, and in some cases can also offer benefits to the gift giver. Buying shares as a gift can also be a good way to introduce a child or young person to investing. It’s a financial gift that, unlike a pile of cash, keeps on giving long after it’s first received by investors of all ages.
Here’s what you need to know about buying and giving shares correctly.
How to provide inventory
If the share recipient is of legal age, typically 18 or 21, shares can be given through a regular brokerage account, such as with Charles Schwab, Fidelity Investments or Vanguard.
You can buy shares at your brokerage and transfer them to the recipient, but this may incur a fee.
“To avoid the fee, you can give your giftee cash to buy the stock on their own,” Brett Holzhauer, a personal finance expert at M1, an investment app, told CBS MoneyWatch.
Can you gift wrap you already own?
People can transfer shares they already own to others or buy new shares and transfer ownership to a recipient of their choice.
Donors can give shares of stock they already own by transferring them to a recipient’s account. It is important to note that as the new owner of the share, the recipient assumes responsibility for any applicable capital gains taxes.
For example, if you bought shares of a technology company’s stock for $10,000 that is now worth $200,000, the recipient would have to pay capital gains tax on the $190,000 gain if they were to sell the stock. If someone in a higher tax bracket gifts the shares to a low-income recipient, that recipient will pay a lower rate of tax.
“If a high-income earner like a doctor gives it to their nephew who’s 22 and just got out of college, their capital gains tax could be lower if they want to cash it in,” certified financial planner Katie Brewer told CBS MoneyWatch.
How much can you give?
For 2023, the maximum an individual can give without reporting the gift to the IRS is $17,000, or $34,000 for a couple.
To be sure, gift givers can be more generous, but any gift amount that exceeds these thresholds must be reported to the IRS. The gift will not necessarily be taxable, but its amount will be applied toward the lifetime gift estate tax, which is close to $13 million per year. person.
“You just file a form and it eats away at the lifetime gift of estate taxes that the vast majority of Americans don’t have to worry about. You don’t have to pay taxes unless you’ve given away $13 million,” Brokamp said.
Things to consider when giving a share to a child
Minors cannot own stocks directly until they reach the age of majority in their state, which in most states is 18. Until then, their investments must be held under the supervision of an adult in what is known as a custodial account.
So if say a grandparent wants to give shares to a young grandchild, the minor technically cannot be responsible for their own account right away.
“They want to own it but can’t control it until the child reaches the age of majority in the state, then they can do whatever they want with it,” Robert Brokamp, a certified financial planner and advisor, told The Motley Fool. CBS MoneyWatch.
Which share should you give?
Especially if there’s no physical certificate, stocks can sound like an overwhelming gift to a toddler new to investing.
Brewer recommends giving brand name stocks like Coca-Cola or Johnson & Johnson whose products would be recognizable to almost everyone.
“Johnson & Johnson is not sexy, but kids can turn over the bottle of shampoo they use and it has the company’s name on it,” Brewer said. “Giving them a few shares of a household name they might associate with something they use or play with is a good idea.”
Brokamp recommends that you also add a small physical token as a gift in stock.
“If you give them Disney stock, include a Disney toy, or if you buy Target stock, give them a Target gift card as well,” he said.