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Since the start of the pandemic, investing in the stock market has become more and more popular. With headlines of meme stocks, the latest cryptocurrency trends and everyday Americans making big money in the stock market, Americans are excited about investing — including kids.
Whether you have a minor or an adult in mind, Select details how you can gift stocks this holiday season, and what to consider before doing so.
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If you want to gift stocks, there are a few different approaches, depending on who you are giving it to and how much you are gifting.
Here are the situations to consider, the potential tax implications and how to keep the holiday spirit involved.
For kids: custodial accounts
If your gift recipient is a minor (under 18 years old) and you plan to gift them stock ownership, be sure they have the proper accounts set up. For example, the parent(s) can set up a UTMA or UGMA brokerage account, which is a custodial account controlled by the adult until the child is no longer a minor.
Once the account is set up, the stock can be directly transferred from one account to another. Keep in mind that there is no return policy on this gift — once it's gifted, it's now their property.
Consider your own company's stock options
If you work for a company with a employee stock purchase program (ESPP), you're able to immediately gift those shares to someone else, while also earning a valuable tax deduction for yourself.
Typically, employees of publicly traded companies are given a discount on the retail price investors pay. This works by employees electing to have money taken out each paycheck, and then they are awarded stocks during specific periods throughout the year. Each ESPP program works differently, so be sure to consult your human resources department for more information.
This may require some forward planning on your end, along with consulting a tax professional, but this could be a fun way to make your gift recipient "your boss," as they would own shares of the company you work for. And because you are purchasing the shares at a discount, your gift recipient may have a head start on earning solid returns.
Virtual transfers from one brokerage to another
If your gift recipient is an adult, the process is a bit simpler. All you will need is the recipient's basic personal information and details of their brokerage account. From there, you can input their information into your brokerage account to have the securities transferred to their account. Specific transfer policies vary, so check with your brokerage about what is needed to initiate a stock transfer.
If they don't have a brokerage account currently open you could use a platform like Stockpile to give them a digital gift card to redeem for an individual stock like Netflix or Tesla, or to purchase stocks of their choice. This is a great way to get someone started with investing that may not already be saving for the future.
Keep taxes in mind
Stocks are considered property, and they are subject to taxes. Here are a few tax implications to consider:
- Gift taxes: According to the IRS, the maximum gift amount you can receive per year without incurring any taxes is $15,000 for single-filers, and $30,000 for married couples. The lifetime gift limit for one person to give is $11.7 million. If the amount is over either of these thresholds, the donor is typically responsible for the tax penalty. And this figure is not based on the value you purchased the stock at before gifting, but rather the fair market value at the time of gifting.
- Capital gains taxes: If the recipient of the stocks decides to immediately sell the stock for a profit, they would be responsible for any related capital gain taxes. This also depends on the initial purchase price of the stock and how long the original owner held the shares.'
When it comes to taxes, it is always advised to consult with a tax professional. Everyone's taxes are unique, and should be handled by someone who is a certified accountant or tax preparer.
How to keep the holiday spirit
Publicly traded companies have basically ended issuing physical paper stocks, so the idea of having something to wrap and unwrap is gone. However, there are alternatives to keep the holiday joy going.
The stock will be purchased at market value, and then the security will be issued in the gift recipient's name. This stock will come with a unique ID number and is held with a transfer agent that keeps record of all issued stocks. If your gift recipient wants to either transfer the shares to a digital brokerage or sell the stock completely, the physical stock certificate must be mailed to a Direct Registration System (DRS).
A physical stock certificate is no different than a stock you purchase digitally, and it can make for a great holiday gift for someone to unwrap.
Best brokerage accounts
If you are considering gifting someone stock, or if you're on the receiving end, it's best to open up a brokerage account for yourself ahead of time. It takes about five minutes to get started, and you will be able to start investing in publicly traded companies right away.
Here are a few of our favorite brokerages to begin investing:
$0 for stocks, ETFs, options and some mutual funds
Stocks, bonds, fractional shares, ETFs, mutual funds, options
$0 commission on stocks, options and ETFs
Includes stocks, bonds, mutual funds, ETFs, options, Forex, and futures
Stocks, bonds, ETFs, mutual funds, options, CDs
Gifting stocks may seem a bit complicated, but with a little pre-planning, it can be a fun gift that benefits the recipient for years to come. Whether its a simple index fund, ETF or favorite individual stock, your recipient can become a proud owner of a valuable company or group of businesses. And their collective goal is simple: make your gift recipient money.
If the gift recipient is a minor, it can be a great way to start the conversation around the basics of money. If you're gifting stocks to a friend, spouse or colleague, it can be a thoughtful gift related to their favorite business, or a simple gesture showing that you want to help them invest in their future.
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