Tax Refund


If you’ve been to a big box store lately, you may have already spotted Christmas decorations for sale. Even though it might seem too early to be thinking about the holidays, it’s never too early to start brainstorming gift ideas.

Want a gift idea that’s completely out of the box? Try gifting stock this year.

Instead of buying one more gift card that the recipient won’t use, you can give away stock you already own to someone you know. But, the process can be less intuitive than just writing a check. Here’s what you need to know about gifting stocks.

How to Gift Stock

First, you need to decide which stock and how many shares of it you want to gift. Once you know those details, contact the recipient. They will have to contact a representative from their brokerage firm and ask them for receiving instructions.

Next, you can contact your own brokerage firm and ask them to prepare the transfer details. It may be easier to transfer stock if both the donor and the recipient use the same brokerage firm.

The process for gifting stock may vary slightly depending on the brokerage firm. For example, some may require a medallion signature, which can be difficult to acquire. This is a special signature given by the brokerage firm that validates the trade.

“Medallion signature guarantees are increasingly challenging for individuals to procure, and this is especially true for households that do not have a relationship with a bank or brokerage that has physical branches,” said Lindsey Young, CFP® and founder of Quiet Wealth LLC.

Once the transfer has been authorized, it should only take a few business days for the stock to transfer over.

Tax Implications of Gifting Stock 

If you have several stocks in your portfolio, it can be hard to decide which stock to send. In general, it is best to give a stock that has appreciated significantly. By gifting the stock that has appreciated, instead of selling it, you (the donor) don’t  pay any capital gains taxes.For 2023, the annual gift tax exclusion is $17,000 per receipt per year for single filers  or $34,000 per receipt per year for married couples filing jointly.  

“This means you can gift a stock worth up to $17,000 ($34,000 if married) without having to file any paperwork with the IRS,” said Cyndi Jabr, CFP® and financial planner at Brand New Day Wealth Planning

However, if you give away more than the annual gift amount, you will have to file a gift tax return. The amount of the gift will be subtracted from the lifetime gift tax exclusion of $12.92 million for 2023.

Tax Implications of Receiving Stock 

When you receive the stock, you will not have to declare it on your taxes. You are only responsible for paying taxes once you sell the stock. 

The tax rate will depend on the recipient’s tax rate, not the sender’s. Also, the recipient will have to use the amount that the original buyer paid for the stock as the cost basis when determining tax implications. 

“The recipient of the stock will be responsible for paying taxes on any capital gains taxes when they choose to sell,” Jabr said. “If the recipient happens to be in a lower tax bracket, they may also benefit from paying a lower capital gains tax.”

Alternatives to Gifting Stock 

If the process of gifting a stock becomes too cumbersome or complicated, you can decide to sell these stocks and transfer the proceeds directly to your intended recipient. You may not receive the same tax benefits as you would get from gifting stock directly, but the process will be much simpler.

When choosing which stock to sell, it might be better to pick a stock that you have held the longest or that has dropped in value since you bought it. 

If you want to sell stock that has appreciated in value, it’s best to choose a stock that you have had for more than one year. Stocks that you sell after holding for more than a year are taxed as long term capital gains up to 20%. Stock that you sell after holding  for a year or less will be subject to short-term capital gains taxes up to 37%.

You may also consider selling a stock that has lost value since you purchased it and realize the loss from the sell of stock and gift the proceeds from the sale instead. You will not have to pay capital gains taxes on the sell of that depreciating stock and instead you can use the loss to offset any other capital gains.

If you don’t want to sell your stocks, you could also buy a gift card through a company like StockPile. You will not have to pay taxes on this gift card, and the recipient can only use the gift card to buy stocks, not spend on clothes or video games.

You can also contribute directly to someone’s IRA, as long as they have earned at least the amount of contribution or more in income.

Another idea is to purchase the recipient a financial planning session. Setting them up with a financial planner can give them more agency over their finances and help them become more invested in their future – no pun intended.

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zinakumok
zinakumok

Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Conscious Coins. More from zinakumok

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