Gifting Stock: How to Gift Stock - The Chic Capitalist

In this post, I discuss why gifting stock makes sense from a financial planning and investing standpoint and various methods you can use to gift stock.

The Hunt for the Perfect Holiday Gift

With the holidays right around the corner, everyone’s looking for gift ideas. Sure, gift guides can be helpful. But more oft than not, those recommended products are junky. Seriously! How many of us really need another coffee mug?

If you’re anything like me, you want to give a timeless gift. Something valuable, sure! And something unique too! Perhaps something the recipient wouldn’t necessarily have thought of on their own.

So what about stocks? Yup, you heard me correctly! Why not gift stocks?

Benefits of Gifting Stock

Ok, so I know it might not feel like much with the absence of a physical object, but here’s a few reasons why stock makes such a great gift.

1. Teach Someone about the Importance of Investing for the Future

The Prevalence of Instant Gratification

We live in a society where instant gratification is increasingly prevalent. A quick Google search and you’ll see countless articles explaining how the advent of technology and social media is contributing to the rise of impatience and the desire for instant gratification.

Some of my favorite statistics: roughly 55% of web pages views are are viewed for less than 15 seconds, 47% of consumers expect a webpage to load in 2 seconds or less, and 40% of consumers will leave a webpage if it takes more than 3 seconds to load (marketingprofs).

Talk about impatient!

Needless to say, many people are the same way with money; if there’s money available to spend, they’re going to spend it immediately. Why? Because making a purchase can make you feel good! And there’s science to prove it! According to Cleveland Clinic, shopping restores a sense of control over our environment and can help ease feelings of sadness or anxiety.

Delayed Gratification

Despite the dopamine-high that’s associated with shopping and spending money, those who are able to forego instant gratification and patiently invest their funds will have an easier time accumulating wealth. Which means they’ll also have an easier time achieving large financial goals. Giving stock as a gift might help someone get started on their investment journey! Read why I invest to learn more about the importance of investing for the future.

2. Avoid Taxes on Capital Gains

In addition, there can be tax benefits to gifting stock as well. Especially, as it relates to gifting stocks to a younger person in a lower income tax bracket. This is an incredibly important concept in the incredibly complicated world of estate planning.

As you have garnered by reading my investment philosophy, investing in the stock market can be incredibly lucrative!

Naturally, Uncle Sam wants a cut! Hence, the existence of capital gains taxes.

Short-Term vs. Long-Term Capital Gains Tax

Two types of capital gains exist: short-term capital gains and long-term capital gains. Short-term capital gains tax applies to gains on the sale of an asset (your proceeds in excess of the amount you paid for the asset) you’ve held for less than a year. While long-term capital gains tax applies to gains on assets you’ve held for a year or more.

Also note that short-term and long-term capital gains are taxed differently. Short-term capital gains are taxed at the same rate as ordinary income, similar to your salary or wages. Long-term capital gains are more favorably taxed at a rate of 0%, 15%, or 20%, depending on your income. Visit the IRS website for more information.

For those in a lower income bracket, specifically children, you may qualify for the 0% long-term capital gains taxes, which means you pay $0 on long-term capital gains. As an example, say you have $500 in long-term capital gains and based on your income, you’d have to pay 15% in capital gains tax, or $75. After paying the tax, you have proceeds of $425. Now, instead you gift that stock to your child, who has no income. The child sells the stock and retains the full $500 as proceeds because they’re in the 0% long-term capital gains tax bracket because of their nonexistent income.

Pretty nifty, eh?

Additional Considerations for Avoiding Capital Gains Tax by Gifting Stock:

The Kiddie Tax

To curb this loophole, the IRS implemented the “Kiddie Tax”, whereby a child’s unearned income in excess of $2,300 may be taxed at the parent’s rate. You can read more about the Kiddie Tax on the IRS’s website or consult with a tax professional for more information.

Gift Taxes

Also, please be aware that gift taxes do exist! In 2023, the lifetime exclusion on gifts is $12.92 million per person (Turbotax). You can also gift $17,000 per person to any number of individuals in 2023 without that counting against your $12.92 million lifetime exclusion. So, for example, if you gift $20,000 in stock during 2023, $17,000 of that would be considered your annual gift while the remaining $3,000 would go against the $12.92 million lifetime gift exclusion. Please be aware that gifts in excess of these amounts would be subject to gift taxes. Check out this Turbotax article or consult with a tax professional for more information on gift taxes.

3. Maximize the Dollar Amount You Can Give To Your Favorite Charity

Besides giving stock gifts to loved ones, consider giving stock gifts to your favorite nonprofits this season. Gifting stock to nonprofits is a great charitable strategy!

For starters, nonprofits don’t pay capital gains tax (and neither do you if you gift it away to them)! This allows you to contribute more to your favorite nonprofit than if you were to sell the stock for a gain, pay taxes on the gain, and then give away the after-tax cash proceeds.

In my experience, many nonprofits have processes in place to accept stock donations. Usually, once received, they’ll turn around and sell the stock immediately, using the proceeds to fund their charitable goals.

How to Gift Stock

Interested in gifting stock, but unsure how to go about it? Don’t fear! Gifting stock has never been easier.

According to Fidelity, there are 3 main avenues you can use to gift stock:

1. Open a Custodial Account for Your Child

Please note this option is only available if you’re planning to gift stock to your own child.

Under this method, simply open a custodial brokerage account and set yourself (the parent) as the custodian. Once the account has been created, you can either transfer shares of securities from your account into the custodial account or purchase securities directly through the custodial account. Control over the custodial brokerage account will revert to the child when they come of age (Nerdwallet).

2. Electronic Stock Transfer from One Brokerage Account to Another

If you’re hoping to gift stock to a distant family member or friend, an electronic transfer of the stock certificate from your account to theirs may be the option you choose to gift stock.

Unfortunately, this method may require a little more legwork! According to Investopedia, you’ll need the recipient’s personal information, including account name, account number, and possibly social security number. Once you have this information, you can contact your broker and initiate a transfer of securities you already own in your account.

Because of the sensitivity of the recipient’s information, a direct stock transfer may not always be feasible. Plus, there’s no element of surprise. Luckily, there’s a 3rd option.

3. Gifting Stock Using an App

There exists a variety of apps that allow you to give a preset amount of money for the recipient to invest in stocks, similar to how a gift card functions. Some of which, you have to pay a fee to use, so definitely do your research and choose a platform that makes sense for you.

Two such apps that might be worthwhile to check out are Stockpile and Cash App.

Will You be Gifting Stock this Holiday Season?

I hope after you read this article, you see the benefits to gifting stock! Want to give stock, but not sure which company’s stock to give? Check out this list from the Motley Fool for some stock gifting ideas!

And if you choose not to, check out some of my favorite product picks, all of which will make fabulous gifts this holiday season!

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Why Gifting Stock is a Great Option this Holiday

The Hunt for the Perfect Holiday Gift

Benefits of Gifting Stock