Stock of gifts: advantages, tax implications

  • Giving stocks can be more valuable than money and a way to pass on wealth or give to charity.
  • Donations in inventory valued at less than $ 15,000 eliminate the tax liability of the donor.
  • The beneficiary may be subject to capital gains tax, although the rate depends on his taxable income.
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While money is often the go-to gift of choice when you’re not sure what to give someone exactly, giving a stock might be a better gesture for you and the recipient.

Being in the spirit of generosity might be the simplest motivation. But there are also a lot of advantages to sharing love in this way. To avoid

capital gains

taxes, educating children and other family members to invest, or maximizing a charitable donation could all be potential reasons why you might choose stocks as a gift.

Benefits of donating shares

Anyone can offer shares to whomever they want. However, this is often done within families, especially 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 stocks because it is a way for them to start building wealth at a very young age, ”says Owens. With the added value of time, offering stocks to children and young adults could maximize the potential return. For some, it can even be a valuable tool used to educate loved ones about money and investing.

As a donor, you can benefit from zero capital gains tax on the appreciated value of the investment. “If you’re offering something under $ 15,000, you shouldn’t have to worry too much,” says Dennis LaPorte, partner at UHY and the accounting firm’s senior estate and gift tax advisor.

The stock of gifts can also provide the opportunity to offer a more valuable gift. “If I donated low-cost base stock, one of the benefits of doing it might be that I would donate $ 100,000, but it was only $ 1,000 in my pocket,” notes LaPorte.

When it comes to charitable giving, there are also many advantages to doing so in stocks rather than cash. On the one hand, as a donor, you will be able to receive a charitable deduction for the full value of the shares. “If I paid $ 1,000 for this action and it is now worth $ 25,000, I will still get a charitable deduction of $ 25,000,” says Laporte.

That way, you’ll also be able to give the organization more than you would by selling the shares, paying capital gains taxes, and then donating what’s left.

How to offer stocks

One of the most common ways to donate stocks is to transfer them from one brokerage account to another. Of course, to do this you will need the recipient’s account information, it might add some difficulty if you are hoping for a complete surprise. To initiate the transfer, you may need to contact your brokerage firm directly if you do not see the option in your account.

“The other way is through custody accounts,” Owens says, “and anyone can have them.”

A parent, grandparent, aunt, or uncle can all have separate custody accounts that they manage for the same child. You can then transfer funds directly to this account.

Alternatively, you can search for gift cards from companies like Stockpile. They are “almost like a transfer of a sum of money, then [the recipient] chooses where it goes, ”says Owens. You can also buy individual stocks of a company’s stocks through services such as GiveAShare and These options even come with a certificate.

Can you offer shares on Robinhood?

Donate stock that you bought through

investment applications

may be possible, but might cost extra. For example, with Robinhood, you can transfer assets out of the app and to other brokerages, but there is a $ 75 fee charged on all partial or full transfers.

What are the tax implications of donating shares?

When donating shares, there will be tax implications for the donor and recipient. Fortunately, it is possible that both parties will get away with it. In general, when you sell an asset for more than the price you paid for it (or your cost base), you are subject to capital gains tax. The rate is determined both by the length of time the property is held and by your taxable income

However, once the donor transfers ownership of the stock, they no longer have to worry about capital gains tax. “When you decide to give it away, there’s really nothing to tax,” says Owens.

However, transferring shares from one person to another will not completely remove capital gains from the equation. Someone will eventually have to pay it, or at the very least declare the win.

The Internal Revenue Service explains it this way: “If you were given shares that the donor had bought for $ 10 per share (and that was his basis), and you later sold them for $ 100 per share, you would pay income tax on a gain of $ 90 per share. “

One important thing to remember about capital gains taxes when giving a stock that you own as a gift is to let the recipient know what you originally paid for it, notes LaPorte.

The value of your gift in stock is also a major caveat. The IRS allows you to give $ 15,000 tax-free per year, per person for 2021, rising to $ 16,000 in 2022. The same goes for stocks, if you give more than $ 15,000 to a company. person, as a donor you may be subject to a gift tax. At the end of the day, every situation is different and it’s best to consult a professional about your possible tax liability before making a decision.

The financial report

Donating stocks can be a great way to educate kids about money and investing, defer capital gains taxes, and make charitable donations. While there are many possibilities for donating shares, more often than not this is done by transferring shares from one brokerage account to another or by setting up a custody account and funding it for children and children. minors.

If you are donating stocks, it is helpful to gather any initial documentation, such as the cost basis of the stock, and provide it to the recipient for future use. As a receiver, “Keep very accurate documentation of what you received and its valuation at all times,” explains Owens.

Offering shares to someone with lower taxable income can be a way to minimize capital gains tax paid, if at all. Consulting a tax professional can help you strategize around the timing of your donation and determine what taxes you may have to pay.