Stocks make excellent gifts for two reasons: First, compounding returns can work wonders for those who leave the stocks invested for a long time. Second, stocks are a great way to get others interested in finance and learning to invest. Here's how you can buy and gift stock.
Gifting stocks
Can you gift stock?
You are allowed to give stocks that you own to others. You can start the process of gifting a stock online with your broker. You can also transfer a stock certificate if you hold shares in physical form. You can transfer a single share, multiple shares, or all of your shares to a recipient if they also have a brokerage account.
Buying stocks as gifts
Can you buy stock for someone else?
Besides gifting stock you already own, another option is to buy a new stock and then transfer ownership of it to someone else. After making the purchase with your broker, you can initiate a transfer to the recipient's account, usually accomplished with a transfer authorization form. If the recipient's account is at a different broker than your own, also get in touch with the receiving institution to see what they require to make the transfer.
Who can you give to?
To whom can you gift stock?
There's no limit on who can receive stock as a gift. It could be a family member, a friend, or your favorite charity.
Gifting shares of a company to children can be a great way to educate them about finance, saving, and building wealth for the future. For example, a child who likes Marvel, Star Wars, or Frozen might enjoy owning a share of Disney (DIS 0.72%). An avid video gamer could learn much from owning some shares of Nintendo (OTC:NTDOY). Besides benefiting from any future growth of the businesses, owning and reading about individual stocks provides lessons in business and economics.
There is a caveat here, though. Children are not allowed to own financial assets in most states, so you will have to open a custodial account, such as a Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UTMA) account.
UTMA and UGMA accounts are managed by the custodian (you or the account manager you designate). They're typically transferred to the beneficiary when they turn 18 or 21. You can also open an account in your name or the legal guardian's name for the benefit of the child.
Stock
Benefits
Benefits of gifting stock
- Help get others, including young children, interested in saving and investing.
- Stock is a great long-term gift in lieu of cash if the recipient doesn't have a current need for the money.
- Gifting stock is a tax-efficient way to start transferring wealth to a beneficiary.
- Donating stock to charity could qualify for tax deductions.
Gifting stock to your beneficiaries, rather than selling the stock and gifting cash, could be tax-efficient for both of you. For example, if you own stock with long-term capital gains, the tax owed on earnings in an eventual sale could be as high as 20%.
If your beneficiary is in a lower tax bracket, their tax liability (if they sell the stock rather than keep it invested) would be lower. They could even have zero tax liability if they file their taxes as single and make less than $47,025 a year in taxable income (or less than $94,050 if married filing jointly) as of tax year 2024.
Tax implications
Do you pay taxes on gifted stock?
Any taxes you would normally owe when selling a stock do not apply if you decide to gift it instead. If there are any capital gains on stock you transfer to someone, that capital gain will transfer to the recipient.
Additionally, gifting stock to a charity could come with a tax deduction if you itemize your tax return (rather than take a standard deduction) and if the charity accepts such gifts. You'll want to check with your tax advisor on any limitations to the transfer and how much of a deduction you qualify for and get documentation from the charity that acknowledges the value. Because charities are tax-exempt, gifting stock (vs. selling it yourself, paying the tax, and then giving cash) could maximize the amount you are able to contribute toward their cause.
Gift limits
Limitations of gifting stock
There is a limitation to consider when gifting stock. The IRS requires you to fill out a gift tax return if you give more than $18,000 per year of cash or property to any recipient as of tax year 2024. If you are married, each spouse is allowed to gift $18,000 per recipient. In other words, gifting $36,000 combined to any one individual is allowed.
There is no limit to how many individuals you can gift, but bear in mind that the $18,000 limit applies to each person to whom you give stock. Any value given over that amount counts against what's called your lifetime gift exclusion, which is $13.61 million per person for tax year 2024. As long as your excess gifts above $18,000 per year don't exceed $13.61 million in your lifetime, you don't have to worry about owing gift taxes.
Generally, there is no tax deduction for gifting cash or stock to individuals like there is when donating to charity.
Related investing topics
Choosing stocks
How to choose which stocks to gift
When you decide which stock to give, start with those that have the most capital gains if you are also looking to limit your own tax liability down the road.
If taxes aren't a concern when picking a stock from your portfolio (or you're planning to buy and then gift), here are a few ideas:
- For kids, choose a company the child likes to help get them engaged with finances in a positive way.
- Choose quality companies with good competitive advantages. The last thing you want is to gift your friend or family member something that could be worthless someday.
- Stocks are a powerful way to build wealth over time. Choose companies that have good growth potential in large industries to maximize the value of your gift over time.
Gifting stock -- to a loved one for a special occasion, to a child as a way to build their appreciation for saving and investing, or as part of a tax strategy -- can be a better way to help others accomplish their financial goals than giving cash. And, because stocks have the potential to grow, they could be a gift that keeps on giving for a long time.
FAQ
FAQ on Gifting Stock
What are the tax consequences of gifting stock?
When you gift stock, you don't have to worry about capital gains tax. Recipients are responsible for any tax liability when they sell the stock.
What are the tax implications of gifting stock to family?
Giving stock to family members has the same implications as giving to non-family members.
What is the best way to gift stocks?
There are different ways to go about it. But one of the easiest ways to gift stocks is by transferring them from your brokerage account to their brokerage account. This can be particularly simple if you have brokerage accounts with the same company. But circumstances vary, and there may be a better way in your personal situation.
Can you avoid capital gains by gifting stock?
Yes, when you gift a stock, any capital gains tax liability is transferred from the giver to the recipient.
