the right way.
- Give stock as a gift to friends and family by using a broker transfer, certificate transfer, direct recipient purchase, custodial account, trust fund or transfer on death agreement.
- Know that capital gains taxes are still a factor when gifting stocks—for both parties.
- You can get tax exemptions by gifting stocks to public charities.
- Be sure to consult with your financial advisor or broker to discuss the right move for gifting stocks.
How to gift stock to friends and family
At its core, the process of gifting stocks simply requires you to transfer the shares from your brokerage account to the recipients. However, you’ll take different steps depending on the type of stock you hold and who you’re transferring them to.
Here are a few options for gifting stocks via transfer:
- Broker transfer: Contact the broker who holds your brokerage account. Have them electronically transfer your stocks. The law states you must sign off in writing, which means there may be some printing and scanning involved if you’re dealing with an online-only broker. You will need to have some information handy, including:
- Your name and address, plus the recipient’s name and address
- Your account number, plus the recipient’s account number
- The recipient’s social security number
- The name and number of stocks you want to gift
It’ll be easier if you both have the same broker, but it’s not impossible if your brokers differ. You will just have to communicate between the firms and have the seller involved, so it won’t be a surprise gift.
TIP: If you want, you can make it a regular thing by setting up share transfers at specified intervals.
- Certificate transfer: Sometimes, people hold stocks in what’s called a “certificate form”. This just means you’re physically transferring the stocks, which might work out nicely if you’re looking for something to wrap. For this to work, you will need to visit your broker in person (they will serve as a guarantor) and have them witness your signature as approval for the transfer.
- Buy stock as a gift in recipient’s name: To avoid the hassle of stock transfers altogether, you can simply buy the stock in the recipient’s name outright. You may need some information about the person to complete this, such as account number and social security number. If you have kids that are now young adults, this is a great option because you’re doing the leg work for them, but they still have control over the stock and can learn about the market.
- Custodial account: If you want to know how to gift stock to minors, a custodial account is the way to go. An account like this may also be called UTMA or UGMA. You can manage the shares for them, but still keep them involved in the process. By the time the kids are old enough to trade on their own, they’ll be more knowledgeable about the stock market than most people their age (plus they’ll have a solid start to savings).
Depending on the state you live in, you can defer access to the account between ages 18–25. You only have the right of oversight, but the minor does own the shares.
- Trust fund: This is another option for your children (or adults who need some guidance), and one that offers more control than a custodial account. You can specify exactly how your children must use profits from sold shares.
- Transfer on death agreement: Set up your stock market assets to be transferred to your beneficiaries at your time of death using a Transfer on Death Agreement, which you can find via your broker firm.
Related: How to pick a stock
How taxes work when you give stock as a gift
If you thought gifting stocks was a way to get out of taxation in the United States, think again. Getting shares of stock as a gift still means getting taxed, for both parties.
How the recipient will be taxed:
The recipient will take on the burden of capital gains tax, but only after they sell. Whether they are charged for short-term or long-term capital gains tax depends on the amount of time they hold the position (AKA how long they wait until selling). On the other hand, capital losses can serve as a tax write-off up to a certain amount.
Length of time is just one factor that affects how much the recipient will pay in capital gains taxes. Other factors include the cost basis (AKA how much the gifter paid for the stock) and the stock’s value at the time of receipt.
How the sender will be taxed:
As a gift giver, you may still encounter taxation, even though you’ve given the stock away. If the shares have appreciated since you purchased them, you may own capital gains taxes yourself.
Depending on the size of the gift, you may also need to report it to the IRS. In 2020, you can give up to $15,000 to anyone as a gift and not have to report it. Any more than that and it applies to your lifetime exemption.
Gifting stocks to charity
You can make a monetary charitable donation so much more valuable by gifting stocks instead of cash. This is great for the cause as it could increase the value of your donation, but that’s not the only reason why gifting stocks to charity is a wise move. It can also open the door for tax exemptions that will make a big difference.
Generally, those who buy stock as a gift for charity incur more generous tax exemptions when their donation is larger. However, any size gift can help to offset your own capital gains taxes. To score tax exemptions for gifted stocks to charity, follow these rules:
- You can deduct the fair market value for the stocks you gifted from your annual taxes. The maximum amount you can deduct is 50% of your annual gross income.
- You must make the donation to a public charity.
For some people, getting shares of stock as a gift could be the one thing they need to get ahead. It could be the launch of a retirement savings, the first step toward saving for property or just a way for someone to learn about the stock market, no strings attached. You can maintain some control, or you can let the gift receiver take the reins.
Whatever the case, always consult your financial advisor or broker before you officially give stock as a gift. Everyone’s situation is different, and you don’t want to dig yourself into a tax hole just so your loved one can enjoy getting shares of stock for the holidays.