How to Gift Stock & Other Investments: Tips & Tax Guide

Yes you can gift stocks and other investments directly from your portfolio. Unlike traditional gifts which can be spent quickly, lose their value, or wear out, stocks usually maintain their value long after they’re given. 

Gifted stocks can be a great way to teach children, family and friends the value of investing and get them started on a nest egg that continues to pay off for a lifetime. 

Better yet, giving shares of stocks from your own portfolio can even provide tax benefits. If you hold a portfolio of securities and want to liquidate those securities into cash to give to your family, you’d inevitably run into the problem of capital gains taxes, particularly if those shares have appreciated significantly.

How to buy stocks as a gift

If you don’t already own the stocks you intend to gift, it’s not hard to buy it through a broker or third-party. There are a few options for buying stock as a gift.

  1. Buy it for your brokerage account and transfer the investment
  2. Open a custodial account (for a child or dependent) and buy the investment on their behalf
  3. Buy it as a gift through a direct stock purchase plan (DSPP)
  4. Buy the stock through a third-party stock gifting service

Buying stock to gift through your brokerage or custodial account

Buying stock for your brokerage account and transferring it to another person’s account is probably the most straightforward method for gifting stock you don’t already own. Most major brokerage companies allow you to transfer your holdings to an account of your choosing, but you’ll generally need some cooperation from the recipient in this case.

Some brokerage firms also offer custodial accounts which parents, grandparents and other relatives can open on behalf of their children/grandchildren. These accounts allow adults to contribute and invest funds on behalf of their family members and can be a great learning opportunity for children.

Direct stock purchase programs (DSPP)

If you’re thinking about gifting shares of stock from a specific company, a company-sponsored direct stock purchase program might be a good choice for you. For example, certain corporations like Home Depot (HD) and Proctor & Gamble (PG) allow investors to buy their shares directly as gifts. 

In many cases, DSPPs are some of the cheapest ways to acquire stock, as many don’t charge transaction fees and may even allow the investor to buy the company’s stock at a discount to its market price. Not every company offers a DSPP, but they’re a great way to avoid transaction fees when available.

Third-party stock gifting services

Finally, there are third-party entities that allow you to buy stocks on other people’s behalf without having a brokerage account. These include websites like Public and Stockpile, which allow you to purchase stock shares and send them in the forms of e-mails or mailed gift cards. Recipients can then redeem these gifts on the company’s brokerage site and can choose to sell or transfer them to other accounts as needed. 

Bear in mind that stock gifting stocks charge a variety of fees. So it’s not a great choice, if you intend to gift large quantities of stock, as the incremental fees will add up.

How to gift stocks you already own in your portfolio

If you already own the stocks in question, the process for gifting stocks and other investments is fairly straightforward and involves filling out a few forms, identifying the holdings you want to transfer, and providing the account information of both your account and the recipient account. 

The terms will vary depending on which broker you use. You’ll want to contact the company directly to confirm what they’ll need to effect a transfer. At a minimum, most brokerage firms will need you to provide the following details to complete a transfer:

Sender:

  • Account information for your brokerage account
  • Your contact information
  • Summary of which holdings you wish to transfer and how many shares/dollar amount
  • Signature or letter directing them to complete the transfer

Receiver:

  • Account information for their brokerage account
  • Receiver contact information
  • Name of the firm that holds their brokerage account

Keep in mind that any gifts worth over $15,000 as of the day the gift is given may still need to be reported for gift tax tracking purposes. Your broker might require you to fill out additional forms if the total value of the transfer exceeds that amount. We discuss the federal gift tax limits in the following segment.

How to gift stock to children

You can gift stock to children by buying stock certificates in their name, contributing to a 529 plan or setting up a custodial account in their name. Gifting stocks to children has greater staying power than gifting toys they’ll outgrow; it also presents an excellent teaching opportunity for enterprising parents and guardians.

While any of the three options above are suitable, you’ll probably get the greatest mileage out of opening a 529 plan on their behalf. 529 plans are tax-advantaged accounts, similar to IRAs and HSAs, which allow you to save for future education expenses. 

Many 529 plans allow you to contribute cash annually, and invest the underlying funds in well-diversified investment funds. The tax-exemption on earnings within 529 plans also ensures that all future earnings from the account are tax-free as long as they’re applied towards qualified education expenses.

Keep in mind that 529 plans only allow plan holders to invest in funds within the plan, they cannot be used to purchase individual stocks. If you wish to buy shares for a specific company, buying a stock certificate in their name or setting up a custodial account for your child would be the better option.

How to gift stock to family & friends

Gifting stocks directly from your portfolio is one way to give your family members and loved ones the gift of compound interest. While this is easily done via a direct transfer for smaller amounts valued beneath the IRS annual gift tax exemption; high networth individuals who wish to mitigate the tax impact of larger amounts may consider gifting their holdings by way of a trust.

Trusts are expensive stock gifts as they require legal and professional consultation, but represent an excellent vehicle for intergenerational wealth transfer. They can be structured to pay out over time and help high net worth individuals mitigate the impact of estate and gift taxes. 

Trusts allow you to dictate and customize the terms and conditions around how their holdings are invested and paid out. They can even be kept safe from the grasp of creditors and conflicting family interests.

When establishing a trust, keep in mind that some trusts require you to surrender your rights to your holdings. It’s a good idea to consult tax and legal professionals when considering a trust as part of a greater financial plan.

How to gift stock to charity

Gifting stock to charity allows you to avoid any capital gains liability on your investment and offers the added bonus of allowing you to take deductions on the market value of your gift on the day it’s given. Most 501(c)(3) organizations and nonprofits accept stock gifts and other investments as donations. 

A charitable stock gift is an excellent way to contribute to a worthy cause while reducing the size of your tax liability in the process. The process is quite easy, as most major organizations accept such gifts regularly. You’ll want to contact your target organization directly for instructions on how to properly gift stocks and other investments to ensure receipt.

When giving stocks & other investments as gifts to charitable causes, it’s a good ideal to consult with a tax professional to understand how to maximize the tax benefit on your gift. 

How does gifting stock help you avoid capital gains tax?

Gifting stocks and investments you already own by transferring them to someone else’s portfolio, rather than selling them yourself and gifting the cash proceeds, can help you avoid any capital gains tax liability you’ve accumulated on the position.

Capital gains taxes can take a healthy chunk out of the sale of any investment, whittling down the size of your cash gift before it reaches its intended recipient. Depending on whether or not you’ve held a stock for more than a year, any capital gains you accumulate through a sale can be taxed from from 10% – 20% to as high as your personal income tax rate.

Pro Tip: Gifting stock to avoid taxes
In order for this to be considered acceptable under the IRS rules, the stock must be considered a “true gift” and full consideration must not be received in return. 

This means that a gift cannot be subject to clawback, nor can it be sold immediately and the proceeds transferred back to the original giftor. Either of those scenarios would constitute a violation of the tax rules and may incur violations and penalties. 

Make sure you consult with a tax professional to confirm that your stock gift conforms with IRS regulations.

When you give any investment as a gift, you transfer that investment and any corresponding gains onto the recipient. Once the gift recipient receives the stock in their portfolio, the price at which they received the stock becomes the new “cost basis” for the investment. 

The cost basis of any investment is the price you paid when you originally purchased the investment. This basis will not change as long as you hold onto the investment. For a gift, the cost basis will be the value as of the date the gift was received.

The benefit of gifting a stock lies in the fact that once the stock is transferred to the recipient, all previously accumulated capital gains are eliminated…

The benefit of gifting a stock lies in the fact that once the stock is transferred to the recipient, all previously accumulated capital gains are eliminated; the market value of that stock on the day it’s transferred becomes the new cost basis for the stock.

We cover an example of a stock gift transaction below.

Example

How to avoid capital gains tax by gifting stock

Your sister’s birthday is coming up, and you want to give her Walmart stock because 1. You believe in its long-term potential as a company, and 2. You waited until the last minute to buy her a present again.
 
Luckily, you already own Walmart stock (WMT), and you had purchased it at a price of $120 over a year ago. The stock has had a healthy run up and is currently trading at a market price of $140 per share. 

You decide to contact your brokerage company and direct them to transfer one share of WMT to your sister’s portfolio. The transaction history is as follows:

1+ year ago: You bought WMT at its market price of $120 from over a year ago.

Today: You transfer 1 share of WMT to your sister’s portfolio at market value today of $140.

– Stock delivery date: Your sister receives 1 share of WMT stock valued at a market value of $140 as of the day of the transfer.

Assuming your price of WMT remains stable at $140 when she receives the stock, your sister now own one share of WMT at a cost basis of $140.

Net Result: 
You: $0 capital gains liability. -1 share of WMT at $140 market value
Sister: $0 capital gains liability. +1 share of WMT at $140 cost basis

Based on our example above, if you instead chose to sell the WMT stock yourself and gift the cash proceeds of $140 to your sister, you would incur a tax liability on the $20 in capital gains from your appreciated stock sale, thereby owing the IRS a long-term capital gain payment. 

This liability was avoided entirely in our example by gifting the stock, showing that giving stock as a gift can therefore provide a better outcome for all parties involved.

Depending on when and where the gift recipient sell that particular investment, the new cost basis will be used to calculate any potential capital gains (or losses) that you incur on that sale. 

In our second example below, we discuss how the new cost basis factors into future capital gains calculations for the gift recipient.

Example

How does capital gains tax work for the gift recipient?

Over a year has passed since you gifted your sister one share of WMT stock. Let’s say your sister no longer believes in the long-term prospects for WMT and wants to cash out on the position.

Since the time you gifted her the stock, WMT has jumped in value from $140 to $180.

Your sister directs her brokerage to sell one share of WMT at the current market price of $180. 

Her capital gains tax liability would thereby be calculated as follows:

Sale price ($180) – Cost basis ($140) = $40 Capital gain

Net result: 
Sister: – 1 share of WMT. +$180 proceeds of stock sale

As seen in the example above, any capital gains tax owed by your sister on the stock sale is based off the cost basis at which the stock was gifted. Any transactions or cost bases recorded prior to gifting the stock become irrelevant once you complete the transfer of ownership.

Federal limits on gift tax exemptions

There is no gift tax liability for either the giftor or recipient if the sum of all gifts given to a single person is worth less than $15,000 within an annual period. 

While it’s unlikely, the federal gift tax may be a concern depending on the size of your gift. Generally speaking, the vast majority of gifts typically fall within the boundaries of the federal gift tax exemption, making it a non-issue for most individuals.

Gift LimitSingleJoint (Married filers)
Annual gift limit$15,000$30,000
Lifetime gift limit$11,700,000$11,700,000 per person

Federal gift tax exemptions apply to the value of all gifts, including cash, investments and property. Non-cash assets, including stocks, bonds, cryptocurrency, and other investments are valued as of the date the gift is transferred and the value calculated against any applicable exemptions.

Gifts that exceed the annual gifting limit of $15,000 will erode the individual lifetime $11.7 million exemption, but there is still no gift tax liability unless the value of the gift exceeds an individual’s lifetime exemption.

In summary, unless the total value of your gift exceeds $15,000 on the date it’s given, additional reporting to the IRS is not necessary. Gift taxes are typically only a concern for high net worth individuals.