If you struggle to find a gift for the person who has everything—or want to do your holiday shopping without having to leave the house—consider giving stock as a gift. Doing so is easier than you think, and it may offer a few benefits for you as well. Here is some information on giving stock as gifts and the benefits of doing so.
What Are the Benefits of Gifting Stock?
When it comes to giving stock as gifts, there is one key benefit for both the giver and the recipient.
1. Stepped-Up Cost Basis
If you held a stock until it increased in value, selling it could mean paying capital gains taxes. But giving the stock to someone else means transferring these gains to the recipient, allowing them to take possession of the stock at its appreciated price.
For example, if you purchased 100 shares of a stock and each share is now trading for more than the purchase price, cashing the stock might mean paying capital gains taxes on the amount the investment increased. If you give this stock to someone else, this person begins with a stepped-up-per-share cost basis. If they later sell the stock once it goes up more, they may only owe taxes on the profits-per-share difference.
2. Transfer of Wealth
Giving stock as gifts may also be a good way to begin passing down wealth to the next generation while minimizing your tax obligation. Cashing out stock and passing along the cash may mean paying capital gains taxes. The proceeds may also be subject to income taxes. This tax may depend on the type of account holding the stock and how long the investment was in the account.
Transferring stock to your children, grandchildren, or other loved ones may help them learn about investing in the stock market while reducing the assets you may eventually want to pass down through the inheritance process.
How To Get Started Gifting Stock
There are a few different ways to give stock as gifts, but the simplest ones involve setting up a brokerage account. If you plan to give stock as gifts to your children, a custodial brokerage account allows you to transfer shares and buy and sell stock on your child’s behalf. Your child may take control of the account once they are a certain age, usually 18 or 21.
If you want to give stock to an adult with no strings attached, you may transfer them to that person’s existing brokerage account—or open and fund a brokerage account for them yourself. Talk to your financial professional for more information on giving stock as gifts this holiday season.
Schedule a Call
At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interests first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. Stock investing includes risks, including fluctuating prices and loss of principal.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
LPL Tracking 1-05337702.
Footnote