There are advantages to giving stock as a Christmas present, and this is an especially favorable year to do so.
According to a survey done by MagnifyMoney, 65 percent of Americans wished for investments as holiday gifts in 2013. Given the current state of the markets, stock beneficiaries could receive even more shares for the same amount of cash this year. If they hold on to the gift of shares, the value of their present could increase with the market over time.
Emily Irwin, a wealth management specialist at Wells Fargo, stated, “When there is a low or depressed market, donating stock can be advantageous because you can transfer a particular asset at a price that is lower than it has historically been.” This can be useful when founding a trust with shares that will be kept for an extended period of time.
In other words, you may now present more shares of a specific stock for the same amount that fewer shares would cost in a market that is more expensive.
In accordance with a yearly federal gift-tax exception, Americans can contribute up to $16,000 tax-free.
“Under the yearly exclusion, you can give more than you would be able to during any other year. This could be a benefit during the current market volatility when giving stock as a present “Irwin stated.
Capital gains transfer
Stock donors pass capital gains, or the growth in the asset’s value, to the stock receiver. Therefore, they escape capital gains taxes, but the value of the gift will be reduced when the recipient sells the shares.
“Gifted stocks have a carryover basis. If I give it to my child and he or she decides to sell it, the recipient will be subject to capital gains tax. This is unfavorable from the recipient’s financial standpoint “Irwin said. “And it’s negative for the donor if he or she intends to donate $100 worth of stock, because 20% will be deducted from the amount.”
Donations to charity
Donating stocks to charitable organizations is advantageous for both the donor and the recipient. Both parties are exempt from paying capital gains taxes.
When a nonprofit sells stock, it does not pay taxes, even if there is an inherent gain, Irwin explained. And the donor, the person donating it, will typically receive a tax break.
Using an app
Experts agree that giving young children shares is an excellent approach to introduce them to investment principles at an early age.
Matt Schultz, a personal finance expert at LendingTree, explains, “It’s a great opportunity to start a dialogue with your child and give them a sense of what stock ownership is all about.”
Schultz prefers to transfer shares using an app, such as Stockpile, that enables parents to invest on their children’s behalf.
Additionally, you can open a brokerage account to invest in equities.
Katie Brewer, a certified financial planner in Dallas, Texas, stated, “Some people appreciate the physical presence of a stock certificate, but I advise clients to open a Schwab account with a stock in it.” “Twenty years after receiving the stock certificate, they will have no idea what it was purchased for and will be unable to report it on their taxes.”
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