Gift taxes
If you’re thinking about giving some of your stocks and bonds to a friend or family member, you’re probably looking to help your loved one gain wealth. However, depending on how much you give, your present could incur gift taxes. According to Patrick Di Fazio, director of the 1st Global Wealth Management Consulting Group, the yearly gift tax exclusion is $15,000 for unmarried people and $30,000 for couples — meaning your benefactor won’t have to claim your present on their taxes, as long as it falls below the threshold. That said, if your gift exceeds the threshold, you will have to file IRS form 709, and your gift will count against your total lifetime gift tax exclusion. The lifetime gift tax exclusion amount varies from year to year, but as of 2021 it was $11,700,000, according to IRS.gov.
How to give bonds
When it comes to gifting electronic bonds, TreasuryDirect.gov states you and the recipient both need Treasury Direct accounts. If a child will be receiving bonds, the account needs to be managed by a parent or guardian. This account will enable you to purchase the bonds directly in the recipient’s name, or allow you to transfer bonds that you already hold. To do so, you’ll need the beneficiary’s full legal name, TreasuryDirect account number, and Social Security Number or Taxpayer Identification Number. As another gifting option, when it’s tax season, you can request that the IRS use your tax refund to purchase Series I paper bonds in the recipient’s name. These can be physically given to the recipient.
How to transfer stocks
There are two main ways of gifting your stocks, explains Mary Hall, a contributor to Investopedia. Stock certificates must be physically transferred — you’ll have to sign the stock in front of a guarantor, like a broker or representative of your financial institution. You’ll likely have to fill out a short form to complete the transfer of ownership. If you’re transferring your electronically held stocks, you can get the process started via your online brokerage account. However, Hall notes the majority of brokerage accounts need your signed authorization and explicit instructions on how to complete the transfer. You’ll need the recipient’s name, account number, and social security number. Hall also suggests contacting the recipient’s financial institution to see if there are any special actions that need to be taken to complete a smooth transfer of stocks.
Tax brackets and capital gains
Consider the recipient’s tax bracket before you gift your investments. If the receiver’s tax bracket is lower than yours, they’ll pay less in capital gains, and as a result, get to keep more of the money, explains Michelle Soufan, one of TFC Financial Management’s senior client advisors. However, if the investment is losing value, Soufan suggests cashing out the investment before gifting the money, then reporting the capital loss on your tax return.
When given conscientiously, investments can be the gift that keeps on giving wealth for years to come. If you need help making decisions about gifting your investments or figuring out your inheritance, consider consulting with a financial advisor or estate planner.