Coming up with good gift ideas isn’t always easy. Younger children often want the latest fad but may quickly lose interest. Older generations usually buy what they need and can be hard to please.
In many ways, giving shares in a company as a gift is a good choice. It might not be as exciting as a new PlayStation console or smartphone, but working with your broker to give stock has a decent chance of growing in value and turning money into more money. Few store-bought gifts have this attribute.
Exchange-traded funds (ETFs) offer a convenient way to invest in multiple stocks simultaneously. By choosing an index-based ETF like SPY, IVV, or VOO, you can track the performance of the Standard & Poor’s 500, which includes 500 large U.S. companies.
Alternatively, select a sector-based ETF that aligns with your interests or those of the gift recipient. For instance, if the recipient has an interest in aviation, consider the JETS ETF, which includes major airline stocks. There are ETFs available for nearly every sector or asset class, simplifying the decision-making process. You can easily search online for an ETF that covers a specific sector, region, or index that appeals to your recipient. ETFs are also attractive because they function like regular shares and can be bought and sold on a fractional basis. Fractional shares allow you to invest in a portion of a share, which is ideal for those who cannot afford or prefer not to invest in a full share. Many online brokerages enable investors to purchase fractional shares starting from as little as $1 to $10. For those concerned with corporate behavior and business practices, environmental, social, and governance (ESG) investments present an opportunity to invest in companies that prioritize corporate responsibility. ESG investing involves purchasing stocks in companies that are deemed environmentally conscious, socially responsible, and well-governed. The ‘E’ in ESG evaluates a company’s environmental impact, including energy generation, waste disposal, and animal treatment. The ‘S’ in ESG assesses the company’s relationships with its stakeholders, such as employees, suppliers, customers, and communities. The ‘G’ in ESG pertains to the company’s governance, focusing on fair executive pay, shareholder rights, board composition, and transparent accounting practices. The goal of ESG investing is to maximize returns while investing in companies that contribute positively to society. Although this approach may limit investment options, it can also reduce the risk of scandals that could negatively impact share prices.Gifting stocks has never been easier and can be achieved from the comfort of home fairly quickly. Here are several options available to you:
1. **Brokerage Account Transfer**: You can buy the stock with your brokerage account and transfer it to the recipient, assuming they also have an account. For kids, setting up a custodial account is a good option, allowing you to retain control until they reach a certain age.
2. **Direct Purchase from Companies**: Some companies allow you to purchase their stock directly from their website.
3. **Online Apps for Stock Gifting**: There are numerous apps that specialize in gifting stock. Examples include GiveAshare, Unique Stock Gifts, and Stockpile.
Before buying company stocks as gifts, it’s crucial to be aware of any present or future tax bills. The Internal Revenue Service (IRS) might charge you for making the gift if it’s a large one. The recipient will also be expected to pay capital gains tax when they eventually decide to cash in on your present.
**Gift Tax**: The gift tax, a federal tax applied to gifts, won’t be an issue for most people. Donors aren’t taxed on stock gifts unless they exceed $18,000 in 2024 ($19,000 in 2025) and the lifetime gift tax exemption, which as of 2024 is set at $13.61 million (increasing to $13.99 million in 2025). Spouses are excluded from this tax, so gifting stock to your husband or wife is not a concern.
**Capital Gains**: When a stock is eventually sold, the IRS must be notified, and the investor (the gift recipient) will be taxed accordingly. The tax depends on the holding period, their tax bracket, and the gain relative to the original purchase price.
– If the recipient sells the investment within one year at a profit, they will have made a short-term capital gain, which is taxed as ordinary income.
– Waiting beyond a year to sell generally leads to a better outcome because long-term gains are taxed at lower capital gains rates.
– Capital gains rates become steeper as an individual’s income for the tax year grows.
– The recipient’s capital gain is determined by how much the investment originally cost. For example, if the stock was purchased for $100 and sold for $1,000, the recipient would be taxed on a profit of $900.
– If the stock is eventually sold at a loss, it still must be reported. However, capital losses can serve as deductions on the investor’s tax return, reducing the total amount of capital gains or, failing that, shaving up to $3,000 per year off regular taxable income. Capital losses can also be deferred for use in future years until the total amount of the loss is exhausted.
**Gift Stock to a Child**: If you plan to give stock to a minor, you can set up a custodial account on their behalf.
When you gift stock to a child, you become responsible for managing the account until they reach a certain age, typically 18 or 21. By this time, it is hoped that the beneficiaries will have developed the maturity to handle their finances and make informed investment decisions.
What are the tax consequences of gifting stock? In 2024, gifts are only taxed if they exceed $18,000 and in 2025, if they surpass $19,000, unless destined for a spouse. Additionally, these gifts must exceed the lifetime gift tax exemption, which for 2024 is $13.61 million and for 2025 is $13.99 million. These generous limits generally mean that a taxable event is not triggered until the gifted stock is eventually sold by the recipient. The tax paid on a profitable sale depends on the beneficiary’s income, the holding period, and the gain relative to the original purchase price. Losses must also be declared and can be utilized to reduce tax liabilities. Can you transfer stocks you own to another person? Absolutely. The owner of company stocks can transfer ownership without any penalties. The process is quite simple. Online brokers often provide an option for transfers on their platforms, requiring only your written consent and completion of some forms. Physical share certificates can also be transferred. To do this, you need to contact the company’s transfer agent, whose contact information can be found in the investor relations section of the company’s website. Considering a gift for someone’s birthday or the holidays? Gifting stock could be a great idea. This type of gift has the potential to grow in value over the years, offering a unique benefit compared to many other gifts. It’s easy to give a stock gift through your brokerage account, directly with a share transfer, or from the company itself. With thousands of stocks available, choosing can be challenging. In such cases, consider ETFs, which represent baskets of multiple stocks in a single share, or fractional shares to give a portion of an expensive stock or a gift based on a dollar amount. There are unlikely to be immediate tax consequences for giving a gift of stock. More likely, tax considerations will arise when the shares are sold in the future.
